Capital Access Index 2009 - Milken Institute€¦ · Capital Access Index 2009 Best Markets for Business Access to Capital APRIL 2010 James R. Barth, Tong Li, Wenling Lu, and Glenn

April 2010

Capital Access Index 2009

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Capital Access Index 2009 Best Markets for Business Access to Capital

APRIL 2010

James R. Barth, Tong Li, Wenling Lu, and Glenn Yago

About the Milken Institute

The Milken Institute is an independent economic think tank whose mission is to improve the lives and economic conditions of diverse populations in the United States and around the world by helping business and public policy leaders identify and implement innovative ideas for creating broad-based prosperity. We put research to work with the goal of revitalizing regions and finding new ways to generate capital for people with original ideas.

We focus on: human capital: the talent, knowledge, and experience of people, and their value to organizations, economies, and society;

financial capital: innovations that allocate financial resources efficiently, especially to those who ordinarily would not have access to them, but who can best use them to build companies, create jobs, accelerate life-saving medical research, and solve long-standing social and economic problems; and social capital: the bonds of society that underlie economic advancement, including schools, health care, cultural institutions, and government services.

By creating ways to spread the benefits of human, financial, and social capital to as many people as possible—by democratizing capital—we hope to contribute to prosperity and freedom in all corners of the globe.

We are nonprofit, nonpartisan, and publicly supported.

© 2010 Milken Institute

Capital Access Index 2009: A Reversal of Fortunes.................................................................1

Ranking Countries for Access to Capital.................................................................................3

Top Ten..........................................................................................................................4

Big Movers.....................................................................................................................6

Top Half.........................................................................................................................6

Bottom Half...................................................................................................................7

Appendix A: Methodology...................................................................................................15

Appendix B: Capital Access Index Components....................................................................17

About the Authors...............................................................................................................24

Table of Contents

1


Capital Access Index: A Reversal of FortunesIn 2008, while wealthier nations faced a severe credit crunch and struggled mightily to keep a recession from becoming a depression, emerging nations weathered the storm remarkably well. Unlike in other downturns, when the industrialized world caught the flu and poor nations caught pneumonia, many emerging countries had built up their immunity this time around.

When the U.S. subprime mortgage market and real estate bubble began to collapse in summer 2007, much of the world economy eventually tumbled into recession. By the end of 2008, the world’s financial institutions had posted losses of $685 billion, had cut 150,000 jobs, and had to raise $688 billion to replenish capital, according to Bloomberg.

As a result, credit markets suffered major damage. Where once there had been too much liquidity—the easy lending that was one cause of the housing bubble—now there was not enough. In 2008, corporate bond issuance worldwide plummeted by 60 percent in value. The world equity market lost nearly half its value. The volume of international trade and foreign investment dropped. And the issuance of structured financial instruments stagnated. In short, 2008 was not a good year for businesses seeking funding, and it was one of the worst credit crunches for businesses since the Great Depression.

But emerging markets typically avoided the domino effect. Their growth slowed but did not sink. In general, they were simply better positioned than their U.S. and European counterparts because of larger market reserves, lower debt burdens, and stronger growth rates, due in large part to increased internal demand. Many developing nations were able to ride out the crisis while their industrialized counterparts were nearly trampled by it.

Among those riding it out were East Asia countries, which did not exhibit the extreme vulnerability they experienced in the 1997 financial crisis. In China, economic growth remained strong because its prompt policy reactions offset the negative effects of the crisis. Still, developing nations were not completely immune, though the impacts were often more indirect than direct. For example, the sharp decline in imports by developed countries, especially the United States, led to worries as trade surpluses dropped significantly in countries such as China.

For that matter, not all industrialized nations took a severe hit, with No. 1 ranked Canada in particular being a standout. (See sidebar on Page 5.) That nation benefited from a stable housing market that was not as heavily securitized as that of the United States and from strict capital reserve requirements that kept money flowing to the private sector. This is Canada’s second year at the top of the Capital Access Index.

The list of the nations with the best access to business capital in 2008 (with each nation’s ranking the previous year in parentheses):

1. Canada (1)

2. Hong Kong (2)

3. United Kingdom (4)

4. Singapore (5)

5. United States (6)

6. Switzerland (3)

7. Sweden (11)

8. Australia (9)

9. Netherlands (7)

10. Finland (10)

The Top Ten

2


In the intervening months since the crisis started, major industrialized countries have used existing and innovative tools to mitigate the credit crunch and to stimulate the economy. To restart the credit markets, central banks all over the world cut target interest rates to historical lows in response to the crisis. In the United States, the government provided guarantees for some consumer and business loans, as well as for some mortgage-backed securities. By the end of 2008, many of these programs were already in place. European and Asian countries adopted similar strategies. However, some economists argue that loose monetary policies may again lead to excessive liquidity.

Also in response to the crisis, worldwide efforts have been made to reduce excessive leverage at financial institutions. The International Monetary Fund, among many others, has called for coordinated regulatory changes to reduce systemic risk and enhance financial institutions’ capital base. Reforms are being proposed to rein in excessively risky, exotic financial derivatives. Some have proposed that the so-called “shadow banking system”— the investment banks, hedge funds, and other non-banking intermediaries between investors and borrowers—be regulated by banking supervisors.

To be sure, the goal of most of these measures is to promote healthier and more transparent financial systems. However, it is also true that reduced leverage at financial institutions will lead to less credit available for business borrowers, domestic or international. Consequently, the credit markets worldwide will be adversely affected, and both the financial sector and real sectors will suffer. World GDP growth was 3 percent in 2008 after adjusting for inflation, compared to 5.2 percent the previous year. The International Monetary Fund has projected that world GDP growth in 2009 would be negative 1 percent. In fact, the IMF’s World Economic Outlook in October 2009 projected that 124 countries of 182 in its database would experience negative growth in 2009 compared with just seven countries in 2008—meaning the aftermath of the financial crisis had yet to fully impact the real sector worldwide.

All the factors discussed above had an impact on this year’s Capital Access Index. Now in its 11th year, the Capital Access Index is a ranking tool designed to track the ability of businesses and entrepreneurs to access domestic and foreign capital in countries around the world. Today the CAI assesses the performance of the capital markets in 122 nations. It is used to examine macroeconomic and institutional factors that impact market efficiencies, and to identify factors that could signal a potential crisis or, conversely, contribute to improved access to capital. Signaling the ability of countries to provide and to attract foreign funding for businesses, the CAI has significant implications as countries today compete for jobs and capital.

Keep in mind that the Capital Access Index is a ranking. It shows the relative strength of financing for businesses in different countries. This ranking needs to be interpreted carefully, together with trend data for each individual country. Perhaps most important, the CAI ranking points to the direction where improvements could be made to broaden access to business finance, which is critical to a country’s sustainable economic growth.

3


Ranking Countries for Access to CapitalThe 2009 index ranks 122 countries on six continents for which sufficient data were available. Together they account for 94 percent of world population, 95 percent of all countries’ gross domestic products, and 98 percent of the world’s financial assets. Fifty-six variables are assessed across seven components of each country’s economic, financial, and social infrastructures. A country that scores extremely well in one component may score much lower in others. The result is a composite score that determines the country’s overall position in the index. A list of all the variables used to calculate the scores can be found in appendix A. Country rankings for each component can be found in appendix B.

The seven components are:

Macroeconomic environment: the favorableness of conditions for running and financing a business, based on such variables as inflation, interest rates, tax rates, and financial sophistication relative to international norms

Institutional environment: the extent to which institutions support and enhance business financing activities, based on variables that include the enforceability of property rights, the impartiality of the judicial system, the efficiency of bankruptcy procedures, and the levels of corruption

Financial and banking institutions: the involvement of deposit-taking institutions in financing businesses, based on such variables as the extension of credit to the private sector, the soundness of financial institutions, the ease of access to bank loans, and the efficiency of the banking system

Equity market development: the importance of equity financing of business operations, based on such variables as stock market capitalization relative to GDP, stock market liquidity, and changes in the number of listings

Bond market development: the importance of bond financing for businesses, based on variables such as the value of private and public bonds relative to GDP and securitized asset issuance relative to GDP

Alternative sources of capital: the level of usage of diverse financing sources, such as venture capital, credit cards, and non-public stock offerings or other private placements

International funding: the availability of foreign capital to businesses in a particular country, based on such variables as the volatility of exchange rates, international reserve holdings, portfolio and foreign direct investment, capital inflows and outflows, and sovereign ratings

4


The Top Ten

The gap between the best-performing countries and the worst-performing countries widened in 2008. The average score was 4.73, a modest increase from 4.68 in 2007, and the median score was 4.62, an increase of 0.04 percentage points from 4.58 the year before.

