GBERisk Rating

Country Risk Analysis
SOVEREIGN RISK RATING

March 2008
MH BOUCHET/CERAM-Global Finance
Various approaches to country risk
assessment
 Qualitative analysis: financial, macroeconomic, legal,
regulatory and political parameters; COFACE, Nord/Sud
Export, EIU, IIF
 Quantitative approach : rating and scoring
 Econometric approach and modelization
 Analytical approach: crisis typology (Indosuez)
 Principal Component Analysis
 Logit Analysis
 Non-linear conditional analysis (threshold levels &
breaking points: TAC)
Specialized Country Risk Rating
institutions
 BERI (Business Environment Risk Index)
 Dun and Bradstreet, Moody ’s, S & P, Fitch
 Institutional Investor
 Frost & Sullivan
 Euromoney
 Fraser Instiotute
 Credit Risk International (Paris)
 International Country Risk Guide (NY/London)
 Coface & Ducroire
 Heritage Foundation
 Transparency International
 DBRS:
http://cache.dbrs.com/pdf/20752303634573.pdf?transactionID=421961
Quantitative approach: Rating
 Means: Transforming a number of observations

(Delphi method, surveys) or quantitative indicators
into one number.
 The various indicators can be weighted regarding
their impact on creditworthiness and risk.
 End-product: one single grade to assess past and
current country risk situation with possible cross-
country comparisons across time
Country Risk Ratings
Advantages/ Pros Shortcomings/Cons
 “reductionist”
 Simple
 oversimplistic
 cross-country comparison
 risk of self-fulfilling
 comparison across time
prophecy
 shrinks a large number of
 little predictive value
variables into one single
grade  weighted average tends to
 Reliable for smooth risk bury salient trends

evolution  Gives “market consensus”
often made of herd instinct
Shortcomings of rating agences (C.
Kuhner, Schmalenbach Business review, January 2001)
 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.
 Criticisms:
 * Power without accountability
 * Conformity bias
 * Sociocultural bias
 * Punishment of disobedient firms/countries that do not request
a rating
 * Procyclical bias, hence followjng the majority opinion of
market participants without any early warning signals nor
predictability track record
Asia, LTCM, US Subprime crises:
some lessons to learn?
 “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!”
Fitch IBCA January 13, 1998
 “When the facts change, I change my mind” J.M Keynes
Rating = poor early warning signals?
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
 « 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 »
 FICHT IBCA January 14, 1998
The Perceived Situation
 Was the crisis anticipated by rating agencies?
Credit Ratings
Standard & Poor' s Moody' s
June 1996 June 1997 June 1996 June 1997
Indonesia BBB BBB Baa3 Baa3
Korea AA- AA- A1 A1
Malaysia A+ A+ A1 A1
Philippines BB BB+ Ba2 Ba1
Thailand A A A2 A2
EUROMONEY’s Risk Rating
1996 1997 1998 1999 2000 2006 2007

Korea
28 30 42 44 29 37 38
Thailand
45 51 54 49 65 57 60
Philippines
55 57 55 53 78 80 78
Malaysia
33 35 56 46 46 46 49
Indonesia
45 49 91 98 107 85 81
Quantifying Country Risk
Political Factors Weights
Political Political factor A 30%
30% Risk Political factor B 50
Rating Political factor C 20
Overall
Country
Risk
Rating
Financial Factors Weights
Transfer Financial factor A 30%
70% Risk Financial factor B 40
Rating Financial factor C 30
Country Risk Rating
 Foreign investment risk decision matrix

– combines ratings of financial and political risk
Low
Acceptable
Zone
Political Risk
High risk Decision depending

High Zone on market and profit
Low potential
High
Financial Risk
Moody’s Sovereign Ratings 02/2008
Moody’s economic and financial Risk indicators: Argentina end-2007
Country risk ratings?
Country risk analysis cannot & should
not be boiled down to bond rating!
Risk might stem from a wide range of

strategies, including FDI, exporting and
importing, lending, portfolio investment,
consultancy contracts….
Quantitative Country Risk Appraisal Methods
 BERI: Business Environment Risk Index

