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8/11/2019 g Be Risk Rating
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MH BOUCHET/CERAM-Global Finance
Country Risk Analysis
SOVEREIGN RISK RATINGMarch 2008
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MH BOUCHET/CERAM-Global Finance
Various approaches to country risk
assessment
Qualitative analysis: financial, macroeconomic, legal,regulatory and political parameters; COFACE, Nord/SudExport, 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)
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MH BOUCHET/CERAM-Global Finance
Specialized Country Risk Ratinginstitutions
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
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Quantitative approach: Rating
Means: Transforming a number of observations(Delphi method, surveys) or quantitative indicators
into onenumber. The various indicators can be weighted regarding
their impact on creditworthiness and risk.
End-product: one single grade to assess past andcurrent country risk situation with possible cross-country comparisons across time
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Shortcomings of rating agences (C.Kuhner, Schmalenbach Business review, January 2001)
Rating agencies are to be independent third parties that areconsulted in the course of a market transaction. The goal is toovercome 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 requesta rating * Procyclical bias, hence followjng the majority opinion of
market participants without any early warning signals nor
predictability track record
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Asia, LTCM, US Subprime crises:some lessons to learn?
Any agency which rated the Republic of Korea at thehigh investment grade rating of AA- (in the case ofFitch IBCA and S&Ps) or A1 (in the case of Moodys)
before the crisis, and which now rates Korea at a
speculative grade B-, was clearly either wrong initiallyor subsequently. Clients are entitled to expect us toperform better in the future!
Fitch IBCA January 13, 1998
When the facts change, I change my mind J.M Keynes
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Rating = poor early warning signals?
South Korea wa s rated as Italy and Sweden as late asOctober of 1997! But abrupt downgrading to junk bondstatus during the crisis
There were no early warnings about Korea from us or,
to the best of our knowledge, from other marketparticipants and our customers should expect a better job
from us
FICHT IBCA January 14, 1998
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The Perceived Situation
Was the crisis anticipated by rating agencies?
June 1996 June 1997 June 1996 June 1997
Indonesia BBB BBB Baa3 Baa3
Korea AA- AA- A1 A1Malaysia A+ A+ A1 A1
Philippines BB BB+ Ba2 Ba1
Thailand A A A2 A2
Standard & Poor' s Moody' sCredit Ratings
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EUROMONEYs 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 49Indonesia 45 49 91 98 107 85 81
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Quantifying Country Risk
OverallCountry
RiskRating
PoliticalRisk
Rating
TransferRisk
Rating
30%
70%
Political FactorsPolitical factor APolitical factor BPolitical factor C
Financial FactorsFinancial factor AFinancial factor BFinancial factor C
Weights30%5020
Weights30%4030
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Country Risk Rating
Foreign investment risk decision matrixcombines ratings of financial and political risk
Financial Risk
PoliticalR
isk
High Low
Low
High
AcceptableZone
High riskZone
Decision dependingon market and profit
potential
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Moodys Sovereign Ratings 02/2008
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Country risk ratings?
Country risk analysis cannot & shouldnot be boiled down to bond rating!
Risk might stem from a wide range ofstrategies, including FDI, exporting and
importing, lending, portfolio investment,consultancy contracts.
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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 assessmentservice. Delphi Method with a panel of 105 internationalexperts rating 15 criteria for current and medium-term
business horizon
3 components of country risk: business climate, politicalstability, currency and repayment risk.
FORELEND reports (Forecast of Country Risk for
International Lenders)
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BERI S.A.
Economic, financial, monetary, operating andpolitical conditions are integral components of the0 (worst case) to 100 (best case) system forassessing countries.
Two risk indexes three times a year: ORIOperations Risk Index and PRI Political Risk
Index.
Output: Remittance and repatriationFactor: the R Factor, with forecasts for +1
year and +5 years.
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BERI S.A.
Worst country ratings Venezuela Pakistan Colombia Indonesia EcuadorNigeria
Ivory CoastNorth Korea
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EuromoneySemi-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 financialmarkets (market access, spreads, selldown, terms andmaturity)
Scoring between 100 (excellent) and 0 (considerable risk) + Panel of political analysts to measure short-term risk of
destabilization
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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 theweighting; the lowest receives 0. In between, figures arecalculated according to the formula: final score = (weighting /(maximum score-minimum score)*(maximum score-minimumscore). 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 toshort-term finance (5%), Access to capital markets (5%) and
Discount on forfaiting (5%).
