risk rating

MH BOUCHET/CERAM-Global Finance

Country Risk AnalysisSOVEREIGN RISK RATING

March 2008


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 scoringQuantitative 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 Simple cross-country comparison comparison across time shrinks a large number of

variables into one single grade

Reliable for smooth risk evolution

Shortcomings/Cons “reductionist” oversimplistic risk of self-fulfilling

prophecy little predictive value weighted average tends to

bury salient trends 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?

June 1996 June 1997 June 1996 June 1997Indonesia BBB BBB Baa3 Baa3Korea AA- AA- A1 A1Malaysia A+ A+ A1 A1Philippines BB BB+ Ba2 Ba1Thailand A A A2 A2

Standard & Poor' s Moody' sCredit Ratings


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 60Philippines 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

OverallOverallCountryCountry

RiskRiskRatingRating

PoliticalPoliticalRiskRisk

RatingRating

TransferTransferRiskRisk

RatingRating

30%30%

70%70%

Political FactorsPolitical FactorsPolitical factor APolitical factor A

Political factor BPolitical factor B

Political factor CPolitical factor C

Financial FactorsFinancial FactorsFinancial factor AFinancial factor A

Financial factor BFinancial factor B

Financial factor CFinancial factor C

WeightsWeights 30%30%

5050

2020

WeightsWeights 30%30%

4040

3030


Country Risk Rating

Foreign investment risk decision matrix – combines ratings of financial and political risk

Financial RiskFinancial Risk

Pol

itic

al R

isk

Pol

itic

al R

isk

HighHigh LowLow

LowLow

HighHigh

AcceptableAcceptable ZoneZone

High riskHigh risk ZoneZone

Decision depending Decision depending on market and profiton market and profitpotentialpotential


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


EuromoneyEuromoneySemi-annual country risk scoring of 185 countries, Semi-annual country risk scoring of 185 countries,

both OECD and EMCsboth 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.

• CategoriesCategories =• 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 2. Norway

3. Switzerland 14= France 19= Japan

26= HongKong 28= Taiwan

42= Poland 44= Chile

50= Mexico 54= China

62= Tunisia 65= Morocco

69= Egypt 79= Algeria

184= North Korea


EUROMONEY: Country Risk Rating

End-2001 14= Singapore 28= Taïwan 30= HongKong 40= Chile 39= Hungary 40= Brunei 42= Poland 45= China 56= Malaysia 89= Romania 93= Bulgaria 163= Congo

End-2005 9= Ireland 19= Singapore 22= New Zealand 35= Hungary 58= China 73= Iran 74= Vietnam 77= Russia 85= Algeria 96= Indonesia 127= Ivory Coast 182= Cuba

200720=Singapore41=Hungary42= Poland54= China57= Russia76= Vietnam77= Algeria79= Iran85= Indonesia167= Ivory Coast178= Congo182= Cuba185= North Korea


EUROMONEY Risk Rating: Ivory Coast

0

20

40

60

80

100

120

140

160

180

Rank

Higher RiskHigher Risk

Lower RiskLower Risk

Coup d’étatCoup d’étatPolitical upheavalPolitical upheaval


Scoring/Rating of Country Risk

Institutional InvestorInstitutional 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)


Institutional Investor Risk Rating 1981-2007 Ivory Coast

0

20

40

60

80

100

120

140

160

180

Ran

k

Higher RiskHigher Risk

Lower RiskLower Risk

FCFA devaluationFCFA devaluationCoup d’étatCoup d’état


Institutional Investor: 2007 rating

1. Switzerland2. Norway

3. Luxemburg4. Netherlands

5. Finland6. Germany13. France17. Spain21. Italy

60. Tunisia 67. Morocco 68. Algeria 72. Egypt 78. Venezuela 91. Argentina 117. Bolivia 124. Gabon 134. Cameroun 153. Congo 157. RCI 166. Iraq 171. Zimbabwe


Institutional Investor2007 Risk Rating of ASIA

Singapore= 16 Australia= 18 Hongkong= 24 Taiwan= 26 South Korea= 28 China= 34 Malaysia= 38 Thailand= 54 India= 58

Philippines= 73 Indonesia= 76 Vietnam= 77 Pakistan= 86 Sri Lanka= 100 Laos= 132 Cambodia= 140 Myanmar= 168 North Korea= 173


Institutional Investor (2007 rating)