(F.T. Haner, California-based) www.beri.com
 Swiss-based private source for risk rating on over 130
countries
 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
 3 components of country risk: business climate, political

stability, currency and repayment risk.
 FORELEND reports (Forecast of Country Risk for
International Lenders)
BERI S.A.
 Economic, financial, monetary, operating and
political conditions are integral components of the
0 (worst case) to 100 (best case) system for
assessing countries.
 Two risk indexes three times a year: ORI
Operations Risk Index and PRI Political Risk
Index.
Output: Remittance and repatriation
Factor: the R Factor, with forecasts for +1
year and +5 years.
BERI S.A.
Worst country ratings
 Venezuela
 Pakistan
 Colombia
 Indonesia
 Ecuador
 Nigeria
 Ivory Coast
 North Korea
Euromoney
Semi-annual country risk scoring of 185 countries,
both OECD and EMCs
Rating Methodology:
 Panel of 32 leading economists in international financial

institutions evaluing country performance in the financial
markets (market access, spreads, selldown, terms and
maturity…)
 Scoring between 100 (excellent) and 0 (considerable risk)
 + Panel of political analysts to measure short-term risk of
destabilization
Euromoney
• Euromoney establishes an overall score for countries using nine
weighted categories which are calculated as follows:
• 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.
•Categories =
• 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%).
Rating: EUROMONEY
 Growth performance: 25% (GDP projections)

 Political risk: 25%
 External debt indicators: 10% (debt/GDP et debt/X)
 External payment default and rescheduling: 10%
 Credit rating Moody ’s or S&P: 10%
 Short-term credit market access: 5%
 Commercial bank MT credit: 5%
 Capital markets access: 5%
 Spread over US Treasury bills: 5%
EUROMONEY: end-2007 Rating
 1= Luxemburg 42= Poland

 44= Chile
 2. Norway
 50= Mexico
 3. Switzerland
 54= China
 14= France  62= Tunisia
 19= Japan  65= Morocco
 26= HongKong  69= Egypt
 28= Taiwan  79= Algeria

 184= North Korea
EUROMONEY: Country Risk Rating
End-2001 End-2005 2007
 14= Singapore  9= Ireland 20=Singapore
 28= Taïwan  19= Singapore 41=Hungary
 30= HongKong 42= Poland
 22= New Zealand
 40= Chile
54= China
 35= Hungary 57= Russia
 39= Hungary  58= China 76= Vietnam
 40= Brunei  73= Iran 77= Algeria
 42= Poland  74= Vietnam 79= Iran
 45= China  77= Russia 85= Indonesia
 56= Malaysia  85= Algeria 167= Ivory Coast
 89= Romania 178= Congo
 96= Indonesia
182= Cuba
 93= Bulgaria  127= Ivory Coast 185= North Korea
 163= Congo  182= Cuba
EUROMONEY Risk Rating: Ivory Coast
180
160 Higher Risk
140
120
Rank
100
80
Political upheaval
60 Coup d’état
40
20 Lower Risk
0
9
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87
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Scoring/Rating of Country Risk
Institutional Investor
 0-100 semi-annual Rating of 136 countries’ creditworthiness
based on survey of 100 leading international bankers
 Best : Switzerland, Germany, Netherlands, United States, United
Kingdom, France, Luxembourg… Singapore, Taiwan, Chile
 Worst: Cuba, Nigeria, Benin, Sudan, Iraq, Congo, Sierra Leone,
North Korea, Albania, Angola
 II Global average rating as of March 2000 = 41

 II Global average rating as of March 2007 = 45
Institutional Investor Risk Rating
• Risk information provided by leading international banks.
• 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.
• 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.
• 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)
Rank
20
40
60
80
100
120
140
160
180
0
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FCFA devaluation
Ivory Coast
M 003
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7
Institutional Investor Risk Rating 1981-2007
Institutional Investor: 2007 rating
1. Switzerland  60. Tunisia

