Country Risk 1 Country Risk Definition • The Likelihood that unexpected events within a host country will influence a client’s or a government’s ability to repay a loan or make a payment • Sovereign Risk/Political Risk Unilateral repudiation of foreign obligations • Economic Risk Inability to pay 2 Political Risk • Firm Specific - governance issues - business risks - industry - goal conflicts 3 Political Risk • Handling Firm Specific Risk - Investment agreement * funds flows * transfer prices * export licences * tax * access to markets 4 Political Risk • Handling Firm Specific Risk - Insurance * government * private 5 Political Risk • Handling Firm Specific Risk - Operating Strategies * local sourcing * location * transportation * technology * markets (brand name) * finance (thin equity, multi source) 6 Political Risk • Country Specific Risk - Blocked Funds/ Transfer Risk * other fees * transfer pricing * leading and lagging * fronting loans * other unrelated exports 7 Political Risk • Country Specific Risk - Cultural and Institutional Risk * ownership structure * human resource norms * religion * nepotism and corruption * intellectual property rights * protectionism 8 Political Risk • Global Specific Risk - Terrorism - Anti-globalisation - Environmental Concerns 9