ANALYSIS: A puzzling No. 1 ranking in investing options

Jose Galang -- Your Business

Posted at Mar 09 2018 07:27 PM | Updated as of Mar 09 2018 08:04 PM

(UPDATED) It feels good to see the Philippines on top of the list of “Best Countries to Invest In” published recently by the web-based magazine US News & World Report. The global No. 1 position in the rankings despite the country’s poor scores in most of the criteria used and its decline in the overall “Best Countries” listing.


Finance Secretary Carlos Dominguez, reacting to news early this week about the ranking, quickly attributed it to “strong macroeconomic fundamentals” and the Duterte government’s plans for an expensive infrastructure program. Senator Loren Legarda confidently declared that the Philippine economy would now become “more robust”.

The “Best Countries to Invest In” list is one of the reports produced by US News from data collected online for its annual “Best Countries” rankings covering 80 countries. The scores were computed from “global perceptions” of survey respondents.

In the 2018 edition of “Best Countries” main rankings, the Philippines dropped to No. 49 from No. 43 in the previous year. The Philippines’ 2018 overall score was 1.9 points, out of a possible 10 which topnotcher Switzerland got.

Indonesia came in second after the Philippines in the “Best Countries to Invest In” list. A mere 0.3 of a point separates the two countries in the scorecard that US News jointly devised with the BAV Group, a brand management and marketing consultancy which is part of the Young & Rubicam (Y&R) marketing communications network, and with the Wharton School of the University of Pennsylvania.

Countries included in these surveys were picked from the top 100 in terms of GDP in 2015 or 2014, the top 150 in the UNDP’s 2015 or 2014 Human Development Index, the top 100 in terms of the UNCTAD list of foreign direct investment inflows in 2014 or 2013, and the top 100 countries in terms of 2014 international tourism receipts or 2013 tourist arrivals reported by the World Bank.

US News says it had 21,117 survey respondents, including 6,016 “business decision-makers”, from 36 countries. It did not respond to this blog’s inquiry on the exact dates the survey was conducted (recent developments may have changed the respondents’ outlook) and how many respondents were from Asia.

Foreign investment flows

In 2017, FDI flows to Indonesia reached nearly $32.24 billion, according to the Indonesia Investment Coordinating Board. FDI flows to the Philippines as of November 2017, according to the Bangko Sentral ng Pilipinas, totaled $8.7 billion, of which $5.2 billion came in the form of inter-company borrowings instead of direct equity (the full-year FDI report is due next week).

Indonesia is on top of the UNCTAD World Investment Report 2017 list of “most promising host countries” for foreign direct investment (FDI) in Southeast Asia for the period 2017-2019. The Philippines is 10th on the UNCTAD list, which the US News used as one of its reference materials for the “Best Countries to Invest In” report.

Echoing the UNCTAD projections, the US News “Best Countries to Invest In” says that the Philippines is expected “to receive more FDI from within the region from powerhouses like China that are looking to utilize available labor in developing nations”.

The others in the top 10 in the “Best Countries to Invest In” are: Poland, Malaysia, Singapore, Australia, Spain, Thailand, India, and Oman, in that order. If you’re looking for China, it’s ranked 25th, while Brazil is 18th. The top 5 in the overall “Best Countries” rankings—Switzerland, Canada, Germany, United Kingdom and Japan—are not ranked in the “Best Countries to Invest In.”.

Only 7 of the 10 Southeast Asian nations are in the “Best Countries to Invest In”: the Philippines (ranked No. 1), Indonesia (No. 2), Malaysia (No. 4), Singapore (No. 5), Thailand (No. 8), Vietnam (No. 23) and Myanmar (no ranking). In many other international studies, Southeast Asian nations are always cited as major potential recipients of FDI in the next few years, helped by an increasing level of cooperation among the region’s economies.

Scoring the Philippines

The Philippines’ No. 1 ranking is quite puzzling. In the 9 main categories (measuring a total of 75 attributes) used for calculating country scores, the Philippines got poor ratings. For instance, in the “entrepreneurship” category, it got a score of just 0.9 of a point, putting the country on No. 45 among the countries surveyed.

In the “open for business” category—which measures “bureaucratic, cheap manufacturing costs, corrupt, favorable tax environment, transparent government practices”—the Philippines ranked No. 34 on a score of 5.1 points.

