Myanmar's legal system is the worst in the world for foreign companies and investors, according to a rule of law index produced by risk analysis and mapping firm Maplecroft. The index, which rates 197 countries and is designed to enable multinational corporations to evaluate risks to global investments, ranks the North Korean and Somalian legal systems as the second and third worst in the world, respectively. Energy-rich South Sudan, Turkmenistan and Libya are also ranked among the 10 worst countries for foreign companies and investors, and are considered to pose extreme risks to oil and gas companies.
Recent political reform in Myanmar has increased the likelihood of the many sanctions on the country being lifted, a positive sign for prospective investors, many of which are interested in the country's untapped potential in the oil and gas sector.
Nevertheless, Myanmar has topped Maplecroft’s Rule of Law Index for the past five years, as the country's government continues to dictate policy direction and judicial decisions. Tangible improvements in the rule of law including increased judicial independence and greater transparency in the regulatory system will be required before the long-term potential of the economy can be realised.
“Organisations investing in lucrative energy markets, such as Myanmar, Turkmenistan or Libya, need to be extremely cautious,” said Maplecroft's associate director Mandy Kirby in an online statement. “The rule of law serves as a check on abuses of private and state power and is important in the oversight of business regulation, including contract enforcement and competition laws.”
A fair, legitimate and effective application of the law is critical for companies looking to exploit opportunities in oil- and gas-rich markets. However, Maplecroft found that the fundamental separation of government powers from the judiciary is absent in many resource-rich countries, where contracts are not always respected, and expropriation remains a continued risk, especially in the extractive sector. The rule of law is particularly fragile in new countries such as South Sudan, or those that have experienced a regime change, such as Libya, where the overhaul of existing legal frameworks creates uncertainty for investors.