The top ten countries in Economic Efficiency for 2011:
This is the first in a three part series where we identify the most attractive international investment opportunities for the next ten years. We start out by looking at economic efficiency, i.e. the fundamental freedoms and legal framework, which facilitates successful investing.
In doing country analysis for international investments, it is often a first step to look at sovereign bond ratings from Moody's, Fitch or Standard and Poor's. However, many smaller developing countries get very little if any play at the agencies. CDS spreads, another measure of investor risk only covers 80 countries. Our index covers 124 countries. To do so, we have looked at business and freedom indices which assign values to sovereign attributes to gauge risk and assess opportunity. These indices attempt to measure economic freedom and a legal clarity.
There are plenty of indices by many different sources, each one looks at important factors which could influence returns and hurdle rates. But which index do you use? We have looked into four of such polls and compiled an index of indices to measure efficiency.
I have included information on five of such indices and compiled our own index of economic efficiency. The indices include:
- Heritage Foundation: Index of Economic Freedom
- Fraser Institute: Economic Freedom of the World
- World Economic Forum: Global Competitiveness Report
- World Bank: Doing Business
- Euromoney Country Risk
To come up with an effective way of comparing the different indices, we first eliminated any countries that were not covered on all indices. We then scaled them, with the lowest country rank set to zero and the highest country set to one. Then their relative positions are weighted by the corresponding score, not the ranking. The indexes are all given equal weighting.
That score is the EconomyPolitics index of Economic Efficiency. The results can be seen below:
Regional Differences| Rank | Country | Heritage | Fraser | WEF | World Bank | Euro-money | Average |
| 1 | Hong Kong | 100.0% | 100.0% | 88.7% | 97.0% | 92.8% | 0.957 |
| 2 | Singapore | 96.3% | 93.6% | 94.7% | 100.0% | 90.8% | 0.951 |
| 3 | Switzerland | 88.5% | 82.2% | 100.0% | 71.5% | 96.4% | 0.877 |
| 4 | Canada | 86.8% | 79.9% | 88.7% | 87.7% | 94.1% | 0.874 |
| 5 | New Zealand | 89.1% | 85.8% | 75.4% | 96.9% | 88.9% | 0.872 |
| 6 | Denmark | 83.6% | 75.2% | 89.3% | 91.7% | 94.7% | 0.869 |
| 7 | United States | 82.4% | 80.0% | 93.1% | 91.7% | 86.9% | 0.868 |
| 8 | Australia | 89.3% | 79.0% | 82.1% | 83.9% | 91.7% | 0.852 |
| 9 | United Kingdom | 77.5% | 77.4% | 87.0% | 94.3% | 87.0% | 0.846 |
| 10 | Finland | 76.8% | 72.7% | 90.9% | 82.3% | 94.4% | 0.834 |