2. Norway  67. Morocco
3. Luxemburg  68. Algeria
 72. Egypt
4. Netherlands
 78. Venezuela
5. Finland
 91. Argentina
6. Germany  117. Bolivia
13. France  124. Gabon
17. Spain  134. Cameroun
21. Italy  153. Congo
 157. RCI
 166. Iraq
 171. Zimbabwe
Institutional Investor
2007 Risk Rating of ASIA
 Singapore= 16  Philippines= 73
 Australia= 18  Indonesia= 76
 Hongkong= 24  Vietnam= 77
 Taiwan= 26  Pakistan= 86
 South Korea= 28  Sri Lanka= 100
 China= 34  Laos= 132
 Malaysia= 38  Cambodia= 140
 Thailand= 54  Myanmar= 168
 India= 58  North Korea= 173
Institutional Investor (2007 rating)
From Best to…. Worst

Switzerland, Norway, UK, Congo, Afghanistan, Mali
Germany, USA, Sweeden
Netherlands, France, US Chad, Togo, Cambodia
Austria, Canada, Singapore, Yugoslavia, Cuba, RCI

Australia, Japan
Denmark, Belgium, Canada Albania, Haiti, Angola, Iraq,
N. Korea, Sudan
Greece, Chile, Spain, Kuwait Nicaragua, Cuba, Zambia,
Italy, Taiwan, HK, China Togo, Ethiopia, Myanmar,
Liberia, Somalia, Zimbabwe
Institutional Investor Risk Rating
180
160
140
120
100
80
60
40
20
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se
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Ivory Coast Ukraine Chile Mexico
Brazil Algeria Russia
Institutional Investor Risk Rating 1981-2007
180
RCI Russia
160
140
120
100
80
60
40
20
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International Country Risk Guide
• 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)
• 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.
• The total Risk Points for each Risk Category are further combined,
according to a formula, to produce a Composite Risk Rating.
• 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
International Country Risk Guide: RCI
70
FORECAST
65
60
Rating
55
50
Coup d’état
45
40
avr-99 mai-99 juin-99 juil-99 août-99 sept-99 oct-99 nov-99 déc-99 janv-00 févr-00 mars-00 avr-00 spt-00 sept-01 sept-02 sept-03 2006
Composite Political, Financial and Economic Risk Rating with weighted average
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.
http://www.oecd.org/document/49/0,2340,fr_2649_34169_1901105_1_1_1_1,00.html
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)
OECD Country risk classification in 2008
0 1 2 3 4 5 6 7
Greece Czech Chile Israel Albania Bolivia

Austria Rep China Algeria Haiti
Morocco Cambodia
Belgium HongKong Hungary South Brazil Philippines Pakistan Cameroon
Canada Africa Indonesia Niger
Poland Peru
France Nigeria
Panama
USA Trinidad Thailand Vietnam Argentina
UK & Russia
Tobago Romania
Kuwait Mexico Guatemala Gabon

Mexico Bulgaria RCI
Malaysia
COFACE
140 countries
Country rating definition:
 Investment grade
 A1= steady economic and political situation
 A2= weak default probability
 A3= adverse circumstances may lead to worsening
payment record
 A4= patchy payment record could be worsened by adverse
economic/political developments
 Speculative grade:
 B= unsteady economic and poltical environment
 C= bad payment record
 D= high risk profile and very bad payment record
Coface credit Rating (2008)
 Canada= A1  Cameroun= B
 Australia= A1  Égypt = B
 USA= A1  Russia= B
 Japan= A1  Indonésia= B
 Chile= A2
 Turkey = B
 Korea= A2
 Thaïland = A3
 China = A3  Ukraine= C
 Mexico = A3  Congo= C
 India = A3  Argentina = C
 Croatia=A3
 Poland = A3  Iran= D
 Roumania =A4  Venezuela= D
 Tunisia= A4  RCI= D
 Algéria = A4  Nigeria= D
 Brazill= A4
Tunisia: Macroeconomic indicators
source: Coface
Mds $
2003 2004 2005 2006e 2007(e) 2008(p)
Croissance économique 5,6 6 4 5,4 6 6,2

(%)
Inflation (%) 2,7 3,6 2 4,5 3 3
Solde public/PIB (%) -3,4 -2,6 -3 -2,8 -2,7 -2,6
Exportations 8 9,7 10,5 11,5 13,5 14,5

