Post on 26-Mar-2015
Coface Country Risk Conference 2007
Coface Country Risk Assessment
Sylvia Greisman
Chief Economist, Coface
Coface Country Risk Conference 2007
The country risk @rating assesses the average risk of payment default by companies in a given country
It combines the different aspects of country risk such as economic, financial and political, with the payment experience on companies calculated from Coface’s internal database
There are seven different rating grades: A1 to A4, B, C, D
The ratings are regularly updated on 154 countriesRatings, indicators of payment incidents and country risk assessment
are available on : www.cofacerating.com
The Country Risk @rating
Coface Country Risk Conference 2007
Economic sectors @rating
The sector risk @rating assesses the average risk of payment default by companies in a given sector in short-term commercial transactions
To calculate sector @rating Coface combines three types of measurements: economic vulnerability of the sector, company financial solidity, payment experience on short term transactions, as reflected in Coface’s internal database
There are ten different rating grades: ranging from A+ for the lowest risks to D for the highest risks
The ratings are regularly updated for 14 economic sectors
Ratings, indicators of payment incidents and sectoral risk assessment are available on :
www.cofacerating.com
Barcelone - Mai 2007 4
Coface Country Risk Conference 2007
2007 : A moderate slowdown
After the past years’ effervescence, the economic slowdown will be moderate and centred on the US.
Growth in emerging countries will slow in line with less buoyant global demand. However, it will remain driven by robust domestic demand.
GDP Growth (%)
0
1
2
3
4
United States Euro Zone Japan
2005 2006 2007
Emerging countries growth
0
2
4
6
2005 2006 2007
%
Coface Country Risk Conference 2007
Coface basic diagnosis remains : no global credit crunch in 2007
-1
0
1
2
3
4
5
6
7
%
-50
0
50
100
150
200
World growth (current exchange rate) Payment incident index (base 100= world average 1995-2000)
1st oil shock, recession in the USA and Europe
recession in the USA then in Europe
2nd oil shock, recession in the USA and weak
growth in Europe
Internet bubble bursts 2000
11 septembre 2001
Coface Country Risk Conference 2007
Industrialised countries : No credit crunch but certain risks not to be neglected ...
The drop in property prices in the US and in some European countries could exacerbate the economic slowdown
The dramatic rise in LBOs exposes companies and investment funds to financial difficulties in the case of an intensified economic slowdown.
US current account deficit maintains the risk of a significant USD depreciation
Coface Country Risk Conference 2007
United States (A1)Moderate payment deterioration is expected
Economic growth and payment incident index
Payment incident index12 months moving rate
*Payment Incident index 100: World 1995-2000 basis
0
50
100
150
200
250
300
june
93
dec-93
june
94
dec-94
june
95
dec-95
june
96
dec-96
june
97
dec-97
june
98
dec-98
june
99
dec-99
june
00
dec-00
june
01
dec-01
june
02
dec-02
june
03
dec-03
june
04
dec-04
june
05
dec-05
june
06
déc-06
june
07
WORLD
United States
0%
1%
2%
3%
4%
5%
6%
7%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 (f)
0
50
100
150
200
250
300
Economic growth ratePayment incident index
Coface Country Risk Conference 2007
United States (A1 )Several sectors have to be watched closely
2007 sectoral risk scale
Information technology
Clothing / Textiles
Steel
Telecommunications
HIGHEST RISK
LOWEST RISK
Construction
Air transport
Electronic components
Pharmaceuticals / Mass retail Mechanical engineering / Paper / Chemicals
Automobile
: Downgraded sector
D
C+
C-
B-
A
C
A+
A-
B
B+
Coface Country Risk Conference 2007
Japan (A1)Stabilisation of credit risk at a low level in 2007
Economic growth and payment incident index
Payment incident index12 months moving rate
*Payment Incident index 100: World 1995-2000 basis
0
50
100
150
200
250
300
june
93
dec-93
june
94
dec-94
june
95
dec-95
june
96
dec-96
june
97
dec-97
june
98
dec-98
june
99
dec-99
june
00
dec-00
june
01
dec-01
june
02
dec-02
june
03
dec-03
june
04
dec-04
june
05
dec-05
june
06
déc-06
june
07
WORLD
Japan
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 (f)
-100
-50
0
50
100
150
200
250
300
Economic growth rate
Payment incident index
Coface Country Risk Conference 2007
