G Be Risk Rating

MH BOUCHET/CERAM-Global Finance
Country Risk Analysis

SOVEREIGN RISK RATING
March 2008
Various approaches to country risk
assessment
Qualitative analysis: financial, macroeconomic, legal,
regulatory and political parameters; COFACE, Nord/Sud
Export, EIU, IIF
Quantitative approach : rating and scoring
Econometric approach and modelization
Analytical approach: crisis typology (Indosuez)
Principal Component Analysis
Logit Analysis
Non-linear conditional analysis (threshold levels &
breaking points: TAC)
Specialized Country Risk Rating
institutions
BERI (Business Environment Risk Index)
Dun and Bradstreet, Moody s, S & P, Fitch
Institutional Investor
Frost & Sullivan
Euromoney
Fraser Instiotute
Credit Risk International (Paris)
International Country Risk Guide (NY/London)
Coface & Ducroire
Heritage Foundation
Transparency International
DBRS:
http://cache.dbrs.com/pdf/20752303634573.pdf?transactionID=421961

Quantitative approach: Rating

Means: Transforming a number of observations
(Delphi method, surveys) or quantitative indicators
into one number.
The various indicators can be weighted regarding
their impact on creditworthiness and risk.
End-product: one single grade to assess past and
current country risk situation with possible cross-
country comparisons across time
Country Risk Ratings
Advantages/ Pros
Simple
cross-country comparison
comparison across time
shrinks a large number of
variables into one single
grade
Reliable for smooth risk
evolution
Shortcomings/Cons
reductionist
oversimplistic
risk of self-fulfilling
prophecy
little predictive value
weighted average tends to
bury salient trends
Gives market consensus
often made of herd instinct
Shortcomings of rating agences (C.
Kuhner, Schmalenbach Business review, January 2001)
Rating agencies are to be independent third parties that are
consulted in the course of a market transaction. The goal is to
overcome asymmetric information between both market sides
by using standardized quality assessement methods.
Criticisms:
* Power without accountability
* Conformity bias
* Sociocultural bias
* Punishment of disobedient firms/countries that do not request
a rating
* Procyclical bias, hence followjng the majority opinion of
market participants without any early warning signals nor
predictability track record
Asia, LTCM, US Subprime crises:
some lessons to learn?
Any agency which rated the Republic of Korea at the
high investment grade rating of AA- (in the case of
Fitch IBCA and S&Ps) or A1 (in the case of Moodys)
before the crisis, and which now rates Korea at a
speculative grade B-, was clearly either wrong initially
or subsequently. Clients are entitled to expect us to
perform better in the future!
Fitch IBCA January 13, 1998

When the facts change, I change my mind J.M Keynes
Rating = poor early warning signals?
South Korea wa s rated as Italy and Sweden as late as
October of 1997! But abrupt downgrading to junk bond
status during the crisis
There were no early warnings about Korea from us or,
to the best of our knowledge, from other market
participants and our customers should expect a better job
from us
FICHT IBCA January 14, 1998
The Perceived Situation
Was the crisis anticipated by rating agencies?
June 1996 June 1997 June 1996 June 1997
Indonesia BBB BBB Baa3 Baa3
Korea AA- AA- A1 A1
Malaysia A+ A+ A1 A1
Philippines BB BB+ Ba2 Ba1
Thailand A A A2 A2
Standard & Poor' s Moody' s
Credit Ratings
EUROMONEYs Risk Rating
1996 1997 1998 1999 2000 2006 2007
Korea
28 30 42 44 29 37 38
Thailand
45 51 54 49 65 57 60
Philippines
55 57 55 53 78 80 78
Malaysia
33 35 56 46 46 46 49
Indonesia
45 49 91 98 107 85 81
Quantifying Country Risk

Overall
Country
Risk
Rating
Political
Risk
Rating
Transfer
Risk
Rating
30%
70%
Political Factors
Political factor A
Political factor B
Political factor C
Financial Factors
Financial factor A
Financial factor B
Financial factor C
Weights
30%
50
20
Weights
30%
40
30
Country Risk Rating
Foreign investment risk decision matrix
combines ratings of financial and political risk
Financial Risk
P
o
l
i
t
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c
a
l

R
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s
k

High
Low
Low
High
Acceptable
Zone
High risk
Zone
Decision depending
on market and profit
potential
Moodys Sovereign Ratings 02/2008
Moodys economic and financial Risk indicators: Argentina end-2007
Country risk ratings?
Country risk analysis cannot & should
not be boiled down to bond rating!