From Best to…. Worst Switzerland, Norway, UK, Germany, USA, Sweeden

Congo, Afghanistan, Mali

Netherlands, France, US Chad, Togo, Cambodia

Austria, Canada, Singapore, Australia, Japan

Yugoslavia, Cuba, RCI

Denmark, Belgium, Canada Albania, Haiti, Angola, Iraq, N. Korea, Sudan

Greece, Chile, Spain, Kuwait Italy, Taiwan, HK, China

Nicaragua, Cuba, Zambia, Togo, Ethiopia, Myanmar, Liberia, Somalia, Zimbabwe


Institutional Investor Risk Rating

20

40

60

80

100

120

140

160

180

Ivory Coast Ukraine Chile Mexico

Brazil Algeria Russia


Institutional Investor Risk Rating 1981-2007

20

40

60

80

100

120

140

160

180RCI Russia


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

40

45

50

55

60

65

70

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

Rating

Composite Political, Financial and Economic Risk Rating with weighted averageComposite Political, Financial and Economic Risk Rating with weighted average

Coup d’étatCoup d’état

FORECASTFORECAST


OECD Credit rating

1997 Knaepen Package= convergence on the pricing of officially supported officially supported medium and long term export credits. 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 modeleconometric 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 20080 1 2 3 4 5 6 7

Greece

Austria

Czech Rep

Chile

China

Israel

Algeria

Morocco

Albania Bolivia

HaitiCambodi

a

Belgium

Canada

France

HongKong Hungary

Poland

South Africa

Brazil

Peru

Panama

Philippines

IndonesiaPakistan Cameroon

Niger

Nigeria

USA

UKTrinidad

& Tobago

Thailand

Russia

Romania

Vietnam Argentina

Kuwait

Mexico

Malaysia

Mexico

Bulgaria

Guatemala Gabon

RCI


COFACE140 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 Australia= A1 USA= A1 Japan= A1 Chile= A2 Korea= A2 Thaïland = A3 China = A3 Mexico = A3 India = A3 Croatia=A3 Poland = A3 Roumania =A4 Tunisia= A4 Algéria = A4 Brazill= A4

Cameroun= B Égypt = B Russia= B Indonésia= B Turkey = B

Ukraine= C Congo= C Argentina = C

Iran= D Venezuela= D RCI= D Nigeria= D


Tunisia: Macroeconomic indicatorssource: 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 d'import.

2,7 3 3,2 4,5 4,7 4,7


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 index2001 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 51 53


Globalization Index: The Top 20Top 20 /62 1. Singapore 2. Ireland 3. Switzerland 4. US 5. Netherlands 6. Canada 7. Denmark 8. Sweden 9. Austria 10. Finland 11. New Zealand 12. UK

13. Australia 14. Norway 15. Czech Rep. 16. Croatia 17. Israel 18. France 19. Malaysia 20. Slovenia

52. Russia 54. China 62. Iran

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),

FDI Confidence Index

0 0,5 1 1,5 2 2,5

China

US

UK

Germany

France

Italy

Spain

Canada

Mexico

Australia

Poland

Brazil

Czech Rep

India

Netherlands

Thailand

South Korea

Singapore

0-3 scale


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


2008 Ranking

United States 1

Switzerland 2

Denmark 3

Sweden 4

Germany 5

Finland 6

Singapore 7

Japan 8

United Kingdom 9

Netherlands 10

Korea, Rep. 11

Hong Kong SAR 12

Canada 13

Taiwan, China 14

Austria 15

Norway 16

Israel 17

France 18

Australia 19

Belgium 20

Cambodia 110

Nicaragua 111

Burkina Faso 112

Suriname 113

Nepal 114

Mali 115

Cameroon 116

Tajikistan 117

Madagascar 118

Kyrgyz Republic 119

Uganda 120

Paraguay 121

Zambia 122

Ethiopia 123

Lesotho 124

Mauritania 125

Guyana 126

Timor-Leste 127

Mozambique 128

Zimbabwe 129

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

Economic Performance

(74 criteria) Macro-economic evaluation of the domestic economy.

Government Efficiency

(84 criteria) Extent to which government policies 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.

