What’s the most attractive country to do business in? With the last few years marked by increasing political and economic uncertainty, business conditions in countries are fluctuating regularly.
BDO’s International Business Compass is an annually updated index measuring the attractiveness for businesses of different international locations. The study is published jointly by BDO Germany and the Hamburg Institute of World Economics.
The study aims to quantify the attractiveness of international locations for businesses in the form of a single, comprehensive index value. This will then give corporate decision makers a valuable measure to identify the most appropriate locations around the world for their operations.
What is the index based on?
BDO bases its findings on three key areas:
- Economic conditions, including per capita income and public debt
- Politico-legal conditions, including political stability, regulatory quality and rule of law
- Socio-cultural conditions, including population growth and unemployment rate.
In the 2018 study, energy and resource consumption was a focal point. The question of how to deal with ever decreasing natural resources has long been a feature of global discourse, and opinions diverge on the best methods to combat the threat. BDO has measured countries' intensity of resource use in this year's study, with special focus on the development of greenhouse gas emissions and the effects of air pollutants.
The IBC Top 10
Compared to last year there were few changes in the IBC's Top 10 places. These were:
- Hong Kong
- Ireland (+2)
- Denmark (-1)
- Norway (-1)
- United Kingdom (+1)
- Canada (+3)
- Australia (+1)
Ireland climbed two places largely due to its low unemployment and national debt ratio. New Zealand and Germany both fell out of the top 10, though this is mostly due to the especially close scores at this end of the scale, rather than any significant changes in their own ranking.
The middle and lower end of the IBC
There has been much more significant change in the middle and lower rankings. The greatest gain was Guyana, up 27 places to 92, due to significant improvements in politico-legal conditions and investment freedom. Argentina also made a giant leap, jumping 26 places to 98, again because of its politico-legal framework conditions. Russia and Botswana gained 14 points and 13 points respectively, but continue to remain outside the higher rankings.
Cape Verde had seen significant gains up until 2018, but this year dropped 30 places due to deterioration in economic framework conditions. Liberia also fell strongly as a result of increased national debt and a subsequent fall in direct investment inflows. Turkey fell 14 places because of its worsening politico-legal conditions.
Production and Sales Subindeces
The Netherlands was the leader among OECD countries for the Production Subindex, largely due to its central location in Europe and an internationally-oriented economic policy. Next are the UK, Switzerland, Denmark and Belgium, all in the Top 10 as production locations. Hungary and South Korea were big gainers, but Germany, Iceland and Norway all fell three places.
In Asia, Singapore and Hong Kong came first and second on the production subindex globally, due to high market potential and investor-friendly legislation. Other top places in Asia were taken by Bahrain, UAE and Qatar.
OECD countries dominate the Sales Location Subindex, taking up all top 10 places, with Switzerland leading the way, followed by Norway. Both countries have high per capita consumption, a high degree of trade freedom and good infrastructure.
Our subject focus: Energy and Resource Consumption
The countries with the highest primary energy consumption were China (by far the top place), the USA, India, Russia, and Japan. Those countries with high economic growth are seeing an increasing hunger for energy. Hence between 1994 and 2014, China tripled its primary energy consumption.
In per capita terms, energy consumption has increased at a rate of 20 per cent. This growth is occurring exclusively in developing and emerging countries - in OECD countries, per capita consumption has actually decreased.
However, it should not be overlooked that this long-term development has also been characterised by technology-related efficiency increases. This is illustrated by the development of the relationship between primary energy consumption and economic performance as a standard general indicator of the energy intensity of an economy. Its value fell by around 26 per cent 1994-2014, and both high and low income countries have on average made significant efficiency gains.
The overall ranking in the IBC 2018 show a familiar pattern. The Top 10 remains much the same, with significant challenges facing the middle and lower rankings. Those that have gained have seen much improved economies and politico-legal developments. Those that have fallen greatest have done so above all due to deteriorating economic markers.