Salone News

It’s the insurance!

By  | 25 May 2019 at 15:44 | 1339 views

Failure to recognize the intrinsic nexus between the cost of political risk insurance and the rising commodity prices, exchange rates, interest rates and consumer goods, continues afflicting and eluding policy makers in Sierra Leone.

This article is not only intended to raise the alarm on political risks affecting the nation’s economy but is designed to spur our policy makers into expeditiously embarking on identifying, analyzing, assessing and implementing sound risk management principles to mitigate the potential adverse socio-economic and political costs and fallout from political risks.

As a nation economically dependent exclusively on imports, foreign capital and foreign aid for her development, the existence of macro political risks or even their perception - such as civil unrest, political instability, weak political institutions and governance, high crime levels and violence and unchecked corruption - all adversely impact investments and a country’s economy.

It is indeed a truism in international trade, that a country’s political risk assessment has a potential of changing the placement of both specific investment portfolios and foreign direct investment suitability. Even how foreign governments conduct their diplomacy is increasingly guided by such political Risk variables.

Sierra Leone has witnessed over the past year a fully fledged and calculated ongoing misinformation campaign, spearheaded by the opposition APC party and their surrogates - designed to present a very bleak picture of governance under the new SLPP administration of president Julius Maada Bio.

Almost since the announcement of the 2018 presidential election results, we have witnessed the erstwhile governing party, together with the termed-out former president and disillusioned local and international actors, embark on a calumnious strategy of creating a false political risk environment for the country.

Traditionally, the concept of political risk referred to governmental interference affecting business, such as nationalization or expropriation.

However, the concept has now expanded to include actions by such stakeholders as local governments, NGOs, community groups, local opposition and groups advancing political objectives, as is the case with the APC party.

The correlative relationship thus between enhancement of the country’s risk assessment and a declining economy and standard of living cannot be understated. Thus, the need by government to aggressively counter the narrative of insecurity perpetuated by opposition parties.

As an example, the propagation of fake news about political instability, violence and political demonstrations, whether factual or not, gets recorded by risk analytics companies and forms the basis for Sierra Leone’s country risk, political and security assessments.

These assessments then determine the costs and additional surcharging of all goods, services and commodities imported into the country.

Aside from tariffs imposed in country on imported goods, the additional costs on the same goods being exported to Sierra Leone have embedded war risks, strikes, riots and civil commotion insurance coverage costs, foreign credit insurance costs, taking by exporters for protection of political risks. The ongoing price shocks and increasing pricing for imported commodities is as a direct result of this vicious cycle in the political risk mitigation arena.

Finally, in seeking to mitigate the effects of political risk on our economy, the government must not only utilize the monetary and fiscal tools at her disposal but must embark on aggressively changing the political risk narrative, by engaging not only the in country political actors but also the international political risk analytics and insurance firms and agencies with credible data.