| 11 | Sweden | 73.7% | 67.6% | 97.5% | 82.5% | 94.9% | 0.832 |
| 12 | Norway | 71.3% | 70.0% | 83.2% | 88.5% | 100.0% | 0.826 |
| 13 | Netherlands | 77.8% | 72.2% | 89.8% | 70.3% | 94.0% | 0.808 |
| 14 | Japan | 75.0% | 70.9% | 91.0% | 75.3% | 86.7% | 0.798 |
| 15 | Ireland | 83.7% | 76.1% | 69.4% | 87.3% | 82.0% | 0.797 |
| 16 | Germany | 73.5% | 70.9% | 91.6% | 72.7% | 89.7% | 0.797 |
| 17 | Luxembourg | 80.0% | 73.4% | 79.9% | 61.6% | 94.1% | 0.778 |
| 18 | Austria | 73.7% | 73.7% | 81.3% | 65.7% | 91.2% | 0.771 |
| 19 | Chile | 81.8% | 81.4% | 67.6% | 63.7% | 87.3% | 0.764 |
| 20 | Taiwan | 72.0% | 71.3% | 85.6% | 67.1% | 84.2% | 0.761 |
| 21 | South Korea | 70.6% | 67.7% | 75.8% | 80.3% | 82.6% | 0.754 |
| 22 | Belgium | 71.2% | 66.7% | 80.7% | 70.5% | 84.7% | 0.748 |
| 23 | France | 62.9% | 68.3% | 82.6% | 72.0% | 86.8% | 0.745 |
| 24 | Bahrain | 82.2% | 73.1% | 62.5% | 69.9% | 75.2% | 0.726 |
| 25 | Estonia | 78.6% | 75.9% | 64.7% | 80.3% | 63.1% | 0.725 |
| 26 | Cyprus | 75.7% | 72.5% | 61.2% | 66.5% | 84.4% | 0.721 |
| 27 | United Arab Emirates | 67.6% | 75.9% | 74.4% | 63.3% | 77.1% | 0.717 |
| 28 | Iceland | 68.2% | 67.4% | 67.2% | 80.9% | 66.3% | 0.700 |
| 29 | Israel | 68.6% | 56.5% | 75.2% | 64.0% | 77.8% | 0.684 |
| 30 | Slovakia | 70.1% | 73.5% | 52.4% | 61.0% | 80.1% | 0.674 |
| 31 | Spain | 71.2% | 67.4% | 60.8% | 61.0% | 75.5% | 0.671 |
| 32 | Lithuania | 72.8% | 68.8% | 56.7% | 72.8% | 61.6% | 0.665 |
| 33 | Thailand | 63.0% | 63.7% | 61.4% | 75.6% | 68.8% | 0.665 |
| 34 | Czech Republic | 71.4% | 66.1% | 63.4% | 53.2% | 78.3% | 0.665 |
| 35 | Oman | 70.6% | 66.6% | 64.7% | 55.5% | 73.0% | 0.661 |
| 36 | Portugal | 62.0% | 64.4% | 56.7% | 68.7% | 77.3% | 0.658 |
| 37 | Slovenia | 62.9% | 61.5% | 58.4% | 63.0% | 83.0% | 0.657 |
| 38 | Malaysia | 65.4% | 57.4% | 74.2% | 70.1% | 59.8% | 0.654 |
| 39 | Mauritius | 80.0% | 77.5% | 54.7% | 75.4% | 36.8% | 0.649 |
| 40 | Kuwait | 63.3% | 70.9% | 64.0% | 50.0% | 74.8% | 0.646 |
| 41 | Georgia | 71.4% | 71.2% | 39.1% | 82.2% | 53.7% | 0.635 |
| 42 | Peru | 68.8% | 69.6% | 47.5% | 63.2% | 66.5% | 0.631 |
| 43 | Hungary | 65.8% | 70.5% | 55.0% | 61.4% | 62.7% | 0.631 |
| 44 | Mexico | 67.6% | 60.6% | 50.4% | 63.3% | 71.1% | 0.626 |
| 45 | Poland | 62.1% | 60.8% | 61.3% | 49.0% | 73.4% | 0.613 |
| 46 | Latvia | 64.6% | 64.0% | 48.5% | 72.8% | 56.2% | 0.612 |
| 47 | South Africa | 60.1% | 56.3% | 54.8% | 62.7% | 70.7% | 0.609 |
| 48 | Panama | 63.3% | 70.4% | 55.0% | 50.7% | 59.4% | 0.598 |
| 49 | Italy | 56.5% | 60.8% | 56.4% | 47.0% | 77.5% | 0.596 |
| 50 | Bulgaria | 63.3% | 68.3% | 48.1% | 57.2% | 61.1% | 0.596 |
| 51 | China | 44.2% | 56.2% | 72.6% | 47.2% | 75.8% | 0.592 |
