Global Risk Service

The Global Risk Service is a sophisticated tool for measuring investment project risk almost anywhere in the world. Our team of experts and analysts quantify the potential risks to your investment at each phase of a project. We provide quarterly updated risk scores for 54 types of risk across 145 countries for 12 investment categories. These scores include immediate risks, such as a currency devaluation, and broader risks, such as a natural disaster. All of the following services are available to you through our client website, MyInsight, with downloadable Excel files:

• Quarterly updated risk scores
• Quarterly updated country assessments
• Investment-specific risk assessments

Benefits:

Global Risk Service enables you to:

• Apply country intelligence directly to real business and financial investments
• Evaluate large numbers of individual risk factors present in less stable countries
• Quantify risks associated with particular projects

• Quarterly updates of risk scores for 54 sources of risk in 145 countries and 12 investment categories
• Aggregate country risk scores, including the one- and five-year risk level for each country
• 54 defined risk factors, including:
  • 33 immediate sources of direct risk to cash flow (such as a 10 percent increase in the capital gains tax)
  • 21 secondary sources of broader environment risks (such as a military coup that would reduce GDP growth rate by 2 percent)
• Uniform scores that can be compared across countries, regardless of a country's political, economic, or social structure

Quarterly Updated Country Assessments

Features:

• Country background analysis
• Report on recent developments
• Highlight of events to watch
• Downloadable Excel risk score files

Investment-Specific Risk Assessment

Features:

• Assessment risks for 12 investment types, enabling you to estimate cash flow loss due project risk for either one investment across multiple countries or multiple investments within one country
• A country risk application that:
  • Identifies risk events that affect different project phases
  • Estimates loss in project value should events occur
  • Adjusts loss for probability of events occurring
  • Summarizes:
    • Net present value of project adjusted for risk
    • Fall in value compared to original projection
    • Implied country risk premium in basis points
    • Potential up-side of risk factors (such as a tax decrease) as well as other mitigating aspects

Twelve Investment Types

1. Dollar-denominated bank loans to sovereign borrowers: this investment type carries the full faith and credit of the domestic government, and is free from risks associated with exchange-rate fluctuation and currency controls.
2. Dollar-denominated bank loans to domestic banking institutions: this investment type is not explicitly guaranteed or insured by the domestic banking system or the government, although implicit guarantees may mitigate overall risk. It is free from risks associated with exchange-rate fluctuation and currency controls.
3. Domestic equities (excluding American Depository Receipts): this investment type is a diversified portfolio of non-controlling equity shareholdings in private-sector companies located in the country under consideration. In countries where a stock exchange operates, this is assumed to be a portfolio of listed shares. Where there is no exchange, this is assumed to be a portfolio of minority interests in several of the larger companies operating in the country.
4. Manufacturing (for Domestic Market): This investment type pertains to manufacturing or service operations located in the country of interest, for which the overwhelming share of production is intended for the domestic market.
5. Manufacturing (for Export) (or export-oriented DFI): this investment type pertains specifically to a manufacturing operation for which the overwhelming share of output is intended for export. Much or all of capital goods are imported, as is a part of operational inputs.
6. Oil and Gas (Upstream): this investment type includes any exploration or development activity involving oil- or gas-related resources in the host country, intended primarily for export purposes.
7. Mining: this investment type corresponds to business activities that involve the extraction, processing, and transport of non-precious metals and minerals for export.
8. Power Generation: this investment type describes the risks facing a stylized electric power plant, producing mainly for domestic consumption.
9. Exporter/Distributor: this investment type includes the activities of a firm importing goods into the country and distributing them domestically at the wholesale level.
10. Franchiser/Local Retailer: this investment type captures the operations of a business that franchises or owner operates at the retail level in the country.
11. Shipping Services: this investment type includes activities of firms involved in cargo transport or package delivery services to and from the country.
12. Foreign Office: this investment type captures the risks of maintaining a representative office in the host country, typically to perform sales or diplomatic functions.

33 Immediate Risk Events and 18 Secondary Risk Events

Immediate Risk Events
All risk events are measured from the level at the time of assessment during any 12-month period.

