Tuesday, December 24, 2013

Risk Analysis: Sierra Leone and Cambodia

The following write up is a simulated risk analysis written from the point of view of a private sector corporation after a 1994 fire at a cotton t-shirt manufacturing plant in Bangladesh.  The write-up is a risk analysis on the states of Sierra Leone and Cambodia, presented to the board of directors, for the possible opening of a new cotton t-shirt manufacturing plant in those states:

Introduction

                After extensive research on possible alternative states to establish a manufacturing factory for the production of cotton t-shirts and various other cotton-based products after the abrupt closure of the Bangladesh factory and the negative public affairs coverage associated with that closure, the following risk analysis report on the states of Sierra Leone and Cambodia has been comprised to assist the Chairman of the Board and the board of directors in the decision-making process for establishing a new manufacturing factory that shall be beneficial and economically profitable for the corporation, along with assisting in the reestablishment of the corporation’s positive image throughout the international media and various consumer populations. 
Political Stability

                Sierra Leone has transformed itself since 1991 into a state that has made “considerable progress in improving governance, respect for human rights, and the rule of law” (Freedomhouse, 2012).  The “1991 constitution provides for the separation of executive, legislative and judicial powers with provisions for oversight and accountability for excessive exercises of power” (Freedomhouse, 2012) and “protects the freedom of expression and the press” (Freedomhouse, 2012), which will provide ample opportunity for capital investment into the press for positive public relations on behalf of the corporation.  The state of Sierra Leone saw stints of political violence through 2011, but the major political parties signed an agreement “committing to free, fair, and peaceful elections, and no major incidents of political violence were reported after the agreement was signed” (Freedomhouse, 2012).  In 2012, the United Nations Security Council commended “Sierra Leone for the conduct and successful conclusion of Presidential, Parliamentary, district, and local elections” (UNSC, 2012) and the “people of Sierra Leona for their large turnout in the elections, which showed their strong commitment to democracy” (UNSC, 2012).  The recent results of elections in Sierra Leone were very promising for the expanding democratic values, and are strong indicators for further political liberalization and globalization.

                The government of Cambodia is a “multiparty democracy under a constitutional monarchy” (CIA, 2013) and also has distributive branches of government separating executive, judicial, and legislative powers.  The legislative branch is bicameral, containing a sixty-one seat Senate and a one hundred and twenty-three seat National Assembly, and predominantly controlled by the Cambodian People’s Party with the next elections not scheduled until 2018 (CIA, 2013).  The stability of six year terms indicates that major changes in legislation involving restrictions on foreign investment are not likely to deteriorate.  It should be noted that political violence broke out between the Cambodian People’s Party and the Cambodia National Rescue Party in September 2013 (ANN, 2013).  The potential for further political unrest in Cambodia over the upcoming five year period appears minimal, but is an existing possibility. 

State Debt to GDP Ratio

                Sierra Leone holds several positive economic factors that include a projected true GDP “increase from 6 percent in 2011 to 21.3 percent in 2012” (IMF & IDA, 2012, p.  8) with the stock of public debt “forecast to fall from 41 percent of GDP in 2011 to 34 percent in 2017, and to stabilize around 40 percent over the long run” (IMF & IDA, 2012, p. 10).  Baseline macroeconomic assumptions for Sierra Leone predict strong growth prospects, improved fiscal position, and a flexible exchange rate policy under an increase of “exports of agriculture and extractive industries” (IMF and IDA, 2012, p. 7).  Sierra Leone is heavily dependent on the mining industry which “should theoretically promote GDP growth, employment, downstream economic growth, infrastructure development, technology transfer, poverty reduction and development” (Zulu & Wilson, 1103), but “the agricultural sector proves to be the most vibrant contributor to GDP as its share averaged 44.0 per cent per annum” (Kargbo  & Egwaikhide, 434).   Sierra Leone is a member of the United Nations, the International Monetary Fund, and the World Trade Organization.  

                Cambodia, which has become “one of the highly dollarized economies” (Lay, Kakinaka, & Kotani, 65), appears to be in a similar position as Sierra Leone in the category of economic factors.  At the end of fiscal year 2011, Cambodia’s external public debt stood at approximately “US$3.8 billion or 30 percent of GDP” (IMF, 2012, p. 2) and “has virtually no domestic public debt” (IMF, 2012, p. 2).  While the economic projections for Sierra Leone rely heavily on Iron ore exports, the state of Cambodia relies heavily on “robust garment exports, particularly to the European Union” (IMF, 2012, p. 3).  Cambodia’s “real GDP is projected to grow 6½ percent in 2012, a slight moderation from last year, but would reach its potential of about 7½ percent by 2017” (IMF, 2012, p. 3) and “debt-to-GDP, debt-to-exports, and debt-to-revenue ratios are expected to decline “ (IMF, 2012, p. 4) over a twenty year period.  Cambodia is a member of the United Nations, the International Monetary Fund, and the World Trade Organization.

