Description
The Global Venture Capital and Private Equity Country Attractiveness Index
Sponsored by
Alexander Groh, Heinrich Liechtenstein and Karsten Lieser
2011 annual
The Global Venture Capital
and Private Equity
Country Attractiveness Index
and in coopeeration w ith
Alexander Groh, Heinrich Liechtenstein and Karsten Lieser
2011 annual
The Global Venture Capital and Private Equity
Country Attractiveness Index
Sponsored by and in coopeeration w ith
This publication contains inform ation in sum m ary form and is
therefore intended for general guidance only. It is not intended to
be a substitute for detailed research or the exercise of profession
al judgm ent. Neither EYGM Lim ited nor any other m em ber of the
global Ernst & Young organization can accept any responsibility
for loss occasioned to any person acting or refraining from action
as a result of any m aterial in this publication. On any speci c
m atter, reference should be m ade to the appropriate advisor.
Contents
Forew ord from the research team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Sponsors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
About the editors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Research team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
I. The Global VCPE Country Attractiveness Index. . . . . . . . . . . . . . . . . . . . . . . 10
How to m easure a country’s attractiveness for lim ited partners . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Building the 2011 index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
The VCPE country attractiveness ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Com parisons of countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Em erging countries, and exceptional opportunities in BRIC?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Tracking pow er of our index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Our index and historic VCPE returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Sum m ary and outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
II. How are fund size and fund performance related?. . . . . . . . . . . . . . . . 36
Giants at the gate: diseconom ies of scale in private equity investm ent returns. . . . . . . . . . 38
Fund size, lim ited attention and valuation of VC backed rm s . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
III. An insight into different VC and PE markets . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Is the Eurozone still an attractive location for VC and PE investors?. . . . . . . . . . . . . . . . . . . . . . 44
Investing in Africa –challenges and opportunities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
IV. Regional and country pro?les. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
How to read the country and regional pro les . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
V. Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234
Com putation of the index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
Statistical validation of the index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
Table w ith sources and explanations of the data series. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
7 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
We are pleased to present the second edition of our Global Venture Capital
and Private Equity Country Attractiveness Index. The index seeks to measure
the attractiveness of countries for investors in venture capital (VC) and private
equity (PE) limited partnerships.
There are two notable changes with respect to the ?rst index edition. First, we
have increased our coverage to 80 countries and include many more emerging
economies. Second, we have optimized the index structure and excellently
track real VC and PE market activity. This optimization also allows a better
interpretation of the VC and PE driving forces. However, we do not only present
evidence for a high explanatory power of our index with respect to investment
activity. We also analyze how aggregate country performance matches our index
ranking. This way, we demonstrate the quality of our composite measure and
its value to investors.
We invite your feedback to help us improve future index editions. In the future,
selected data series may be substituted by newer or more appropriate data.
Additional data could be added, while other series with poor explanatory power
can be deleted. The quality of data and the number of countries covered will
increase in future indices and as a result, our index remains a dynamic
research product that always considers the most relevant and recent data.
We believe this index is unique in providing information on the VC and PE capital
market segment with such a broad scope. We trust investors appreciate the
information generated to aid their decision-making; politicians may utilize
the index to benchmark their countries and to make improvements to attract
international risk capital.
We would not have been able to realize this project without contributions from
our sponsors, and we greatly appreciate the support of Ernst & Young and IESE
Business School, with their International Center for Financial Research (CIIF).
Beside our own analyses, we invited other academic researchers to contribute
to this annual. Therefore, you will ?nd two guest articles discussing the link
between the size of VC and PE ?rms and their success. We hope that you ?nd
our our 2011 VCPE Country Attractiveness Index of value.
Website
Please visit our website http://blog.iese.edu/vcpeindex
where you will ?nd more information, links to literature,
and several analytical tools for country benchmarking purposes.
Foreword
from the research team
8 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
IESE CIIF, International Center for Financial Research
is an interdisciplinary center w ith an international outlook and
a focus on teaching and nance research. It w as created at the
beginning of 1992 to channel the nancial research interests held
by a m ultidisciplinary group of professors at IESE Business School
–University of Navarra.
CIIF's main objectives are:
•To nd answ ers to the questions w hich confront both the
ow ners and m anagers of nance com panies, and the nance
directors of all kinds of com pany w ithin the perform ance of
their duties
•To develop new tools for nancial m anagem ent
•To study in depth the changes that occur in the m arket, and their
effects on the nancial dim ension of business activity
IESE Business School – University of Navarra is one of the
w orld´s top 10 business schools and has pioneered executive
education in Europe since its establishm ent in Barcelona in 1958.
W ith a truly global outlook, IESE currently runs executive-education
program s in four continents. IESE is distinguished for its general-
m anagem ent approach, its extensive use of the case m ethod, its
international outreach, and its em phasis on placing people at the
heart of m anagerial decision-m aking.
Sponsors
We are grateful to our sponsors Ernst & Young and IESE
Business School/CIIF for their support, feedback and
their direct and professional contributions to the index.
