As the U.S. and Europe grapple with slowing growth, more businesses are turning attention to emerging markets for expansion and profits. Foreign direct investment (FDI) into countries such as Brazil, Russia, and Indonesia are at record highs, with Brazil attracting $48.4 billion dollars in 2010, an increase of 87 percent over 2009.
While it's difficult to resist the growth opportunities provided by emerging markets, running a successful business in many of these countries is far from easy.
We put together a list of the 10 most difficult countries to do business in from 50 of the world's largest economies. Our top 10 rankings are based on the World Bank's "Ease of Doing Business" study, which includes 183 countries.
The rankings take into account 10 leading indicators, such as the ease of starting a business, getting construction permits, paying taxes, and investor protection laws, to name a few.
The 2010 FDI data are from the United Nations Conference on Trade and Development (UNCTAD), while the GDP numbers are from the World Bank.
Our list includes some economic superpowers, as well as some minnows. Click ahead to find out which countries are the most difficult to do business in.
By Rajeshni Naidu-GhelaniPosted 3 November 2011
2010 GDP: $388 billion
2010 FDI: $6.3 billion
Argentina is one of three South American nations to make the list of the worst countries to do business in.
Out of 10 key indicators for doing business, Argentina has one of the lowest rankings when it comes to acquiring a construction permit. It takes about one year to get a construction permit, compared with an average of about seven months for Latin American countries and the Caribbean. Starting a business in Argentina takes 26 days, double the time it takes on average in Organization for Economic Co-Operation and Development (OECD) countries.
Argentina defaulted on its debt in 2002, which led to foreign investors fleeing South America’s second-biggest economy. Since then, the government has enforced a number of measures to stem money flowing out of the country, such as nationalizing its $24 billion pension fund industry and limiting the purchase of farmland by foreigners.
Last week, Cristina Kirchner’s government ordered oil and gas companies to repatriate all future export revenue, forcing miners to potentially increase costs stemming from foreign exchange and taxation. The move may make it harder for Argentina to attract foreign direct investment, which the UN estimates fell by 30 percent in the first half of this year.
2010 GDP: $1.5 trillion
2010 FDI: $41.2 billion
Russia may be one of the world’s fastest growing economies, but it is also one of the most difficult places to do business in.
The country is the toughest place in the world for a business to get an electricity connection, taking nearly nine and half months — almost double the time it takes in the rest of Eastern Europe and Central Asia. Russia’s upcoming presidential elections have further derailed plans to reform the world’s fourth biggest power market. Earlier this year, Prime Minister Vladimir Putin, who is running for president in 2012, said there would be no hike in electricity prices over the first half of next year, a move meant to appease voters ahead of the March elections.
Russian household electricity bills are among the lowest in Europe and industry experts say prices need to rise to fund reinvestment and growth in the sector. The lack of capital expenditure in the power sector is also stoking fears of a likelihood of more accidents and power outages like Moscow’s blackouts last Christmas, which suspended flights and left thousands without power.
Russia also ranks near the bottom when it comes to cross-border trade. It takes more than three times longer to export something from Russia compared with the average for OECD countries. Trade with Russia may become easier after December, however, when the country is expected to finally become part of the World Trade Organization (WTO), 18 years after first applying to join the 153-member group. Russia is currently the largest economy outside the WTO.
2010 GDP: $2.1 trillion
2010 FDI: $48.4 billion
Brazil is the world’s eighth largest economy, and its GDP growth in 2010 was 7.5 percent, making it attractive for foreign investment. While this economic giant provides a huge opportunity there are also several major hurdles to doing business here.
Brazil has one of the highest tax burdens of any major economy, at around 37 percent of GDP. Firms spend about 2,600 hours a year, equivalent to three and half months, filling tax forms in Brazil. Firms are charged a total tax rate of more than 67 percent, according to the World Bank, which is 20 percent higher than the average for the rest of Latin America and the Caribbean.
Another big issue facing businesses in Brazil is getting construction permits. Companies spend nearly 470 days completing 17 procedures to obtain a permit, which is over triple the time it takes on average in OECD countries.