Canada and Hong Kong remained first and second in the Capital Access Index. Canada’s performance relative to other countries improved in all aspects except for equity market development. Most remarkable was its strong performance with respect to the bond market and international funding. Canada continued to benefit from stability in its macroeconomic environment, institutional environment, and banking sector development.

Hong Kong continued to lead the world in macro environment and international funding. Lower tax rates and a sound macroeconomic performance combined with growing foreign exchange reserves signaled a stable credit environment for entrepreneurs. However, to achieve a more balanced capital market structure, Hong Kong could benefit from measures to promote further development of the corporate bond market and securitization.

The United Kingdom and Singapore ranked third and fourth, respectively. The United Kingdom suffered significantly from the financial crisis. However, the bond market provided some backup when bank lending slowed. Bond issuance grew by 2 percent in 2008. Corporate and financial bond issuance grew slightly faster than government bonds. In addition, securitized bond issuance relative to GDP remained at the same level as last year. Singapore saw some improvement in international fund and bond market development, but it lost some ground in alternative capital and equity market development. Both countries benefited from a sound institutional environment.

Somewhat surprisingly, the United States managed to stay in the top 10 in 2009, even moving up one ranking to No. 5, despite the significant damage caused by the financial crisis. Several factors helped—interest rates were at historical lows, and its international investment position improved as the result of a weak dollar. Perhaps most importantly, while the private credit market was largely frozen, the government stepped in to help provide short-term credit for businesses. Also, the United States still has the highest country rating for deposits and sovereign debt, thanks to the deposit insurance system and the U.S. dollar’s special status as an international reserve currency. In times of turbulent financial markets, investors search for safe havens, so many put a substantial portion of their investments into U.S. government securities and agency securities, providing funding for U.S. governments, businesses, and households.

5


No. 1 Canada Shows Stability You Can Bank On

In 2008, the World Economic Forum ranked Canada’s banking system as the healthiest in the world. The United States came in at No. 40. It’s no wonder that among industrialized nations only Canada can say not one of its banks has failed in a financial meltdown that initially decimated U.S. financial institutions.1

Through 2008, Canada performed extremely well amid the financial crisis and was in a good position to weather the storm. Prior to the crisis, Canada’s macroeconomic performance had been solid: Average real GDP growth from 2004 to 2007 was 3 percent, one of the highest among industrialized countries. Unemployment dropped slightly during the same time period.

The Canadian economy benefited from the run-up in energy price in recent years. A large country with abundant natural resources, Canada enjoyed this comparative advantage at a time of rising demand for energy. Well-established institutional and legal frameworks further helped remove barriers for business financing.

There are two major contributors to Canada’s exceptional performance in 2008.

n The Canadian housing market was relatively stable. In Canada, the housing market is not as heavily securitized as in the United States. In 2008, just 29 percent of all mortgages were securitized, compared with 69 percent in the United States. Lenders (mainly banks) held these unsecuritized mortgages on their balance sheets, bearing a substantial part of the risks related to these mortgages. Such constraints helped to improve lending standards and led to smoother, albeit much slower, growth in the housing sector. Perhaps most importantly, mortgage insurance played a significant role in reining in excessive speculation in the market.

n Canadian banks are subject to strict capital reserve requirements. Leverage caps are put on both tier 1 and tier 2 capital ratios. Off-balance-sheet exposures are also regulated, unlike in the United States. The more conservative approach of bank regulators helps ensure that banks have sufficient reserves even in a time of economic downturn to keep the capital flowing to the private sector.

Regulators engage in a delicate balancing act between growth and prudence. The excellent performance (relative to other developed countries) of the Canadian financial sector in the aftermath of the global financial crisis proves the Canadians are on the right track.

Several challenges remain: The current account surplus weakened and likely continued to deteriorate in 2009. Equity financing has been slow. The housing market, though performing relatively well, still has suffered from slower sales of new homes. However, its strong institutional environment and solid banking sector should keep Canada safe through the financial storm.

1. Susan Bourette, “In Canada, Obama gets warm welcome – and tips on managing an economy,” Christian Science Monitor, February 20, 2009. http://www.csmonitor.com/World/Americas/2009/0220/p25s16-woam.html (accessed March 24, 2010).

6


Switzerland, Sweden, Australia, the Netherlands, and Finland ranked sixth through 10th, respectively. While 2007 was a good year for Switzerland—it ranked third in the CAI, the highest position it has achieved in the past 10 years—it lost three positions in 2008. Switzerland scored higher in institutional environment and in international funding but saw declines in the performance of all aspects of financial markets: equity market, bond market, banks and securitized market. In particular, bond issuance dropped 9 percent, and private placements dropped almost 50 percent relative to GDP.

Six of the top 10 countries saw some decline in their financial and banking institutions scores. Six experienced worsening equity market performance. Five of them reported fewer activities in alternative capital. However, the institutional and macroeconomic environments remained relatively stable for these countries.

The Big Movers

China and Portugal made the largest leaps in ranking.

China jumped 13 places, to No. 32, with improvements in all subcomponents except for the bond market and alternative sources of capital. Although China’s trade surplus started to shrink toward the end of the year, sound economic growth and a robust banking sector helped stabilize the economy and keep credit flowing. While the country’s institutional environment continued to improve, the absence of a meaningful corporate bond market has to an extent limited Chinese businesses’ access to capital.

Portugal moved up eight places to No. 18, its first time in the top 20. Portugal saw improvements in its macroeconomic and institutional environments and growth in bond issuance. Thanks to a relatively robust banking sector, credit kept flowing. However, in 2008 Portugal received less alternative capital than in 2007, signaling an area that needs future improvements.

The Top Half

All 27 industrialized countries2 are included in the top half of the CAI rankings. Thirteen improved their rankings, eight saw declines, and the remainder were unchanged. Rounding out the top half are thirteen developing European countries, seven Middle Eastern countries, five developing Asian countries, six Latin American countries, and three African countries.

Most industrialized countries saw a significant drop in their equity market development scores. This is caused by either higher volatility or fewer new listings. Some exceptions are Hong Kong, Sweden, Taiwan, and Slovenia. Also, most industrialized countries lost some ground in the area of financial and banking institutions. Bond market development and institutional environment remained exceptional for industrialized countries as a group.

2. Industrialized economies include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong SAR, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Slovenia, South Korea, Spain, Sweden, Switzerland, Taiwan, the United Kingdom, and the United States.

7


“BRIC” countries—Brazil, Russia, India and China—were all in the top half, and all saw some improvements in both their composite scores and rankings this year.

n Brazil moved from No. 51 to No. 49, with significant advances in bond market development and alternative sources of capital.

n Russia ranked 54th this year, compared to 58th last year. The country saw improvements in all index components except for financial and banking institutions and equity market development. Like Brazil’s, Russia’s highlights were improvements in bond market development and alternative sources of capital.

n India moved from No. 47 to No. 44. It saw declines in macroeconomic environment and institutional environment scores but made progress in alternative sources of capital and in international funding.

n China, as mentioned above, skyrocketed 13 positions, from No. 45 to No. 32.

The Bottom Half

Of the 61 countries in the bottom half of this year’s CAI rankings, 30 were African countries. They exhibited some of the greatest shifts —both upward and downward—in the bottom half.

n Central African Republic plummeted 19 places, from No. 94 to No. 113, mainly as a result of deteriorating equity market conditions.

n Angola leaped 17 places, from No. 110 to No. 93, because of substantial improvements in macroeconomic environment and international funding.

n Syria dived 15 places from No. 92 to No. 107, placing it in the bottom 20. The only component that saw some progress in Syria was alternative sources of capital.

n Moldova vaulted 14 places from No. 98 to No. 84. Moldova saw improvements in every component, but the greatest strides were in institutional environment and bond market development.

n Ukraine’s ranking continued to decline—from No. 65 in 2007 to No. 74 in 2008, to No. 77 in the latest ranking.

8


Of the bottom 20 countries, 17 were African nations. Almost all suffered from further declines in their already dismal institutional environments, emphasizing the need for these countries to improve their economic infrastructure to provide a stable platform for private business financing.

