Investors, entrepreneurs and global travelers consider a range of factors when deciding where to put their money. To help them make a more informed choice, Forbes Insights and OFX compiled a ranking of the world’s largest recipients of foreign direct investment as of 2017 to create the Global Exchange Index (GEI).
To develop the GEI, we compared attributes such as a country’s business environment and the degree to which each country welcomes foreign investment and protects private property. We also compared the cost of living in capital cities and the quality of the expatriate experience, based on a large-scale opinion survey.
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01 | Singapore
High rankings: Ease of doing business (1st); expat survey (1st)
Low rankings: Internet use (7th); cost of living (9th)
Singapore’s ruling People’s Action Party has been in power since independence and has single-mindedly pursued rapid economic growth fueled, in part, by foreign investment. This almost unique degree of governmental continuity has paid off: From being among the poorest countries in the world in 1963, Singapore is now among the richest, with a “clean and green” physical environment and an absence of corruption.
In addition, Singapore has always been a hospitable place for expatriates. Roughly 40% of the population is of foreign origin (permanent residents plus non-residents such as foreign students and workers, including dependents), among the highest in the world. White-collar workers have settled there for high-paying employment, good amenities and an ability to travel easily around the economically dynamic region and beyond. These factors all help explain why Singapore tops our list.
02 | Switzerland
High rankings: Global competitiveness (1st); property rights (1st); perceived corruption (1st)
Low rankings: Ease of doing business (9th); cost of living (7th)
Landlocked and mountainous Switzerland belies the notion that a country has to be a seafaring nation to be truly outward-oriented. In Switzerland’s case, it had little choice but to build a global business presence to offset the fact that it had few natural resources beyond beautiful scenery. Skills are among its most important imports: A quarter of the country’s 8.4 million people are foreign-born, the overwhelming majority of whom are from the rest of Europe.
In terms of politics, a highly decentralized system of government in a federation of 26 cantons has been a recipe for stability and good economic management. This has led to an extremely solid macroeconomic environment and a highly flexible labor market. Investors looking for discreet banking services have flocked to Switzerland since the early 18th century. Today, 48% of the $6.5 trillion under management originates from abroad, according to the Swiss Bankers Association.
In recent years, Switzerland has come under increasing pressure from developed countries to provide information about its depositors. Even so, a combination of strong economic fundamentals and deeply entrenched property rights help put Switzerland in second place on the Global Exchange Index.
03 | The Netherlands
High rankings: Property rights (3rd); perceived corruption (3rd); infrastructure (3rd); expat survey (3rd)
Low rankings: Financial market development (8th); ease of doing business (8th)
The Netherlands’ third place ranking in the index reflects the country’s long history of economic openness as a great trading nation. This began in the 17th century with the establishment of colonies on five continents and continued until the 1940s when Indonesia won its independence. The Dutch remain strongly internationally-minded and hospitable toward foreigners, as evidenced by the fact that 90% or more of the population speaks English.
The Netherlands is one of the world’s largest outward investors as well as inward investors, with most of the capital originating overseas. Multinationals register their assets in the Netherlands and then reinvest them abroad to avoid withholding taxes. The country’s commercial attractiveness is helped by a web of international tax treaties. As a strategic gateway to European markets, it is regarded by many business people as an excellent location to operate from.
04 | US
High rankings: Financial market development (1st); global competitiveness (2nd)
Low rankings: Perceived corruption (8th); expat survey (7th)
The United States has the world’s largest economy and is the largest recipient of foreign direct investment, greater than the next five countries on the GEI combined. Thanks to having the second-most competitive economy, according to the World Economic Forum, the United States remains a magnet for foreign entrepreneurs—as evidenced by the fact that more than 10% of Forbes’ 400 Rich List, which profiles America’s wealthiest residents, consists of immigrants.
For now, the US capitalist mystique is strong. It is a society avowedly fueled by the perspiration and inspiration of immigrants, and there continues to be a high acceptance of foreigners. Immigrants remain essential to economic growth in the United States, according to a report from the National Academy of Sciences. Weighing its strong competitiveness against a tolerance for certain kinds of perceived corruption pushes the United States into fourth place.
