Question

PLEASE GIVE ME LONG AND DETAILED ANSWERED (with specific examples)

Prior to the current Covid-19 travel advice the Department of Foreign Affairs and Trade (DFAT) Smart Traveller website had the following advice for Australians. “Venezuela has closed its land borders with Brazil and Colombia and maritime borders with Aruba, Curaçao and Bonaire until further notice. The political and economic situation remains very unstable. Monitor local media and follow the advice of authorities. We continue to advise you not to travel to Venezuela.”

(i) Assuming COVID-19 does not exist at this time what would your advice be to an Australian company that has just won a major and highly profitable project management contract? Please provide a sound rationale for your advice.

(ii) What other sources of political risk can an exporter face and how can they be counteracted? Please provide specific examples in support of your answer.

Answer 1

An Australian company awarded project management contract in absence of COVID19 should be advised to incorporate terms like risk mitigation policy, insurance and freight recovery, bank guarantee assurance to avert any financial or political risks and thus be better off from unprecedented events which can help save substantial costs and damages.

Political risks like changing government and change in regulations set forth by new Government overnight can create hassles and make past contracts void. Thus new exporters must efficiently negotiate the recovery of costs as term predecided in a contract in form of insurance to counter act such political risks or economic risks of default and thus create risk minimization strategy using Risk management frameworks and SoX Auditing practices. For example, top companies like Exxon mobil integrate clauses like "recovery of cost in events of failure to accept or receive or theft using Incoterms."

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