Resource rich countries make up over 50% of the “extreme risk” jurisdictions to invest
Investors, either focused on mining or not, will surely be surprised by the five countries global risk analysis firm Maplecroft has put at the top of its “good business environment” list, released Wednesday.
In its annual Legal and Regulatory Environment Risk Atlas, the UK-based company says that Senegal, Guatemala, Mozambique and Rwanda are among the countries with best trade performance over the last five years.
The big winner, by far, was Myanmar, according to Maplecroft. The country was singled out as the one where the business environment improved the most last year, thanks to key steps taken by the government. These included enhancing investor protection and implementing a new foreign investment law in March 2013, which provides much needed clarity around essential issues, such as foreign ownership limits and land leasing rules.
Myanmar’s continued commitment has resulted in a steady climb in the ranking from worst position at the bottom of the ranking in 2012, to 3rd in 2013 and 5th in 2014. Despite the modest shift in ranking, reforms have already resulted in significant improvements for business, and Maplecroft forecasts that if Myanmar sustains its current trajectory it may move out of the “extreme risk” category in less than three years.
Now the bad news
Resource rich countries, such as Congo (4th), Central African Republic (7th), South Sudan (8th), Venezuela (12th), Zimbabwe (14th), Iran (16th), Angola (19th), and Iraq (24th) made up over 50% of the “extreme risk” jurisdictions this year. Legal and regulatory risks impacting property rights are of particular concern in these nations. Despite softening commodity prices over the past year, societal unrest and poor economic conditions can act as risk multipliers when it comes to respecting private property rights.
Company assets, especially those in the mining and oil and gas sectors, can become subject to nationalization and expropriation, as it happened recently in Venezuela (2012) and Argentina (2013).
The report concludes the places to stay away from, at least for now, are Argentina, Bahrain, Bangladesh and Egypt, where the business environment has been curtailed by factors such as weak investor protection, increasing regulatory burdens and poor governance resulting from instability.
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