Over 320 competitiveness criteria


IMD Growth competitiveness Index 2007

1. USA = 1/55

2. Singapore

3. HongKong

4. Luxemburg

5. Denmark

6. Switzerland

15. China

16. Germany

20. UK

24. Japan

26. Chile

27. Inda

France = 28France = 28 Korea= 29 Russia = 43 Mexico= 47 Brazil= 49

Argentina= 51 Poland= 52

Indonesia= 54 Venezuela = 55

323 criteria within 5 main categories


Competitiveness

index 2007-IMD


IMD 2007 Competitiveness Index

1. USA 2. Singapore 3. HK 3. Luxembourg 4. Denmark 5. Switzerland 15. China 16. Germany 20. UK 24. Japan 26. Chile

27. India 28. France 29. Korea 30. Spain 33. Thailand 35. Hungary 38. Colombia 43. Russia 44. Romania 47. Mexico 55. Venezuela

BEST


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 availability of investment capital.


PriceWaterhouseCoopers’ Opacity Index

China (from worst…) Russia Indonesia South Korea Turkey Venezuela Ecuador India Kenya

Israel HongKong Italy Mexico UK USA Chile Singapore (to best)

Corruption+ Legal + Economic + Accounting + Regulatory


World Bank: Doing Business

in 2008

1. Singapore2. New Zealand

3. USA4. KongKong5. Denmark

6. UK7. Canada8. Ireland

9. Australia10. Iceland11. Norway

12. Japan15. Thailand

31. FranceFrance (44 in2006)33. Chile83. China

88. Tunisia91. Vietnam106. Russia120. India122. Brazil

178 countries10 indicators


France: Overall business conditions (IFC)


THAILAND: Overall business conditions (IFC)


Heritage Foundation: Index of economic freedom

Economic freedomEconomic 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: 2008Economic Freedom Index(10 institutional and economic criteria)

1. HongKong2. Singapore

3. Irland4. Australia

5. USA6. New Zealand

7. Canada8. Chile

9. Switzerland10. UK

13. Netherlands

Japan = 17 Korea= 41

Mexique= 44 France = 48France = 48

Thaïland = 54 Tunisia= 84

Morocco= 98 Brazil= 101

Algéria= 102 China = 126 Russia= 134

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.


UNDP – HDI

154. Haiti

155. Gambia

156. Senegal

157. Eritrea

158. Rwanda

159. Nigeria

160. Guinea

161. Angola

162. Tanzania, U. Rep. of

163. Benin

164. Côte d'Ivoire

165. Zambia

166. Malawi

167. Congo, Dem. Rep. of the

168. Mozambique

169. Burundi

170. Ethiopia

171. Chad

172. Central African Republic

173. Guinea-Bissau

174. Burkina Faso

175. Mali

176. Sierra Leone

177. Niger

1. Norway

2. Iceland

3. Australia

4. Ireland

5. Sweden

6. Canada

7. Japan

8. United States

9. Switzerland

10. Netherlands

11. Finland

12. Luxembourg

13. Belgium

14. Austria

15. Denmark

16. France

17. Italy

18. United Kingdom

19. Spain

20. New Zealand


HDI- Life Expectancy 1970-20051970-75 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 71.7 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

Niger 38.4 44.3


COUNTRIES X & Y: A multi-index composite graph

0

20

40

60

80CPI

Euromoney

Competitiveness

Doing Business

Corruption

Ec. Freedom


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: OCDE)

From 541 to 700

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

(15 criteria)

30% 10%

Market risks

(15 criteria)

40% 30%

Political risks

(15 criteria)

10% 30%

Business environment

(15 criteria)

20% 30%


Nord Sud Export advice

Rate

Export firms: if you master

your margins, you should

increase them:

Risk premium for localisation

riskso for a yield rate of 15%

From 0 to 215 75%

investment to be

avoided 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%

Industrial investors:


Nord Sud Export: investment country risk ratings

Hong-Kong: 7 Singapore: 7 Chile: 7 South Korea: 6 Malaysia: 6 Costa-Rica: 6 Mexico: 6 Egypt: 6 Mauritius: 6 Oman: 6

Myanmar: 2 Yemen: 2 Nigeria: 2 Irak:1 Republic of the Congo: 1 Kirghizstan: 1 Tadjikistan:1


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.

www.heritage.org

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.www.opacityindex.com/

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.

www.imd.ch


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). www.freedomhouse.org/ratings/index.htm

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. www.legsi.com

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. www.asiarisk.com


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://www.beri.com

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://www.prsgroup.com

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.www.worldbank.org/wbi/governance

/


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://www.eiu.com

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.

http://www.moodys.com

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://www.standardandpoors.com


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).www.euromoney.com

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).www.institutionalinvestor.com

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.

www.transparency.org

risk rating

Documents

Transcript of risk rating