The United States and Canada, once again, topped the 2014 ranking of the Venture Capital and Private Equity Country Attractiveness Index. Next comes Singapore, which moved up two places, overtaking the United Kingdom (in fourth place) and Japan (sixth).
Hong Kong moved into fifth place – demonstrating the ability of yet another city-state (although it technically is a special administrative region of China) to punch above its weight in being an attractive destination for investment.
Germany, Australia, Sweden and Switzerland make up the top ten.
These are only some of the data the VC/PE Index displays. Drawn up by IESE in collaboration with the EMLYON Business School, the fifth edition of this index aims to help investors identify the countries with the most potential for investment.
With this in mind, its authors analyzed the socioeconomic data of 118 countries to identify a strong link between their attractiveness scores and actual PE activity.
The six key drivers they have used to determine countries’ attractiveness are the following:
- economic activity,
- depth of capital markets,
- taxation,
- investor protection and corporate governance,
- human and social environment, and
- entrepreneurial culture and business opportunities, which encompass aspects such as innovation capacity, the ease of doing business and the development of high-tech industries.
The index shows that a country with approximately 45 index points or more out of 100 seems to mark the turning point when PE activity comes alive. Kazakhstan, Georgia and Kuwait are countries at the cusp of this.
Beyond the BRICs
The BRIC countries (Brazil, Russia, India and China) continue to experience strong investor attention, in spite of the fact that key drivers related to investor protection, human and social environment, and entrepreneurial culture remain rather poorly developed in these countries.
While the BRICs remain the darlings of investors, the emerging economies of Indonesia, Mexico, the Philippines and Turkey show the highest potential for a meaningful increase in PE activity in the near future.
All four countries have gained attractiveness over the past five years, with Turkey and Mexico ranking even ahead of Brazil and Russia. Close on their heels are Indonesia and the Philippines.
Despite these economies being smaller than those of the BRICs, the real growth perspectives of these countries are encouraging, owing to their strong economic potential combined with their large populations.
Besides these, other countries whose medium-term prospects show promising development in terms of PE attractiveness are Malaysia, Finland, Chile, Colombia, Lithuania, Oman, Peru, Morocco and Estonia.
As the authors of the index note: "The landscape of investable emerging markets is growing. However, there are also many countries that are probably not yet sufficiently mature to support PE investment. Our index helps assess the maturity of countries with respect to sustaining the PE business model."
For more information, see IESE INSIGHT
See the Interactive VC/PE Index