MEMO
To:
Chris Mann, CEO of Southern Ontario Logistics
From:
Smith Blondia, Risk Management Advisor
Subject: Discussing the issue of political risks impact in our next
meeting agenda
Date:
November 04, 2016
Cc:
Recent chaotic political instabilities in many countries around the world
such as Egypt and Ukraine has had significant impact on the world
business as they are a crucial links in the supply chain. Thus, it is of
great importance that, in our next meeting, we discuss the risks of
political risks on our organization's supply chain. Specifically, I suggest
that we discuss the effects of political risks on our supply chain
network and the importance of having insurance policies to manage
risks in case of political disruptions.
Political risks are those which are caused by governmental actions such
as seizure of all of an organizations assets in a country for example,
Venezuela confiscated the assets of foreign companies operating there
in 2006 and 2007 (Elliot, 2012). There are several risks that result from
political unrest and affects our supply chains such risks may impact our
production, transportation routes, manufactured and raw material
supply and availability, and extreme currency fluctuations. For
instance, Egypt is currently confronted by severe political risks as its
currency has fluctuated significantly from 9 Egyptian pounds per US
dollar to 16 Egyptian pounds (Unknown, 216). As a result, our exports
and imports costs to Egypt are unpredictable and can cause huge
losses to our business. In addition, due to the disturbances in eastern
Ukraine and the Crimea region after the Russian invasion, our supplies
of manufactured goods from Ukraine have been impacted as our major
clients are located in Crimea which is now under the Russian control.
This also has impacted our transportation routes to Southern Europe
and North Africa.
The other issue that we need to discuss is the importance of having an
insurance policy to mitigate the impact of political risks on our
operations. Having a well-designed insurance policy that cover
unforeseen political risks in instable countries is an integral part of our
organizations risk management strategy in order protect the value of
our organization international assets, maximize the potential of our
foreign investment, protect our organization against non-payment or
contract cancellation by a foreign government buyer (Unknown,
Political Risk Insurance, 2016). Thus, it is of importance that we have
an insurance policy that covers political risks overseas, especially if we
know, according to Aon, in the third quarter of this year (2016) four
countries experienced a deterioration in their overall country risk
ratings which are Azerbaijan, Djibouti, Kuwait, and Zimbabwe and just
one saw an improvement which was is Madagascar (Aon, 2016). In
addition, the situation in Ukraine and Egypt has not seen significant
change in fact it became more critical. Finally, it is crucial that we start
looking for insurance companies such as EDC which is Canadas export
credit agency to insure our operations and interests against political
risks in emerging and unstable countries.
Finally, political risks are difficult to predict (Banham, 2014) and to
mitigate because they occur suddenly and their signs are not obvious
like what happened in Turkey where the army started a coup overnight
and no one has predicted that such upheaval might occur. Thus, it is
important that we include the discussion of political risks in our next
meeting agenda.
References
Aon. (2016). Political Risk Map. Retrieved from Aon:
https://www.riskmaps.aon.co.uk/site/map.aspx
Banham, R. (2014, June 1). Political Risk and the Supply Chain.
Retrieved from Risk Management Magazine:
http://www.rmmagazine.com/2014/06/01/political-risk-and-thesupply-chain/
Elliot, M. W. (2012). Risk Management Principles and Practices.
Malvern, Pennsylvania: The Institutes.
Unknown. (2016). Political Risk Insurance. Retrieved from EDC:
http://www.edc.ca/EN/Our-Solutions/Insurance/Pages/politicalrisk-insurance.aspx
Unknown. (216, Novemebr 04). XE Currency Converter: USD to EGP.
Retrieved from XE:
http://www.xe.com/currencyconverter/convert/?
From=USD&To=EGP
