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Copyright © 2011 IHS Inc. All Rights Reserved. IHS Brief: Country Analysis, Country Risk & Sovereign Risk Tony Nash October 2012.

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Presentation on theme: "Copyright © 2011 IHS Inc. All Rights Reserved. IHS Brief: Country Analysis, Country Risk & Sovereign Risk Tony Nash October 2012."— Presentation transcript:

1 Copyright © 2011 IHS Inc. All Rights Reserved. IHS Brief: Country Analysis, Country Risk & Sovereign Risk Tony Nash October 2012

2 Copyright © 2011 IHS Inc. All Rights Reserved. Agenda About IHS Country Intelligence Service General Methodology ANNEX: In-depth Methodologies Country Analysis and Forecasts Country Risk Sovereign Risk

3 Copyright © 2011 IHS Inc. All Rights Reserved. IHS: Critical information driving government and business We are more than 6,000 people, in 30 countries, speaking 50 languages – all working each day to: Serve businesses and all levels of governments worldwide Customers from 180 countries in finance, industry, and government Ranging from 80% of Global Fortune 500 to small businesses Documented record of forecast accuracy for country and forecast analyses Inherited renowned data and forecasting organizations like Data Resources Inc (DRI) and Wharton Econometric Forecasting Associates (WEFA), including a Nobel prize winning founder Helping our customers drive critical processes and make high-impact decisions with speed and confidence

4 Copyright © 2011 IHS Inc. All Rights Reserved. Unique combination of macroeconomic, industry and functional expertise Functional expertise (Regulatory, Supply chain, Pricing and Cost) Industry expertise Macroeconomic expertise Full range of analysis and forecast services covering 200+ countries and regions Possess deep expertise from macroeconomic, industry and functional angles Provide comprehensive content, expert analysis and forecasts on economy, industry, policy, regulation and risk

5 Copyright © 2011 IHS Inc. All Rights Reserved. Using our comprehensive analysis encompassing country intelligence, economic and financial data, industry analysis and security assessment, we help clients around the world: How we help our clients Value Creation Path Forecasting Modeling Analysis Insight Relationships Identification Matching Capture Sourcing Critical Information Source Data Market awareness: stay abreast of changing political, economic, legal, taxation, operational, and security factors through our ‘Same-Day Analysis’ Risk anticipation: scenario and risk analysis that enable client to anticipate the unexpected Regulatory analysis: complying with regulations and developing regulatory systems for government authorities Strategic planning: provide key inputs using our short- and long-term forecasts Market sizing: identify growing markets and new opportunities Cost assessment: reduce supply chain costs with our 10-year price and wage forecasts for 1,200 commodities

6 Copyright © 2011 IHS Inc. All Rights Reserved. Continuously updated world, region, and country analysis, covering the risks and opportunities of doing business or investing in 200+ countries. The World’s largest private repository of economic, financial, and industry data Anticipate future security threats and requirements Coverage of 170+ industries around the world with in-depth analysis of 14 specific verticals. Combining country risk and industry expertise to provide comprehensive analyses We integrate our Country Intelligence services with an array of analysis, forecast and risk assessment products encompassing: Country analysis and forecast Country risk service Sovereign risk ratings Executive strategy council Supply chain risk Industry risk Banking risk service

7 Copyright © 2011 IHS Inc. All Rights Reserved. Multiple perspectives on risk and country analysis for consistency over time and across geographies 7 Detailed ratings and analysis for: Political environment Economic growth and policy Legal and regulatory environment Tax rate, system and policy Operational and labor environment Security (domestic and external) Detailed ratings and analysis for: Solvency ratios Liquidity (short-term and medium- term) Economic policy impacts Political factors Extensive database of debt indicators with forecast Country Analysis & Forecasts Country Risk Measuring foreign direct investment and operational risk Assessing existing business environment Sovereign Risk Measuring country credit risk Assessing risk of potential default on sovereign debt Qualitative country reports Daily monitoring: ‘Same-Day Analysis’ Extensive historical / forecast economic data Scenario planning

8 Copyright © 2011 IHS Inc. All Rights Reserved. Internal Expertise and Data Proven and Innovative Methods Network Access How IHS does it Forecast Council: Senior level monthly review of our economic, industry and commodity forecasts Our core analysis is done in-house, but we do consult on-the-ground experts to validate observations, assumptions, trends. IHS’ economists, analysts and subject matter experts incorporate economic, political, industry and commodity expertise in our services. This is unique in the market. Country Experts: Over 350 dedicated country analysts, forecasters and data specialists Industry Experts: Deep industry expertise including hundreds of energy, chemicals, automotive, technology & other industry specialists Specialized Teams: Levering broader IHS expertise including supply chain, regulation, political and security

9 Copyright © 2011 IHS Inc. All Rights Reserved. Agenda Complete analysis Country Intelligence Service General Methodology ANNEX: In-depth Methodologies Country Analysis and Forecasts Country Risk Sovereign Risk

10 Copyright © 2011 IHS Inc. All Rights Reserved. Country analysis and forecasts 10 Analysis Same-Day analysis articles and special reports: IHS country analysts and economists provide comprehensive coverage each working day of all developments worldwide relevant to the business environment and broader risk. There is a consistent editorial policy and house style applied across all regions by our team of editors. Regional managing directors oversee coverage policy and determine priorities. Analyst details appear at the end of every analysis Special Reports and In Focus dossiers provide analysis on major themes and interesting case studies. Country Reports: In-depth, consistently structured background reports covering the political, economic, security and general business environment in each country.

11 Copyright © 2011 IHS Inc. All Rights Reserved. Country analysis and forecasts: Forecast methodology 11 Step 2: Historical Data Updates Update historical data for G7 quarterly models and all country annual sub-models Compile high frequency data to be used in lining up current quarter or current year forecasts Update world model assumptions and data Step 3: Solve the Country Models Once a new historical database has been created, we simulate models over history to produce equation residuals. We then study these historical residuals carefully to determine whether the corresponding forecast residuals require adjustment. Step 4: Forecast Reviews Senior staff members review the preliminary forecast at the world, regional aggregate, and country levels for internal consistency and to review the big picture it paints. Step 5: Solve the World Model The forecasts from the country models are fed into the Global Scenario Model to prepare baseline forecast. Once the forecasts are completed, forecast databases and spreadsheets are created, and the analysts describe the forecast and it assumptions in the Quarterly Economic Outlook analysis. Step 1: Pre-Forecast Meeting One week prior to the start of the international macroeconomic forecast, IHS conducts a pre-forecast meeting to discuss key assumptions and issues, at global and regional levels. About 60 country and sectoral experts attend this meeting.

12 Copyright © 2011 IHS Inc. All Rights Reserved. Network access: IHS Forecast Council meets monthly Chaired by IHS Chief Economist Nariman Behravesh, the Forecast Council consists of senior economic forecasters and political analysts for each region and key sectors The Forecast Process Global assumptions Monthly meetings Consistent usage The Council guarantees that all analysts are using the same global assumptions about key variables such as oil prices, exchange rates, etc. The Council meets monthly to ensure consistency throughout all products and review forecast accuracy Macro forecast output used consistently by all sector and industry analysts

13 Copyright © 2011 IHS Inc. All Rights Reserved. 13 An extensive track record for accuracy

14 Copyright © 2011 IHS Inc. All Rights Reserved. Country risk service 14 IHS has developed a unique country risk-rating system that compares and contrasts the investment climate in 203 countries around the world. Provides a comprehensive picture of the quality of conditions and level of stability encountered by investors in each country. Political, economic, legal, tax, operational, and security environments are separately rated for each country Qualitative rating by in- house analyst consensus and local industry network contacts Regular meetings across regional desks ensure consistency

15 Copyright © 2011 IHS Inc. All Rights Reserved. Country risk service: Methodology Every country is given a risk rating of between 1 and 5 for each of the six factors. 1.0 indicates minimum risk and 5.0 maximum risk. RiskDescription Economic Degree of market orientation, Policy consistency, Diversity/resilience of economy, Macroeconomic fundamentals Political Institutional permanence, Representativeness, Internal political consensus, External political consensus TaxCoherence, Fairness, Level, Effectiveness LegalLegislation, Transparency, Independence, Experience SecurityCivil unrest, Crime, Terrorism, External security threats Operational Attitudes to foreign investment, Infrastructure quality, Labor, Bureaucracy and corruption

16 Copyright © 2011 IHS Inc. All Rights Reserved. Sovereign risk service 16 IHS provides unique, data-supported Sovereign Risk Credit Ratings for 204 countries. It acts as a robust early-warning system for credit default probabilities or emergence of financial stress Medium term and short term ratings Fully integrated with IHS’ international macroeconomic forecasting model and processes Re-forecasted at least every quarter

17 Copyright © 2011 IHS Inc. All Rights Reserved. 17 Sovereign risk service: Methodology Assessing the Risk of Potential Default ( “PD” ) – Medium Term Mother Criteria: ‘Factor Weights’% Weight Credit Financials 50% “Country balance sheet” Solvency External debt as % of Foreign exchange earnings10 External debt service as % of Foreign exchange earnings 10 Liquidity External Liquidity Gap as % of Total Foreign Exchange Earnings 10 Current Account Balance as % of GDP10 Import Cover – months10 Economic 20% Commodity reliance- external earnings sensitivities and dependencies 5 ‘Economic’: Structure, Economic Policy, Economic Management and Capacity 25 Politics 20% Politics and Strategy20


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