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5. risk rating

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Yohanes Rananda

The document discusses various approaches to country risk analysis, including qualitative analysis of financial, macroeconomic, legal, regulatory and political factors, quantitative ratings and scoring approaches, and econometric modeling approaches. It also reviews several specialized country risk rating institutions such as BERI, Euromoney, Institutional Investor, International Country Risk Guide, COFACE, OECD, and others that provide ratings of country risk using different quantitative methodologies. The ratings are useful but also have limitations as predictive tools and in oversimplifying complex country risk profiles.

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Country Risk Analysis SOVEREIGN RISK RATING 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) MH BOUCHET/CERAM-Global Finance
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 MH BOUCHET/CERAM-Global Finance
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 MH BOUCHET/CERAM-Global Finance
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 MH BOUCHET/CERAM-Global Finance
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 MH BOUCHET/CERAM-Global Finance
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 MH BOUCHET/CERAM-Global Finance
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 MH BOUCHET/CERAM-Global Finance
The Perceived Situation Was the crisis anticipated by rating agencies? MH BOUCHET/CERAM-Global Finance
EUROMONEY’s Risk Rating MH BOUCHET/CERAM-Global Finance 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 MH BOUCHET/CERAM-Global Finance 30% 70% Overall Country Risk Rating Political Risk Rating Transfer Risk Rating Political Factors Political factor A Political factor B Political factor C Financial Factors Financial factor A Financial factor B Financial factor C Weights 30% 50 20 Weights 30% 40 30
Country Risk Rating Foreign investment risk decision matrix combines ratings of financial and political risk MH BOUCHET/CERAM-Global Finance Financial Risk Political Risk High Low Low High Acceptable Zone High risk Zone Decision depending on market and profit potential
Moody’s Sovereign Ratings 02/2008 MH BOUCHET/CERAM-Global Finance
Moody’s economic and financial Risk indicators: Argentina end-2007 MH BOUCHET/CERAM-Global Finance
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…. MH BOUCHET/CERAM-Global Finance
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) MH BOUCHET/CERAM-Global Finance
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. MH BOUCHET/CERAM-Global Finance
BERI S.A. Worst country ratings Venezuela Pakistan Colombia Indonesia Ecuador Nigeria Ivory Coast North Korea MH BOUCHET/CERAM-Global Finance
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 MH BOUCHET/CERAM-Global Finance
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%). MH BOUCHET/CERAM-Global Finance
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% MH BOUCHET/CERAM-Global Finance
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 MH BOUCHET/CERAM-Global Finance
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 MH BOUCHET/CERAM-Global Finance 2007 20=Singapore 41=Hungary 42= Poland 54= China 57= Russia 76= Vietnam 77= Algeria 79= Iran 85= Indonesia 167= Ivory Coast 178= Congo 182= Cuba 185= North Korea
EUROMONEY Risk Rating: Ivory Coast MH BOUCHET/CERAM-Global Finance Higher Risk Lower Risk Coup d’état Political upheaval
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 MH BOUCHET/CERAM-Global Finance
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) MH BOUCHET/CERAM-Global Finance
Institutional Investor Risk Rating 1981-2007 Ivory Coast MH BOUCHET/CERAM-Global Finance Higher Risk Lower Risk FCFA devaluation Coup d’état
Institutional Investor: 2007 rating Switzerland Norway Luxemburg Netherlands Finland Germany 13. France 17. Spain 21. 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 MH BOUCHET/CERAM-Global Finance
Institutional Investor 2007 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 MH BOUCHET/CERAM-Global Finance
Institutional Investor (2007 rating) MH BOUCHET/CERAM-Global Finance
Institutional Investor Risk Rating MH BOUCHET/CERAM-Global Finance
