What are the causes of political risks?

Political risk is the possibility that political events in a country or changes in political relations between a country and other countries will adversely affect the company.

Political risks mainly include: (1) expropriation risks. This refers to the risk of expropriation, confiscation or nationalization of foreign-funded enterprises by the host government. The central and local governments of the host country do not publicly announce the direct expropriation of the tangible property of the enterprise, but use various measures to prevent foreign investors from effectively controlling, using and disposing of the enterprise property, which restricts the shareholders' rights of foreign investors and constitutes a de facto expropriation. (2) The exchange limits risks. Also known as transfer risk, it is a foreign exchange control implemented due to the difficulty of the host country's balance of payments, which prohibits or restricts foreign investors from transferring principal, profits and other legitimate income outside the host country. (3) War and civil strife risk: This kind of risk refers to the revolution, war and civil strife in the host country, which causes heavy losses to foreign businessmen and their property until they can no longer operate. (4) Government default risk. It means that the host government illegally cancels the agreement related to the investment project or illegally violates or fails to perform the obligations under the contract signed with the investor. (5) Risk of deferred payment. It is the risk that foreign investors will not be able to recover the due principal and interest of bonds and investment profits in full and on time because the host government stops or delays payment.