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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%
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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 C t Ri k R ti
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EUROMONEY: Country Risk Rating
End-2001
14= Singapore
28= Tawan
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= China
57= Russia
76= Vietnam77= Algeria79= Iran85= Indonesia167= Ivory Coast
178= Congo182= Cuba185= North Korea
EUROMONEY Ri k R ti I C t
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EUROMONEY Risk Rating: Ivory Coast
0
20
40
60
80
100
120
140
160
180
1980
1981
1982
1984
1985
March
87
Sept.
89
Dec.97
March
98
Sept.
98
March
99
Sept
.99
March
2000
Sept
.01
Sept.
02
March
03
Sept
.03
Sept
.05
March
06
Rank
Higher Risk
Lower Risk
Coup dtatPolitical upheaval
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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
I i i l I Ri k R i
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Institutional Investor Risk Rating
Risk information provided by leading international banks.
Bankers are asked to grade each of the countries on ascale from 0 to 100, with 100 representing those countrieswith the best creditworthiness.
The sample for the study, updated every six months,
ranges from 75 to 100 banks. The names of all participantsin the survey are kept strictly confidential.
Banks are notpermitted to rate their home country. Theindividual responses are weighted (> importance to responsesfrom banks with greater worldwide exposure and moresophisticated country analysis systems)
Inst tut onal Investor R sk Rat ng 1981 2007
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Inst tut onal Investor R sk Rat ng 1981-2007Ivory Coast
0
20
40
60
80100
120
140
160
180
Sept
.81
March
82
March
87
Sept
.89
Dec.97
March
98
Sept
.98
March
99
Sept
.99
March
2000
March
2002
March
2003
March
04
March
05
Sept
.05
March
06
Sept
.06
March
07
Sept
.07
Ran
k
Higher Risk
Lower Risk
FCFA devaluationCoup dtat
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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
I tit ti l I t
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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
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MH BOUCHET/CERAM-Global Finance
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
I i i l I Ri k R i
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Institutional Investor Risk Rating
20
40
60
80
100
120
140
160
180
Dec.81
Dec.97
mars-98
Sept.98
mars-99
Sept.99
March00
Sept.03
March04
Sept.05
March06
sept-06
March07
Ivory Coast Ukraine Chile Mexico
Brazil Algeria Russia
I i i l I Ri k R i 1981 2007
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Institutional Investor Risk Rating 1981-2007
20
40
60
80
100
120
140
160
180
Dec.81
Dec.97
mars-
98
Sept.98
mars-
99
Sept.99
March
00
Sept.03
March
04
Sept.05
March
06
sept-06
March
RCI Russia
I t ti l C t Ri k G id
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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, Economicand Financial. Each Risk Category is made up of a number of Risk
Components. The sum of the Risk Points assigned to each RiskComponent within each Risk Category determines the overall risk for thatcategory.
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 59.5pointsModerate Risk 60.0 to 69.5 points Low Risk 70.0 to 79.5 pointsVery Low Risk 80.0 to 100 points
I t ti l C t Ri k G id RCI
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International Country Risk Guide: RCI
40
45
50
55
60
65
70
avr-99 mai-99 juin-99 juil -99 aot-99 sept-99 oct-99 nov-99 dc-99 janv-00 fvr-00 mars-00 avr-00 spt-00 sept-01 sept-02 sept-03 2006
Rating
Composite Political, Financial and Economic Risk Rating with weighted average
Coup dtat
FORECAST
OECD Credit rating
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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 assessingcountry 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 modelbasedon quantitative indicators, e.g. the financial and the economic situation andthe payment experience of the countries and takes account of possiblequalitative 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 C di i
http://www.oecd.org/document/49/0,2340,fr_2649_34169_1901105_1_1_1_1,00.htmlhttp://www.oecd.org/document/49/0,2340,fr_2649_34169_1901105_1_1_1_1,00.html8/11/2019 g Be Risk Rating
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OECD Credit rating
The final classification, based only on valid country risk elements,is a consensus decision of the sub-Group of Country Risk Expertsthat involves the country risk experts of the Participating ExportCredit Agencies.