Table 1: 2009 Capital Access Index

RANK 2009

RANK 2008 COUNTRY CAI 2009 RANK

2009RANK 2008 COUNTRY CAI 2009

1 1 Canada 8.25 62 62 El Salvador 4.612 2 Hong Kong SAR 7.99 63 65 Indonesia 4.603 4 United Kingdom 7.95 64 60 Costa Rica 4.434 5 Singapore 7.92 64 59 Uruguay 4.435 6 United States 7.88 66 70 Jamaica 4.356 3 Switzerland 7.68 67 54 Belarus 4.347 11 Sweden 7.54 68 66 Vietnam 4.278 9 Australia 7.52 69 68 Botswana 4.209 7 Netherlands 7.49 70 71 Namibia 4.13

10 10 Finland 7.47 71 75 Kenya 4.0811 13 Denmark 7.44 72 69 Sri Lanka 3.9612 12 South Korea 7.39 73 81 Ghana 3.9413 17 Ireland 7.23 74 73 Pakistan 3.9314 8 Norway 7.18 75 72 Argentina 3.8415 13 Malaysia 7.06 76 80 Guatemala 3.7916 17 France 6.99 77 74 Ukraine 3.7617 15 Estonia 6.89 78 77 Nigeria 3.7318 26 Portugal 6.86 79 82 Ecuador 3.7219 19 New Zealand 6.85 80 83 Iran 3.6520 23 Germany 6.84 81 86 Armenia 3.6121 22 Belgium 6.83 82 85 Bosnia and Herzegovina 3.6022 19 United Arab Emirates 6.77 83 79 Honduras 3.5323 15 Japan 6.72 84 98 Moldova 3.5224 27 Spain 6.71 85 84 Bangladesh 3.4825 21 Israel 6.66 85 92 Zimbabwe 3.4826 24 Taiwan, China 6.54 87 78 Dominican Republic 3.4727 32 Thailand 6.51 88 98 Tanzania 3.3628 25 Austria 6.45 88 89 Venezuela 3.3629 29 Chile 6.36 88 88 Zambia 3.3630 31 Kuwait 6.22 91 87 Bolivia 3.3031 28 South Africa 6.15 92 76 Papua New Guinea 3.2632 45 China 6.00 93 110 Angola 3.2033 30 Italy 5.96 94 90 Nicaragua 3.1934 34 Lithuania 5.92 95 100 Mongolia 3.1835 33 Oman 5.91 96 103 Yemen 3.0936 37 Saudi Arabia 5.90 97 105 Malawi 3.0437 36 Hungary 5.82 98 95 Paraguay 3.0338 35 Czech Republic 5.72 98 97 Uganda 3.0339 39 Lebanon 5.66 100 95 Cambodia 2.9139 38 Panama 5.66 101 102 Lesotho 2.8741 41 Greece 5.64 102 101 Senegal 2.8442 40 Slovakia 5.59 103 109 Mozambique 2.7443 46 Slovenia 5.53 104 108 Cameroon 2.6744 47 India 5.51 105 110 Rwanda 2.6445 44 Mexico 5.50 106 104 Burkina Faso 2.6346 42 Jordan 5.47 107 92 Syria 2.5947 52 Latvia 5.22 108 106 Benin 2.5848 52 Tunisia 5.21 109 113 Sierra Leone 2.5649 51 Brazil 5.14 110 91 Ethiopia 2.4450 54 Egypt 5.08 111 114 Laos 2.3751 42 Poland 5.03 111 106 Mali 2.3752 50 Turkey 5.02 113 94 Central African Republic 2.3253 57 Colombia 4.97 114 115 Togo 2.3154 58 Russia 4.96 115 121 Guinea 2.1955 48 Bulgaria 4.94 116 117 Mauritania 2.1856 48 Croatia 4.90 117 122 Republic of Congo 2.1757 61 Romania 4.88 118 116 Madagascar 2.1358 64 Macedonia 4.86 119 119 Chad 2.0658 56 Peru 4.86 120 110 Niger 2.0360 67 Morocco 4.74 121 120 Haiti 1.9561 62 Philippines 4.62 122 118 Burundi 1.87

0 MEAN: 4.73 10 0 MEAN: 4.73 10

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Table 2 shows the component scores for different country groups. Industrialized countries, not surprisingly, remained strong in all seven components. The greatest gap between industrialized countries and other groups was in alternative funding.

Among developing nations, Middle Eastern countries received the highest scores for macroeconomic environment, bond market development, institutional environment, and international funding, while developing European countries were relatively stronger in equity market development and alternative sources of capital. Developing Asian countries lost some momentum compared to the previous year.

Overall, macroeconomic and institutional environments were the two strongest components driving the composite CAI scores for all nations, while alternative funding lagged for most developing countries.

Table 2: Average of components for 2009 Capital Access Index

2009

CA

I sco

re

Mac

roec

onom

ic

envi

ronm

ent (

ME)

Inst

itutio

nal

envi

ronm

ent (

IE)

Fina

ncia

l and

ban

king

in

stitu

tions

(FI

)

Equi

ty m

arke

t de

velo

pmen

t (EM

)

Bond

mar

ket

deve

lopm

ent (

BM)

Alte

rnat

ive

sour

ces

of c

apita

l (A

C)

Inte

rnat

iona

l Fun

ding

(I

F)

Industrialized countries 7.09 7.61 7.66 6.96 6.22 6.76 6.60 6.21

Middle East 5.03 7.21 5.71 3.96 4.13 2.83 3.08 4.03

Europe 4.83 6.92 5.30 4.91 2.82 3.36 2.64 4.03

Asia 4.50 5.42 4.74 4.34 4.42 3.96 2.85 3.99

Americas and the Caribbean

4.17 5.57 4.63 3.79 2.77 3.46 2.44 3.79

Africa 3.07 4.33 4.08 2.74 1.76 1.55 1.02 2.59

Table 3 shows each nation’s CAI composite scores for the past three years. The average composite score for all countries was 4.73 in the 2009 index (see table 4), compared with 4.68 in the 2008 index and 4.71 in the 2007 index. The median scores were 4.62 in the 2009 index, 4.58 in the 2008 index, and 4.51 in the 2007 index. The higher median scores reflect some improvement among countries in the middle range. However, the gap between the best-performing country and the worst-performing country increased from 6.03 last year to 6.38 this year.

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Table 3: Capital Access Index scores and country rankings, 2007-2009