Importations 10,3 12,1 12,5 14 16,3 17,7
Balance commerciale -2,3 -2,4 -2 -2,5 -2,8 -3,2
Balance courante/PIB -2,9 -1,9 1,1 -2,3 -2,5 -2,8

(%)
Dette extérieure/PIB 83,7 81,2 75 70 67 63
(%)
SD/Export b&s (%) 11 14,5 13,8 17,3 12,5 11,3
Réserves en mois 2,7 3 3,2 4,5 4,7 4,7
d'import.
Coface: Payment arrears index in Tunisia
(index 100= 1995)
AT KEARNEY: the globalizaton
index
 Index that measures a country’s global links, from
foreign direct investment to international travel,
telephone traffic, and Internet servers
 Indicators combined into 4 sub-categories:
– Economic integration (trade, FDI, portfolio capital flows,
income payments, receips)
– Technology (number of Internet users, Internet hosts, secure
servers)
– Personnal contact (international travel, tourism,
international telephone traffic, cross-border transfers)
– Political engagement (foreign embassies, participation in
UN missions, number of memberships in international
organisations)
The Globalization index
2001 2002 2003 2004
Ireland 6 1 1 1
United States 12 12 11 7
Chile 26 34 31 34
Argentina 39 44 48 44
Brazil 44 58 57 58
Morocco 42 46 29 46
France 16 13 12 15
Japan 29 38 35 38
Russia 45 39 45 39
China 48 53
MH BOUCHET/CERAM-Global Finance 51 53
Globalization Index: The Top 20 /62
 1. Singapore  13. Australia
 2. Ireland  14. Norway
 3. Switzerland  15. Czech Rep.

 16. Croatia
 4. US
 17. Israel
 5. Netherlands
 18. France
 6. Canada
 19. Malaysia
 7. Denmark
 20. Slovenia
 8. Sweden
 9. Austria  52. Russia
 10. Finland  54. China
 11. New Zealand  62. Iran
 12. UK
MH BOUCHET/CERAM-Global Finance ATKearney

AT KEARNEY: the FDI confidence
index
 The FDI confidence index is constructed using primary
data from a proprietary survey administered to senior
executives of the world’s 1000 largest corporations.
 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.
 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)
FDI Confidence Index (AT Kearney),
Singapore
South Korea
Thailand
Netherlands
FDI Confidence Index
India
Czech Rep
Brazil
Poland
Australia
Mexico
Canada
0-3 scale
Spain
Italy
France
Germany
UK
US
China
0 0,5 MH BOUCHET/CERAM-Global
1 Finance
1,5 2 2,5
World Economic Forum: Global
competitiveness ranking
 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.
 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.
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….
Global Competitiveness Index 2006-2007
United States 1 Cambodia 110
Switzerland 2 Nicaragua 111
Denmark 3 Burkina Faso 112
Sweden 4 Suriname 113
Germany 5 2008 Nepal
Mali
114
115
Finland 6
Singapore 7 Ranking Cameroon 116
Japan 8 Tajikistan 117

Madagascar 118
United Kingdom 9
Netherlands 10 Kyrgyz Republic 119
Korea, Rep. 11 Uganda 120
Hong Kong SAR 12 Paraguay 121

Zambia 122
Canada 13
Ethiopia 123
Taiwan, China 14
Lesotho 124
Austria 15
Mauritania 125
Norway 16
Guyana 126
Israel 17
Timor-Leste 127
France 18
Mozambique 128
Australia 19
Zimbabwe 129
Belgium 20
Burundi 130
Chad 131
IMD World Competitiveness ranking
 The World Competitiveness Yearbook : annual

study on the competitiveness of nations.
 It analyzes and ranks the ability of nations to
provide an environment that sustains
competitiveness
 Extensive coverage of 55 countries
 Over 300 competitiveness criteria are selected.
IMD Criteria
Over 320 competitiveness criteria
Economic (74 criteria) Macro-economic evaluation of the
Performance domestic economy.
Government (84 criteria) Extent to which government policies