Risk might stem from a wide range of
strategies, including FDI, exporting and
importing, lending, portfolio investment,
consultancy contracts.
Quantitative Country Risk Appraisal Methods
BERI: Business Environment Risk Index
(F.T. Haner, California-based) www.beri.com
Swiss-based private source for risk rating on over 130
countries
created in the late 1960s, the oldest risk assessment
service. Delphi Method with a panel of 105 international
experts rating 15 criteria for current and medium-term
business horizon

3 components of country risk: business climate, political
stability, currency and repayment risk.
FORELEND reports (Forecast of Country Risk for
International Lenders)

BERI S.A.
Economic, financial, monetary, operating and
political conditions are integral components of the
0 (worst case) to 100 (best case) system for
assessing countries.
Two risk indexes three times a year: ORI
Operations Risk Index and PRI Political Risk
Index.
Output: Remittance and repatriation
Factor: the R Factor, with forecasts for +1
year and +5 years.
BERI S.A.
Worst country ratings
Venezuela
Pakistan
Colombia
Indonesia
Ecuador
Nigeria
Ivory Coast
North Korea
Euromoney
Semi-annual country risk scoring of 185 countries,
both OECD and EMCs

Rating Methodology:
Panel of 32 leading economists in international financial
institutions evaluing country performance in the financial
markets (market access, spreads, selldown, terms and
maturity)
Scoring between 100 (excellent) and 0 (considerable risk)
+ Panel of political analysts to measure short-term risk of
destabilization
Euromoney
Euromoney establishes an overall score for countries using nine
weighted categories which are calculated as follows:
the highest score in each category receives the full mark for the
weighting; the lowest receives 0. In between, figures are
calculated according to the formula: final score = (weighting /
(maximum score-minimum score)*(maximum score-minimum
score). The ranking shows the final scores after weighting.

Categories =
Economic performance (25% weighting), Political Risk (25%),
Debt indicators (10%), Debt in default or rescheduled (10%),
Credit ratings (10%), Access to bank finance (5%), Access to
short-term finance (5%), Access to capital markets (5%) and
Discount on forfaiting (5%).
Rating: EUROMONEY

Growth performance: 25% (GDP projections)
Political risk: 25%
External debt indicators: 10% (debt/GDP et debt/X)
External payment default and rescheduling: 10%
Credit rating Moody s or S&P: 10%
Short-term credit market access: 5%
Commercial bank MT credit: 5%
Capital markets access: 5%
Spread over US Treasury bills: 5%

EUROMONEY: end-2007 Rating
1= Luxemburg
2. Norway
3. Switzerland
14= France
19= Japan
26= HongKong
28= Taiwan

42= Poland
44= Chile
50= Mexico
54= China
62= Tunisia
65= Morocco
69= Egypt
79= Algeria
184= North Korea

EUROMONEY: Country Risk Rating
End-2001
14= Singapore
28= Tawan
30= HongKong
40= Chile
39= Hungary
40= Brunei
42= Poland
45= China
56= Malaysia
89= Romania
93= Bulgaria
163= Congo

End-2005
9= Ireland
19= Singapore
22= New Zealand
35= Hungary
58= China
73= Iran
74= Vietnam
77= Russia
85= Algeria
96= Indonesia
127= Ivory Coast
182= Cuba

2007
20=Singapore
41=Hungary
42= Poland
54= China
57= Russia
76= Vietnam
77= Algeria
79= Iran
85= Indonesia
167= Ivory Coast
178= Congo
182= Cuba
185= North Korea

EUROMONEY Risk Rating: Ivory Coast
0
20
40
60
80
100
120
140
160
180
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Higher Risk
Lower Risk
Coup dtat
Political upheaval
Scoring/Rating of Country Risk
0-100 semi-annual Rating of 136 countries creditworthiness
based on survey of 100 leading international bankers
Best : Switzerland, Germany, Netherlands, United States, United
Kingdom, France, Luxembourg Singapore, Taiwan, Chile
Worst: Cuba, Nigeria, Benin, Sudan, Iraq, Congo, Sierra Leone,
North Korea, Albania, Angola

II Global average rating as of March 2000 = 41
II Global average rating as of March 2007 = 45