| 52 | Turkey | 62.3% | 59.2% | 52.3% | 55.5% | 64.2% | 0.587 |
| 53 | Colombia | 67.9% | 47.8% | 48.7% | 58.0% | 65.8% | 0.576 |
| 54 | Tunisia | 53.8% | 52.4% | 66.2% | 61.1% | 54.4% | 0.576 |
| 55 | Jordan | 69.2% | 67.0% | 50.9% | 37.6% | 56.7% | 0.563 |
| 56 | Kazakhstan | 59.2% | 63.8% | 47.9% | 56.8% | 53.6% | 0.563 |
| 57 | Armenia | 70.4% | 64.8% | 35.4% | 59.8% | 48.4% | 0.558 |
| 58 | Romania | 63.0% | 54.9% | 49.3% | 57.5% | 53.6% | 0.557 |
| 59 | El Salvador | 69.1% | 70.6% | 43.3% | 44.8% | 49.7% | 0.555 |
| 60 | Macedonia | 64.9% | 59.5% | 44.4% | 63.1% | 44.9% | 0.554 |
| 61 | Costa Rica | 66.9% | 70.9% | 54.5% | 30.9% | 52.7% | 0.552 |
| 62 | Botswana | 69.1% | 64.2% | 45.5% | 58.4% | 38.4% | 0.551 |
| 63 | Uruguay | 70.9% | 61.3% | 51.7% | 29.0% | 61.5% | 0.549 |
| 64 | Namibia | 60.1% | 59.7% | 46.7% | 50.4% | 50.7% | 0.535 |
| 65 | Croatia | 57.7% | 53.6% | 45.1% | 47.5% | 62.7% | 0.533 |
| 66 | Albania | 62.0% | 65.8% | 41.8% | 44.4% | 49.1% | 0.526 |
| 67 | Azerbaijan | 55.6% | 50.8% | 53.7% | 56.6% | 45.5% | 0.524 |
| 68 | Greece | 56.5% | 61.6% | 43.2% | 38.7% | 61.5% | 0.523 |
| 69 | Egypt | 54.7% | 56.8% | 43.6% | 42.3% | 58.2% | 0.511 |
| 70 | Indonesia | 50.1% | 52.4% | 58.6% | 34.7% | 59.7% | 0.511 |
| 71 | Brazil | 50.6% | 47.6% | 53.6% | 29.3% | 72.3% | 0.507 |
| 72 | Montenegro | 59.8% | 60.7% | 56.3% | 49.5% | 24.7% | 0.502 |
| 73 | Russia | 42.0% | 55.6% | 52.0% | 37.3% | 62.9% | 0.500 |
| 74 | Jamaica | 64.5% | 66.0% | 38.7% | 48.0% | 30.9% | 0.496 |
| 75 | Morocco | 55.5% | 48.0% | 46.5% | 36.9% | 59.5% | 0.493 |
| 76 | Vietnam | 43.6% | 47.0% | 53.2% | 50.1% | 52.1% | 0.492 |
| 77 | India | 48.1% | 53.7% | 55.1% | 24.1% | 64.4% | 0.491 |
| 78 | Sri Lanka | 51.8% | 44.8% | 52.3% | 36.5% | 57.0% | 0.485 |
| 79 | Guatemala | 58.9% | 64.4% | 45.0% | 38.1% | 35.6% | 0.484 |
| 80 | Mongolia | 55.3% | 64.0% | 35.0% | 53.0% | 33.2% | 0.481 |
| 81 | Ghana | 55.2% | 59.5% | 28.4% | 52.8% | 42.4% | 0.477 |
| 82 | Serbia | 53.1% | 50.0% | 38.1% | 42.4% | 54.4% | 0.476 |
| 83 | Kyrgyzstan | 57.7% | 61.3% | 26.0% | 60.0% | 30.1% | 0.470 |
| 84 | Zambia | 55.6% | 65.9% | 28.1% | 49.1% | 35.1% | 0.468 |
| 85 | Philippines | 50.4% | 58.4% | 42.3% | 21.3% | 61.3% | 0.467 |
| 86 | Paraguay | 59.5% | 54.3% | 26.3% | 40.4% | 49.8% | 0.460 |
| 87 | Honduras | 54.0% | 67.3% | 40.1% | 26.6% | 34.6% | 0.445 |
| 88 | Uganda | 58.6% | 63.9% | 27.0% | 32.5% | 36.8% | 0.437 |
| 89 | Rwanda | 60.1% | 52.4% | 43.7% | 58.7% | 3.7% | 0.437 |
| 90 | Kenya | 52.2% | 59.2% | 31.5% | 37.8% | 35.7% | 0.433 |
| 91 | Moldova | 49.7% | 53.7% | 39.0% | 43.3% | 25.7% | 0.423 |
| 92 | Nicaragua | 54.3% | 60.8% | 29.1% | 34.9% | 31.5% | 0.421 |