Efficiency are conducive to competitiveness.
Business Efficiency (66 criteria) Extent to which enterprises are

performing in an innovative,
profitable and responsible manner.
Infrastructure (90 criteria) Extent to which basic, technological,

scientific and human resources meet
the needs of business.
IMD Growth competitiveness Index 2007
1. USA = 1/55
2. Singapore  France = 28
3. HongKong  Korea= 29
4. Luxemburg  Russia = 43
5. Denmark  Mexico= 47
6. Switzerland  Brazil= 49
15. China  Argentina= 51
16. Germany  Poland= 52
20. UK  Indonesia= 54
24. Japan  Venezuela = 55
26. Chile
27. Inda
323 criteria within 5 main categories
Competitiveness
index 2007-
IMD
IMD 2007 Competitiveness Index
 1. USA BEST  27. India

 2. Singapore  28. France
 3. HK  29. Korea
 30. Spain
 3. Luxembourg
 33. Thailand
 4. Denmark
 35. Hungary
 5. Switzerland
 38. Colombia
 15. China
 43. Russia
 16. Germany
 44. Romania
 20. UK
 47. Mexico
 24. Japan
 55. Venezuela
 26. Chile
PriceWaterhouseCoopers’ Opacity Index
 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.
 It is based on 5 components:
– Corruption in government bureaucracy
– Laws governing contracts or property rights
– Economic (fiscal, monetary, and tax-related)
– Accounting standarts
– Business regulations
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 availabilityMHofBOUCHET/CERAM-Global
investment capital. Finance
PriceWaterhouseCoopers’ Opacity Index
 China (from worst…)  Israel

 Russia  HongKong
 Indonesia  Italy
 South Korea
 Mexico
 Turkey
 UK
 Venezuela
 USA
 Ecuador
 Chile
 India
 Kenya  Singapore (to best)
Corruption+ Legal + Economic + Accounting + Regulatory

1. Singapore
2. New Zealand
3. USA
World Bank:
4. KongKong
5. Denmark
Doing Business
6. UK
7. Canada
in 2008
8. Ireland
9. Australia
178 countries
10. Iceland
11. Norway
10 indicators
12. Japan
15. Thailand
31. France (44 in2006)
33. Chile
83. China
88. Tunisia
91. Vietnam
106. Russia
120. India
122. Brazil MH BOUCHET/CERAM-Global Finance
France: Overall business conditions (IFC)
THAILAND: Overall business conditions (IFC)
Heritage Foundation: Index of economic freedom
 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.
 The Index includes a broad array of institutional
factors determining economic freedom: corruption,
non-tariff barriers to trade, the fiscal burden of
government, the rule of law, regulatory burdens,
restrictions on banks, labor market regulations,
black market activities…
Criteria of economic freedom
 To measure economic freedom and rate each country, the
Index is based on 50 independent economic variables within
10 broad categories of economic freedom:
1. Trade policy,
2. Fiscal burden of government,
3. Government intervention in the economy,
4. Monetary policy,
5. Capital flows and foreign investment,
6. Banking and finance,
7. Wages and prices,
8. Property rights,
9. Regulation, and
10. Black market activity
Heritage Foundation: 2008
Economic Freedom Index(10 institutional and economic criteria)
1. HongKong Japan = 17

2. Singapore  Korea= 41
3. Irland  Mexique= 44
 France = 48
4. Australia
 Thaïland = 54
5. USA
 Tunisia= 84
6. New Zealand
 Morocco= 98
7. Canada
 Brazil= 101
8. Chile
 Algéria= 102
9. Switzerland  China = 126
10. UK  Russia= 134
13. Netherlands  Venezuela = 148
 North Korea = 157
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
Fraser Institute
 Since 1975
 130 countries
 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
 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…
Fraser Institute’s Index of Economic Freedom
Source: http://www.fraserinstitute.ca/shared/readmore.asp?sNav=pb&id=852
Human Development Index
 HDI developed by UNDP
 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.
1. Norway 154. Haiti
155. Gambia
2. Iceland
156. Senegal
3. Australia
157. Eritrea
4. Ireland 158. Rwanda
5. Sweden 159. Nigeria
6. Canada 160. Guinea
161. Angola
7. Japan
162. Tanzania, U. Rep. of
8. United States
9. Switzerland
UNDP 163. Benin
164. Côte d'Ivoire
10. Netherlands
11. Finland
– HDI 165. Zambia
166. Malawi
12. Luxembourg 167. Congo, Dem. Rep. of the

