Infrastructural Project Assignment

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ASSIGNMENT 2 1a) The above assessments of the risks of executing this major infrastructural project in Ethiopia, highlights complex set of risks, like country risk, business risk, finance risk and counterparty risks etc. However, Engineering Tech (ET) must approach risk mitigation with a broad, holistic and all encompassing approach that essentially ensures that all potential risks to the infrastructural project is fully mitigated by the necessary and appropriate mitigation tools and techniques. 1b) Some of the resources available to Engineering Tech in this infrastructural project are its key partners: its excellent relationship with EFIC, Australia’s Export Finance and Insurance Corporation and the Acacia Crew. The EFIC has a broad…show more content…
b) Documentary Credit guarantees: rather than rely on ET’s foreign partner’s banks overseas, a documentary credit guarantee can help project activity. A documentary credit guarantee can help protect Engineering Tech’s contract payments. It gives increased confidence that if Engineering Tech provides its bank with the documents required by the documentary credit, ET will receive payment. This also enables the bank to advance working capital to Engineering…show more content…
For example if Engineering Tech pay suppliers in Australian dollars, wages/salaries and utilities in Ethiopian currency but receives payments in US dollars, unfavorable shifts in the exchange rate of the currencies may affect Engineering Tech’s profit margin. A foreign exchange guarantee facility can help ET protect its profit from exchange rate fluctuations by locking in exchange rate and allowing ET to hedge its currency exposure. The more of foreign exchange it can hedge, the greater the control over foreign exchange risks. d) Political Risk Insurance: Political risk insurance is critical in this project because it involves commercial risks and it’s a project in a least developed country, with an uncertain political environment. E.g. if the project is damaged in civil war or political violence or the project is taken over by the government of the host country, Engineering Tech will suffer substantial financial loss. Political risk insurance from EFIC can help protect Engineering Tech from financial loss due to certain political events and this ultimately gives greater confidence to ET. e) Medium term export payment insurance: in general, the longer the payment period in project contracts, the higher the risks of non-payment and the greater the pressure on ET’s working capital. Export payments insurance from EFIC can protect ET against the risks of non-payment
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