Africa in strong showing on Baseline Profitability Index

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By Zimbabwe Investor on June 10, 2014. No Comments

Five countries from Africa have ranked among the top 20 Global foreign investment destinations, according to a survey of 112 countries by US-based Foreign Policy magazine.

This was the second edition of what the magazine calls the Baseline Profitability Index (BPI), which brings together eight factors to predict the total pre-tax return investors might expect in countries around the world, namely: economic growth, financial stability, physical security, corruption, expropriation by government, exploitation by local partners, capital controls, and exchange rates.

In each case, economist Daniel Altman estimated how likely a given factor was to affect an investment, and then how costly the effect might be, the idea being to see how all of the above factors might affect a foreign direct investment – the kind a private equity firm might make – over five years.

Comparisons across the first two years of the BPI, notes the author, tell plenty of interesting stories. Botswana originally ranked second in 2013, but using the Index of Economic Freedom put it in first place for two years in a row. Four other countries in SSA joined it in the top 20 in 2014, with strong prospects for growth and, in Ghana and Rwanda at least, friendly business climates.

East Asia performed even better, locking down seven of the top 20 places. China’s case is one where a switch to the Heritage Foundation’s Index of Economic Freedom (2013 report used the International Property Rights Index) was noticeable. It ranked 21 in the original 2013 BPI and slipped to 43 after the change.

The index takes a dim view of Chinese property rights, perhaps because of the country’s nominally communist system. China’s expectations for growth dimmed significantly as well, pushing it still further down the rankings to 60th place in 2014. Several countries made even wider jumps between the two years of uniform data. The biggest movers in the right direction were Jamaica, Japan, and the Philippines. The deepest drops in the BPI were by Cape Verde, Egypt, Turkey, and Uruguay.