How to value a country


People often talk about selling off the family silver (meaning a country’s assets). It would probably be a first, though, to sell a country. Companies have their brands valued for a number of reasons, but in the back of their minds is always the possibility that they might one day sell them. Knowing the value of their brands helps that decision. But even the most avaricious of dictators would hesitate at flogging the country. After all by the time he needed to do so there would be no wealth left to give it value.

The IMC has decided to do just that. Not sell Brand SA. But have it valued. Don’t look for any sinister motive. The Council has simply decided to aid its marketing efforts by using a proudly South African brand valuation methodology. Few of the many brands that have been valued over the past few years using this approach have had sale of the brand as a goal. Most have used the technology because they have recognised its ability to establish a connection between marketing and the boardroom that has historically been absent.

A brand must generate profits for its owners. It does this by creating a loyal group of buyers who are sufficiently impressed with what the brand does for them that they buy it regularly, are willing to pay a premium price for it and talk about it to their friends and colleagues. The existence of this loyal group is akin to the annuity income that an insurance company earns from life policies. Unless something happens to turn them away, or if the brand owner does not innovate to ensure the brand keeps up with changing needs and fashions, it can anticipate a long term stream of earnings from this group of consumers.

This is the goal of the IMC. They are concerned with creating a growing group of loyal users for Brand SA. In this sense, “users” means foreign investors, trading partners and, of course, tourists. The more confident they feel about our brand the more willing they will be to deal with us, visit us and put money into projects here.

Brand valuation links the way people feel about the brand and the profit that results from their attachment. The stronger the relationship the more they will spend. The more they spend the greater the brand value. One of the ways in which the success of the Brand SA campaign will be measured will be by movement in the value of the brand over time.

Normally the valuation method draws on data from the brand owner’s financial statements. This is somewhat difficult with a country. But one measure is a powerful proxy for profit. This is the balance of trade, or the extent to which we earn more from what we export than the cost of our imports. For a number of years now this has been in positive territory. Admittedly trade balance does not cover all the measures of our relationships with the outside world, but it is a more than useful guide to the health of our brand is viewed as viewed by the outside world.

The valuation process is based on discounting a future stream of earnings to present value using a weighted average cost of capital as the discount rate. Risk is therefore accounted for in the premium added to the risk free rate in arriving at the cost of capital. What makes the valuation methodology unique is the way it integrates several variables to establish the number of years in the forecast. The most sensitive of these is the survey-based measure of user sentiment. The more favourably disposed our target users are to the brand, the more years there are in the forecast. Of course the opposite applies as well. Since an objective of the Brand SA campaign is to draw our foreign partners closer to us and to attract new ones as well, its success will be reflected in more years in the discounted cash flow model.

The end product of the valuation is a monetary value; what you could ask for the brand if you wished to sell it. In the case of the Brand SA valuation, this amount will be purely academic. The benefit lies in the model’s ability to highlight where the value lies and where shareholder value can be enhanced by smart marketing and management.

At the time of writing the process is under way but not yet complete. So if you want to know what South Africa’s reputation is worth, you’ll have to wait for the 2003 issue of Brands & Branding.