The sub-Group of Country Risk Experts meets several times ayear. These meetings are organized so as to guarantee that everycountry is reviewed each time a fundamental change is noticed andat least once a year.
The meetings are confidential and no official reports of thedeliberations are made.8 country risk categories from 0 (no risk) to 7 (high risk)
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OECD Country risk classification in 2008
0 1 2 3 4 5 6 7
Greece
Austria
CzechRep
Chile
China
Israel
Algeria
Morocco
Albania Bolivia
HaitiCambodia
Belgium
Canada
France
HongKong Hungary
Poland
SouthAfrica
Brazil
Peru
Panama
Philippines
IndonesiaPakistan Cameroon
Niger
Nigeria
USA
UK
Trinidad
&Tobago
Thailand
RussiaRomania
Vietnam Argentina
Kuwait
Mexico
Malaysia
Mexico
Bulgaria
Guatemala Gabon
RCI
COFACE
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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
C f dit R ti (2008)
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Coface credit Rating (2008)
Canada= A1
Australia= A1 USA= A1 Japan= A1 Chile= A2 Korea= A2
Thaland = A3 China = A3 Mexico = A3 India = A3 Croatia=A3 Poland = A3 Roumania =A4 Tunisia= A4 Algria = A4 Brazill= A4
Cameroun= B
gypt = B Russia= B Indonsia= B Turkey = B
Ukraine= C Congo= C Argentina = C
Iran= D Venezuela= D RCI= D Nigeria= D
Tunisia: Macroeconomic indicators
http://images.google.com/imgres?imgurl=http://membres.lycos.fr/querties/2e_plan/bombe.jpg&imgrefurl=http://membres.lycos.fr/querties/&h=483&w=267&sz=8&tbnid=usIvhDRDJHKGdM:&tbnh=126&tbnw=69&hl=en&start=3&prev=/images%3Fq%3Dbombe%26svnum%3D10%26hl%3Den%26lr%3D8/11/2019 g Be Risk Rating
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Tunisia: Macroeconomic indicatorssource: Coface
Mds $ 2003 2004 2005 2006e 2007(e) 2008(p)
Croissance conomique(%)
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 14,5Importations 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 extrieure/PIB
(%)83,7 81,2 75 70 67 63
SD/Export b&s (%) 11 14,5 13,8 17,3 12,5 11,3
Rserves en mois
d'import.
2,7 3 3,2 4,5 4,7 4,7
Coface: Payment arrears index in Tunisia
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Coface: Payment arrears index in Tunisia(index 100= 1995)
AT KEARNEY: the globalizaton
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MH BOUCHET/CERAM-Global Finance
AT KEARNEY: the globalizatonindex
Index that measures a countrys global links, fromforeign 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 internationalorganisations)
Th Gl b li i i d
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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 46France 16 13 12 15
Japan 29 38 35 38
Russia 45 39 45 39
China 48 53 51 53
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Globalization Index: The Top 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
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MH BOUCHET/CERAM-Global Finance
AT KEARNEY: the FDI confidenceindex
The FDI confidence index is constructed using primarydata from a proprietary survey administered to seniorexecutives of the worlds 1000 largest corporations.
The survey is designed to gauge the likelihood ofinvestment in specific markets in order to gain insightsinto likely trends in global FDI flows over the next one tothree years.
Index values are based on non-source country responsesabout various markets (eg: the index ranking for theUnited States reflects all non-US company responses
about the US market)
FDI Confidence Index (AT Kearney)
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FDI Confidence Index (AT Kearney),
FDI Confidence Index
0 0,5 1 1,5 2 2,
China
US
UK
Germany
FranceItaly
Spain
Canada
Mexico
Australia
Poland
Brazil
Czech Rep
India
Netherlands
Thailand
South Korea
Singapore
0-3 scale
World Economic Forum: Global
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World Economic Forum: Globalcompetitiveness ranking
Growth prospects of 131 countries: up-to-date andcomprehensive data source available on thecomparative 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 MicroeconomicCompetitiveness Index (MICI) (MICI Rankings),which combined encapsulate the relative strengthsand weaknesses of growth within each economy.
