Promoting Successful and Sustainable Foreign Direct Investment through Political Risk Mitigation Strategies

Abstract

Political risk is a critical component of international trade and it is often the source of concern for businesses willing to invest abroad in light of the limited ability of legal instruments to protect them against it. That is why further political risk minimization has traditionally been done through investor-oriented strategies that maximize the interests of the investor. These interests sometimes clash with the interests of the State: the State seeks to promote sustainable development interests while the private investor is pursuing its own interests. These are the situations where it is necessary to avoid conflict by aligning the interests of the foreign actor with the local polity, which can be done through mutually beneficial (i.e. both for states and for private trade actors) political risk mitigation strategies. In this regard, this paper demonstrates how such strategies can incentivize international trade actors to undertake commercial operations in a sustainable manner.