Best Country for Investing - Case Study Example

Best Country for Investing Introduction To determine the country of choice where to invest various factors were determined. These factors included the understanding of the country’s current rate of inflation. In addition, the exchange rates and the countries corporate governance and corruption ranking was also determined. The current level of inward foreign direct investment activity of the countries was also considered. Other factors that were also considered were the trend in the cost debt of the past years, and the change in the countries share price indices. Furthermore, the tariffs imposed by these countries were also considered. After considering and critical analysis of the above factors, the two countries that were chosen were Netherlands and Switzerland. The Countries Economic Positions Recent inflation NETHERLANDS In Netherlands, the rate of inflation is based on the consumer pricing index (CPI). These categories in the consumer pricing index include water housing, gas and electricity which are 24.5% of the total weight (Trading Economics, 2015). Food and non-alcoholic beverages and transport were 11.3 and 11.6 percent respectively (Trading Economics, 2015). The indexes also include, recreation and culture, clothing and footwear and furnish and household equipment which are 10.3%, 4.9%, and 6% respectively (Trading Economics, 2015). Communication, hotel and restaurant, alcoholic beverages and tobacco, are 3.3%, 4.2%, 3.1% respectively are also included indexes (Trading Economics, 2015). Education, goods, and services account for the remaining 20.8 percent of the total weight; the above-provided statistic was refreshed last on April 16, 2015 (Trading Economics, 2015). The figures in this graph are courtesy of Trading Economics, 2015 One year after the other, the biggest upward pressure is experience in 2.4 percent increase in the cost of the energy, water, and housing (Trading Economics, 2015). The price of rental houses experienced a rise of 4.3 percent while the cost of energy dropped by 2.8 percent (Trading Economics, 2015). The cafés and restaurant price rose by 1.2 percent while the cost of education increased by 3.5 percent (Trading Economics, 2015). Furthermore tobacco and alcoholic beverages increased by 2.4 percent (Trading Economics, 2015). The down pressure comes from the cost the not- alcoholic beverages and the cost of food which is -0.2 percent (Trading Economics, 2015). Furthermore, footwear and clothing was -3.0 and the price for transportation fell by 1.6 percent compared to the decline of 2.8% experienced in February (Trading Economics, 2015). Gasoline declined by 5.8 percent whiles the cost of diesel reduced 9 percent (Trading Economics, 2015). The inflation rate of core increased to 1 percent from 0.9 percent in February (Trading Economics, 2015). On March, the harmonized price index of consumers fell an annual 0.3 percent (Trading Economics, 2015). SWITZERLAND The most vital category in the consumer price index in Switzerland includes health care and electricity and housing which are 14.9 and 25.4 respectively (Focus Economics, 2015). Food and not- alcoholic beverages, transportation, culture and recreation and hotel and restaurant accounts for 10.5 percent, 11.2 percent, 9.8 percent and 9.4 percent respectively (Focus Economics, 2015). The index also includes goods and services, clothing and footwear, household equipment and maintenance in their respective percentage accounts for 5.4, 3.8, and 4.5 percent (Focus Economics, 2015). Furthermore, communication, tobacco and alcoholic beverage and education accounts for the remaining 5.2 percent of the total weight (Focus Economics, 2015). The Switzerland data provided was last updated on Thursday, April 16, 2015. The figures in this graph are courtesy of Focus economics, 2015 In Switzerland, consumer pricing dropped to 0.9 percent in March 2015 which followed a 0.8 percent drop of the previous month (Focus Economics, 2015). The price of transport recorded the highest decrease 0f -3.7 percent while the second was household equipment which recorded -1.8 percent that was also same as the recreation and culture (Focus Economics, 2015). Furthermore, food and not- alcoholic beverages were the third with -1 percent and finally goods and services with recorded a decrease of -0.3 percent (Focus Economics, 2015). The upward pressure on Switzerland came from the cost of hotel and restaurant which was 0.1 percent (Focus Economics, 2015). Others were alcoholic drinks and tobacco, clothing and footwear, and education which were 1.3, 0.4, and 1.2 percent respectively (Focus Economics, 2015). The pricing index increased to 0.3 percent on a monthly basis (Focus Economics, 2015). This was a recovery from a decrease in the previous three months hence reaching the highest rate since May of 2014. Only the price of accommodation which was -0.1 and food and non-alcoholic beverages -0.3 fell (Focus Economics, 2015). Changes in Exchange Rates NETHERLANDS The official currency of Netherlands is euro; Netherlands is a member of the European Union. Euro area means the union of currency among the member state of the European Union that has accepted the euro as their currency. In Netherlands, the decision of the rate of interest is taken by the European Central Bank governing council (Trading Economics, 2015). SWITZERLAND The Switzerland currency is the Swiss Franc. The ranking of the currency indicates that the most exchange rate of Switzerland Franc that is most popular is the Euro to CHF rates. CEF is the currency cord for Francs, and the symbol of the currency