After three years, Portugal is to exit its 78 billion euro bailout. This in itself is quite a remarkable statement. Even more remarkable is that not but half a year ago, Portugal seemed to be on a path destined for additional assistance. Portugal will be the second country of the eurozone to exit the bailout program, following only Ireland. Given that it has been widely noted that the rescue program is a grueling one, the news should certainly come as a relief to officials.

After being at the receiving end of talks to accept a line of credit from the troika (the International Monetary Fund, European Central Bank, and European Commission), Portugal has opted for the path that commentators describe as less punishing. The reform criteria to meet the requirements of a line of credit from the European Stability Mechanism can be similarly harsh and stringent as those of a bailout.

Portugal has instead raised funds through private markets which has allowed it to avoid further assistance from the troika. An official announcement will be due shortly; however the Portuguese case is a perfect example of how a troubled country can return to a healthy position without further aid. This allows for a clean exit and hopefully a clean start for the Mediterranean nation.

This post is a special edition follow-up to our Russian Regional Focus post; it will focus on the use of due diligence indices to decrease the risk of doing business with foreign companies, with a specific focus on the Russian Federation.

In this increasingly interconnected global economy, businesses must practice particular vigilance when practicing or dealing in foreign economies. For example, a major red flag that should be on any firm’s radar is that of the shell company. These are exactly what they sound like – a hollow shell of an entity that does not actually have legitimate, active operations. Rather, they lie there being dormant, only to wake to serve the purposes of its creator.

These shells of companies are a prominent fraud and threat for businesses seeking to operate and trade in Russia. One of the prime tools at a company’s disposal to deter business dealings with shell firms is that of enhanced due diligence (EDD) indices. There are various indices available to businesses to aid in establishing an informed decision. Some indices also offer company-specific data for various countries; this would allow potential trading partners to learn about the unique environment that they might be operating within in addition to being able to learn about whether or not their foreign trading partner is a legitimate entity.

Some red flags for fraudulent activity are as follows:

– Director – is this a politically exposed person (PEP)? Are many companies registered using the same name multiple times? How often does the company change directors?

– Address – are various companies listed at the same address? If yes, this is a red flag for fraudulent business activity.

– Public business partners – does the Russian company have contracts or dealing with the public sector government? The existence of such contracts can lower a red flag.

Overall, it is absolutely critical to remain vigilant when conducting business with foreign companies of which little is initially known. Conducting EDD and monitoring for red flags is a crucial control process to mitigate the risk of involvement with illegitimate companies.

This is another entry into the BRICS series of Regional Focus posts.

Russia

From one perspective, it could be argued that Russia is awash in opportunities to make a healthy living. After all, this is where many of the world’s famous oil oligarchs call home. However, there is always an alternative perspective to such arguments.

In today’s Russia, there are approximately 1.3 million people who are living on minimum wage. Most surprisingly, around 650,000 (approximately 50%) of these Russians work in the country’s public sector. What these two statistics mean is that a material number of Russian civil servants live on the lowest wage possible that an employer can legally pay an employee. Overall, the average purchasing power parity in Russia ranks 40th in the world. To contrast these figures, Luxembourgers top the study with a purchasing power that is around nine times greater than the PPP in Russia.

These facts can be quite illuminating. Clearly, Russia is very much behind other developed countries, including those of the European Union. Additionally, it should be noted that many private employers pay above the minimum wage. This is a good indication, at least, that the private sector more greatly values the work and effort of Russian employees than the public sector. This should be kept in mind when considering conducting business in not only Russia, but anywhere in the world. Minimum wage is a legal obligation set down by law. However, it would be ideal that employees would earn more than minimum wage as the nature and difficulty of the work changes, regardless of whether or not the work is in the public or private sector. This indicates that employers recognize and value employees, and reward them accordingly when it is financially possible. This would help maintain a positive employment relationship and, ideally, increase job satisfaction.

References:

PKF Moscow

RT

Consumer spending and confidence has taken a hit in England and it seems as though this trend will not be fading in the near future.  It has also been noted that consumers in England are shifting their purchasing habits towards lower-costing and lower quality goods.  In a predictable fashion, consumers are also moving away from non-essential purchases and spending.  A textbook example of this switch can be seen in the shift from dining out at restaurants to increasing consumption of fast food.  Interestingly, English consumers have also cut back on use of private cars, opting for utilizing the many public transportation networks and systems across the country. It would be wise to do a thorough assessment of key target markets in England before entertaining the idea of a new venture there in order to ensure that a demand present.

The 2011 BRICS Summit took place in Sanya, China on April 14th with the focus of talks on economics, international law and the ongoing confilict in Libya.  This will be the first post in a series on the five countries.

India

One of the integral cogs in the BRICS countries is India.  This post will focus on roadblocks that India is facing as a growing economy, as opposed to a general overview of the country.

One of the most serious problems in India, along with many other nations across the globe, is that of corruption.  Transparency International currently puts India as its 87th least corrupt country, with a score of 3.3/10, on a list numbering to 178.  This is about halfway through the list and is not something to be proud of as a country that is supposed to be one of the leaders of tomorrow.

From the recent telecom scandal, that has seen some of the most prominent businessmen in India come under fire, to the disastrous Commonwealth Games in Delhi, India must reign itself in and implement measures to get corruption out of its system, not further integrate it.  This is a necessary and critical step in order to promote continued and sustainable economic growth.