Institutional Investor Risk Rating 1981-2007 MH BOUCHET/CERAM-Global Finance
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 MH BOUCHET/CERAM-Global Finance
International Country Risk Guide: RCI MH BOUCHET/CERAM-Global Finance Composite Political, Financial and Economic Risk Rating with weighted average Coup d’état FORECAST
OECD Credit rating MH BOUCHET/CERAM-Global Finance 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 MH BOUCHET/CERAM-Global Finance 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 MH BOUCHET/CERAM-Global Finance 0 1 2 3 4 5 6 7 Greece Austria Czech Rep Chile China Israel Algeria Morocco Albania Bolivia Haiti Cambodia Belgium Canada France HongKong Hungary Poland South Africa Brazil Peru Panama Philippines Indonesia Pakistan Cameroon Niger Nigeria USA UK Trinidad & Tobago Thailand Russia Romania Vietnam Argentina Kuwait Mexico Malaysia Mexico Bulgaria Guatemala Gabon RCI
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 MH BOUCHET/CERAM-Global Finance
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 MH BOUCHET/CERAM-Global Finance
Tunisia: Macroeconomic indicators source: Coface MH BOUCHET/CERAM-Global Finance 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) MH BOUCHET/CERAM-Global Finance
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) MH BOUCHET/CERAM-Global Finance
The Globalization index MH BOUCHET/CERAM-Global Finance 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 51 53
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 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) MH BOUCHET/CERAM-Global Finance
FDI Confidence Index ( AT Kearney), MH BOUCHET/CERAM-Global Finance
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 . MH BOUCHET/CERAM-Global Finance
The 9 pillars of global competitiverness MH BOUCHET/CERAM-Global Finance 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 MH BOUCHET/CERAM-Global Finance
2008 Ranking MH BOUCHET/CERAM-Global Finance 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 . MH BOUCHET/CERAM-Global Finance
IMD Criteria MH BOUCHET/CERAM-Global Finance Over 320 competitiveness 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.
IMD Growth competitiveness Index 2007 USA = 1/55 Singapore HongKong Luxemburg Denmark 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 MH BOUCHET/CERAM-Global Finance 323 criteria within 5 main categories
Competitiveness index 2007-IMD MH BOUCHET/CERAM-Global Finance
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 MH BOUCHET/CERAM-Global Finance 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. MH BOUCHET/CERAM-Global Finance
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) MH BOUCHET/CERAM-Global Finance Corruption+ Legal + Economic + Accounting + Regulatory
World Bank: Doing Business in 2008 Singapore New Zealand USA KongKong Denmark UK Canada Ireland Australia Iceland Norway 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 178 countries 10 indicators
France: Overall business conditions (IFC) MH BOUCHET/CERAM-Global Finance
THAILAND: Overall business conditions (IFC) MH BOUCHET/CERAM-Global Finance
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 . T he Index includes a broad array of institutional factors determining economic freedom: corruption, non-tariff barriers to trade, t he fiscal burden of government , t he rule of law , r egulatory burdens , restrictions on banks, labor market regulations, black market activities… MH BOUCHET/CERAM-Global Finance
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: Trade policy, Fiscal burden of government, Government intervention in the economy, Monetary policy, Capital flows and foreign investment, Banking and finance, Wages and prices, Property rights, Regulation, and Black market activity MH BOUCHET/CERAM-Global Finance
Heritage Foundation: 2008 Economic Freedom Index(10 institutional and economic criteria) HongKong Singapore Irland Australia USA New Zealand Canada Chile Switzerland UK 13. Netherlands Japan = 17 Korea= 41 Mexique= 44 France = 48 Thaïland = 54 Tunisia= 84 Morocco= 98 Brazil= 101 Algéria= 102 China = 126 Russia= 134 Venezuela = 148 North Korea = 157 MH BOUCHET/CERAM-Global Finance 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… MH BOUCHET/CERAM-Global Finance
