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Free «Political Issues and International Businesses» Essay Sample

Introduction

Civilian protests have erupted throughout the Middle Eastern countries from Tunisia, Egypt, Yemen and Bahrain is the examples of countries that have borne the brunt of these protests. It all started at the end of 2010 when Mohammed Bouazizi a 26 year old Tunisian fruit vendor to protest his treatment by local authorities. This incident outraged the public and eventually led to the ousting of a dictatorial regime that had been in power for 23 years. That event triggered popular uprisings and revolts throughout North Africa and the Middle East. This paper seeks to discuss the impact of the recent political events on the risk tolerance for an international company or an individual investor investing in the region and globally.

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Why the Uprising Now?

It is common knowledge that the Middle East is riddled by a wide variety of dictatorial regimes ranging from dictatorships in countries like Libya to monarchies in countries like Morocco and even theocratic republics such as The Islamic Republic of Iran. In these countries, descent has almost always been met by violence and alternative voices have been crushed. Among the major factors that fuelled this crisis in the Middle East include the economic recession brought about by the global financial crisis, rising levels of unemployment and the rising food prices among others. The presence of a large youthful population that is well educated but unemployed further fuelled the protests and revolts. Social media websites such as Facebook and Twitter made information sharing among the protesters a lot easier (Shah, A).

Energy Services

International companies, especially those from the west that have operations in the Middle East are viewing the unfolding events in the region with a great sense of apprehension. Noble Energy is a company that has heavily invested in the newly discovered gas fields of the Eastern Mediterranean region cited a litany of potential risks to the operations of the company in the region including the volatility in the supply and pricing of crude oil which not only affects the company but the global economy as well. The company also feared that the political events would hinder the company's accessibility to capital resulting in a "capital market reassessment of risk".

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The company which also operates in Israel would face difficulties in terms of the movement of personnel and supplies to and from that country as a result of Israel's security concerns over the unrest in the Middle East; consequently, this led to reduced market demand in Israel. The company also cited the lack of oilfield equipment and drilling rigs incase their third party providers chose to make an exit from the region. Noble cited business interruption and loss of property and the threat of changing regimes in the countries where the company operates. Schlumberger, an American oil company also operating in the region cited risks that included the loss of contract rights; confiscatory taxation; expropriation and trade embargos that may be imposed by the United States or other countries; acts of terrorism; social unrest or other armed conflicts (Financial Regulatory Forum).

High Tech Companies and Defense Contractors

Honeywell, an American technological company cited risks such as the threat of potential nationalization of private companies, foreign investment laws and the ability of the company to guarantee the safety of their employees abroad. Northrop Grumman, the legendary defense contractor cited risks that included "technology transfer restrictions; exchange controls; repatriation of earnings; relating to import-export control and the Foreign Corrupt Practices Act. Broadcom a technological company manufactures assembles and tests its products outside the United States; 97.2% of its products are shipped abroad, mainly to Asia. The company cited its major risk as, "an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive internationally" (Financial Regulatory Forum).

 
 
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Economic effects of the Turmoil

The recent events in the Middle East have had a profound effect on the economies of the affected countries and the region at large. In Egypt for example, the situation forced some travel agents put off planned departures to the country; considering the fact that the tourism industry accounts for 5% of Egypt's economy, the protests have exerted huge toll on the country's economy. Several governments including the United States, Japan and some European Countries issued travel advisories cautioning their citizens against travelling to Egypt for security reasons. A large number of foreigners have also left the countries and many more are continuing to leave. In the face of Egyptian uncertainty, stock markets all over Asia and Europe experienced widespread selloffs. The full economic impact of the protests is not known but they will affect the oil, gas, tourism and telecommunications sectors of the countries that they have occurred (Voice of America).

Reopening the Shutters: Retail Industry

As a result of the Egyptian protests, Metro Group, a German retail giant reported that both of its stores had been attacked and looted. Consequently, members of staff had been asked not to report to work. Carrefour, a French retailer also reported looting of its store during the protests. Some foreign companies such as Debenhams and Marks and Spencer had to shut their stores in Egypt. Questions are now abounding on the confidence of these investors who had started modernizing Egypt's retail sector. Egyptian retail sector is dominated by traditional style retail, open markets and street vendors. Formal retail only takes up a mere 2% of the market (Consumer Goods).

Conclusion

The popular uprisings and revolts taking place in the Middle East have had a major influence on the risk tolerance of an international company or individual investor. Anyone wishing to invest in the region will have to critically weigh his options before committing his money in the form of capital to these countries. These protests may at times degenerate into violence, this may make these countries lose out on foreign direct investment in the form of companies that may wish to set up assembly plants abroad or those that may wish to outsource some of their operations. For the sake of the people and economies of these countries, these issues had better be addressed in the shortest time possible.

   

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