168. Mozambique
13. Belgium
169. Burundi
14. Austria
170. Ethiopia
15. Denmark 171. Chad
16. France 172. Central African Republic
17. Italy 173. Guinea-Bissau

174. Burkina Faso
18. United Kingdom
175. Mali
19. Spain
176. Sierra Leone
20. New Zealand 177. Niger
HDI- Life Expectancy 1970-2005
1970-75 2000-05
Norway 74.4 79.3
Iceland 74.3 80.6
Australia 71.7 80.2
Ireland 71.3 77.7
Sweden 74.7 80.1
Canada 73.2 79.9
Japan 73.3 81.9
United States 71.5 77.3
Switzerland 73.8 80.5
Netherlands 74.0 78.3
Finland 70.7 78.4
Luxembourg 70.7 78.4
Belgium 71.4 78.8
Austria 70.6 78.9
Denmark 73.6 77.1
France 72.4 79.4
Italy 72.1 80.0
United Kingdom 72.0 78.3
Spain 72.9 79.5
New Zealand MH BOUCHET/CERAM-Global
71.7Finance 79.0
HDI- Life Expectancy 1970-2005
1970-75 2000-05
Senegal 40.1 55.6
Eritrea 44.3 53.5
Rwanda 44.6 43.6
Nigeria 42.8 43.3
Guinea 39.3 53.6
Angola 37.9 40.7
Tanzania, U. Rep. of 49.5 46.0
Benin 47.0 53.8
Côte d'Ivoire 49.8 46.0
Zambia 50.2 37.4
Malawi 41.8 39.6
Congo, Dem. Rep. of the 46.0 43.1
Mozambique 40.7 41.9
Burundi 44.1 43.5
Ethiopia 43.5 47.6
Chad 40.6 43.6
Central African Republic 43.5 39.4
Guinea-Bissau 36.5 44.6
Burkina Faso 43.8 47.4
Mali 38.0 47.8
Sierra Leone 35.4 40.6
COUNTRIES X & Y: A multi-index composite graph
CPI
80
60
Ec. Freedom 40 Euromoney
20
0
Corruption Competitiveness
Doing Business
NSE Risk Rating
 Rating covers about 100 developing countries
 Objective: Market potential assessment for foreign

investor
 Means: Country risk rating issued once a year

 Methodology: 4 parameters computed
 Sovereign financial risk
 Financial market risk
 Political risk
 Business environment risk
Nord Sud Export index
 Country risk ratings with 4 factors:

– Sovereign financial risks (public debt – sovereign
default risk – inconvertible risk)
– Market financial risks (systemic and volatilité risks –
mastering of the macroeconomic fundamentals –
devaluation risks)
– Political risks (external conflicts – government
stability – social homogeneity)
– Business environment (FDI – good governance –
labor conditions)
NSE Rating Methodology
 Each rating stems from weighted average
of 60 variables
 43 qualitatives variables
 17 qualitative variables
 Each variable is graded from 0 (worst) to 7
(best)
Exemple NSE Rating Procedure
 Parameter 1: Sovereign financial risk
 Factor 1 (weight 4/10):Public debt burden in the

economy, computed from 6 quantitative variables
 Factor 2 (weight 4/10):Sovereign default risk, from 4

quantitative and 2 qualitative variables
 Factor 3 (weight 2/10):Non convertibility risk,

from 2 quantitatives and 1 quantitative variables
Nord Sud Export: export country risk
Risk classes Type of risk rate
7 Very low risk (eg: From 541 to 700
OCDE)
6 Low risk From 431 to 540
5 Moderate risk From 381 to 430
4 Rather high risk From 321 to 380
3 High risk From 271 to 320
2 Very high risk From 161 to 270
1 Dangerous risk From 1 to 160
Nord Sud Export: investment country
risk
Export Investments
Sovereign risks 30% 10%