What could be considered the Philippines’ “best” performance in the “Best Countries to Invest In” main categories is its No. 16 position in “adventure”, which measures such attributes as “friendly, fun, pleasant climate, scenic, sexy”. But this category gets only a weight of 3.24 percent in the overall score.

The main categories that are assigned the largest weights in the scoring are: “entrepreneurship” (17.42 percent), “citizenship” (16.95 percent), “quality of life” (16.89 percent), “cultural influence” (12.93 percent), “open for business” (11.99 percent), and “movers” (10.00 percent).

“Citizenship” assesses the following attributes: “cares about human rights, cares about the environment, gender equality, progressive, religious freedom, respects property rights, trustworthy, well-distributed political power”. The Philippines scored only 0.5 in this category, putting it on No. 55.

Here are the Philippine scores in other categories: quality of life: 1.8 points (rank No. 17), cultural influence 1.2 points (rank No. 41), movers, a predictive metric of a country’s future growth, 3.3 points (rank No. 34).

Countries in the “Best Countries” survey are given scorers on each of the 9 categories by averaging the scores for the attributes grouped in each category. The scores are then computed using the weights assigned for each group. US News says the subranking and overall scores are” rescaled so that the top country in each category received a value of 100, and others were calculated as a proportion of that top score.” The scores were ranked in descending order.

It should be noted that there are several other rankings produced by US News from its “Best Countries” data. One of them is the “Most Transparent Countries” where the Philippines ranks No. 68, just 12 slots from the bottom.

The most transparent countries, with open business and government practices, well-distributed political power and the least corruption, says the US News report, “tend to be the among the world’s strongest democracies and affluent nations.”

The report cites the anti-corruption group Transparency International’s warning that it is wise to pay attention to the connection between corruption and inequality because the two “feed off each other to create a vicious circle between corruption, unequal distribution of power in society, and unequal distribution of wealth.” Some nations need the advice better than others, the US News points out.

At the end of the day, the quality of governance and political developments could have a profound impact on investors’ decisions. “There is no question the political activity and leadership in the Philippines will have an impact on the country’s ranking and how it fares in terms of a country in which to invest,” Professor David Reibstein of the University of Pennsylvania, a consultant in the US News study, noted in response to this blog’s inquiry.

Duterte’s global approval rating

Data from the survey also showed that the respondents across the world expressed more satisfaction with business executives than some of the most powerful government leaders. President Rodrigo Duterte is listed as one of the leaders with high disapproval ratings.

A net approval analysis—calculated by subtracting the total disapproval rating from the total approval rating—showed that business leaders led on net approval on average, with company CEOs Eric Schmidt (of Google), Jeff Bezoz (Amazon) and Elon Musk (Tesla and SpaceX) scoring high approval ratings that were higher than those of Angela Merkel (Germany), Emmanuel Macron (France) and Theresa May (United Kingdom).

In the case of Duterte, his approval rating among the survey respondents—the same ones whose “perceptions” were used by US News for the “Best Countries to Invest In” that ranked the Philippines on top—was 29 percent while his disapproval rating was 40 percent, resulting in a net disapproval rating of -11 percent, equal to Vladimir Putin who had a disapproval rating of 44 percent and approval rating of 34 percent.

The worst record in this global ranking is that of US President Donald Trump, who registered a disapproval rating of 58 percent and approval rating of 25 percent for a net disapproval rating of -33 percent.

China’s Xi Jinping was listed as having a net disapproval rating of -1 percent, from an approval rating of 34 percent and disapproval of 35 percent.

The Washington DC-based US News is perhaps best known for its annual “America’s Best Colleges” report. The rankings are based on data that the surveyed educational institutions submit, as well as on opinion surveys of faculty members and officers.

Although attracting high online traffic, the “Best Colleges” survey has been criticized by several institutions such as Stanford University, Reed College and St. John’s College which found out that data submitted for the report had been “invented” and that the rating system was “flawed”. Several schools now boycott the US News survey and are planning to put out an alternative listing. An article that came out in The Huffington Post in 2011 alleged that the “Best Colleges” list was “a scam”.

US News has denied the accusations and in October 2014 started coming out with a “Best Global Universities” ranking.