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5. risk rating


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5. risk rating

  1. 1. Country Risk Analysis SOVEREIGN RISK RATING March 2008
  2. 2. Various approaches to country risk assessment <ul><li>Qualitative analysis: financial, macroeconomic, legal, regulatory and political parameters; COFACE, Nord/Sud Export, EIU, IIF </li></ul><ul><li>Quantitative approach : rating and scoring </li></ul><ul><li>Econometric approach and modelization </li></ul><ul><li>Analytical approach: crisis typology (Indosuez) </li></ul><ul><li>Principal Component Analysis </li></ul><ul><li>Logit Analysis </li></ul><ul><li>Non-linear conditional analysis (threshold levels & breaking points: TAC) </li></ul>
  3. 3. Specialized Country Risk Rating institutions <ul><li>BERI (Business Environment Risk Index) </li></ul><ul><li>Dun and Bradstreet, Moody ’s, S & P, Fitch </li></ul><ul><li>Institutional Investor </li></ul><ul><li>Frost & Sullivan </li></ul><ul><li>Euromoney </li></ul><ul><li>Fraser Instiotute </li></ul><ul><li>Credit Risk International (Paris) </li></ul><ul><li>International Country Risk Guide (NY/London) </li></ul><ul><li>Coface & Ducroire </li></ul><ul><li>Heritage Foundation </li></ul><ul><li>Transparency International </li></ul><ul><li>DBRS: </li></ul>
  4. 4. Quantitative approach: Rating <ul><li>Means: Transforming a number of observations (Delphi method, surveys) or quantitative indicators into one number. </li></ul><ul><li>The various indicators can be weighted regarding their impact on creditworthiness and risk. </li></ul><ul><li>End-product : one single grade to assess past and current country risk situation with possible cross-country comparisons across time </li></ul>
  5. 5. Country Risk Ratings <ul><li>Advantages/ Pros </li></ul><ul><li>Simple </li></ul><ul><li>cross-country comparison </li></ul><ul><li>comparison across time </li></ul><ul><li>shrinks a large number of variables into one single grade </li></ul><ul><li>Reliable for smooth risk evolution </li></ul><ul><li>Shortcomings/Cons </li></ul><ul><li>“ reductionist” </li></ul><ul><li>oversimplistic </li></ul><ul><li>risk of self-fulfilling prophecy </li></ul><ul><li>little predictive value </li></ul><ul><li>weighted average tends to bury salient trends </li></ul><ul><li>Gives “market consensus” often made of herd instinct </li></ul>
  6. 6. Shortcomings of rating agences (C. Kuhner, Schmalenbach Business review, January 2001) <ul><li>Rating agencies are to be independent third parties that are consulted in the course of a market transaction. The goal is to overcome asymmetric information between both market sides by using standardized quality assessement methods. </li></ul><ul><li>Criticisms: </li></ul><ul><li>* Power without accountability </li></ul><ul><li>* Conformity bias </li></ul><ul><li>* Sociocultural bias </li></ul><ul><li>* Punishment of disobedient firms/countries that do not request a rating </li></ul><ul><li>* Procyclical bias, hence followjng the majority opinion of market participants without any early warning signals nor predictability track record </li></ul>
  7. 7. Asia, LTCM, US Subprime crises: some lessons to learn? <ul><li>“ Any agency which rated the Republic of Korea at the high investment grade rating of AA- (in the case of Fitch IBCA and S&Ps) or A1 (in the case of Moody’s) before the crisis, and which now rates Korea at a speculative grade B-, was clearly either wrong initially or subsequently. Clients are entitled to expect us to perform better in the future!” </li></ul><ul><li>Fitch IBCA January 13, 1998 </li></ul><ul><li>“ When the facts change, I change my mind ” J.M Keynes </li></ul>
  8. 8. Rating = poor early warning signals? <ul><li>South Korea wa s rated as Italy and Sweden as late as October of 1997! But abrupt downgrading to junk bond status during the crisis </li></ul><ul><li>«  There were no early warnings about Korea from us or, to the best of our knowledge, from other market participants and our customers should expect a better job from us » </li></ul><ul><li>FICHT IBCA January 14, 1998 </li></ul>
  9. 9. The Perceived Situation <ul><li>Was the crisis anticipated by rating agencies? </li></ul>
  10. 10. EUROMONEY’s Risk Rating 85 46 80 57 37 2006 107 46 78 65 29 2000 81 98 91 49 45 Indonesia 49 46 56 35 33 Malaysia 78 53 55 57 55 Philippines 60 49 54 51 45 Thailand 38 44 42 30 28 Korea 2007 1999 1998 1997 1996
  11. 11. Quantifying Country Risk 30% 70% Overall Country Risk Rating Political Risk Rating Transfer Risk Rating Political Factors Political factor A Political factor B Political factor C Financial Factors Financial factor A Financial factor B Financial factor C Weights 30% 50 20 Weights 30% 40 30
  12. 12. Country Risk Rating <ul><li>Foreign investment risk decision matrix </li></ul><ul><ul><li>combines ratings of financial and political risk </li></ul></ul>Financial Risk Political Risk High Low Low High Acceptable Zone High risk Zone Decision depending on market and profit potential
