IHS Brief: Country Analysis, Country Risk & Sovereign Risk Tony Nash October 2012

Copyright © 2011 IHS Inc. All Rights Reserved.

IHS Brief: Country Analysis, Country Risk & Sovereign Risk

Tony NashOctober 2012


Agenda

• About IHS

• Country Intelligence Service

• General Methodology

• ANNEX: In-depth Methodologies

• Country Analysis and Forecasts

• Country Risk

• Sovereign Risk


IHS: Critical information driving government and business

We are more than 6,000 people, in 30 countries, speaking 50 languages – all working each day to:

• Serve businesses and all levels of governments worldwide• Customers from 180 countries in finance, industry, and government• Ranging from 80% of Global Fortune 500 to small businesses

• Documented record of forecast accuracy for country and forecast analyses

• Inherited renowned data and forecasting organizations like Data Resources Inc (DRI) and Wharton Econometric Forecasting Associates (WEFA), including a Nobel prize winning founder

Helping our customers drive critical processes and make high-impact decisions with speed and confidence


Unique combination of macroeconomic, industry and functional expertise

Functional expertise(Regulatory, Supply chain,

Pricing and Cost)

Industry expertise

Mac

roec

onom

ic e

xper

tise

• Full range of analysis and forecast services covering 200+ countries and regions

• Possess deep expertise from macroeconomic, industry and functional angles

• Provide comprehensive content, expert analysis and forecasts on economy, industry, policy, regulation and risk


Using our comprehensive analysis encompassing country intelligence, economic and financial data, industry analysis and security assessment, we help clients around the world:

How we help our clientsVa

lue

Cre

atio

n Pa

th

ForecastingModelingAnalysis

Insi

ght

RelationshipsIdentificationMatchingCaptureSourcing

Crit

ical

Info

rmat

ion

Source Data

• Market awareness: stay abreast of changing political, economic, legal, taxation, operational, and security factors through our ‘Same-Day Analysis’

• Risk anticipation: scenario and risk analysis that enable client to anticipate the unexpected

• Regulatory analysis: complying with regulations and developing regulatory systems for government authorities

• Strategic planning: provide key inputs using our short- and long-term forecasts

• Market sizing: identify growing markets and new opportunities

• Cost assessment: reduce supply chain costs with our 10-year price and wage forecasts for 1,200 commodities


Continuously updated world,

region, and country analysis, covering

the risks and opportunities of doing

business or investing in 200+ countries.

The World’s largest private repository of economic, financial, and industrydata

Anticipate future security threats and

requirements

Coverage of 170+ industries around the world with in-depth analysis of 14 specific verticals.

Combining country risk and industry expertise to provide comprehensive analyses

We integrate our Country Intelligence services with an array of analysis, forecast and risk assessment products encompassing:

• Country analysis and forecast• Country risk service• Sovereign risk ratings • Executive strategy council• Supply chain risk• Industry risk• Banking risk service


Multiple perspectives on risk and country analysis for consistency over time and across geographies

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Detailed ratings and analysis for:• Political environment• Economic growth and policy• Legal and regulatory environment• Tax rate, system and policy • Operational and labor environment• Security (domestic and external)

Detailed ratings and analysis for:• Solvency ratios• Liquidity (short-term and medium-

term)• Economic policy impacts• Political factors• Extensive database of debt

indicators with forecast

Country Analysis & Forecasts

Country Risk• Measuring foreign direct investment and

operational risk• Assessing existing business environment

Sovereign Risk• Measuring country credit risk

• Assessing risk of potential default on sovereign debt

• Qualitative country reports• Daily monitoring: ‘Same-Day

Analysis’ • Extensive historical / forecast

economic data • Scenario planning


Internal Expertise and Data

Proven and

Innovative Methods

Network Access

How IHS does it

• Forecast Council: Senior level monthly review of our economic, industry and commodity forecasts

• Our core analysis is done in-house, but we do consult on-the-ground experts to validate observations, assumptions, trends.

IHS’ economists, analysts and subject matter experts incorporate economic, political, industry and commodity expertise in our services. This is unique in the market.

• Country Experts: Over 350 dedicated country analysts, forecasters and data specialists

• Industry Experts: Deep industry expertise including hundreds of energy, chemicals, automotive, technology & other industry specialists

• Specialized Teams: Levering broader IHS expertise including supply chain, regulation, political and security


Agenda

• Complete analysis

• Country Intelligence Service

• General Methodology

• ANNEX: In-depth Methodologies

• Country Analysis and Forecasts

• Country Risk

• Sovereign Risk

Copyright © 2011 IHS Inc. All Rights Reserved. 10

Country analysis and forecasts

Analysis• Same-Day analysis articles and special reports:

• IHS country analysts and economists provide comprehensive coverage each working day of all developments worldwide relevant to the business environment and broader risk.