Japan Export sectors are still benefiting from dynamic regional demand and strong competitivity
2007 sectoral risk scale
☀ : Upgraded sector
: Downgraded sector
Information technology / Construction
Clothing
Pharmaceuticals
D
C+
C-
B-
A
C
A+
A-
B
B+
Mass retail ☀
Textiles
Papier / Chemicals Mechanical engineering / Automobile / Steel
Electronic components / Telecommunications
Air transport
HIGHEST RISK
LOWEST RISK
Coface Country Risk Conference 2007
Western Europe Expected moderate increase in payment incidents
*Payment Incident index 100: World 1995-2000 basis
Economic growth and payment incident index
0%
1%
2%
3%
4%
5%
6%
7%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 (f)
0
50
100
150
200
250
300
Economis growth rate
Payment incident index
Coface Country Risk Conference 2007
Western Europe A still uneven economic growth
0
1
2
3
4
5E
uro
pe
an
Un
ion
15
Ge
rma
ny
Un
ite
dK
ing
do
m
Fra
nc
e
Ita
ly
Sp
ain
2006 2007p
GDP growth in Western Europe
Coface Country Risk Conference 2007
*Payment Incident index 100: World 1995-2000 basis
Payment experience in Europe : Italy is back to « normal », beware of overheating risks in Spain
0
50
100
150
200
250
300 WORLD Germany
France Italy
Spain United Kingdom
Coface Country Risk Conference 2007
Industrialised countries: … USA now on negative watch
January 2003
January 2004
January 2005
January 2006
January 2007
May 2007
Japan A2 A2 A1 A1 A1 A1United States A2 A1 A1 A1 A1 A1
Germany A2 A2 A2 A1 A1 A1Austria A1 A1 A1 A1 A1 A1Belgium A1 A1 A1 A1 A1 A1Denmark A1 A1 A1 A1 A1 A1Spain A1 A1 A1 A1 A1 A1France A1 A2 A1 A1 A1 A1Ireland A1 A1 A1 A1 A1 A1Netherlands A2 A2 A2 A1 A1 A1United Kingdom A1 A1 A1 A1 A1 A1Sweden A1 A1 A1 A1 A1 A1
Greece A2 A2 A2 A2 A2 A2Italy A2 A2 A2 A2 A2 A2Portugal A2 A2 A2 A2 A2 A2
Coface Country Risk Conference 2007
D
C+
C-
B-
A
C
A+
A-
B
B+
Western Europe Construction and automobile sectors are particularly exposedMass retail is recovering
2007 sectoral risk scale
☀: Upgraded sector : Downgraded sector
Automobile / Information technology
Textiles
Steel
Telecommunications / Paper / Construction
Air transport
Pharmaceuticals / Chemicals / Mechanical engineeringMass retail ☀
Electronic components
Clothing
D
C+
C-
B-
A
C
A+
A-
B
B+
LOWEST RISK
HIGHEST RISK
Coface Country Risk Conference 2007
Sylvia Greisman
Chief Economist, Coface
Coface Risk AssessmentEmerging Countries
Coface Country Risk Conference 2007
Emerging countries : a healthier financial situation and still robust growth expected in 2007
Several years of robust growth
GDP growth (%)
and current account surpluses
Current account balance (%GDP)
Have lead to impressively shrinking external debt ratios
0
1
2
3
4
5
6
7
2000 2001 2002 2003 2004 2005 2006e 2007f
%
0
1
2
3
4
5
6
7
2000 2001 2002 2003 2004 2005 2006e 2007f
%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
e
2007
p
Deb
t/Goo
d an
d se
rvic
e E
xpor
ts (
%)
Coface Country Risk Conference 2007
… but inequalities between regions
Record growth in Asia, still weak in Latin America
0
2
4
6
8
10
Asia
Africa CIS
Emer
ging
cou
ntrie
s
Centra
l Eur
ope
Mid
dle E
ast
Latin
Am
erica
% d
u P
IB
2006 2007
Surplus global current balance, except in Central Europe
-10%
-5%
0%
5%
10%
15%
CIS
Mid
dle E
ast
Asia
Emer
ging
cou
ntrie
s
Latin
Am
erica
Africa
Centra
l Eur
ope
% d
u P
IB
2006 2007
A sharp fall in debt in relation to currency revenues since 2000
0%
50%
100%
150%
200%
250%
Latin
Am
erica
Centra
l Eur
ope
CIS
Africa
Emer
ging
cou
ntrie
s
Mid
dle E
ast
Asia% d
es e
xpor
tatio
ns d
e B
& S
2000 2007
Coface Country Risk Conference 2007
Central Europe - Turkey : a sustained growth…
Economic growth (%)
0
2
4
6
8
10
12H
unga
ry
Slo
ven
ia
Tur
key
Cze
chR
epub
lic
Ukr
ain
e
Rom
ani
a
Bul
gar
ia
Pol
and
Lith
uan
ia
Latv
ia
Est
onia
2006 2007f
Coface Country Risk Conference 2007
Central Europe, Turkey …favourable to construction, automotive and steel industries
Coface Country Risk Conference 2007
But weaknesses remain
High budget and current account deficits…
…weigh on foreign indebtedness, notably the private sector’s
-12
-10
-8
-6
-4
-2
0
Poland CzechRepublic
Hungary Slovakia Turkey Romania
Budget balance/GDP (%) Current account balance/GDP (%)External debt (% of exports)
0%
50%
100%
150%
2000
2001
2002
2003
2004
2005
2006
e20
07f
Central Europe and Turkey Emerging countries
Coface Country Risk Conference 2007
Some currencies are particularly exposed to depreciation risk ...