  13. 13. Moody’s Sovereign Ratings 02/2008
  14. 14. Moody’s economic and financial Risk indicators: Argentina end-2007
  15. 15. Country risk ratings? <ul><li>Country risk analysis cannot & should not be boiled down to bond rating! </li></ul><ul><li>Risk might stem from a wide range of strategies, including FDI, exporting and importing, lending, portfolio investment, consultancy contracts…. </li></ul>
  16. 16. Quantitative Country Risk Appraisal Methods <ul><li>BERI: Business Environment Risk Index </li></ul><ul><li>(F.T. Haner, California-based) </li></ul><ul><li>Swiss-based private source for risk rating on over 130 countries </li></ul><ul><li>created in the late 1960s, the oldest risk assessment service. Delphi Method with a panel of 105 international experts rating 15 criteria for current and medium-term business horizon </li></ul><ul><li>3 components of country risk: business climate, political stability, currency and repayment risk. </li></ul><ul><li>FORELEND reports (Forecast of Country Risk for International Lenders) </li></ul>
  17. 17. BERI S.A. <ul><li>Economic, financial, monetary, operating and political conditions are integral components of the 0 (worst case) to 100 (best case) system for assessing countries. </li></ul><ul><li>Two risk indexes three times a year: ORI Operations Risk Index and PRI Political Risk Index. </li></ul><ul><li>Output: Remittance and repatriation Factor: the R Factor, with forecasts for +1 year and +5 years. </li></ul>
  18. 18. BERI S.A. <ul><li>Worst country ratings </li></ul><ul><li>Venezuela </li></ul><ul><li>Pakistan </li></ul><ul><li>Colombia </li></ul><ul><li>Indonesia </li></ul><ul><li>Ecuador </li></ul><ul><li>Nigeria </li></ul><ul><li>Ivory Coast </li></ul><ul><li>North Korea </li></ul>
  19. 19. Euromoney Semi-annual country risk scoring of 185 countries, both OECD and EMCs Rating Methodology: <ul><li>Panel of 32 leading economists in international financial institutions evaluing country performance in the financial markets (market access, spreads, selldown, terms and maturity…) </li></ul><ul><li>Scoring between 100 (excellent) and 0 (considerable risk) </li></ul><ul><li>+ Panel of political analysts to measure short-term risk of destabilization </li></ul>
  20. 20. Euromoney <ul><li>Euromoney establishes an overall score for countries using nine weighted categories which are calculated as follows: </li></ul><ul><li>the highest score in each category receives the full mark for the weighting; the lowest receives 0 . In between, figures are calculated according to the formula: final score = (weighting / (maximum score-minimum score)*(maximum score-minimum score). The ranking shows the final scores after weighting. </li></ul><ul><li>Categories = </li></ul><ul><li>Economic performance (25% weighting), Political Risk (25%), Debt indicators (10%), Debt in default or rescheduled (10%), Credit ratings (10%), Access to bank finance (5%), Access to short-term finance (5%), Access to capital markets (5%) and Discount on forfaiting (5%). </li></ul>
  21. 21. Rating: EUROMONEY <ul><li>Growth performance: 25% (GDP projections) </li></ul><ul><li>Political risk: 25% </li></ul><ul><li>External debt indicators: 10% (debt/GDP et debt/X) </li></ul><ul><li>External payment default and rescheduling: 10% </li></ul><ul><li>Credit rating Moody ’s or S&P: 10% </li></ul><ul><li>Short-term credit market access: 5% </li></ul><ul><li>Commercial bank MT credit: 5% </li></ul><ul><li>Capital markets access: 5% </li></ul><ul><li>Spread over US Treasury bills: 5% </li></ul>
  22. 22. EUROMONEY: end-2007 Rating <ul><li>1= Luxemburg </li></ul><ul><li>2. Norway </li></ul><ul><li>3. Switzerland </li></ul><ul><li>14= France </li></ul><ul><li>19= Japan </li></ul><ul><li>26= HongKong </li></ul><ul><li>28= Taiwan </li></ul><ul><li>42= Poland </li></ul><ul><li>44= Chile </li></ul><ul><li>50= Mexico </li></ul><ul><li>54= China </li></ul><ul><li>62= Tunisia </li></ul><ul><li>65= Morocco </li></ul><ul><li>69= Egypt </li></ul><ul><li>79= Algeria </li></ul><ul><li>184= North Korea </li></ul>
  23. 23. EUROMONEY: Country Risk Rating <ul><li>End-2001 </li></ul><ul><li>14= Singapore </li></ul><ul><li>28= Taïwan </li></ul><ul><li>30= HongKong </li></ul><ul><li>40= Chile </li></ul><ul><li>39= Hungary </li></ul><ul><li>40= Brunei </li></ul><ul><li>42= Poland </li></ul><ul><li>45= China </li></ul><ul><li>56= Malaysia </li></ul><ul><li>89= Romania </li></ul><ul><li>93= Bulgaria </li></ul><ul><li>163= Congo </li></ul><ul><li>End-2005 </li></ul><ul><li>9= Ireland </li></ul><ul><li>19= Singapore </li></ul><ul><li>22= New Zealand </li></ul><ul><li>35= Hungary </li></ul><ul><li>58= China </li></ul><ul><li>73= Iran </li></ul><ul><li>74= Vietnam </li></ul><ul><li>77= Russia </li></ul><ul><li>85= Algeria </li></ul><ul><li>96= Indonesia </li></ul><ul><li>127= Ivory Coast </li></ul><ul><li>182= Cuba </li></ul>2007 20=Singapore 41=Hungary 42= Poland 54= China 57= Russia 76= Vietnam 77= Algeria 79= Iran 85= Indonesia 167= Ivory Coast 178= Congo 182= Cuba 185= North Korea
