Kenneth R. Szulczyk
regulations that hamper or interfere with free enterprise. For instance, a government could
restrict a firm's ability to move funds into and outside of the country, called transfer risk. For
example, a government restricts capital outflows because it cannot attract investors to buy its
government bonds. Thus, a government could block funds and prevent foreign firm from
transferring funds outside of a country, keeping the investment within a country. A government
could also prevent the convertibility of its currency. Financial analysts could view transfer risk
as a micro firm risk at the firm level, but macro risk that applies to all firms in the country.
Unfortunately, blocked funds reduce the present value of investments because a firm could have
trouble selling its investment and assets, or transferring profits outside of a country.
Religion could pose a problem for investing in some countries. For example, all Muslim
countries following Sharia Law, except Turkey allow the state and religion to overlap. Thus,
they impose restrictions on banking that differs from the Western banking systems.
Furthermore, some Muslim countries discourage women from holding high manager positions
in government and companies.
Some countries are afflicted with severe corruption, and a business can experience
corruption in four ways. First, businesses and people bribe government officials for business
licenses and permits or overlook violations in the law. Second, government officials and
enforcement officers may extort payments from businesses. They use threats, assess excessive
fines, or penalize a business until the person pays their demand. Third, government officials and
leaders may demand kickbacks from businesses. A kickback is a bureaucrat or politician
secretly receives a portion of a government contract that they awarded to a business. Thus, the
kickback rewards a person for granting the contract. Finally, nepotism is usually a severe
problem in corrupt countries because government agencies hire relatives and friends for high
posts in government and state-owned companies.
Transparency International publishes the Corruption Perception Index, where it attempts
to measure a country’s corruption level. Investors and business people should research a country
thoroughly before investing because investors could experience large losses from highly corrupt
countries. Every international investor should remember these five suggestions.
Suggestion 1: Investors and business people should avoid investing in a highly corrupt
country because they could lose their whole investment.
Suggestion 2: Investors and business people should avoid paying bribes. Unfortunately, if a
company pays a bribe, then the bureaucrat or politician could return with greater demands.
Subsequently, other agencies may demand bribes and kickbacks, once they discover a company
had paid bribes.
Suggestion 3: Court systems are usually weak in corrupt countries, and the judges could be
just as corrupt as the bureaucrats and politicians. Even if a businessman and corrupt politician
form a verbal contract, judges might not enforce the contracts because corruption is illegal.
Thus, the businessman has no legal recourse if the corrupt politicians change the terms of the
contract.
Suggestion 4 : A company or investor could experience bad public relations if a news
reporter publishes the corruption.