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Global Competitiveness Index 2006 2007
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Global Competitiveness Index 2006-2007
United States 1 Cambodia 110
Ni 111
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2008Ranking
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 15Norway 16
Israel 17
France 18
Australia 19
Belgium 20
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
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IMD World Competitiveness ranking
The World Competitiveness Yearbook : annualstudy on the competitiveness of nations.
It analyzes and ranks the ability of nations toprovide an environment that sustainscompetitiveness
Extensive coverage of 55 countriesOver 300 competitiveness criteria are selected.
IMD Criteria
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MH BOUCHET/CERAM-Global Finance
IMD Criteria
EconomicPerformance (74 criteria) Macro-economic evaluation of thedomestic economy.
GovernmentEfficiency
(84 criteria) Extent to which government policiesare conducive to competitiveness.
Business Efficiency (66 criteria) Extent to which enterprises areperforming in an innovative,profitable and responsible manner.
Infrastructure (90 criteria) Extent to which basic, technological,scientific and human resources meetthe needs of business.
Over 320 competitiveness criteria
IMD Growth competitiveness Index 2007
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IMD Growth competitiveness Index 2007
1. USA = 1/55
2.
Singapore3. HongKong
4. Luxemburg
5. Denmark
6. Switzerland
15. China
16. Germany
20. UK
24. Japan
26. Chile
27. Inda
France = 28
Korea= 29
Russia = 43
Mexico= 47
Brazil= 49
Argentina= 51
Poland= 52
Indonesia= 54
Venezuela = 55
323 criteria within 5 main categories
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Competitivenessindex 2007-IMD
IMD 2007 Competitiveness Index
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MH BOUCHET/CERAM-Global Finance
p
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
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MH BOUCHET/CERAM-Global Finance
PriceWaterhouseCoopers Opacity Index The index is based on a major co-operative effort to
assess the adverse impact of opacity of capital (thecost 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 curtailthe availability of investment capital.
PriceWaterhouseCoopers Opacity Index
8/11/2019 g Be Risk Rating
57/83
MH BOUCHET/CERAM-Global Finance
PriceWaterhouseCoopers Opacity Index
China (from worst)Russia IndonesiaSouth KoreaTurkeyVenezuelaEcuador
IndiaKenya
Israel HongKong
Italy
Mexico UK
USA
Chile
Singapore (to best)
Corruption+ Legal + Economic + Accounting + Regulatory
W ld B k1. Singapore
2 New Zealand
8/11/2019 g Be Risk Rating
58/83
MH BOUCHET/CERAM-Global Finance
World Bank:Doing Business
in 2008
2. New Zealand
3. USA
4. KongKong
5. Denmark
6. UK
7. Canada
8. Ireland
9. Australia
10. Iceland
11. Norway
12. Japan
15. Thailand
31. France(44 in2006)
33. Chile83. China88. Tunisia
91. Vietnam
106. Russia
120. India122. Brazil
178 countries
10 indicators
France: Overall business conditions (IFC)
8/11/2019 g Be Risk Rating
59/83
MH BOUCHET/CERAM-Global Finance
France: Overall business conditions (IFC)
THAILAND: Overall business conditions (IFC)
8/11/2019 g Be Risk Rating
60/83
MH BOUCHET/CERAM-Global Finance
THAILAND: Overall business conditions (IFC)
Heritage Foundation: Index of economic freedom
8/11/2019 g Be Risk Rating
61/83
MH BOUCHET/CERAM-Global Finance
g
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 ofgovernment, the rule of law, regulatory burdens,restrictions on banks, labor market regulations,black market activities
Criteria of economic freedom
8/11/2019 g Be Risk Rating
62/83
MH BOUCHET/CERAM-Global Finance
Criteria of economic freedom To measure economic freedom and rate each country, the
Indexis 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)
8/11/2019 g Be Risk Rating
63/83
MH BOUCHET/CERAM-Global Finance
Economic Freedom Index(10 institutional and economic criteria)
1. HongKong
2. Singapore
3. Irland
4. Australia
5. USA
6. New Zealand
7. Canada8. Chile
9. Switzerland
10. UK
13. Netherlands
Japan = 17 Korea= 41
Mexique= 44 France = 48 Thaland = 54 Tunisia= 84 Morocco= 98 Brazil= 101 Algria= 102 China = 126 Russia= 134
Venezuela = 148
North Korea = 157
France= Over-regulated labor market and overly intrusive state + statist political economyculture + protectionist trading stances + persistent obstacles to foreign takeovers of domestic
companies+ sluggish growth + persistently high unemployment rate + stubborn budget deficit
Fraser Institute
8/11/2019 g Be Risk Rating
64/83
MH BOUCHET/CERAM-Global Finance
Fraser Institute Since 1975
130 countries Annual Index of Economic Freedom in the world: reliable
measure of cross-country differences in economicfreedom, using third-party data to help ensure objectivity
Criteria: government quality, legal structure, security ofproperty rights, access to sound money, personal choice,freedom to exchange with foreigners and to compete in
markets, quality of regulations and institutionalstrength
Fraser Institutes Index of Economic Freedom
8/11/2019 g Be Risk Rating
65/83
MH BOUCHET/CERAM-Global FinanceSource: http://www.fraserinstitute.ca/shared/readmore.asp?sNav=pb&id=852
H D l t I d
8/11/2019 g Be Risk Rating
66/83