  24. 24. EUROMONEY Risk Rating: Ivory Coast Higher Risk Lower Risk Coup d’état Political upheaval
  25. 25. Scoring/Rating of Country Risk <ul><li>Institutional Investor </li></ul><ul><li>0-100 semi-annual Rating of 136 countries’ creditworthiness based on survey of 100 leading international bankers </li></ul><ul><li>Best : Switzerland, Germany, Netherlands, United States, United Kingdom, France, Luxembourg… Singapore, Taiwan, Chile </li></ul><ul><li>Worst : Cuba, Nigeria, Benin, Sudan, Iraq, Congo, Sierra Leone, North Korea, Albania, Angola </li></ul><ul><li>II Global average rating as of March 2000 = 41 </li></ul><ul><li>II Global average rating as of March 2007 = 45 </li></ul>
  26. 26. Institutional Investor Risk Rating <ul><li>Risk information provided by leading international banks. </li></ul><ul><li>Bankers are asked to grade each of the countries on a scale from 0 to 100 , with 100 representing those countries with the best creditworthiness. </li></ul><ul><li>The sample for the study, updated every six months, ranges from 75 to 100 banks . The names of all participants in the survey are kept strictly confidential. </li></ul><ul><li>Banks are not permitted to rate their home country. The individual responses are weighted (> importance to responses from banks with greater worldwide exposure and more sophisticated country analysis systems) </li></ul>
  27. 27. Institutional Investor Risk Rating 1981-2007 Ivory Coast Higher Risk Lower Risk FCFA devaluation Coup d’état
  28. 28. Institutional Investor: 2007 rating <ul><li>Switzerland </li></ul><ul><li>Norway </li></ul><ul><li>Luxemburg </li></ul><ul><li>Netherlands </li></ul><ul><li>Finland </li></ul><ul><li>Germany </li></ul><ul><li>13. France </li></ul><ul><li>17. Spain </li></ul><ul><li>21. Italy </li></ul><ul><li>60. Tunisia </li></ul><ul><li>67. Morocco </li></ul><ul><li>68. Algeria </li></ul><ul><li>72. Egypt </li></ul><ul><li>78. Venezuela </li></ul><ul><li>91. Argentina </li></ul><ul><li>117. Bolivia </li></ul><ul><li>124. Gabon </li></ul><ul><li>134. Cameroun </li></ul><ul><li>153. Congo </li></ul><ul><li>157. RCI </li></ul><ul><li>166. Iraq </li></ul><ul><li>171. Zimbabwe </li></ul>
  29. 29. Institutional Investor 2007 Risk Rating of ASIA <ul><li>Singapore= 16 </li></ul><ul><li>Australia= 18 </li></ul><ul><li>Hongkong= 24 </li></ul><ul><li>Taiwan= 26 </li></ul><ul><li>South Korea= 28 </li></ul><ul><li>China= 34 </li></ul><ul><li>Malaysia= 38 </li></ul><ul><li>Thailand= 54 </li></ul><ul><li>India= 58 </li></ul><ul><li>Philippines= 73 </li></ul><ul><li>Indonesia= 76 </li></ul><ul><li>Vietnam= 77 </li></ul><ul><li>Pakistan= 86 </li></ul><ul><li>Sri Lanka= 100 </li></ul><ul><li>Laos= 132 </li></ul><ul><li>Cambodia= 140 </li></ul><ul><li>Myanmar= 168 </li></ul><ul><li>North Korea= 173 </li></ul>
  30. 30. Institutional Investor (2007 rating)
  31. 31. Institutional Investor Risk Rating
  32. 32. Institutional Investor Risk Rating 1981-2007
  33. 33. International Country Risk Guide <ul><li>The ICRG Risk Rating System assigns a numerical value (risk points) to a predetermined range of risk components according to a preset weighted scale for each country covered by the system (PRS) </li></ul><ul><li>The risk components are grouped into 3 categories - Political, Economic and Financial. Each Risk Category is made up of a number of Risk Components. The sum of the Risk Points assigned to each Risk Component within each Risk Category determines the overall risk for that category. </li></ul><ul><li>The total Risk Points for each Risk Category are further combined, according to a formula, to produce a Composite Risk Rating. </li></ul><ul><li>Very High Risk 00.0 to 49.5 points High Risk 50.0 to 59.5points Moderate Risk 60.0 to 69.5 points Low Risk 70.0 to 79.5 points Very Low Risk 80.0 to 100 points </li></ul>
  34. 34. International Country Risk Guide: RCI Composite Political, Financial and Economic Risk Rating with weighted average Coup d’état FORECAST
  35. 35. OECD Credit rating 1997 Knaepen Package= convergence on the pricing of officially supported medium and long term export credits. One of the key elements of the Knaepen Package is a system for assessing country credit risk and classification of the countries into 7 categories . The Country Risk Classification Method measures the country credit risk, i.e. the likelihood that a country will service its external debt. The Country Risk Classification Method uses an econometric model based on quantitative indicators, e.g. the financial and the economic situation and the payment experience of the countries and takes account of possible qualitative factors, e.g. political and other economic and financial factors not included in the quantitative Econometric Model. The details of the Country Risk Assessment Model are confidential and not published.,2340,fr_2649_34169_1901105_1_1_1_1,00.html