is CEF (Xe Currency Money Transfer, 2015). The Countries Corporate Governance and Corruption Rankings NETHERLAND The country of Netherlands is ranked the seventh out of the one hundred and eighty-three on the worlds least corrupt countries. This list was released by the by the Organization of International Transparency. According to the index of the Corruption Perception, realized on 2011 by the Transparency International, Netherlands scored 8.9 points out of ten (2015 Index of Economic Freedom, 2015). Netherlands was placed ahead of the United States, which was 24, Germany, which was at the 14th place and United Kingdom that was placed at the 16th place (2015 Index of Economic Freedom, 2015). The global index score runs from zero to ten. Zero point indicates highly corrupt to ten which is an indication of being very clean. The index is based on the alleged level of corruption at the public sector. The result was reached by considering data from 17 surveys. Some of the factors considered included the anti-corruption law enforcement, kickbacks in public procurements, access to information, the allegation of public office bribery, conflicts of interest and embezzlement of public funds. The results by the organization are well- founded as demonstration and protest experienced around the world continues to demand greater accountability from their government. The countries that have scored highly like the Netherlands shows that the effort by the countries to improve transparency can benefit the people. The country of Netherlands has very few problems with the issue of corruption. The effective anti- corruption measure in the country ensures the public tolerance for graft and the government integrity is low. In May 2013, a new campaign financing law was affected. The legal framework ensured the strong enforcement of contracts and the protection of private property. The judiciary is respected because it is independent of the political interference and provides adjudication of disputes that is fair (2015 Index of Economic Freedom, 2015). SWITZERLAND The Berlin-based organization places Switzerland in the seventh position in the word in the index of the corruption perception. The index ranked one hundred and seventy-seven countries depending on how their public sector is believed to be corrupt base on the countries experts and business report. Switzerland score of 85 is slightly down from 86 released last year in the CPI (Find the data, 2015). Switzerland has a perception score index for corruption of 8.6 out of ten which is 132 percent better than the average (Find the data, 2015). In Switzerland, 36.7 percent of the citizens agree that the government is very effective in the fight against corruption (Find the data, 2015). Switzerland has a Bribery perception index score of 8.8 out of ten which is 14 percent above average (Find the data, 2015). On the surveyed citizens of Switzerland, two percent of the citizens reported having paid bribe for the last twelve months (Find the data, 2015). The Transparent International 2013 Corruption Perception Index ranked Switzerland at the seventh position out of the one hundred and seventy-seven countries. In Switzerland, a fair and independent judicial system and a strong enforcement of protection of property right is institutionalized throughout the economy. Bankruptcy and commercial laws are applied efficiently and consistently. There is the respect of intellectual property right and enforcement (2015 Index of Economic Freedom, 2015). The Countries Current Levels of Inward Foreign Direct Investment Activity SWITZERLAND Switzerland and the United States both form an important figure in the foreign direct investment (FDI). The two countries are well known for their brand name outward FDI stock and multinational enterprises (MNEs). The brand represented 112 percent of the GDP for Switzerland in 2003 and 19 percent for the United States (Institute for International Economics, 2015). In the rankings of the performance index for outward FDI between the years 2003 and 2001, Switzerland was in the ninth position. USA was in the thirtieth position among the nations that were listed. Both United nation and Switzerland has become an important host for foreign MNEs and inward direct investment. Inward stocks as a share for GPD of Swiss increased from eight percent in the year 1980 to fifty percent in the year 2003. However, for the United States, Inward FDI stocks increased from three percent to fourteen percent (Institute for International Economics, 2015). In both the countries, the investment of portfolio faces low barriers. For Switzerland, the outward investment portfolio is mainly weighty while the inward investment portfolio is the United States major economy feature. Exchanges of portfolio investment between Switzerland and United States are large with the dominant asset being the equity holdings. The size of United States and Switzerland portfolio flow of income is quite large, mainly when benchmarked against the flow from and to the European Union (Institute for International Economics, 2015). In most of the relationship that are bilateral, US outwards direct investment outpaces the investment of the countries that are partners in the United States. In the partnership between Switzerland and United States, the opposite seems to be true. The direct investment of Switzerland in the United States has historically exceeded United States FDI in Switzerland. In the year 2003, the Swiss FDI stock in the United States, based on the data of the United States reached $ 133 billion dollars (Institute for International Economics, 