Businesses face the highest risk of corruption in sub-Saharan Africa, which has six of its countries in the top 12 of the latest annual Global Corruption Ranking compiled by Verisk Maplecroft.
The region is represented in 45% of the 73 countries rated ‘extreme risk’ by the firm. The 12 countries that it judges to have the highest risk of corruption are the Democratic Republic of the Congo (DRC), North Korea, Somalia, the Central African Republic (CAR), Sudan, Afghanistan, Equatorial Guinea, Iraq, Libya, Myanmar, Russia and South Sudan.
Sub-Saharan Africa’s rapidly growing population and natural resource wealth have increased investment opportunities for business, the firm comments. The downside to this is that companies entering the region’s markets are especially prone to demands of bribery.
The World Bank has estimated that corruption adds 10% to business costs globally, with the equivalent of US$1 trillion paid in bribes annually.
“These risks are particularly prevalent in developing economies,” said Trevor Slack, legal and regulatory analyst at Verisk Maplecroft. “Factors such as weak rule of law and a lack of institutional capacity in these markets undermine efforts to combat entrenched systems of patronage, while exposure to corrupt public officials and a reliance on third party agents is also higher.”
Oil and gas companies face highest risks
Corruption is identified by Verisk Maplecroft as one of the greatest above ground risks for oil, gas and mining companies. Due to the geographic location of below-ground resources their exposure is higher to the developing markets than in other sectors.
The corruption risk index (CRI) identifies many of the world’s major energy producers as ‘extreme risk’ including: Iraq (6th), Russia (joint 10th), Venezuela (17th), Nigeria (20th) and Kazakhstan (47th).
Russia, among the world’s top three energy producers, has seen corruption worsen over the last year, falling from 24th in the 2014 ranking. The firm partly attributes this to the ongoing conflict in eastern Ukraine and a rising siege mentality, which has had negative implications for its already opaque business environment.
Even outside of the ‘extreme risk’ countries, the potential for exposure to corrupt practices remains a key challenge for the industry. Booming offshore oil production has meant Brazil (ranked 94th and ‘high risk’ in the CRI) has emerged as a major energy player. However, corruption is a major blight on the economy, particularly within the energy sector. This is reflected by the most recent high profile bribery scandal to afflict Brazil’s oil industry, which is possibly the largest in the country’s history.
Elsewhere, the CRI reveals that Asia’s two primary economies, China (ranked 76th) and India (70th), pose a ‘high’ and ‘extreme risk’ to investors respectively. This is despite Beijing’s clampdown on corruption and New Delhi’s establishment of a national anti-corruption ombudsman.
Forecasts for 2016-2020 place Africa as the second fastest growing region in the world (at a compound annual growth rate (CAGR) of 4.3%), just below Emerging Asia.
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