COUNTRY ATTRACTIVENESS

 MARKET POTENTIAL / SIZE

 ECONOMIC / FINANCIAL POLICIES (FDI/FII)
 POLITICAL STABILITY
 EASE OF DOING BUSINESS
 JUDICIAL & ADMINISTRATIVE EFFICIENCY
 IPR/PATENTS REGIME
 CULTURAL MATCH
 FISCAL / MONETARY POLICIES / STABILITY
 FOREIGN TRADE POLICY
 FOREX STRENGTH
 ETC.ETC.ETC.
WHAT IS COUNTRY RISK ANALYSIS?
 EFFECTIVE COUNTRY RISK ANALYSIS
REQUIRES THE SYNTHESIS OF CONCEPTS &
ANALYTICAL METHODS OF ECONOMICS,
POLITICAL SCIENCE & SOCIOLOGY.
WHO USES
COUNTRY RISK ANALYSIS?
 GOVERNMENT OFFICIALS
 INTERNATIONAL BANKERS
 INTERNATIONAL INVESTORS
 CREDIT RATING AGENCIES (SOVEREIGN

RATING FOR INVESTMENT-WORTHINESS)

 MNCs
 GOVERNMENTS INVITING FOREIGN

INVESTMENTS (FDI/FII)
TYPICAL DECISIONS BASED UPON
COUNTRY RISK ANALYSIS
 COUNTRY RISK ANALYSIS ENABLES SENIOR
MANAGEMENT TO EVALUATE & COMPARE
COUNTRIES BEFORE TAKING DECISIONS LIKE:
 GLOBALISATION (PREFERRED GEOGRAPHIES)
 INVESTMENT DESTINATIONS
 INVESTMENT VOLUMES
 LOCATION OF PLANTS
 RAISE LOAN FROM WHERE?
 PRODUCT LAUNCH
A GENERAL FRAMEWORK FOR
COUNTRY RISK ANALYSIS
 THE FRAMEWORK OF ANALYSIS REQUIRES
THAT THE ENVIRONMENTAL DATA IS SORTED
INTO THREE MAJOR AREAS:

 PERFORMANCE

 STRATEGY

 CONTEXT
FRAMEWORK OF COUNTRY RISK
ANALYSIS : PERFORMANCE
 THERE ARE NUMBER OF PERFORMANCE INDICATORS:
 BOTH ECONOMIC & NON-ECONOMIC
 EXTERNAL INDICATORS
 BALANCE OF TRADE
 BALANCE OF PAYMENT
 EXCHANGE RATE
 PURCHASING POWER PARITY

 AGGREGATE INTERNAL INDICATORS:

 AGGREGATE OUTPUT
 AGGREGATE PRICES
 AGGREGATE EMPLOYMENT
FRAMEWORK OF COUNTRY RISK
ANALYSIS : PERFORMANCE
 SUPPLY-SIDE PERFORMANCE MEASURES:
 SAVINGS
 INVESTMENTS
 PRODUCTIVITY
 WAGE INCREASES
 LABOUR COSTS
 CAPACITY UTILISATION

 DEMAND-SIDE PERFORMANCE MEASURES:

 DISTRIBUTION OF INCOME
(AREA, AGE, ETHNIC GROUP etc.)
FRAMEWORK OF COUNTRY RISK
ANALYSIS : PERFORMANCE
 SOCIAL PERFORMANCE INDICATORS
 INCOME DISTRIBUTION
 POPULATION GROWTH
 EDUCATIONAL ACHIEVEMENTS
 PUBLIC HEALTH
 NUTRITION

WHICH PERFORMANCE INDICATORS TO LOOK

FOR, & IN WHAT DEGREE OF DETAIL, DEPENDS
ON THE QUESTIONS FACING COUNTRY RISK
ANALYSIS.
FRAMEWORK OF COUNTRY RISK
ANALYSIS : STRATEGY
 THE NATIONAL STRATEGY WOULD INCLUDE:
 GOALS
 POLICIES
 (FISCAL/MONETARY/INCOME/FOREIGN

TRADE/ DEFENCE / INCOME / INVESTMENT/

INDUSTRIAL/SOCIAL POLICY)

FRAMEWORK OF COUNTRY RISK
ANALYSIS : CONTEXT
 THE GOALS & POLICIES ARE FORMULATED
WITHIN A PARTICULAR CONTEXT.
 HENCE, THE CONTEXT MAY BE THOUGHT OF

AS THE “GIVENS”, OR A COUNTRY’S

CONSTRAINTS & RESOURCES.
 POLITICAL CONTEXT
 INSTITUTIONAL CONTEXT
 IDEOLOGICAL CONTEXT
 PHYSICAL CONTEXT
 INTERNATIONAL CONTEXT
POLITICAL CONTEXT
 THE FORM/STRUCTURE OF THE GOVERNMENT
 POWER TRANSITION SYSTEM, IF ANY
 KEY POWER BLOCKS/LOBBIES
 EXTENT OF POPULAR SUPPORT
 POLITICAL/ELECTORAL CAMPAIGN FINANCING
 WEAK/STABLE/STRONG GOVERNMENT
 DEGREE OF CONSENSUS / COALITION OF

