Ralph Columa

Politics and economy

a) Politics
 There are 4 primary effects of politics on businesses.
i. Economic impact – The country’s political situation affects its economic status.
The economic situation then affects how businesses perform.
ii. Regulation changes – The rules and regulations of a government could
change, and this affects businesses.
iii. Political stability – Political instability affects the country’s business
operations, which especially affects companies with international operations.
iv. Risk mitigation – To manage political risk, companies buy political risk
insurance. This insurance decreases the risk exposure of companies that
operate internationally.
b) Economy
 There are four ways in which the economic climate impacts businesses.
i. Unemployment – This is an indication that the economy does not fully utilize
the available workers. The economy will not improve as fast as it can and can
slow down, which will have a direct impact on businesses.
ii. Changing consumer income levels – General spending increases as consumer
income increases. Increased spending helps in expanding businesses.
iii. Changing interest rates – This affects both borrowers and savers. An increase
in interest rates will benefit savers. On the other hand, the borrowers will
benefit from a decrease in interest rates.
iv. Tax rates – The income taxes of consumers affect businesses. If consumers’
income tax is reduced, they will spend more due to a rise in their disposable
income. In contrast, if the income tax is increased, the prices of goods will rise,
leading to less spending.