05 | Hong Kong
High rankings: Internet use (1st); infrastructure (1st)
Low rankings: Cost of living (10th); property rights (8th)
Hong Kong has the second-highest stock of foreign direct investment in the world, an impressive feat for a small entrepôt, but understandable given its geographical location and history. As a crown colony of the British, Hong Kong investors benefited from laissez-faire economic policies, the rule of (British) law and a free press. Since Hong Kong was handed back to China in 1997, its primacy as the entry point for investors in China has been eclipsed somewhat by the rise of Shanghai and the Pearl River delta, ushered in by the mainland’s economic reforms. But the stock market remains a vibrant place for companies in the region to list their shares.
Hong Kong has benefited from its status as a Special Administrative Region, although its freedoms have eroded gradually under the rule of a Beijing government suspicious of its democratic leanings. This has not prevented Hong Kongers from voicing their opinions or significantly restricted expatriates from speaking their minds.
For foreigners doing business in Hong Kong, a bigger concern, perhaps, is the high cost of living, thanks in part to the local currency being pegged to the U.S. dollar. Also, the Property Rights Alliance gives it a low score for patent protection and copyright piracy. Despite a robust infrastructure and top-rated internet usage, Hong Kong ranks fifth in the Global Exchange Index, three places higher than China.
06 | Germany
High rankings: Cost of living (2nd); expat survey (2nd)
Low rankings: Ease of doing business (7th); property rights (7th)
Having successfully absorbed the former communist East Germany after the fall of the Berlin Wall in 1989 and overcome an economic crisis in the early 2000s, Germany has become more socially diverse and less conformist. At the beginning of this century, it liberalized its citizenship laws and more recently rolled out the welcome mat to refugees from the Middle East and Africa. These are signs of its growing confidence on the world stage.
One result of this openness is that German society is now more diverse and inclusive, especially Berlin. The capital and other urban centers are ranked among the best cities in the world in terms of the quality of life. Almost half the area of Berlin, for example, is composed of parks, forests, rivers and lakes. Along with these amenities, Germany has Europe’s largest and strongest economy, thanks to its powerful industrial network, strategic location in the center of the continent and a highly skilled workforce. Germany may have ranked higher on the Global Exchange Index were it not for things like heavy tax rates on individuals and businesses, and inflexible labor rules.
07 | Canada
High rankings: Cost of living (1st); perceived corruption (3rd)
Low rankings: Internet use (9th); global competitiveness (8th); infrastructure (8th)
While some industrialized countries are turning more nationalistic, Canada remains a beacon of openness and liberal democracy. Skilled immigrants continue to enter in large numbers. Almost a quarter of the population is foreign-born, and major cities such as Toronto and Vancouver are as cosmopolitan as New York and London. Among the attractions of Canada for foreign investors are a relatively low cost of living and a highly qualified workforce. Total business tax costs are the lowest among the G7 countries, particularly for industries that perform a lot of R&D.
Despite a welcoming climate for businesspeople from abroad, foreign direct investment has fallen in recent years due to the impact of weak commodity prices on the important mining and energy sectors. According to the World Economic Forum, Canada’s macroeconomic environment lags competitors, thanks to an expanding federal deficit and lacking technological readiness.
Canada’s proximity to the United States has proven to be a mixed blessing in recent years. Canada’s exporters benefit from being on the doorstep of the largest market in the world but are vulnerable to economic and political trends from its massive neighbor. These attributes and a weaker infrastructure help push Canada into seventh place.
08 | UK
High rankings: Perceived corruption (3rd); internet use (3rd)
Low rankings: Expat survey (8th); global competitiveness (7th); infrastructure (7th); financial market development (7th)
With its history as the center of a once-global empire and London’s continued role as the financial capital of Europe, the United Kingdom would seem to have been destined to occupy a higher spot on the Global Exchange Index. But its relatively poor showing in the expatriate survey and lagging global competitiveness help push it down to eighth place.
Its global standing was not strengthened by the 2016 referendum in favor of leaving the European Union (EU). Some saw it as a sign of Britain wanting to regain some of the luster of its imperial past, while others regarded the result as a desire to turn inward. There is a nativist tinge now to British politics, but policymakers know that the country must remain hospitable to foreigners, especially investors, if it is to prosper after leaving the EU. One advantageous outcome of the Brexit vote for wealthy investors is that prices at the top end of the London property market have weakened significantly and sterling’s international value has fallen, making the United Kingdom a cheaper place to invest in.
