Abstract
Political risk assessment (PRA) is one of the determinants of foreign direct investment (FDI) and the competitiveness of multinational corporations (MNCs), yet little is known about its use in African markets. This study critically investigates the PRA techniques used by MNCs in Nigeria and their applicability. It uses a multimethod approach to analyze data collected from MNCs and the data set of the International Country Risk Guide (ICRG) PRA annual rating for Nigeria from 2011 to 2015. The findings reveal that most firms use qualitative, rather than quantitative, PRA techniques. Regional variations in the outcome of PRA within Nigeria could also contribute to the low use of quantitative techniques. This article identifies that firms are prepared to invest in Nigeria, in spite of high political risk, due to its economic and financial attractiveness. This article's findings offer some implications for practice with some suggestions on how it could influence firms’ internationalization and their conduct of PRA.
Highlights
foreign direct investment (FDI) is generally increasing year on year in sub-Saharan Africa, a 7% decline in inflows was reported in 2015 (United Nations Conference on Trade and Development [UNCTAD], 2016)
The data set of the International Country Risk Guide (ICRG) political risk assessment (PRA) annual rating for Nigeria within the period 2011 to 2015 is analyzed
Political risk assessment is a key determinant of the foreign direct investment and competitiveness of multinational corporations (MNCs), yet little is known about PRA in African markets
Summary
FDI is generally increasing year on year in sub-Saharan Africa, a 7% decline in inflows was reported in 2015 (United Nations Conference on Trade and Development [UNCTAD], 2016). The quest for growth and competition among multinational corporations (MNCs) has increased the rate of foreign direct investment (FDI) into African markets since the turn of the century It is influencing the internationalization of African firms and changing the dynamics of international business within the continent (UNCTAD, 2014, 2016). PRA is used for managing political risks and the decisionmaking processes associated with the internationalization of firms and is one of the key influences on FDI into African markets (World Bank, 2014)
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