Governance Analysis

Hard riskThe Governance hard-risk score is made up of the World Bank's Ease of Doing Business Index and MineHutte's Corruption Risk Index. Only Greenland wasn't covered by the Ease of Doing Business Index; and where Corruption Risk Index numbers weren't available, we have used Transparency International's Corruption Perceptions Index, which were applied across seven jurisdictions.North America is the best place in the world in terms of the ease of business, with both the US and Canada leading the way among major regions with scores of 96 and 88, respectively. The Ease of Doing Business Index does not break down its ratings to a sub-national level so there is no range for either region.Hot on the heels of Canada was Australia/Oceania, which averaged 87. Once again, the range was, in theory, limited given seven Australian states or territories are within the nine jurisdictions for the region. However, the presence of New Zealand with a perfect score of 100 and PNG, which scored 37, produced a variance of 63.Europe (inc. Russia) was the last major region to average above 80, with a score of 81. Leading the region was the UK on 96 closely followed by Sweden on 95, while Finland (93), Ireland (91), Germany (91) all scored over 90. Serbia was making life most difficult for business among our European sample though still scored a respectable 75 for a range of 21.From here, life starts to become much more difficult. Asia was fifth on the ease of doing business hierarchy, though was 22 points adrift of Europe with a regional average of 59. It was no surprise to see Japan on top of this regional grouping with a score of 82, though few would have expected to see Kazakhstan right alongside. This is testament to the steps government has taken to open up the business environment for foreign investors across industries. Well off the pace was Laos, with a score of 27 for a broad regional range of 55.Further back again was South America with a regional average of 50. Peru and Colombia led the grouping with a solid yet uninspiring 72, while Chile also scored a respectable 70. The remaining jurisdictions weighed heavily on the average with no other scores above 40. The lowest score was Bolivia on 22.By far the poorest for business as a region was Africa, averaging just 28. The region is home to several of the lowest-placed jurisdictions on the Ease of Doing Business Index, including second-last-placed Eritrea, which subsequently scored just one. The DRC (three), the Republic of Congo (seven) and Liberia (eight) all scored less than 10. Morocco (64), Botswana (63) and South Africa (61) were the only three jurisdictions to register a score of more than 60. The regional range was 63.The two minor regions, Central America/Caribbean and the Middle East were middle of the road with averages of 60 and 58, respectively. Mexico was the standout of these four jurisdictions with a score of 75.Transparency (or corruption) followed a similar pattern at the very top of the hierarchy, as North America once again dominated, with the US and Canada tied on 93.California and Idaho were the only jurisdictions to drop below 90 in the US and they were only just out of touch (89). Alaska and Nevada both scored 95, which was also the Federal US score adopted for Illinois, New York and Ohio. The range was therefore a tight six.The range for Canada was greater at 15. This was partly because of a slightly higher top-end score of 97 for British Columbia but really came down to the use of the Corruption Perceptions Index for Manitoba and Nova Scotia, which at 82 for both weighed heavily.Again just off the pace was Australia/Oceania on 89, though if PNG (66) was removed the average for Australia and New Zealand was 92. The most transparent jurisdiction in the region was Western Australia with a score of 95, though all but New South Wales, Tasmania and, of course, PNG, scored more than 90. The regional range was 29, or seven without PNG.South America was far stronger in its transparency than it was in its general ease of business, scoring an average of 78 for the region. Chile was particularly strong with a score of 91, while Argentina (86), Peru (86) and Colombia (83) all scored more than 80. Ecuador was the least transparent in the region though still netted a decent score of 62.Most jurisdictions within Europe would be disappointed with a regional average of 75, though the culprits are easily identifiable. Italy, not known for its transparency, scored a poor 47, which was also a Corruption Perceptions Index number, while Russia registered a dismal score of 15. Without these two outliers, Europe's average transparency rating is 84.Sweden is the most transparent with a score of 96, though Finland (94), Greenland (94), the UK (93), Ireland (92) and Germany (90) all scored 90 or more. The regional range is 81, or 34 without Russia and Italy.Though some way back, Africa climbed off the bottom of the rankings with an average score of 56. Serial outperformer Botswana dragged up the average with a score of 85, while Zambia (84), South Africa (81), Tanzania (81), Burkina Faso (73), Ghana (72) and Nigeria (72) all scored more than 70. Of the lower-scoring jurisdictions, Guinea (21) and Gabon (16) were particularly dismal. The range therefore was a broad 69.The lowliest region in terms of transparency was Asia, which averaged just 51. Kazakhstan (27) and China (28) hurt the average with the results for the former suggesting it isn't always necessary to have transparency to achieve good administrative functionality. India was the standout jurisdiction in the region with a score of 77, though Japan's 72 was from the harsher Corruption Perceptions Index.Minor regions Central America/Caribbean and the Middle East were split, with the former (average: 74) considerably more transparent than the latter (average: 55). This is, however, not a fair reflection on Mexico (88) or Turkey (78).Across both risk metrics, it follows that North America was the strongest with the US and Canada averaging 94 and 91, respectively. Australia/Oceania averaged 88, well ahead of Europe on 78. South America sat between the developed world and the emerging economies with an average of 64. Asia averaged 55 and Africa a lowly 42. Perception of riskThe order the regions fell into for Governance based on the World Risk Survey was broadly in line with the hard numbers. The US and Canada led the way, with Australia/Oceania close behind and Europe next but some way back.South America was more harshly treated than the hard numbers suggested was reasonable and finished on par with Africa, which was, by comparison, generously dealt with. Asia was low according to the hard numbers, but dead last based on perception.The correlation between the perception numbers and the hard numbers was fairly poor, averaging just over 0.8, though of the major regions, only South America's hard and perception numbers had a correlation of more than 0.8 (0.83). Other points of interestThe disparity between the best and worst regions based on the hard numbers is far greater than that based on survey results. This indicates the industry perceives there is less between the best and worst regions, and individual jurisdictions, than the hard numbers demonstrate.We would also have thought that jurisdictions with good administrative ease would also be the more transparent places to operate. And while this was generally the case, there were a handful of exceptions starting with the administratively strong but opaque business environment in Kazakhstan. Others included Nigeria, Greenland, and Russia, which all had more than 55 points separating there Governance hard metrics (see chart).

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