2009 2008 2007

CAI Rank CAI Rank CAI Rank

Canada 8.25 1 7.90 1 8.01 3

Hong Kong SAR 7.99 2 7.82 2 8.27 1

United Kingdom 7.95 3 7.70 4 8.23 2

Singapore 7.92 4 7.64 5 7.88 4

United States 7.88 5 7.56 6 7.50 11

Switzerland 7.68 6 7.76 3 7.62 7

Sweden 7.54 7 7.13 11 7.86 5

Australia 7.52 8 7.26 9 7.61 8

Netherlands 7.49 9 7.28 7 7.07 15

Finland 7.47 10 7.21 10 7.56 9

Denmark 7.44 11 7.03 13 7.12 14

South Korea 7.39 12 7.06 12 6.87 19

Ireland 7.23 13 6.95 17 7.66 6

Norway 7.18 14 7.27 8 7.56 9

Malaysia 7.06 15 7.03 13 7.14 13

France 6.99 16 6.95 17 6.83 22

Estonia 6.89 17 6.96 15 6.87 19

Portugal 6.86 18 6.40 26 6.79 24

New Zealand 6.85 19 6.92 19 7.00 18

Germany 6.84 20 6.67 23 7.05 17

Belgium 6.83 21 6.76 22 6.86 21

United Arab Emirates 6.77 22 6.92 19 6.13 29

Japan 6.72 23 6.96 15 7.07 15

Spain 6.71 24 6.33 27 5.34 43

Israel 6.66 25 6.81 21 7.15 12

Taiwan, China 6.54 26 6.63 24 6.57 25

Thailand 6.51 27 6.09 32 6.36 26

Austria 6.45 28 6.49 25 6.80 23

Chile 6.36 29 6.19 29 6.32 27

Kuwait 6.22 30 6.10 31 6.09 32

South Africa 6.15 31 6.21 28 6.12 30

China 6.00 32 5.45 45 5.26 45

Italy 5.96 33 6.11 30 5.96 33

Lithuania 5.92 34 5.87 34 6.25 28

Oman 5.91 35 5.97 33 5.36 42

Saudi Arabia 5.90 36 5.76 37 5.73 36

Hungary 5.82 37 5.79 36 6.11 31

Czech Republic 5.72 38 5.86 35 5.63 37

Lebanon 5.66 39 5.54 39 5.12 48

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2009 2008 2007


Panama 5.66 39 5.56 38 5.53 40

Greece 5.64 41 5.52 41 5.87 34

Slovakia 5.59 42 5.53 40 5.29 44

Slovenia 5.53 43 5.34 46 5.22 46

India 5.51 44 5.33 47 5.50 41

Mexico 5.50 45 5.46 44 5.78 35

Jordan 5.47 46 5.51 42 5.14 47

Latvia 5.22 47 4.90 52 5.61 38

Tunisia 5.21 48 4.90 52 4.60 59

Brazil 5.14 49 4.92 51 4.76 56

Egypt 5.08 50 4.85 54 4.36 65

Poland 5.03 51 5.51 42 5.54 39

Turkey 5.02 52 4.95 50 4.97 51

Colombia 4.97 53 4.82 57 4.76 56

Russia 4.96 54 4.80 58 5.00 49

Bulgaria 4.94 55 4.97 48 4.85 53

Croatia 4.90 56 4.97 48 4.77 54

Romania 4.88 57 4.60 61 4.66 58

Macedonia 4.86 58 4.53 64 4.30 67

Peru 4.86 58 4.84 56 4.98 50

Morocco 4.74 60 4.30 67 4.08 71

Philippines 4.62 61 4.55 62 4.50 62

El Salvador 4.61 62 4.55 62 4.95 52

Indonesia 4.60 63 4.42 65 4.40 64

Costa Rica 4.43 64 4.61 60 4.22 69

Uruguay 4.43 64 4.63 59 4.77 54

Jamaica 4.35 66 4.19 70 4.52 60

Belarus 4.34 67 4.85 54 4.46 63

Vietnam 4.27 68 4.41 66 3.98 74

Botswana 4.20 69 4.28 68 4.29 68

Namibia 4.13 70 4.14 71 4.04 73

Kenya 4.08 71 4.03 75 3.67 81

Sri Lanka 3.96 72 4.21 69 4.11 70

Ghana 3.94 73 3.71 81 3.81 78

Pakistan 3.93 74 4.07 73 4.06 72

Argentina 3.84 75 4.12 72 4.52 60

Guatemala 3.79 76 3.75 80 3.83 77

Ukraine 3.76 77 4.06 74 4.36 65

Nigeria 3.73 78 3.79 77 3.40 88

Table 3: Capital Access Index scores and country rankings, 2007-2009 (cont.)

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2009 2008 2007


Ecuador 3.72 79 3.59 82 3.56 84

Iran 3.65 80 3.57 83 3.71 80

Armenia 3.61 81 3.50 86 3.96 75

Bosnia and Herzegovina 3.60 82 3.52 85 3.44 87

Honduras 3.53 83 3.76 79 3.61 83

Moldova 3.52 84 3.07 98 3.39 89

Bangladesh 3.48 85 3.53 84 3.24 92

Zimbabwe 3.48 85 3.12 92 2.62 107

Dominican Republic 3.47 87 3.77 78 3.47 85

Tanzania 3.36 88 3.07 98 3.45 86

Venezuela 3.36 88 3.23 89 3.21 93

Zambia 3.36 88 3.25 88 3.00 98

Bolivia 3.30 91 3.43 87 3.85 76

Papua New Guinea 3.26 92 4.01 76 3.77 79

Angola 3.20 93 2.46 110 2.56 110

Nicaragua 3.19 94 3.22 90 3.66 82

Mongolia 3.18 95 3.01 100 3.36 90

Yemen 3.09 96 2.82 103 2.68 104

Malawi 3.04 97 2.78 105 2.63 105

Paraguay 3.03 98 3.09 95 3.16 94

Uganda 3.03 98 3.08 97 3.25 91

Cambodia 2.91 100 3.09 95 3.00 98

Lesotho 2.87 101 2.84 102 3.08 96

Senegal 2.84 102 2.89 101 3.05 97

Mozambique 2.74 103 2.48 109 2.60 109

Cameroon 2.67 104 2.63 108 2.61 108

Rwanda 2.64 105 2.46 110 2.32 117

Burkina Faso 2.63 106 2.79 104 2.81 102

Syria 2.59 107 3.12 92 2.78 103

Benin 2.58 108 2.72 106 2.48 111

Sierra Leone 2.56 109 2.44 113 2.09 120

Ethiopia 2.44 110 3.13 91 3.11 95

Laos 2.37 111 2.37 114 2.11 119

Mali 2.37 111 2.72 106 2.85 101

Central African Republic 2.32 113 3.10 94 2.97 100

Togo 2.31 114 2.24 115 2.48 111

Guinea 2.19 115 1.89 121 2.33 116

Mauritania 2.18 116 2.11 117 2.63 105

Republic of Congo 2.17 117 1.87 122 2.32 117


13


2009 2008 2007


Madagascar 2.13 118 2.14 116 2.38 114

Chad 2.06 119 2.02 119 1.69 122

Niger 2.03 120 2.46 110 2.42 113

Haiti 1.95 121 1.94 120 2.09 120

Burundi 1.87 122 2.05 118 2.34 115

The average score of each CAI component is summarized in table 4 for countries grouped by their rankings. The average score for all countries was lowest for alternative sources of capital, a result of the declining securitization market worldwide. For the first time, bond market development was not the weakest area of performance for all countries, primarily because bond issuance supported funding for businesses when bank lending sharply declined in many countries.

The gap between the top and bottom 20 countries has enlarged. Last year the average scores for the two groups were 7.27 and 2.17, with a gap of 5.1; this year the gap grew to 5.26. The largest gap lies in alternative sources of capital, followed by equity market development. In fact, for the bottom 20 countries, equity markets and alternative sources of capital were almost nonexistent. Banks and bond issuance—mainly government bonds—were better developed in comparison. The gap has widened considerably in institutional environment and international funding, while it shrank somewhat in financial and banking institutions.

Table 4: Component averages of 2009 Capital Access Index by ranking groups

2009

CA

I sco

re

Mac

roec

onom

ic

envi

ronm

ent (

ME)

Inst

itutio

nal

envi

ronm

ent (

IE)

Fina

ncia

l and

ba

nkin

g in

stitu

tions

(F

I)

Equi

ty m

arke

t de

velo

pmen

t (EM

)

Bond

mar

ket

deve

lopm

ent (

BM)

Alte

rnat

ive

sour

ces

of c

apita

l (A

C)

Inte

rnat

iona

l fu

ndin

g (I

F)

Top 20 7.42 7.90 8.11 7.21 6.50 6.94 7.11 6.44

Top 50% 6.24 7.31 6.59 6.07 5.47 5.48 5.14 5.47

All 4.73 6.01 5.36 4.45 3.55 3.66 3.10 4.08

Bottom 50% 3.22 4.72 4.12 2.84 1.63 1.84 1.07 2.68

Bottom 20 2.16 3.65 3.02 1.57 0.14 1.00 0.33 1.91


15


Appendix A: Methodology The Capital Access Index is based on the evaluation of seven components: macroeconomic environment (ME), institutional environment (IE), financial and banking institutions (FI), equity market development (EM), bond market development (BM), alternative sources of capital (AC), and international funding (IF).

Macroeconomic environment: the favorableness of conditions for running and financing a business, based on such variables as inflation, interest rates, tax rates, and financial sophistication relative to international norms

Institutional environment: the extent to which institutions support and enhance business financing activities, based on variables that include the enforceability of property rights, the impartiality of the judicial system, the efficiency of bankruptcy procedures, and the levels of corruption

Financial and banking institutions: the involvement of deposit-taking institutions in financing businesses, based on such variables as the extension of credit to the private sector, the soundness of financial institutions, the ease of access to bank loans, and the efficiency of the banking system

Equity market development: the importance of equity financing of business operations, based on such variables as stock market capitalization relative to GDP, stock market liquidity, and changes in the number of listings

Bond market development: the importance of bond financing for businesses, based on variables such as the value of private and public bonds relative to GDP and securitized asset issuance relative to GDP

Alternative sources of capital: the level of usage of diverse financing sources, such as venture capital, credit cards, and non-public stock offerings or other private placements.

