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Coming to Terms with Country Risk
John Fast & Tom Harley
AICD Conference, Singapore8 May 2013
www.dragomanglobal.com
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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
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Developing countries
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Developed countries
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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
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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.
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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
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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
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Common Traps
• Premature announcements• Premature partnering• Poor planning• Under resourcing
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Discussion
• How does understanding political risk lead to having a competitive advantage?
• If a company implements these recommendations what are the outputs?