Institutional Investor Risk Rating
Risk information provided by leading international banks.
Bankers are asked to grade each of the countries on a
scale from 0 to 100, with 100 representing those countries
with the best creditworthiness.
The sample for the study, updated every six months,
ranges from 75 to 100 banks. The names of all participants
in the survey are kept strictly confidential.
Banks are not permitted to rate their home country. The
individual responses are weighted (> importance to responses
from banks with greater worldwide exposure and more
sophisticated country analysis systems)
Institutional Investor Risk Rating 1981-2007
Ivory Coast
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Higher Risk
Lower Risk
FCFA devaluation
Coup dtat
Institutional Investor: 2007 rating
1. Switzerland
2. Norway
3. Luxemburg
4. Netherlands
5. Finland
6. Germany
13. France
17. Spain
21. Italy

60. Tunisia
67. Morocco
68. Algeria
72. Egypt
78. Venezuela
91. Argentina
117. Bolivia
124. Gabon
134. Cameroun
153. Congo
157. RCI
166. Iraq
171. Zimbabwe

2007 Risk Rating of ASIA
Singapore= 16
Australia= 18
Hongkong= 24
Taiwan= 26
South Korea= 28
China= 34
Malaysia= 38
Thailand= 54
India= 58

Philippines= 73
Indonesia= 76
Vietnam= 77
Pakistan= 86
Sri Lanka= 100
Laos= 132
Cambodia= 140
Myanmar= 168
North Korea= 173

Institutional Investor (2007 rating)
From Best to. Worst
Switzerland, Norway, UK,
Germany, USA, Sweeden
Congo, Afghanistan, Mali
Netherlands, France, US Chad, Togo, Cambodia
Austria, Canada, Singapore,
Australia, Japan
Yugoslavia, Cuba, RCI
Denmark, Belgium, Canada Albania, Haiti, Angola, Iraq,
N. Korea, Sudan
Greece, Chile, Spain, Kuwait
Italy, Taiwan, HK, China

Nicaragua, Cuba, Zambia,
Togo, Ethiopia, Myanmar,
Liberia, Somalia, Zimbabwe

Institutional Investor Risk Rating
20
40
60
80
100
120
140
160
180
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Ivory Coast Ukraine Chile Mexico
Brazil Algeria Russia
Institutional Investor Risk Rating 1981-2007
20
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120
140
160
180
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RCI Russia
International Country Risk Guide
The ICRG Risk Rating System assigns a numerical value (risk points) to a
predetermined range of risk components according to a preset weighted
scale for each country covered by the system (PRS)

The risk components are grouped into 3 categories - Political, Economic
and Financial. Each Risk Category is made up of a number of Risk
Components. The sum of the Risk Points assigned to each Risk
Component within each Risk Category determines the overall risk for that
category.

The total Risk Points for each Risk Category are further combined,
according to a formula, to produce a Composite Risk Rating.

Very High Risk 00.0 to 49.5 points High Risk 50.0 to 59.5points
Moderate Risk 60.0 to 69.5 points Low Risk 70.0 to 79.5 points
Very Low Risk 80.0 to 100 points
International Country Risk Guide: RCI
40
45
50
55
60
65
70
avr-99 mai-99 juin-99 juil-99 aot-99 sept-99 oct-99 nov-99 dc-99 janv-00 fvr-00 mars-00 avr-00 spt-00 sept-01 sept-02 sept-03 2006
Rating
Composite Political, Financial and Economic Risk Rating with weighted average
Coup dtat
FORECAST
OECD Credit rating
1997 Knaepen Package= convergence on the pricing of officially supported
medium and long term export credits.
One of the key elements of the Knaepen Package is a system for assessing
country credit risk and classification of the countries into 7 categories.
The Country Risk Classification Method measures the country credit risk, i.e.
the likelihood that a country will service its external debt.
The Country Risk Classification Method uses an econometric model based
on quantitative indicators, e.g. the financial and the economic situation and
the payment experience of the countries and takes account of possible
qualitative factors, e.g. political and other economic and financial factors not
included in the quantitative Econometric Model.
The details of the Country Risk Assessment Model are confidential and not
published.
http://www.oecd.org/document/49/0,2340,fr_2649_34169_1901105_1_1_1_1,00.html
OECD Credit rating
The final classification, based only on valid country risk elements,
is a consensus decision of the sub-Group of Country Risk Experts
that involves the country risk experts of the Participating Export
Credit Agencies.
The sub-Group of Country Risk Experts meets several times a
year. These meetings are organized so as to guarantee that every
country is reviewed each time a fundamental change is noticed and
at least once a year.
The meetings are confidential and no official reports of the
deliberations are made.
8 country risk categories from 0 (no risk) to 7 (high risk)

