Potential investors frequently cite corruption as one of their primary concerns when it comes to doing business in Latin America, so it is imperative to know which countries are among the most and least transparent in the region.
One of the clearest guides is the annual Corruption Perceptions Index produced by Transparency International, a non-governmental organization that monitors and publicizes corporate and political corruption in international development.
The most transparent nation in Latin America, Uruguay is ranked 19th out of 177 countries in the 2013 Index.
“Despite a few notable exceptions such as Chile and Uruguay, many countries in Latin America score relatively low in the latest edition of the Corruption Perceptions Index. In those countries, corruption is part of the everyday life of citizens,” Transparency International warns.
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This can have a damaging effect on business. “Hefty fines, damaged reputations and jail sentences – recent scandals prove that corruption in business doesn’t always bring profits,” Transparency International notes.
“Corruption distorts markets and creates unfair competition. Companies often pay bribes or rig bids to win public procurement contracts,” the NGO adds, “But companies also need an honest operating environment. So we must make sure that governments enforce international anti-bribery laws and conventions. This protects companies from corruption across borders and down supply chains.”
“We need to help make sure these approaches are effective. This means more transparency from everyone involved with markets. Then we can hold businesspeople to account for their actions. We must call on companies and the institutions that regulate them to report their finances and actions openly. This shows staff, investors and consumers that they’re committed to clean business. And it creates the environment of trust that’s most profitable,” Transparency International concludes.
It comes as no surprise that Chile and Costa Rica, two of the most prominent nearshore destinations, are among the transparent nations in Latin America, because numerous studies show transparency has a significant impact on the amount of foreign direct investment (FDI) a country receives.
On average, joining the Extractive Industries Transparency Initiative (EITI; an international standard that ensures transparency around countries’ oil, gas and mineral resources), increases the inflow of FDI by two to three percent, according to studies by the EITI and Maya Schmaljohann of Heidelberg University.
“Governments’ willingness to reduce corruption and fraud and improve the investment climate is rewarded by foreign investors,” Schmaljohann notes, with typical concerns for potential investors including the credibility of the government, the level of corruption, bureaucratic efficiency and democratic accountability.
Another study by the National Bureau of Economic Research (NBER) found that “a lack of transparency indeed may affect economic performance by repelling international investors.” For example, Venezuela, which is the least transparent nation in Latin America, could have increased international investment by an estimated 300% if it increased its transparency to Singapore’s level, the NBER investigation found.