SMEs in Kenya have demonstrated resilience as they emerged from the ravages of COVID-19. It presented an opportunity to pivot and consider product and market diversification for many. As the country gears up for an election, SMEs find themselves in a precarious spot, given that political threats can either propel them forward or send them to oblivion. Political risks comprise a lattice of interconnected issues that can have far-reaching effects on an organization in myriad ways.
Research done on SMEs in Uganda has shown that business success is highly dependent on the socio-political environment that organizations find themselves operating in. Despite the cross-enterprise threat to the success of an organization, political risks remain vastly underestimated, leaving many organizations struggling to keep up in the aftermath of political events. For organizations that recognize the threat, the assessment and management of political risks are often fragmented, causing reactionary responses that leave the organizations vulnerable.
In working with SMEs across the country and the region, we have found this three-step approach to political risk management to be effective:
Scan
Political risks have a multi-dimensional effect. For instance, political violence may disrupt the supply chain, leading to a reduction in sales generated by the organization. Organizations can develop effective strategies by considering these questions:
- Does the organization have a dynamic process for understanding political risks?
- Does the organization have a process of communicating about the critical political risks they face?
- What measurement efforts would be helpful in the analysis of political risks?
- What efforts would help mitigate political risks exposure?
The SME sector in Kenya faces ad hoc challenges and seasonal challenges. Seasonal challenges related to political happenings in the country include disruptions in supply chains and security threats that affect company operations.
To counter such challenges may entail taking the following steps:
- Insurance: Organizations that operate in previously politically heated areas can mitigate the challenges ahead by insuring their assets against political threats.
Periods just before and after an election in Kenya are characterized by a decline in the profitability of organizations. Having insurance covering business interruption can help cushion the business against financial strain.
- Diversification: Product and market diversification may help cushion organizations during political uncertainties
Focus
Focus on mitigating the effect of political risks by mapping them into the organization’s footprint
Crucial questions that may guide this process include:
- Have all the functions that political risks could impact been identified?
- Who is responsible for communicating and assigning responsibility for managing political risks at operational levels?
For instance, the negative impact on finance due to political risks may be addressed by exploring alternative financing options, increasing cash reserves, etc. You could mitigate supply chain disruptions and operations by insuring products during transit, manufacture, and distribution.
Act
- How can the organization move from reactive to proactive in response to political risks?
- How can the organization work with relevant stakeholders towards mitigation measures?
Scanning, focusing, and acting on political risks allows organizations to address challenges emerging from political threats and protect their value in the long term.
Are you wondering where to start in assessing and mitigating political risks in your organization?
Let our professional team become your insurance department.
With more than two decades of combined experience, we will proactively help you identify and mitigate risks.
This article is written and published by Dawit Insurance Agency Limited.
