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business newsJust Who's Doing Business in the World's Most Corrupt Nation?
By
Matthew Mallon
Dec 07, 2011 2:15 pm
In this year's transparency survey, Somalia tied with North Korea as the world's most dishonest place to do business -- so who's taking the chance anyway?
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The results, based on a series of in-depth surveys of country analysts and business people living in and outside of the countries listed, offer small movements up and down the scale, but no real surprises. This year’s least corrupt nation is New Zealand, with a score of 9.5 (Hobbits and sheep have always been trustworthy), while failed state Somalia and rogue state North Korea tied for last place with a rating of 1.0. The US ranked 24th with a score of 7.1, lagging behind goody-two-shoes to the north -- Canada, 8.7 -- and the south -- Chile, 7.2.
Hooray for those clean-as-a-whistle nations at the top of the list. Wonderful places to live, work, and play. But the thing about honesty is that it’s boring. What’s intriguing about the results of the index is wondering who is actually doing business in the most corrupt nations of the world, and how?
Take bottom-rung Somalia, for example. Conventional wisdom sees the fractured, traumatized country, which has been in an extended state of collapse since the early 1990s, as a kind of Libertarian nightmare run by murderous warlords and ringed by a flotilla of flamboyant pirates. The reality is more complex, and much more fascinating.
While the almost complete lack of any kind of contract law, company law, concept of limited liability, or other key elements of corporate governance necessarily limit corporate involvement on a very basic level, there are structures in place. There is even some measure of stability in the region’s two unrecognized breakaway states – Somaliland and Puntland – in the north, where the oil is.
A Djibouti-based subsidiary of French bank BNP Paribas has attempted to launch commercial bank operations in Hargesia, the self-proclaimed capital of Somaliland, providing a rare example of institutional banking in an economy that has been functionally bank-free since 1991. In place of a banking system, the clan- and lineage-based Hawaalad money transfer system funds a surprisingly robust economy in large part due to expatriate remittances, shifting anywhere between $500 million and $2 billion a year (all economic stats relating to Somalia are highly variable and equally suspect) in and out of the country.
Most international involvement is still a question of many degrees of separation, with subsidiaries of subsidiaries joining up with Somali expat funding sources. But internationals are there. In Benjamin Powell and Ryan Ford’s Somalia After State Collapse: Chaos or Improvement, a 2006 working paper for the Independent Institute, the authors note:
Perhaps somewhat surprisingly for a poor, stateless, African country, Somalia has attracted a number of major corporations. Italian agribusiness companies and US-based Dole Fruit Inc. (DOLE) have invested in the agricultural sector since the state’s collapse. One of Somalia’s media companies has affiliated with the British Broadcasting Corp. The courier DHL serves Somalia. A British Airways affiliate flies to Somalia. General Motors (GM) also does business there. In 2004, Coca-Cola (KO) opened a soft drink plant in Mogadishu that will employ 120 Somalis and have a productive capacity of 36,000 bottles per hour. Many companies avoid doing business in a number of Africa’s nation states, so the fact that these international companies are willing to do business in Somalia is a strong indication that it has been successful in providing a minimum security of property rights and economic freedom.
And there’s much that remains untapped. A 2008 report from the Economist Intelligencer has this to say on the country’s as yet unexploited natural and mineral resources:
There has been little exploration of Somalia’s mineral resources. Most of Somalia’s proven oil and gas reserves lie to the north, and although various agreements have been signed in the past regarding exploration and drilling, companies must deal with governments that are unrecognized internationally, a risk only some smaller firms have been willing to take. A South African company, Ophir Energy, has an agreement covering four oil concessions in Somaliland, and in Puntland an Australian firm, Range Resources (RRC), began exploration for petroleum and minerals in February 2006. Range Resources took on a partner, Canadian-based Canmex Minerals (AOI.V) in October 2006.
The state-owned China National Offshore Oil Corp. was reported to have reached agreement with Transitional Federal Government officials in Nairobi in late June 2007 for exploration rights in the north Mudug region, according to London-based daily newspaper, the Financial Times. Few other details of the CNOOC survey program are available, but the success or otherwise of the Chinese venture in the region, which is claimed by Puntland, will depend on an appropriate agreement also being reached with the regional government of Puntland. It is highly unlikely that the venture will come to fruition, as insecurity in the country is fairly high and such an operation would be a magnet for forces opposed to the TFG. In addition, the legality of any agreements signed by the interim government could be called into question, as several factions within the country are unlikely to consider such deals to be part of the TFG’s mandate.
The state-owned China National Offshore Oil Corp. was reported to have reached agreement with Transitional Federal Government officials in Nairobi in late June 2007 for exploration rights in the north Mudug region, according to London-based daily newspaper, the Financial Times. Few other details of the CNOOC survey program are available, but the success or otherwise of the Chinese venture in the region, which is claimed by Puntland, will depend on an appropriate agreement also being reached with the regional government of Puntland. It is highly unlikely that the venture will come to fruition, as insecurity in the country is fairly high and such an operation would be a magnet for forces opposed to the TFG. In addition, the legality of any agreements signed by the interim government could be called into question, as several factions within the country are unlikely to consider such deals to be part of the TFG’s mandate.
There are also commercially exploitable deposits of gold, silver, tungsten, manganese, titanium, chromium, and nickel close to Mogadishu. But most analysts laugh at the notion that anyone will be developing oil or gold operations in the country any time soon. Such on-the-ground operations would be far too vulnerable.
Still, if your company has a combination of several key ingredients -- balls of steel, Somali in-laws, and a love of the smell of napalm in the morning -- Somalia might just be the place for you to do business. The beaches are prettier than North Korea, we hear, and the telecommunications system is one of the most technologically advanced and competitive on the African continent.
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