Policies—Tax

• Capital Gains Taxes: a 10-percentage-point increase in the rate of capital gains tax for foreign-owned businesses
• Corporate Taxes: a 10-percentage-point increase in the rate of corporate income tax
• Export Taxes: a 5-percentage-point increase in the average rate of export taxes
• Import Taxes: a 10-percentage-point increase in the average rate of import taxes/tariffs
• Labor Taxes: a 5-percentage-point increase in the rate of labor tax (social security, etc.)
• Sales Taxes: a 5-percentage-point increase in the average rate of sales taxes
• Withholding Taxes: a 5-percentage-point increase in the average rate of withholding taxes

Policies—Non-Tax

• Enforceability of Government Contracts: a one-point decline on a scale from "0" to "10" in the enforceability of contracts
• Enforceability of Private Contracts: a one-point decline on a scale from "0" to "10" in the legal enforceability of contracts
• Ownership of Business by Non-Residents: a one-point increase on a scale from "0" to "10" in legal restrictions on ownership of business by non-residents
• Ownership of Equities by Non-Residents: a one-point increase on a scale from "0" to "10" in legal restrictions on ownership of equities by non-residents
• Regulations—Environmental: an increase in environmental regulations that reduces total aggregate investment growth, in real LCU terms, by 5 percentage points
• Regulations—Exports: a 2% reduction in export volume as a result of a worsening in export regulations or restrictions (such as export limits)
• Regulations—Imports: a 2% reduction in import volume as a result of a worsening in import regulations or restrictions (such as import quotas)
• Regulations—Other Business: an increase in other regulatory burdens that reduces total aggregate investment growth, in real LCU terms, by 10 percentage points
• Transferability of Funds: a one-point increase on a scale from "0" to "10" in restrictions on non-resident outward transfer of funds

Outcomes—Price

• Real Currency Depreciation (vs. US$): a 25% decline in the inflation-adjusted exchange rate (vs. US$)
• Equity Prices (in real LCU): a 25% decline in equity prices (in real LCU terms)
• Currency Appreciation: a 15% increase in the inflation-adjusted exchange rate (vs. US$)
• Factor Costs—Commercial Real Estate Costs: a 10% increase in the rental cost of commercial real estate in real LCU terms
• Factor Costs—Construction Materials Prices: a 10% increase of the broadest available domestic construction materials price index (in real LCU terms)
• Factor Costs—Power and Energy Prices: a 20% increase in average domestic energy prices in real LCU terms
• Factor Costs—Wages: a 10% increase in the broadest available wage index in real LCU terms

Outcomes—Non-Price

• Default/Restructuring by Banks: a 10% reduction in the present value of U.S. dollar-denominated loans to private-sector domestic banks as a result of future changes in payment terms (in real LCU terms)
• Default/Restructuring on Govt US$ loans: a 10% reduction in the present value of US dollar-denominated loans to the domestic public sector as a result of future changes in payment terms (in real LCU terms)
• Domestic Demand: a decline of 5 percentage points below the projected growth path in domestic demand
• Export Disruption (Sanctions/trade conflict): a decline of 2 percentage points below the projected growth path in aggregate national export volume, as measured by the broadest available index, as a result of sanctions or trade conflict
• Import Disruption (Sanctions/trade conflict): a decline of 2 percentage points below the projected growth path in aggregate national import volume, as measured by the broadest available index as a result of sanctions or trade conflict
• Infrastructure Disruption or Shortage: a decline of 2 percentage points below the projected growth path of domestic output as measured by GDP in real LCU terms as a result of a disruption in infrastructure services
• Losses and Costs of Corruption: a one-point increase on a scale from "0" to "10" in corruption with respect to the level at the time of the assessment
• Losses and Costs of Crime: a one-point increase on a scale from "0" to "10" in crime with respect to the level at the time of the assessment
• Losses and Costs of Physical Hazards: a 3% loss in the capital stock of the overall economy due to physical destruction (related to war, natural disaster, etc.)
• Skilled-Labor Shortages: a decline of 2 percentage points below the projected growth path of domestic output as measured by GDP in real LCU terms as a result of skilled labor shortages

