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.
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