OECD Country risk classification in 2008
0 1 2 3 4 5 6 7
Greece
Austria
Czech
Rep
Chile
China
Israel
Algeria
Morocco
Albania Bolivia
Haiti
Cambodia
Belgium
Canada
France
HongKong
Hungary
Poland
South
Africa
Brazil
Peru
Panama
Philippines
Indonesia
Pakistan
Cameroon
Niger
Nigeria
USA
UK
Trinidad
&
Tobago
Thailand
Russia
Romania
Vietnam
Argentina
Kuwait
Mexico
Malaysia
Mexico
Bulgaria
Guatemala
Gabon
RCI
COFACE
140 countries
Country rating definition:
Investment grade
A1= steady economic and political situation
A2= weak default probability
A3= adverse circumstances may lead to worsening
payment record
A4= patchy payment record could be worsened by adverse
economic/political developments
Speculative grade:
B= unsteady economic and poltical environment
C= bad payment record
D= high risk profile and very bad payment record
Coface credit Rating (2008)
Canada= A1
Australia= A1
USA= A1
Japan= A1
Chile= A2
Korea= A2
Thaland = A3
China = A3
Mexico = A3
India = A3
Croatia=A3
Poland = A3
Roumania =A4
Tunisia= A4
Algria = A4
Brazill= A4

Cameroun= B
gypt = B
Russia= B
Indonsia= B
Turkey = B

Ukraine= C
Congo= C
Argentina = C

Iran= D
Venezuela= D
RCI= D
Nigeria= D

Tunisia: Macroeconomic indicators
source: Coface
Mds $
2003 2004 2005 2006e 2007(e) 2008(p)
Croissance conomique
(%)
5,6 6 4 5,4 6 6,2
Inflation (%) 2,7 3,6 2 4,5 3 3
Solde public/PIB (%) -3,4 -2,6 -3 -2,8 -2,7 -2,6
Exportations 8 9,7 10,5 11,5 13,5 14,5
Importations 10,3 12,1 12,5 14 16,3 17,7
Balance commerciale -2,3 -2,4 -2 -2,5 -2,8 -3,2
Balance courante/PIB
(%)
-2,9 -1,9 1,1 -2,3 -2,5 -2,8
Dette extrieure/PIB
(%)
83,7 81,2 75 70 67 63
SD/Export b&s (%) 11 14,5 13,8 17,3 12,5 11,3
Rserves en mois
d'import.
2,7 3 3,2 4,5 4,7 4,7
Coface: Payment arrears index in Tunisia
(index 100= 1995)
AT KEARNEY: the globalizaton
index
Index that measures a countrys global links, from
foreign direct investment to international travel,
telephone traffic, and Internet servers
Indicators combined into 4 sub-categories:
Economic integration (trade, FDI, portfolio capital flows,
income payments, receips)
Technology (number of Internet users, Internet hosts,
secure servers)
Personnal contact (international travel, tourism,
international telephone traffic, cross-border transfers)
Political engagement (foreign embassies, participation in
UN missions, number of memberships in international
organisations)
The Globalization index
2001 2002 2003 2004
Ireland
6 1 1 1
United States
12 12 11 7
Chile
26 34 31 34
Argentina
39 44 48 44
Brazil
44 58 57 58
Morocco
42 46 29 46
France
16 13 12 15
Japan
29 38 35 38
Russia
45 39 45 39
China
48 53 51 53
Globalization Index: The Top 20 /62
1. Singapore
2. Ireland
3. Switzerland
4. US
5. Netherlands
6. Canada
7. Denmark
8. Sweden
9. Austria
10. Finland
11. New Zealand
12. UK

13. Australia
14. Norway
15. Czech Rep.
16. Croatia
17. Israel
18. France
19. Malaysia
20. Slovenia

52. Russia
54. China
62. Iran

ATKearney
AT KEARNEY: the FDI confidence
index
The FDI confidence index is constructed using primary
data from a proprietary survey administered to senior
executives of the worlds 1000 largest corporations.
The survey is designed to gauge the likelihood of
investment in specific markets in order to gain insights
into likely trends in global FDI flows over the next one to
three years.
Index values are based on non-source country responses
about various markets (eg: the index ranking for the
United States reflects all non-US company responses
about the US market)

