Country risk relates to the likelihood that changes in the business environment will occur that reduce the

profitability of doing business in a country. These changes can adversely affect operating profits as well

as the value of assets. The risk is mainly derived from the political changes in the country.

Political risk involves currency or trade control, change in tax or labor laws, regulatory restrictions, and

requirements for additional local production. The inability of a current government to honor the

agreements and the deals that had been made by a prior government can lead to devastating

consequences such as: a great decline in  foreign investments…

Furthermore, foreign investors take very well in consideration the financial analyses of a country before

launching any business. Financial risk analyses focus in the country’s ability to finance its debt obligations

and include factors such as foreign debt as a percentage of GDP, loan default, and exchange rate

stability.

In addition to the Political analyses and the financial analyses, a third analysis plays a big role in

identifying whether a country is a fertile land for business. It is the  economic risk analyses that

determines a country’s economic  strengths and weaknesses by looking at its rate of growth in GDP, per

capita GDP, inflation rate, factors in that nature.

Nationalization is also considered a major risk for foreign companies when entering international markets.

On the other hand, governments tend to compensate nationalized companies. However, the benefits that

are given to the companies when transiting from private to nationalized don’t often seek the investors’

expectations.

To sum it all up, we can say that globalization has opened a huge opportunity for business and people to

engage in business with many countries around the world. The risk under its different shapes (political,

economic, financial) is definitely the main concern of any investor when entering a new market.  Plus, a

stable country usually has a high investment rate which leads to a better economy.

References:

http://www.bankersonline.com/articles/v07n05/v07n05a18.html