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For historical country risk data please visit the Euromoney Country risk website |
WE LIVE IN a safer world than a year ago.
The results of Euromoney’s latest country risk survey show a significant improvement in the overall scores of many countries in the past 12 months. Notable risers in absolute risk ratings include Argentina (up by 10.3 points to 36.08 out of a maximum possible 100 for the best country risk score), Pakistan (up 8.8), the Slovak Republic (6.2), Ukraine (5.1), Turkey (4.9) and Russia (4.4). All rises are on the September 2003 survey.
In aggregate there has been a 4.5 % upward shift in the total absolute score for all 185 countries rated. Yet worrying geopolitical instability still casts a dark shadow over the Middle East, Africa and many other countries. It just doesn’t feel safe.
Thierry Apoteker, managing director at TAC, ascribes the overall positive trend in large part to the favourable international trade environment which added to the “delayed but visible effects of many structural reforms engaged in emerging heavyweights, like Brazil [ranked 71 in our latest country risk ranking, up from 78 in March 2004], India [60 in the latest survey] or Indonesia [88]”.
However he believes that the “pure political situation of many developing countries is still deteriorating”. This is clearly the case for a destabilized Middle East, where, Apoteker says, “the benefits of better economics may be too late to translate into a significant political improvement, but also in Latin America and Africa”.
Political convulsions Continuing absence of security in Iraq (183), political convulsions in Venezuela (116) and the Yukos affair in Russia (64) have driven up the price of oil, with uncertain harmful effects on the world economy. Instability in Afghanistan (185) remains a concern for Nato.
There is widespread recognition of partial or complete failure of African-based initiatives. There has been an “almost complete failure on the part of Nepad [the New Partnership for Africa’s Development] to condemn or at all address the problems in both Zimbabwe (177) and Sudan (173)” argues Bertrand Ramcharan, acting UN high commissioner for human rights, who also says that the African Union (formerly the Organization of African Unity) “has not proven to be useful in conflict prevention due to a lack of resources”.
Sruti Patel, of London’s Afrivest, believes that the situation in Sudan has “deteriorated further with little hope of any resolution soon”. She also points out that there is “mounting concern regarding corruption levels in Kenya (108) and the stability of the government in the Democratic Republic of Congo (182) is also in question”. However, she believes that sub-Saharan Africa “continued to benefit from the diversification strategy adopted by foreign investors over the year”.
The African energy sector’s “strategic significance increased on the back of events in the Middle East, and oil producing countries, such as Nigeria (138) and Angola (155), have reaped the rewards of high global oil prices” Patel says. She also points out that “macroeconomic stability and high GDP growth in Ethiopia (151), Mozambique (123=) and Uganda (121) have resulted in attracting increasing levels of both foreign and pan-African investment interest”.
There may be better news in Latin America. William Dugan of Summit Analytical Associates believes that the “region has been able to get beyond its political troubles” and, as a whole, has “experienced strong to robust economic growth in the first half of 2004”. He says: “Economies of the region will continue to expand through the end of this year and next, although growth rates in 2005 will generally be lower (than 2004) due to slowing growth in the US (4) and Asia”.
Political risks in Venezuela were reflected in the 2003 national strike and the recent August presidential recall referendum. Dugan maintains that the “country suffers from a political power vacuum” but that the avoidance of a constitutional crisis last month means that investment risk is “considerable but appears to be calming”.
Dugan points out that Brazil’s “recovery has been realized by the Lula government’s firm commitment to control expenditures and decrease inflation”. As the economy rebounds, Dugan believes the left-leaning government should continue to “support high interest rates, thus eschewing more rapid short-term growth and job creation in favour of measured, sustainable expansion over the longer term”.
The risk situation in Asia has also concerned many investors and analysts, with the tense political situation in North Korea (184) over its nuclear weapons programme being of key concern.
Asia Intelligence forecasts a positive outlook for Indonesia (88) as elections have passed off peacefully this year. At the same time, it believes that the government is increasing the pressure on Islamic militants. Alexander Pick, south-east Asia analyst at AI, says: “Both of these factors should lead to a rise in foreign investment over the next 12 months, meaning that growth should accelerate, helped by the sustained robustness of consumer spending.”
There is less optimism about India’s ability to maintain recent progress. According to Pick, the recent boom will subside since “the government hasn’t the strength to push through reforms; and agriculture will slow due to a poor monsoon.”
An increasingly important focus of country risk analysis is the growing international stance against sovereign government corruption. In order to better quantify its effect on country risk Euromoney has now incorporated Transparency International’s Corruption Perception Index (CPI) into our regional breakdowns.
The CPI 2003 score relates to perceptions of the degree of corruption as seen by business people, academics and risk analysts, and ranges between 10 (highly clean) and 0 (highly corrupt). This score was factored in as an additional 5% added to the country risk score. The regional breakdowns below are based on the global overall country risk ranking using long-established factors. They also include new columns showing how the overall score ranking would change once the corruption perceptions score is factored in. The biggest negative effects were in Africa and Latin America.
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For historical country risk data please visit the Euromoney Country risk website |
