Check out our new country Investment Safety Rankings: here
“Is it safe to invest in that country?”
This is a central question for any frontier investor looking to deploy capital in small and developing economies. There is no point in pursuing double-digit growth and extremely undervalued companies if there is little chance you will ever see your money again. While most investors value a “boots on the ground” approach by visiting any prospective countries before committing any new funds, it is impractical to visit multiple countries and views can be compromised by small sample bias.
We have sought to quantify the process of identifying countries that are safe to invest in through our Investment Safety Rankings. Three main factors are taken into consideration when deciding to invest in a new country:
- Corruption and Rule of Law
- Business Environment
- Social and Political Risk
To measure these three factors, we looked at three main NGO rankings:
- Transparency International’s Corruption Perceptions Index (CPI)
- The World Bank’s Ease of Doing Business Rankings (EDB)
- Fund for Peace’s Fragile State Index (FSI)
By averaging these three rankings into one super-ranking, our Investment Safety Rankings rank 192 countries on how it is safe to invest there. To keep things simple, each have equal weighting.
Corruption Perceptions Index
The CPI is one of the most renown rankings measuring the rate of corruption in a country. With data on 177 countries in 2013 and itself an aggregate index using 13 different sources, the CPI is the most comprehensive index we could find to use as a proxy for corruption in a country. The latest release was CPI 2013 at the end of last year, which is what we use in our own rankings.
Ease of Doing Business Rankings
The World Bank compiles excellent reports on doing business in countries around the world, and their EDB rankings are great for measuring business development and legal enforcement. With data for 190 countries across 10 different criteria, we use this ranking as a proxy for how easily it is to get things done in business. We use their EDB 2014 rankings, released in June 2013.
Fragile States Index
Produced by the US think-tank, Fund for Peace, along with Foreign Policy magazine, the FSI ranks 180 different countries on a mainly political/social risk basis to ascertain how vulnerable each nation is to collapse. With 10 years of data, we chose this index as a proxy for regional volatility. We use their FSI 2014 rankings.
Country Investment Safety Rankings
From those three rankings, 192 different countries are represented in our overall country investment safety rankings. You can search and download our full rankings list at the link here.
Here is a breakdown of the average ranking of each country by region (lower ranks are better):
No big surprises here, with Scandinavia (consisting of just four countries) sitting comfortably in the lead, while Africa remains an at risk region for prospective investors.
There was also a very strong correlation between a country’s GDP per capita and how well a country did on these rankings:
While 192 countries are too many to list here (so check out the full list here instead), here are the top, middle, and bottom 10 countries.
Top 10 Safest Countries to Invest In: