Do Corrupt Countries In The World Affect Their Expats?

Corrupt Countries In The World
Why Corruption Matters To An Expat
Plus: I Thought You Said You’d Never Invest In Brazil

I got an email comment this week from a guy, also named Lee, in California:

I was surprised to read the quote from Lee Harrison in Valentine Fouché’s article about Medellín: “Medellín… has the same diverse natural beauty as Ecuador but (and this has become important to us) less corruption.”

I’m interested in understanding his comment regarding corruption. I’m recently retired after living in many countries in Latin America and Asia where corruption became a major issue for me, both in business and daily life. I value Lee’s experience and insights and would appreciate his further comment, particularly since he has lived in both Colombia and in Uruguay (where I am considering retirement).

Transparency International ranks 168 countries on corruption. The USA is ranked 16, Chile 21, Uruguay 23 and Colombia 83. (Ecuador is ranked at 107.)

So Lee, if 107 (Ecuador’s corruption rank) was an irritation, and 83 (Colombia) is much better, at what point does the extra cost of living justify an investment or retirement in a less corrupt country like Chile or Uruguay? And, why has this (less corruption) become important to you now?

These are very good questions.

When I first moved abroad in 2001, I didn’t pay much attention to political corruption in the countries I lived in or visited. After all, I figured that the way lobbyists throw money around in the United States to get favors from politicians was really no different than just handing someone the money directly to get those same favors. And I believed neither system really affected me personally.

But I was wrong. Corruption abroad did affect me, even though I was not involved in politics and had no ongoing interface with my host government.

It affected me because corrupt public officials, police, and business people didn’t become dishonest on the day they got their jobs; they’re the product of a culture where dishonesty is both tolerated and expected. This is why (as pointed out in the letter above) corruption affected his personal life as well as his business life. It can.

So, as an expat, I wasn’t affected by corruption in the public sector. What changed my lifestyle was the corresponding dishonesty in everyday life.

We North Americans are among the world’s rule-followers, and we’re basically honest… and we assume honesty in others. Adapting to a dishonest culture can be difficult.

In my experience in Latin America, countries with high corruption levels are the countries where you have to lock your car doors… carefully count your change at the register… and be careful that you’re not being overcharged. Taxi drivers are more likely to raise the fare. And prices may not be marked, so merchants can charge you based on what they think you can pay. People often fail to keep appointments expecting you to accept a flimsy excuse.

In Cuenca, Ecuador, I was actually robbed by the police and had my passport stolen in the Notary’s office. In Brazil, I was robbed by the police twice. These are extreme examples of how corruption can affect you when corruption is rampant.

To give another personal example, I was short-changed in Ecuador perhaps 100 times over five years. Each time, it was politely claimed to be an honest mistake, but the mistake was never—not once—in my favor. In Uruguay, I was never short-changed in six years. In Colombia, it hasn’t happened yet since 2011.

To be fair, I should point out here when I moved to Ecuador in 2001 it was near the bottom of the corruption index… only slightly better than Bangladesh and Afghanistan. Since the election of President Correa, things have improved dramatically. Today they’re rated in the middle of the pack. Continued leadership from the top could slowly change the culture over time.

And make no mistake: there are plenty of dishonest people in Chile, the United States, Colombia, and Uruguay, too. The difference is that in those countries the dishonesty is not culturally acceptable.

I get my corruption data from Transparency International from the Corruption Perceptions Index. The word “perception” is used because it’s impossible to objectively measure corruption using published data. Instead, they use surveys of people who deal with the public sector in the countries being analyzed.

In other words, this index—while a good broad indicator in my experience—is not really tailored towards expats.

So consequently, your on-the-ground experience is what counts. And while Colombia may not be ranked as high as Uruguay or Chile (or the United States), my experience has been good. Our contractors have been dependable and honest, and they show up on time. When dealing with public officials, I’ve found them to be honest and straightforward. No one has ever tried to solicit a bribe from me.

Here’s a snapshot of some of the countries on my beat in the Americas.

In the latest Corruption Perceptions Index, Canada is the most honest country in the Americas, and the United States has now improved to position #2. The worst country in the hemisphere is Venezuela, who barely edged out Haiti. Worldwide, the most honest country is Denmark; the most corrupt is Somalia.

