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What are the factors and variables of political risks rating, modeling and forecasting suggested by the prs Group and The Economist Intelligence Unit, and beri?
PRS:
Each report provides the current level and likely time spans.
18-month (12 indicators): political turmoil; equity; restrictions; operations restrictions; taxation
discrimination; repatriation restrictions; exchange controls; tariff barriers; other import barriers;
payment delays; fiscal and monetary expansion; labor policies; foreign debt.
5-year (4 indicators): investment restrictions; trade restrictions; domestic economic problems;
international economic problems.
The Economist Intelligence Unit (EIU) Model:
-country risk model containing political, social, and economic/financial variables with a
total rating value of 100 points;
- variables represented “political risk” defined in terms of outcome losses covered by political risk insurance.
- score of zero meant no risk, the max score meant max (prohibitive) risk.
- Variables (weight): bad neighbors (3), authoritarianism(7), staleness (5), illegitimacy (9), generals in power (6), war/armed insurrection (20), urbanization pace (3), Islamic fundamentalism (4), corruption (6),ethnic tension (4).
Factors of the Composite EIU Risk Rating
- Political risk (22% of the composite)
a) Political stability (war, social unrest, orderly political transfer, politically motivated violence; and international disputes)
b) Political effectiveness (change in government orientation; institutional effectiveness; bureaucracy; transparency/fairness; corruption; and crime).
- Economic policy risk (28%)
Determined with 27 variables in five categories: monetary policy; fiscal policy; exchange rate policy; trade policy; and regulatory environment.
- Economic structure risk (27%)
Incorporates global environment, growth, current account, debt, and financial structure groupings with 28 variables.
- Liquidity risk (23%)
Covers 10 variables of currency conditions
The BERI Model:
-Business Environment Risk Intelligence (BERI) is a country risk model based on a
set of quantitative indices.
- Profit Opportunity Recommendation (POR) is a macro risk measure; an average of 3 ratings, each on a100-point scale. Represents all aspects of country risk:
-Political Risk Index (PRI) is composed of ratings on 10 political and social variables.
-Operations Risk Index (ORI) comprises 15 political,economic, financial, and structural variables.
-RFactor (Remittance and Repatriation), a weighted index covering the country’s legal framework, foreign exchange, hard currency reserves, and foreign debt.
- Risk is calculated for the present, as well as one-year and five-year frames
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What are the best information sources for the political risks analysis?
The best are:
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Gvt specialists (15%): Recently retired from government service or are currently in service;
Positions in foreign policy, economic,defense, and intelligence agencies; Field experiences in the relevant country and have extensive governmental and nongovernmental
contacts.
Business specialists (5%): Work for MNCs, banks or associations that serve international business; Have had professional responsibilities in the country risk field.