• There is a consistent editorial policy and house style applied across all regions by our team of editors. Regional managing directors oversee coverage policy and determine priorities.

• Analyst details appear at the end of every analysis

• Special Reports and In Focus dossiers provide analysis on major themes and interesting case studies.

• Country Reports: • In-depth, consistently structured background

reports covering the political, economic, security and general business environment in each country.


Country analysis and forecasts: Forecast methodology

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Step 2: Historical Data Updates• Update historical data for G7 quarterly models and all country annual sub-models• Compile high frequency data to be used in lining up current quarter or current year forecasts• Update world model assumptions and data

Step 3: Solve the Country ModelsOnce a new historical database has been created, we simulate models over history to produce equation residuals. We then study these historical residuals carefully to determine whether the corresponding forecast residuals require adjustment.

Step 4: Forecast ReviewsSenior staff members review the preliminary forecast at the world, regional aggregate, and country levels for internal consistency and to review the big picture it paints.

Step 5: Solve the World ModelThe forecasts from the country models are fed into the Global Scenario Model to prepare baseline forecast.Once the forecasts are completed, forecast databases and spreadsheets are created, and the analysts describe the forecast and it assumptions in the Quarterly Economic Outlook analysis.

Step 1: Pre-Forecast MeetingOne week prior to the start of the international macroeconomic forecast, IHS conducts a pre-forecast meeting to discuss key assumptions and issues, at global and regional levels. About 60 country and sectoral experts attend this meeting.


Network access: IHS Forecast Council meets monthly

Chaired by IHS Chief Economist Nariman Behravesh, the Forecast Council consists of senior economic forecasters and political analysts for each region and key sectors

The

Fore

cast

Pro

cess

Global assumptions

Monthly meetings

Consistent usage

The Council guarantees that all analysts are using the same global assumptions about key variables such as oil prices, exchange rates, etc.

The Council meets monthly to ensure consistency throughout all products and review forecast accuracy

Macro forecast output used consistently by all sector and industry analysts


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An extensive track record for accuracy


Country risk service• IHS has developed a unique country risk-rating system that compares and

contrasts the investment climate in 203 countries around the world. • Provides a comprehensive picture of the quality of conditions and level of

stability encountered by investors in each country.

Political, economic, legal, tax, operational, and security environments are separately rated for each country

Qualitative rating by in-house analyst consensus and local industry network contacts

Regular meetings across regional desks ensure consistency


Country risk service: Methodology• Every country is given a risk rating of between 1 and 5 for each of the six factors.• 1.0 indicates minimum risk and 5.0 maximum risk.

Security10%

Political25%

Economic25%

Legal15%

Tax15%

Operational10%

Risk Description

EconomicDegree of market orientation, Policy consistency, Diversity/resilience of economy, Macroeconomic fundamentals

Political Institutional permanence, Representativeness, Internal political consensus, External political consensus

Tax Coherence, Fairness, Level, Effectiveness

Legal Legislation, Transparency, Independence, Experience

Security Civil unrest, Crime, Terrorism, External security threats

Operational Attitudes to foreign investment, Infrastructure quality, Labor, Bureaucracy and corruption


Sovereign risk service• IHS provides unique, data-supported Sovereign Risk Credit Ratings for 204

countries. • It acts as a robust early-warning system for credit default probabilities or

emergence of financial stress

Medium term and short term ratings

Fully integrated with IHS’ international macroeconomic forecasting model and processes

Re-forecasted at least every quarter


Sovereign risk service: MethodologyAssessing the Risk of Potential Default ( “PD” ) – Medium Term

Mother Criteria: ‘Factor Weights’ % Weight

Credit Financials50%

“Country balance sheet”

Solvency

External debt as % of Foreign exchange earnings 10

External debt service as % of Foreign exchange earnings 10

Liquidity

External Liquidity Gap as % of Total Foreign Exchange Earnings 10

Current Account Balance as % of GDP 10

Import Cover – months 10

Economic20%

Commodity reliance- external earnings sensitivities and dependencies 5

‘Economic’: Structure, Economic Policy, Economic Management and Capacity 25

Politics20%

Politics and Strategy 20

IHS Brief: Country Analysis, Country Risk & Sovereign Risk Tony Nash October 2012

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Transcript of IHS Brief: Country Analysis, Country Risk & Sovereign Risk Tony Nash October 2012