MH BOUCHET/CERAM-Global Finance
Human Development Index
HDI developed by UNDPA composite index measuring average
achievement in three basic dimensions of
human development-a long and healthy life,knowledge and a decent standard of living, asmeasured by real GDP per capita on a
purchasing power parity basis.
154. Haiti
155. Gambia
1. Norway
2. Iceland
8/11/2019 g Be Risk Rating
67/83
MH BOUCHET/CERAM-Global Finance
UNDP
HDI
156. Senegal
157. Eritrea
158. Rwanda
159. Nigeria
160. Guinea
161. Angola
162. Tanzania, U. Rep. of
163. Benin
164. Cte d'Ivoire
165. Zambia166. 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
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 1970-2005
8/11/2019 g Be Risk Rating
68/83
MH BOUCHET/CERAM-Global Finance
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
http://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NOR.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ISL.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_AUS.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_IRL.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_SWE.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_CAN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_JPN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_USA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_CHE.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NLD.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_FIN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_LUX.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_BEL.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_AUT.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_DNK.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_FRA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ITA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_GBR.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ESP.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NZL.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NZL.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ESP.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_GBR.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ITA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_FRA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_DNK.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_AUT.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_BEL.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_LUX.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_FIN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NLD.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_CHE.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_USA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_JPN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_CAN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_SWE.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_IRL.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_AUS.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ISL.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NOR.html8/11/2019 g Be Risk Rating
69/83
MH BOUCHET/CERAM-Global Finance
e pecta cy 970 0051970-75 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
Cte 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
Ni er 38.4 44.3
COUNTRIES X & Y: A multi-index composite graph
http://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_SEN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ERI.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_RWA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NGA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_GIN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_AGO.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_TZA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_BEN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_CIV.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ZMB.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_MWI.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_COD.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_MOZ.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_BDI.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ETH.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_TCD.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_CAF.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_GNB.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_BFA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_MLI.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_SLE.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NER.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NER.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_SLE.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_MLI.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_BFA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_GNB.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_GNB.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_GNB.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_CAF.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_TCD.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ETH.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_BDI.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_MOZ.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_COD.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_MWI.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ZMB.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_CIV.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_BEN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_TZA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_AGO.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_GIN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NGA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_RWA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ERI.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_SEN.html8/11/2019 g Be Risk Rating
