Extractive industries face “extreme” asset risks

Companies with operations in the resource rich countries of Democratic Republic of Congo, Turkmenistan, Sudan, Venezuela and Angola face “extreme” asset expropriation risks.

This is according to Maplecroft’s Legal and Regulatory Environment Risk Atlas 2011, which places these five nations in the top 10 of a ranking of 172 countries.

The map rates 23 countries as “extreme risk”, with Myanmar (1), North Korea (2) and Somalia (3) topping the ranking.

However, it is the resource rich countries of DR Congo (4), Turkmenistan (5), Sudan (7), Venezuela (8), Angola (9), Bolivia (13) and Central African Republic (14) which hold most interest for the extractive sector.

All are rated as ‘extreme risk’ for both corruption and respect for property rights by Maplecroft.

The expropriation of corporate assets is acting as a deterrent to foreign investment from many industrialised economic powers.

Venezuela, which moved into the top 10 from 13th last year, is rated “extreme risk” in four of the six key areas – corruption, corporate governance, the regulatory framework and respect for property rights.

President Hugo Chavez continues to consolidate power in the country, notably through the expropriation of properties and businesses, which creates increased uncertainty and risk for investors, said Maplecroft.

Between October and December 2010, approximately 200 businesses were forcibly acquired by the government across a wide range of sectors, including oil, cement, telecommunications, steel, power and finance.

In response to falling foreign investment from the West, Chavez has turned to trade partnerships with alternative economies that are prepared to continue to do business with his regime, including Russia (20), Iran (18) and Libya (16).

These countries are also rated as “extreme risk” in the Legal and Regulatory Environment Risk Atlas 2011.

“If higher risk countries increasingly co-operate, it may suggest that they will continue to resist substantial reforms. This could have ramifications for business in the long-term as poor legal and regulatory environments may become entrenched,” warned Maplecroft.

Maplecroft CEO, Professor Alyson Warhurst said: “For business and societies to prosper they require well constructed regulation, transparency and effective implementation of laws. A lack of confidence in the legal and regulatory systems of countries can foster economic uncertainty and instability. This, in turn, can constrain the long-term investment climate and the ability of business to flourish and societies to develop.”