| 93 | Dominican Republic | 56.1% | 50.1% | 34.2% | 44.2% | 26.1% | 0.421 |
| 94 | Argentina | 43.8% | 44.1% | 42.0% | 32.1% | 46.9% | 0.418 |
| 95 | Pakistan | 48.8% | 41.4% | 25.9% | 41.7% | 47.9% | 0.411 |
| 96 | Guyana | 40.4% | 48.8% | 30.7% | 43.5% | 41.4% | 0.410 |
| 97 | Bosnia and Herzegovina | 52.4% | 44.9% | 33.4% | 34.1% | 34.8% | 0.399 |
| 98 | Bangladesh | 45.7% | 44.6% | 31.5% | 34.9% | 40.3% | 0.394 |
| 99 | Tanzania | 51.6% | 43.9% | 28.4% | 30.2% | 37.9% | 0.384 |
| 100 | Bolivia | 41.3% | 47.2% | 31.2% | 20.1% | 45.2% | 0.370 |
| 101 | Iran | 29.6% | 46.1% | 48.6% | 30.6% | 29.7% | 0.369 |
| 102 | Ukraine | 35.1% | 35.7% | 40.3% | 22.4% | 50.3% | 0.368 |
| 103 | Madagascar | 57.8% | 47.6% | 25.1% | 24.2% | 28.0% | 0.365 |
| 104 | Mozambique | 51.3% | 39.6% | 20.4% | 28.5% | 39.6% | 0.359 |
| 105 | Nigeria | 51.2% | 45.4% | 22.2% | 25.0% | 35.3% | 0.358 |
| 106 | Ecuador | 37.0% | 45.5% | 31.7% | 32.5% | 32.2% | 0.358 |
| 107 | Malawi | 49.9% | 46.6% | 24.7% | 29.2% | 28.0% | 0.357 |
| 108 | Ethiopia | 42.0% | 29.5% | 26.8% | 42.3% | 36.1% | 0.353 |
| 109 | Algeria | 44.8% | 26.0% | 42.3% | 22.8% | 39.3% | 0.350 |
| 110 | Senegal | 49.7% | 37.4% | 32.5% | 18.6% | 30.5% | 0.337 |
| 111 | Burkina Faso | 57.0% | 43.2% | 16.0% | 20.3% | 29.1% | 0.331 |
| 112 | Syria | 43.2% | 33.5% | 36.4% | 21.6% | 29.5% | 0.328 |
| 113 | Mali | 50.6% | 46.1% | 18.9% | 20.4% | 28.1% | 0.328 |
| 114 | Benin | 50.1% | 42.7% | 33.0% | 8.5% | 20.0% | 0.309 |
| 115 | Lesotho | 37.6% | 50.4% | 21.6% | 22.6% | 20.4% | 0.305 |
| 116 | Cameroon | 43.9% | 41.2% | 29.2% | 9.4% | 24.5% | 0.296 |
| 117 | Nepal | 41.4% | 35.9% | 21.1% | 35.8% | 11.5% | 0.291 |
| 118 | Côte d'Ivoire | 49.3% | 38.1% | 21.3% | 8.3% | 23.5% | 0.281 |
| 119 | Mauritania | 44.4% | 50.6% | 14.2% | 13.4% | -0.5% | 0.244 |
| 120 | Venezuela | 22.9% | 13.8% | 26.0% | 11.4% | 44.3% | 0.237 |
| 121 | Angola | 35.7% | 5.9% | 7.0% | 10.6% | 39.9% | 0.198 |
| 122 | Burundi | 40.7% | 24.4% | 7.8% | 0.4% | 6.2% | 0.159 |
| 123 | Chad | 34.3% | 27.0% | 0.0% | 0.0% | 0.0% | 0.123 |
| 124 | Zimbabwe | 0.0% | 0.0% | 10.1% | 15.5% | 11.5% | 0.074 |
Culture matters within countries as well as regions. We have split up the globe into spheres of influence. The region that is most free on the globe is North America. With only two countries in this region, it is politically less diverse than other regions, especially Europe. What may be surprising is that Canada, often seen as a bureaucratic social haven, is seen as more free than the United States by multiple sources. Oceania follows North America in economic efficiency. Most countries in this region, with the exception of Indonesia, are very investor friendly.