(15 criteria)
Market risks 40% 30%
(15 criteria)
Political risks 10% 30%
(15 criteria)
Business environment 20% 30%
(15 criteria)
Nord Sud Export advice
Industrial investors:
Export firms: if
you master Risk
your margins, premium for
you should localisation s o for a yield
Rate increase them: risk rate of 15%
investment
to be
avoided
From 0 to 215 75% when >100% >30%
From 216 to 295 50% 100% 30%
From 296 to 350 40% 70% 25,50%
From 351 to 405 25% 50% 22,50%
From 406 to 430 10% 27% 19%
From 430 to 485 10% 13% 17%
From 486 to 540 5% 13% 17%
From 541 to 700 0% 0% 15%
Nord Sud Export: investment country
risk ratings
 Hong-Kong: 7  Myanmar: 2
 Singapore: 7  Yemen: 2
 Chile: 7  Nigeria: 2
 South Korea: 6  Irak:1
 Malaysia: 6  Republic of the Congo: 1
 Costa-Rica: 6  Kirghizstan: 1
 Mexico: 6  Tadjikistan:1
 Egypt: 6
 Mauritius: 6
 Oman: 6
Heritage Foundation PricewaterhouseCoopers’ The Institute for
established since 1985, s Opacity Index Management
in partnership with the measures the lack of Development’s World
WSJ, an economic clear, accurate, formal Competitiveness
freedom index for some and widely accepted Report analyses 49
160 countries, both practices in a industrialized and
industrialized and country’s business emerging economies
developing. The ranking environment. As such, around the world based
is based on ten socio- it focuses on the on a far-reaching survey
political and economic relative state of since 1989. Its analysis
criteria, including corrupt business of the institutional
political stability, state practices, the framework addresses
interference, investment transparence of the issues such as state
codes, regulatory legal system and the efficiency, transparency
framework, institutional quality of the of government policy,
strength, and corruption regulatory public service’s
scope. framework. It independence from
www.heritage.org measures the resulting political interference,
extra risk premium bureaucracy as well as
that stems from bribery and corruption.
additional business www.imd.ch
and economic costs.
www.opacityindex.com/
Freedom House since 1972 The Political and Political and Economic
monitors the progress and Economic Stability Risk Consultancy (PERC)
decline of political rights Index of Lehman specializes in strategic
and civil liberties in 192 Brothers and Eurasia business information and
countries. FH publishes an measures relative stability analysis in East and
annual survey of the in around 20 EMCs by Southeast Asia, with
Progress of Freedom in the integrating political emphasis on corruption and
world. The ranking is based science theories with business costs. Annual risk
on a wide survey of regional financial markets reports survey over 1,000
experts, consultants, and developments. The senior expatriates living in
human rights specialists. monthly evaluation uses to obtain their perceptions
Political stability and civil both quantitative and of corruption, labor quality,
liberties are ranked on a qualitative criteria, intellectual property rights
scale of 1 (best) to 7 including institutional risks and other systemic
(worst). efficiency, political shortcomings.
www.freedomhouse.org/rati legitimacy, economic www.asiarisk.com
ngs/index.htm performance, and
government
effectiveness.
www.legsi.com
Business Environment Political Risk Service’s WORLD BANK: Given its
Risk Intelligence (BERI) risk analyses cover a unique policy dialogue with
provides a Political Risk hundred countries and are more than 180 countries,
Index assessing the social updated on a quarterly the Bank has developed a
and political environment of basis. International comprehensive database of
a country. It is built on the Country Risk Guide composite governance
opinion and scores provided measures and tracks indicators, measuring
by a hundred experts with a corruption perception in perceptions of voice and
diplomatic or political government, law and accountability, political
science background. order, expropriation risk, stability, government
Governance quality is as well as the quality of effectiveness, regulatory
included into political risk bureaucracy. These quality, rule of law, and
analysis along with measures stem from the corruption.
government effectiveness subjective assessment of www.worldbank.org/wbi/go
and social indicators. experts around the world. vernance/
http://www.beri.com http://www.prsgroup.com
The London-based To look upon governance Standard and Poor’s
Economist Intelligence and corruption, Moody’s rating approach is both
Unit (EIU) provides a takes into consideration quantitative and qualitative.
comprehensive é-year the structures of social It is based on a checklist of
forecasting country risk interaction, social and 10 categories, including
analysis on some 100 political dynamics, as governance and political
EMCs., on a quarterly basis. well as the economic risk. The political risk
The EIU method flows from fundamentals. Moody’s factors gauge the impact of
expert’s answers to a series relies on the judgment of politics on economic
of 77 predetermined a group of credit risk conditions, as well as the
qualitative and quantitative professionals to weigh quality of governance and
questions. the various risk factors as the degree of government
http://www.eiu.com well as the impact of each support in the population.
of these factors upon S&P assigns short term and
business prospects. long-term ratings.
http://www.moodys.com http://www.standardandpoor
s.com
Euromoney publishes Institutional Investor’s Transparency
ratings of some 180 ratings are published International, a non-profit
countries since 1982 on a twice a year since 1979 non-governmental
semi-annual basis. The to assess the organization in Berlin,
methodology is built from creditworthiness of about provides an annual survey
a blend of quantitative 150 countries, based on a of corruption practices in
criteria and qualitative survey of some 100 nearly 90 countries since
factors coming from international bankers’ 1995. The Corruption
surveys with about 40 perception of Perception Index is based
political analysts and creditworthiness, on a wide network of
economists. Political risk including economic, information sources with
receives a 25% weighting, financial and socio- local NGOs, domestic and
as much as economic political stability criteria. foreign corporations,
performance. Countries are The resulting score investors, and business
graded on scale from 0 scales from zero (very contacts.
(worst) to 100 ( best). high chance of default) www.transparency.org
www.euromoney.com to 100 (least chance of
default).
www.institutionalinvesto
r.com

