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№1 слайд![International Business](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img0.jpg)
Содержание слайда: International Business Management
Economic Risk – Economic Risk for Developing and Emerging Economies
Dr Michael Wynn-Williams wm82@gre.ac.uk
№2 слайд![Economic risk analysis](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img1.jpg)
Содержание слайда: Economic risk analysis
Question : Is my money safe in that country?
Answer : Evaluate the Macro economic health of the country
Some factors to consider :
№3 слайд![Economic Risk Analysis ERA](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img2.jpg)
Содержание слайда: Economic Risk Analysis (ERA)
IMF uses quantitative analysis for evaluating economies
Economic risk is present in all countries, but most significant in developing and emerging economies
Guidelines devised at Greenwich evaluate the security of doing business in the country
Developing and emerging countries tend to trade in a narrow range of products and depend on cash flow
The three main measures of a country’s financial standing:
GDP – how much is it producing?
Inflation – how well controlled?
Current Account – are the imports affordable?
The first part of compulsory Exam Question 1 uses simple IMF-style quantitative formulas to measure economic performance against a standard
The second part of the question identifies and evaluates the main economic factors in order to make a qualitative investment decision in the country
№4 слайд![ERA Exam question Part I](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img3.jpg)
Содержание слайда: ERA Exam question Part I: Quantitative data
№5 слайд![Finding the data Most of the](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img4.jpg)
Содержание слайда: Finding the data
Most of the data is available from the World Bank
The data is for all countries, not just developing economy clients of The Bank
One piece of data, for the current account/GDP, comes from the IMF World Economic Outlook (WEO)
In the exam the data will comprise the World Bank figures + CAD/GDP
The data sheet will be a Word file
№6 слайд![. GDP Growth Question is the](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img5.jpg)
Содержание слайда: 1. GDP Growth
Question: is the economy growing at a sustainable rate?
Answer: target 2.0-3.0% developed, 6.0-10.0% emerging and 7.0-11.0% developing economies
Gross domestic product (GDP) measures everything produced in the country regardless of nationality
Real (constant prices) GDP increases show genuine growth in the economy
Positive, steady growth is always good but the gains may be unevenly distributed
Undesirable GDP conditions:
High growth – rising wages, inflation, imports and interest rates
Low growth – poor exploitation of resources, poor competitiveness, low wealth creation
Recession – wealth destruction, hysteresis effects
№7 слайд![GDP Growth around the world](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img6.jpg)
Содержание слайда: GDP Growth around the world
As more resources are brought into use the sustainable rate of growth falls
№8 слайд![GDP Growth targets Need to](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img7.jpg)
Содержание слайда: GDP Growth targets
Need to find a balance between a booming economy and recession
An overheating economy with high inflation is usually treated with high interest rates
A recessionary economy with low inflation is usually treated with low interest rates
Stagflation (low growth, high inflation) is a challenging paradox!
Sustainable GDP growth target depends on the economy
Developed – slow and steady at 2.0-3.0%
Emerging – relatively high rate 6.0-10%
Developing – relatively very high growth 7.0-11.0%
Rate of return should match the risk
№9 слайд![GDP Risk and Return for](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img8.jpg)
Содержание слайда: GDP Risk and Return for Emerging economies
Sustainable high rates of growth as unemployed resources are brought into the economy – e.g. migration from countryside to cities
№10 слайд![GDP Risk and Return for Other](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img9.jpg)
Содержание слайда: GDP Risk and Return for Other economies
Developing
Developed
№11 слайд![Inflation Consumer Prices](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img10.jpg)
Содержание слайда: 2: Inflation – % Consumer Prices
№12 слайд![inflation](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img11.jpg)
Содержание слайда: inflation
№13 слайд![Inflation and Risk return](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img12.jpg)
Содержание слайда: Inflation and Risk/return
Most central banks are targeting 2.0% CPI inflation
Some central banks will accept overshoots and undershoots for short periods, others (e.g. ECB) will accept only an undershoot
On balance, 0.0-2.0% inflation is probably considered low risk
World Bank data shows inflation as GDP deflator
№14 слайд![. Current Account Deficit CAD](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img13.jpg)
Содержание слайда: 3. Current Account Deficit – CAD
№15 слайд![Current Account Deficit CAD](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img14.jpg)
Содержание слайда: Current Account Deficit – CAD
№16 слайд![Current Account Deficit CAD](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img15.jpg)
Содержание слайда: Current Account Deficit – CAD
№17 слайд![Developed Country Comparison](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img16.jpg)
Содержание слайда: Developed Country Comparison: Usa
Our analysis shows that GDP growth and inflation are both low risk
However, CAD/GDP is over the line, meaning it is high risk. Indeed, it is never expected to be within guidelines!
