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Risk And The Institutional Voids In Emerging Markets

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Guest lecture delivered at Goizueta Business School, Emory University, Executive MBA program on February 17, 2011

Guest lecture delivered at Goizueta Business School, Emory University, Executive MBA program on February 17, 2011

Published in Business , Economy & Finance
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  • 1. Tyler D. Nunnally, Founder & CEO UPSIDE RISK
  • 2. Lecture Topics – February 17, 2011Risk versus UncertaintyWhat are emerging marketsWhat are institutional voids?BP/Rosneft case studyScenario Planning – N. Africa
  • 3. Tyler D. Nunnally Background‘92 Summer Olympic Games (Barcelona, Spain)‘93 Nunnally International Trade, Inc. (Prague, Czech Republic)‘03 University of St Andrews (St Andrews, Scotland)‘04 Global Business Consulting (Barcelona, Spain)‘06 Oxford Risk Research & Analysis Ltd (Oxford, England)’09 Upside Risk (Atlanta, Georgia, USA)
  • 4. Risk and Institutional Voids in Emerging Markets Risk versus Uncertainty Emerging MarketsBrazil Chile ChinaColumbia Czech Republic EgyptHungary India IndonesiaMalaysia Mexico MoroccoPeru Philippines PolandRussia South Africa South KoreaTaiwan Thailand Turkey
  • 5. Institutional Voids – Financial Systems Lack of adequate financial infrastructure poses investment risksStable Currency (counterfeit, use of USD/EUR)Credibility Enhancers (auditors, professional accreditations, trade assoc.)Information Providers (analysts, credit ratings, rating agencies, media)Access to Capital (angel investors, VCs, private equity, commercial loans)Transaction Facilitators (stock exchanges, brokers, investment banks)Regulatory Bodies (SEC, FDIC, Office of Comptroller of the Currency)
  • 6. Institutional Voids – Legal Systems Inadequate judicial systems make legal protection riskyCourt Systems (state, federal, district, appellate, civil, criminal)Mediators (arbitrators, attorney/client privilege)Legal Frameworks (torts, mass torts, class-actions)Law Enforcement (police internal affairs, secret police, intelligence)Rule of Law (contract disputes, contract enforcement, traffic enforcement)
  • 7. Institutional Voids – Social & Political Systems The way that business is done depends on where you’re doing itPolitics (regional rivalries, state enterprises, free and fair elections)Cultural Differences (ethic and religious groups, language)Corruption (brides, kickbacks, extortion)Openness (privatization, free movement of people, goods and capital)Security (kidnapping, terrorism, street crime, violence)
  • 8. Perception of Risk Meets Reality Homicide rate per 100,000 people comparison 2007 2008 2009USA 5.6 5.4 5.0Spain 0.9 0.9 0.9Turkey 4.2 3.2 2.9Source: http://en.wikipedia.org/wiki/List_of_countries_by_intentional_homicide_rate
  • 9. Case Study: BP & Rosneft BP announces $16bn share swap with Rosneft on Jan 14, 2011• Rosneft is Russian state-owned oil company• Strategic alliance that will see the two companies explore in the Russian Arctic continental shelf• BP will take 9.5% stake in Rosneft in exchange for about 5% per cent of their own shares ($7.8bn)• BP CEO Bob Dudley says deal is a good strategic fit alongside the company’s “continued focus on the management of risk”
  • 10. Case Study: BP & Rosneft BP’s Recent History in Russia(2003)TNK-BP was founded in 2003 by the merger of oil and gas assets of BP andRussian oil and gas assets of Alfa, Access / Renova (AAR). Merger created oneof the world’s Top 10 largest crude oil producers.(2007)TNK-BP was forced to sell its stake in the Kovykta gas fields to state-controlledGazprom(2008)A dispute between BP and TNK-BP has grown so bad that even its chiefexecutive, Robert Dudley, acknowledges it could "tear apart" the jointventure.
  • 11. Egyptian Revolutionhttp://www.youtube.com/watch?v=efcn8LpwlPo
  • 12. Scenario 1 – Eastern Europe
  • 13. Scenario 2 – The Balkans
  • 14. Scenario 3 – Iranian Revolution 1979
  • 15. Scenario 4 – What Next?
  • 16. Tyler D. Nunnally, Founder & CEO Upside Risk Atlanta, Georgia U.S.A. Phone: +1.404.320.6047Email: tnunnally@upside-risk.com www.Upside-Risk.com