A new report warns exporters to beware of growing economic and political risks in some of the world’s emerging economies.
In the Country and Sector Risks Worldwide report, Coface, a global leader in risk management, has assessed 160 countries.
Each country is ranked on an eight-level scale from A1 (Very Low Risk) to E (Extreme Risk).
The report notes that Argentina and Turkey, two countries already hampered by major external imbalances and their dependency on external financing, are experiencing a deepening in their currency crises.
Against a backdrop of rapidly tightening credit conditions, Coface has downgraded six of Argentina’s business sectors suffering from a severe downturn in economic activity (with a forecast of -2.4% for 2018).
The automotive, transport, paper and chemicals sectors are now assessed as High Risk, while the ICT and textiles sectors are evaluated as Very High Risk.
Turkey is also facing a wave of sectorial downgrades.
The automotive, paper and wood sectors have joined the High Risk category mainly because of a fall in domestic demand.
Also, the country’s energy sector, which is particularly vulnerable to currency exchange risks due to the huge investments involved, has fallen into the Very High Risk category.
US protectionist measures
The downgrade of its metals sector to Very High Risk has been provoked by new US protectionist measures targeting Turkey.
The other main emerging economies – South Africa, Brazil, India and Indonesia – appear to be particularly susceptible to risks linked to capital outflows.
These vulnerabilities result from similar factors at play as in Argentina and Turkey.
They include developed capital markets, current account deficits and political environments that are likely to fuel caution from the markets, elections scheduled before the end of the year or next year.
But these risks may be lessened by the lower dollar and overall high levels of foreign currency reserves in these economies.
Some of the smaller emerging countries should also be watched, says Coface.
This quarter, Coface has downgraded the country assessments for Pakistan and Nicaragua.
Pakistan is facing default and a sharp depreciation of the rupee, while Nicaragua is undergoing a political crisis.
In contrast, business risks are improving in Central Europe and the CIS countries. Croatia’s assessment has been upgraded by a notch, to A4 (Acceptable Risk). The country is no longer under EU excessive deficit proceedings and is benefitting from an environment of dynamic household consumption.
Slovakia (now A2 – Low Risk) has registered a steady improvement in business insolvencies (-27% in 2017) and an acceleration in investments in its automotive industry.
Armenia has been upgraded to C (High Risk) and is benefitting from the economic recovery in Russia (which represents 25% of its exports).
Download the report: click here