Brics risk scores slide amid global downturn


Jeremy Weltman
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Confidence in the world’s emerging powerhouses of Brazil, Russia, India, China and South Africa (Brics) has waned.

The five economies of the Brics have seen an aggregate ECR score loss of 6.4 points this year, lowering the average score by 3.1 points to 56.8. South Africa (-2 points), Brazil (-1.9) and India (-1.6) have endured the worst declines in sentiment, resulting from concerns about export market conditions, amid waning demand for commodities and increased domestic security risks. However, all five have seen large declines in their economic assessment scores, as contributors have reassessed their expectations for global growth and have acknowledged the slowdown in China’s breakneck pace of expansion.

Four of the five Brics (Russia the exception) have also endured lower political risk scores – led by India (down 0.9 points) and China (-0.8). Domestic political problems have increased the risks of government instability and non-payment/repatriation problems in India as prime minister Manmohan Singh’s Congress Party-led coalition has come under strain and suffered from poor state-election results. China has seen deterioration in five of its six political risk factors against the backdrop of an uneasy political climate, as the country heads for transition to a new leader amid splits emerging in the party’s echelons. China’s overall ECR score has changed little in the past decade, falling by 0.2 points compared with 2002, even though its relative ranking has improved with a 10-place jump to 35. China’s failure to improve its score is indicative perhaps of the failure among the Chinese elite to convince international economists that its strong economic growth has been matched by improvements to the business environment, rule of law or political environment. ECR economists still regard Russia as the weakest of the Brics, ranking 60 in the world, despite the three main ratings agencies placing India below Russia. India might have a lower economic assessment than Russia, but its political and structural risk assessments are more favourable, according to ECR contributors, with particularly large gulfs in the scores for government non-payments/non-repatriation, information access/transparency, institutional risk, the regulatory and policy environment, and demographics – factors seemingly not being reflected in the various credit ratings. This might be due to the comparative security provided by Russia’s status as one of the world’s largest energy producers. Brazil, ranking just below China at 38th globally, on a score of 60.9, has seen all three categories of its risk profile downgraded, but especially the economic assessment. All five economic sub-factors are lower, notably the economic-GNP outlook. Brazil’s economic growth has crumpled in the face of lower export-driven manufacturing production and reduced investment rates, amid weakened capital flows and eurozone contagion. However, consumer confidence remains high and Brazil retains its position as the second safest sovereign in Latin America, after Chile.

This article was originally published by Euromoney Country Risk.