(1) Half of the total risks in emerging and frontier markets may be linked to fraud, corruption, and discretion in the regulatory system.
(2) Corruption is not monolithic; it is highly country-, industry-, company-, and deal-specific.
(3) In many emerging and frontier markets, corruption is believed to have a tax effect upwards of 20%, reducing firm productivity by nearly 70% and stifling earnings.
(4) Data used by most investors are simple aggregates of imprecise country- and region-specific studies and are flawed for three reasons:
They are unreliable for making comparisons between countries because the studies used as data inputs vary by country, despite being portrayed as comparable; They are unreliable for tracking change over time because the actual inputs change each year despite the aggregate data being portrayed as comparable; It is impossible to tell what these data are actually measuring, as each study and each survey defines “corruption” differently.
(5) A new wave of corruption metrics and assessments are being developed utilizing local country experts to better identify specific, actionable corruption risks and undervalued opportunities.