70/83
MH BOUCHET/CERAM-Global Finance
0
20
40
60
80CPI
Euromoney
Competitiveness
Doing Business
Corruption
Ec. Freedom
8/11/2019 g Be Risk Rating
71/83
MH BOUCHET/CERAM-Global Finance
NSE Risk Rating
Rating covers about 100 developing countries
Objective: Market potential assessment for foreigninvestor
Means: Country risk rating issued once a yearMethodology: 4 parameters computed
Sovereign financial risk Financial market risk Political risk
Business environment risk
Nord Sud Export index
8/11/2019 g Be Risk Rating
72/83
MH BOUCHET/CERAM-Global Finance
Nord Sud Export index
Country risk ratings with 4 factors:Sovereign financial risks (public debtsovereign
default riskinconvertible risk)
Market financial risks (systemic and volatilit risksmastering of the macroeconomic fundamentalsdevaluation risks)
Political risks (external conflictsgovernment
stabilitysocial homogeneity)Business environment (FDIgood governance
labor conditions)
8/11/2019 g Be Risk Rating
73/83
MH BOUCHET/CERAM-Global Finance
NSE Rating Methodology
Each rating stems from weighted averageof 60 variables
43 qualitatives variables
17 qualitative variables
Each variable is graded from 0 (worst) to 7
(best)
8/11/2019 g Be Risk Rating
74/83
MH BOUCHET/CERAM-Global Finance
Exemple NSE Rating Procedure
Parameter 1: Sovereign financial risk
Factor 1 (weight 4/10):Public debt burden in theeconomy, computed from 6 quantitative variables
Factor 2 (weight 4/10):Sovereign default risk, from 4quantitative 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
8/11/2019 g Be Risk Rating
75/83
MH BOUCHET/CERAM-Global Finance
No d Sud po t: e po t cou t y s
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
8/11/2019 g Be Risk Rating
76/83
MH BOUCHET/CERAM-Global Finance
S p yrisk
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%
8/11/2019 g Be Risk Rating
77/83
Nord Sud Export: investment country
8/11/2019 g Be Risk Rating
78/83
MH BOUCHET/CERAM-Global Finance
p yrisk 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 Foundationestablished since 1985,
PricewaterhouseCooperss Opacity Index
The Institute forManagement
8/11/2019 g Be Risk Rating
79/83
MH BOUCHET/CERAM-Global Finance
in partnership with theWSJ, an economicfreedom index for some
160 countries, bothindustrialized anddeveloping. The rankingis based on ten socio-political and economic
criteria, includingpolitical stability, stateinterference, investmentcodes, regulatoryframework, institutionalstrength, and corruptionscope.
www.heritage.org
measures the lack ofclear, accurate, formaland widely accepted
practices in acountrys business
environment. As such,it focuses on therelative state of
corrupt businesspractices, thetransparence of the
legal system and thequality of the
regulatoryframework. It
measures the resultingextra risk premium
that stems fromadditional business
and economic costs.www.opacityindex.com/
Developments World
Competitiveness
Reportanalyses 49
industrialized andemerging economiesaround the world basedon a far-reaching surveysince 1989. Its analysis
of the institutionalframework addressesissues such as state
efficiency, transparencyof government policy,
public services
independence frompolitical interference,bureaucracy as well asbribery and corruption.
www.imd.ch
Freedom Housesince 1972monitors the progress and
The Political and
Economic Stability
Political and Economic
Risk Consultancy (PERC)
http://www.opacityindex.com/http://www.heritage.org/http://www.opacityindex.com/http://www.imd.ch/http://www.imd.ch/http://www.opacityindex.com/http://www.heritage.org/8/11/2019 g Be Risk Rating
80/83
MH BOUCHET/CERAM-Global Finance
monitors the progress anddecline of political rightsand civil liberties in 192countries. FH publishes anannual survey of theProgress of Freedom in theworld. The ranking is basedon a wide survey of regionalexperts, consultants, and
human rights specialists.Political stability and civilliberties are ranked on ascale of 1 (best) to 7(worst).
www.freedomhouse.org/ratings/index.htm
Economic StabilityIndex of LehmanBrothers and Eurasiameasures relative stabilityin around 20 EMCs byintegrating politicalscience theories withfinancial marketsdevelopments. The
monthly evaluation usesboth quantitative andqualitative criteria,including institutionalefficiency, political
legitimacy, economicperformance, andgovernmenteffectiveness.www.legsi.com
Risk Consultancy(PERC)specializes in strategicbusiness information andanalysis in East andSoutheast Asia, withemphasis on corruption andbusiness costs. Annual riskreports survey over 1,000senior expatriates living in
to obtain their perceptionsof corruption, labor quality,intellectual property rightsrisks and other systemicshortcomings.