Ernst & Young is a global leader in assurance, tax, transaction
and advisory services. W orldw ide, our 141,000 people are united by
our shared values and an unw avering com m itm ent to quality. W e
m ake a difference by helping our people, our clients and our w ider
com m unities achieve their potential.
Potential is a key word for equity capital m anagem ent. Deal success
doesn’t end w hen the deal closes. Acquirers know success and
stakeholder value lie in portfolio com panies’continued grow th
under their w atch and after their exits.
Our private equity and venture capital practices therefore offer
a holistic, tailored approach that encom passes the needs of funds,
their M &A process and portfolio com panies w hile addressing
m arket, industry and regulatory concerns and opportunities.
W e hope that the Global VC/PE Country Attractiveness Index
proves to be a valuable tool in helping funds navigate through this
uncertain tim e. For m ore inform ation please visit w w w.ey.com
9 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
About the editors
Prof. Alexander Groh Research team
Alexander Groh
Associate Professor,
EMLYON Business School,
[email protected]
Heinrich Liechtenstein
Assistant Professor,
IESE Business School Barcelona,
[email protected]
Karsten Lieser
Project Manager,
IESE Business School Barcelona,
[email protected]
Thomas Lang
Research Assistant,
IESE Business School Barcelona
Markus Biesinger
Research Assistant,
IESE Business School Barcelona
Moritz Huismann
Research Assistant,
IESE Business School Barcelona
Florian Braun
Research Assistant,
IESE Business School Barcelona
Sarp Vardarizi
Research Assistant,
IESE Business School Barcelona
Dr. Alexander Groh is Associate Professor
of Finance at EMLYON Business School,
France. He held visiting positions at The
University of New South Wales, Sydney,
Australia, IESE Business School, Barcelona,
Spain, and INSEAD, Fontainebleau, France.
His research activities focus on VC and PE,
and include valuation issues, performance
measurement and socio-economic deter-
minants for the development of vibrant
VC and PE markets. His papers have been
published in the Journal of Banking and
Finance, the Journal of Corporate Finance,
the Journal of International Money and
Finance, the Quarterly Journal of Finance
and Accounting, the Journal of European
Financial Management, the Journal of
Alternative Investments, and in Venture
Capital. He is involved in training courses
for the European Venture Capital and Pri-
vate Equity Association (EVCA), and has
worked for Quadriga Capital, a Frankfurt
based Private Equity fund, since 1996.
Dr. Alexander Groh was born in Frank-
furt, Germany. He received a joint Master’s
Degree of Mechanical Engineering and
Business Administration from Darmstadt
University of Technology, where he also
gained his Doctoral Degree in Finance.
Prof. Heinrich Liechtenstein
Dr. Heinrich Liechtenstein is Assistant Pro-
fessor of Financial Management at IESE
Business School, Barcelona – University
of Navarra, Spain. His areas of interest are
entrepreneurial ?nance, VC and PE, wealth
management and owners’ strategies. He is
active in several supervisory and advisory
boards of family holdings and founda-
tions, as well as a private equity ?rm.
Dr. Liechtenstein has experience in
wealth management and owners’ strate-
gies at Liechtenstein Global Trust, a family
holding, and as a consultant at The Boston
Consulting Group. He has previously foun-
ded and sold two companies.
Dr. Liechtenstein was born in Leoben,
Austria, and received an MA in Business
Administration from the University of
Graz, an MBA from IESE Business School,
and a Doctoral Degree of Business and
Economic Sciences from the University of
Vienna.
Karsten Lieser
Karsten Lieser is a Project Manager at the
IESE International Center for Financial
Research (IESE CIIF) in Barcelona. He cur-
rently manages the Global VCPE Country
Attractiveness Index project and works
on strategy and research assignments in
the Alternative Investment sector for va-
rious consultancy ?rms. The focus of his
research is the investigation of determi-
nants of Venture Capital, Private Equity,
and Real Estate investments and the de-
velopment of tools to guide investors on
their geographic asset allocation deci-
sions. Prior to joining IESE CIIF, he worked
in the asset and fund management de-
partments of REInvest, SCM Strategic Ca-
pital Management, and AXA – Real Estate.
Currently, Mr. Lieser is enrolled in a
Ph.D. program in Finance at Darmstadt
University of Technology, Germany with
a full-time research position at IESE Bu-
siness School Barcelona, Spain. He gra-
duated as Master in Business Administra-
tion and Civil Engineering from Darmstadt
University of Technology, Germany and
also studied at EPFL and HEC Lausanne,
Switzerland, and IESE Business School
Barcelona, Spain.
10 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Written by Alexander Groh, EMLYON Business School, [email protected],
Heinrich Liechtenstein, [email protected], and Karsten Lieser, [email protected], IESE Business School Barcelona.
The Global VCPE Country
Attractiveness Index
I.
11 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
If institutional investors are unfamiliar with the
socio-economic environment of countries they
cannot make rational international allocation
decisions. They try to overcome potential
information de?cits and gather data and analyze
the determinants they deemimportant before
investing in a particular country. However,
this process is time consuming and costly.