Europe follows with its 38 countries. It is very politically and culturally diverse with Northern and Western European countries scoring higher than the Southern and Eastern European countries. It is a disappointment to have the largest country in the region, Russia, near the bottom of the region.
The Middle East is in a statistical dead heat with Asia for the middle of the pack. South Asia, with India, Pakistan and Bangladesh bring down the Asia index. China is just above the regional average. The Middle East is trying to shed is authoritarian reputation and is showing big increases in economic freedom and opportunity. Many Middle Eastern countries are opening economically, including, Bahrain, United Arab Emirates, Oman and Israel.
Latin America follows the Middle East. Many in the region have been hoodwinked or bought off by the regional menace Hugo Chavez. Now there are a number of his sympathizers in power which is bringing the scores down considerably. There is hope in the Pacific with Chile, Peru, Colombia and Panama all showing significant improvement. Brazil, even though there economy has been surging recently, seems to score relatively poor and is placed even below Dominican Republic.
The biggest disappointment of course is the region with a whole host of pariahs, Sub-Saharan Africa. In fact, 18 of the bottom 26 countries belong to the region. There are some bright spots. Mauritius, an island off the coast of Madagascar, has proven to be investor friendly and is seen by many as a lassiez-faire gateway to the continent. South Africa, Botswana and Rwanda are sowing the seeds for future economic development and prosperity. The problem is, for every Botswana and Rwanda there is a Zimbabwe, Congo, Burundi, Angola, etc.
Regional Data
North America average 0.871
| Rank | Country | EP Average |
4 | Canada | 0.874 |
7 | United States | 0.868 |
Oceania average 0.797
| Rank | Country | EP Average |
2 | Singapore | 0.951 |
5 | New Zealand | 0.872 |
8 | Australia | 0.852 |
70 | Indonesia | 0.511 |
Europe average 0.660
| Rank | Country | EP Average |
| 3 | Switzerland | 0.877 |
| 6 | Denmark | 0.869 |
| 9 | United Kingdom | 0.846 |
| 10 | Finland | 0.834 |
| 11 | Sweden | 0.832 |
| 12 | Norway | 0.826 |
| 13 | Netherlands | 0.808 |
| 15 | Ireland | 0.797 |
| 16 | Germany | 0.797 |
| 17 | Luxembourg | 0.778 |
| 18 | Austria | 0.771 |
| 22 | Belgium | 0.748 |
| 23 | France | 0.745 |
| 25 | Estonia | 0.725 |
| 26 | Cyprus | 0.721 |
| 28 | Iceland | 0.700 |
| 30 | Slovakia | 0.674 |
| 31 | Spain | 0.671 |
| 32 | Lithuania | 0.665 |
| 34 | Czech Republic | 0.665 |
| 36 | Portugal | 0.658 |
| 37 | Slovenia | 0.657 |
| 43 | Hungary | 0.631 |
| 45 | Poland | 0.613 |
| 46 | Latvia | 0.612 |
| 49 | Italy | 0.596 |
| 50 | Bulgaria | 0.596 |
