POLITICAL INSTABILITY AS A THREAT TO INVESTORS IN THE BANKING INDUSTRY
ABSTRACT
The study provides insight
into the dynamics of the relationship between political instability and the banking sector in the context of emerging
markets. The importance of assessing the political instability of companies investing in emerging markets has
increased significantly with the increasing rate of investors. It is used to manage political instability and decisionmaking processes during the internationalization of businesses and has been identified as one of the determining
factors in the profitability of the banking sector. However, only a few empirical studies on PIAs have been conducted
in emerging markets. Previous studies have shown that political instability has evolved and has had a series of
consequences that have influenced the type of strategies adopted by banks. Aware of this, this study in Nigeria aims
to identify the specific factors of a country’s political instability and its consequences for the banking sector. Despite
the changing political environment of the country and its population divided into several cultural, ethnic, linguistic and
religious divisions, Nigeria has experienced a continuous flow of investors.
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This research contributes to the assessment of political instability by critically analyzing the determinants and
indicators in order to examine the impact of the consequences of political instability on the banking sector, in order to
understand the administrative practices associated with management of political instability in Nigeria. . Six objectives
have been identified: to study the determinants of political instability; examine its impacts; study the variables and
indicators used to predict political instability; investigate the consequences of political instability; explore PIA practices
in banks and identify strategies used to manage and mitigate political instability in Nigeria. Similarly, four assumptions
in support of these objectives have been formulated to understand the dynamics of the relationship between political
instability and the banking sector.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Political instability is becoming an increasingly important issue for emerging market investor growth. According to the
report on world investment and political instability in 2013, “there has been explosive growth in investment since the
turn of the century, but political instability has been a major concern for banks operating in the world. developing
countries “(WorldBank (2014, p.5)). This is because political instability increases the transaction costs of investing in
these markets, so this is one of the determining factors for banks.
Recent studies have shown that political instability has evolved in recent decades and that these different types have
emerged during this period. At one point, the main concerns were nationalization and expropriation. Subsequently,
problems such as the cancellation of licenses, tax restrictions and investment agreement amendments, repatriation of
deferred benefits, terrorism and protectionism have arisen.
The evolution of political instability has made analysis and understanding increasingly difficult. This has had a series
of consequences that have influenced the type of strategies adopted by the banking sector for different countries.
However, banks have different types of business ownership, ownership structures and modes of entry. This suggests
that banks perceive political instability differently according to their type of commercial participation and their mode of
entry.
Most research on business participation has focused on investment because different forms of political instability have
more impact than in other types of firms. As a result, the problems of political instability will continue to play an
important role in determining the type of business activity, as well as their modes of entry, and will be one of the
determining factors in business entry. emerging markets.
The investment index offers more investment opportunities and some developing countries are increasingly being
considered as emerging market destinations because of the high return on investment that can be found there.
However, most developing countries tend to have a changing political climate, with unstable governments and more
frequent policy changes than developed countries.
This means that countries have specific factors of political instability that must be taken into account. For this reason,
investors use various means to assess each host country’s political environment in order to manage and mitigate the
consequences of political instability. The consequences of political instability for investors differ from one country to
another, as well as in certain regions of some developing countries (Brink, 2004). The cost of doing business
increases with the increasing likelihood of the consequences of political instability, creating different scenarios that
multinational corporations need to critically study.
1.2 PROBLEM OF STUDY
The political instability of today can be analyzed from different points of view because of the evolution and the
dynamics of the companies in the contemporary world. This is the result of several events that have taken place in
different parts of the world and whose consequences have changed the business environment. Some of these
events, such as national terrorism, the “Arab Spring” and other forms of conflict, have resulted in growing political
insecurity in some parts of the world. Especially in Africa, even after five decades of independence, Africa’s economic
and political systems remained largely stalled during this period (Tordoff, 2002). There are still a significant number of
challenges ranging from political problems to economic problems, as well as problems of insecurity (Asiedu, 2002).
These challenges are more often the product of circumstances that exist in a specific country or subregion because of
their political, social, economic and cultural systems. These challenges include economic, political and religious
crises, as well as other forms of conflict that are still being fought in African countries and still prevalent in Nigeria
(Ayoob, 1995, du Toit, 2013, Tordoff, 2002). As a result, the impact and consequences of these different types of
challenges on the business environment in Nigeria affect investors.
Studies have been conducted on the assessment of instability in Nigeria and other African countries, which have
reported associated problems or political instability. They contained generic information on political instability analysis
reports, lacking substantial or devoid of due diligence, and were mostly subjective, superficial, and unsystematic
(Brink, 2004, Fitzpatrick, 1983). Most of these reports are generalized, based on a single event occurring in the
country and are based on theoretical or hypothetical evidence from conceptual research rather than empirical or
pragmatic research processes. The inability of some multinational corporations to fully understand the various political
environments has led to general policies, making some developing countries dichotomous as safe or precarious
(Fitzpatrick 1983: 251). It is in this context of challenges that this research aims to investigate the banks operating in
Nigeria.
1.3 OBJECTIVES OF THE RESEARCH
- To investigate the determinants of political instability in Nigeria.
- To investigate the threats of political instability to the banking sector in Nigeria.
- To identify strategies used to manage and mitigate political instability in Nigeria.
1. RESEARCH QUESTIONS
- What are the determinants of political instability in Nigeria?
- What are threats of political instability to the banking sector in Nigeria?
- What are the strategies used to manage and mitigate political instability in Nigeria?
POLITICAL INSTABILITY AS A THREAT TO INVESTORS IN THE BANKING INDUSTRY