FDI Confidence Index (AT Kearney),

FDI Confidence Index
0 0,5 1 1,5 2 2,5
China
US
UK
Germany
France
Italy
Spain
Canada
Mexico
Australia
Poland
Brazil
Czech Rep
India
Netherlands
Thailand
South Korea
Singapore
0-3 scale
World Economic Forum: Global
competitiveness ranking
Growth prospects of 131 countries: up-to-date and
comprehensive data source available on the
comparative strengths and weaknesses of leading
economies of the world.
Countries in The Global Competitiveness Report
are ranked by the Growth Competitiveness Index
(GCI) (GCI Rankings) and the Microeconomic
Competitiveness Index (MICI) (MICI Rankings),
which combined encapsulate the relative strengths
and weaknesses of growth within each economy.

The 9 pillars of global competitiverness
Hard + Soft DATA:
Public debt + REER + interest rates
+ inflation + savings rate + legal and
Regulatory framework + infrastructure
+ Education system and management
schools.
Global Competitiveness Index 2006-2007
2008
Ranking
United States 1
Switzerland 2
Denmark 3
Sweden 4
Germany 5
Finland 6
Singapore 7
Japan 8
United Kingdom 9
Netherlands 10
Korea, Rep. 11
Hong Kong SAR 12
Canada 13
Taiwan, China 14
Austria 15
Norway 16
Israel 17
France 18
Australia 19
Belgium 20
Cambodia 110
Nicaragua 111
Burkina Faso 112
Suriname 113
Nepal 114
Mali 115
Cameroon 116
Tajikistan 117
Madagascar 118
Kyrgyz Republic 119
Uganda 120
Paraguay 121
Zambia 122
Ethiopia 123
Lesotho 124
Mauritania 125
Guyana 126
Timor-Leste 127
Mozambique 128
Zimbabwe 129
Burundi 130
Chad 131
IMD World Competitiveness ranking
The World Competitiveness Yearbook : annual
study on the competitiveness of nations.
It analyzes and ranks the ability of nations to
provide an environment that sustains
competitiveness
Extensive coverage of 55 countries
Over 300 competitiveness criteria are selected.
IMD Criteria
Economic
Performance
(74 criteria) Macro-economic evaluation of the
domestic economy.
Government
Efficiency
(84 criteria) Extent to which government policies
are conducive to competitiveness.
Business Efficiency (66 criteria) Extent to which enterprises are
performing in an innovative,
profitable and responsible manner.
Infrastructure (90 criteria) Extent to which basic, technological,
scientific and human resources meet
the needs of business.
Over 320 competitiveness criteria
IMD Growth competitiveness Index 2007
1. USA = 1/55
2. Singapore
3. HongKong
4. Luxemburg
5. Denmark
6. Switzerland
15. China
16. Germany
20. UK
24. Japan
26. Chile
27. Inda

France = 28
Korea= 29
Russia = 43
Mexico= 47
Brazil= 49
Argentina= 51
Poland= 52
Indonesia= 54
Venezuela = 55
323 criteria within 5 main categories
Competitiveness
index 2007-
IMD
IMD 2007 Competitiveness Index
1. USA
2. Singapore
3. HK
3. Luxembourg
4. Denmark
5. Switzerland
15. China
16. Germany
20. UK
24. Japan
26. Chile

27. India
28. France
29. Korea
30. Spain
33. Thailand
35. Hungary
38. Colombia
43. Russia
44. Romania
47. Mexico
55. Venezuela

BEST
PriceWaterhouseCoopers Opacity Index
The index is based on a major co-operative effort to
assess the adverse impact of opacity of capital (the
cost of borrowing funds) in a number of countries.
It is based on 5 components:
Corruption in government bureaucracy
Laws governing contracts or property rights
Economic (fiscal, monetary, and tax-related)
Accounting standarts
Business regulations
Together, these create the acronym CLEAR
(Corruption, Legal, Economic, Accounting,
Regulatory). A high degree of opacity in any of these
areas will raise the cost of doing business and curtail
the availability of investment capital.

