Top 5 Major Business Environments to Avoid in 2016
While many markets are making headway to improving their business environments, there are a handful of relatively major markets that are set to be temporarily diminished in their attractiveness for investors in 2016. It should be noted that there are of course many markets that are far more inaccessible to investment than the below countries, however, for the purposes of this article the focus will be on key markets that have lost some of their appeal. Russia, Nigeria, Italy, Brazil and India will all pose difficulty for businesses operating in them in 2016.
Political Stability and Absence of Violence Rankings in Top 5 Markets to Avoid: 2014
Source: Euromonitor International from World Bank
Note: 2014 ranking is out of 202 economies globally
1. Russia: actively hostile to foreign investment in some sectors
Russia’s attitude to foreign direct investment is contradictory. On one hand, the government has set a target of reaching 20th ranking in Doing Business by 2018, and has made some inroads to achieving this by dropping from 124th place out of 183 countries in Doing Business 2011 down to 62nd place out of 189 economies in 2015. Yet it has also introduced barriers to Western investment in its finance, energy and deference sectors. Furthermore, it has banned food imports from many Western countries including EU member states and the USA, extending the list of banned import countries in August 2015. Adding into the mix high levels of corruption (136th in the 2014 Corruption Perceptions Index 2014 out of 175 economies) and high levels of political instability, Russia’s FDI intensity has slipped from 3.0% of total GDP in 2009 to 1.1% in 2014.
2. Nigeria: large decline in Doing Business from 2009-2015
As one of the MINT countries alongside Mexico, Indonesia and Turkey, Nigeria was hyped up as one of the key emerging markets of the future. Yet Nigeria has slipped from 121st place in Doing Business 2009 down to 170th place in 2015. It is also one of the most politically unstable countries in the world, at 190th place out of 202 economies in the World Bank’s Political Stability and Absence of Violence Index 2014 and has very high corruption levels.
3. Italy: problem child of the EU
While other peripheral eurozone economies such as Greece are working hard to improve the attractiveness of their business environments, Italy is among the least accessible business environments in the EU. In particular need of reform are its labour market laws, which have a high degree of red tape. It ranked in 126th place out of 140 countries in the Global Competitiveness Index 2015 for its labour market efficiency, largely due to overly stringent regulations regarding hiring and firing practices. Its tax laws are another area that could be improved: it ranked 141st for ‘Paying Taxes’ in Doing Business 2015 out of 189 economies, the lowest ranking among EU countries.
4. Brazil: downgrade to junk status and high political instability
Brazil has been hit by a high level of political instability, it ranked 111th out of 202 economies in the World Bank’s Political Stability and Absence of Violence 2014, likely to worsen in 2015 due to a weakening of its government finances. Its sovereign debt was downgraded in September 2015 by Standard and Poor’s to junk status, while its general government net budget deficit rose from 2.6% in 2012 to 6.2% in 2014. Because of its economic problems, consumer confidence has been hit: real growth in consumer expenditure is forecast to decline by 2.1% in 2015 and stagnate at 0.3% in 2016.
5. India: deficient labour market and declining Doing Business ranking
India’s business environment remains among the least accessible in Asia despite robust economic growth of 7.3% in 2014 and a predicted real y-o-y growth in consumer expenditure of 5.1% in 2015. Its Doing business ranking stood at 142nd in 2015, a fall from 120th in 2008 out of 178 economies. The decline resulted from worsening rankings for many sub-indicators of Doing Business including dealing with construction permits (184th in 2015), trading across borders (126th) and enforcing contracts (186th). Poor literacy rates among women resulted in a 2014 female employment rate of just 21.6% of the working age 15-64 female population, hitting productivity. Political instability remains a real issue and the country ranked in 175th place in the Political Stability and Absence of Violence 2014.