Fraser Institute’s Index of Economic Freedom MH BOUCHET/CERAM-Global Finance 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 . MH BOUCHET/CERAM-Global Finance
UNDP – HDI MH BOUCHET/CERAM-Global Finance 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 1970-2005 MH BOUCHET/CERAM-Global Finance 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 71.7 79.0
HDI- Life Expectancy 1970-2005 MH BOUCHET/CERAM-Global Finance   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 MH BOUCHET/CERAM-Global Finance
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 MH BOUCHET/CERAM-Global Finance
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) MH BOUCHET/CERAM-Global Finance
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) MH BOUCHET/CERAM-Global Finance
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 MH BOUCHET/CERAM-Global Finance
Nord Sud Export: export country risk MH BOUCHET/CERAM-Global Finance 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 MH BOUCHET/CERAM-Global Finance 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 MH BOUCHET/CERAM-Global Finance
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 MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance 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
MH BOUCHET/CERAM-Global Finance 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
MH BOUCHET/CERAM-Global Finance 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/
MH BOUCHET/CERAM-Global Finance 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
MH BOUCHET/CERAM-Global Finance 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

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5. risk rating

  • 1. Country Risk Analysis SOVEREIGN RISK RATING MH BOUCHET/CERAM-Global Finance
  • 2. 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) MH BOUCHET/CERAM-Global Finance
  • 3. 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 MH BOUCHET/CERAM-Global Finance
  • 4. 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 MH BOUCHET/CERAM-Global Finance
  • 5. 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 MH BOUCHET/CERAM-Global Finance
  • 6. 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 MH BOUCHET/CERAM-Global Finance
  • 7. 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 MH BOUCHET/CERAM-Global Finance
  • 8. 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 MH BOUCHET/CERAM-Global Finance
  • 9. The Perceived Situation Was the crisis anticipated by rating agencies? MH BOUCHET/CERAM-Global Finance
  • 10. EUROMONEY’s Risk Rating MH BOUCHET/CERAM-Global Finance 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
  • 11. Quantifying Country Risk MH BOUCHET/CERAM-Global Finance 30% 70% Overall Country Risk Rating Political Risk Rating Transfer Risk Rating Political Factors Political factor A Political factor B Political factor C Financial Factors Financial factor A Financial factor B Financial factor C Weights 30% 50 20 Weights 30% 40 30
  • 12. Country Risk Rating Foreign investment risk decision matrix combines ratings of financial and political risk MH BOUCHET/CERAM-Global Finance Financial Risk Political Risk High Low Low High Acceptable Zone High risk Zone Decision depending on market and profit potential
  • 13. Moody’s Sovereign Ratings 02/2008 MH BOUCHET/CERAM-Global Finance
  • 14. Moody’s economic and financial Risk indicators: Argentina end-2007 MH BOUCHET/CERAM-Global Finance
  • 15. 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…. MH BOUCHET/CERAM-Global Finance
  • 16. 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) MH BOUCHET/CERAM-Global Finance
  • 17. 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. MH BOUCHET/CERAM-Global Finance
  • 18. BERI S.A. Worst country ratings Venezuela Pakistan Colombia Indonesia Ecuador Nigeria Ivory Coast North Korea MH BOUCHET/CERAM-Global Finance
  • 19. 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 MH BOUCHET/CERAM-Global Finance
  • 20. 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%). MH BOUCHET/CERAM-Global Finance
  • 21. 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% MH BOUCHET/CERAM-Global Finance
  • 22. 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 MH BOUCHET/CERAM-Global Finance
  • 23. 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 MH BOUCHET/CERAM-Global Finance 2007 20=Singapore 41=Hungary 42= Poland 54= China 57= Russia 76= Vietnam 77= Algeria 79= Iran 85= Indonesia 167= Ivory Coast 178= Congo 182= Cuba 185= North Korea
