Singapore, Denmark and the US will be the three geographies with the best business environment over the next five years, according to the EIU business environment index.
Several west European economies - Germany (placed 4 on the index), Switzerland (5), Sweden (7), Finland (10) - alongside Canada (6), New Zealand (8) and Hong Kong (9), make up the remaining top 10 best places in the world to do business. These are all advanced economies and long-standing strong performers in the index, so tend to be safe bets for investments.
However, both headline and percapita GDP growth rates are likely to be fairly stable and slow. To identify which economies may be best placed for an acceleration in per-head GDP and investment growth, one needs to look further down in the ranking to the geographies that see the biggest improvements in score in the index in the next five years (2024-28) compared with the past five years (2019-23), says the report.
These are not the same economies that will see the fastest real GDP growth in 2024-28 -- although Qatar and India will grow very strongly -- rather, they are places where the report expects the most significant policy improvements, infrastructure investment or growth in market opportunities.
"Our model suggests that their improvement in our business environment index may subsequently result in an uptick in perhead growth in real GDP, investment spending and FDI," it says.
Big improvers
The top 10 most improving geographies in the business environment rankings are: Greece (index rank 34), Argentina (54), India (51), Angola (78), Qatar (26), Kenya (68) Dominican Republic (57), Venezuela (82), Lithuania (28) and Serbia (52).
Qatar has implemented a $220 billion investment programme over the past decade, mainly focused on infrastructure. Its business environment has benefited from the expansion of Hamad International Airport, the road network and tourism infrastructure.
Lithuania has long been open to trade and investment, but a major tax reform will soon make it more attractive by extending corporate tax relief and shifting the tax burden away from labour.
Greece sees the biggest improvement in the business environment in our index over this period. This reflects the impact of a pro-business government, led by the New Democracy party, now in its second term, that has undertaken reforms, cut taxes and boosted business confidence.
Strong improvement opportunities
India is the only single-country market that offers a potential scale comparable to that of China. India’s youthful demographic profile promises both strong demand and good labour availability. Alongside solid economic fundamentals, digital infrastructure and favourable demographics, more policy support is being introduced to attract manufacturing investment.
Serbia, meanwhile, while much smaller, has seen a virtuous circle from its openness to FDI in the past, which has driven growth and attracted further investment, including in higher-value-added sectors. A recent strengthening of macroeconomic policy and institutions supports market stability.
Argentina’s sharp improvement in score largely reflects the free-market reforms that we believe the administration of President Javier Milei will introduce -- in particular, policies to boost private enterprise and competition and attract foreign investment.
Business environment ranking methodology
The EIU index measures the attractiveness of the business environment in 82 countries and territories, examining 91 indicators spread across 11 different categories. The categories include: the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market, infrastructure and technological readiness. Each of the 91 indicators is scored on a scale from 1 (very bad for business) to 5 (very good for business), and there is a mix of quantitative and qualitative questions. Scores are awarded both for the preceding five years and for the next five years.
Knowing in advance where economic growth is about to accelerate can be the difference between investor success and failure, says the report.
"Our business environment index is designed to reflect the main criteria used by companies to formulate their global business strategies and is based not only on historical conditions but also on our experts’ assessments for the next five years. This allows us to incorporate hard-to-measure indicators with strong predictive power, such as likely upcoming policy changes by the current or most likely future government; our macroeconomic forecasts for growth in domestic purchasing power and demand from key trading partners; and changes in the institutional environment, among many other variables," it adds. -TradeArabia News Service