  36. 36. OECD Credit rating The final classification, based only on valid country risk elements, is a consensus decision of the sub-Group of Country Risk Experts that involves the country risk experts of the Participating Export Credit Agencies. The sub-Group of Country Risk Experts meets several times a year. These meetings are organized so as to guarantee that every country is reviewed each time a fundamental change is noticed and at least once a year. The meetings are confidential and no official reports of the deliberations are made. 8 country risk categories from 0 (no risk) to 7 (high risk)
  37. 37. OECD Country risk classification in 2008 USA UK Belgium Canada France Greece Austria 0 Gabon RCI Guatemala Mexico Bulgaria Kuwait Mexico Malaysia Argentina Vietnam Thailand Russia Romania Trinidad & Tobago Cameroon Niger Nigeria Pakistan Philippines Indonesia Brazil Peru Panama South Africa Hungary Poland HongKong Bolivia Haiti Cambodia Albania Israel Algeria Morocco Chile China Czech Rep 7 6 5 4 3 2 1
  38. 38. COFACE <ul><li>140 countries </li></ul><ul><li>Country rating definition: </li></ul><ul><li>Investment grade </li></ul><ul><li>A1= steady economic and political situation </li></ul><ul><li>A2= weak default probability </li></ul><ul><li>A3= adverse circumstances may lead to worsening payment record </li></ul><ul><li>A4= patchy payment record could be worsened by adverse economic/political developments </li></ul><ul><li>Speculative grade : </li></ul><ul><li>B= unsteady economic and poltical environment </li></ul><ul><li>C= bad payment record </li></ul><ul><li>D= high risk profile and very bad payment record </li></ul>
  39. 39. Coface credit Rating (2008) <ul><li>Canada= A1 </li></ul><ul><li>Australia= A1 </li></ul><ul><li>USA= A1 </li></ul><ul><li>Japan= A1 </li></ul><ul><li>Chile= A2 </li></ul><ul><li>Korea= A2 </li></ul><ul><li>Thaïland = A3 </li></ul><ul><li>China = A3 </li></ul><ul><li>Mexico = A3 </li></ul><ul><li>India = A3 </li></ul><ul><li>Croatia=A3 </li></ul><ul><li>Poland = A3 </li></ul><ul><li>Roumania =A4 </li></ul><ul><li>Tunisia= A4 </li></ul><ul><li>Algéria = A4 </li></ul><ul><li>Brazill= A4 </li></ul><ul><li>Cameroun= B </li></ul><ul><li>Égypt = B </li></ul><ul><li>Russia= B </li></ul><ul><li>Indonésia= B </li></ul><ul><li>Turkey = B </li></ul><ul><li>Ukraine= C </li></ul><ul><li>Congo= C </li></ul><ul><li>Argentina = C </li></ul><ul><li>Iran= D </li></ul><ul><li>Venezuela= D </li></ul><ul><li>RCI= D </li></ul><ul><li>Nigeria= D </li></ul>
  40. 40. Tunisia: Macroeconomic indicators source: Coface 4,7 4,7 4,5 3,2 3 2,7 Réserves en mois d'import. 11,3 12,5 17,3 13,8 14,5 11 SD/Export b&s (%) 63 67 70 75 81,2 83,7 Dette extérieure/PIB (%) -2,8 -2,5 -2,3 1,1 -1,9 -2,9 Balance courante/PIB (%) -3,2 -2,8 -2,5 -2 -2,4 -2,3 Balance commerciale 17,7 16,3 14 12,5 12,1 10,3 Importations 14,5 13,5 11,5 10,5 9,7 8 Exportations -2,6 -2,7 -2,8 -3 -2,6 -3,4 Solde public/PIB (%) 3 3 4,5 2 3,6 2,7 Inflation (%) 6,2 6 5,4 4 6 5,6 Croissance économique (%) 2008(p) 2007(e) 2006e 2005 2004 2003 Mds $
  41. 41. Coface: Payment arrears index in Tunisia (index 100= 1995)
  42. 42. AT KEARNEY: the globalizaton index <ul><li>Index that measures a country’s global links, from foreign direct investment to international travel, telephone traffic, and Internet servers </li></ul><ul><li>Indicators combined into 4 sub-categories: </li></ul><ul><ul><li>Economic integration (trade, FDI, portfolio capital flows, income payments, receips) </li></ul></ul><ul><ul><li>Technology (number of Internet users, Internet hosts, secure servers) </li></ul></ul><ul><ul><li>Personnal contact (international travel, tourism, international telephone traffic, cross-border transfers) </li></ul></ul><ul><ul><li>Political engagement (foreign embassies, participation in UN missions, number of memberships in international organisations) </li></ul></ul>
  43. 43. The Globalization index 51 45 35 12 29 57 48 31 11 1 2003 53 39 38 15 46 58 44 34 7 1 2004 13 16 France 53 48 China 39 45 Russia 38 29 Japan 46 42 Morocco 58 44 Brazil 44 39 Argentina 34 26 Chile 12 12 United States 1 6 Ireland 2002 2001
  44. 44. Globalization Index: The Top 20 /62 <ul><li>1. Singapore </li></ul><ul><li>2. Ireland </li></ul><ul><li>3. Switzerland </li></ul><ul><li>4. US </li></ul><ul><li>5. Netherlands </li></ul><ul><li>6. Canada </li></ul><ul><li>7. Denmark </li></ul><ul><li>8. Sweden </li></ul><ul><li>9. Austria </li></ul><ul><li>10. Finland </li></ul><ul><li>11. New Zealand </li></ul><ul><li>12. UK </li></ul><ul><li>13. Australia </li></ul><ul><li>14. Norway </li></ul><ul><li>15. Czech Rep. </li></ul><ul><li>16. Croatia </li></ul><ul><li>17. Israel </li></ul><ul><li>18. France </li></ul><ul><li>19. Malaysia </li></ul><ul><li>20. Slovenia </li></ul><ul><li>52. Russia </li></ul><ul><li>54. China </li></ul><ul><li>62. Iran </li></ul>ATKearney
