Maplecroft research reveals increasing legal and regulatory risks in emerging markets
13 May 2010
The first ever product to analyse critical legal and regulatory risks affecting businesses worldwide has been launched 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 unique contribution from international legal practice Norton Rose LLP, 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 BRICs, and they pose significant risks to organisations with interests there. However, Maplecroft’s findings also point to weaknesses in the legal and regulatory environments of the BRIC countries themselves, particularly those of Russia (20), which is rated as extreme risk.
Maplecroft’s CEO Alyson Warhurst states: “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 BRIC nations of Brazil (70), India (59) and China (60) 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 which is a particular feature for the BRIC 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.
“A non-transparent regulatory environment, weakly enforced regulation and inconsistent protection of property or access to remedy can result in higher operational and reputational costs to business,” said Sam Eastwood, Head of Business Ethics and Anti-Corruption at international legal practice Norton Rose LLP. “Our experience with our clients suggested there was an intelligence gap surrounding the legal and regulatory environment. For global organisations with interests in high risk environments the Legal and Regulatory Environment Atlas is an important step in bridging this divide.”
The Legal and Regulatory Environment Index
Extreme risk countries
- North Korea
- DR Congo
- Central African Republic
For more information visit http://www.maplecroft.com/portfolio/legal_reg/home
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