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The high-risk countries for budding exporters


Too many Australian businesses are jumping into exporting without fully understanding and researching the risks involved, resulting in business losses and unnecessary expenses.

There are a lot of country-specific details that businesses should be aware of before they consider exporting. For example, Turkey, Brazil, Indonesia, and India are currently viewed as high-risk areas because of the current state of their economies.

Businesses considering exporting should have a thorough understanding of the risks involved with each country. Atradius recently published a report that discusses high-risk countries (1).  Here is a snapshot:


Turkey is extremely vulnerable to market changes but the country still has good access to capital markets. Heightened conflict in the region is affecting Turkish economic security. The country’s structural economic weaknesses are resurfacing, including high inflation, large gross external financing needs, heavy reliance on volatile portfolio capital inflows, and relatively weak international liquidity; all coupled with increasing political risks.

The rise of corporate debt in Turkey significantly outpaced economic growth in 2015. As a result, the corporate debt-to-GDP ratio more than doubled to 59 per cent in the third quarter of 2015. Although the level is still moderate, the debt structure is concerning. Over a third of this debt is financed externally. It makes Turkish corporates more vulnerable to refinancing and exchange rate risk.

The share of foreign currency debt is even higher as Turkish corporations, particularly in the energy sector, have extensively borrowed foreign currency from local banks. The most vulnerable sectors in Turkey are energy, construction materials, steel, transport (airlines), and chemicals.


Brazil’s debt accumulation has outpaced economic growth over the past few years, first due to a relatively rapid increase in debt, then, most recently, due to currency depreciation and the contracting economy.

Due to liquidity and insolvency, vulnerable sectors include: transportation; infrastructure; heavy equipment; and non-durable consumer goods industries.

Small and medium-sized companies are the most vulnerable, particularly those operating in these sectors: consumer durables and electronics; agro-chemicals (particularly fertiliser producers); metal and steel producers; and the oil and gas sectors. Smaller-sized firms are at higher risk of insolvency with earnings mostly in local currency. Smaller companies also tend to be more highly-leveraged.

Risks will arise out of the impeachment of ex-president Dilma Rouseff and the pending further deterioration of the labour market in the next quarter due to the likely cutting of public sector jobs by the new President (Michel Temer). Private firms might also shed jobs in the face of a weak economic outlook.


Corporate debt in Indonesia is still low at 24% of GDP and overall corporate sector risks appear manageable. Indonesian companies have relatively low buffers, plus low commodity prices and currency depreciation have weakened their profitability and capacity to service debt.

Some businesses have been facing debt repayment problems in recent months, most notably on foreign currency bonds. Subject to exchange rate fluctuations, the foreign debt might overnight become unserviceable because the currency in that country has got measurably stronger.  Indonesia’s currency is one of the weakest in the world and is prone to devaluations.

The most vulnerable sectors in Indonesia are transport, and metals and steel sectors.


India is among the countries with a sharp increase in corporate external debt, which has more than doubled, albeit from a low base. The debt ratios are still moderate: 50 per cent of GDP for total debt; and 58 per cent of exports of goods and services (XGS) for corporate external debt.

However, net external debt of Indian companies is relatively high compared to other countries. Most of this debt is financed in foreign currency, predominantly US dollars. This creates complexity because it means Indian companies will borrow in US dollars, which they have to pay back in US dollars, but they are likely to trade their goods in Indian Rupees. This means they have to buy their US dollars from the bank to finance their debts.

The most vulnerable sectors in India are infrastructure (including power, telecommunications, and roads), and metals (including iron and steel).


Corporate debt has increased at a significantly faster pace than Russian economic growth. In emerging markets, Russia hosts some of the most leveraged firms. The median debt-to-equity ratio for highly-leveraged Russian firms is 160 per cent.

The most vulnerable sectors in Russia are companies operating in the construction and real estate sectors. Companies operating in the commodity sector are generally not highly-leveraged, and so may represent safer levels of risk.

The Russian central bank warns that, should the current situation in the commodity markets persist, coal, iron, and steel companies, and the mining sector might experience a rapid increase in their debt burden.

South Africa

South Africa’s social and political issues are becoming more pronounced. Vulnerable debt composition means the country’s debt exposes them to too much exchange rate risk. There can also be a mismatch between the debt repayment period and the timing of the revenue that is needed to service the debt.

The share of external debt has doubled, which means the proportion of external debt has doubled compared to the amount borrowed internally. As a result, any devaluation of the South African Rand will be more devastating.

The South African Rand is among the currencies hit hardest worldwide: it has depreciated by 40 per cent since May 2013. Declining profits are negatively affecting debt-servicing capacity.

The most vulnerable sectors in South Africa are mining, electricity, gas and water supply, and, to a lesser extent, transport and communications.


Mexico combines vulnerable debt composition with strong resilience. This is the same as for South Africa but, in Mexico’s case, the country is better able to cope with the negative effects.

Three-quarters of the debt is financed externally, predominantly in foreign currency, which means  75 per cent  of debt is borrowed from institutions outside Mexico and in currencies other than the Mexican Peso, resulting in repayment issues similar to those in India.

Since the global financial crisis, the share of bond financing has significantly increased to more than two-thirds, which is among the highest in emerging market economies. Bond finance occurs when a borrower issues a debt document acknowledging a fixed-term loan while agreeing to pay interest (the coupon) by instalments, and to repay the principal at a later date (maturity date).

Debt service is very low and debt-servicing capacity is strong for most companies, despite declining earnings and profitability due to the low oil price and exchange rate depreciation (by some 30 per cent since May 2013).

Larger firms are generally more vulnerable than small firms, as they tend to be more highly-leveraged and have weaker interest coverage. Firms operating in energy (Pemex and CFE), chemicals, construction, and metals, especially steel, and companies in the supply chain of Pemex are particularly vulnerable.

The destabilising effect of the drug cartel activities as well as the further decline in oil prices, slower US growth, uncertainty about interest rates and currency volatility could affect the country’s performance in 2016. Crucial reforms have been passed, but their proper implementation remains to be seen.

Regardless of which countries they export to, any company can be exposed to the risks of non-payment for goods and services. Credit insurance can help exporters protect themselves from these risks but many don’t understand the competitive edge it can give them.

When dealing with customers overseas, especially in countries with fluctuating economies or civil unrest, the dangers of non-payment are real. This can lead to higher cash flow troubles for exporters, or even insolvency in serious cases.

Credit insurance lets exporters reduce their vulnerability when dealing with customers in overseas markets that may pose an economic risk. However, while it is common practice for exporters to maintain insurance for the loss or damage of goods, many still consider credit insurance a non-essential investment, so are missing out on the benefits it can provide.

When exporting to volatile markets, don’t be fooled by the advice of one person. It’s important to get advice from different sources, educate yourself, and make a reasoned, balanced decision about the best solution for your business. of your customers

About the author

MarkHoppeMark Hoppe is managing director, ANZ with credit insurer Atradius