Top 5 BRIC Alternatives for Emerging Market Investment
The BRICs (Brazil, Russia India and China) are the focus of many companies’ foreign direct investment strategies, accounting for a combined 39.2% of total foreign direct investment inflows to emerging markets in 2012. Yet this approach overlooks many other emerging markets which may be far easier to do business in. We have identified five economies which offer viable investment alternatives to the BRICs based on their business environments. Chile and Peru arguably offer easier alternatives to Brazil. Poland is less corrupt than Russia, while Malaysia has less red tape governing foreign investment than China and Kazakhstan is a viable alternative to India.
Ease of Doing Business Rankings 2013 in Selected Countries
ranking out of 185 countries
Source: Euromonitor International from World Bank Group
1. Chile: highest ranked Latin American country in Doing Business 2013
Unlike Brazil which ranks in 130th place out of 185 countries in Doing Business 2013, Chile ranks in at 37th place, the highest in Latin America. It also ranks highly in protecting investors and for paying taxes, at 32nd and 36th place respectively. Its total tax rate is 28.1% of total profits according to Doing Business compared to the 47.2% average in Latin America, or 69.3% in Brazil. Productivity levels in Chile (measured as GDP per person employed) are the highest in Latin America at US$32,114 in constant terms in 2012. Chile actively encourages foreign direct investment (FDI) inflows. Corruption levels in the country are also very low for an emerging market: according to Transparency International’s Corruption Perceptions Index 2012, Chile ranked 20th out of 176 economies, comparing well to Brazil (69th).
2. Peru: extensive reforms making it easier to invest than Brazil
Peru is one of the fastest reforming countries in Latin America. Amongst others, it has conducted tax regulation reforms to offer companies tax breaks for carrying out research and development. It was the second highest ranked Latin American country in Doing Business 2013 at 43rd out of 185 economies globally, up from 65th place out of 181 countries as a result of regulatory reforms to enhance its business climate. It guarantees equal treatment for foreign investors and national companies alike and very few sectors are off limits to foreign investors, unlike Brazil which has high levels of red tape governing foreign investment. As a result, Peru has attracted more foreign direct investment inflows, with its FDI intensity at 6.1% of its total GDP in 2012, up from 3.8% in 2006. This compares to 2.9% of total GDP in Brazil in 2012.
3. Poland: a more accessible alternative to Russia for investment
With a highly educated workforce and the accolade of being the most improved country in Doing Business 2013 over the 2012 edition, Poland offers a far more accessible alternative to Russia. Crucially, Poland suffers far less from corruption than Russia. While Russia is ranked in 133rd place in the Corruption Perceptions Index 2012 and has allegations of pervasive corruption at every echelon of its government, Poland ranks far higher at 41st place. Its central European location is another advantage. Although the size of its population is smaller than Russia’s, its total average per capita consumer expenditure is also set to rise by 30.2% in real terms from 2012-2020 to reach a forecast US$10,122 in 2020, higher than Russia’s predicted US$9,923.
4. Malaysia: less red tape governing foreign direct investment than China
Malaysia’s aim is to become a developed economy by 2020 and as a result it has been undergone major reforms to cut red tape involved in doing business in the country, for example in respect of property registration. It ranked in 12th place in Doing Business 2013, compared to China’s 91st ranking. A key difference between the two countries is their attitude to foreign direct investment. China aims to relax its investment laws to counteract its declining FDI intensity rate and has tried to do so already to a degree for example by allowing foreign banks to increase their domestic investment banking joint ventures to 49.0%, up from 33.0% in May 2012. Yet in reality there is currently still a considerable amount of red tape governing investment in China and its investment laws are opaque. Malaysia’s FDI intensity in 2012 was 3.3% of its total GDP.
5. Kazakhstan: improvements in starting a business
Kazakhstan is rapidly becoming a key frontier market, and improved its ranking in starting a business by 30 places in Doing Business 2013 over the previous year. It ranked 28th for contract enforcement out of 185 countries according to Doing Business 2013, compared to 184th place for India. This low ranking for India is a major consideration for companies looking to invest as it means a high degree of legal risk and uncertainty when conducting business in the country. Kazahkstan’s FDI intensity stood at 6.9% of its total GDP in 2012. Its per capita consumer expenditure is set to rise rapidly by 2020, creating an attractive consumer base. It is forecast to reach US$5,878 by 2020 in constant terms, compared to US$897 in India.