  45. 45. AT KEARNEY: the FDI confidence index <ul><li>The FDI confidence index is constructed using primary data from a proprietary survey administered to senior executives of the world’s 1000 largest corporations. </li></ul><ul><li>The survey is designed to gauge the likelihood of investment in specific markets in order to gain insights into likely trends in global FDI flows over the next one to three years. </li></ul><ul><li>Index values are based on non-source country responses about various markets (eg: the index ranking for the United States reflects all non-US company responses about the US market) </li></ul>
  46. 46. FDI Confidence Index ( AT Kearney),
  47. 47. World Economic Forum: Global competitiveness ranking <ul><li>Growth prospects of 131 countries: up-to-date and comprehensive data source available on the comparative strengths and weaknesses of leading economies of the world. </li></ul><ul><li>Countries in The Global Competitiveness Report are ranked by the Growth Competitiveness Index (GCI) (GCI Rankings) and the Microeconomic Competitiveness Index (MICI) (MICI Rankings), which combined encapsulate the relative strengths and weaknesses of growth within each economy . </li></ul>
  48. 48. The 9 pillars of global competitiverness Hard + Soft DATA : Public debt + REER + interest rates + inflation + savings rate + legal and Regulatory framework + infrastructure + Education system and management schools….
  49. 49. Global Competitiveness Index 2006-2007
  50. 50. 2008 Ranking 20 Belgium 19 Australia 18 France 17 Israel 16 Norway 15 Austria 14 Taiwan, China 13 Canada 12 Hong Kong SAR 11 Korea, Rep. 10 Netherlands 9 United Kingdom 8 Japan 7 Singapore 6 Finland 5 Germany 4 Sweden 3 Denmark 2 Switzerland 1 United States 131 Chad 130 Burundi 129 Zimbabwe 128 Mozambique 127 Timor-Leste 126 Guyana 125 Mauritania 124 Lesotho 123 Ethiopia 122 Zambia 121 Paraguay 120 Uganda 119 Kyrgyz Republic 118 Madagascar 117 Tajikistan 116 Cameroon 115 Mali 114 Nepal 113 Suriname 112 Burkina Faso 111 Nicaragua 110 Cambodia
  51. 51. IMD World Competitiveness ranking <ul><li>The World Competitiveness Yearbook : annual study on the competitiveness of nations. </li></ul><ul><li>It analyzes and ranks the ability of nations to provide an environment that sustains competitiveness </li></ul><ul><li>Extensive coverage of 55 countries </li></ul><ul><li>Over 300 competitiveness criteria are selected . </li></ul>
  52. 52. IMD Criteria <ul><li>Over 320 competitiveness criteria </li></ul>Extent to which basic, technological, scientific and human resources meet the needs of business. (90 criteria) Infrastructure Extent to which enterprises are performing in an innovative, profitable and responsible manner. (66 criteria) Business Efficiency Extent to which government policies are conducive to competitiveness. (84 criteria) Government Efficiency Macro-economic evaluation of the domestic economy. ( 74 criteria) Economic Performance
  53. 53. IMD Growth competitiveness Index 2007 <ul><li>USA = 1/55 </li></ul><ul><li>Singapore </li></ul><ul><li>HongKong </li></ul><ul><li>Luxemburg </li></ul><ul><li>Denmark </li></ul><ul><li>Switzerland </li></ul><ul><li>15. China </li></ul><ul><li>16. Germany </li></ul><ul><li>20. UK </li></ul><ul><li>24. Japan </li></ul><ul><li>26. Chile </li></ul><ul><li>27. Inda </li></ul><ul><li>France = 28 </li></ul><ul><li>Korea= 29 </li></ul><ul><li>Russia = 43 </li></ul><ul><li>Mexico= 47 </li></ul><ul><li>Brazil= 49 </li></ul><ul><li>Argentina= 51 </li></ul><ul><li>Poland= 52 </li></ul><ul><li>Indonesia= 54 </li></ul><ul><li>Venezuela = 55 </li></ul>323 criteria within 5 main categories
  54. 54. Competitiveness index 2007-IMD
  55. 55. IMD 2007 Competitiveness Index <ul><li>1. USA </li></ul><ul><li>2. Singapore </li></ul><ul><li>3. HK </li></ul><ul><li>3. Luxembourg </li></ul><ul><li>4. Denmark </li></ul><ul><li>5. Switzerland </li></ul><ul><li>15. China </li></ul><ul><li>16. Germany </li></ul><ul><li>20. UK </li></ul><ul><li>24. Japan </li></ul><ul><li>26. Chile </li></ul><ul><li>27. India </li></ul><ul><li>28. France </li></ul><ul><li>29. Korea </li></ul><ul><li>30. Spain </li></ul><ul><li>33. Thailand </li></ul><ul><li>35. Hungary </li></ul><ul><li>38. Colombia </li></ul><ul><li>43. Russia </li></ul><ul><li>44. Romania </li></ul><ul><li>47. Mexico </li></ul><ul><li>55. Venezuela </li></ul>BEST
  56. 56. PriceWaterhouseCoopers’ Opacity Index <ul><li>The index is based on a major co-operative effort to assess the adverse impact of opacity of capital (the cost of borrowing funds) in a number of countries. </li></ul><ul><li>It is based on 5 components: </li></ul><ul><ul><li>Corruption in government bureaucracy </li></ul></ul><ul><ul><li>Laws governing contracts or property rights </li></ul></ul><ul><ul><li>Economic (fiscal, monetary, and tax-related) </li></ul></ul><ul><ul><li>Accounting standarts </li></ul></ul><ul><ul><li>Business regulations </li></ul></ul><ul><ul><li>Together, these create the acronym CLEAR (Corruption, Legal, Economic, Accounting, Regulatory). A high degree of opacity in any of these areas will raise the cost of doing business and curtail the availability of investment capital. </li></ul></ul>