International funding: the availability of foreign capital to businesses in a particular country, based on such variables as the volatility of exchange rates, international reserve holdings, portfolio and foreign direct investment, capital inflows and outflows, and sovereign ratings.

To calculate component scores, first the non-surveyed or missing variables in the FI, EM, BM, AC, and IF components are assigned a score of zero. This step reflects the fact that the variable in question is so small that its effect on capital access is immaterial. For some countries, non-surveyed variables are missing due to slow data reporting but exist for prior years. In these cases, the prior year’s values are used for the current year rather than assigning a score of zero.

Second, the variables are ranked by decile according to the directional relationship to capital access. The resulting scores of one to 10 are then assigned for countries ranking lowest to highest in terms of capital access. The score for each subcategory is calculated by a simple average of the variables, but only if the data in the category are greater than or equal to 50 percent of the total variables in that category.

Third, the Capital Access Index is calculated using the weighted average of the seven components. The first two components, ME and IE, are weighted 25 percent each. The other five components, FI, EM, BM, AC, and IF, are each weighted as 10 percent of the final CAI score.

Theoretically, the scores can range from zero to 10. However, because every country has some kind of macroeconomic and institutional structure, the minimum for each of these two categories is one; therefore the lowest possible score is 0.5.

16


Capital Access Index variables

Code Component Variable Source Directional relationship

ME01 Macro environment Absolute inflation rate IFS -ME02 Macro environment Lending rate IFS -

ME03 Macro environmentThe absolute value of difference between interest rate volatility and the volatility of the International Monetary Fund’s SDR (special drawing right) and LIBOR (London Interbank Offered Rate)

IFS -

ME04 Macro environment Corporate tax Heritage -ME05 Macro environment Personal tax Heritage -ME06 Macro environment Financial market sophistication WEF +IE01 Economic institution Contract enforcement (procedures, days, and costs) WBD -IE02 Economic institution Absence of corruption ICRG +IE03 Economic institution Registering property (procedures, days, and costs) WBD -IE04 Economic institution Minimum paid in capital/ GNI (gross national income) WBD -IE05 Economic institution Cost to create and register collateral WBD -IE06 Economic institution Index of legal rights of borrowers and lenders WBD +IE07 Economic institution Index of credit information availability WBD +IE08 Economic institution Coverage of public registries WBD +IE09 Economic institution Disclosure requirements WBD +IE10 Economic institution Bankruptcy (procedure and costs) WBD -IE11 Economic institution Bankruptcy recovery rate per dollar WBD +IE12 Economic institution Effectiveness of bankruptcy law WEF +IE13 Economic institution Judicial independence WEF +IE14 Economic institution Efficiency of legal framework WEF +IE15 Economic institution Property rights WEF +IE16 Economic institution Intellectual property protection WEF +IE17 Economic institution Burden of local government regulation WEF +FI01 Bank Claims to non-financial firms/GDP IFS +FI02 Bank Bank assets/GDP IFS +FI03 Bank Domestic assets/foreign assets IFS +FI04 Bank Moody’s deposit rating Moody’s +FI05 Bank Net interest margin IFS -FI06 Bank Syndicated loans/GDP SDC, IFS +FI07 Bank Actual reserves/ bank assets IFS -FI08 Bank Soundness of banks WEF +FI09 Bank Access to credit WEF +FI10 Bank Ease of access to loans WEF +EM01 Equity market development Equity market cap/GDP GMFB +EM02 Equity market development Equity market liquidity (turnover ratio) GMFB +EM03 Equity market development Relative equity market volatility (standard deviation of 12-month daily returns) Datastream -EM04 Equity market development Change in number of listings GMFB -EM05 Equity market development Local equity market access WEF +EM06 Equity market development Regulation of securities exchange WEF +BM01 Bond market development Private-sector bond/GDP BIS, IFS +BM02 Bond market development Public-sector bond/GDP BIS, IFS +BM03 Bond market development Private-sector bond/public-sector bond BIS +BM04 Bond market development % Change in number of issuance BIS +BM05 Bond market development Securitized bond issuance/GDP SDC, IFS +AC01 Alternative sources of capital Venture capital funds/GDP SDC, IFS +AC02 Alternative sources of capital Private placements/GDP SDC, IFS +AC03 Alternative sources of capital Credit card issuance/GDP NIL +AC04 Alternative sources of capital Venture capital availability WEF +IF01 International funding Total international reserves/annual imports IFS +IF02 International funding Relative currency volatility Datastream -IF03 International funding Portfolio inflow/GDP IFS +IF04 International funding Portfolio outflow/GDP IFS -IF05 International funding Direct investment inflow/GDP IFS +IF06 International funding Direct investment outflow/GDP IFS -IF07 International funding Fitch ratings Fitch +IF08 International funding S&P ratings S&P + N

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17


Appendix B: Capital Access Index Components

Appendix B.1: The Macroeconomic Environment (ME)ME captures the extent to which a country’s macroeconomic environment is conducive to business.

RANK COUNTRY ME RANK COUNTRY ME1 Hong Kong SAR 9.67 59 Yemen 6.002 Canada 9.50 63 South Africa 5.832 Singapore 9.50 63 India 5.834 United Arab Emirates 9.25 65 Iran 5.805 Slovakia 9.17 65 Papua New Guinea 5.806 Lebanon 9.00 67 Armenia 5.677 Czech Republic 8.83 67 Bolivia 5.678 Malaysia 8.67 69 Ghana 5.509 Switzerland 8.50 69 Cambodia 5.50

10 Finland 8.25 71 Indonesia 5.3311 United Kingdom 8.17 71 Botswana 5.3311 Netherlands 8.17 71 Guatemala 5.3311 Estonia 8.17 74 Brazil 5.1711 Kuwait 8.17 74 Colombia 5.1711 Oman 8.17 74 Costa Rica 5.1716 South Korea 8.00 74 Ukraine 5.1716 Macedonia 8.00 74 Nigeria 5.1718 Israel 7.83 74 Moldova 5.1718 Lithuania 7.83 74 Paraguay 5.1720 Ireland 7.75 81 Peru 5.0020 Saudi Arabia 7.75 81 Morocco 5.0022 United States 7.67 81 Jamaica 5.0022 Thailand 7.67 81 Namibia 5.0022 Slovenia 7.67 81 Kenya 5.0022 Bosnia and Herzegovina 7.67 81 Honduras 5.0026 Germany 7.50 81 Dominican Republic 5.0026 Japan 7.50 81 Tanzania 5.0026 Italy 7.50 81 Senegal 5.0026 Panama 7.50 81 Syria 5.0026 El Salvador 7.50 91 Nicaragua 4.8326 Ecuador 7.50 91 Lesotho 4.8332 Belarus 7.40 93 Sierra Leone 4.8033 Norway 7.33 93 Central African Republic 4.8033 Hungary 7.33 95 Burkina Faso 4.7533 Mexico 7.33 96 Cameroon 4.6736 Denmark 7.25 97 Mongolia 4.5037 Australia 7.00 98 Rwanda 4.2037 Portugal 7.00 99 Bangladesh 4.1737 Taiwan, China 7.00 100 Venezuela 4.0037 Austria 7.00 100 Uganda 4.0037 China 7.00 100 Mozambique 4.0042 New Zealand 6.83 100 Mauritania 4.0042 Chile 6.83 100 Republic of Congo 4.0042 Croatia 6.83 105 Vietnam 3.8342 Romania 6.83 105 Argentina 3.8346 Sweden 6.75 105 Malawi 3.8346 Greece 6.75 105 Madagascar 3.8348 Belgium 6.67 109 Haiti 3.8048 Jordan 6.67 110 Pakistan 3.7548 Latvia 6.67 110 Benin 3.7548 Bulgaria 6.67 112 Togo 3.6752 Spain 6.50 113 Sri Lanka 3.5052 Poland 6.50 114 Laos 3.4052 Turkey 6.50 115 Zambia 3.3352 Russia 6.50 115 Guinea 3.3352 Uruguay 6.50 115 Chad 3.3357 Egypt 6.33 115 Niger 3.3358 France 6.25 119 Ethiopia 3.2559 Tunisia 6.00 119 Mali 3.2559 Philippines 6.00 121 Burundi 3.0059 Angola 6.00 122 Zimbabwe 2.17

0 MEAN: 6.01 0 MEAN: 6.01 10 10

18


Appendix B.2: Institutional Environment (IE)IE reflects the extent to which a country has the institutions needed to support and enhance business financing activities.