Brazil is set to host the 2014 FIFA World Cup and the 2016 Olympics. But construction of stadiums and airport terminals for the events has been delayed amid accusations of government corruption. The country’s Sports Minister Orlando Silva is under growing pressure to resign after more evidence emerged last month that he allegedly got $23 million in kickbacks for government contracts, for himself and the ruling communist party.
2010 GDP: $706.6 billion
2010 FDI: $13.3 billion
Indonesia, Southeast Asia’s biggest economy, is one of three Asian countries to make the list of the world’s worst places to do business in.
The country is one of the most difficult places to start a business. It takes one and half months to launch a business in Indonesia, nearly three and half times longer than the average for all OECD countries. Getting electricity in the world’s fourth most populous nation also takes 20 days longer than in the rest of East Asia and the Pacific.
Indonesia’s infrastructure problems have long been blamed for hampering its growth. Four out of its five busiest international airports are operating above capacity and about 15 million households have no access to electricity.
The country wants private investors to provide at least two-thirds of the $150 billion needed for infrastructure development in the next five years. In July, French firms, including engineering heavyweight Alstom, pledged more than $2.5 billion in energy and infrastructure investments. In the same month, three Chinese companies expressed interest in investing about $3 billion to build ports, toll roads and railway tracks in the main Java island. China, the world’s biggest energy consumer, is keen to tap into Indonesia’s abundant coal and other resources. Earlier this year, Chinese Premier Wen Jiabao pledged $9 billion in loans to support Indonesia’s infrastructure development.
2010 GDP: $1.73 trillion
2010 FDI: $24.6 billion
India, the world’s fourth largest economy, has seen quarterly GDP growth of around 7.5 percent over the past decade, but it is also one of the most difficult countries to do business in.
Stories of corruption in the government are rampant in India and it is the second worst country in the world when it comes to enforcing a business contract, behind East Timor. It takes on average of nearly four years to enforce a contract through India’s courts, in comparison to three years in the rest of South Asia and more than one year on average in OECD countries.
It also ranks among the bottom three globally when it comes to dealing with construction permits, taking more than seven and half months to get one.
Recently, there have been growing protests from India’s urban middle class against endemic political corruption and bureaucracy. Recent government scandals — including a bribery scheme involving the sale of telecom spectrum that may have cost the state up to $39 billion in revenues — has heightened the public’s growing discontent with politicians.
Despite its unfriendly business environment, UNCTAD forecasts India, home to the world’s second biggest population, will be among the top five attractive destinations for international investors over 2010-12.
2010 GDP: $194 billion
2010 FDI: $6.1 billion
Nigeria is Africa’s largest oil producer, therefore a big draw for some of the world’s biggest energy and resources companies.
Political unrest and growing ethnic and religious tensions make the country one of the worst places to do business in, however. Nigeria ranks among the lowest in the world when it comes to getting electricity and registering property for business. It takes nearly three months to get through the 13 procedures required to register a property, compared to one month in OECD countries.
The oil trade has also fueled violence and corruption in the Niger delta, where energy giants, including Royal Dutch Shell, have been forced to shut down production often due to a surge in oil thefts.
Despite being an oil-rich country, the majority of its population live on less than $2 a day and are exposed to dangerous levels of pollution. Nigeria’s political instability reached a head last year, when its then-president Umaru Musa Yar’Adua left the country for medical treatment without transferring power, creating a leaderless state for two and half months before an acting president was reinstated.
2010 GDP: $199.6 billion
2010 FDI: $1.7 billion
The Philippines is the lowest ranked Asian country on the list of the most difficult places to do business in. It attracted just 2.5 percent of the $76.5 billion of foreign direct investment that flowed to the 10 members of the Association of South East Asian Nations (ASEAN) in 2010.
Despite having massive untapped mineral wealth, a key geographical location between Southeast and North Asia and a large, growing English-speaking population, the country has fallen behind its neighbors in economic growth.