• Military Coup Risk: a military coup d'etat (or a series of such events) that reduces the GDP growth rate by 2 percentage points
• Major Insurgency/Rebellion: an increase in scope or intensity of one or more insurgencies/rebellions that reduces the GDP growth rate by 3 percentage points
• Political Terrorism: an increase in scope or intensity of terrorism that reduces the GDP growth rate by 1 percentage point
• Political Assassination: a political assassination (or a series of such events) that reduces the GDP growth rate by 1 percentage point
• Civil War: an increase in scope or intensity of one or more civil wars that reduces the GDP growth rate by 4 percentage points
• Major Urban Riot: an increase in scope, intensity, or frequency of rioting that reduces the GDP growth rate by 1 percentage point
• Labor Strike and Unrest: an increase in scope, intensity, or frequency of labor strikes/turmoil that reduces the GDP growth rate by 1 percentage point
• Kidnapping of Foreigners: an increase in scope, intensity, or frequency of kidnapping of foreigners that reduces the GDP growth rate by 1 percentage point
• Government Instability: an increase in government personnel turnover rate at senior levels that reduces the GDP growth rate by 2 percentage points
• Government Ineffectiveness: a decline in government personnel quality at any level that reduces the GDP growth rate by 1 percentage point
• Institutional Failure: a deterioration of government capacity to cope with national problems as a result of institutional rigidity or gridlock that reduces the GDP growth rate by 1 percentage point

External Political Risks

• Economic Sanction Risk: an increase in scope or intensity of economic sanctions that reduces the GDP growth rate by 2 percentage points
• Trade Conflict Risk: an increase in scope or intensity of a trade conflict that reduces the GDP growth rate by 2 percentage points
• Military Mobilization/Small Inter-State War: an increase in scope or intensity of an inter-state military conflict that reduces the GDP growth rate by 2-5 percentage points
• Major Inter-State War: an increase in scope or intensity of a military conflict that reduces the GDP growth rate by more than 5 percentage points

Economic Risks

• Interest Rate (Real increase): an increase of 5 percentage points in the real short-term interest rate
• Consumer Price Inflation: an increase of 5 percentage points in the consumer-price inflation
• Real Estate Price Decline (Commercial): a 25% decline in the real rental or sale price of commercial real estate
• Real Estate Price Decline (Residential): A 10% decline in the broadest available measure of real rental or sale price of houses and apartments
• Natural Disaster: A natural disaster involving a hydro-meteorological event (e.g., severe storms, floods, and landslides) or geophysical occurrence (e.g., earthquakes, tsunamis, and volcanic eruption) that results in the death of at least 10 people and a minimum of one person per million in the country's total population.
• Health Crisis (Major Epidemic or Pandemic): A health crisis (major epidemic or pandemic) involving the rapid spread of a deadly infectious disease that causes at least 10 deaths or infects a minimum of 100 people in a major city and leads to population responses or government actions that disrupt economic activity thereby reducing GDP growth by 0.5 percentage points.

Summary Risk Scores

• Financial Risk is calculated as the average of the overall risk scores for the three financial investments: U.S. dollar loans to sovereign borrowers, U.S. dollar loans to banks, and domestic equities.
• Business Risk is the average of the overall risk scores for the nine business investments: Manufacturing (for Domestic Market), Manufacturing (for Export), Oil & Gas Upstream, Mining, Power Generation, Franchiser/Local Retailer, Exporter and Distributor, Shipping Services, and Foreign Office.
• Political Risk is the weighted average of domestic and external political risks as calculated in the Political Risk Scores worksheet. Riskiness is calibrated in terms of impact of 15 sources of political risk on real GDP measured in U.S. dollars. These risks are then aggregated geometrically, and re-scaled to range from zero to 100. In this analysis, a source of political risk that has no expected impact on GDP growth would register a zero probability, even though its likelihood of occurrence might be high. This approach was chosen to avoid high risk scores in situations where political events have minimal impact on the economy.
• Overall Country Risk is calculated as the average of the other three summary risk scores.

Access to IHS Global Insight senior-level economists and country analysts is a key client benefit. Many of our Country Intelligence experts have earned advanced degrees in their fields and have lived in and speak the language for the regions they cover. These experts are fully supported by our 325+ economists and analysts worldwide in other IHS Global Insight practices with expertise in over 170 industries and 204 countries.

IHS Global Insight is the world leader in economic and financial analysis, forecasting, and market intelligence-with more than 40 years' experience and an outstanding record for accuracy.