Standard of Living
                Sierra Leone has made strides in the standard of living category since the destabilizing civil war ended,  and areas where this can be seen are “Sierra Leone’s life expectancy at birth increased by 5.0 years, mean years of schooling increased by 2.3 years” (UNDP, 2013, p. 2).  On the other hand, economic and gender inequalities still trouble the social fabric of Sierra Leone.  In 2008 economic inequality levels showed that “77 percent of the population lived in multidimensional poverty” (UNDP, 2013, p. 5).  Such poverty rates indicate that wage requirements will be beneficially cost efficient for maximizing manufacturing profits within Sierra Leone.  The differences in poverty reduction between agricultural rural areas and mining-based urban areas show that “rural poverty declined from 78.3 to 77.1 per cent in 2003–07, versus a drop from 47.3 to 35.4 per cent for urban areas” (Zulu & Wilson, 1110). The gender inequalities in Sierra Leone offer a solid opportunity for positive international public imaging for the corporation through highly publicized hiring of women employees, providing financial grants for secondary education for women, and for providing financial support to future female candidates for parliamentary seats.  Currently, “12.9 percent of parliamentary seats are held by women, and 9.5 percent of adult women have reached a secondary or higher level of education compared to 20.4 percent of their male counterparts” (UNDP, 2013, p. 4).
                Cambodia has also made strides in the standard of living category, but does not suffer from such drastic levels of economic and gender inequality problems found in Sierra Leone.  Over the last 23 years, “Cambodia’s life expectancy at birth increased by 24.9 years, mean years of schooling increased by 0.8 years and expected years of schooling increased by 4.0 years” (UNDP, 2013, p. 2).  In Cambodia in 2010, “45.9 percent of the population lived in multidimensional poverty” (UNDP, 2013, p. 5) and “18.1 percent of parliamentary seats are held by women, and 11.6 percent of adult women have reached a secondary or higher level of education compared to 20.6 percent of their male counterparts” (UNDP, 2013. P. 4).
Labor Laws - Children
                Labor laws in Sierra Leone are not overly oppressive as “the minimum age for employment is 15 years, although at 13 years children may perform light work, defined as work that is likely not to be harmful to a child or interfere with schooling” (USDL, 2009) and “the minimum age for a child to engage in hazardous work is 18 years” (USDL, 2009).  Sierra Leone defines hazardous work “as work that is dangerous to a child's health, safety, or morals, and includes activities such as going to sea; mining and quarrying; carrying heavy loads; working in bars; and working in environments where chemicals are produced or used and machinery is operated” (USDL, 2009) and all labor opportunities extending from a new factory in Sierra Leone would be considered hazardous labor.  Should Sierra Leone be chosen for the location of the new factory, the corporation will need to ensure that no children under the age of 18 be hired under false documents as this could be an international public relations liability in the eyes of consumer states where our product will be sold.
                The child labor problem is statistically worse in Cambodia with an alleged “52 percent of 7-14 year-olds, over 1.4 million children in absolute terms, were economically active in the 2001 reference year” (UCW, 2006) which is a “percentage is very high relative to other countries with similar levels of income” (UCW, 2006).  While this information is somewhat alarming, it is also misleading as “About 90 percent of economically active children work for their families as unpaid labour” (UCW, 2006, p. 2) and child labor in manufacturing plants in Cambodia are not excessively higher than other lesser developed countries.
 
