I’m in full study mode now, preparing for the final exam on the way to a Chartered Accountant (CA) designation here in Canada.
I wrote a case yesterday about a company that needed a certain high tech piece of equipment to compete in a globalizing and consolidating industry, and was considering two opportunities.
They could either directly purchase the equipment and stay in Canada, or buy a state-owned company in a South American country who already had the piece of equipment.
Buying in Canada would cost more initially and the projected return of the South American option was significantly higher as well.
The critical point of the case, however, was the riskiness of investing in the country. There was no privately-owned land in the country, and there was no guarantee the company wouldn’t be appropriated by the government later.
Also important to understanding the case was that the bank wasn’t likely to approve the needed financing without some kind of a collateral, and the assets in the South American country weren’t good collateral, for the reasons noted above.
Sound like a country you’ve heard of? Made me think of Venezuela and Bolivia. And it made me wonder how much investment those two countries are forgoing to pursue the dream of a “socialist paradise.”