At a recent strategy workshop in South Africa a group of executives discussed sovereign risk and were shown Transparency International’s risk map. The executives were taken aback by the colour coded rating of South Africa, which was the same as that for Somalia. The general opinion was that South Africa could not possibly be as bad as Somalia - at least South Africa has a functioning government - so Transparency International was just giving South Africa a bum rap.
But those less familiar with South Africa see the potential for the nationalisation of mines, are confused about Black Economic Empowerment and raise valid concerns about corruption. In the eyes of the South African managers these concerns are dramatically overrated. These, in their opinion, are manageable risks - unlike Somalian risks.
Any company doing business across national boundaries deals with sovereign risk and management must consider how the situation...