Coming to Terms with Country Risk

John Fast & Tom Harley

AICD Conference, Singapore8 May 2013

www.dragomanglobal.com

Country risk assessment

• Few companies systematically examine country risk

• Critical to understanding and managing the risk profile of major enterprises

• Remarkably poor levels of understanding

Country risk analysis when done well provides boards with sharper insights into understanding their own businesses and a powerful competitive advantage

Developing countries

Developed countries

Country risk is the threat posed to the value of an investment through

• Corruption• Lack of understanding of local culture and norms • Inability to operate• Physical security • Expropriation• Fiscal instability• Inability to access cash• Restrictions on dealing with investment• Anarchy instability and third party events• NGO inspired restrictions

Less familiar examples

• Sheer lack of capacity of host governments• Restrictions imposed by other countries or international bodies• Risks that are in plain sight but are unseen• Collateral risks• Competitor-inspired activities• Lack of infrastructure

It is not just about what you do – it is about everything else that is happening around you.

Generic versus Targeted

• Risk profiles vary considerably within country– Industry– Location– Significance– Competitors/spoilers

• Specific analysis identifies solutions– Mitigation measures– Potential supporters– Key factors to monitor

Objectives

• Understand your pain threshold• Ensure new proposals have a robust execution

strategy as well as a durable future• Rank the risk factors and weight them so the

right ones are managed• Identify “canaries” – have the board and

management watching the same key issues• Analyse, review and refresh

Common Traps

• Premature announcements• Premature partnering• Poor planning• Under resourcing

Discussion

• How does understanding political risk lead to having a competitive advantage?

• If a company implements these recommendations what are the outputs?