We have regularly warned about the risks associated with exporting. These risks come in various forms. They include country risk, financial risk, payment risk, poor quality risk, legal risks, political risks, cultural and language risks, and transportation risk.
Country risk can be defined as all the risks associated with cross-border transactions, including but not limited to risks linked to economic, political, legal, cultural, geographic, ethical, and business conditions prevalent in a particular country. Country risk is more of a macro view of a country’s ability or willingness to pay for goods bought from abroad. A country with a low risk rating is a reliable and trustworthy payer – you can be assured that there are no country/macro-related impediments to your customer paying you. A country with a high risk rating, however, has impediments in place (whether deliberate or not) that are likely to obstruct or delay your customer paying you, whether they want to or not.
Country risk versus payment or credit risk
Please bear in mind that even if a country has a low-risk profile, that is, it is a ‘safe’, reliable country, this does not mean that you are guaranteed payment. Your customer may fail to pay you for various reasons – they dispute aspects of the shipment, they have gone bust or simply do not have enough money to pay you, or they deliberately stall with the payment to try and pressure you for a lower price or better terms (i.e. they are unethical or down-right crooks). Payment risk is more commonly referred to as credit risk (because you are in effect giving the customer time to pay, i.e. credit). Country risk does not directly impact upon or negate credit risk, although it may be argued that – generally – low-risk countries have a far greater proportion of firms that are reliable payers, whereas high-risk countries will have a higher proportion of firms that are suspect credit risks.
What should you do?
It is absolutely imperative that you take congnisance of the risks that you face in international trade. If you do not, your chances of not being paid will increase and you could (a) loose a lot of money, or (b) even go under as a result of the non-payment for your export orders. To learn more about the various risks you face in exporting, click here.
One of these risks is country risk and before doing business with a company in a particular country, you should find out what country risk you will be exposed to. We have said that country risk covers a number of other types of risks and country risk is a general measure of the overall risk you will face in a particular country. There are a number of organisations that attempt to measure country risk. Normally these organisations charge for their services or they expect you to at least take out country risk insurance with them. One such local firm is the Credit Guarantee Insurance Corporation.
Other sources of country risk information
Other sources of country risk information include:
- AM Best Country Risk Ratings
- Credendo Country Risk Ratings
- AGA Country Risk Ratings
- OECD Country Risk Classification (Pdf)
Besides for these country risk ratings, you may also want to read the following or visit the following sites: