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The Covid-19 pandemic, Russia-Ukraine conflict, and the ongoing cost-of-living crisis have once again shown us just how quickly the economic situation can take a turn for the worse in certain countries, making it all the more important that businesses regularly monitor these risks.
A look at Dun & Bradstreet's country risk map shows that risk remains high in many economies. In countries such as Afghanistan, Libya, Yemen, or Syria in particular, doing business is fraught with risk. For these cases, Dun & Bradstreet’s Country Risk Score is DB7. This means that these countries are among those with the lowest ratings in the world.
“Political unrest, poor economic performance or an underdeveloped infrastructure; these are all factors that influence our assessment of these countries and subsequently lead to such a result,” explains Dr. Arun Singh, Global Chief Economist at Dun & Bradstreet.
Dun & Bradstreet analyses risks in more than 132 countries worldwide. That is more than 99 percent of the gross domestic product. “This means that we cover almost the entire market. The only exceptions are micro-states and a few economies in Africa,” says Singh.
Data from central banks and national statistical authorities such as the German Federal Statistical Office or the International Monetary Fund, among other sources, are used as the basis for assessing countries. Dun & Bradstreet's Country Risk Score rating scale ranges from DB1 to DB7 and is subdivided into quartiles (from a to d) in categories 1-6.
“To make our assessment, we examine data from four thematic areas. The aim is to acquire a comprehensive overview of the situation within the countries, so as to arrive at a realistic assessment of the risks,” states Singh.
The first area is trading environment. Here Dun & Bradstreet analysts check to see just how stable the supply chain is, how good a country’s infrastructure is or how likely it is that the supply chain could be affected by a natural disaster.
In the area of economic risks the experts take a look at the economy’s development. Focus is placed on questions like: Is unemployment high? Or is the exchange rate going up or down? “Here we take a close look at the various macroeconomic factors and forecast the development for the upcoming years.”
The thematic area liquidity risks takes into account aspects such as the introduction of new legislation, access to foreign currency and information on payment behavior in the country in question.
Security risks, civil wars and corruption are taken into consideration when assessing the political risks. “To do this, we take a look at upcoming elections in a country, for example.”
The analysts at Dun & Bradstreet use all these factors as a basis for their risk assessment of the country in question. With the help of valid data, this allows companies to choose particular suppliers from a particular country with whom they wish to enter into a business relationship.
A look at the country risks in the DACH region shows that the Russia-Ukraine crisis has indeed increased the risks for businesses. During 2022, Germany has been downgraded from DB2b to BD3a while Switzerland has been downgraded from DB2c to DB2d and Austria has been downgraded from DB2c to DB3a.
“There is currently not a single country with a score of 1. Multiple crisis in the last two-and-half years have economies around the world firmly in their grasp. We will continue to grapple with this issue for quite some time. This is why it is so important for companies to closely monitor their suppliers and regularly check up on country risk development," says Singh.
In 2022, Dun & Bradstreet has downgraded 55 out of 132 countries. The extent to which the risk assessment has changed varies from country to country. While emerging markets like India and Vietnam have been upgraded from DB4d to DB4c, the Nordic countries have, on average, been downgraded from DB2c to DB2d due to the rising cost-of-living crisis.
“Rising interest rates and elevated input costs are hurting the investment plan and bottom-line of businesses, respectively. On the other hand, the cost-of-living crisis across many countries continues to weigh on consumer confidence and demand for goods and services, hurting top-line growth of businesses. As profitability declines, there will be increasing pockets of business delinquencies or bankruptcies in the coming months.” concludes Singh.