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Assessing Political Risk in Developing Countries: Review of Current Issues and DFID’s Experience

Political risk analysis has become an increasingly important private sector tool over the past decade, with a growing number of firms relying on political risk analysis to inform their business choices. This has been facilitated by the proliferation of firms that specialise in studying and assessing political risk, and political risk analysis has also become increasingly sophisticated. DFID’s business is changing as well: there is more money available to international aid, a greater amount of aid is being disbursed to riskier countries and DFID is disbursing more aid through instruments such as budget support. These changes also occur in the context of a greater commitment within DFID to take governance, and to a lesser extent political risk, into account at all levels of business. The 2006 White Paper committed DFID to utilise a 'quality of governance assessment' for the countries in which it operates, which will be accomplished with a new tool, the Country Governance Analysis (CGA). The report reviews ways in which private sector approaches to political risk might be able to inform DFID practices in this context.