Legal and Regulatory Risks Rife in Emerging Markets and Mineral Rich Nations
Businesses and investors are facing major and potentially costly legal and regulatory risks in the most important emerging economies and mineral rich developing nations, according to new research released by global risks advisory firm, Maplecroft.
The Legal and Regulatory Environment Atlas 2010 has been developed by Maplecroft to enable organisations to identify and monitor a range of risks in 172 countries arising from a lack of respect for the rule of law, respect for property rights, insufficient access to remedy through legal systems, corruption, corporate governance, the regulatory framework and supply chain complicity risk.
The atlas also benefits from a contribution from international legal practice Norton Rose, who have assessed the implementation of 10 key international legal instruments to evaluate how well each country has adhered to legal conventions.
Featuring 20 of Maplecroft’s risk indices and interactive maps, the atlas rates the legal and regulatory environments of 20 countries as extreme risk, including the oil producing and mineral rich states of Myanmar (1), DR Congo (4), Turkmenistan (5), Central African Republic (11), Iraq (12), Angola (13), Bolivia (14), Venezuela (15) and Nigeria (18).
These states are in receipt from ever-increasing amounts of investment, including from the Brazil, Russia, India and China (BRICs), and they pose significant risks to organisations with interests there. However, Maplecroft’s findings also point to weaknesses in the legal and regulatory environment s of the BRICs countries themselves, particularly Russia’s (20), which is rated as extreme risk.
Maplecroft’s chief executive officer (CEO) Alyson Warhurst said: “The legal and regulatory frameworks in most emerging economies represent risks to be meticulously navigated if the benefits of new growth environments are to be realised. The atlas is a vital tool for businesses to achieve this.”
According to Maplecroft, risks within Russia and the other BRICs nations present considerable challenges to global companies, but by careful monitoring these risks are manageable, allowing business to be competitive in important growth environments. For example, the atlas identifies several prominent risk areas within Russia, including, judicial independence, corruption, ethical behaviour of firms, respect for property rights and supply chain complicity, whilst businesses operating or investing in India, China and Brazil can be exposed to risks of corruption and lack of rule of law.
These concerns are augmented by gaps in the implementation of key legal instruments, such as the Convention on the Settlement of Investment Disputes indicating that access to remedy for foreign investors could be more limited than in countries where such instruments are a respected part of the regulatory framework.
However, according to Maplecroft’s findings, it is the area of supply chain complicity risk that is a particular feature for the BRICs nations, where all have extreme risks for labour and human rights violations. “Global corporations know these risks exist, as they have supply chains that stretch into the BRICs, but they face several dilemmas in addressing these abuses, not least monitoring risk in lower tiers of supply chains or preventing a worsening of conditions for youth or migrant workers who have few alternatives. Addressing these risks responsibly is a major challenge,” added Warhurst.