PriceWaterhouseCoopers Opacity Index
China (from worst)
Russia
Indonesia
South Korea
Turkey
Venezuela
Ecuador
India
Kenya
Israel
HongKong
Italy
Mexico
UK
USA
Chile
Singapore (to best)
Corruption+ Legal + Economic + Accounting + Regulatory
World Bank:
Doing Business
in 2008
1. Singapore
2. New Zealand
3. USA
4. KongKong
5. Denmark
6. UK
7. Canada
8. Ireland
9. Australia
10. Iceland
11. Norway
12. Japan
15. Thailand
31. France (44 in2006)
33. Chile
83. China
88. Tunisia
91. Vietnam
106. Russia
120. India
122. Brazil

178 countries
10 indicators
France: Overall business conditions (IFC)
THAILAND: Overall business conditions (IFC)
Heritage Foundation: Index of economic freedom
Economic freedom = absence of government
coercion or constraint on the production,
distribution, or consumption of goods and services
beyond the extent necessary for citizens to protect
and maintain liberty itself.
The Index includes a broad array of institutional
factors determining economic freedom: corruption,
non-tariff barriers to trade, the fiscal burden of
government, the rule of law, regulatory burdens,
restrictions on banks, labor market regulations,
black market activities
Criteria of economic freedom
To measure economic freedom and rate each country, the
Index is based on 50 independent economic variables within
10 broad categories of economic freedom:
1. Trade policy,
2. Fiscal burden of government,
3. Government intervention in the economy,
4. Monetary policy,
5. Capital flows and foreign investment,
6. Banking and finance,
7. Wages and prices,
8. Property rights,
9. Regulation, and
10. Black market activity
Heritage Foundation: 2008
Economic Freedom Index(10 institutional and economic criteria)
1. HongKong
2. Singapore
3. Irland
4. Australia
5. USA
6. New Zealand
7. Canada
8. Chile
9. Switzerland
10. UK
13. Netherlands

Japan = 17
Korea= 41
Mexique= 44
France = 48
Thaland = 54
Tunisia= 84
Morocco= 98
Brazil= 101
Algria= 102
China = 126
Russia= 134
Venezuela = 148
North Korea = 157
France = Over-regulated labor market and overly intrusive state + statist political economy
culture + protectionist trading stances + persistent obstacles to foreign takeovers of domestic
companies + sluggish growth + persistently high unemployment rate + stubborn budget deficit
Fraser Institute
Since 1975
130 countries
Annual Index of Economic Freedom in the world: reliable
measure of cross-country differences in economic
freedom, using third-party data to help ensure objectivity
Criteria: government quality, legal structure, security of
property rights, access to sound money, personal choice,
freedom to exchange with foreigners and to compete in
markets, quality of regulations and institutional
strength
Fraser Institutes Index of Economic Freedom
Source: http://www.fraserinstitute.ca/shared/readmore.asp?sNav=pb&id=852
Human Development Index
HDI developed by UNDP
A composite index measuring average
achievement in three basic dimensions of
human development-a long and healthy life,
knowledge and a decent standard of living, as
measured by real GDP per capita on a
purchasing power parity basis.

UNDP
HDI
154. Haiti
155. Gambia
156. Senegal
157. Eritrea
158. Rwanda
159. Nigeria
160. Guinea
161. Angola
162. Tanzania, U. Rep. of
163. Benin
164. Cte d'Ivoire
165. Zambia
166. Malawi
167. Congo, Dem. Rep. of the
168. Mozambique
169. Burundi
170. Ethiopia
171. Chad
172. Central African Republic
173. Guinea-Bissau
174. Burkina Faso
175. Mali
176. Sierra Leone
177. Niger
1. Norway
2. Iceland
3. Australia
4. Ireland
5. Sweden
6. Canada
7. Japan
8. United States
9. Switzerland
10. Netherlands
11. Finland
12. Luxembourg
13. Belgium
14. Austria
15. Denmark
16. France
17. Italy
18. United Kingdom
19. Spain
20. New Zealand
HDI- Life Expectancy 1970-2005
1970-75 2000-05
Norway 74.4 79.3
Iceland 74.3 80.6
Australia 71.7 80.2
Ireland 71.3 77.7
Sweden 74.7 80.1
Canada 73.2 79.9
Japan 73.3 81.9
United States 71.5 77.3
Switzerland 73.8 80.5
Netherlands 74.0 78.3
Finland 70.7 78.4
Luxembourg 70.7 78.4
Belgium 71.4 78.8
Austria 70.6 78.9
Denmark 73.6 77.1
France 72.4 79.4
Italy 72.1 80.0
United Kingdom 72.0 78.3
Spain 72.9 79.5
New Zealand 71.7 79.0
HDI- Life Expectancy 1970-2005

