Gitanjali Patel

Gitanjali Patel 

Posted Friday May 9, 2014
 

BRICs vs MINTs: Doing Business, Growth and Openness

BRICs vs MINTs: Doing Business, Growth and Openness

Last week we launched the Arachnys Compass, a major index mapping compliance-related data availability across 215 markets worldwide in order to highlight gaps and evaluate existing information to investigators and investors.

Our research gave some interesting results which were often reflective of wider economic and political trends. EU membership or the prospect of accession, for example, has translated into Eastern Europe giving the best regional performance, topping Western Europe by a margin of 7 points. We also found that states which had received sustained and targeted governance-focussed development aid also did well in our Compass, with countries like Kyrgyzstan and Papua New Guinea excelling on corporate openness. But what of the big emerging economies; the BRICs, and Jim O’Neill’s latest grouping of emerging market powerhouses, the MINTs.

Rise of the MINTs

The MINTs have a few things in common: they share young, rapidly growing populations, similar economic trajectories and, with the exception of Nigeria, have strategic geographical locations. But what really brings the 4 countries together is their unrealised potential. Mexico’s largest oil field can produce the equivalent of 10% of the oil produced by Saudi Arabia; Indonesia has the fastest urbanising society in the world; Nigeria, according to Citigroup, will top the world’s GDP growth rates between 2010-2050; and Turkey’s plans to position itself at the centre of the global economy are coming to fruition with the construction of the largest airport ever built.

Mapping scores

Economic progress is opening up more data

Investors are capitalising on this potential (A.T. Kearney’s 2013 FDI Confidence Index ranks 6 of these 8 countries in the top 25 places to where global investment dollars are most likely to be headed), and when examining the open data available in these 8 countries we found a correlation between economic growth and corporate data openness. The BRICs outperform the MINTs by approximately ten points across this Compass metric.

This is arguably indicative of earlier surges of growth and investment, which in turn contribute to creating a more robust corporate structure and spark reforms to increase transparency. The Brazilian government, for example, has passed various laws to improve transparency and combat corporate corruption, the most recent being the Access to Information Law which promises to better public access to information and create greater accountability for corporate fraud. The government program ‘Brasil Transparente’ (Transparent Brazil) has also been set up in order to support municipal governments in implementing these laws.

Contextualising Compass within the business landscape

So the picture for open data in these markets seems to be getting brighter, which will in turn make it easier to conduct business as more information becomes available to perform accurate due diligence. However open data cannot stand alone as a single indicator of business risk. We therefore evaluated 2 further indices in order to help contextualise our results.

When trying to understand a new market, the need to assess these indices in parallel with each other becomes evident through the lack of consistency in their results i.e. one measurement is not indicative of another. We drew 2 conclusions from this:

  • The ease of doing business does not necessarily equate to the increased availability of business information
  • Corruption and progress in opening up data are not interdependent.

Table comparison

Arachnys Compass and World Bank Doing Business

According to the World Bank, Brazil is the one of the hardest of the group to do business (score: 53) which is interesting considering the Arachnys open data score shows exactly the opposite trend where Brazil achieves a respectable score of 67.

As discussed in our report, this disparity can be attributed to factors such as bureaucracy which hinders operations and therefore makes business less efficient. Countries with strong red tape such as India will therefore receive a relatively low World Bank score (53) yet this does not directly correspond to the country’s transparency in online information: India scores the best out of the 8 countries for its open data.

Arachnys Compass and Corruption

We noted that all 8 countries score in the same quartile for corruption perceptions (25-50) yet have mixed scores for open data. This is best illustrated in Russia, where high level businessmen have been put in the hotseat with the Ukraine crisis with their offshore assets at risk of being frozen, however the country has arguably the most comprehensive centralised online information repositories of all the BRICs and MINTs.

So while countries such as China and Russia continue to founder when it comes to indexes such as Transparency International’s Corruption Perceptions Index, we would argue that on a practical level - for the businessman looking to expand his supply chain in Sichuan province or a businesswoman looking to assess the suitability of a distribution partner in Vladivostok - there is actually clear progress being made on the data available to help make these kind of decisions.

Nigeria: the outlier

With the BRICs and the MINTs however, there seems to be one exception to this rule: Nigeria, a country where corruption remains endemic. Information from the country is largely shrouded in secrecy and the US Department of Justice has prosecuted more companies under the FCPA for bribery in Nigeria than any other country. Yet investment flows have not stopped and its average World Bank score of 47 shows that it is getting easier to set up shop.

Conclusion

Even though growth is slowing in the BRIC countries, the MINTs are continuing to enjoy relatively speedy growth and investment. However rapid economic growth does not exempt these countries from domestic challenges whether it is corruption in Nigeria, political instability in Turkey, or crime in Mexico.

Different indicators of business risk should therefore be used in conjunction in order to accurately assess business risk in a country. On the open data front, we would argue that as domestic challenges are addressed then more openness should also follow. Something we believe is a must for their long-term success.

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