RANK COUNTRY IE RANK COUNTRY IE1 Singapore 8.88 62 Moldova 5.192 Finland 8.71 63 Lebanon 5.182 New Zealand 8.71 64 Mexico 5.184 Canada 8.47 65 Panama 5.124 United Kingdom 8.47 65 Vietnam 5.126 Hong Kong SAR 8.35 65 Guatemala 5.126 United States 8.35 68 Rwanda 4.896 Australia 8.35 69 Honduras 4.886 Denmark 8.35 70 Pakistan 4.826 Norway 8.35 71 India 4.7611 Japan 8.24 72 Mongolia 4.7512 Switzerland 8.12 73 Jamaica 4.7113 Ireland 8.06 74 Brazil 4.6514 Sweden 8.00 74 Indonesia 4.6515 Germany 7.94 74 Ghana 4.6516 Austria 7.88 74 Argentina 4.6517 Netherlands 7.76 78 Macedonia 4.6317 South Korea 7.76 79 Czech Republic 4.5917 Estonia 7.76 80 Poland 4.4720 Taiwan, China 7.47 80 Russia 4.4721 Malaysia 7.41 82 Tanzania 4.3822 France 7.29 83 Kenya 4.3523 Belgium 7.24 84 Dominican Republic 4.2524 Saudi Arabia 7.13 85 Ethiopia 4.2425 Portugal 7.06 86 Syria 4.1326 Spain 6.94 87 Croatia 4.1226 South Africa 6.94 87 Malawi 4.1228 Lithuania 6.88 87 Paraguay 4.1229 Tunisia 6.82 90 Mali 4.0030 Chile 6.76 91 Nigeria 3.9431 Oman 6.75 92 Senegal 3.9432 Namibia 6.71 93 Lesotho 3.9333 Thailand 6.65 94 Burkina Faso 3.8834 China 6.59 95 Nicaragua 3.8235 Botswana 6.53 96 Ecuador 3.7636 Latvia 6.24 97 Uganda 3.7137 Israel 6.12 98 Mauritania 3.6738 United Arab Emirates 6.06 99 Papua New Guinea 3.6438 Hungary 6.06 99 Guinea 3.6440 Romania 6.00 101 Bolivia 3.5340 Belarus 6.00 102 Bosnia and Herzegovina 3.5042 Colombia 5.94 102 Mozambique 3.5043 Kuwait 5.88 104 Philippines 3.2943 Armenia 5.88 104 Zimbabwe 3.2945 Morocco 5.82 106 Angola 3.2746 Jordan 5.71 106 Togo 3.2746 Uruguay 5.71 106 Niger 3.2748 Slovakia 5.65 109 Madagascar 3.2548 Turkey 5.65 110 Ukraine 3.2448 Bulgaria 5.65 110 Bangladesh 3.2451 Yemen 5.64 112 Benin 3.2052 Iran 5.45 113 Cameroon 3.1953 Italy 5.41 114 Cambodia 3.1453 Peru 5.41 115 Laos 3.0053 Costa Rica 5.41 115 Central African Republic 3.0056 Sri Lanka 5.35 117 Sierra Leone 2.8257 Slovenia 5.29 118 Republic of Congo 2.5557 Zambia 5.29 119 Venezuela 2.3559 Greece 5.24 120 Chad 2.3359 Egypt 5.24 121 Burundi 2.2159 El Salvador 5.24 122 Haiti 2.09

0 MEAN: 5.36 0 MEAN: 5.36 10 10

19


Appendix B.3: Financial and Banking Institutions (FI) FI measures the level of involvement of deposit-taking institutions in financing businesses.

RANK COUNTRY FI RANK COUNTRY FI1 New Zealand 8.70 62 Egypt 4.402 Canada 8.60 62 Morocco 4.403 Australia 8.20 62 Sri Lanka 4.404 Netherlands 8.10 65 Russia 4.305 Hong Kong SAR 7.90 66 Poland 4.206 Singapore 7.80 66 Turkey 4.206 United States 7.80 66 Ghana 4.208 Switzerland 7.60 69 Macedonia 4.009 Denmark 7.50 69 Guatemala 4.00

10 Spain 7.30 69 Bangladesh 4.0010 Panama 7.30 72 Pakistan 3.9012 United Kingdom 7.10 72 Moldova 3.9012 Portugal 7.10 72 Zimbabwe 3.9012 Japan 7.10 75 Botswana 3.8012 Slovenia 7.10 75 Kenya 3.8016 Sweden 7.00 75 Bosnia and Herzegovina 3.8016 Chile 7.00 78 Philippines 3.7018 Estonia 6.80 78 Jamaica 3.7019 Finland 6.70 78 Nigeria 3.7019 South Korea 6.70 81 El Salvador 3.5019 Ireland 6.70 81 Venezuela 3.5019 Malaysia 6.70 83 Tanzania 3.4019 South Africa 6.70 84 Lebanon 3.3024 Belgium 6.60 84 Papua New Guinea 3.3024 Israel 6.60 84 Nicaragua 3.3024 Kuwait 6.60 87 Zambia 3.1027 France 6.50 87 Malawi 3.1028 United Arab Emirates 6.40 89 Argentina 2.9028 Lithuania 6.40 89 Armenia 2.9030 Thailand 6.30 89 Senegal 2.9031 Jordan 6.20 89 Mozambique 2.9032 Taiwan, China 6.10 93 Dominican Republic 2.8032 Slovakia 6.10 94 Bolivia 2.7034 Germany 6.00 94 Ethiopia 2.7035 Hungary 5.90 96 Angola 2.5036 Latvia 5.80 96 Uganda 2.5037 Austria 5.50 98 Lesotho 2.4037 Italy 5.50 98 Central African Republic 2.4037 Czech Republic 5.50 100 Iran 2.3037 Greece 5.50 101 Uruguay 2.2037 Namibia 5.50 101 Paraguay 2.2042 Colombia 5.30 101 Cambodia 2.2042 Bulgaria 5.30 101 Burkina Faso 2.2042 Croatia 5.30 101 Mali 2.2045 Vietnam 5.20 106 Benin 2.1046 Oman 5.10 106 Republic of Congo 2.1046 India 5.10 108 Laos 2.0046 Tunisia 5.10 109 Cameroon 1.8046 Brazil 5.10 109 Madagascar 1.8050 China 5.00 111 Burundi 1.7050 Romania 5.00 112 Sierra Leone 1.6052 Costa Rica 4.80 113 Togo 1.5053 Norway 4.60 113 Chad 1.5053 Mexico 4.60 115 Niger 1.2053 Indonesia 4.60 116 Haiti 1.1053 Belarus 4.60 117 Ecuador 0.7053 Ukraine 4.60 117 Mauritania 0.7053 Honduras 4.60 119 Syria 0.6053 Mongolia 4.60 119 Guinea 0.6060 Saudi Arabia 4.50 121 Rwanda 0.5060 Peru 4.50 122 Yemen 0.20

0 MEAN: 4.54 0 MEAN: 4.45 10 10

20


Appendix B.4: Equity Market Development (EM) EM reflects the importance of equity markets for business financing.

