Home Comments Thoughts from a Renaissance man: Corruption, business reforms and the law

Thoughts from a Renaissance man: Corruption, business reforms and the law


By Charles Robertson

THUR, MARCH 29 2018-theG&BJournal-Why has Bahrain shown the worst deterioration in the latest Corruption Perceptions Index (CPI), dropping from 70th place globally to 103rd? What went so wrong with Nigeria’s anti-corruption campaign that it fell from 136th in the world to 148th, as its score fell from 28/100 to 27 when we thought it could rise above 30? And has Kenya really been so successful in fighting corruption, such that its score and rank both rose in an election year? One answer (on Nigeria at least) is that our expectations were wrong, but obviously we want to disregard that absurd possibility. Luckily, we found a good reason to avoid self-criticism.

A number of oil exporters could see dramatic rank changes in the coming years

It turns out that the CPI includes an ‘error range’ that reflects what can be very large variations in responses to the CPI survey. That error range narrowed dramatically in Bahrain this year, so some respondents offered virtually no change in Bahrain’s score, while others changed their view (or stopped responding). We cannot be certain that corruption worsened at all. The error range means that Kenya may have worsened in 2017 and Nigeria may have risen to 130th place. Egypt might be ranked as highly as Mauritius, instead of being just above the worst EM performers Russia and Mexico. We find a number of countries that might in the future see a dramatic change in rank if there is a narrowing of the error range (UAE, Czechia and Egypt in EM, as well as Saudi Arabia, Oman, Azerbaijan, Zimbabwe and Belarus).

Despite this discovery, we find the CPI useful, and think that marked improvements in Argentina, Morocco and Greece are helpful in attracting investor attention, while falls in Hungary and Poland or a poor score in Turkey, Russia, Mexico and Egypt are challenges governments would do well to try and address.

We examine the winners and losers in recent surveys

We also look again at the World Justice Project (WJP), which we find is strongly correlated to the CPI survey, and the World Bank’s Ease of Doing Business (EODB) survey. While we recognise the EODB can be ‘gamed’, we think countries such as India, Thailand, Kenya and Nigeria, which showed dramatic improvement over the past year, are at least trying to tell investors they care about the business environment. We think Ghana and Egypt will join these reformers in 2018/2019. Lastly, we update our Renaissance Capital legal scores.

Turkey and Egypt have a lot of work to do; Nigeria, Morocco, Argentina, Kazakhstan are improving

Our theory that FDI should be attracted to North Africa and Turkey in the 2020s is supported in Morocco’s scores and Tunisia to some extent, but is threatened by low scores in Turkey and Egypt. Reforms are required to improve their attractiveness. Within CE3, the Czech Republic is becoming differentiated vs Poland and Hungary. Argentina and Kazakhstan are showing more improvement than Vietnam among Frontier darlings. In SSA, we see progress in Nigeria and Kenya, and some positive surprises in Senegal and the Ivory Coast. We expect Ghana to improve in 2018. SA should stop deteriorating. But we find again that investors do not necessarily pay up much for low corruption, a good EODB score, and an effective legal system. A large local pension fund industry can have more effect on valuations than improvements in corruption or the business environment.

If you have any questions or comments regarding this report, please contact Charles Robertson or Vikram Lopez.

Charles Robertson. |CRobertson@rencap.com