Philippines Turkey
Thailand South Africa Hungary
India Poland Slovak Republic Latvia
Mexico Indonesia Bulgaria Lithuania
Argentina Israel Ukraine Estonia
Brazil Jordan Croatia
Venezuela Romania
Chile Lebanon
Russia
Low probability
(35%)
Average probability
(50%)
Very high probability
(60%)
Very low probability
(20%)
Coface Country Risk Conference 2007
Scale of Risk
Turkey B Hungary A3
Geopolitical and governance vulnerabilities
Banking sector's fragilities
Foreign currency liquidity crisis
External overindebtedness
Sovereign financial vulnerability
Growth vulnerability
Companies' payment behaviour
Turkey Hungary Manageable High RiskSignif icantLow Risk
Financial vulnerabilities in Hungary (A3) and Turkey (B)
0
50
100
150
200
250
300WORLD
Turkey
Hungary
Payment incident index12 months moving rate
*Payment Incident index 100: World 1995-2000 basis
Coface Country Risk Conference 2007
Central Europe : Changes in ratings
January 2003
January 2004
January 2005
January 2006
January 2007
May 2007
Slovenia A2 A2 A2 A2 A1 A1Czech Republic A3 A2 A2 A2 A2 A2Estonia A3 A2 A2 A2 A2 A2Hungary A2 A2 A2 A2 A3 A3Poland A4 A4 A3 A3 A3 A3Slovakia A4 A3 A3 A3 A3 A3Latvia A4 A3 A3 A3 A3 A3Lithania A4 A3 A3 A3 A3 A3Romania B B B A4 A4 A4Bulgaria B B B B A4 A4Turkey C B B B B B
Coface Country Risk Conference 2007
CIS : Buoyant economic growth but weak business environment
Rule of law (World Bank classification 2005)
Sin
gap
ore
Ho
ng
Ko
ng
Tai
wan
Slo
ven
iaIs
rael
So
uth
Ko
rea
Cze
ch R
epu
blic
Hu
ng
ary
Po
lan
dS
aud
i Ara
bia
So
uth
Afr
ica
Th
aila
nd
Ind
iaT
urk
eyE
gyp
tS
ri L
anka
Cro
atia
Bu
lgar
iaR
om
ania
Bra
zil
Vie
tnam
Arm
enia
Ch
ina
Mex
ico
Ph
illip
ines
Arg
enti
na
Mo
ldo
vaU
krai
ne
Alg
eria
Lyb
iaB
osn
iaIr
anK
azak
hst
anS
erb
iaP
akis
tan
Geo
rgia
Aze
rbaI
jan
Ru
ssia
Alb
ania
Ind
on
esia
Ben
gla
des
hB
elar
us
Kir
gh
iszt
anY
emen
Ven
ezu
ela
Uzb
ekis
tan
Nig
eria
Tu
rkm
enis
tan
Co
ng
oZ
imb
abw
eIv
ory
Co
ast
Su
dan
-2,00
-1,50
-1,00
-0,50
0,00
0,50
1,00
1,50
2,00
Coface Country Risk Conference 2007
Russia (B) : …and booming corporate debt
0
20
40
60
80
100
120
140
160
180
2001 2002 2003 2004 2005 2006
GovernmentCompaniesBanks
External debt of Russian entities(Bn $)
Coface Country Risk Conference 2007
CIS : Changes in ratings
Coface Country Risk Conference 2007
Emerging Asia : continuing dynamic growth supports companies’ financial situation
Economic growth and payment incident index
Payment incident index12 months moving rate
0
50
100
150
200
250
300
dec-93
june
94
dec-94
june
95
dec-95
june
96
dec-96
june
97
dec-97
june
98
dec-98
june
99
dec-99
june
00
dec-00
june
01
dec-01
june
02
dec-02
june
03
dec-03
june
04
dec-04
june
05
dec-05
june
06
déc-06
june
07
WORLD
Emerging Asia
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007(f)
0
50
100
150
200
250
300
Economic growth
Payment incident index*
*Payment Incident index 100: World 1995-2000 basis
Coface Country Risk Conference 2007
Emerging Asia : highlights
Robust current account surpluses
Have led to high forex reserves creating massive domestic liquidity
Current account balance (%GDP)
0%
1%
2%
3%
4%
5%
6%
2000 2001 2002 2003 2004 2005 2006e 2007f
Asia Emerging countries
Foreign exchange reserves (2007 f) (in months of imports)
02468
1012141618
China
Taiwan
India
Korea
Mala
ysia
Thaïla
nd
Phillip
ines
Indo
nésia
Pakist
an
Vietna
m
Hong K
ong
Coface Country Risk Conference 2007
But some sectors face fierce competition and in China, watch for overcapacities
Construction
D
A
C
A+
A-
B
B+
Mass retail / Pharmaceuticals
Highest risk
Clothing
Automobile
Chemicals / PaperElectronic components / Mechanical engineering
Steel
Lowest risk
