Would you ever invest in a risky country?

I know that people in this forum and in this field tend to be a bit risk averse, but I'm interested in your thoughts anyway. Lately I've been interested in starting a business and moving to a country with fairly high inflation and currency depreciation. But I figured that since I have access to dollars and overseas bank accounts, these factors might end up benefiting me overall, since I could take advantage of currency's weakness. Cost of living would be really low for this reason, and with access to dollars, buying inputs for a business would also be a lot cheaper. Plus there's a host of incentives from the government. On the other hand, there's the obvious risks of an economically unstable country. But what do you guys think? Would you ever do something like this?

 

I have worked and lived in multiple countries before. Once, I got a job offer from a South American country which might resemble some of the elements you explained. The offer was ultimately not accepted, but when I went to visit the place I saw many advantages also. The people, the team, the culture, food, etc were all really nice and CoL was very low.

So the risk would be there in some areas, but there are also opportunities in others.

 

My friend moved to Bali, Indonesia and won a large contract to replace light fixtures all over the city. He rented a house for next to nothing and hired like 8 people to assemble these fixtures in his house downstairs. He was highly successful - I’m still amazed how he started it all from scratch. Bali is super cheap. He was really into surfing so it is paradise for him.

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee
 
meistrosmith

That's really cool, how did he win the contract? Did he have connections with the government from before?

He had only visited Indonesia as a tourist surfer before and found a way to bid on public sector contracts and just went for it and won the bid. He had no connections in the government and he was required to have a certain % of his workforce as Indonesian.

I visited him in Indonesia and his whole bottom floor was light fixtures, blueprints, and contract paperwork. He really is a self starter.

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee
 
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Isaiah_53_5 💎🙌💎🙌💎

Yeah I've heard of horror stories like this in Mexico.

Your saying "horror stories" ends up linking to a post on elite boutique banking hours and culture... Did you hyperlink that yourself? If not, too perfect!  

"The obedient always think of themselves as virtuous rather than cowardly" - Robert A. Wilson | "If you don't have any enemies in life you have never stood up for anything" - Winston Churchill | "It's a testament to the sheer belligerence of the profession that people would rather argue about the 'risk-adjusted returns' of using inferior tooth cleaning methods." - kellycriterion
 

In less developed countries, whoever has the bigger guns and more of them makes the rules!

"The obedient always think of themselves as virtuous rather than cowardly" - Robert A. Wilson | "If you don't have any enemies in life you have never stood up for anything" - Winston Churchill | "It's a testament to the sheer belligerence of the profession that people would rather argue about the 'risk-adjusted returns' of using inferior tooth cleaning methods." - kellycriterion
 

This is how the world works and has worked since the dawn of time. Those who have the power to destroy the enemy are those in power

 

+SB, definitely agree with this. 

I've been telling similar things to people for years. I remember when I spent some time in Colombia, you see the same sign over & over again. When you pass an empty building or an empty field, there is a big sign that says "No matter what anyone tells you, this land [building] is not for sale". They do that to prevent scams where land gets sold but it doesn't actually belong to the "seller". 

So what does that tell me? It says they don't have basic government infrastructure like a county registrar office that tracks real estate transactions (that's how the scam is prevented in most countries). There's no way to do something basic like a title search or things like that. How can you do business in a country like this? And I mean that in a general way, for the locals too. And now you want to come in as a foreigner and try to do business in a country like this? No thank you. 

 
anonguytoibd

You and a tons of other people and organizations have the same . Not saying that to dissuade you but want you to think through some other aspects of doing business abroad in with the profile you outlined. Outside of issues with risk and general instability, you'll have to think about political risk. More , how you will do business in spaces where breaking is how business is done. Bribing officials and working with unsavory characters could be a huge risk if you run afoul of the wrong person or if the US doesn't take a liking to your behavior. On that last part, if you are involved in anything illegal and it is significant enough, you could get in trouble with the US. Meaning that you could face jail or heavy fines in United States for doing criminal things that are normalized in the countries you are operating in. There are definitely ways to minimize political risk that international companies employ but I'm not an expert in that.
 

I'll leave with a warning of sorts. I can't be to specific as I don't want to dox myself but this happened to me 10 years ago in a country that America is very friendly with. A bought an investment property in this particular country. I was with him on vacation while he was just finalizing the buying process. Closing happened and within three days guys with guns showed up to the front door. They demanded that he leave his house keys and vacate the property as they claimed the property had been illegally sold and it belonged to them. We had a two hour standoff where my friend luckily was able to call some other crooks that he knew to make the ones at the front door back off. It was the scariest thing I've ever experienced and totally turned me off to investing overseas.

That screams LatAm or perhaps someplace like the Philippines (which is basically a LatAm country anyway that just happens to be located in Asia). 

 

Own a couple apartments in South America. CoC is insane. Only do it because I have close family ties in the country, and it helps them pay their bills. They collect the rent and deal with the day-to-day headaches. Obvious issues are lack of liquidity, currency risk, local/national government instability, paying personal accountant extra during tax season, etc...

 

Depends. Hard or soft assets? I'd happily invest in Indian equities (bearing in mind ~3% annual currency dep eating into my returns). Process can be a bit annoying in setting up & trading, but not overly byzantine.

However, hard assets? Parents had a nightmare of a time trying to sell some property in India, took multiple years. We have a few properties in very low risk, easy access areas but even then the process of doing anything with it is opaque (particularly if you can't read the language & know the ins and outs of who to bribe). It's just not worth the hassle for me. Will generally keep >90% of hard assets in developed markets (Singapore, U.S., Australia, etc). Soft assets can go more global though even then bear in mind there are likely risks you don't know about or don't properly appreciate -- what's happened in China in past 2yrs is a classic example 

 

You're probably talking about Turkey

My family has ~80% net worth tied up in "risky countries" and I have to say if you're not from the place or if you're not going in with a trusted associate you might as well give up now. You won't be able to do anything at any scale without knowing how the country works, having friends in places that can push things through, knowing who to pay, knowing what the culture is like etc.

Its just such a hard thing to do alone that you having "strong" dollars in the US won't help at all

 
Patrick Basedman

You're probably talking about Turkey

if you're not going in with a trusted associate you might as well give up now. You won't be able to do anything at any scale without knowing how the country works, having friends in places that can push things through, knowing who to pay, knowing what the culture is like etc.

Its just such a hard thing to do alone that you having "strong" dollars in the US won't help at all

This. At least in real estate, it literally takes someone who not only knows the rules and how to navigate the obvious scams, but also be able to trust someone to the point that they won't scam you for effectively multiples of their nation's average yearly salary. As an American, getting back briefed on the "routine" updates from my family running properties is mind blowing. I would be out 100% of my capital invested had I not used close family to do the dirty work. 

 
Most Helpful

I'd do it if as a result the government let me have carte blanche to do just about anything I wanted within reason within their borders. If you're investing in political risk, it's not about what that single investment can generate but the leverage it gives you within the country's government to do other things as well. Ideally the benefit you gain from making the investment outweighs the potential loss of capital. If you get both the political leverage and an actual ROI, then that's a home run in my opinion. 

"The obedient always think of themselves as virtuous rather than cowardly" - Robert A. Wilson | "If you don't have any enemies in life you have never stood up for anything" - Winston Churchill | "It's a testament to the sheer belligerence of the profession that people would rather argue about the 'risk-adjusted returns' of using inferior tooth cleaning methods." - kellycriterion
 

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