When entering any market, you need to do your numbers regarding market capacity, costs and prices for your goods or services, etc. But when diving into emerging markets, it is crucial to do your due diligence regarding the risks you can encounter.
For this purpose, there are a lot of indicators, indexes, and reports developed by reputed financial institutes. So, in this post, we will discuss the most principal ones.
General country health indicators
The Index of Economic Freedom
This is the first indicator Expat Investment recommends to pay attention when assessing investment risks and opportunities of emerging markets.
Created in 1995 by the Heritage Foundation, the index evaluates the degree of economic liberty in various countries. The index score varies from 0 to 100, where 100 is the best.
The Index of Economic Freedom aggregates the following aspects:
Legislation, government, and judicial efficiency
Tax and fiscal system efficiency, budget health
Business, labour, and monetary freedom
A score of over 70 shows the country is enjoying great and highly beneficial economic liberty. In other words, the index gives you a green light to start a business or investing in those particular countries.
On the contrary, a score of 60-60.9 range means a country provides moderate economic freedom for its residents and its domestic businesses. Therefore, there are certain considerations for investing in these countries. So, investors would better take a stop and do their due diligence very closely.
At last, countries with a score of under 60 are considered as having poor economic liberty.
The Doing Business Index
Suggested in 2001 by the World Bank, the index equips investors with information about business-affecting regulations in a country.
The Doing Business Index aggregates the following aspects, expressed in time, capital, and effort terms:
Ease of starting a new business, building a warehouse, and connecting it to the main grids
Ease of property registration, enforcing contracts, and investor protection
Ease of financing a business, paying taxes, and bankrupting a business
Ease of doing export-import oriented business
Being a benchmarking index, it typically varies from 1 to 190, the lower number the better. To clarify, the index provides comparative information about the ease of doing business among 190 countries all over the world. Therefore, 1st rate means the country has the most business-friendly regulations.
The World Competitiveness Reports
Released first in 1979 by the World Economic Forum, the World Competitiveness Reports assesses the citizens’ welfare in various countries. To be specific, it reveals how much the government of a particular country succeed in creating sufficient conditions for its citizens’ welfare.
This index involves the assessment of such criteria as:
Institution and infrastructure development
Efficiency, state, and size of goods, labour, and financial markets
Innovation and technology development, application, and resource efficiency
Primary, higher education and health care
For investors, the index provides an insight into the government policy regarding creating sufficient conditions for business development and creating an attractive investment environment.
The Worldwide Governance Indicators
In 2002, the World Bank Group first revealed its Worldwide Governance Indicators. Indicators cover six aggregated aspects:
Freedom to participate in government selection, express their ideas and position
Quality of public and civil services, general legislation efficiency, government credibility
Legislation efficiency in creating the ground and conditions for private businesses to grow
Extent to which corruption exists in the country and the efficiency of the anti-corruption policy
The court, police, and legislation efficiency
Likelihood of terrorist attacks and political instability
For each indicator, the score varies from 0 to 100. The higher indicator score is regarded more positively. To clarify, this evaluates the country governance as a beneficial driver for country development, and its economic prosperity. For investors, a higher score means more promising investment opportunities and lover governance risks.
Specific sector indicators
The Global Financial Centres report
Published first in 2007 by The City of London and the Y/Zen Group, the Report focuses on top financial centres around the globe. To clarify, this is not country benchmarking but an evaluation of their financial centres. In other words, one country can be presented by two or more financial centres.
Key areas for benchmarking here are as follows:
Financial sector development
Reputation and other general factors
According to the latest Report, the aggregated benchmarking score stars from 420 and ends with 770. However, these numbers are not the final standards. For example, in 2016, the lowest score was 535, but only 87 financial centres were included. On the contrary, the GDCI 28 analysed and compared 111 centres. Plus shortlisted ten more centres as the next-to-be.
For investors, the report is of great value not only due to the general (aggregated) ranking of financial centres. To clarify, the report also discloses their profiles by the following criteria:
Level, broadness, and deepness
Key benchmarking areas
Global Manufacturing Competitiveness Index
Released first in 2010 by Deloitte and the US Council on Competitiveness, the World Competitiveness Reports index enables to assess the industrial sector competitiveness as one of the leading indicators of the country's prosperity.
The index takes considers the following aspects:
Access and attention to the pool of talent
Use of high and innovative technology
Contribution to infrastructure development
Investments in high-tech infrastructure development
The score here varies from 10 to 100. Countries with higher index score rank the better. That is to say, a higher score speaks for greater compliance of the country’s industrial sector with modern economic drivers.
To conclude, it is worth not only checking out the current index score or ranking for a particular country but its shift as well.