  57. 57. PriceWaterhouseCoopers’ Opacity Index <ul><li>China (from worst…) </li></ul><ul><li>Russia </li></ul><ul><li>Indonesia </li></ul><ul><li>South Korea </li></ul><ul><li>Turkey </li></ul><ul><li>Venezuela </li></ul><ul><li>Ecuador </li></ul><ul><li>India </li></ul><ul><li>Kenya </li></ul><ul><li>Israel </li></ul><ul><li>HongKong </li></ul><ul><li>Italy </li></ul><ul><li>Mexico </li></ul><ul><li>UK </li></ul><ul><li>USA </li></ul><ul><li>Chile </li></ul><ul><li>Singapore (to best) </li></ul>Corruption+ Legal + Economic + Accounting + Regulatory
  58. 58. World Bank: Doing Business in 2008 <ul><li>Singapore </li></ul><ul><li>New Zealand </li></ul><ul><li>USA </li></ul><ul><li>KongKong </li></ul><ul><li>Denmark </li></ul><ul><li>UK </li></ul><ul><li>Canada </li></ul><ul><li>Ireland </li></ul><ul><li>Australia </li></ul><ul><li>Iceland </li></ul><ul><li>Norway </li></ul><ul><li>Japan </li></ul><ul><li>15. Thailand </li></ul><ul><li>31. France (44 in2006) </li></ul><ul><li>33. Chile </li></ul><ul><li>83. China </li></ul><ul><li>88. Tunisia </li></ul><ul><li>91. Vietnam </li></ul><ul><li>106. Russia </li></ul><ul><li>120. India </li></ul><ul><li>122. Brazil </li></ul>178 countries 10 indicators
  59. 59. France: Overall business conditions (IFC)
  60. 60. THAILAND: Overall business conditions (IFC)
  61. 61. Heritage Foundation: Index of economic freedom <ul><li>Economic freedom = absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself . </li></ul><ul><li>T he Index includes a broad array of institutional factors determining economic freedom: corruption, non-tariff barriers to trade, t he fiscal burden of government , t he rule of law , r egulatory burdens , restrictions on banks, labor market regulations, black market activities… </li></ul>
  62. 62. Criteria of economic freedom <ul><li>To measure economic freedom and rate each country, the Index is based on 50 independent economic variables within 10 broad categories of economic freedom: </li></ul><ul><ul><li>Trade policy, </li></ul></ul><ul><ul><li>Fiscal burden of government, </li></ul></ul><ul><ul><li>Government intervention in the economy, </li></ul></ul><ul><ul><li>Monetary policy, </li></ul></ul><ul><ul><li>Capital flows and foreign investment, </li></ul></ul><ul><ul><li>Banking and finance, </li></ul></ul><ul><ul><li>Wages and prices, </li></ul></ul><ul><ul><li>Property rights, </li></ul></ul><ul><ul><li>Regulation, and </li></ul></ul><ul><ul><li>Black market activity </li></ul></ul>
  63. 63. Heritage Foundation: 2008 Economic Freedom Index(10 institutional and economic criteria) <ul><li>HongKong </li></ul><ul><li>Singapore </li></ul><ul><li>Irland </li></ul><ul><li>Australia </li></ul><ul><li>USA </li></ul><ul><li>New Zealand </li></ul><ul><li>Canada </li></ul><ul><li>Chile </li></ul><ul><li>Switzerland </li></ul><ul><li>UK </li></ul><ul><li>13. Netherlands </li></ul><ul><li>Japan = 17 </li></ul><ul><li>Korea= 41 </li></ul><ul><li>Mexique= 44 </li></ul><ul><li>France = 48 </li></ul><ul><li>Thaïland = 54 </li></ul><ul><li>Tunisia= 84 </li></ul><ul><li>Morocco= 98 </li></ul><ul><li>Brazil= 101 </li></ul><ul><li>Algéria= 102 </li></ul><ul><li>China = 126 </li></ul><ul><li>Russia= 134 </li></ul><ul><li>Venezuela = 148 </li></ul><ul><li>North Korea = 157 </li></ul>France = Over-regulated labor market and overly intrusive state + statist political economy culture + protectionist trading stances + persistent obstacles to foreign takeovers of domestic companies + sluggish growth + persistently high unemployment rate + stubborn budget deficit
  64. 64. Fraser Institute <ul><li>Since 1975 </li></ul><ul><li>130 countries </li></ul><ul><li>Annual Index of Economic Freedom in the world: reliable measure of cross-country differences in economic freedom, using third-party data to help ensure objectivity </li></ul><ul><li>Criteria : government quality, legal structure, security of property rights, access to sound money, personal choice, freedom to exchange with foreigners and to compete in markets, quality of regulations and institutional strength… </li></ul>
  65. 65. Fraser Institute’s Index of Economic Freedom Source:
  66. 66. Human Development Index <ul><li>HDI developed by UNDP </li></ul><ul><li>A composite index measuring average achievement in three basic dimensions of human development-a long and healthy life, knowledge and a decent standard of living , as measured by real GDP per capita on a purchasing power parity basis . </li></ul>