1970-75 2000-05
Senegal 40.1 55.6
Eritrea 44.3 53.5
Rwanda 44.6 43.6
Nigeria 42.8 43.3
Guinea 39.3 53.6
Angola 37.9 40.7
Tanzania, U. Rep. of 49.5 46.0
Benin 47.0 53.8
Cte d'Ivoire 49.8 46.0
Zambia 50.2 37.4
Malawi 41.8 39.6
Congo, Dem. Rep. of the 46.0 43.1
Mozambique 40.7 41.9
Burundi 44.1 43.5
Ethiopia 43.5 47.6
Chad 40.6 43.6
Central African Republic 43.5 39.4
Guinea-Bissau 36.5 44.6
Burkina Faso 43.8 47.4
Mali 38.0 47.8
Sierra Leone 35.4 40.6
Niger 38.4 44.3
COUNTRIES X & Y: A multi-index composite graph
0
20
40
60
80
CPI
Euromoney
Competitiveness
Doing Business
Corruption
Ec. Freedom
NSE Risk Rating
Rating covers about 100 developing countries

Objective: Market potential assessment for foreign
investor

Means: Country risk rating issued once a year
Methodology: 4 parameters computed
Sovereign financial risk
Financial market risk
Political risk
Business environment risk
Nord Sud Export index
Country risk ratings with 4 factors:
Sovereign financial risks (public debt sovereign
default risk inconvertible risk)
Market financial risks (systemic and volatilit risks
mastering of the macroeconomic fundamentals
devaluation risks)
Political risks (external conflicts government
stability social homogeneity)
Business environment (FDI good governance
labor conditions)

NSE Rating Methodology
Each rating stems from weighted average
of 60 variables
43 qualitatives variables
17 qualitative variables
Each variable is graded from 0 (worst) to 7
(best)
Exemple NSE Rating Procedure
Parameter 1: Sovereign financial risk

Factor 1 (weight 4/10):Public debt burden in the
economy, computed from 6 quantitative variables

Factor 2 (weight 4/10):Sovereign default risk, from 4
quantitative and 2 qualitative variables

Factor 3 (weight 2/10):Non convertibility risk,
from 2 quantitatives and 1 quantitative variables
Nord Sud Export: export country risk
Risk classes Type of risk rate
7 Very low risk (eg:
OCDE)
From 541 to 700
6 Low risk From 431 to 540
5 Moderate risk From 381 to 430
4 Rather high risk From 321 to 380
3 High risk From 271 to 320
2 Very high risk From 161 to 270
1 Dangerous risk From 1 to 160
Nord Sud Export: investment country
risk
Export Investments
Sovereign risks
(15 criteria)
30% 10%
Market risks
(15 criteria)
40% 30%
Political risks
(15 criteria)
10% 30%
Business environment
(15 criteria)
20% 30%
Nord Sud Export advice
Rate
Export firms: if
you master
your margins,
you should
increase them:
Risk
premium for
localisation
risk
so for a yield
rate of 15%
From 0 to 215 75%
investment
to be
avoided
when >100% >30%
From 216 to 295 50% 100% 30%
From 296 to 350 40% 70% 25,50%
From 351 to 405 25% 50% 22,50%
From 406 to 430 10% 27% 19%
From 430 to 485 10% 13% 17%
From 486 to 540 5% 13% 17%
From 541 to 700 0% 0% 15%
Industrial investors:
Nord Sud Export: investment country
risk ratings
Hong-Kong: 7
Singapore: 7
Chile: 7
South Korea: 6
Malaysia: 6
Costa-Rica: 6
Mexico: 6
Egypt: 6
Mauritius: 6
Oman: 6

Myanmar: 2
Yemen: 2
Nigeria: 2
Irak:1
Republic of the Congo: 1
Kirghizstan: 1
Tadjikistan:1

