Switzerland tops the GlobalData Country Risk Index as the world's least risky country, while Venezuela ranks bottom, but what does the risk factor mean for a location's FDI inflows?
Key findings from assessing the relationships between a country's risk score and FDI and GDP per capita:
- Switzerland tops the ranking as the least risky country.
- Venezuela is the riskiest country.
- FDI and GDP per capita are negatively correlated against country risk.
- More successful FDI countries have lower country risk scores.
- Rich countries are generally deemed less risky compared with poorer countries.
- Western European and Asian countries dominate the top of the index (less risky).
- Poorer Middle East and sub-Saharan Africa countries are deemed the most risky.
- Country risk seen as a more longlisting site-selection factor (than shortlisting).
The importance of country risk for FDI
There are many other factors that contribute to an FDI decision. Country risk may only enter the thinking depending on the shortlist of locations being proposed. For example, a US-company targeting western Europe to open an office may be considering France, Ireland, Germany and UK. Country risk is unlikely to be a key factor in this decision process as all of these locations are relatively low risk. Other factors such as talent , costs, business environment and connectivity would be expected to be higher up the criteria list.
In contrast, if a company is looking to build a manufacturing plant in Africa, country risk may be more of a contributory factor in the decision-making process. In this instance, country risk may be an initial metric in deciding on a long list of locations. Once the long list has been decided, other FDI factors may then be used to benchmark countries against each other to filter down to a short list of locations – potentially for the site-selection phase.