  67. 67. UNDP – HDI 177. Niger 176. Sierra Leone 175. Mali 174. Burkina Faso 173. Guinea-Bissau 172. Central African Republic 171. Chad 170. Ethiopia 169. Burundi 168. Mozambique 167. Congo, Dem. Rep. of the 166. Malawi 165. Zambia 164. Côte d'Ivoire 163. Benin 162. Tanzania, U. Rep. of 161. Angola 160. Guinea 159. Nigeria 158. Rwanda 157. Eritrea 156. Senegal 155. Gambia 154. Haiti 20. New Zealand 19. Spain 18. United Kingdom 17. Italy 16. France 15. Denmark 14. Austria 13. Belgium 12. Luxembourg 11. Finland 10. Netherlands 9. Switzerland 8. United States 7. Japan 6. Canada 5. Sweden 4. Ireland 3. Australia 2. Iceland 1. Norway
  68. 68. HDI- Life Expectancy 1970-2005 79.0 71.7 New Zealand 79.5 72.9 Spain 78.3 72.0 United Kingdom 80.0 72.1 Italy 79.4 72.4 France 77.1 73.6 Denmark 78.9 70.6 Austria 78.8 71.4 Belgium 78.4 70.7 Luxembourg 78.4 70.7 Finland 78.3 74.0 Netherlands 80.5 73.8 Switzerland 77.3 71.5 United States 81.9 73.3 Japan 79.9 73.2 Canada 80.1 74.7 Sweden 77.7 71.3 Ireland 80.2 71.7 Australia 80.6 74.3 Iceland 79.3 74.4 Norway 2000-05 1970-75
  69. 69. HDI- Life Expectancy 1970-2005 44.3 38.4 Niger 40.6 35.4 Sierra Leone 47.8 38.0 Mali 47.4 43.8 Burkina Faso 44.6 36.5 Guinea-Bissau 39.4 43.5 Central African Republic 43.6 40.6 Chad 47.6 43.5 Ethiopia 43.5 44.1 Burundi 41.9 40.7 Mozambique 43.1 46.0 Congo, Dem. Rep. of the 39.6 41.8 Malawi 37.4 50.2 Zambia 46.0 49.8 Côte d'Ivoire 53.8 47.0 Benin 46.0 49.5 Tanzania, U. Rep. of 40.7 37.9 Angola 53.6 39.3 Guinea 43.3 42.8 Nigeria 43.6 44.6 Rwanda 53.5 44.3 Eritrea 55.6 40.1 Senegal 2000-05 1970-75  
  70. 70. COUNTRIES X & Y: A multi-index composite graph
  71. 71. NSE Risk Rating <ul><li>Rating covers about 100 developing countries </li></ul><ul><li>Objective : Market potential assessment for foreign investor </li></ul><ul><li>Means : Country risk rating issued once a year </li></ul><ul><li>Methodology : 4 parameters computed </li></ul><ul><li>Sovereign financial risk </li></ul><ul><li>Financial market risk </li></ul><ul><li>Political risk </li></ul><ul><li>Business environment risk </li></ul>
  72. 72. Nord Sud Export index <ul><li>Country risk ratings with 4 factors: </li></ul><ul><ul><li>Sovereign financial risks (public debt – sovereign default risk – inconvertible risk) </li></ul></ul><ul><ul><li>Market financial risks (systemic and volatilité risks – mastering of the macroeconomic fundamentals – devaluation risks) </li></ul></ul><ul><ul><li>Political risks (external conflicts – government stability – social homogeneity) </li></ul></ul><ul><ul><li>Business environment (FDI – good governance – labor conditions) </li></ul></ul>
  73. 73. NSE Rating Methodology <ul><li>Each rating stems from weighted average of 60 variables </li></ul><ul><li>43 qualitatives variables </li></ul><ul><li>17 qualitative variables </li></ul><ul><li>Each variable is graded from 0 (worst) to 7 (best) </li></ul>
  74. 74. Exemple NSE Rating Procedure <ul><li>Parameter 1 : Sovereign financial risk </li></ul><ul><li>Factor 1 (weight 4/10):Public debt burden in the economy, computed from 6 quantitative variables </li></ul><ul><li>Factor 2 (weight 4/10):Sovereign default risk, from 4 quantitative and 2 qualitative variables </li></ul><ul><li>Factor 3 (weight 2/10):Non convertibility risk, </li></ul><ul><li>from 2 quantitatives and 1 quantitative variables </li></ul>
  75. 75. Nord Sud Export: export country risk From 1 to 160 Dangerous risk 1 From 161 to 270 Very high risk 2 From 271 to 320 High risk 3 From 321 to 380 Rather high risk 4 From 381 to 430 Moderate risk 5 From 431 to 540 Low risk 6 From 541 to 700 Very low risk (eg: OCDE) 7 rate Type of risk Risk classes
  76. 76. Nord Sud Export: investment country risk 30% 20% Business environment (15 criteria) 30% 10% Political risks (15 criteria) 30% 40% Market risks (15 criteria) 10% 30% Sovereign risks (15 criteria) Investments Export
  77. 77. Nord Sud Export advice
  78. 78. Nord Sud Export: investment country risk ratings <ul><li>Hong-Kong: 7 </li></ul><ul><li>Singapore: 7 </li></ul><ul><li>Chile: 7 </li></ul><ul><li>South Korea: 6 </li></ul><ul><li>Malaysia: 6 </li></ul><ul><li>Costa-Rica: 6 </li></ul><ul><li>Mexico: 6 </li></ul><ul><li>Egypt: 6 </li></ul><ul><li>Mauritius: 6 </li></ul><ul><li>Oman: 6 </li></ul><ul><li>Myanmar: 2 </li></ul><ul><li>Yemen: 2 </li></ul><ul><li>Nigeria: 2 </li></ul><ul><li>Irak:1 </li></ul><ul><li>Republic of the Congo: 1 </li></ul><ul><li>Kirghizstan: 1 </li></ul><ul><li>Tadjikistan:1 </li></ul>
