Page 39 - RMAI Bulletin July - September 2021

RMAI BULLETIN JULY TO SEPTEMBER 2021

• state control of large parts of the economy g) Technology
• small or no stock exchange while those that • technology in use may be outdated and
exist are heavily influenced by trading in a few difficult to maintain
stocks;
h) Outsourcing
• limited amount of stock in public hands; • if contracts have little meaning this may
• few large conglomerates operate in many increase risk considerably if service standards
sectors – including banking; are not met;
• limited tax base – tax avoidance common; i) Fraud
Pull and push factors have combined to increase the • Heightened vulnerability particularly where
level of interest in emerging economies as target management has limited understanding of
markets as well as production bases. local practices or there is collusion amongst
staff;
Risk types in emerging economies
j) Processes and procedures
a) Business
• Whole range of issues make emerging • Need to be adapted to local conditions
economies more volatile and unpredictable so including compliance with local regulations
companies which are not well managed and k) Accounting
robust financially will be vulnerable. • Accounting standards weak, income sources

b) Credit and profits often understated
• lack of transparency, limited disclosure l) Political
(accounting risk) • Power tends to be concentrated and is open
• counterparties unwilling to share to abuse even in nominally democratic
information• inter-connected businesses countries
common m) Environmental

c) Credit–sovereign • Lower standards or non-enforcement may
• credit risk of the sovereign entity will reduce environmental risks but this is
generally be well known. It may be weak due changing and poor practices today may store
to dependencies on external factors such as up problems for the future
exports, investment inflows or poor n) Legal
management of income and expenditure.
• Problems can arise through a lack of
d) Market understanding, unclear requirements, lack of
• exchange rates and interests rate liable to enforcement or laws not being in place
move significantly and with little warning;
o) Systematic
• two tier exchange rates may operate (official • Increased interconnectedness with the
and black market); outside world as trade barriers are removed
• pegged exchange rates, currency boards or and deregulation occurs creating opportunity
crawling peg mechanisms may operate but but make emerging economies more
limited resources to defend them leaves them vulnerable.
vulnerable to speculation.
p) Reputational
e) Liquidity • International companies in emerging
• often high degree of reliance on central bank economies are prime candidates for adverse
which may have limited resources, particularly publicity. This may be vindictive.
in time of need.
Qualities of Risk Management
f) Operational Staff
• quality and quantity of staff will vary Professional in emerging economies
enormously as will work ethic and time With the consistent shifting and evolving regulatory
keeping and technological landscape, following are list of skills

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