09 | Ireland
High rankings: Ease of doing business (5th); cost of living (5th)
Low rankings: Financial market development (10th); global competitiveness (9th); property rights (9th); perceived corruption (9th); infrastructure (9th); expat survey (9th)
Since joining the European Union, Ireland has been one of the most successful countries in luring foreign investment, with one of the lowest statutory corporate income tax rates in Europe at 12.5%. It leads the world in attracting investment in high-value jobs, especially in research & development and services.
A more liberal attitude to social issues adds to Ireland’s attractiveness as a country famed for its friendliness toward strangers. Despite the welcoming nature of the population, it received a relatively low score in HSBC’s expatriate survey, judged on economics, family life and people’s overall experience. Such attributes help put it in ninth place in the Global Exchange Index.
10 | China
High rankings: Cost of living (8th); financial market development (9th)
Low rankings: Global competitiveness (10th); ease of doing business (10th); property rights (10th); Internet use (10th); infrastructure (10th); expat survey (10th)
Chinais a challenging (but fascinating) country in which to do business and to live as an expatriate, and it has made tremendous strides since it opened its economy to the world in 1978. China is now the fourth-largest recipient of foreign direct investment, driven by the promise of access to the world’s second-largest economy and its position as an export powerhouse.
The Communist Party under President Xi Jinping retains an iron grip on politics, while the economy is an amalgam of state control and a highly competitive free market. China has strict foreign exchange controls, and foreign companies typically repatriate profits by issuing dividends.
Overseas investors frequently must share intellectual property with their Chinese business partners as the price of admission into the domestic market. Foreign entrepreneurs, therefore, have to take a long-term view when investing in China. Hong Kong (#5 in the index) could still be a safer location for investors to put their money.
The Methodology
The Forbes Insights and OFX Global Exchange Index (GEI) is a list of the top 10 destinations that readers might consider as they evaluate their business and personal investment decisions. The universe for the index comprises those countries and territories with the largest stock of inward foreign direct investment, as measured by the United Nations Conference on Trade and Development, which started issuing annual reports compiling data on foreign direct investment in 1991.
To rank the countries and develop the GEI, we chose the following nine criteria that are all important to investors, entrepreneurs and global travelers:
Competitiveness of the economy (measured by the World Economic Forum’s Global Competitiveness Index): This is a well-regarded and long-established ranking of countries by their level of competitiveness, as measured by a wide range of statistics, from the macroeconomic environment and microeconomic competitiveness to measurements of health and education.
Financial market development (compiled by the World Economic Forum): This measures the availability and efficiency of financial services and the soundness of financial institutions. Ease of doing business, from the World Bank’s Doing Business report, which measures business regulations in 190 economies.
Ease of doing business (from the World Bank’s Doing Business report): Measures business regulations in 190 economies.
Property laws (IPRI): This evaluates the sanctity of contracts in a given country and the principle of non-discriminatory property laws, whether for a domestic or foreign investor.
Level of corruption (Transparency International): This ranking is based on investors’ perceptions of the level of graft in a country; the higher the ranking, the lower the level of perceived corruption.
Cost of living by capital city (Mercer): The lower the cost of living, the higher the ranking. Living costs tend to fluctuate partly due to changes in exchange rates.
Extent of Internet usage (WEF sub-index): This measures things like the average Internet bandwidth per user and the proportion of the population that are mobile telephone subscribers.
Quality of physical infrastructure (WEF subindex): A ranking of the roads, airports, railways, ports and so on in a given country.
Expat Explorer survey (HSBC Expat Explorer): An annual survey, now in its 11th year, that asks expats a series of questions about economics, experience and family. The 2017 study surveyed 27,587 expats in 159 countries.
IMPORTANT: The contents of this blog do not constitute financial advice and are provided for general information purposes only without taking into account the investment objectives, financial situation and particular needs of any particular person. UKForex Limited (trading as “OFX”) and its affiliates make no recommendation as to the merits of any financial strategy or product referred to in the blog. OFX makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this blog.
