Page 30 - Risk Management Bulletin February 2024

RMAI BULLETIN FEBRUARY 2024

greater emphasis on manufacturing and produc- Here are some guidelines for effective risk manage-
tion activities. ment in emerging economies:
Y Understand the Local Environment: Gain a deep
Y Urbanization: Significant urbanization is a com-
understanding of the local business, economic, po-
mon characteristic of emerging economies. Rural-
to-urban migration leads to the growth of cities litical, and cultural environment in the specific
emerging economy in which you operate. Local
and urban centers, which can result in increased
insights are invaluable for identifying and assess-
economic activity.
ing risks accurately.
Y Increasing Consumer Base: As these economies
Y Holistic Risk Assessment: Conduct a comprehen-
grow, they often witness the emergence of a
sive risk assessment that considers all types of
larger middle class with rising disposable incomes. risks, including financial, operational, market, po-
This expanding consumer base drives increased
litical, regulatory, and environmental risks. Be
demand for goods and services.
mindful of the interconnectedness of these risks.
Y Trade Growth: Emerging economies are typically
Y Legal and Regulatory Compliance: Stay up-to-date
major players in international trade. Exports and
with local laws and regulations. Ensure strict com-
imports play a significant role in their economic pliance with local regulations to avoid legal and fi-
activity, and they often possess competitive ad-
nancial penalties. Establish a dedicated compli-
vantages in certain industries or have abundant
ance function.
natural resources.
Y Political Risk Management: Develop strategies to
Y Resource Abundance: Many emerging economies manage political risks, including changes in gov-
are rich in natural resources, such as minerals, en- ernment policies, political instability, and geopo-
ergy, and agricultural products, which can be a litical tensions. Consider political risk insurance or
source of economic growth and export revenues. investment guarantees where appropriate.

Y Investment Opportunities: Emerging economies Y Currency and Exchange Rate Risk: Implement ef-
offer attractive investment opportunities for both fective currency risk management strategies, such
domestic and foreign investors. High growth po- as hedging, to protect against volatile exchange
tential, the possibility of high returns on invest- rates, especially if you engage in international
ment, and access to new and expanding markets trade or have foreign currency-denominated as-
make them appealing investment destinations. sets or liabilities.

Y Political and Social Change: Economic develop- Y Supply Chain Resilience: Enhance supply chain re-
ment often coincides with political and social silience by diversifying suppliers, implementing
changes. Emerging economies may experience contingency plans, and preparing for supply chain
shifts in governance, improved access to educa- disruptions, which are more common in emerging
tion, and changes in societal norms and structures. economies.

Y Environmental and Sustainability Concerns: As Y Credit Risk Management: Establish rigorous credit
they grow, emerging economies face environmen- policies and conduct thorough due diligence on
tal and sustainability challenges, such as resource customers and counterparties to manage credit
depletion, pollution, and climate change, which risk effectively. Regularly monitor the financial
require careful management and policy responses. health of customers and suppliers.
Y Environmental, Social, and Governance (ESG)
Guidelines for Risk Management in Risks: Incorporate ESG factors into your risk as-
sessment and management practices. Address en-
Emerging Technologies vironmental and social risks and work on improv-

Risk management practices in emerging economies ing governance practices, as these are increasingly
require a tailored approach due to the unique chal- important considerations for investors and stake-
lenges and opportunities these economies present. holders.

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