Heritage Foundation
established since 1985,
in partnership with the
WSJ, an economic
freedom index for some
160 countries, both
industrialized and
developing. The ranking
is based on ten socio-
political and economic
criteria, including
political stability, state
interference, investment
codes, regulatory
framework, institutional
strength, and corruption
scope.
www.heritage.org
PricewaterhouseCoopers
s Opacity Index
measures the lack of
clear, accurate, formal
and widely accepted
practices in a
countrys business
environment. As such,
it focuses on the
relative state of
corrupt business
practices, the
transparence of the
legal system and the
quality of the
regulatory
framework. It
measures the resulting
extra risk premium
that stems from
additional business
and economic costs.
www.opacityindex.com/
The Institute for
Management
Developments World
Competitiveness
Report analyses 49
industrialized and
emerging economies
around the world based
on a far-reaching survey
since 1989. Its analysis
of the institutional
framework addresses
issues such as state
efficiency, transparency
of government policy,
public services
independence from
political interference,
bureaucracy as well as
bribery and corruption.
www.imd.ch
Freedom House since 1972
monitors the progress and
decline of political rights
and civil liberties in 192
countries. FH publishes an
annual survey of the
Progress of Freedom in the
world. The ranking is based
on a wide survey of regional
experts, consultants, and
human rights specialists.
Political stability and civil
liberties are ranked on a
scale of 1 (best) to 7
(worst).
www.freedomhouse.org/rati
ngs/index.htm
The Political and
Economic Stability
Index of Lehman
Brothers and Eurasia
measures relative stability
in around 20 EMCs by
integrating political
science theories with
financial markets
developments. The
monthly evaluation uses
both quantitative and
qualitative criteria,
including institutional
efficiency, political
legitimacy, economic
performance, and
government
effectiveness.
www.legsi.com
Political and Economic
Risk Consultancy (PERC)
specializes in strategic
business information and
analysis in East and
Southeast Asia, with
emphasis on corruption and
business costs. Annual risk
reports survey over 1,000
senior expatriates living in
to obtain their perceptions
of corruption, labor quality,
intellectual property rights
risks and other systemic
shortcomings.
www.asiarisk.com
Business Environment
Risk Intelligence (BERI)
provides a Political Risk
Index assessing the social
and political environment of
a country. It is built on the
opinion and scores provided
by a hundred experts with a
diplomatic or political
science background.
Governance quality is
included into political risk
analysis along with
government effectiveness
and social indicators.
http://www.beri.com
Political Risk Services
risk analyses cover a
hundred countries and are
updated on a quarterly
basis. International
Country Risk Guide
measures and tracks
corruption perception in
government, law and
order, expropriation risk,
as well as the quality of
bureaucracy. These
measures stem from the
subjective assessment of
experts around the world.
http://www.prsgroup.com
WORLD BANK: Given its
unique policy dialogue with
more than 180 countries,
the Bank has developed a
comprehensive database of
composite governance
indicators, measuring
perceptions of voice and
accountability, political
stability, government
effectiveness, regulatory
quality, rule of law, and
corruption.
www.worldbank.org/wbi/go
vernance/
The London-based
Economist Intelligence
Unit (EIU) provides a
comprehensive -year
forecasting country risk
analysis on some 100
EMCs., on a quarterly basis.
The EIU method flows from
experts answers to a series
of 77 predetermined
qualitative and quantitative
questions.
http://www.eiu.com
To look upon governance
and corruption, Moodys
takes into consideration
the structures of social
interaction, social and
political dynamics, as
well as the economic
fundamentals. Moodys
relies on the judgment of
a group of credit risk
professionals to weigh
the various risk factors as
well as the impact of each
of these factors upon
business prospects.
http://www.moodys.com
Standard and Poors
rating approach is both
quantitative and qualitative.
It is based on a checklist of
10 categories, including
governance and political
risk. The political risk
factors gauge the impact of
politics on economic
conditions, as well as the
quality of governance and
the degree of government
support in the population.
S&P assigns short term and
long-term ratings.
http://www.standardandpoor
s.com
Euromoney publishes
ratings of some 180
countries since 1982 on a
semi-annual basis. The
methodology is built from
a blend of quantitative
criteria and qualitative
factors coming from
surveys with about 40
political analysts and
economists. Political risk
receives a 25% weighting,
as much as economic
performance. Countries are
graded on scale from 0
(worst) to 100 ( best).
www.euromoney.com
Institutional Investors
ratings are published
twice a year since 1979
to assess the
creditworthiness of about
150 countries, based on a
survey of some 100
international bankers
perception of
creditworthiness,
including economic,
financial and socio-
political stability criteria.
The resulting score
scales from zero (very
high chance of default)
to 100 (least chance of
default).
www.institutionalinvesto
r.com
Transparency
International, a non-profit
non-governmental
organization in Berlin,
provides an annual survey
of corruption practices in
nearly 90 countries since
1995. The Corruption
Perception Index is based
on a wide network of
information sources with
local NGOs, domestic and
foreign corporations,
investors, and business
contacts.
www.transparency.org

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