Best Markets for Business Access to Capital
The Capital Access Index ranks countries around the world in terms of the financial infrastructures that support entrepreneurial activity by providing access to capital. The index is unique in the breadth of economic factors and financial instruments that are analyzed and its reliance on quantitative, not qualitative, data.
We look at such factors as macroeconomic environments, financial and banking institutions, the development of the equity and bond markets, and alternative capital sources. Because a firm's access to capital allows it to implement innovative ideas and contribute to technological advancement, job creation and quality of life, the index is a tool for measuring how countries can act to reduce more fully their lending barriers. There are 122 countries ranked in the index, based on the availability of accurate and adequate data.
The Capital Access Index top 10 markets (with 2007 rankings):
1. Canada (4)
2. Hong Kong SAR (1)
3. Switzerland (7)
4. United Kingdom (2)
5. Singapore (4)
6. United States (11)
7. Netherlands (15)
8. Norway (9)
9. Australia (8)
10. Finland (9)
Canada, with its stable equity market and a sound economic policy framework, was able to withstand some of the global credit market issues and moved to first place in the Milken Institute's 2008 Capital Access Index.
The credit and mortgage market turmoil created a drag on bond markets, which impacted the rankings of many markets.
Hong Kong, which had held the top spot for two years running, shifted down to 2nd place, mainly due to lower international reserves and higher currency volatility. Hong Kong's international reserves dropped in 2007 as compared to 2006 levels. Reserves have since caught up and this will be reflected in the next issue of the Index. Currency volatility is calculated using effective exchange rate.
The United States found its place back among the top 10, having fallen to 11th in last year's rankings, and showed improvement in alternative capital and international funding components. However, a drag in bond markets stemming from the credit and housing market turmoil, kept them parked at 6th for the year.
Other highlights from this year's index include:
- China remained stable at 45th, limited by its underdeveloped bond market despite increases in alternative sources of capital.
- Latin American countries saw some of the steepest declines in this year's rankings, with El Salvador, Jamaica, Argentina and Bolivia all experiencing declines in institutional environment, alternative access to capital and bond market development.
- Middle Eastern markets improved significantly, on average holding higher scores in institutional environment, equity market development and alternative capital. Israel, however, lost most of its gains from last year, dropping nine spots to 21st, due to lower scores in financial and banking institutions and international funding.
- African countries, although still significantly clustered in the bottom of the rankings, demonstrated significant progress in institutional environment and equity market development, which was noted as the area of greatest potential improvement in last year's index.