The rankings are those of Transparency International, and the number represents the country’s position in the world; the category groupings are mine.

Rating Category
Honest Good Average Dishonest Corrupt Abysmal
9-Canada
16-USA
21-Uruguay
23-Chile
40-Costa Rica 56-Cuba
69-Jamaica
72-El Salvador
72-Panama
76-Brazil
83-Colombia
88-Peru
95-Mexico
99-Bolivia
103-Dom. Rep.
107-Argentina
107-Ecuador
112-Honduras
123-Guatemala
130-Nicaragua
130-Paraguay
158-Haiti
158-Venezuela

Note that these ratings are for entire countries and remember that regions will vary. No country is 100% corrupt or 100% honest.

Also, in general, rural areas tend to have a more honest culture than urban areas… same as in North America.

Should you pick a country based on the corruption index?

No. Public sector corruption is only one criterion of many, and it will be offset by other criteria. As an example, while Ecuador is not rated well for corruption, I know firsthand that it’s a great place to live, has fantastic weather, and wonderful people. Many people—because of where they live and who they associate with—don’t even notice that they’re in a corrupt country… especially if they don’t drive and thereby avoid encounters with the police.

Instead of using the corruption rating to pick a country, I’d use it to set your expectation and to establish your behavior. For example, if you lived in downtown Philadelphia, you’d be more wary than you would in Newfane, Vermont (possibly the safest place in the US). This doesn’t mean that center-city Philadelphia isn’t a great place to live… it just means that you won’t get by with the same behaviors that you would in Newfane.

So a country’s corruption rating shouldn’t disqualify it for you… at least not countrywide. But it should be among the criteria that you use to make your choice of where to settle or invest abroad. Everyone’s different… it could be that the available opportunities in a country—or something like perfect weather or beaches—will outweigh your concerns for corruption.

If you’d like to review the entire Corruption Perceptions Index, you can see it directly from Transparency International.

Lee Harrison
Editor, Overseas Property Alert

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Letters To The Editor

Lee,

Even though I’ve traveled extensively living in multiple countries other than the U.S., I’ve yet to invest abroad.

These Brazilian beachfront lots look interesting and I’ve touched base with the developers. However, I have no contacts in Brazil (such as a competent real estate attorney) to perform my due diligence. I am not quite sure where to start other than jumping on a plane and visiting the site.

Do you have people on the ground in this area that you might refer?

Warm Regards,
Marcie

I know the area where this project is located, and I like it quite a bit… especially the town of Canoa Quebrada.

Unfortunately, we don’t currently have a local attorney we recommend in that area.

***

Lee,
I’m writing about Lief’s recent article recommending buying at Reserva da Praia, Brazil.

Both Kathleen and Lief have said several times in the past that they would never recommend Brazil, because of the sheer difficulty and complexity of doing business there.

What’s changed?

Tony,
UK

I haven’t heard Kathleen or Lief say that they would never recommend Brazil. However they have refrained from recommending it when there were easier, closer, or simpler alternatives for the same product in other markets.

But yes, things have changed.

First off, of all the markets we track, Brazil is the most heavily discounted due to the current strength of the U.S. dollar.

Also, this is the best deal on beachfront lots since we started covering Brazil in 2006. The lots are larger than normal in Brazil, and the price is lower than any offer we’ve seen.

So in this case, there are no easier, closer, or simpler alternatives… not at these prices.

Also note that Lief’s recent article was directed to investors, and his recommendation was based on the project’s investment potential. He has nothing against its lifestyle potential, but that wasn’t the point of the article.

***

Hi Lee,

I’m looking into the Dominican Republic and I’m interested in Caberete and Sosua. I wanted to get your input about these areas, and any other suggestions you have about this country.

My budget is under $180k and I’d like something that will produce tourist income that is onsite managed. I’m open to your suggestions.

Best Regards,
Casey

I’m not familiar with this area, so I’m passing this question on to Lief Simon:

The north coast of the DR (the Sosua area) is one of the main expat and tourist areas in the DR. You should be able to find a good rental property in your price range.

However, you might want to check out both the Las Terrenas and Punta Cana areas before making a final decision on where to buy. These areas also have a lot of potential. Also, you should take a look at the south coast, in the La Romana area.

Have a question? You can write to Lee here.

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