I need number 5

International Trade Finance Group activity - Trade Finance, Risk and Risk Mitigation Case Study Risk and OpportunityGo hand and hand! UniCan Design and Build is a large Canadian construction partnership, with expertise in large scale infrastructure projects, including public-private partnership (PPP) projects involving government departments and agencies. It has been a major player in North America and has ventured into consulting activities in parts of Asia. Giselle Carbonneau, a senior sales executive of the firm was recently approached about executing a major infrastructure project, a green power generation station in South Sudan, 100 kilometres northwest of Juba. As one of the newest sovereign countries, it has a long history but only recently gained independence. Recent history has not been kind to the nation, with it facing civil war and the growing threat of insurgencies in the north of the country. Those harsh realities aside, the country has benefited from foreign aid and some investment, and UniCan Design and Build perceives an opportunity to do some good, as well as to take on a complicated, profitable project in a region considered too risky by the firm's competitors. UniCan Design and Build has an excellent relationship with EDC, Canada's Export Development Corporation. The agency is viewed by many as a very progressive, dynamic and innovative export credit organization which will go to great lengths to promote the success of Canadian businesses, including taking in significant country and bank risk to do so, when warranted. While several partners at UniCan Design and Build are intrigued and willing to invest time to put a bid together, the company's board members are concerned about an endeavor in a nation beset by so many challenges. How, they wonder, will UniCan Design and Build protect its interests and ensure excellent results in a place with many different cultures, languages and challenges? The Challenge Several partners of UniCan Design and Build have done work in nearby Sudan, Uganda and Kenya but none have traveled to South Sudan, and the previous projects involved a consortium of partners to share both the project execution and the risks. This time, UniCan Design and Build is the lead firm under a World Bank development program, facilitated partially through the World Bank/International Finance Corporation (IFC) Global Trade Finance Program. UniCan Design and Build will work with a consortium of six local construction firms known as SouSudan Construction Consortium, "SCC Ltd". UniCan Design and Build will be the prime contractor and must adequately address the various risks. UniCan and its subcontracted partners supporting this project have engaged your team to provide some consulting with respect to identifying some risks and their mitigation options. You have been able to outline some preliminary risks to consider and must now present viable risk management options. International Trade Finance Group activity - Trade Finance, Risk and Risk Mitigation Case Study The Risks In the event, that the project is only partially funded through development monies, assets (like the green power plant and nearby buildings) associated with the project may not be usable as collateral to secure financing. Shortages of resources, staff and materials can cause significant delays and generate significant cost overruns; questionable business practices and outright corruption can be a serious risk, as can eruptions of violence due to political unrest. It is expected that the infrastructure project would ideally take about 36 months to complete. The project financing will be denominated in U.S dollars. South Sudan has been plagued by much corruption. It ranks 179 th out of 180 countries on Transparency's Corruption Index. Economically the company has struggled to develop and relied heavily on foreign investment. Its currency, the South Sudanese Pound (SSP), has been volatile. The banking sector in South Sudan has several challenges related to its development history, lack of a suitable regulatory framework and infrastructure issues. Several domestic and international banks have encountered financial difficulty and either collapsed or left the market. The bank that will be used by SCC Ltd for some aspects of financing the project has had some challenges in the past notably related to the Financial Crisis in 2007-2009. Even in the ideal situation, there remains the risk of disagreement between UniCan Design and Build and the funding agencies, including the World Bank and the IFC. Such disagreements can occur and can be time-consuming to resolve. Projects funded through multilateral agencies are subject to significant due diligence and verification, including strict audit processes. This all adds risk and cost (both net new costs and the cost of funds on delayed payments) to UniCan Design and Build. Some of the firms that are part of SCC have had varying degrees of experience and success in projects of this size historically. UniCan Design and Build has been unable to obtain adequate information on all of the local firms to substantiate their creditworthiness, financial strength and reputation. In many cases, credit will need to be extended to some of the SCC firms for longer periods of time. Some of the component parts and equipment to be used in the project will be sourced from around the world and will be transported at great lengths over sea, in the air and over land. The ocean on the east coast of Africa has had some incidents of piracy. The terrain near the project site can be tough and difficult to transport and there has been some recent derailments, accidents and theft. The railroad links between the airport and the construction site are antiquated and may need upgrading. International Trade Finance Group activity - Trade Finance, Risk and Risk Mitigation Case Study Environmental impact concerns are increasingly critical in projects of this type, and any government agency involved in this project has committed to conduct environmental impact assessments on any projects funded. This includes assessment of impact on local populations. Non-governmental organizations (NGOs) actively monitor and report on projects such as this one, and UniCan Design and Build has no desire to be dragged into a public relations nightmare. Your general impression after having studied the proposed project is that nearly every business risk imaginable is represented, to some degree, in this opportunity but there is great financial and PR reward if it is completed successfully. Risk Mitigation Considerations Many of UniCan's partners are experienced consultants and engineers with successes in numerous high-risk markets, and understand that while the risks are many, effective strategic planning can maximize the potential for success in this endeavor. The UniCan Design and Build board members are somewhat less familiar with dealing with the realities of developing market projects and will therefore require strong assurances. Your assessment indicates that this opportunity is primarily about risk management and ensuring adequate financing and cash flow over the term of the project. UniCan Design and Build and its board must take a holistic view of the situation and determine whether they have access to the necessary risk mitigation tools and whether the firm has the financial wherewithal to see the project through.

Learning Outcomes This case study relates to the following learning outcomes from the course International Trade Finance:

Describe types of risks involved in international trade transactions and describe methods available to minimize them.

Describe bonds and types of guarantees and how banks and international financial institutions support international trade finance.

Explain the range of products and services provided by export credit agencies and how they can support organizations in their international trade transactions.

Describe export credit insurance and how it can cover commercial and political risks.

Case study questions Recently you were introduced to Giselle Carbonneau at a social gathering. She is looking for some help in preparing a proposal to the partners in UniCan and ultimately to the Board. As a International Trade Finance Group activity - Trade Finance, Risk and Risk Mitigation Case Study student in International Trade Finance, you agreed to help her by sharing your knowledge from the course.

Assist Giselle by answering the following questions.

1. Utilizing concepts from our class lectures, identify and describe the various risks faced by UniCan Design and Build in its project. a.

2. After identifying and describing the various risks, describe and analyze the pros and cons of the four primary payment methods Open Account, Payment in Advance, Documentary Collections and Letters of Credit that could be employed to mitigate the risks identified in

Question 1. a.

3. If UniCan Design and Build were to work with secure and reputable banks and surety insurance companies from both Canada and East Africa experienced in international trade, describe risk mitigation strategies, additional tools and instruments either party could include in the transaction to secure both its financial interests and the likelihood that the infrastructure project will be completed. Include any advantages or disadvantages as appropriate.

4. Consider the answers to Question 1, 2 and 3 and recommend an international trade payment method, any additional risk mitigation tools and explain how they best address the various risks. a. 10 Total Marks

5. Describe how Canada's Export Development agency, EDC, could provide products, support and assistance to UniCan Design and Build in its first foray into South Sudan.

Can you please answer number 5