Foreign businesses are wary of the Philippine’s unstable legal system, violence, and bureaucracy. Its ease of doing business ranking from the World Bank fell a further two spots this year from 2010. The country also ranks among the lowest when it comes to starting a business, and resolving insolvency, with the latter taking more than five and half years, compared with an average one year and seven months in OECD countries.
Last month, Philippine President Benigno Aquino made trips to the U.S., China, and Japan to push for investments, as well as to send a message that things are changing in the country, after two previous administrations were dogged by corruption allegations. Aquino’s trip to China resulted in $7 billion to $9 billion of potential investments.
The Philippines also jumped 10 places to 75th in the World Economic Forum’s global competitiveness index this year.
2010 GDP: $159.4 billion
2010 FDI: $2.3 billion
Algeria is one of five oil-rich nations to make the list of the 10 most difficult countries to do business in. Its economy is heavily reliant on the hydrocarbon sector as one of the biggest suppliers of natural gas to the European Union.
Algeria ranks among the lowest in the world when it comes to starting a business, getting electricity, registering property, and filing taxes. It takes 48 days to register a property in Algeria, compared with about a month in the average of OECD countries. Getting an electricity connection takes more than five months, compared with two and half months in the rest of North Africa and the Middle East.
The recent political unrest across the Arab world has had a positive impact on Algeria’s social and political landscape, however, with the government being prompted to go on a spending spree. This has resulted in public sector wage increases, generous food subsidies, and handouts to the unemployed. The International Monetary Fund has also forecast that the Algerian economy will grow 3 percent in 2012. Growth in the long term could be threatened, however, by the fact that gas production from its biggest oil fields has reached a plateau and will soon start to decline.
2010 GDP: $137.9 billion
2010 FDI: $6.5 billion
Ukraine is Europe’s second largest country and one of two Eastern European nations to make the list of the worst places to do business in. Since gaining independence from the Soviet Union in 1991, the country has been caught between seeking closer integration with Western Europe and reconciling with Russia, which provides for most of Ukraine’s energy needs.
The country ranks among the very bottom when it comes to ease of paying taxes, dealing with construction permits, and access to electricity, to name a few. It takes 27 days for businesses to pay taxes in Ukraine, with the total tax rate at more than 57 percent of a company’s profit. The amount of time it takes to pay taxes is more than double the time in Eastern Europe and Central Asia. Getting a construction permit also requires more than double the number of days than it does on average in OECD countries.
Ukraine is not new to political unrest. In 2004, after an allegedly rigged election, Viktor Yanukovych, who supported reconciliation with Russia, came to power and sparked mass protests, known as the “Orange Revolution.” After a repeat election, pro-West supporter Viktor Yushchenko was sworn in as president in 2005. Political bickering continues to attract world attention, however. Last month, one of the leaders of the Orange Revolution and former Prime Minister Yulia Tymoshenko was sent to jail for seven years on charges of abuse of power involving a gas deal with Russia in 2009.
2010 GDP: $387.8 billion
2010 FDI: -$1.4 billion
Out the world’s 50 biggest economies, Venezuela ranks as the most difficult place to do business in.
The South American nation is among the very bottom when it comes to ease of paying taxes, getting credit, investor protection laws, and cross-border trading, to name a few. Firms spend 864 hours a year paying taxes in Venezuela, more than double the amount of time it takes in the rest of Latin America and the Caribbean. The gap is even wider when you compare with OECD countries, where it takes about a fourth of the time to file taxes.
Despite having some of the world’s largest oil and natural gas reserves, most Venezuelans live in poverty. The country’s socialist revolution led by President Hugo Chavez has brought about radical reforms, with the major one being the nationalization of much of the economy, especially the oil sector, and strict currency controls. All these pose difficulties for private businesses. For example, withdrawing money from your bank account requires not only signatures, but fingerprints and in some cases even a photograph. ATMs have strict daily limits.
Identification is even required for the smallest purchases, such as groceries. Inflation is also another major issue in Venezuela. Annual inflation for the 12-month period through September totaled 26.5 percent, showing the country’s economy could be getting out of control.