Tuesday, May 12, 2009

On the location and country risks

Attribution of investment rating of Russia international organizations is, first, that the world community recognizes our reforms successful, second, that conduct operations with Russia would not be fraught with risk. However, in addition to international rankings, in many countries are developing their own ratings. Japan is no exception.

Of globalization in a different context
Globalization is an objective and natural. But only in the part when it comes to the organization of the production of the final product, for example, on such aspects as funding and governance, delivery of goods to the consumer, etc. The very same production (assembly) of the end product going to consumption, as well as its components, is a local character. In this context, the meaning of production in the context of globalization is to the right, as efficiently as possible, to localize the production of final product and its individual parts, and eventually reduce the cost of production.

Once in the minds of the organizers of the production begins thinking about his withdrawal from the country, the notion of «country risks» of particular importance. In a lesser extent it is applicable to foreign trade and other types of foreign economic activity. It is clear that in the context of globalization requires a thorough examination of the economies of other countries. Global activities focus on the standard indicators of risk, has long been developed in the West (eg, S & P). However, in addition to these codified systems, and pressed the information, there are localized to meet the specific mental requirements of a nation.

Such a system exists, for example, in Japan (ratings JBRIR & I). These ratings significantly affect the decision-making in the conduct of foreign economic activity of companies that do not have their own outlets abroad. The main advantage of such ratings is that «they can trust», because the things they adapt to the international understanding of the usual business of their own country. Such information systems - a kind of «translator», important for the influx of foreign investment, as helping to understand the motives of those or other investors in a specific local market.

On a national methodology
In Japan, in addition to generally apply their own national econometric models for analysis of existing statistical information for quantitative risk assessments, including the country. However, according to Japanese experts, all the existing quantitative methods of evaluation of country risk have significant drawbacks. In other words, there are aspects of country risk and the options that are not quantifiable. It is therefore crucial for the evaluation of country risk have a peer review.

The method of expert evaluations based on written surveys of authoritative institutions that are active abroad. Among these are the banks, trading companies, manufacturers of industrial products, as well as media and research organizations that have a direct interest in a particular country evaluated. For each country, about half a dozen organizations of this kind give the assessment of possible changes for the next three years. Grades are awarded on a scale desyatiballnoy, then the average assessment are divided into five groups. Exposed to a cumulative assessment of country risk, which appears not as a mean value of the sum of the average ratings for each item as well as the average score of all surveyed organizations.

Based on interviews with the multi-Japanese experts made a number of basic types of country risks being faced, in practice, foreign capital. These include the following main types of risks.

1. Because of the deteriorating balance of payments, lack of foreign currency, enter all kinds of restrictions can not (or only partially) to carry out repatriirovanie of the country have already invested a capital, as well as export earnings and interest on capital.

2. Due to rapid inflation and large fluctuations in the exchange rate a substantial reduction in investment in the country.

3. Due to the change of political regime in that country's new government power to refuse (or there is the possibility of refusal) to pay debts and fulfill (or shows intent) nationalization, expropriation, etc. foreign ownership.

4. Because of the commitment by public authorities of the country's rate of localization of capital and management restrictions for foreign managers in recruitment, as well as a ban on their profits. The authorities of the country a discriminatory for companies with foreign capital tax policy, a growing threat of unauthorized (and covert) intervention in the affairs of enterprises with foreign capital.

5. Due to internal strife, the rise of violence, the invasion of foreign powers, war and other such events occur the destruction of production in the country.

6. Due to deterioration of international relations and international situation, there is deterioration in the investment environment in the country.

On Russian-Japanese relations
Russia is interested in foreign investment, but so far relatively little has succeeded in attracting them. Russia also wants to return to their own (origin), foreign funds, but can not cope with this task. And the whole crux of the problem is that country risk is very high, and this prevents the business community to locate production in the country. This localization of production (see top of article) is needed in Russia to address the main problem - the acceleration of economic development and, consequently, improve living standards. Localization of production in the form of foreign direct investment (FDI), ideally leading to employment growth, familiarity with new technologies and valuable managerial experience, a better incorporation into the world economy through increased foreign trade, financial transactions, etc. However, statistics show that FDI in Russia are growing. They make up about half of the $ 43 billion of accumulated foreign investment. But most of them, about three-quarters are in Europe.

The Japanese in the Russian economy are «with scripts». Although the Russo-Japanese negotiations at various levels is to enhance cooperation, including investment, is ongoing. All participants in the debate appealed to untapped natural resources of Russia and its potentially vast domestic market, etc. But it has lasted for more than one decade since the Soviet times, and major structural changes (not counting the occurrence of Japanese goods on the Russian domestic market) in the relations of two countries is not observed.

At a time when the main market in Russia to determine the amount of oil exports, which are low (and possibly artificially understated), per capita income, a result hardly at all possible. These can be added to the political problems (in particular, the so-called issue of the «northern territories»). Virtually the only successful project - the development Neryungrinskogo coal basin - has been implemented yet in the 70's, but without the direct participation of foreign capital, according to the formula «equipment in exchange for coal». It seems that the current projects discussed so far exist only on paper, or act as a «verbal bullets» in the great political game with not very clear objectives. Many of these projects, for example, development of oil and gas fields in Eastern Siberia, led the countdown since the 70-ies. For the sake of justice it should be noted that there are projects that have been «commercial» output. For example, oil and gas development offshore of Sakhalin Island. But the project involved not only Japanese companies, as the world's oil giants.

However, all these phenomena are the result not so much a shift in the structure of the Russian-Japanese economic relations, but rather concern the Japanese situation in the Middle East, where they receive the lion's share of energy, as well as a very difficult situation on the main Japanese markets - and our own Americas.

On our own factors
Let's try in the light of the above-mentioned Japanese techniques to formulate the factors that influence the country risks in Russia. In doing so, we can not rule that an event can be viewed in two ways.

For example, the election, depending on the angle of view may appear as a stabilizing and a destabilizing factor for the economy.

1. Political and social stability. In Russia the coming elections, parliamentary and presidential. The country remains, at least the theoretical possibility of conflict at the national, religious, ideological and socio-economic basis. But they, with the exception of the military conflict in the Caucasus, rather, are dormant. It can be assumed that in case of successful socio-economic development of their public will fall, but to rule out deterioration of the situation today, probably not.

2. Economic stability and growth potential. The situation in the country is heavily dependent on energy prices, oil and gas. They have a decisive influence on the balance of payments, exchange rate, budget, inflation, etc. Alternatives to this kind of specialization in international division of labor has not yet been reviewed.

3. Stability of external relations, the ability to pay debts. External relations and payments on external debt is stable. However, in the global community to maintain the elements «discrimination» in relation to Russia, get it inherited from the Soviet Union yet. Complete integration of our country in the world economy depends on the time, as well as key risks in the field of international relations depends on the movement of oil prices.

4. Overall assessment. We can say that the overall situation in the country is correct, there is hope for successful economic development. But the major problem remains the structural reforms in the economy, designed to «catch» new (outside the primary sector), the quality of growth, as well as the unequal distribution of income, which is a limitation of mass demand within the country. We can not completely exclude the possibility of conflict, both domestically and on the perimeter (with the neighboring states), as well as «pressure» on the part of other states.

In conclusion, it should be noted that the Japanese technique of Russia does not get any of the six above-mentioned risk groups, indicating a relatively healthy investment climate in the country.



Alexei Sokolov

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