risk and the institutional voids in emerging markets
DESCRIPTION
Guest lecture delivered at Goizueta Business School, Emory University, Executive MBA program on February 17, 2011TRANSCRIPT
Tyler D. Nunnally, Founder & CEOUPSIDE RISK
Lecture Topics – February 17, 2011
Risk versus Uncertainty
What are emerging markets
What are institutional voids?
BP/Rosneft case study
Scenario Planning – N. Africa
Tyler D. Nunnally Background
‘92 Summer Olympic Games (Barcelona, Spain)
‘93 Nunnally International Trade, Inc. (Prague, Czech Republic)
‘03 University of St Andrews (St Andrews, Scotland)
‘04 Global Business Consulting (Barcelona, Spain)
‘06 Oxford Risk Research & Analysis Ltd (Oxford, England)
’09 Upside Risk (Atlanta, Georgia, USA)
Risk and Institutional Voids in Emerging Markets
Risk versus Uncertainty
Emerging Markets
Brazil Chile China
Columbia Czech Republic Egypt
Hungary India Indonesia
Malaysia Mexico Morocco
Peru Philippines Poland
Russia South Africa South Korea
Taiwan Thailand Turkey
Institutional Voids – Financial Systems
Lack of adequate financial infrastructure poses investment risks
Stable Currency (counterfeit, use of USD/EUR)
Credibility Enhancers (auditors, professional accreditations, trade assoc.)
Information Providers (analysts, credit ratings, rating agencies, media)
Access to Capital (angel investors, VCs, private equity, commercial loans)
Transaction Facilitators (stock exchanges, brokers, investment banks)
Regulatory Bodies (SEC, FDIC, Office of Comptroller of the Currency)
Institutional Voids – Legal Systems
Inadequate judicial systems make legal protection risky
Court Systems (state, federal, district, appellate, civil, criminal)
Mediators (arbitrators, attorney/client privilege)
Legal Frameworks (torts, mass torts, class-actions)
Law Enforcement (police internal affairs, secret police, intelligence)
Rule of Law (contract disputes, contract enforcement, traffic enforcement)
Institutional Voids – Social & Political Systems
The way that business is done depends on where you’re doing it
Politics (regional rivalries, state enterprises, free and fair elections)
Cultural Differences (ethic and religious groups, language)
Corruption (brides, kickbacks, extortion)
Openness (privatization, free movement of people, goods and capital)
Security (kidnapping, terrorism, street crime, violence)
Perception of Risk Meets Reality
2.93.24.2Turkey
0.90.90.9Spain
5.05.45.6USA
200920082007
Homicide rate per 100,000 people comparison
Source: http://en.wikipedia.org/wiki/List_of_countries_by_intentional_homicide_rate
Case Study: BP & Rosneft
BP announces $16bn share swap with Rosneft on Jan 14, 2011
• Rosneft is Russian state-owned oil company
• Strategic alliance that will see the two companies explore in the Russian
Arctic continental shelf
• BP will take 9.5% stake in Rosneft in exchange for about 5% per cent of
their own shares ($7.8bn)
• BP CEO Bob Dudley says deal is a good strategic fit alongside the
company’s “continued focus on the management of risk”
Case Study: BP & Rosneft
BP’s Recent History in Russia
(2003)
TNK-BP was founded in 2003 by the merger of oil and gas assets of BP and
Russian oil and gas assets of Alfa, Access / Renova (AAR). Merger created one
of the world’s Top 10 largest crude oil producers.
(2007)
TNK-BP was forced to sell its stake in the Kovykta gas fields to state-controlled
Gazprom
(2008)
A dispute between BP and TNK-BP has grown so bad that even its chief
executive, Robert Dudley, acknowledges it could "tear apart" the joint
venture.
Egyptian Revolution
http://www.youtube.com/watch?v=efcn8LpwlPo
Scenario 1 – Eastern Europe
Scenario 2 – The Balkans
Scenario 3 – Iranian Revolution 1979
Scenario 4 – What Next?
Tyler D. Nunnally, Founder & CEO
Upside Risk
Atlanta, Georgia U.S.A.
Phone: +1.404.320.6047
Email: [email protected]
www.Upside-Risk.com