Unit II: Political Environment

Conceptual framework, Factors and Impact, Government and Business, Political Risk, Current
political situation
Concept:
Political environment refers to the all set of factors in the political surroundings which have the
potential impact on business (in particular) and on economy (in general)
The most powerful external factor affecting almost every aspect of individual and corporate life
in different ways. Human beings are the political creature also…..
it includes many things like governing principles of government or political parties to outsider
influence in politics.
Driving instrument of overall socio-economic condition of the country
Factors in Political environment:
There are many factors in political environment affecting economy and business of any country.
Fig 1: Factors in political environment
Political
Ideology

Political Business Political

Parties firms/socio Structure
economy

Political
system

1. Political Ideology : governing principles of parties, government and leaders.

makes lots of differences in the set of actions, decisions, practice and behavior of
political parties, government and leaders
Ideology:
 Socialism (societal ownership and representation in the governance)
  Communism (class less society, rule of proletariat group, state owns the factor of
production, centrally planned and people make the contribution as per the
capacity and necessity)
 Monarchism: rein by heir (absolute, ceremonial, commonwealth, about 44
countries today have some forms of monarchism)
 Democracy: most popular system but real democracy does not prevail. Different
perspectives. Its fallacy that US/India/UK has democracy (representative system:
direct, semi)
Power source:
Democracy (power of many)
Oligarchy (power of few)
Autocracy (power of one)
Anocracy (hybrid)

2. Political Structure
 Integration: hegemony, unitary, empire
 Federal system: devolution, confederation, federation
 Separation: associated state, dominion, chiefdom
Nepal: formally entered into the federalism after the promulgation of new
constitutions in 2072 BS.
Nepal is now federal democratic republican state. There are three layers of
government now
1 Federal government
2 Provincial government
3 Local government
Pros and cons of federal structure: was it necessary? There are about 26 countries in the world
today adopting federal structure.
3. Political System
 Constitutions: fundamental law of land, constitutional supremacy: Nepal is a federal
democratic republican state
 Power Center: west ministerial prime minister system, PM is the power house,
ceremonial president (presidential system vs prime ministerial system: pros and cons)
 Election system: Mixed election system (for federal and provincial parliament)
 o FPTP (Directly elected system)
o PES (representative system based on the popular vote to the party)
o STVS (National Assembly)
HoR- 165 directed elected
-110 proportionate election system

5. Political Parties:
Any leaders of your choice?
Political parties are the major actor of political environment in any country. They are the
driving vehicles for the greater socio-economic development of the country. Creating socio-
political awareness in the people and making them involved and mobilized in different state
activities is the major role of political parties. It is said that, the role of political parties and
their leaders in Nepal has never been satisfactory. They have been constantly failing to
address the rising expectation of people, failing to act in accordance to enshrine principles
of constitution and to follow political ideologies. They are often blamed as the group,
dominated by a few leaders, engaged in the promotion of own vested interest and fighting
to protect their chair, power and money. People have lots of grievances and frustration with
leaders and their activities.
However political parties have played a great role particularly to fight against dictators and
their regime like of ranas, panchayat and monarchism in the past and restoring the
democracy in the country. Plus….
Types of political parties:
1. Ruling party
2. Opposition party
3. Illegal Party: parties which have not been registered in election commission or the
activities of which is not recognized by the contemporary law of the country
National parties (conditions): 3% total casted vote and at least 1 wining seat. As per the
election commission, 2074:
1. NCP (UML): 80+41
2. Nepali Congress: 23+40
3. NCP (Maoist): 36+17
4. RJP
5. Socialist party
Now the largest and 3rd largest communist parties have merged and formed Nepal Communist
Party (NCP). Similarly the unification of 4th and 5th largest parties is at last stage of unification
that results only 3 national parties in nepal.
But the unified communist party of Nepal (NCP) has split again into NCP (UML) led by KP Oli and
NCP (MC) led by PK Dahal by the verdict of supreme court. (Can parties by united and divided
by the court??)
Again we have seen the further split of NCP (UML) into the KP Oli fraction and Madhav Kumar
Nepal fraction. Nepal fraction has registered new political party as Nepal Communist Party
(Unified Socialist) and this party has now become the fourth largest party in parliament of
Nepal. Also Janta Samajbadi Party also split into two fractions led by Upendra Yadav and
Mahantha Thakur. As a result, there are 6 national parties now.
Stability in Nepalese politics:?? 4 prime ministers in 5 years??
6. Political Institutions/ Government:
They are:
a. Legislative:
b. Executive (government)
c. Judiciary
Legislative: which enacts laws
We have modified parliamentary system, bicameral system= dual houses
 HoR (House of Representatives) 275 members
 NAs (National Assembly) 59
Executive: which implements laws
 CoM (Council of Minister)
 Bureaucrats (permanent wings of government)
 Constitutional Bodies (HRCs, CIAA, ECs, PSC)
Judiciary: interprets the laws (safeguard of constitution and laws)
 Supreme Court
 High court
 District court
+ Separation of power and balance of power
There is the ongoing tussle over the power jurisdiction among executives, legislative and
judiciary. Executive head (KP Oli) is going to concentrate the most of the state power in the
hand of Prime minister in association with president BDB.
7. Outsider Influences:
1. India: wants to involve in micromanagement/domestic affairs of Nepal
Subramanian Swamy: india wanted KP oli as continuous PM of Nepal. If prachanda became,
China would win (May 11, 2021)
Annadasworup Barma: ‘India does not want Nepal not only closer to the China but also as self
reliant country’
2. China: does not want to come openly as india does (but china has openly come in new
context: the Chinese ambassador was quite active during the time of dissolution of
parliament and ongoing conflict between oli led fraction and dahal-nepal led fraction in
NCP)
3. US: through indo-pacific strategy, there was a pressure from US for not to sign in
extradition agreement during the visit of Chinese president… pressure to endorse the
MCC in parliament
4. EU: issue relating to empowerment of different sectors and also in religious freedom
There has been outsider influence since decades as the leaders have given them the space to
play in our domestic affairs
Government and Business: Roles and Relationship
Although the role of government and business keeps on changing over time, there exist
multidimensional relationship between these. These are the two principal actors of the same
economy and co-exist together and work together for the promotion of mutuality of interest.
Government needs close co-operation and participation of business community to attain its
macroeconomic goals and objectives whereas business also needs the support and business
friendly policies of the government to achieve their organizational goals.

