Country Governance is crucial for investors, as BP found recently, taking a $24bn charge in its accounts, after deciding to abandon its 19.75% stake in Rosneft, the Russian oil and gas giant.
Many other companies and investors have lost heavily in recent years by allowing short term profit to outweigh the risk of dealing with countries with poor Governance. It's all too easy to ignore warning signs and dismiss them as applying only to organisations that have somehow fallen foul of a particular regime. Just one example of a warning sign (largely ignored by investors in Russia over 15 years ago) is shown below as an appendix to this Thought.
To help investors to measure risk in relation to Governance, World Economics has devised a continuously revised global Index, to bring together crucial aspects of Governance that collectively measure just how good/bad countries are in relation to legality, media and political freedom, and corruption. The Index would (for example have shown BP that Russia was close to the very bottom of the global Governance league, and perhaps one of the last places in the world in which to invest shareholders capital.
The Global Governance Index gives Russia an E rating - the lowest of the five A-E ratings (
read more here). The warning signs are plentiful. There are many reasons why investors should avoid Russia, and over 30 other countries with very poor Governance (and even more with slightly less awful Governance). The
Governance full Index is shown here.
Grade E Governance Countries: where you don't want to live or invest
To avoid losing US$24bn, check this list carefully!
Note 1: Governance based on Rule of Law, Press Freedom, Political Rights and Corruption levels, 2023 data.
Sources: World Bank, RSF.org, Freedom House and Transparency International.
Note 2: Just one example of a horrific series of events that should have warned investors to avoid Russia.
One of the most graphic and widely reported reasons for avoiding investment in Russia (largely ignored by major companies already there) concerns an American, Bill Browder, who was once, through his company Hermitage Capital, the largest foreign portfolio investor in Russia. Despite the company's large and successful investments in Russian business, in 2007 the offices of Hermitage and those of its lawyers were raided by officers of Russia's interior ministry. In 2008 Sergei Magnitsky, a Russian lawyer working on behalf of Hermitage was arrested . He died a year later in prison having been refused medical attention, and seriously physically assaulted shortly before his death. Meanwhile, Hermitage was defrauded and its operations in Russia closed down. The whole episode became an international "cause célèbre", and eventually resulted in the passage in the US Congress of the Magnitsky Act . But BP and many others stayed on as investors...
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