Telecommunications Information technology
Textiles
: Downgraded sector☀: Upgraded sector
Coface Country Risk Conference 2007
Competition on the domestic market and problematic corporate governance weigh on risks in China
First Results of 2006 Coface China Survey
52%
34%
5%9%
0%
10%
20%
30%
40%
50%
60%
Fiercecompetition
Lack of financialressources
Impact of risingraw material
prices
Others
Mains Reasons for Financial Difficulties
62%
37%
20%
17%
5%
68%
39%
27%
21%
4%
60%
40%
19%
18%
12%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Financialdifficulties
ManagementChaos
CommercialDisputes
Fraud andLack ofmorality
Others
2004 2005 2006
Major reasons for non-payment
2004
2005
2006
0%
5%
10%
15%
20%
25%
30%
Overdue 6 months to 12 months
% of companies with overdue from 0,5% to 2% of sales
Coface Country Risk Conference 2007
Geopolitical and governance vulnerabilities
Banking sector's fragilities
Foreign currency liquidity crisis
External overindebtedness
Sovereign f inancial vulnerability
Grow th vulnerability
Companies' payment behaviour
China India manageable significant high risk low risk
China A3- India A3- Risks remain at a manageable level
Coface Country Risk Conference 2007
Asia : Changes in ratings
January 2003
January 2004
January 2005
January 2006
January 2007
May 2007
Hong Kong A2 A2 A1 A1 A1 A1Singapore A2 A1 A1 A1 A1 A1Taiwan A2 A1 A1 A1 A1 A1Korea A2 A2 A2 A2 A2 A2Malaisia A2 A2 A2 A2 A2 A2China A3 A3 A3 A3 A3 A3India A4 A4 A3 A3 A3 A3Thailand A3 A3 A2 A2 A2 A3Indonesia C C B B B BPhilippines A4 A4 A4 B B BVietnam B B B B B BPakistan D D C C C C
Coface Country Risk Conference 2007
Latin America : Companies benefit from a still robust domestic demand
0%
1%
2%
3%
4%
5%
6%
7%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007(f)
0
50
100
150
200
250
300
Economic growth
Payment incident index*
*Payment Incident index 100: World 1995-2000 basis
Economic growth and payment incident
index
Coface Country Risk Conference 2007
Latin America : Highlights
Several years of current account surpluses have led to a significant reduction in debt ratios
Current account (% GDP)
-4%
-3%
-2%
-1%
0%
1%
2%
2000 2001 2002 2003 2004 2005 2006 2007
Elections have underlined the rise in claims for wealth
redistribution
Ecuador
Venezuela
Argentina
Colombie
Peru
Mexico
Brazil
Chili
Geopolitical and governance vulnerabilities
Low risk manageable signif icant high riskmaîtri
External debt (% of exports)
0%
50%
100%
150%
200%
250%
2000 2001 2002 2003 2004 2005 2006e 2007f
Latin America Emerging countries
Coface Country Risk Conference 2007
Brazil A4 – Argentina C : Diverging risk level
Geopolitical and governancevulnerabilities
Banking sector's fragilities
Foreign currency liquiditycrisis
External overindebtedness
Sovereign financialvulnerability
Growth vulnerability
Companies' paymentbehaviour
Argentina Brazillow risk manageable significant high risk
Coface Country Risk Conference 2007
Latin America : Changes in ratings
January 2003
January 2004
January 2005
January 2006
January 2007
May 2007
Chile A3 A3 A2 A2 A2 A2Mexico A4 A4 A4 A4 A3 A3Brazil C B B B A4 A4Colombia B B B B A4 A4Peru B B B B B BArgentina D D D C C CEcuador D D C C C CVenezuela D D C C C CBolivie D D D D D D
Coface Country Risk Conference 2007
Northen Africa – Middle East : Companies benefit from a booming activity
*Payment Incident index 100: World 1995-2000 basis
Economic growth and payment incident index
0%
1%
2%
3%
4%
5%
6%
7%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007(f)
0
50
100
150
200
250
300
Economic growth
Payment incident index*
Coface Country Risk Conference 2007
Northen Africa – Middle East : Highlights
