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New in-depth reports and monitors analyse country risks in China, India and Guinea, elections in Tunisia and Kyrgyzstan and corruption in Ethiopia and Ukraine

26/10/2011

China

Maplecroft's in-depth Country Risk Report on China offers high-level analysis and illustrative subnational maps of the governance framework, the regulatory and business environment, political violence, human rights, and the environment, as well as an economic overview.

China has a fairly established legal system, but the rule of law is undermined by political influence over the judiciary and corruption. There are poor safeguards for lawyers or human rights defenders to pursue cases without being intimidated or harassed, and the CCP regularly intervenes in cases. The bribing of judges or the judiciary to fix the outcome of trials is also a risk. Furthermore, a lack of qualified lawyers and a shortage of resources in the legal system reduce the effectiveness of the judiciary. Businesses operating in China cannot assume that they will be treated fairly by the legal system, which has a built-in presumption of guilt. Enforcing contracts can be difficult due to corruption amongst judges and juries.

In recent years, Chinese authorities have made progress in adopting and reforming key pieces of business-relevant legislation and enhancing the transparency and consultative nature of the legislation-making process. However, foreign investors in China should be aware of the risks posed by the country’s regulatory and business environment. For instance, in the area of public procurement, potential bidders may be excluded from the process because of a lack of information. Limited transparency also gives local authorities significant power to pursue enforcement at their discretion, which would mean some businesses are arbitrarily discriminated against.

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Dominican Republic

The Labour Standards Report on the Dominican Republic offers in-depth analysis; maps and country scores for all major labour issues; as well as case studies, key recent events and stakeholder viewpoints.

Allegations of labour rights violations in the Dominican Republic are frequent, posing risks of perceived complicity to investors or companies sourcing from the country. Workers in agriculture, manufacturing and within the country’s free trade zones are particularly vulnerable to abuse, largely because of the government’s inability to consistently enforce labour rights in these sectors. Despite legal protections, non-governmental organisations routinely report that violations of trade union rights are systemic, with employers often dismissing or intimidating workers for engaging in union activities without legal sanctions.

Over recent years international supervisory bodies of the International Labour Organization and the United Nations human rights system have called on the government to step up the protection of labour rights in order to meet international minimum standards. However, structural challenges - such as the country’s large informal economy (where about half of the workforce is employed) - as well as weak institutional capacity of the labour inspection system continue to undermine the effective guarantee of labour standards. Accordingly, companies with production or supply networks extending to the Dominican Republic need to act with due diligence and engage their contractors in a constructive dialogue to ensure they are not implicated in - or associated with – violations of fundamental rights at work.

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Ethiopia

The Corruption Risk Briefing on Ethiopia analyses the extent to which corruption is a common feature of the country’s political economy and the risk that it might compromise a company’s ability to comply with new legislation at home.

Cumbersome and non-transparent bureaucratic processes continue to place a burden on foreign businesses in Ethiopia and encourage corrupt practices as a means of facilitating their business activities. A largely unregulated private sector means that protection offered to investors is minimal.

Although the system has improved, with the setting up of the Ethiopian Investment Agency, which provides foreign businesses with easier access to information and services, companies investing in Ethiopia remain at risk of business practices which do not meet international standards. High risk sectors include: construction, land administration and government procurement.

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Guinea

Maplecroft's in-depth Country Risk Report on Guinea offers high-level analysis and illustrative subnational maps of the governance framework, the regulatory and business environment, political violence, human rights, and the environment, as well as an economic overview.

The divisive elections between June and November 2010 have increased ethnic and societal tensions across Guinea. As political divisions have largely followed ethnic lines, competing interests between the Peuhl and Malinké ethnic groups resulted in violence during 2010. This has resurfaced in 2011 and is expected to intensify in the run-up to legislative elections scheduled for December 2011. As tensions mount, foreign personnel are at risk of being caught in clashes between protesters and security forces, or between supporters of rival factions. Business should closely monitor the current and upcoming political developments in Guinea as political tensions can exacerbate underlying ethnic tensions, resulting in heightened operational risks.

Policy instability related to Guinea’s current ‘rainbow coalition’ (alliance arc-en-ciél) also affects the country’s regulatory environment. A new mining code, formally adopted by parliament on 9 September 2011, has fundamentally changed Guinea’s mining regulations and injected significant uncertainty into mining sector investments. Re-negotiation of existing mining contracts is underway and will affect all existing mining permits. Investors should expect members of the coalition to have prior interests with certain mining companies or other sectorial players that could complicate future reform processes in the sector. Although the new mining code aims to ensure greater transparency and will provide much needed fiscal relief, the current state institutions are unlikely to effectively absorb the influx of revenues which may lead to elevated corruption risks.