2015). While, on the other hand, the United States FDI stocks in Switzerland was $86 billion dollars (Institute for International Economics, 2015). In short, United States is the main destination for the direct investment for Switzerland. This has made Switzerland the sixth largest foreign direct investor in the United States. On the other hand, Switzerland is the fourth most important destination of the direct investment of the United States. The most important United States foreign investors in Switzerland are MNEs. The United States prefer to have their European Headquarter in Switzerland because its good air access, skilled multilingual success and its central location. The main aim of the agreement of free trade (FTA) of Switzerland and the United States is the reinforcement of the advantages (Institute for International Economics, 2015). When it comes to the perspective of foreign direct investment, by the end of the year 2003, the United States outwards direct investment global stock totaled $ 1.789 trillion (Institute for International Economics, 2015). However, the EU_15 stock totaled to about $ 845 billion and over $ 86 billion was placed in Switzerland (Institute for International Economics, 2015). In the FDI of United States, ten percent of the EU-15 level was hosted by Switzerland. Recently witnessed an increase in the direct investment in United States in Europe reflects actively in Switzerland, United Kingdom, Germany, and Netherlands. Since 1999, the stock of United States FDI in each of the countries has been on the rise by at least 30 billion (Institute for International Economics, 2015). NETHERLAND Netherlands and Luxembourg were the most dominant location of net outwards position accounting for £126.2 billion and £139.6 billion respectively within Europe (Office of National Statistics, 2013). In the year 2003, the United Kingdom outward position share was dominated by the Netherlands investment. In the current years, the United Kingdom FDI stock has grown faster to France, Germany and Spain. In 2012, Europe continued to report the highest level of net earning. This accounted for 38% of the United Kingdom outwards net earning in 2012 (Office of National Statistics, 2013). Within Europe, Netherlands and Luxembourg were the most dominant location for net earning abroad accounting for £7.9 billion and £7.3 billion respectively (World Investment Report, 2014). The companies operating in the United States of American that are owned by the United Kingdom were the single largest net earning source accounting for 15% of the overall total. The United States of America was closely followed by the United Kingdom Companies operating in Netherlands and Luxembourg contributing ten percent and nine percent respectively. Each of the countries saw a large decrease in net earning 2012, and they played the main role to the falling the net outwards earning of the world (Office of National Statistics, 2013). Costs of debt for the previous year NETHERLANDS Netherlands experienced a growth that was uninterrupted for a period of 26years from 1983 until 2008 with a record boom in the later 1990s. There was strong export, practically no unemployment and the inflation rate was law. However, one legacy of the boom year was the mortgage debt that was huge. The Netherlands national debt is also high. During the recession, the economy of the nation was boosted by the government through bank bailout and stimulus programs. This resulted in a deficit of the budget of 4.6% of GDP in the year 2009 and in 2010 it was 5.1% of GDP and in the year 2011 it was GDP 4.8 percent (Global Property Guide, 2015). As a result, the debt of the country rose to 65.2% of GDP in the year 2011 (Global Property Guide, 2015). In the debt of the nation further rose to 71% of the GDP (Global Property Guide, 2015). This GDP of 71% was far higher than the allowed 60 % that is stipulated by the European Union Stability Pact (Global Property Guide, 2015). The debt of the Netherlands nation rose to in 2013 t0 74.3% to 71.3 percent of GDP in the previous years (Global Property Guide, 2015). At the same time the budget of its deposit was recorded at about 3.3% of GDP (Global Property Guide, 2015). SWITZERLAND On Wednesday, Switzerland secured the worlds cheapest coast of borrowing for many ten years government bond. This was also experienced in other European States who also locked in short term deals to very low rates or subzero. The previous record of Switzerland was 0.198% in a deal the previous month (The Walls Street Journal, 2015). This was just before the Swiss National Bank gave a surprising decision to forgo its upper limits on the currency of the country and to low the rate of interest (The Walls Street Journal, 2015). Tariffs NETHERLANDS In Netherlands, the import duties are levied on imported goods. The authority of the Dutch Customs levies and collects the duty then transfer the collected sum to the European Union. The members of the European Union have the advantage to retaining part of the import duties to cover the collection cost. The products traded between the European Union members states are not levied by the Customs Authority. Some of the commodities are also subjected to the consumption tax and excise duty. For Netherlands to protect the country against low prices product from the third world countries they have levying import duties on goods that are imported. Companies in some countries can produce their products cheaply due to low cost, price, and wages. The addition of import duties to these products that have been produced at a lower cost makes them expensive. This narrows the difference