INTERESTS
POLITICAL RISK
ANALYSIS PROCEDURE
 STEP 1:
ASSESSING ISSUES OF RELEVANCE TO FIRM-
 STEP 2:
 ASSESSING POTENTIAL POLITICAL EVENTS
 STEP 3:
 ASSESSING PROBABLE IMPACTS & RESPONSES:
INSTITUTIONAL CONTEXT

 INSTITUTIONAL INFRASTRUCTURE
(GOVERNMENTAL/BANKING/INSURANCE/
EDUCATIONAL/ MFG. etc.)
 STABILITY/INDEPENDENCE
 CONSTITUTIONAL PROTECTION/SANCTITY
 CHECKS & BALANCES AMONG THE

LEGISLATURE, EXECUTIVE & JUDICIARY.

IDEOLOGICAL CONTEXT

 TRADITIONAL/RIGID/ORTHODOXY
 DUTIES & RIGHTS
 GOVERNANCE PRINCIPLES
 POLITICAL PHILOSOPHY
PHYSICAL CONTEXT

 COUNTRIES’S POLITICAL & ECONOMIC

BEARINGS
INTERNATIONAL CONTEXT

 GLOBAL COMPETITION
 WTO/GATT COMMITMENT
 SHIFTING & PARTIALLY CONFLICTING

INTERESTS OF THE COUNTRIES

A GENERAL FRAMEWORK FOR
COUNTRY RISK ANALYSIS
 AFTER ANALYSING IN TERMS OF
THE THREE AREAS MENTIONED ABOVE,
THESE DATA ARE RELATED TO ONE ANOTHER
IN A THREE-STEP PROCESS OF:

 IDENTIFICATION,

 EVALUATION, &

 PREDICTION OR SCENARION GENERATION

EVALUATION
 WHILE UNDERTAKING THE COUNTRY RISK
ANALYSIS, PERFORMANCE TO BE EVALUATED
AGAINST:
 PAST PERFORMANCE
 PERFORMANCE OF COMPETITOR COUNTRIES
 ACCOMPLISHMENT OF GOALS OF THE

GOVERNMENT
DIAGNOSIS
 AFTER UNDERTAKING EVALUATION, THE NEXT
LOGICAL STEP IS DIAGNOSIS OF THE CAUSES LEADING
TO THE PERFORMANCE.
 INCORPORATE VARIETY OF PERSPECTIVES (ECONOMIC
/ POLITICAL / HISTORIC / SOCIAL
/ANTHROPOLOGICAL)
 LOOK FOR MISMATCH/INCONSISTENCIES BETWEEN
STRATEGY & CONTEXT
 ASSESS “QUALITY OF MANAGEMENT” / POLITICAL
LEADERSHIP
 IDENTIFY THE KEY PROBLEMS CAUSING THE
UNSATISFACTORY PERFORMANCE
TO CONCLUDE…
 THE KEYS TO USEFUL COUNTRY RISK
ANALYSIS ARE FIVE-FOLD.
 FIRST, FIRMS MUST RECOGNISE THAT

WITHOUT CAREFUL COUNTRY RISK ANALYSIS,

THEY CAN COMMIT BOTH TYPE-1 & TYPE-2
ERRORS (NOT ENTERING A COUNTRY WHEN
THEY SHOULD & BEING IN A COUNTRY WHEN
THEY SHOULD NOT BE).
 BOTH ERRORS CAN BE QUITE COSTLY.
TO CONCLUDE…
 SECONDLY, THE RISK ANALYSIS MUST
ACCURATELY & SYSTEMATICALLY IDENTIFY
CONTEXTUAL & PERFORMANCE FACTORS &
EXPLAIN THEIR CAUSES.
 THIRDLY, THE ANALYSIS MUST GENERATE

SCENARIOS OF THE FUTURE.

 FOURTHLY, THE ANALYSIS MUST RELATE

THOSE SCENARIOS TO A SPECIFIC INDUSTRY

OR A FIRM.
TO CONCLUDE…
 FIFTHLY & FINALLY, THE ANALYSIS SHOULD
EXAMINE THE PROS & CONS OF VARIOUS FIRM
STRATEGIES ACROSS DIFFERENT SCENARIOS
IN ORDER TO PROVIDE SPECIFIC
RECOMMENDATIONS.
 THIS FIVE-FOLD PROCESS WILL FACILITATE

DECISION-MAKERS’ ABILITIES TO
APPROPRIATELY NAVIGATE THE
INCREASINGLY DANGEROUS, BUT PROFITABLE,
SEAS OF TODAY’S GLOBAL ENVIRONMENT.