Global Investing

Corruption and business potential sometimes go together

By Reuters Staff
December 7, 2012

By Alice Baghdjian

Uzbekistan, Bangladesh and Vietnam found themselves cheered and chided this week.

The Corruption Perceptions Index, compiled by Berlin-based watchdog Transparency International, measured the perceived levels of public sector corruption in 176 countries and all three found their way into the bottom half of the study.

Uzbekistan shared 170th place with Turkmenistan (a higher ranking denotes higher perceived corruption levels) . Vietnam was ranked 123th, tied with countries like Sierra Leone and Belarus, while Bangladesh was 144th.

Those findings are unlikely to surprise. But consider this. All three countries are said to boast some of the best prospects for business and growth over the next two decades. That’s according to the findings of a separate study released in the same week.

Uzbekistan, Vietnam and Bangladesh made it into the top 20 countries with the best growth prospects for business, outranking the United States, a study by political risk consultancy Maplecroft found.

The study evaluated the growth performance, environment and potential of 175 countries based on a range of indices, including some tracking demographics, openness to trade and capital flows, as well as macroeconomic stability.

Maplecroft does take into account the issue of corruption in its study, and describes it as a risk to the growth potential of each of the countries:

Poor legal and regulatory environments continue to undermine growth potential in… Central Asian economies such as Uzbekistan.

Corruption in Vietnam will be a very high risk, given the entrenched business networks of that enjoy patronage of the Communist Party of Vietnam.

Bangladesh is characterised by a highly corrupt government, control of which alternates between two dynastic parties. This has left the economic development of the country reliant on foreign and multilateral aid.

Nevertheless, it ranks Vietnam just below China, India and Indonesia in the top group in terms of business prospects. Bangladesh rounded off the top five, shunting BRIC economy Brazil into 6th place. (Brazil ranks 69th in the Transparency International study, far higher than Uzbekistan or Bangladesh). Uzbekistan, where Soviet-era leader Islam Karimov rules with an iron fist, takes 20th place in Maplecroft’s growth prospects study.

The reasons for this lie in the countries’ strong performances in the growth and demographic indicators of the study, Maplecroft says, making up for their poor showing on corruption.  According to Said Hirsh, Associate Director at Maplecroft:

This is largely due to their strong historic GDP growth rates, at over 7% a year since 2005, and the IMF expects the three countries to maintain a similar pace of growth in the medium term – especially in the case of Vietnam and Bangladesh.

The future demographic trends and their impact on the size of the countries’ middle classes and workforces also helped their overall ranking in the study, Hirsh says.  For instance, Bangladesh’s working age population should grow by two percent each year over the next few decades, Hirsh notes, while its middle class may expand by 20 percent per year in the next 10 years – more than double the global average.

Corruption and good growth prospects may seem uneasy bedfellows, but the findings of the two studies do hint that dodgy dealing might sometimes be a symptom of  a fast-moving, unshackled economy. Transparency International’s corruption study ranks China and India 80th and 94th respectively but these have also been the the world’s fastest growing economies, and its worth recalling that Maplecroft ranks them 1st and 2nd in terms of business growth potential.

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