Political risk is the greatest challenge that the business entities and multinational corporations face in the contemporary world. Political instability affects the position of the country in the Global index of doing business. Civil unrest lowers the ranking of the country in the Global Index of doing business. Business in politically unstable countries faces reduced chances of achieving the business objectives. A hostile political climate makes investors insecure and uncertain of the future of their businesses. Businesses seek to protect their investment and to increase their financial returns. To avoid losing their investments, foreign businesses exit the market as soon as civil unrest begins.
Syria was ranked the 44th most suitable country to invest before the civil war began in 2011. Two years into the country ranked second last country in the global index of doing business. It ranked second last after Somalia that collapsed in 1990s. Businesses collapsed and international corporations pulled out as the country degenerated into anarchy. Business entities owe a public duty to the communities they serve. They are supposed to give the interest of the communities they serve first priority. This duty cannot be performed if the country of operation is experiencing waves of violence.
In the event of political instability or social unrest, the World Bank cannot foster programs for economic programs. A case example is Syria; from 1963 to 2011 the country was under emergency rule. Human rights were violated during this period. During this time, more than five people were not allowed to congregate in public.
During the Arab spring, demonstrations began in Syria. The demonstrators urged the government to initiate programs that would enable economic development and increase their democratic rights. The government reacted by proclaiming that the west instigated the demonstrations. President Al-Assad, ordered the Syrian Army to fire at demonstrators. Several people lost their lives. The situation aggravated into riots and destructions of property. The Syrian citizens could not understand why the government was firing against demonstrators who were advocating for democratic governance.
The political instability soon generated into civil war. It became an armed rebellion with rebels engaging in battle across the major cities of the country. The international community was concerned of the gross human rights violations by the Al-Assad government. The United States of America rallied the western countries to apply crippling economic sanctions on the Syrian government. The Russian government supported the Al-Assad government, hence neutralizing the effects of the economic sanctions. The government bombed rebel camps and convoys. Innocent civilians lost their lives. Over 150,000 people have died as a result of the civil war with over five million people fleeing their country. The Syrian government employed Chemical weapons to quell the rebels. Upon discovery, international crisis ensued .The United States of America threatened to take military action against Al-Assad organization.
The Russian government persuaded the Assad Administration to agree to surrender the chemical weapons for destruction. The economy of Syrian deteriorated falling second last after Somalia. Business organizations began to realize the effects of the economic penalties imposed on Syrian. Multinational business entities began to pull out of the economically ailing Syria. Commercial transaction became burdensome because of the rate of inflation and weakening currency.
International Container services Inc. filed a notice to pull out of the Syria as the combat between the government and the rebels intensified. The company terminated its operations in the country and cancelled the contracts it had signed locally. The company cited the ever present threat of death and destruction. Violence jeopardizes the viability of the company’s operations. The Royal Dutch shell is another organization that pulled out of Syria citing similar claims. The company terminated its operations in the country that had already lost $ 15 billion dollars in the civil war. By the time the economy had shrunk by 45 % companies had bolted out of Syria.
The company should pull out of the country just like Royal Dutch Shell and other organizations did in Syria. Political instability is intricately intertwined with violence and bloodshed. If the Business elects to continue its operations, the employees will be subject to attacks form the warring sides of the community. The company will have to cover the large medical bills of its employees who will be injured in the violence. Most employees will also not report to work as they will be busy fleeing to safe regions of the country or reporting as political refugees in other countries.
In the event that the political instability degenerates into full scale war, the business operations will have to be terminated. The business entity might also suffer a loss of property and investments form exchange of fire between the rebels and the government. The company will encounter difficulties in maintaining its operations because its profits will definitely decline. If international sanctions are imposed on the country the company will incur heavy operational costs. In solidarity with the people who are the major consumers of the company’s products and against a despotic political regime, the business ought to pull out of the country.
International business organizations have the rights protected under International law. In some countries, there is a large gap between international law and the local legislation. Multinational companies are not covered with the local legislation hence in the event of a civil unrest, the companies cannot seek reprieve under the local legislation. The United States of America and the Great Britain have streamlined their laws to the international law on social and economic rights. In the United States of America, Multinational can seek reprieve under the Alien Tort Claims Act. The Great Britain legislature relaxed forum non conveniens to allow multinational to seek justice from the local courts. Insurance companies have moved in to insure multinationals against political risks.
Most countries that are likely to degenerate into violence have no such laws as in the UK and the United States of America. The rights of Multinationals in these countries are covered with International Convention on Social, Economic and Cultural Rights. If governments violate the rights of the multinationals, the MNC can take file their grievances with the Committee on Economic, Social and Cultural rights. The Amnesty International and Human Rights watch can also address them. The International Court of Justice will provide the necessary legal process just in case they are not satisfied with the decisions of the aforementioned committees.
In conclusion, businesses thrive in a politically stable environment. Even in the developed countries, a change in the legal framework can have a negative impact on businesses and discourage investors. Multinational should pull out of politically unstable countries to reduce the operation cost and maximize their profits.
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Starr, S. (2012). Revolt in Syria: Eye-witness to the Uprising. New York: Hurst Publishers.