GBERisk Rating

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Country Risk Analysis

SOVEREIGN RISK RATING

 Means: Transforming a number of observations

 Reliable for smooth risk bury salient trends

 Rating agencies are to be independent third parties that are

 “When the facts change, I change my mind” J.M Keynes

South Korea wa s rated as Italy and Sweden as late as

1996 1997 1998 1999 2000 2006 2007

 Foreign investment risk decision matrix

High risk Decision depending

Risk might stem from a wide range of

 BERI: Business Environment Risk Index

 3 components of country risk: business climate, political

 Panel of 32 leading economists in international financial

 Growth performance: 25% (GDP projections)

 1= Luxemburg 42= Poland

 28= Taiwan  79= Algeria

 II Global average rating as of March 2000 = 41

1. Switzerland  60. Tunisia

From Best to…. Worst

Austria, Canada, Singapore, Yugoslavia, Cuba, RCI

• The risk components are grouped into 3 categories - Political, Economic

1997 Knaepen Package= convergence on the pricing of officially supported

The final classification, based only on valid country risk elements,

Greece Czech Chile Israel Albania Bolivia

Kuwait Mexico Guatemala Gabon

Croissance économique 5,6 6 4 5,4 6 6,2

Exportations 8 9,7 10,5 11,5 13,5 14,5

Balance courante/PIB -2,9 -1,9 1,1 -2,3 -2,5 -2,8

 3. Switzerland  15. Czech Rep.

MH BOUCHET/CERAM-Global Finance ATKearney

Hard + Soft DATA:

Japan 8 Tajikistan 117

Korea, Rep. 11 Uganda 120

Hong Kong SAR 12 Paraguay 121

 The World Competitiveness Yearbook : annual

Government (84 criteria) Extent to which government policies

Business Efficiency (66 criteria) Extent to which enterprises are

Infrastructure (90 criteria) Extent to which basic, technological,

323 criteria within 5 main categories

 1. USA BEST  27. India

 China (from worst…)  Israel

Corruption+ Legal + Economic + Accounting + Regulatory

12. Luxembourg 167. Congo, Dem. Rep. of the

17. Italy 173. Guinea-Bissau

 Objective: Market potential assessment for foreign

 Means: Country risk rating issued once a year

 Country risk ratings with 4 factors:

 Factor 1 (weight 4/10):Public debt burden in the

 Factor 2 (weight 4/10):Sovereign default risk, from 4

 Factor 3 (weight 2/10):Non convertibility risk,

Sovereign risks 30% 10%

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