Manufacturers may be looking more to Africa as a place to produce apparel, but a recent corruption index rated the Sub-Saharan region as posing the highest risk to businesses.
Verisk Maplecroft, a risk analysis and forecasting company, released its latest Corruption Risk Index (CRI) detailing which countries have the highest prevalence of corruption and the lowest efforts to combat it.
In surveying 198 nations and ranking them, Verisk found that of the 73 rated “extreme risk,” 33 of them, or 45 percent, were in Sub-Saharan Africa, a region that includes Ethiopia, Kenya, Lesotho, Madagascar, Mauritius—all places sourcing executives have been looking to for manufacturing.
According to analysts, the region’s rapidly growing population and natural resource wealth have contributed to increased investment opportunities, but the downside is that companies coming into the markets there are especially prone to bribery demands.
The 12 highest risk countries in the world according to the CRI 2015 (six of which are in Sub-Saharan Africa) are: Democratic Republic of the Congo, Somalia, Central African Republic, Sudan, Equatorial Guinea, South Sudan, North Korea, Iraq, Afghanistan, Libya, Russia and Myanmar.
Corruption reportedly adds 10 percent to business costs globally, according to World Bank estimates, and roughly $1 trillion gets paid in bribes each year.
“These risks are particularly prevalent in developing economies,” Trevor Slack, legal and regulatory analyst at Verisk Maplecroft, said. “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.”
The index also revealed that Asia’s two major economies did not rank favorably in terms of corruption. China (ranked 76th out of 198) poses a “high” risk to investors, according to the report, and India (ranked 70th) was rated “extreme risk.” Both rankings come despite Beijing’s clampdown on corruption and New Delhi’s establishment of a national anti-corruption ombudsman.
“The FBI’s probe into FIFA reflects a clear trend,” Slack said. “Since the downturn, anti-corruption enforcement actions have definitely become more aggressive, particularly by the U.S., and legislation has become tougher. Identifying geographical patterns in corruption and trends in the performance of countries should therefore be an imperative for business.”