by Mary Scianna
It wasn’t long ago when business leaders were touting the benefits of investing in the so-called BRIC countries: Brazil, Russia, India and China.
Many North American manufacturers flocked to these countries in the hopes of reducing their manufacturing costs and increasing their profit margins. They left behind a trail of shuttered facilities and unemployed people in Canada and in the US.
The promise of these burgeoning economies though has begun to stall and one reason for it is rampant corruption. It’s not uncommon for foreign businesses to be forced to pay large bribes to comply with local laws. In some countries, criminal activity and violations of trade and economic sanctions are becoming big deterrents for North American businesses. Indeed, according to a 2013 American Chamber of Commerce report about US companies operating in Shanghai, two thirds of companies surveyed say they struggle with fraud and corruption.
The problems North American manufacturers face in Shanghai is evident in the other BRIC countries, Brazil, Russia and India. Transparency International, a global coalition against corruption (www.transparency.org) tracks public sector corruption in countries around the world. In 1995, it launched a “corruption perceptions index” based on experts’ opinions of public sector corruption. A score below 50 indicates serious corruption problems. The index ranks 177 countries and allocates a score. In its 2013 ranking, Brazil ranked 71 with a score of 42, Russia ranked 127 with a score of 28, India ranked 94 with a score of 36 and China ranked 80 with a score of 40. Canada ranked 9 with a score of 81, the best performer in the Americas and consistently ranked among the top ten least corrupt countries in the past three years.
BRIC countries are not the only ones dealing with corruption issues. Indeed, most countries considered emerging economies score below 50 on the corruption perception index. Mexico, for example, ranks 106 out of 177 countries in the perception index with a score 34, while Thailand ranks 102 with a score of 35. Others with scores below 50 include South Africa, Bangladesh, Philippines, and many South American countries such as Bolivia, Colombia, Equador, Honduras and Venezuela. Despite corruption problems, emerging markets have continued to grow because for some businesses, the potential for high profits outweighs the cost of corruption, but some studies are now suggesting that such corruption is beginning to pose a substantial risk to foreign investments. And it is the persistent corruption that is driving many manufacturers out of these emerging economies and back into North America as part of a growing reshoring initiative.
Canada would do well to promote itself, not only to North American companies looking to return to the continent, but also to non-BRIC foreign manufacturers who want to avoid the costly headaches of corruption. Canada has much to offer foreign investors; we just have to do a better job of selling the merits of investing in this country. SMT