in price with another commodity hence encouraging competition among the countries with the producers from the third world countries. In addition to the import duties, there is always the payment of the VAT. The VAT is equal to that which applies to the supplies of goods and services in Netherlands. In some cases, the VAT can be declared by the customers as if it had supplied the services or goods under the reverse charging mechanism. Excise duty is payable on excise goods that include; alcoholic beverages, tobacco products, and mineral oils (Government of Netherlands, 2015). SWITZERLAND Switzerland normally attains its commitments under bilateral and WTO agreement. However, due to major quota barriers and tariffs for most of the agricultural products the United States market opportunity for these products is limited. Furthermore, biotechnology products like food substances produced by hormones normally face a strict approval process. In order for biotechnological feeds or food products to be transported to Switzerland, they must undergo an approval process that is very lengthy. Furthermore, for products containing ingredients of biotech or products derived from such ingredients. Currently, Switzerland has tightened the rule of labeling at an extent that even the second generation products. The second generation products refer to products derived from a derivative of biotechnology. Examples include corn syrup that is made from starch. These products are to be labeled as biotech products (Political Risk Services, 1999). Switzerland has initiated steps aimed at removing barriers to competition in electricity, automotive, telecommunications and the sector of postal. Liberalization of the Swiss automotive market took place in 2005. This liberalization gave the consumers greater choice in the purchase of new automobiles and parts and giving the dealers of independent cars the right to sell. Furthermore, the independent dealers are given the right to service and repair without violating warranty rules. The service of postal are liberalized with the exception of the monopoly for postal services for Switzerland for shipments of letters weighing less than 100grams (Experts .gov, 2015). The countries credit ratings The poor and standard Netherlands rating stands at AAA. Netherlands Moodys rating sovereign debt is Aaa. Netherlands Fitches credit rating is AAA (Moodys, 2014). While, on the other hand, the sovereign debt Moodys rating for Switzerland is Aaa. Fitchs Switzerland credit rating is AAA. Poor and Standard rating for Switzerland stands at AAA (Standard and Poor Rating Service, 2015). Recommendation Both the two countries of Netherlands and Switzerland are the best-preferred countries for investment. The company in the United Kingdom should opt for either of the countries because for the there good record when it comes to corruption. Netherlands is the more preferred of the two countries when it comes to tariffs. Netherlands is one of the European Union member states of the. Bibliography 2015 INDEX OF ECONOMIC FREEDOM, (2015). The Netherlands. Web < http://www.heritage.org/index/country/netherlands > accessed April 17, 2015. EXPERTS .GOV, (2015). Trade Regulations, Customs and Standards. Web < http://www.export.gov/switzerland/doingbusinessinswitzerland/traderegulationscustomsandstandards/eg_ch_077162.asp> accessed April 18, 2015. FIND THE DATA (2015). Switzerland. Web < http://country- corruption.findthedata.com/l/6/Switzerland> accessed April 17, 2015. FOCUS ECONOMICS (2015). Switzerland inflation: Consumer prices in March record fastest annual fall in nearly three years. Web < https://www.focus-economics.com/country- indicator/switzerland/inflation > accessed April 16, 2015. GLOBAL PROPERTY GUIDE (2015). Dutch house prices rising, boom on the way. Web < http://www.globalpropertyguide.com/Europe/Netherlands/Price-History> accessed April 18, 2015. GOVERNMENT OF NETHERLANDS, (2015). Exports, Imports and Customs. Web < http://www.government.nl/issues/export-import-and-costums/taxes-on-imported-goods> accessed April 18, 2015. INSTITUTE FOR INTERNATIONAL ECONOMICS, (2015) Direct and Portfolio Investment. Web< http://www.iie.com/publications/chapters_preview/3853/07iie3853.pdf > accessed April 17, 2015. MOODY’S, (2014). Moodys changes outlook on the Netherlands Aaa government bond rating to stable from negative; rating affirmed. Web < https://www.moodys.com/research/Moodys-changes-outlook-on-the-Netherlands-Aaa- government-bond-rating--PR_294381 > accessed April 18, 2015. OFFICE OF NATIONAL STATISTICS, (2013). Statistical bulletin: Foreign Direct Investment Involving UK Companies, 2012. Web < http://www.ons.gov.uk/ons/rel/fdi/foreign- direct-investment/2012-sb/stb-fdi-2012.html?format=print > accessed April 17, 2015.POLITICAL RISK SERVICES (1999). Political risk yearbook: Volume 6. East Syracuse, NY:PRS Group. STANDARD AND POOR RATING SERVICE. (2015). Sovereigns Rating List. Web < http://www.standardandpoors.com/ratings/sovereigns/ratings-list/en/us> accessed April 18, 2015. THE WALLS STREET JOURNAL, (2015). European States Gorge on Cheap Debt. Web < http://www.wsj.com/articles/european-states-gorge-on-cheap-debt-1423664449 > accessed April 18, 2015. TRADING ECONOMICS, (2015). Netherlands Inflation Rate 1971-2015. Web < http://www.tradingeconomics.com/netherlands/inflation-cpi> accessed April 16, 2015 WORLD INVESTMENT REPORT (2014). United Nations Conference on Trade and Development. Web < http://unctad.org/en/PublicationsLibrary/wir2014_en.pdf > accessed April 18, 2015. XE CURRENCY MONEY TRANSFER (2015). CHF - Swiss Franc. Web accessed April 17, 2015. Read More