Israel was ranked the 23rd most attractive country in the world to do business in over the next five years, the Economist Intelligence Unit reported on Sunday, improving its business environment ranking by six places.
"Israel's business environment score rises to the top in the Middle East and North Africa region and 23rd globally from 29th previously, primarily reflecting structural changes and improvement in the macroeconomic situation," Jane Kinninmont, the Economist Intelligence Unit's Middle East economist told The Jerusalem Post in a telephone interview. "While we forecast a rise in the global rankings, the significant improvement of Israel's ranking by six places is an achievement."
The report ranked Denmark, which took Singapore's place, as the best country in the world to do business in over the next five years. Finland was ranked second, followed by Singapore, with Switzerland and Canada rounding out the top five.
The EIU's Global Outlook report covers the world's 82 largest economies, accounting for more than 98 percent of global output, trade and foreign direct investment. The business rankings model considers 91 factors in 10 different categories, including a country's political and macroeconomic environment, market opportunities, policy towards foreign investment, taxes, financing, the labor market and infrastructures.
Improvement in Israel's overall score of 7.68 in the 2007 to 2011 ranking compared with 6.99 in the 2002 to 2006 ranking were a result of gains in every individual score of the index, apart from the policy towards foreign investment category, where it retained a high score. Among the strengths contributing to Israel's improved placing were changes in the tax environment, which pushed Israel's score in that category up to 7.1 from 5.9, as well as changes in the financing structure, where Israel's score rose almost two points to 8.9.
"The main downside or risk of Israel's business ranking in terms of attracting investment remains the political environment," said Kinninmont, with that category registering only a modest improvement from 5.7 in the 2002-2006 to 6.2 in the current report.
Kinnimont added that although the main risks of doing business in Israel stemmed from political and security factors, the economy, and in particular the stock market, seemed to have improved its resilience to political uncertainty.
"However, a sustained security deterioration and political uncertainty could deter investment in addition to rising income disparities that are likely to dampen consumption," she added.
Furthermore, the report cautioned that despite Israel's high levels of education, skills shortages could become a constraint on high-tech growth as employment in this sector continued to rise strongly and visa and foreign immigration rules remained stringent.
At the same time the report noted that the country's labor participation rate, at about 55%, was still lower than in most OECD countries. "Achieving a further improvement in this area is regarded as essential for the longer-term growth of the economy," said Kinninmont.
The EIU report expects real GDP growth to average 4.2% in the 2007 to 2011 period. Looking ahead, the report stated that long-term growth was forecast at 3.3% per year from 2011-2031, "which should slowly bring average incomes closer to those in wealthier developed states," noted Kinninmont.