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Kyrgyzstan

The Election Monitor Kyrgyzstan is delivered in two parts. It offers analysis and forecasts in the run-up to the election, plus results, an assessment of the election and analysis of the implications to industry sectors and investors.

It appears unlikely that either of the main presidential candidates Almazbek Atambayev or Kamchybek Tashiyev will gain a majority of the votes in the first round of the 30 October 2011 election. Both front runners have limited support beyond their traditional strongholds and face challenges by numerous other candidates who will succeed in diminishing their share of the vote. Maplecroft views a second round victory by Almazbek Atambayev as the most likely scenario. Atambayev has garnered the support of the country’s sizable southern-based Uzbek minority who are fearful of Tashiev’s nationalist platform. The prime minister has also utilized his position to build broader political support, particularly in the south- through distributing administrative and financial resources to the region.

Post-election violence remains a significant risk. The sectarian divisions that ignited April-June 2010 country wide violence have not been adequately addressed by the interim government. High inflation and persistent poverty have also heightened protest feelings throughout the country. Although voter fears of electoral corruption have been partially mitigated by the strong presence of international NGO’s who will monitor the election, accusations of voter fraud could ignite a wave of protest and violence throughout the country. The risk has been aggravated by pitting candidates from the more industrial north of the country against nationalists from the impoverished south. This could further exacerbate the political and cultural divide within the country.

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India

Maplecroft's in-depth Country Risk Report on India offers high-level analysis and illustrative subnational maps of the governance framework, the regulatory and business environment, political violence, human rights, and the environment, as well as an economic overview.

Under law, the Indian court system is impartial and well regulated. However, the system is severely affected by corruption, with bribes the commonly accepted way of ensuring a case’s progress through the underfunded and overburdened courts. Businesses working in India can expect to face a long, slow process in any legal case, with the enforcement of contracts taking an average of 1420 days, much longer than the regional average of 1075 days. Pervasive judicial corruption and lack of resources means that a fair resolution of cases cannot be guaranteed. The increasing trend of judicial activism means that judges often see themselves as ‘social engineers’ rather than impartial arbiters of the law, with major consequences for foreign investors.

In recent months, Prime Minister Singh’s government has been plagued by a series of corruption scandals that have brought the legislative process to a halt, impeding progress on reforms such as the Goods and Services Tax. The INC’s loss in several state elections in 2011 can be directly attributed to a protest vote against official corruption. Corruption has been recognised by the government as a risk to investor confidence and to long-term economic growth. The political influence of major Indian industrial families and associated cronyism can hinder the equal treatment for foreign businesses. Corruption is one of the major reasons why FDI into India has been in decline since 2009.

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Tunisia

The Election Monitor Tunisia is delivered in two parts. It offers analysis and forecasts in the run-up to the election, plus the results, an assessment of the election and analysis of the implications to industry sectors and investors.

As expected, the moderate Islamist al-Nahda (The Renaissance) party emerged as the victor in Tunisia’s constituent Assembly elections. With 121 out of 217 seats assigned, the party currently holds 42% of the seats in the assembly. This will give the party considerable influence to shape the country’s political future by dominating the assembly tasked with drafting a new constitution. However, without an outright majority al-Nahda will have to form a coalition to govern the transition. As the Progressive Democratic Party (PDP) presented itself as the main alternative to al-Nahda, its share of less than 5% of the seats in the assembly as half of the seats have been assigned constitutes a surprise. Foreign businesses and investors are likely to be concerned about the PDP’s poor performance as it is widely perceived as the most market liberal and business friendly party in the election.

Although the election passed without electoral violence and major protests, there is a risk that accusations of irregularities could lead to protests and unrest. Although the EU announced on 25 October that only ‘minor irregularities’ had taken place, the Tunisian electoral commission (ISIE) stated on 26 October that the Popular Petition for Freedom, Justice and Development Party (Arida Shaabia) could have some of its seats nullified after allegations of violations of the financing rules of the electoral campaign.

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Ukraine

The Corruption Risk Briefing on Ukraine analyses the extent to which corruption is a common feature of the country’s political economy and the risk that it might compromise a company’s ability to comply with new legislation at home.

Corruption remains a significant obstacle to investment in Ukraine, because it creates considerable risks and burdens on business. President Viktor Yanukovych has so far failed to reduce levels of corruption which continues to pervade all spheres of economic activity. In Ukraine corruption is prevalent on a petty, grand and state capture level and the potential for investors to be implicated in corrupt practices remains a concern due to the associated legal and reputational risks.

Companies should exercise caution when engaged in public procurement and contracting processes, as the risk of complicity in corrupt activity is significant. Given the lack of transparency and opportunities to engage in corrupt acts, the extractives and the agribusiness sectors are noted as examples of high risk sectors. Companies should ensure they implement and strengthen integrity systems and conduct due diligence when venturing into operations in these industries.

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