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Operating in Africa is Risky Business

17 January 2013 Credit Guarantee Insurance Corporation

Peace and stability in a country can be very fragile - the dire situation in Mali is the best example of this; and it is true of Africa more than any other continent.

Having said that, some European countries regarded generally as politically stable, have been driven by economic woes to reconstitute their governments. Consequently, more than ever before, country risk assessment is a crucial requirement for doing business in foreign countries.

“It is vital for exporters to consider whether they have the in-house skills to conduct and evaluate country risk analyses,” says Theo Reddi, General Manager Exports at Credit Guarantee Insurance Corporation. “Such detailed analysis would require more than just an assessment of the political element but would also require a comprehensive examination of economic policies, banking and commercial infrastructure, rule of law, access to the legal system, the judiciary as well as the country’s history as a trading partner.” Even so, the speed of the volatility is sometimes completely unpredictable and even with the best intention, getting caught with ones pants around the ankles, is unavoidable.

Reddi continues, “Those exporters who were prudent and considered corporate governance issues when exporting to Mali, chose to lay or pass off this risk to a third party, namely the credit insurer.

“Those who opted for this solution would have covered themselves against non-payment resulting from war, rebellion or insurrection and, consequently, would have been able to sleep a little easier, concludes Reddi.

Quick Polls

QUESTION

Financial behaviour experts suggest that today’s risk modelling methodologies ignore your client’s emotional ability / behavioural capacity. What are your thoughts on spicing up risk profiling tools to make allowance for your client’s financial behaviours

ANSWER

[a] Bring it on; my client’s make too many irrational financial decisions
[b] Existing risk profiling tools are adequate
[c] Risk profiling tools should be based on the model / rational client
[d] The perfect risk profiling tool is science fiction
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