Country Risk Measurement

Country Risk Measurement-Foreign Direct Investments

Country Risk Measurement

Country Risk Characteristics• MNC conduct country risk assessment to measure the host country

environment impact over capital budgeting.

• Political Risks:• Attitude of the host government :A host government might impose pollution

control standards , as well as taxes and fund transfer restrictions.

Currency inconvertibility : Some governments do not allow the home currency to be exchanged into other currencies.

Blockage of fund transfer: A host government may block fund transfers, which could force subsidiaries to undertake projects that are not optimal .

Inefficient bureaucracy - Bureaucracy can delay an MNC’s efforts to establish a new subsidiary or expand business in a country.

Political Risks: Corruption/TransparencyTop 10 Countries

Financial Risk

• Macro-economic risks, represents an overall risk assessment of a country considering all variables :

• Interest rates: higher interest rates tend to slow growth and reduce demand for MNC products&services overseas.

• Exchange rates: strong currency may reduce demand for the country’s exports, increase volume of imports, and reduce production and national income.

• Inflation: inflation can affect consumers’ purchasing power and their demand for MNC goods.

Country Risk Rating

Country Risk RatingQatar

Strengths :• World’s third largest gas reserves and world’s leading exporter of till 2040

(LNG).• Diversification of economic drivers (infrastructures, industry, finance,

tourism).• Net external creditor position, due to extensive assets abroad through the

sovereign wealth fund• Stable political regime and, desire to play an international diplomatic role.

• Weakness:• Dependence on the hydrocarbon sector (two thirds of fiscal revenues and

over 90% of exports)• Uncertainty over the evolution of the natural gas market e due to shale

gas boom• Productivity in need of improvement and dependence on foreign labour

• http://www.transparency.org/country#QAT

Country Risk Assessment Techniques

• Delphi technique: collection of independent variablesand the dispersion of these options.

• Quantitative analysis: use of regression analysis model using financial &political variables, It is based on data provided by international organizations such as the International Monetary Fund, the World Bank, to assess sensitivity nalysis of business to various risk factors.

Comparing Risk Rating Among Countries

Foreign investment risk matrix (FIRM) including financial ( economic) and political risk by intervals ranging across the matrix .

Actual Country Risk Ratings across Countries :

MNCs need to periodically update their assessments of each country where they do business.

Impact of the Credit Crisis :

Many countries experienced a decline in their country risk rating due to the credit crisis consequences in 2008. Countries especially reliant on international credit.