Corruption Levels
                The government of Sierra Leone has made concrete efforts to decrease corruption within state borders and has passed 39 countries in the Transparency International's Corruption Perception Index (CPI) rankings over  the last five 5 years from 158 in 2008 to 119 in 2013 (Tarawallie, 2013).  Corruption is a correlation to economic inequality and therefore the government of Sierra Leone will need to “be committed to a high level of integrity and patriotism in the execution of their duties, and to demonstrate the willingness to curb corruption to ensure that the country's development process will be meaningful to every Sierra Leonean” (Tarawallie, 2013) with the ultimate goal of improved collective standard of living levels and a drastic decrease to current poverty levels.  One of the largest issues that hinder the governmental battle against corruption in Sierra Leone is that “mistrust in institutions is so strong that people often refrain altogether from turning to the police or courts” (Mieth, 17).
                Corruption in Cambodia is also a problematic area as “corruption continues to rage and negatively impact all sectors in Cambodia. The cycle of the powerful exploiting the weak, stealing state resources for the benefit of a few, resulting in officially-budgeted amounts not reaching intended beneficiaries” (Barisoth, 2010, p. 53) contributes to economic inequality, which can produce periods of instability or violence with little or no warning.  Cambodia has not made progress in combating corruption and moving up the Transparency International’s annual Corruption Perceptions index.  The state was ranked 166 out of 180 countries in 2008, 162 out of 180 countries in 2007, and 151 out of 160 countries in 2006 (Barisoth, 2010, p. 53).  Whether the board of directors selects Sierra Leone or Cambodia as a location for the proposed manufacturing plant, possible corruption aimed at the corporation will be an extremely important factor to prevent.  In addition, any manufacturing plant facilities will need to be located near an urban center in order to attract workers with low-wage requirements, but it should be contemplated that civil unrest is always a possibility in poverty-stricken areas when economic and political elements become combustible within a state.  It should also be noted that a trend exists in Cambodia concerning currency usage that “the riel remains the currency of the poor in rural regions, while the U.S. dollar is mostly used by the rich in urban regions” (Lay, Kakinaka, & Kotani, 74).
Conclusion
                The author of this risk analysis views the risks in political stability, debt to GDP ratio, standard of living, children’s labor laws, and corruption to be similar between the states of Sierra Leone and Cambodia.  The opening of a manufacturing factory in either of these two states is liable to run into issues that could result in a loss of profits and poor public image portrayals for the corporation.  It is the author’s recommendation to minimize short-term and long-term risks by reducing projected profit projections in exchange for a minimum risk environment for long-term production, even if that environment required the hiring of laborers demanding higher wages.  It is this author’s recommendation to open the new manufacturing factory in the United States where the opening of a factory will be viewed in a highly favorable manner by consumers and laborers.
References
Australian Network News.  2013.  “Cambodian leaders meet after violent protests”, September 17, 2013.Accessed Decmber 15, 2013.  http://www.abc.net.au/news/2013-09-16/an3a-cambodia27s-leaders meet-amidst-violent-protests/4960620
Barisoth, Sek.  2010.  “Mechanisms to address corruption in Cambodia.”  Article 2 9, no. 1 (March 2010): 53-61.  Accessed December 15, 2013.  http://www.article2.org/pdf/v09n01.pdf
Brima Ibrahim Baimba Kargbo and Festus O. Egwaikhide.  “Tax Elasticity in Sierra Leone: A Time Series Approach.” International Journal of Economics and Financial Issues 2, no. 4 (2012): 432-447.
Central Intelligence Agency.  2013.  World Fact Book: Cambodia.  Accessed December 15, 2013.  https://www.cia.gov/library/publications/the-world-factbook/geos/cb.html
Freedomhouse.  2012.  Countries at the Crossroads 2012: Sierra Leone.  Accessed on December 15, 2013.  http://www.freedomhouse.org/sites/default/files/Sierra%20Leone%20-%20FINAL.pdf
Friederike Mieth.  2013.  “The Impact of the Special Court for Sierra Leone.”  International Journal of Conflict and Violence 7, no. 1 (January 2013): 10-22.
International Monitory Fund.  2012.  Staff Report for the 2012 Article IV Consultation—Debt Sustainability Analysis on Cambodia.  November 16, 2012.  Accessed December 15, 2013.  http://www.imf.org/external/pubs/ft/dsa/pdf/2013/dsacr1302.pdf
International Monitory Fund and International Development Association.  2012.   Joint IMF/World Bank Debt Sustainability Analysis on Sierra Leone.  Accessed on December 15, 2013.  http://www.imf.org/external/pubs/ft/dsa/pdf/2012/dsacr12285.pdf
Leo Zulu and SigismondWilson.  2012.  “Whose Minerals, Whose Development? Rhetoric and Reality in Post-Conflict Sierra Leone.”  Development and Change 43, no. 5 (September 2012): 1103-1131.
Sok Heng Lay, Makoto Kakinaka and Koji Kotani.  2012.  “Exchange Rate Movements in a Dollarized Economy: The Case of Cambodia” ASEAN Economic Bulletin 29, No. 1 (April 2012): 65-78.
Tarawallie, Ibrahim.  2013.  Sierra Leone: 2013 Corruption Perception Index - S/Leone Ranks 119.  All Africa, December 6, 2013.  Accessed December 15, 2013.  http://allafrica.com/stories/201312061597.html
Understanding Children’s Work (International Labour Organisation (ILO), UNICEF and the World Bank).  2006.  “Children’s Work in Cambodia: A Challenge for Growth and Poverty Reduction”, December 2006.  Accessed on December 15, 2013.  http://www.unicef.org/eapro/Children_work_in_Cambodia.pdf
United Nations Development Programme.  2013.  Human Development Report 2013: Sierra Leone.  Accessed on December 15, 2013.  http://hdrstats.undp.org/images/explanations/SLE.pdf
United Nations Security Council.  2012.  Statement by the President of the Security Council dtd November 30, 2012.  Accessed December 15, 2013.  http://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/s_prst_2012_25.pdf
United States Department of Labor.  2008.  “Findings on the Worst Forms of Child Labor - Sierra Leone.” September 10, 2009.  Accessed on December 15, 2013.  http://www.refworld.org/docid/4aba3ec23c.html




 

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