| 58 | Romania | 0.557 |
| 60 | Macedonia | 0.554 |
| 65 | Croatia | 0.533 |
| 66 | Albania | 0.526 |
| 68 | Greece | 0.523 |
| 72 | Montenegro | 0.502 |
| 73 | Russia | 0.500 |
| 82 | Serbia | 0.476 |
| 91 | Moldova | 0.423 |
| 97 | Bosnia and Herzegovina | 0.399 |
| 102 | Ukraine | 0.368 |
Asia average 0.572
| Rank | Country | EP Average |
| 1 | Hong Kong | 0.957 |
| 14 | Japan | 0.798 |
| 20 | Taiwan | 0.761 |
| 21 | South Korea | 0.754 |
| 33 | Thailand | 0.665 |
| 38 | Malaysia | 0.654 |
| 51 | China | 0.592 |
| 56 | Kazakhstan | 0.563 |
| 76 | Vietnam | 0.492 |
| 77 | India | 0.491 |
| 78 | Sri Lanka | 0.485 |
| 80 | Mongolia | 0.481 |
| 83 | Kyrgyzstan | 0.470 |
| 85 | Philippines | 0.467 |
| 95 | Pakistan | 0.411 |
| 98 | Bangladesh | 0.394 |
| 117 | Nepal | 0.291 |
Middle East average 0.558
| Rank | Country | EP Average |
| 24 | Bahrain | 0.726 |
| 27 | United Arab Emirates | 0.717 |
| 29 | Israel | 0.684 |
| 35 | Oman | 0.661 |
| 40 | Kuwait | 0.646 |
| 41 | Georgia | 0.635 |
| 52 | Turkey | 0.587 |
| 54 | Tunisia | 0.576 |
| 55 | Jordan | 0.563 |
| 57 | Armenia | 0.558 |
| 67 | Azerbaijan | 0.524 |
| 69 | Egypt | 0.511 |
| 75 | Morocco | 0.493 |
| 101 | Iran | 0.369 |
| 109 | Algeria | 0.350 |
| 112 | Syria | 0.328 |
Latin America average 0.494
| Rank | Country | EP Average |
| 19 | Chile | 0.764 |
| 42 | Peru | 0.631 |
| 44 | Mexico | 0.626 |
| 48 | Panama | 0.598 |
| 53 | Colombia | 0.576 |
| 59 | El Salvador | 0.555 |
| 61 | Costa Rica | 0.552 |
| 63 | Uruguay | 0.549 |
| 71 | Brazil | 0.507 |
| 74 | Jamaica | 0.496 |
| 79 | Guatemala | 0.484 |
| 86 | Paraguay | 0.460 |
| 87 | Honduras | 0.445 |
| 92 | Nicaragua | 0.421 |
| 93 | Dominican Republic | 0.421 |
| 94 | Argentina | 0.418 |
| 96 | Guyana | 0.410 |
| 100 | Bolivia | 0.370 |
| 106 | Ecuador | 0.358 |
| 120 | Venezuela | 0.237 |
Sub-Saharan Africa average 0.379
| Rank | Country | EP Average |
| 39 | Mauritius | 0.649 |
| 47 | South Africa | 0.609 |
| 62 | Botswana | 0.551 |
| 64 | Namibia | 0.535 |
| 81 | Ghana | 0.477 |
| 84 | Zambia | 0.468 |
| 88 | Uganda | 0.437 |
| 89 | Rwanda | 0.437 |
| 90 | Kenya | 0.433 |
| 99 | Tanzania | 0.384 |
| 103 | Madagascar | 0.365 |
| 104 | Mozambique | 0.359 |
| 105 | Nigeria | 0.358 |
| 107 | Malawi | 0.357 |
| 108 | Ethiopia | 0.353 |
| 110 | Senegal | 0.337 |
| 111 | Burkina Faso | 0.331 |
| 113 | Mali | 0.328 |
| 114 | Benin | 0.309 |
| 115 | Lesotho | 0.305 |
| 116 | Cameroon | 0.296 |
| 118 | Côte d'Ivoire | 0.281 |
| 119 | Mauritania | 0.244 |
| 121 | Angola | 0.198 |
| 122 | Burundi | 0.159 |
| 123 | Chad | 0.123 |
| 124 | Zimbabwe | 0.074 |
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2nd Annual Index of Economic Efficiency of the world for 2011
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