BMI's Risk Rating System - Methodological Detail
Political Ratings
The political ratings are a guide to the political stability of the country. Political stability is seen as a pre-requisite for a stable economy and business environment. The long-term political rating considers the following factors.
Key Factors Considered in the Long-Term Political Rating
| Criteria | Key Questions |
| Democracy | Is there a functioning democracy? Are there free and fair elections? |
| Institutions | Is there an independent judiciary? Are there effective checks and balances on government? Is there separation between party and state? Is there a stable multi-party system? |
| Corruption | Is politics heavily influenced by money? Are politicians in the hands of criminals? |
| Distribution of wealth | Is unequal distribution of income/wealth a potential source of political instability? |
| Policy continuity | Have recent governments pursued similar, enlightened policies amid a stable political environment? Or have economic, fiscal and trade policies been a hostage to political upheavals, frequent changes of government etc.? |
| Foreign relations | Border spats? A serious breakdown in relations with a foreign power which could lead to war? A state of war with a foreign power? |
| Law and order | Rigidly enforced laws? Or is the judiciary ineffective and corrupt? |
Key Factors Considered in the Short-Term Political Rating
| Criteria | Key Questions |
| Conflict | Terrorism? Secessionist movements? War? |
| Public unrest | Large-scale unrest or strikes? To what degree do they threaten the political status quo? |
| Unemployment | Is unemployment a potential source of political instability? |
| Inflation | Is inflation a potential source of political instability? |
| Succession | Position in the political cycle - to what extent is this contributing to political risk? |
| Policy-making capability | Government having trouble passing legislation? Coalition becoming unstable? |
Economic Ratings
The economic ratings assess the degree to which the country approximates the ideal of non-inflationary growth with contained fiscal and external deficits and manageable debt ratios. The ratings use historical data and forecasts from BMI's country databases: as data is revised and forecasts change, so the ratings change. The long-term rating takes into account GDP growth, unemployment, inflation, real interest rates, exchange rates, the fiscal balance, the current account balance and external debt. A number of other structural factors are also thrown into the equation including dependence on the primary sector, reliance on commodity imports, reliance on a single export sector, and central bank independence. The long-term rating also considers a number of structural factors.
Key Factors Considered in the Long-Term Economy Rating
| Economic Indicators | Real GDP growth |
| GDP per capita | |
| Inflation | |
| Real interest rates | |
| Government expenditure | |
| Budget balance | |
| Unemployment | |
| Current account | |
| Import cover | |
| Foreign debt | |
| Structural factors | GDP volatility |
| Dependence on primary sector | |
| Trade concentration | |
| Exchange rate stability | |
| Reliance on commodity imports | |
| Reliance on a single sector | |
| Central bank independence |
Key Factors Considered in the Short-Term Economy Rating
| Economic Indicators | Real GDP growth |
| Inflation | |
| Budget balance | |
| Real interest rates | |
| Unemployment | |
| Current account | |
| Import cover | |
| Foreign debt | |
| Exchange rate stability |
Business Environment Rating
The business environment rating is an indicative guide to the investment climate, for both domestic and foreign players. While broad areas such as competitiveness, finance, openness and environment comprise the bulk of the rating, there is also an important feed from the economic and political rating. There may be exceptions, but it would be a surprise if the business environment for any country was markedly out of step with its short-term economic rating.
Inevitably, gauging areas such as bureaucracy, cronyism and even infrastructure is an intensely subjective exercise and the grading is more a product of BMI's knowledge and analysis than easily quantifiable measures.
BMI's business environment rating is a general one and therefore obstacles to investment in a particular industry may be masked by a more enlightened approach elsewhere. Conversely, a generally hostile business environment or one where political risk is too great to justify across-the-board investment may not hold good for a particular sector such as oil, where the rewards can be disproportionately high.
Key factors Considered in the Business Environment Rating:
| Criteria | Constituents | Key Questions |
| Politics | From political rating | |
| Economy | From economic rating | |
| Competitiveness | Infrastructure Education Cronyism/Corruption Bureaucracy Legal framework Property rights Technology |
To what extent does
poor infrastructure hinder business? Quality of? Level playing field or back-handers needed? How much red tape? Effective system? How well defined? How hi-tech? |
| Finance | Stock market Banking sector |
How developed the
market? How sturdy the system? |
| Openness | Investment rules FDI & Portfolio investment |
Accessibility? Level of? |
| Environment | Tax regime Business confidence Quality of life |
How high the
corporate burden? High or low? Hardship posting or something short of paradise? |
