How to Select Key Indicators for Foreign Investment Decision-making

July 31, 2023
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Why is it important to look beyond the data about the country with the highest growth rate for your next investment location? Although this macroeconomic indicator is important and a good starting point, in today’s complex world decisions need to be built on a broader analysis. Below I share a few tips how to complete your information palette for foreign investment decisions, while ensuring the use of reliable, accurate, comparable and easily accessible indicators. Here are a few necessities to bear in mind when searching for and analyzing data and indicators:

  • Use accurate and reliable data and indicators from trusted sources. Each data must have an origin. If it is not indicated, don’t rely on it.
  • When comparing different entities, such as countries, use the same source for the selected data. Calculation methods may vary.
  • Try not to mix and match country-level (macro)information with sectoral or other micro-level data. Keep your analysis consistent.

Keeping in mind those fundamentals, let’s take a look at how to select the appropriate and essential indicators for foreign investment decisions.  

1. Basic macroeconomic overview

Start with a thorough overview of the recent and projected macroeconomic performance of the countries of your potential investment location. I suggest using international databases with the largest country coverage to ensure that your comparison sits on solid ground. I highly recommend the datasets of the World Economic Outlook of the International Monetary Fund (IMF) or the WorldBank’s Open Data platform because these can serve your purposes well.

The following main macroeconomic indicators could be analyzed at least for the last 3 years and for 2-3 years ahead: total nominal and real Gross Domestic Product (GDP), real GDP annual growth rate, GDP per capita (average income level), inflation rate, unemployment rate, interest rate and government debt level. These indicators can provide you with the overview of the domestic economic situation of a country.  

2. More comprehensive and targeted overview

To complete your understanding about a potential investment location, it is worth broadening the analysis by exploring different indicators beyond macroeconomics. Assessing countries and even companies from more specific angles, such as environmental, social, political, and technological, could be useful for making the right investment decision. Here are a few suggestions for your consideration:

  • For current investment flows and trends: The World Investment Report of the United Nations Conference on Trade and Development (UNCTAD);
  • For overall competitiveness of countries: The Global Competitiveness Index of the World Economic Forum;
  • For innovation capacity and outcomes: The Global InnovationIndex of the World Intellectual Property Organization (WIPO);
  • For user-friendly access to the latest trade and investment data and statistics: The InternationalTrade Center’s (ITC) several online tools, including the Trade Map orInvestment Map.
  • For crisis recovery and resilience: The COVID Economic Recovery Index of the Horizon Group.

I have had very positive experiences relying on these databases and indicators. I am convinced that they can support you locating your next investment by supplying the necessary and reliable information. In the upcoming posts, I offer you to explore more key indicators for investments in selected sectors and thematic areas.

If you need help in building an index or would like to know how to improve on it, get in touch.

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