Global Ranking Identifies Corruption Hotspots for Energy Sector

According to new research released by Verisk Maplecroft, corruption constitutes one of the greatest above-ground risks facing oil and gas companies. But where is the risk highest? The Corruption Risk Index, produced by the company, scores and ranks 198 economies on the prevalence of bribery and the effectiveness of official efforts to combat it to reveal the best and worst performing countries. 

 With 45%, or 33, of the 73 countries rated ‘extreme risk’ in Verisk Maplecroft’s annual Corruption Risk Index (CRI), sub-Saharan Africa is identified as the region posing the highest risk to business. Its rapidly growing population and natural resource wealth have increased investment opportunities for business. The downside to this is that companies entering the region’s markets are especially prone to bribery demands.

According to the 2015 CRI, the 12 highest risk countries in the world include six from sub-Saharan Africa – DR Congo, Somalia, Central African Republic, Sudan, Equatorial Guinea and South Sudan – which feature alongside North Korea, Iraq, Afghanistan, Libya, Myanmar and Russia.

In the wake of the FIFA revelations, UK Prime Minister David Cameron has urged a renewed crackdown on the ‘cancer’ of corruption. He emphasised that corruption is not only a burden on business, but also affects security, undermines the fight against terrorism and hinders economic development. Illustrating this are World Bank estimations that corruption adds 10% to business costs globally, with the equivalent of US$1 trillion paid in bribes annually. 

“These risks are particularly prevalent in developing economies,” states Trevor Slack, legal and regulatory analyst at Verisk Maplecroft. “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.”

Oil and gas sector highly exposed

Due to the geographic location of below-ground resources oil and gas companies face higher levels of exposure to the developing markets than in other sectors. The CRI identifies many of the world’s major energy producers as ‘extreme risk’ including: Iraq, Russia, Venezuela, Angola, Nigeria, Iran, Kazakhstan and Mexico.

Russia, one of the world’s top three energy producers, has seen corruption worsen over the last year, falling from 24th in the 2014 ranking.  Verisk Maplecroft partly attributes this to the ongoing conflict in eastern Ukraine and a rising siege mentality, which has had negative implications for its already opaque business environment.

Even outside of the ‘extreme risk’ countries, the potential for exposure to corrupt practices remains a key challenge for the industry. Booming offshore oil production has meant Brazil (ranked 94th and ‘high risk’ in the CRI) has emerged as a major energy player. However, corruption is a major blight on the economy, particularly within the energy sector. This is reflected by the most recent high profile bribery scandal to afflict Brazil’s oil industry, which is possibly the largest in the country’s history.

Elsewhere, the CRI reveals that Asia’s two primary economies, China (ranked 76th) and India (70th), pose a ‘high’ and ‘extreme risk’ to investors respectively. This is 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,” continues Slack. “Since the downturn, anti-corruption enforcement actions have definitely become more aggressive, particularly by the US, and legislation has become tougher. Identifying geographical patterns in corruption and trends in the performance of countries should therefore be an imperative for business.”

Verisk Maplecroft, a Natural Gas Africa Partner