30 09 14 Maplecroft -Corruption Risk Index 2014

According
to Maplecroft, the lack of progress on corruption is having a detrimental effect
on the economic performance and political environment of the BRICs countries, as
well as exposing foreign companies to high levels of risk of complicity when
conducting business with government officials and local partners. Public
disillusionment with government corruption is also a key factor in rising levels
of societal unrest in the BRICs, states the company.

The
Corruption Risk Index (CRI) evaluates 197 countries on the reported prevalence
and persistence of corruption in the public and private sectors, as well as the
efficiency of governments in tackling the issue. It has been developed to enable
companies to identify the countries where the risk of association with
corruption is highest.

The
World Economic Forum estimates that corruption adds up to 10% to the total cost
of doing business globally and up to 25% to the cost of procurement contracts in
developing countries. According to Maplecroft, these risks are highest in DR
Congo, Somalia, Myanmar, Sudan, Zimbabwe, Equatorial Guinea, Guinea, North
Korea, Cambodia and Venezuela, which feature as the 10 most corrupt countries in
the CRI.  

Corruption
Risk Index 2014

Rank	Country	Category
1	DR Congo	Extreme
2	Somalia	Extreme
3	Myanmar	Extreme
4	Sudan	Extreme
5	Zimbabwe	Extreme

Rank	Country	Category
6	Equatorial Guinea	Extreme
7	Guinea	Extreme
8	North Korea	Extreme
9	Cambodia	Extreme
10	Venezuela	Extreme

Legend
Extreme Risk
High Risk
Medium Risk
Low Risk
No data

Continued
exposure to corruption in the BRICs feeds investor concerns

Maplecroft’s
analysis finds that anti-corruption laws are in place in all the BRICs
economies, but implementation and enforcement remains consistently weak,
indicating a lack of political will to address the issue. As a result, there has
been no improvement in the rankings of the BRICs in the CRI for four years.
Russia (25^thfrom
bottom) and India (69^th)
remain categorised as ‘extreme risk,’ while Brazil’s ranking shows no progress
at 90^th and
is still in the ‘high risk’ category.

Despite
an ongoing anti-corruption campaign, championed by President Xi Jinping, China’s
position in the index has worsened over the last year, with the country dropping
from 88^th to
75^th within
the ‘high risk’ category. High profile scandals have dogged the country over
2013, culminating in a series of arrests of allegedly corrupt officials at the
state-owned China National Petroleum Corporation (CNPC) in early September. More
worrying for business is the ongoing scrutiny of the pharmaceutical sector,
which has seen western multinationals accused of paying bribes to doctors to
secure procurement contracts. These cases underscore the risks foreign firms
face when engaging with public bodies in growth markets.

With
a majority of global brands operating in the BRICs, the results of the CRI may
raise concerns for companies that they remain exposed to potential reputational
damage and legal repercussions under extraterritorial anti-corruption
legislation, such as the UK Bribery Act and the US Foreign Corrupt Practices
Act.

Societal
unrest in key markets may rise if public perceptions of corruption not
addressed

“Scandals
continue to arise in all of the key growth markets and corruption remains one of
the most prominent compliance risks that businesses face,” states Maplecroft
Senior Corruption Analyst Trevor Slack. “Where corruption is widespread, it also
impedes democracy, the rule of law, protection of human rights and economic
development.”

These
factors have seen corruption surface as a key driver in societal unrest in
emerging and developing economies. It was a major grievance of protesters in
Brazil in June, where widespread unrest brought many of the country’s commercial
centres to a near standstill, while demonstrations throughout China, Russia and
India over government corruption have become more frequent. Maplecroft believes
the risks posed by societal unrest may increase if government efforts to combat
corruption are not stepped up. In some countries Maplecroft is able to show that
such societal disquiet when met by repression by government security forces
could be a leading indicator of political risk, and therefore business
risk. 

Emerging
energy producers see greatest improvements

Oil
and gas rich economies are sometimes associated with what is referred to as the
‘resource curse,’ whereby widespread corruption and economic mismanagement of
natural resources hamper economic growth and development. However, some of the
greatest strides in the Corruption Risk Index have been made by several of the
world’s emerging hydrocarbon producers.

Mozambique
has witnessed the most improvement out of the 197 countries rated in the CRI
following the passage of the country’s new anti-corruption law in 2012 and
subsequent convictions. The country moved from 51^st and
‘extreme risk’ to 71^st and
‘high risk’ over the last year. Other notable good performers include Senegal
which rose from 34^th to
48^th in
the index, due to the devotion of greater resources to tackling corruption by
President Macky Sall; as well as Burkina Faso (54^th)
and Papua New Guinea (60^th)
which moved 14 and 18 places up the index respectively. Botswana (154^th)
remains the African economy with the strongest governance, a decisive factor in
the more equitable contribution of mineral wealth to development than has been
witnessed in other parts of the continent.

NB: Maplecroft’s
Corruption Risk Index is distinct from Transparency International’s Corruption
Perceptions Index in that it assesses reported levels of corruption, as opposed
to perceptions of corruption. Maplecroft’s assessment takes into account five
key factors relating to corruption: frequency; persistence; severity;
geographical and sectoral coverage; and the degree of impunity.

The
Corruption Risk Index is available to subscribers of Maplecroft’s Global Risks
Portfolio. Alternatively, it forms part of Maplecroft’s Political Risk Atlas
2014, which is released every December.