Macro-
economic
Government goals

Firm S.
Business Objectiv
es
 Fig: Roles and Relationship between govt. and business

Business thrives in stable, hospitable, efficient, effective, fair and business friendly government,
and government achieve its broader macroeconomic objectives in the close cooperation and
active participation of business. Therefore these two have integral and complementary
relationship between each-others.
Basic issues: though the role of government and business keeps on changing and sometime
conflicting as the issue of government and business differs significantly in some cases.
Government issues:
 Safeguarding consumers
 Legal compliances
 Protecting employees
 Ethical business
 Active participation
Business’s issues:
 Policy stability
 Rebates, concessions, exemptions
 Law and order and security
 Infrastructure
 Network building

How does government support and what specific roles does govt play?
What roles does business play?

Political Risk: Concept, factors and assessment

What is Political Risk?
Risk caused due to any undesirable changes in political environment.
More specifically, it is the extent to which overall business and economic condition of the
country is affected due to the sets of action and decision taken by the government and due to
the any unexpected and unwanted changes in political factors of the country.
Political risk affects:
-expected outcome
-market positioning
-oganizational performance
-expected returns
Political risk is very pervasive in nature…almost every organizations are exposed to certain
political risk….
Types of political risk:
1. Micro risk
2. Macro risk
3. Operating risk
4. Ownership risk
5. Transfer risk
Forms of political risk factors:
-Unstable politics
-economic forms (change in tax rates, interest rates, trade barriers)
-political crisis
-new political development
-civil riots or unrest
-trade union’s activities
-government’s intervention
-general strikes, banda,……..
-corruption, inflation, currency risk- economic
Assessment of Political Risk Factors:
Political risk factors should be properly identified and analyzed by the organization…it’s a
systematic process of analyzing the overall political environment so as to develop the
organizational plans accordingly……to minimize the risk arises due to changes in political
environment. This process involves following steps:
1. Monitoring the major political events

2. Determining the relevant issues

3. Assessing the magnitude of risk

4. Developing responses

Approaches of Political Risk Analysis:

1. Executive Approach
2. Expert/Delphi Approach
3. Model simulation
4. Trend Analysis

Political Risk Index (2019, Global Ratings): on a scale of 1-7, 7 being the most risky and 1 being
the least risky
1. Nepal -3
2. India- 2
3. China-2
4. USA- 1
5. SriLanka-4
6. Venezuela, Syria, NK: 7
Current political situation:
Students are required to be updated on what is going in the Nepalese politics which chiefly
includes:
1. Recent political developments
2. Major political events, changes, departure
 3. Far reaching impacted decisions of government
4. Programs and activities of political parties
5. Recent visit of president, prime minister and parties’
chairmen or senior leaders to the neighboring countries
and third countries and their agreement, commitment or
treaties AND similar types of visit by foreign high levels
and their agreements/commitment
6. Plus
Impact assessment of these factors on the business and economy