chapter  4
23 Pages

The Political and Legal Environment

A country’s political and legal environments are interrelated. The political system integrates society into a viable, functioning unit, and the legal environment helps the society maintain its peace and order. Governments that are designed to rule a country are set up through a political system. Governments create laws and regulations that affect every aspect of life in a country, including how businesses are operated. Stable political systems generally have stable governments that enact laws to benefit the population and at the same time encourage a receptive environment for businesses. For many years, the political landscape of Africa has been strewn with governments that have been dictatorial and have ruled with an iron hand. As these rulers suppressed democratic movements, their relationships with the rest of the world seemed to have been frayed. Recent studies conducted on African nations seem to indicate that the Northern African groups of countries that have followed more open political systems have fared better in their relationships with Europe and North America than the rest of Africa.1 International businesses face increased political risk when there is uncertainty about the stability of the host country’s political system. For example,

if President Hugo Chávez of Venezuela goes ahead with his threat to nationalize the country’s telecommunication and electric utilities, Verizon Communications of the United States could lose up to several hundred million dollars.2 Political risk is not a new threat facing international companies; it has existed for centuries-for as long as there has been business activity across national borders. Due to advanced telecommunication technologies, many of the decisions and actions by various governments in many parts of the world are instantly flashed by the media for everyone to know. In a knowledge-based environment, information seems to help improve the democratic control of policy makers.3