  79. 79. The Institute for Management Development’s World Competitiveness Report analyses 49 industrialized and emerging economies around the world based on a far-reaching survey since 1989. Its analysis of the institutional framework addresses issues such as state efficiency, transparency of government policy, public service’s independence from political interference, bureaucracy as well as bribery and corruption. PricewaterhouseCoopers’s Opacity Index measures the lack of clear, accurate, formal and widely accepted practices in a country’s business environment. As such, it focuses on the relative state of corrupt business practices, the transparence of the legal system and the quality of the regulatory framework. It measures the resulting extra risk premium that stems from additional business and economic costs. Heritage Foundation established since 1985, in partnership with the WSJ, an economic freedom index for some 160 countries, both industrialized and developing. The ranking is based on ten socio-political and economic criteria, including political stability, state interference, investment codes, regulatory framework, institutional strength, and corruption scope.
  80. 80. Political and Economic Risk Consultancy (PERC) specializes in strategic business information and analysis in East and Southeast Asia, with emphasis on corruption and business costs. Annual risk reports survey over 1,000 senior expatriates living in to obtain their perceptions of corruption, labor quality, intellectual property rights risks and other systemic shortcomings. The Political and Economic Stability Index of Lehman Brothers and Eurasia measures relative stability in around 20 EMCs by integrating political science theories with financial markets developments. The monthly evaluation uses both quantitative and qualitative criteria, including institutional efficiency, political legitimacy, economic performance, and government effectiveness. Freedom House since 1972 monitors the progress and decline of political rights and civil liberties in 192 countries. FH publishes an annual survey of the Progress of Freedom in the world. The ranking is based on a wide survey of regional experts, consultants, and human rights specialists. Political stability and civil liberties are ranked on a scale of 1 (best) to 7 (worst).
  81. 81. WORLD BANK: Given its unique policy dialogue with more than 180 countries, the Bank has developed a comprehensive database of composite governance indicators, measuring perceptions of voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and corruption. / Political Risk Service’s risk analyses cover a hundred countries and are updated on a quarterly basis. International Country Risk Guide measures and tracks corruption perception in government, law and order, expropriation risk, as well as the quality of bureaucracy. These measures stem from the subjective assessment of experts around the world. http:// Business Environment Risk Intelligence (BERI) provides a Political Risk Index assessing the social and political environment of a country. It is built on the opinion and scores provided by a hundred experts with a diplomatic or political science background. Governance quality is included into political risk analysis along with government effectiveness and social indicators. http://
  82. 82. Standard and Poor’s rating approach is both quantitative and qualitative. It is based on a checklist of 10 categories, including governance and political risk. The political risk factors gauge the impact of politics on economic conditions, as well as the quality of governance and the degree of government support in the population. S&P assigns short term and long-term ratings. http:// To look upon governance and corruption, Moody’s takes into consideration the structures of social interaction, social and political dynamics, as well as the economic fundamentals. Moody’s relies on the judgment of a group of credit risk professionals to weigh the various risk factors as well as the impact of each of these factors upon business prospects. The London-based Economist Intelligence Unit (EIU) provides a comprehensive é-year forecasting country risk analysis on some 100 EMCs., on a quarterly basis. The EIU method flows from expert’s answers to a series of 77 predetermined qualitative and quantitative questions. http://
  83. 83. Transparency International , a non-profit non-governmental organization in Berlin, provides an annual survey of corruption practices in nearly 90 countries since 1995. The Corruption Perception Index is based on a wide network of information sources with local NGOs, domestic and foreign corporations, investors, and business contacts. Institutional Investor ’s ratings are published twice a year since 1979 to assess the creditworthiness of about 150 countries, based on a survey of some 100 international bankers’ perception of creditworthiness, including economic, financial and socio-political stability criteria. The resulting score scales from zero (very high chance of default) to 100 (least chance of default). Euromoney publishes ratings of some 180 countries since 1982 on a semi-annual basis. The methodology is built from a blend of quantitative criteria and qualitative factors coming from surveys with about 40 political analysts and economists. Political risk receives a 25% weighting, as much as economic performance. Countries are graded on scale from 0 (worst) to 100 ( best).