Is it realistic to say the USA is “high risk” compared to emerging economies?
№18 слайд![Criticism of the IMF](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img17.jpg)
Содержание слайда: Criticism of the IMF Quantitative approach
Many feel that the IMF style of analysis does more harm than good
Criticisms:
It is a creature of the US and Europe
It has a neo-liberal agenda for low government spending, privatisation and debt repayment
It treats all countries the same
IMF’s defence
It is invited by the host government
It is the last resort – everything else has failed
The worse the taste the better the medicine
№19 слайд![ERA exam question Part ii FDI](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img18.jpg)
Содержание слайда: ERA exam question Part ii:
FDI investment decision
The second half of Exam Question 1 concerns the best target for foreign direct investment (FDI) [15 marks]
The decision of which sector of the economy to invest in can only be based on the information in the datasheet.
There are three sectors to choose from:
Agriculture
Industry
Services
The FDI decision should identify and analyse the most appropriate economic factors
№20 слайд![Factors influencing FDI The](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img19.jpg)
Содержание слайда: Factors influencing FDI
The economic factors that are appropriate to the FDI decision depend upon the nature of the investment – it is therefore an opportunity for creative thinking by entrepreneurs
FDI entrepreneurs need to analyse trends in the data to uncover any new opportunities
It is also important to identify specific data that indicates new opportunities
To help you remember the most important factors, we have a Greenwich mnemonic:
GLIFTS
№21 слайд![Greenwich mnemonic - GLIFTS](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img20.jpg)
Содержание слайда: Greenwich mnemonic - GLIFTS
№22 слайд![Using GLIFTS](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img21.jpg)
Содержание слайда: Using GLIFTS
№23 слайд![Other interesting data An](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img22.jpg)
Содержание слайда: Other interesting data…
An entrepreneur will browse data looking for items of interest
This is when your creativity reaches its peak!
Some data that might catch your eye and deserve further consideration:
№24 слайд![Seminar task Come prepared](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img23.jpg)
Содержание слайда: Seminar task
Come prepared with your calculators.
We will be doing two sets of exercises
Working out the ERA for an emerging country – data sheets available in the tutorial folder
Considering the country as a candidate for investment
№25 слайд![sources World Bank lt http](/documents_6/38665c541be1e6fb01b66eaa7229ebc8/img24.jpg)
Содержание слайда: sources
World Bank
<http://databank.worldbank.org/data/views/reports/ReportWidgetCustom.aspx?Report_Name=CountryProfile&Id=b450fd57>
IMF (for CAD/GDP) – latest World Economic Outlook report
<http://www.imf.org/external/ns/cs.aspx?id=28>
Australia CAD/GDP – Mr Wood.com.au
<http://economics.mrwood.com.au/statistics/goal/goalcadgdp.asp>
US Debt Service – Creditflowinvestor.com
<http://www.creditflowinvestor.com/FederalDebtService.htm>
IMF paper on MRR – Boorman, J. and S. Ingves (2001), Issues in Reserves Adequacy and Management
<http://www.imf.org/external/np/pdr/resad/2001/101501.pdf>
Bank of England current account information sheet
<http://www.bankofengland.co.uk/publications/speeches/2006/speech271.pdf>
IMF guide to financial terminology
<http://www.imf.org/external/pubs/ft/eds/Eng/Guide/file6.pdf>
UN debt service ratio definition
<http://esl.jrc.it/envind/un_meths/UN_ME069.htm>