RANK COUNTRY EM RANK COUNTRY EM1 Sweden 8.33 62 Slovenia 3.832 United States 7.83 62 Ecuador 3.833 Taiwan, China 7.67 62 Zambia 3.834 Jordan 7.50 65 Turkey 3.675 Australia 7.33 65 Botswana 3.675 South Africa 7.33 67 Czech Republic 3.507 Denmark 7.17 67 Lebanon 3.507 South Korea 7.17 69 Slovakia 3.177 France 7.17 69 Russia 3.17

10 Switzerland 7.00 69 Jamaica 3.1711 Chile 6.83 69 Argentina 3.1711 Kuwait 6.83 69 Venezuela 3.1713 United Kingdom 6.67 74 Latvia 3.0014 Hong Kong SAR 6.50 75 El Salvador 2.8314 Malaysia 6.50 76 Bulgaria 2.5014 India 6.50 76 Mongolia 2.5017 Norway 6.33 78 Macedonia 2.3317 Belgium 6.33 79 Romania 2.1717 Spain 6.33 79 Iran 2.1717 Thailand 6.33 81 Namibia 2.0021 Canada 6.17 82 Costa Rica 1.8321 Germany 6.17 82 Tanzania 1.8323 Netherlands 6.00 84 Bolivia 1.6723 Portugal 6.00 84 Papua New Guinea 1.6723 New Zealand 6.00 86 Uruguay 1.1723 Israel 6.00 86 Ukraine 1.1723 Morocco 6.00 86 Paraguay 1.1728 Singapore 5.83 89 Uganda 1.0028 Japan 5.83 90 Armenia 0.8330 Finland 5.67 91 Guatemala 0.6730 Oman 5.67 91 Bosnia and Herzegovina 0.6730 Indonesia 5.67 91 Nicaragua 0.6733 Estonia 5.50 91 Burkina Faso 0.6733 United Arab Emirates 5.50 95 Benin 0.5033 Philippines 5.50 96 Honduras 0.3333 Kenya 5.50 96 Moldova 0.3333 Bangladesh 5.50 96 Dominican Republic 0.3338 Saudi Arabia 5.33 96 Cambodia 0.3338 Poland 5.33 96 Lesotho 0.3340 Sri Lanka 5.17 96 Senegal 0.3340 Pakistan 5.17 96 Mozambique 0.3342 Italy 5.00 96 Cameroon 0.3342 Lithuania 5.00 96 Syria 0.3342 Panama 5.00 96 Ethiopia 0.3342 Colombia 5.00 96 Mali 0.3342 Peru 5.00 96 Mauritania 0.3347 China 4.83 96 Madagascar 0.3347 Mexico 4.83 96 Chad 0.3347 Tunisia 4.83 96 Burundi 0.3350 Ireland 4.67 111 Belarus 0.0050 Brazil 4.67 111 Angola 0.0050 Croatia 4.67 111 Yemen 0.0050 Malawi 4.67 111 Rwanda 0.0054 Greece 4.50 111 Sierra Leone 0.0054 Egypt 4.50 111 Laos 0.0054 Nigeria 4.50 111 Central African Republic 0.0057 Austria 4.33 111 Togo 0.0057 Vietnam 4.33 111 Guinea 0.0057 Zimbabwe 4.33 111 Republic of Congo 0.0060 Hungary 4.00 111 Niger 0.0060 Ghana 4.00 111 Haiti 0.00

0 MEAN: 3.55 0 MEAN: 3.755 10 10

21


Appendix B.5: Bond Market Development (BM) BM captures the importance of bond financing for businesses.

RANK COUNTRY BM RANK COUNTRY BM1 United Kingdom 8.25 62 Bangladesh 3.502 Ireland 8.00 62 Benin 3.502 Italy 8.00 62 Croatia 3.502 Netherlands 8.00 62 Egypt 3.505 Austria 7.75 66 Angola 3.255 Belgium 7.75 67 Laos 3.005 Canada 7.75 67 Lithuania 3.005 France 7.75 69 Belarus 2.755 Portugal 7.75 69 Chad 2.755 United States 7.75 69 El Salvador 2.7511 Norway 7.50 69 Ghana 2.7511 Spain 7.50 69 Latvia 2.7513 Chile 7.25 69 Romania 2.7513 Denmark 7.25 69 Uruguay 2.7513 Finland 7.25 76 Saudi Arabia 2.5013 Malaysia 7.25 76 Sri Lanka 2.5013 Sweden 7.25 78 Guatemala 2.2513 Zimbabwe 7.25 78 Iran 2.2519 Brazil 7.00 78 Tunisia 2.2519 Germany 7.00 78 Vietnam 2.2519 Greece 7.00 82 Bolivia 2.0019 South Korea 7.00 82 Ecuador 2.0023 Australia 6.25 82 Morocco 2.0023 Philippines 6.25 85 Cameroon 1.7523 Singapore 6.25 85 Jordan 1.7523 Switzerland 6.25 85 Kuwait 1.7527 China 6.00 85 Papua New Guinea 1.7527 Hungary 6.00 89 Moldova 1.5029 Lebanon 5.75 90 Guinea 1.2529 United Arab Emirates 5.75 90 Haiti 1.2531 South Africa 5.50 90 Kenya 1.2531 Thailand 5.50 90 Lesotho 1.2533 Czech Republic 5.25 90 Malawi 1.2533 Estonia 5.25 90 Mali 1.2533 Hong Kong SAR 5.25 90 Mozambique 1.2533 India 5.25 90 Namibia 1.2533 Japan 5.25 90 Nicaragua 1.2533 Mexico 5.25 90 Niger 1.2533 Russia 5.25 90 Nigeria 1.2540 Jamaica 5.00 90 Paraguay 1.2540 Poland 5.00 90 Republic of Congo 1.2540 Taiwan, China 5.00 90 Senegal 1.2540 Venezuela 5.00 90 Tanzania 1.2544 Turkey 4.75 90 Yemen 1.2545 Pakistan 4.25 90 Zambia 1.2545 Panama 4.25 107 Armenia 0.0045 Ukraine 4.25 107 Bosnia and Herzegovina 0.0048 Argentina 4.00 107 Botswana 0.0048 Colombia 4.00 107 Burkina Faso 0.0048 Costa Rica 4.00 107 Burundi 0.0048 Dominican Republic 4.00 107 Cambodia 0.0048 Indonesia 4.00 107 Central African Republic 0.0048 Israel 4.00 107 Ethiopia 0.0048 Macedonia 4.00 107 Honduras 0.0048 Peru 4.00 107 Madagascar 0.0048 Slovakia 4.00 107 Mauritania 0.0048 Slovenia 4.00 107 Mongolia 0.0058 Bulgaria 3.75 107 Rwanda 0.0058 New Zealand 3.75 107 Sierra Leone 0.0058 Oman 3.75 107 Syria 0.0058 Uganda 3.75 107 Togo 0.00

0 MEAN: 3.66 0 MEAN: 3.66 10 10

22


Appendix B.6: Alternative Sources of Capital (AC) AC measures the use of alternative financing tools such as venture capital, private placements, and credit cards.

RANK COUNTRY AC RANK COUNTRY AC1 United Kingdom 9.00 58 Morocco 3.002 Sweden 8.75 58 Argentina 3.003 Canada 8.50 64 Oman 2.753 United States 8.50 64 Romania 2.753 Australia 8.50 64 Macedonia 2.756 South Korea 8.25 64 Indonesia 2.757 Hong Kong SAR 7.75 68 Jamaica 2.507 Israel 7.75 68 Venezuela 2.509 Ireland 7.50 70 Bulgaria 2.259 France 7.50 70 Togo 2.2511 Switzerland 7.00 72 Sri Lanka 2.0011 Finland 7.00 72 Honduras 2.0011 Norway 7.00 74 Slovakia 1.7514 United Arab Emirates 6.75 74 El Salvador 1.7514 Spain 6.75 74 Botswana 1.7516 Netherlands 6.50 74 Pakistan 1.7516 Portugal 6.50 78 Guatemala 1.5018 Denmark 6.25 78 Dominican Republic 1.5018 New Zealand 6.25 78 Nicaragua 1.5018 Belgium 6.25 78 Sierra Leone 1.5018 India 6.25 82 Nigeria 1.2522 Singapore 6.00 82 Zambia 1.2522 Estonia 6.00 84 Namibia 1.0024 South Africa 5.75 84 Cambodia 1.0025 Germany 5.25 86 Ecuador 0.7525 Thailand 5.25 86 Bangladesh 0.7525 Kuwait 5.25 86 Uganda 0.7525 Brazil 5.25 86 Lesotho 0.7529 Taiwan, China 4.75 86 Syria 0.7529 China 4.75 91 Bosnia and Herzegovina 0.5029 Greece 4.75 91 Tanzania 0.5032 Japan 4.50 91 Bolivia 0.5032 Mexico 4.50 91 Papua New Guinea 0.5034 Malaysia 4.25 91 Mozambique 0.5034 Austria 4.25 91 Benin 0.5034 Italy 4.25 91 Madagascar 0.5034 Saudi Arabia 4.25 91 Burundi 0.5034 Czech Republic 4.25 99 Ghana 0.2534 Egypt 4.25 99 Iran 0.2534 Poland 4.25 99 Armenia 0.2534 Russia 4.25 99 Moldova 0.2534 Peru 4.25 99 Angola 0.2543 Vietnam 4.00 99 Mongolia 0.2544 Lithuania 3.75 99 Malawi 0.2544 Latvia 3.75 99 Paraguay 0.2544 Philippines 3.75 99 Senegal 0.2547 Panama 3.50 99 Cameroon 0.2547 Jordan 3.50 99 Burkina Faso 0.2547 Turkey 3.50 99 Ethiopia 0.2547 Colombia 3.50 99 Mali 0.2547 Costa Rica 3.50 99 Mauritania 0.2547 Uruguay 3.50 99 Chad 0.2553 Hungary 3.25 114 Belarus 0.0053 Croatia 3.25 114 Yemen 0.0053 Kenya 3.25 114 Rwanda 0.0053 Ukraine 3.25 114 Laos 0.0053 Zimbabwe 3.25 114 Central African Republic 0.0058 Chile 3.00 114 Guinea 0.0058 Lebanon 3.00 114 Republic of Congo 0.0058 Slovenia 3.00 114 Niger 0.0058 Tunisia 3.00 114 Haiti 0.00

0 MEAN: 3.10 0 MEAN: 3.10 10 10

23


Appendix B.7: International Funding (IF) IF measures the level of foreign capital available to businesses in a country.

