'Political risk' in foreign investment is the risk that an investment will be adversely affected by a host country's political or regulatory decisions. These political or regulatory decisions might result in unfavorable tax legislation, revocation of a business license or, nationalisation or 'expropriation' of an investment by, for example, taking control over the investment by the government.
For instance, earlier this year the Argentinean Government announced that it would assume ownership and control of YPF, Argentina's biggest energy company. At the time, YPF was privately and partly foreign owned and controlled.
This article from King & Wood Mallesons outlines how foreign investors can take steps to minimise exposure to political risk. These steps include structuring the foreign investment so that it falls within the protections provided by an investment treaty to which the host country is a party. Alternatively, foreign investors already affected by adverse government action, can consider whether investment treaty protection is available.
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