Red Tape and Corruption Make Business Most Difficult in Mineral-rich Countries
Resource rich countries, including DR Congo, Turkmenistan, Angola, Libya, Venezuela and Iraq, are the most challenging business environments for energy and mining companies to operate in, due to systemic corruption, inconsistent laws and unreliable regulatory structures. The results of the third annual Legal and Regulatory Environment Risk Atlas (LREA), released by risk analysis company Maplecroft, reveal that oil, gas and mining companies investing in these countries face ‘extreme’ levels of risk stemming from corruption, corporate governance, regulatory frameworks, respect for property rights, rule of law, and supply chain complicity risk.
According to Maplecroft, the stability and effective implementation of a country’s legal and regulatory environment can have serious implications for investment and business operations.
“For the legal and regulatory environment to be conducive to investment it requires well-constructed regulation, transparency and effective implementation,” said Maplecroft chief executive officer (CEO) Alyson Warhurst. “Protection for investors can be weak where there is a lack of legal and regulatory control, while uncertain, overburdening and ineffectual legal and regulatory oversight can make it more difficult to carry out business.”
The LREA includes 21 risk indices, which have been developed to enable organisations to identify and monitor legal and regulatory risks in 173 countries. Maplecroft states that natural resource investors should note that mineral and hydrocarbon-rich markets occupy a disproportionate number of the worst performing countries.
The Atlas rates the legal and regulatory environment of 23 countries as ‘extreme risk,’ including the resource rich countries of Myanmar (1), DR Congo (4), Turkmenistan (5), South Sudan (6), Eritrea (7), Angola (9), Libya (11), Venezuela (12), Zimbabwe (13), Uzbekistan (17) and Iraq (18) and Equatorial Guinea (22). With the exception of Iraq, these countries are also categorised by Maplecroft as ‘extreme risk’ for corruption and in the Respect for Property Rights Index 2012, reflecting the considerable risk of expropriation and resource nationalism for investors.