Country Risk Analysis

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Doing business abroad implies some degree of risk. Business transactions across international boarders are riskier than domestic transactions. Experts name these "additional" risks as country risks, which, as Meldrum mentions, "arise from a variety of national differences in economic structures, policies, socio-political institutions, geography, and currencies" (Meldrum, 2000).


The methods used by the largest and most famous investment institutions are also in the focus. The Democratic Republic of Congo (DRC) is taken to exemplify the categories and methods discussed. In the World Factbook we find that "the economy of the Democratic Republic of the Congo has declined drastically since the mid-1980s. The war, which began in August 1998, dramatically reduced national output and government revenue, increased external debt, and resulted in the deaths of perhaps 3.5 million people from violence, famine, and disease. Foreign businesses curtailed operations due to uncertainty about the outcome of the conflict, lack of infrastructure, and the difficult operating environment. Conditions improved in late 2002 with the withdrawal of a large portion of the invading foreign troops. The transitional government has reopened relations with international financial institutions and international donors, and President KABILA has begun implementing reforms. Much economic activity lies outside the GDP data. Economic stability improved in 2003-05, although an uncertain legal framework, corruption, and a lack of openness in government policy continues to hamper growth" (The World Factbook).
According to some experts in CRA, country risks can be divided into some precise categories. ...
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