  • 24. EUROMONEY Risk Rating: Ivory Coast MH BOUCHET/CERAM-Global Finance Higher Risk Lower Risk Coup d’état Political upheaval
  • 25. 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 MH BOUCHET/CERAM-Global Finance
  • 26. 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) MH BOUCHET/CERAM-Global Finance
  • 27. Institutional Investor Risk Rating 1981-2007 Ivory Coast MH BOUCHET/CERAM-Global Finance Higher Risk Lower Risk FCFA devaluation Coup d’état
  • 28. Institutional Investor: 2007 rating Switzerland Norway Luxemburg Netherlands Finland Germany 13. France 17. Spain 21. 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 MH BOUCHET/CERAM-Global Finance
  • 29. Institutional Investor 2007 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 MH BOUCHET/CERAM-Global Finance
  • 30. Institutional Investor (2007 rating) MH BOUCHET/CERAM-Global Finance
  • 31. Institutional Investor Risk Rating MH BOUCHET/CERAM-Global Finance
  • 32. Institutional Investor Risk Rating 1981-2007 MH BOUCHET/CERAM-Global Finance
  • 33. 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 MH BOUCHET/CERAM-Global Finance
  • 34. International Country Risk Guide: RCI MH BOUCHET/CERAM-Global Finance Composite Political, Financial and Economic Risk Rating with weighted average Coup d’état FORECAST
  • 35. OECD Credit rating MH BOUCHET/CERAM-Global Finance 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
  • 36. OECD Credit rating MH BOUCHET/CERAM-Global Finance The final classification, based only on valid country risk elements, is a consensus decision of the sub-Group of Country Risk Experts that involves the country risk experts of the Participating Export Credit Agencies. The sub-Group of Country Risk Experts meets several times a year. These meetings are organized so as to guarantee that every country is reviewed each time a fundamental change is noticed and at least once a year. The meetings are confidential and no official reports of the deliberations are made. 8 country risk categories from 0 (no risk) to 7 (high risk)
  • 37. OECD Country risk classification in 2008 MH BOUCHET/CERAM-Global Finance 0 1 2 3 4 5 6 7 Greece Austria Czech Rep Chile China Israel Algeria Morocco Albania Bolivia Haiti Cambodia Belgium Canada France HongKong Hungary Poland South Africa Brazil Peru Panama Philippines Indonesia Pakistan Cameroon Niger Nigeria USA UK Trinidad & Tobago Thailand Russia Romania Vietnam Argentina Kuwait Mexico Malaysia Mexico Bulgaria Guatemala Gabon RCI
  • 38. 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 MH BOUCHET/CERAM-Global Finance
  • 39. 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 MH BOUCHET/CERAM-Global Finance
  • 40. Tunisia: Macroeconomic indicators source: Coface MH BOUCHET/CERAM-Global Finance 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
  • 41. Coface: Payment arrears index in Tunisia (index 100= 1995) MH BOUCHET/CERAM-Global Finance
  • 42. 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) MH BOUCHET/CERAM-Global Finance
  • 43. The Globalization index MH BOUCHET/CERAM-Global Finance 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 51 53
  • 44. 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 MH BOUCHET/CERAM-Global Finance ATKearney
  • 45. 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) MH BOUCHET/CERAM-Global Finance
  • 46. FDI Confidence Index ( AT Kearney), MH BOUCHET/CERAM-Global Finance
  • 47. 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 . MH BOUCHET/CERAM-Global Finance
  • 48. The 9 pillars of global competitiverness MH BOUCHET/CERAM-Global Finance Hard + Soft DATA : Public debt + REER + interest rates + inflation + savings rate + legal and Regulatory framework + infrastructure + Education system and management schools….
  • 49. Global Competitiveness Index 2006-2007 MH BOUCHET/CERAM-Global Finance
  • 50. 2008 Ranking MH BOUCHET/CERAM-Global Finance 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
  • 51. 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 . MH BOUCHET/CERAM-Global Finance
  • 52. IMD Criteria MH BOUCHET/CERAM-Global Finance Over 320 competitiveness 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.
