Populism coupled with a desire by the government to capitalise on high global commodity prices is fuelling nationalisation in resource rich countries
Myanmar, South Sudan and Turkmenistan are among the countries offering the least legal protection for foreign companies and investors, a new study said.
Maplecroft’s Rule of Law index, rated 197 on their judicial independence and efficiency and measures the extent to which regulations and policies are implemented in a transparent manner.
Multinational companies and investors should be aware of the ‘extreme risk’ they are exposed to in certain energy rich countries, the report noted.
Some particularly lucrative emerging markets were rated ‘extreme risk’. These include Myanmar (1), Turkmenistan (5), Angola (13) and Iraq (18). The conflict torn and oppressive regimes of North Korea (2), Somalia (3), Cuba (6), Cambodia (7), Afghanistan (8) and Syria (9) make up the top ten worst offenders.
The rule of law is also very fragile in newly formed states, such as South Sudan (4), or those that have recently experienced regime change, like Libya (10).
For companies looking to exploit opportunities in these markets, a legitimate and effective application of the law is essential. But significant improvements in the rule of law, including “increased judicial independence” and “greater transparency in the regulatory system”, will be required before the long term potential of these economies can be realised, said Maplecroft.
Rule of law: Ten of the worst
“Organisations investing in lucrative energy markets, such as Myanmar, Turkmenistan or Libya need to be extremely cautious,” said Associate Director at Maplecroft, Mandy Kirby. “The rule of law serves as a check on abuses of private and state power and is important in the oversight of business regulation, including contract enforcement and competition laws.”
Expropriation also remains a distinct risk in some of these markets, warned Maplecroft, especially in the extractive sector.
Populism coupled with a desire by the government to capitalise on high global commodity prices is fuelling nationalisation in resource rich countries.
The index also highlights developing economies whose rule of law has grown stronger, giving investors reason for trust in them. Particularly noteworthy are South Africa (157), Namibia (158), Chile (164) and Botswana (167), which are classified as ‘low risk’ in the Rule of Law Index.
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