TRANSFORMATION OF EMERGING COUNTRY RISK
Panorama Country Risk - March 2013
In this Panorama, Coface highlights the radical transformation of risks in emerging countries. While traditional country risk (sovereign risk, external vulnerability) has appreciably declined, three new risks are appearing and need to be monitored.
THE RISK OF POLITICAL INSTABILITY
This risk has grown as emerging country societies now have new demands and increasingly the means of expressing them. So with the help of a renewed framework for assessing political risk, Coface can demonstrate that there is still a high risk of instability in countries in the North African/Middle Eastern region. Venezuela, Russia, China, Nigeria and Kazakhstan are facing significant pressures for change too.
THE RISK OF CREEPING PROTECTIONISM
This protectionism (financial but also trade) is the result of exogenous shocks which have affected emerging countries since 2008. It could, in future, involve possible payment deadlines for importers but also more barriers to entry for foreign businesses wanting to take advantage of the emerging economies’ vigorous domestic demand. Argentina, Russia and, to a lesser degree, India, are the countries to watch.
BANKING CREDIT RISK
Bank credit has been very dynamic in the emerging countries, to the point of forming real bubbles in the business and house hold credit markets. Coface points out the countries where there is a danger of such credit booms. Some Asian emerging countries, buoyed by a very favourable growth dynamic, have credit markets that need watching. Chile, Turkey, Russia and Venezuela are also recording excessive credit growth.