RANK COUNTRY IF RANK COUNTRY IF1 Hong Kong SAR 7.42 61 Indonesia 4.001 Switzerland 7.42 63 Cambodia 3.923 Singapore 7.33 64 Macedonia 3.913 Israel 7.33 65 Slovakia 3.835 Denmark 7.25 65 Nigeria 3.836 Sweden 7.17 67 Turkey 3.756 Norway 7.17 67 Philippines 3.756 France 7.17 67 Costa Rica 3.759 United Kingdom 6.92 70 Honduras 3.67

10 United States 6.83 70 Mozambique 3.6711 Kuwait 6.67 72 Kenya 3.5812 Canada 6.58 73 Venezuela 3.5512 Belgium 6.58 74 Nicaragua 3.5014 Australia 6.50 75 Sierra Leone 3.4514 Netherlands 6.50 76 El Salvador 3.4216 Portugal 6.08 76 Sri Lanka 3.4217 Ireland 5.92 78 Guatemala 3.3317 Thailand 5.92 78 Ukraine 3.3319 Malaysia 5.75 78 Moldova 3.3319 Taiwan, China 5.75 81 Armenia 3.2521 Finland 5.67 82 Botswana 3.1722 Spain 5.58 82 Tanzania 3.1722 Hungary 5.58 82 Bolivia 3.1722 Lebanon 5.58 82 Rwanda 3.1725 Estonia 5.50 82 Burundi 3.1725 Chile 5.50 87 Bosnia and Herzegovina 3.0925 India 5.50 88 Uganda 3.0828 Austria 5.42 89 Dominican Republic 2.9228 China 5.42 89 Cameroon 2.9230 South Korea 5.36 91 Ghana 2.8231 Germany 5.33 91 Angola 2.8232 Saudi Arabia 5.25 93 Pakistan 2.7532 Egypt 5.25 94 Laos 2.6734 Japan 5.17 95 Guinea 2.6434 Czech Republic 5.17 96 Zambia 2.5834 Russia 5.17 97 Belarus 2.5037 New Zealand 5.00 97 Bangladesh 2.5037 United Arab Emirates 5.00 99 Zimbabwe 2.4537 Panama 5.00 100 Ethiopia 2.4240 Slovenia 4.92 100 Haiti 2.4240 Croatia 4.92 102 Namibia 2.3340 Morocco 4.92 103 Paraguay 2.2543 Jordan 4.83 104 Lesotho 2.0943 Tunisia 4.83 105 Togo 2.0043 Brazil 4.83 105 Republic of Congo 2.0043 Bulgaria 4.83 107 Benin 1.8343 Peru 4.83 108 Ecuador 1.7543 Jamaica 4.83 108 Papua New Guinea 1.7549 Greece 4.67 110 Burkina Faso 1.5849 Latvia 4.67 110 Chad 1.5851 Italy 4.58 112 Mali 1.5051 Oman 4.58 113 Iran 1.3653 Mexico 4.50 113 Mongolia 1.3653 Vietnam 4.50 113 Syria 1.3655 South Africa 4.25 113 Mauritania 1.3655 Lithuania 4.25 117 Senegal 1.3357 Colombia 4.17 117 Niger 1.3357 Uruguay 4.17 119 Malawi 1.2757 Argentina 4.17 120 Central African Republic 1.2560 Poland 4.08 121 Madagascar 1.0061 Romania 4.00 122 Yemen 0.36

0 MEAN: 4.08 0 MEAN: 4.08 10 10

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About the Authors James R. Barth is the Lowder Eminent Scholar in Finance at Auburn University and a Senior Fellow at the Milken Institute. His research focuses on financial institutions and capital markets, both domestic and global, with special emphasis on regulatory issues. Most recently, he served as leader of an international team advising the People’s Bank of China on banking reform. Barth was an appointee of Presidents Ronald Reagan and George H.W. Bush as chief economist of the Office of Thrift Supervision and of the Federal Home Loan Bank Board. He has also held the positions of professor of economics at George Washington University, associate director of the economics program at the National Science Foundation, and Shaw Foundation Professor of Banking and Finance at Nanyang Technological University. He has been a visiting scholar at the U.S. Congressional Budget Office, the Federal Reserve Bank of Atlanta, the Office of the Comptroller of the Currency, and the World Bank. He is the co-author of The Rise and Fall of the U.S. Mortgage and Credit Markets: A Comprehensive Analysis of the Meltdown (John Wiley & Sons, 2009) and Rethinking Bank Regulation: Till Angels Govern (Cambridge University Press, 2006), co-editor of China’s Emerging Financial Markets: Challenges and Opportunities (Springer, 2009) and Financial Restructuring and Reform in Post-WTO China (Kluwer Law International, 2007), and overseas associate editor of The Chinese Banker.

Tong (Cindy) Li is a Research Economist in the Capital Studies group at the Milken Institute. She specializes in hedge fund performance, the U.S. mortgage market, banking regulations, and Chinese capital markets. Her papers have been presented at major academic and regulator conferences, including the 2006 American Economic Association annual meeting and the 2006 Federal Reserve Bank of Chicago Conference on “International Financial Instability: Cross-Border Banking and National Regulation.” She received her Ph.D. in economics from the University of California, Riverside, with research focused on microfinance and economic development, and special emphasis on China. She received a bachelor’s degree in international finance from Peking University. She is a co-author of The Rise and Fall of the U.S. Mortgage and Credit Markets: A Comprehensive Analysis of the Meltdown (John Wiley & Sons, 2009).

Wenling (Carol) Lu is a Research Analyst in the Capital Studies group at the Milken Institute. Her research interest focuses on financial institutions and mergers and acquisitions. Prior to joining the Institute, she worked as a research assistant at Auburn University, providing support to projects related to corporate governance, IPOs, and bankruptcies. Lu previously held positions with ACE Group and Dresdner Asset Management Corporation in Taipei, Taiwan. She received her M.B.A. with a concentration in finance from Auburn University and a bachelor’s degree in business from National Taiwan University of Science and Technology, Taiwan. She is a co-author of The Rise and Fall of the U.S. Mortgage and Credit Markets: A Comprehensive Analysis of the Meltdown (John Wiley & Sons, 2009).

Glenn Yago is Executive Director of Financial Research at the Milken Institute and an authority on financial innovations, capital markets, emerging markets, and environmental finance. He focuses on the innovative use of financial instruments to solve social, environmental, and economic development challenges. He is a recipient of the 2002 Gleitsman Foundation Award of Achievement for social change. Yago was a professor at the State University of New York at Stony Brook and at the City University of New York Graduate Center. Additionally, he directs the Koret–Milken Institute Fellows Program and is a visiting professor at the Hebrew University of Jerusalem’s Graduate School of Business. He is the author of five books, including Financing the Future, Restructuring Regulation and Financial Institutions, Beyond Junk Bonds and Global Edge; he is also co-editor of the Milken Institute Series on Financial Innovation and Economic Growth. Yago received a Ph.D. from the University of Wisconsin-Madison.

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Capital Access Index 2009 - Milken Institute€¦ · Capital Access Index 2009 Best Markets for Business Access to Capital APRIL 2010 James R. Barth, Tong Li, Wenling Lu, and Glenn