www.asiarisk.com
Business Environment
Ri k I t lli (BERI)Political Risk Servicesi k l
WORLD BANK: Given itsi li di l i h
http://www.freedomhouse.org/ratings/index.htmhttp://www.freedomhouse.org/ratings/index.htmhttp://www.legsi.com/http://www.asiarisk.com/http://www.asiarisk.com/http://www.legsi.com/http://www.freedomhouse.org/ratings/index.htmhttp://www.freedomhouse.org/ratings/index.htm8/11/2019 g Be Risk Rating
81/83
MH BOUCHET/CERAM-Global Finance
Risk Intelligence(BERI)provides a Political RiskIndex assessing the social
and political environment ofa country. It is built on theopinion and scores providedby a hundred experts with a
diplomatic or politicalscience background.
Governance quality isincluded into political risk
analysis along withgovernment effectiveness
and social indicators.
http://www.beri.com
risk analyses cover ahundred countries and areupdated on a quarterly
basis. InternationalCountry Risk Guidemeasures and trackscorruption perception ingovernment, law andorder, expropriation risk,as well as the quality ofbureaucracy. Thesemeasures stem from thesubjective assessment ofexperts around the world.
http://www.prsgroup.com
unique policy dialogue withmore than 180 countries,
the Bankhas developed a
comprehensive database ofcomposite governanceindicators, measuring
perceptions of voice andaccountability, politicalstability, government
effectiveness, regulatoryquality, rule of law, and
corruption.www.worldbank.org/wbi/go
vernance/
The London-basedEconomist Intelligence
To look upon governanceand corruption, Moodys
Standard and Poorsrating approach is both
http://beri.com/http://prsgroup.com/http://www.worldbank.org/wbi/governance/http://www.worldbank.org/wbi/governance/http://www.worldbank.org/wbi/governance/http://www.worldbank.org/wbi/governance/http://prsgroup.com/http://beri.com/8/11/2019 g Be Risk Rating
82/83
MH BOUCHET/CERAM-Global Finance
Unit(EIU) provides acomprehensive -year
forecasting country risk
analysis on some 100EMCs., on a quarterly basis.The EIU method flows fromexperts answers to a series
of 77 predetermined
qualitative and quantitativequestions.http://www.eiu.com
takes into considerationthe structures of socialinteraction, social and
political dynamics, aswell as the economicfundamentals. Moodys
relies on the judgment ofa group of credit risk
professionals to weighthe various risk factors aswell as the impact of each
of these factors uponbusiness prospects.
http://www.moodys.com
quantitative and qualitative.It is based on a checklist of
10 categories, including
governance and politicalrisk. The political riskfactors gauge the impact of
politics on economicconditions, as well as the
quality of governance andthe degree of governmentsupport in the population.
S&P assigns short term andlong-term ratings.
http://www.standardandpoors.com
Euromoneypublishesratings of some 180
Institutional Investorsratings are published
TransparencyInternational, a non-profit
http://eiu.com/http://www.moodys.com/http://standardandpoors.com/http://standardandpoors.com/http://standardandpoors.com/http://standardandpoors.com/http://www.moodys.com/http://eiu.com/8/11/2019 g Be Risk Rating
83/83
countries since 1982 on asemi-annual basis. The
methodology is built from
a blend of quantitativecriteria and qualitativefactors coming from
surveys with about 40political analysts and
economists. Political riskreceives a 25% weighting,as much as economic
performance. Countries aregraded on scale from 0(worst) to 100 ( best).www.euromoney.com
twice a year since 1979to assess the
creditworthiness of about
150 countries, based on asurvey of some 100international bankers
perception ofcreditworthiness,
including economic,financial and socio-political stability criteria.
The resulting scorescales from zero (veryhigh chance of default)to 100 (least chance of
default).www.institutionalinvesto
r.com
non-governmentalorganization in Berlin,
provides an annual survey
of corruption practices innearly 90 countries since1995. The Corruption
Perception Index is basedon a wide network of
information sources withlocal NGOs, domestic andforeign corporations,
investors, and businesscontacts.
www.transparency.org
http://www.euromoney.com/http://www.institutionalinvestor.com/http://www.institutionalinvestor.com/http://www.transparency.org/http://www.transparency.org/http://www.institutionalinvestor.com/http://www.institutionalinvestor.com/http://www.euromoney.com/Recommended