Book Review: ‘Managing Country Risk’
The world is full of risks. Whether an average citizen on the streets in Cairo or a CEO of a Fortune 500 country, the international system is a dynamic place, which is often defined by risk. Managing Country Risk, by Daniel Wagner who has had years of experience in cross-border risk management, is a “must have ready” reference and reality guide for any trader, investor, lender or NGO considering any cross-border activity.
Failure to properly prepare for the likelihood of risk, leads to entering at your own peril. Take the simple example of a business seeking to enter a new market. If that business fails to do the necessary amount of research by identifying possible risks, that business could be at the losing end if the country suddenly experiences a political sea change and a new government assumes control of a natural resource. This has happened in Venezuela under President Hugo Chavez.
The overall thrust of Mr. Wagner’s book is that investors and policymakers seek to avoid risks. The international system traditionally enjoys stability and avoids turmoil. The Arab Spring clearly demonstrates that regions and states can be significantly changed.
While some applauded the development of the Arab Spring, Daniel Wagner makes the point that the Arab uprisings have not necessarily benefited Arab citizens.
“But the aspirations of the region’s people as manifest by what came to be known as the Arab Spring must be considered in the context of an underlying unease about the scope and impact of political and economic change. While the region’s businesses quickly adapted to the many changes that resulted from the onset of the Arab Spring, many of them also came to recognize that the likely result would be an extended period of uncertainty and some degree of doubt about whether all the change would in the end result in meaningful long-term benefits,” Wagner writes.
Daniel Wagner’s Managing Country Risk is a very digestible book. The author’s chapter on China’s growing assertiveness on the world stage, “The Importance of Understanding China and Its Place in the World,” offered some key points about China’s lost opportunity to play a positive role in global affairs. In particular, the author makes the point, which is articulated in his chapter on China by writing, “China’s rise may be unique, for it has ascended rapidly onto the global stage by virtue of its total economic might, even as it retains characteristics of a developing country by GDP per capita. China seems to want it both ways: It plays geopolitical power games as a force to be reckoned with among equals, yet declines to shoulder the burdens of a great power, and even demands to be afforded the benefits due to a developing country.”
Chapter 7 provides readers who seek a well reasoned and detailed examination of how China uses its raw economic might to gain access to mineral rich countries in Africa and the developing world. With the U.S. presidential race taking center stage, the author’s examination of China’s economic prowess would prove to be a valuable read in order to traverse the many statements and misstatements about U.S.-Chinese relations that will be made on the campaign trail here in the United States.
The chapter “PRI-Political Risk Insurance” highlights an alphabet of acronyms describing the countless manifestations of risks one might encounter in a cross-border transaction. Under the umbrella of PRI fall a myriad of risks that can be mitigated through a well-crafted insurance program. “Tales from the Battle Zone” chapter recounts pages of actual horror stories experienced in the 1990’s by entities engaged in cross-border activities. A key takeaway was which risks to not assume, which risks can be safely assumed and finally how to manage these risks whether through mediation agreements to take place in a third neutral country or through a broad insurance program.
Mr. Wagner frequently stresses the need for due diligence. For example, find out who are the “elites” who own/control the entities with which you are dealing. Accept nothing at face value. As you prepare for your sojourn abroad, be sure to pack your well read copy of Managing Country Risk which should include your own marginal notes reminding you what to ask and do in order to thoroughly evaluate your own observations and the information you are given.