The conflict between Russia and Ukraine, rising interest rates, and the COVID pandemic have proved to us once more how quickly the economic situation in certain countries can deteriorate. This makes it even more important for companies to monitor these risks regularly.
The country risk map from Dun & Bradstreet shows that risk levels are still high in many economies. It’s especially risky doing business in countries such as Afghanistan, Libya, Yemen, or Syria, where the Country Risk Score from Dun & Bradstreet is DB7. That puts these nations among the worst rated in the world.
Data from national statistics authorities
Dun & Bradstreet analyses risks in more than 130 countries worldwide. That’s more than 99 percent of global gross domestic product (GDP). “We cover virtually the entire market, with the exception of micro-states and some economies in Africa,” says Dr Arun Singh, Global Chief Economist at Dun & Bradstreet.
The calculation for the countries is based on factors that include information from central banks and national statistical authorities like the Federal Office of Statistics or the International Monetary Fund. The rating scale of Dun & Bradstreet’s Country Risk Score ranges from DB1 to DB7 and is further subdivided into quartiles (from a to d) and categories 1-6.
A realistic glimpse into the future
“For the assessment, we look at data from four thematic areas. The aim is to get a comprehensive view of the situation in the countries in order to come to a realistic risk assessment," says Singh.
The first area is the trading environment. Here, Dun & Bradstreet analysts carefully examine how stable supply chains are, how good the infrastructure is in a country, or how likely it is that a natural disaster could affect the supply chain.
In the area of economic risks, the experts look at the development of the economy.
This focuses on questions such as: Is unemployment high? Or is the exchange rate going up or down? “For this, we draw on various macroeconomic factors and forecast development for the next few years.”
The subject of liquidity risks takes into account aspects such as the introduction of new laws, access to foreign currency as well as information on payment behaviour in the respective country.
Security risks, civil wars, and corruption play a role in the assessment of political risks. “For this, we take a look at upcoming elections in a country, for example.”
Based on all these factors, Dun & Bradstreet analysts determine a risk assessment for the respective country. This allows companies to decide based on validated data which supplier from which country they should enter into a business relationship with.
55 states downgraded
“The COVID crisis and times of economic uncertainty have economies around the world firmly in their grip. The issue will be with us for quite some time to come. That’s why it’s even more important that companies closely monitor their customers and regularly check the development of country risk,” says Singh.
In 2022 alone, Dun & Bradstreet downgraded 55 out of 132 countries. The extent to which the risk rating has changed varies from country to country. While emerging markets such as India and Vietnam were upgraded from DB4d to DB4c, the Nordic countries were downgraded on average from DB2b to DB2c due to the growing cost-of-living crisis.
“Rising interest rates and increased revenue costs are affecting companies’ investment plans and profits. In addition, the cost-of-living crisis in many countries continues to weigh on consumer confidence and demand for goods and services, affecting companies’ revenue growth. As profitability declines, corporate defaults or bankruptcies will increase in the coming months,” Singh concludes.
Click here to view our Country Risk and Global Outlook Report to get more insights into which countries are especially high-risk for conducting business in.