  • 53. IMD Growth competitiveness Index 2007 USA = 1/55 Singapore HongKong Luxemburg Denmark 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 MH BOUCHET/CERAM-Global Finance 323 criteria within 5 main categories
  • 54. Competitiveness index 2007-IMD MH BOUCHET/CERAM-Global Finance
  • 55. 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 MH BOUCHET/CERAM-Global Finance BEST
  • 56. 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. MH BOUCHET/CERAM-Global Finance
  • 57. 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) MH BOUCHET/CERAM-Global Finance Corruption+ Legal + Economic + Accounting + Regulatory
  • 58. World Bank: Doing Business in 2008 Singapore New Zealand USA KongKong Denmark UK Canada Ireland Australia Iceland Norway 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 178 countries 10 indicators
  • 59. France: Overall business conditions (IFC) MH BOUCHET/CERAM-Global Finance
  • 60. THAILAND: Overall business conditions (IFC) MH BOUCHET/CERAM-Global Finance
  • 61. 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 . T he Index includes a broad array of institutional factors determining economic freedom: corruption, non-tariff barriers to trade, t he fiscal burden of government , t he rule of law , r egulatory burdens , restrictions on banks, labor market regulations, black market activities… MH BOUCHET/CERAM-Global Finance
  • 62. 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: Trade policy, Fiscal burden of government, Government intervention in the economy, Monetary policy, Capital flows and foreign investment, Banking and finance, Wages and prices, Property rights, Regulation, and Black market activity MH BOUCHET/CERAM-Global Finance
  • 63. Heritage Foundation: 2008 Economic Freedom Index(10 institutional and economic criteria) HongKong Singapore Irland Australia USA New Zealand Canada Chile Switzerland UK 13. Netherlands Japan = 17 Korea= 41 Mexique= 44 France = 48 Thaïland = 54 Tunisia= 84 Morocco= 98 Brazil= 101 Algéria= 102 China = 126 Russia= 134 Venezuela = 148 North Korea = 157 MH BOUCHET/CERAM-Global Finance France = Over-regulated labor market and overly intrusive state + statist political economy culture + protectionist trading stances + persistent obstacles to foreign takeovers of domestic companies + sluggish growth + persistently high unemployment rate + stubborn budget deficit
  • 64. 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… MH BOUCHET/CERAM-Global Finance
  • 65. Fraser Institute’s Index of Economic Freedom MH BOUCHET/CERAM-Global Finance Source: http://www.fraserinstitute.ca/shared/readmore.asp?sNav=pb&id=852
  • 66. 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 . MH BOUCHET/CERAM-Global Finance
  • 67. UNDP – HDI MH BOUCHET/CERAM-Global Finance 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
  • 68. HDI- Life Expectancy 1970-2005 MH BOUCHET/CERAM-Global Finance 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 71.7 79.0
  • 69. HDI- Life Expectancy 1970-2005 MH BOUCHET/CERAM-Global Finance   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
  • 70. COUNTRIES X & Y: A multi-index composite graph MH BOUCHET/CERAM-Global Finance
  • 71. 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 MH BOUCHET/CERAM-Global Finance
  • 72. 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) MH BOUCHET/CERAM-Global Finance
  • 73. 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) MH BOUCHET/CERAM-Global Finance
  • 74. 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 MH BOUCHET/CERAM-Global Finance
  • 75. Nord Sud Export: export country risk MH BOUCHET/CERAM-Global Finance 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
  • 76. Nord Sud Export: investment country risk MH BOUCHET/CERAM-Global Finance 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%
  • 77. Nord Sud Export advice MH BOUCHET/CERAM-Global Finance
  • 78. 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 MH BOUCHET/CERAM-Global Finance
  • 79. MH BOUCHET/CERAM-Global Finance 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
  • 80. MH BOUCHET/CERAM-Global Finance 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
  • 81. MH BOUCHET/CERAM-Global Finance 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/
  • 82. MH BOUCHET/CERAM-Global Finance 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
  • 83. MH BOUCHET/CERAM-Global Finance 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