Lebanon
Iran
Egypt
Saudi Arabia
Bahreïn
Israel
UAE
Kuw eit
Qatar
Low risk manageable signif icant high riskmaîtri
Geopolitical and governance vulnerabilities
0%
5%
10%
15%
20%
2000 2001 2002 2003 2004 2005 2006e 2007f
Northern Africa - Middle East Emerging countries
Current account (%GDP)
External debt / Exports (%)
0%20%40%60%80%
100%120%140%
Northern Africa - Middle East Emerging countries
Large current account surpluses But geopolitical tensions in the ME countries have negatively impacted the risks
Have led to significant debt reduction
Coface Country Risk Conference 2007
Israel (A4) – Saudi Arabia (A4) : Good companies’ payments despite geopolitical tensions
Geopolitical and governance vulnerabilities
Banking sector's fragilities
Foreign currency liquidity crisis
External overindebtedness
Sovereign f inancial vulnerability
Grow th vulnerability
Companies' payment behaviour
Israel
Saudi Arabialow risk manageable signif icant high risk
0
50
100
150
200
250
300
june
98
dec-9
8
june
99
dec-9
9
june
00
dec-0
0
june
01
dec-0
1
june
02
dec-0
2
june
03
dec-0
3
june
04
dec-0
4
june
05
dec-0
5
june
06
déc-0
6
WORLD Saudi Arabia Israël
Payment incident index12 months moving rate
Coface Country Risk Conference 2007
North Africa, Near and Middle East : Changes in ratings
Coface Country Risk Conference 2007
0%
1%
2%
3%
4%
5%
6%
7%
8%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007(f)
0
50
100
150
200
250
300
Economic growth
Payment incident index
Sub Saharan Africa : Oil and commodity output bolsters growth, but companies’ payment experience is not improving
Economic growth and payment incident
index
Coface Country Risk Conference 2007
Sub-Saharan Africa : Highlights
but current account deficits are still high
Commodity exports and debt cancellation have improved debt profile
and important institutional fragilities remain
Côte d'Ivoire
Nigeria
Angola
Gabon
Cameroon
Kenya
Senegal
Tanzania
South Africa
Mauritius
Geopolitical and Governance vulnerabilities
Low risk manageable significant hight risk
Current account balance (%GDP)
-6%-4%-2%0%2%4%6%
2000 2001 2002 2003 2004 2005 2006 2007
Africa Emerging countries
External debt / Exports (%)
0%50%
100%150%200%
250%300%
2000 2001 2002 2003 2004 2005 2006 2007
Africa Emerging countries
Coface Country Risk Conference 2007
South Africa (A3) – Nigeria(D)
0
50
100
150
200
250
300
WORLD South Africa
Geopolitical and governance vulnerabilities
Banking sector's fragilities
Foreign currency liquidity crisis
External overindebtedness
Sovereign f inancial vulnerability
Grow th vulnerability
Companies' payment behaviour
South Africa
Nigerialow risk manageable signif icant high risk
Coface Country Risk Conference 2007
Sub-Saharan Africa : Changes in ratings
Coface Country Risk Conference 2007
North America
J apan
European Union (15)
Central Europe
Near and Middle East
Latin America
CI S
Subsaharan Africa
HIGHEST RISK
LOWEST RISK
Emerging Asia
World
Emerging Countries
50
200
100
250
300
150
350
The regional risk index is the average of the country risk @rating w eighted according to the share of each country in the regional GDP.
The base of the index is the w orld risk in 2000.
Industrialized
Countries
Range of regional risks
Range of regional risks
Coface Country Risk Conference 2007
No credit crunch but certain risks not to be neglected ...
Many of them linked to an abundance of liquidity …
Real estate bubbles
Stock market bubbles
Company over-indebtedness
…or to other imbalances
Current account deficits and the attendant currency depreciation risk
Industrial overcapacities in China
Geopolitical tensions and volatility in oil prices