After the United Kingdom narrowly voted last year to leave the European Union, predictions swirled that the British economy would collapse. Yes, the pound plummeted 9% versus the dollar the day after the surprise result and remains down, but the economy as a whole has held up relatively well. Gross domestic product grew 1.8% in 2016, a tick behind only Germany’s 1.9% growth among the Group of Seven industrialized nations. Economic growth has continued in 2017, home prices are up and unemployment has sunk to a 42-year low at 4.3%.
Much uncertainty remains with the official exit from the EU scheduled for March 2019. Some U.K. companies are holding off on investments to see how Brexit effects trade relations, and growth is forecasted to slow in 2018, but Britain’s business climate remains attractive. The U.K. ranks first for the first time in Forbes’ 12th annual survey of the Best Countries for Business.
The U.K. ranked among the top 25 countries (out of 153 measured) in each of the 15 metrics tracked, outside of political risk where it ranked twenty-eighth. Great Britain ranked fifth overall last year.
Wells Fargo and Apple both made substantial moves within London since the Brexit vote. Wells Fargo spent $400 million to buy a new European headquarters in London's financial district. Apple announced plans to open a new London campus in 2021 that covers nearly 500,000 square feet of space. Facebook is also in the market for 700,000 square feet to accommodate 9,000 employees. "These commitments signal a belief across industries in the long-term strength of the U.K. economy," says Jeff Lessard, who helps companies with location strategies as a consultant for Cushman & Wakefield.
The U.K. scored particularly well on technological readiness (fourth) and the size and education of its workforce (third). Its $2.6 trillion economy is the fifth largest in the world. London serves as the central hub for European financial services and is home to financial giants like HSBC, Prudential and Barclays. “The best thing going for the U.K. is that London is one of three global hubs for financial services," says Lessard. "Post-Brexit, a few European cities have the opportunity to challenge London but each has deficiencies.”
Britain's reign as the top country could be brief as companies' plans for Brexit unfold. London might lose 10,000 banking jobs as a result of Brexit, according to think tank Bruegel. Citigroup, Morgan Stanley, Nomura and Standard Charter are moving their EU headquarters to Frankfurt, with Paris and Dublin landing spots for other banks looking to ensure access to the single market.
“The single biggest issue Britain will face is the frictionless participation in their economy of highly educated global talent. Talent is the key that unlocks innovation, growth, and competitiveness,” says Matthew De Luca, a strategic consultant with Cushman & Wakefield.
We determined the Best Countries for Business by rating 153 nations on 15 different factors including property rights, innovation, taxes, technology, corruption, freedom (personal, trade and monetary), red tape and investor protection. Each category was equally weighted.
We tweaked our methodology this year for the first time in a decade after conversations with multiple site-selection experts. Stock market performance is out, and we added workforce, infrastructure, market size, quality of life and political risk to provide a better gauge of how attractive a country is for capital investment. The data is based on published reports from Freedom House, Heritage Foundation, Property Rights Alliance, United Nations, Transparency International, World Bank Group, Aon, Marsh & McLennan and World Economic Forum (click here for more details on the methodology and the best and worst country on each metric).
New Zealand ranks second overall for the third straight year. The island country in the southwestern Pacific Ocean is home to only 4.5 million people, but the economy has been on a roll, up 3.6% last year. Among the countries in the top 20, only Ireland's economy expanded faster.
New Zealand has transformed from an agrarian economy to an industrialized, free market one over the past four decades. The Kiwi nation privatized dozens of industries like airlines, insurance, banking and telecommunications previously controlled by the government. It scores first overall for red tape, corruption and property rights.
Rounding out the top five are the Netherlands, Sweden and Canada.
The U.S. previously went on a decadelong slide in our ranking from the top spot in 2006 to No. 23 last year thanks to rising levels of red tape and bureaucracy, along with falling scores on trade and monetary freedom. But the $18.6 trillion economy moves up to 11th this year thanks to improved scores relative to the rest of the world on technological readiness, innovation and trade freedom.
“The U.S. has excellent access to both European and Pacific Rim economies, a highly educated and diverse workforce, companies that lead the globe in innovation and a stable business environment," says Lessard. "And the new tax bill will only increase the favorability of basing profitable businesses in the U.S.”
The U.S. also benefits from methodology changes with the additions of workforce (size and education level) and market size (gross national product). The U.S. ranks first in both categories.
"Foreign direct investment in the U.S. has been strong in recent years as international companies have sought to be closer to their customers and better control over their supply chain in the world's richest market," says Chicago-based site selection consultant Jerry Szatan.
The world’s second (China) and third (Japan) biggest economies rank 66th and 21st, respectively, among the Best Countries for Business. China is held back by a lack of trade and monetary freedom. Japan has cut its corporate tax rate by eight percentage points since 2012, but its tax burden still lags the vast majority of developed nations, per the World Bank. Japan rates among the 10 nations for innovation and infrastructure.
African nations populate the worst countries for business with six of the bottom 10 (Haiti is the worst performer among non-African countries). Most of these countries fare poorly on innovation, trade freedom and investor protection. Chad ranks last for the third straight year. The landlocked African nation suffers from a lack of infrastructure and trained workers, as well as high levels of bureaucracy and corruption.