The Problem with the Anti-Corruption Movement?

7 mins. to read
The Problem with the Anti-Corruption Movement?

…Corruption is Endemic!

One thing we have learned this week: when you are making small-talk with Her Majesty about weighty issues like global corruption, it’s best not to make bland generalising assertions like: Nigeria and Afghanistan are fantastically corrupt. Much better to make the assertion at one remove by quoting a trusted third party. So: As it happens, Ma’am, I’ve got the Global Corruption Index here and – goodness me – Nigeria is ranked 136 and Afghanistan comes out second-from-bottom at 166. Fancy that.

That way, no one from Nigeria or Afghanistan will think that you have got it in for them alone. They might even reflect that they’ve got a real problem. And, by the way, if you think Nigeria and Afghanistan are fantastically corrupt, why are you shovelling billions of pounds in their direction with a foreign “aid” programme every year, knowing that much of that money will finance Lamborghinis and whisky binges in Dubai? Not to mention top-of-the-range penthouses in Knightsbridge.

President Muhammadu Buhari of Nigeria announced, just prior to the Anti-Corruption Summit in London this week that, no, he did not require an apology from the gentleman making small talk with Her Majesty. He just wanted his country’s stolen assets back. The idea being that the British government should seize assets from the people who had filched from his country and bought the penthouses and sent their children to posh schools with money that was not rightfully theirs.

That is by no means a stupid response; however, it is problematic. As I have argued before, the anti-money laundering regime in the UK, as anyone who has worked in the financial services industry here will tell you, is about as rigorous as anywhere[i]. But evidence is one thing, and suspicion is another. Here, we operate on the principle that everyone is treated equally unless there is evidence of malpractice. Unfortunately, the “evidence” of malpractice is usually non-existent.

Think this through. Just down the road from me lives a lovely young Nigerian family. They run a spanking Porsche Cayenne and a brand new Range Rover. Supposing I were to tap on the tinted window one morning, while the machine purred at the zebra, and ask: Nice motor, mate – how d’ you afford that then? I’d be accused of racism. And quite rightly. In Britain, we assume that people are as hard-working and law-abiding as we are – unless we have evidence to the contrary. Maybe that is naïve: indeed it comes from living in a society that is not (generally) corrupt. That is who we are.

Britain comes in at number 10 on the Corruptions Perceptions Index 2015[ii] behind the virtuous Scandinavians. Okay, Cash-for-Questions (1994) and MPs expenses (2009) were big deals – but, arguably, not systemic. Let us not permit any feelings of superiority here: it took a very long time to get where we are – and we could easily regress if we are not vigilant.

But please don’t tell me that up-market estate agents, private bankers and our great auction houses are “in on the act”. I’m sometimes appalled at the innuendos directed towards Russians who can afford nice houses in Notting Hill that most of you – and I – cannot. If you have evidence of ill-gotten gains: make it public. Just as, if the President of Nigeria has material evidence, he should furnish it to the British government. Something about being innocent until proven guilty lies deep in our national psyche.

But let’s be clear: this corruption issue is a very serious one, not least for investors; for it has meant that certain countries with otherwise dynamic economies have become effectively un-investable. Banks (lenders) cope better with corrupt economic environments than equity investors because the value of interest payments and loan repayments is pre-determined; but the value of equity positions is determined by a whole lot of assumptions about future outcomes which are impossible to make when corruption skews markets. Corruption is a very specific and extreme cause of market failure. Market failure erodes wealth creation.

An economist might say also that corruption is a classic Prisoners’ Dilemma-type problem. If everybody else is taking bribes, then you’d be silly not too. (The same thing holds for the non-payment of taxes.) That’s why it is so difficult to uproot it once it becomes endemic.

Jim (Lord) O’Neill (now a government minister), the former head of Goldman Sachs Asset Management, coined the term BRIC (Brazil, Russia, India, China) some 15 years ago, and then gave the world a new acronym in 2014: MINT (Mexico, Indonesia, Nigeria, Turkey). These acronyms are only intended to highlight what certain countries have in common. They do not constitute an investment strategy because, obviously, not all emerging markets are the same. (Personally, I am a supporter of CASA – the Campaign for the Abolition of Silly Acronyms.)

But as I am sure that Jim would agree, the promise of the BRICs and, even more so, the MINTs, has been hugely impacted by corruption.

In the case of the BRICs they are all large, populous countries, two of which have huge natural resources. Two of them are already superpowers on the world stage and the other two have the potential to become superpowers.

China, under the presidency of Xi Jinping is imposing a massive crackdown on corruption, an issue which is openly discussed in the Chinese media. In Brazil, it is ironic that President Dilma Rousseff has been impeached for “manipulating government accounts” (a veritable constitutional putsch) when she is really the victim of wave of public revulsion against corruption – as recently highlighted in the Petrobras Scandal[iii]. In India, Prime Minister Modi’s technology drive goes hand-in-hand with his anti-corruption programme. Hitherto, to get a driving licence in rural India, you had to go to a police station where, very often, the relevant forms were only procured after handing a “gift” over the counter. Now, Indians apply for their driving licences online – literally cutting out the middle man. As for Russia, my experience there is that corruption is rarely overt – Russians are very proud people. There is, however, a deeply entrenched culture of trading favours (You scratch my back and I’ll scratch yours…)[iv].

Regarding the MINTs, they are all countries with vibrant entrepreneurial cultures and very favourable demographics which have the potential for double-digit economic growth. They are also mired in corruption and two of them are amongst the most violent countries in the world (as measured by homicide rates). Indeed, there seems to be a very unpleasant correlation between levels of corruption and violence[v]. And – as I have written elsewhere – a common link between these things is drug culture[vi].

Nigeria (136 in the Index) is only for the extremely brave investor because of the corruption issue and the lack of transparency. Indonesia (88) is on a generally positive trajectory. Turkey (66) is an economic powerhouse and a regional power which I discussed in this month’s MI magazine. President Erdoğan, like all strongmen since Mussolini, has made anti-corruption a theme of his rule. Mexico (95) has a lot going for it but is prey to a terrible drug culture which gives rise to pervasive criminality.

Looking down the transparency stroke corruption index there are a number of emerging markets which interest me which also score well. Uruguay (21) is only two points behind the USA and one point behind Japan. (The saintly Uruguayan President José Mujica, who retired in March last year, was famously the poorest president in the world.) Qatar (22) and the UAE (23) are well ahead of other Arab states. Botswana (28 – one place ahead of Portugal) is the least corrupt country in Africa.

I’m not wearing my Brexit cap today but I can’t help noticing that a number of EU members rank well down the league. Croatia stands at 50 and Greece and Romania at 58. Bulgaria comes in at 69. This is a European issue too.

Cut the league table in half and you get to China in 83rd place. Personally, I wouldn’t touch anything below Indonesia (88). At the very bottom of the table is Somalia (167). But then, there is clearly a relationship between levels of corruption and political stability. Both Afghanistan and Somalia have been crippled by civil war for decades. Strife-torn Iraq stands at 161. Only when there are lasting political settlements will there be any chance of getting to grips with corruption in these countries. Meanwhile they remain un-investable.

Oh yes and the other big no-no when chatting with the monarch is to ask her opinion; as in: And may I enquire, Ma’am, your views on the Chinese…

[i] Consider Evil’s problems with his spread-betting outfit which he describes today.

[ii] Available at:

[iii] See:

[iv] Russia’s rank in the Index is actually 119 – well below the other BRICs.

[v] With the possible exception of the USA where the homicide rate is relatively high but corruption is low.  The USA ranks at 16 on the Corruption Index.

[vi] See my article at:

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