Additionally, due to the current pace of economic
development of many emerging countries,
selecting those that support VC and PE activity
becomes more and more cumbersome. Our index
guides institutional investors solving the problem
where to allocate capital. We aggregate and
provide the most important information they
require for their international VC and PE allocation
decisions. However, this information cannot
substitute investors’ own efforts to build up
country knowledge and experience. It can only
facilitate this process.
We propose a composite measure that benchmarks
the attractiveness of 80 countries to receive VC
and PE allocations fromlimited partners. Our
intention is to serve the investment community,
preparing and analyzing a large quantity of
socio-economic data. However, not only the
?nancial community can bene?t fromour
research, also politicians may conclude that
vibrant risk capital markets increase innovation,
entrepreneurial activity, economic growth,
employment, competitiveness and wealth and
hence, might be interested in increasing the
supply of risk capital for their countries.
Currently, there is a major shift of focus from
“traditional”VC and PE countries towards
emerging regions. Emerging countries attract
investors by exceptional growth opportunities
that require substantial funding. This shift is
also supported by the aftermath of the ?nancial
crisis that strongly affected the established VC
and PE markets. It is sometimes argued that
exceptional growth in emerging markets fuels
future VC and PE activity, and that the whole
business model needs to be redesigned. However,
as we discuss in this index, growth opportunities
are not the only factor that renders countries
attractive for VC and PE investors, and it is these
broader conditions that motivate our index.
I. The Global VCPE Country Attractiveness Index
12 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
How to measure a country’s attractiveness
for limited partners
13 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
What are institutional investors’
international VC and PE allocation
criteria?
Our index addresses institutional investors’
concerns and evaluates countries with res-
pect to their criteria for international VC
and PE allocations. These criteria include,
in the ?rst instance, the expected deal
opportunities in a country or region from
a macro perspective. Of course, they also
include particular investment strategies of
fund management teams, the general par-
tners’ competences, their track records and
other parameters.
1
The limited partners
evaluate these determinants in their due
diligence process before committing to a
particular general partner. However, these
criteria are beyond the scope of our index
because they depend on individual cases
and undisclosed data.
Another concern investors commu-
nicated to us is the level of valuations in
various countries. But, unfortunately, a
comparison of international transaction
multiples is impossible for us for two rea-
sons. First, little information exists on tran-
saction multiples. Second, multiples re?ect
the relationship between growth expecta-
tions and opportunity cost of capital. It is
not feasible for us to estimate these pa-
rameters for all our sample countries and
to ?nd a correct benchmarking approach.
Our index follows a practical approach and
points to the opportunities that should
arise from the current socio-economic
environment in a country, and as a result,
contribute to the macro perspective of the
capital allocation process.
Our index provides valuable informa-
tion to investors as it summarizes all the
important socio-economic factors into
1. For moredetailspleaserefer to Groh, Alexander and
Liechtenstein, Heinrich (2011): TheFirst Step of theCapital
Flow fromInstitutionsto Entrepreneurs: “TheCriteria
for Sorting VentureCapital Funds”, European Financial
Management Journal, forthcoming. Related working papers
areavailableat http://ssrn.com/author=330804
one single composite measure. The de-
cisive factors that render a country at-
tractive and the determinants of vibrant
VC and PE markets have been extensively
studied. In our index we give a brief over-
view over the ?ndings of these studies and
group the articles into six sub-chapters.
These sub-chapters reveal the structure of
our index: each heading represents one of
six “key drivers” for the attractiveness of a
country for limited partners:
1. Economic activity
2. Depth of the capital market
3. Taxation
4. Investor protection and corporate
governance
5. Human and social environment
6. Entrepreneurial culture and deal
opportunities
These key drivers name and de?ne a subset
of criteria we need to assess for all of our
sample countries.
2
Importance of economic activity
Intuitively, the state of a country’s eco-
nomy affects its VC/PE market activity. An
economy’s size and employment levels are
also proxies for prosperity, the number of
its local corporations and entrepreneurial
activity, and hence, also for expected VC
and PE deal ?ow. Capitalizing on economic
growth requires investments and provides
a rationale for institutional investors to
enter into certain countries. Gompers and
Lerner (1998) argue that more attractive
VC and PE investment opportunities exist
if an economy is growing quickly. Romain
and van Pottelsberghe de la Potterie (2004)
?nd that VC/PE activity is cyclical and si-
gni?cantly related to GDP growth. Wilken
2. For a comprehensivereview pleaserefer to Groh,
Alexander, Liechtenstein, Heinrich and Lieser, Karsten
(2010): “TheEuropean VentureCapital and PrivateEquity
Country AttractivenessIndices”, Journal of Corporate
Finance, Volume16, Issue2, April 2010, pp. 205 – 224.
Related working papersareavailableat http://ssrn.com/
author=330804
(1979) argues that a situation of economic
prosperity and development facilitates en-
trepreneurship, as it provides a greater ac-
cumulation of capital for investments. The
ease of start-ups is expected to be related
to societal wealth, not solely due to the
availability of start-up ?nancing, but also
to higher income among potential cus-
tomers in the domestic market. However,
GDP is measured in current market prices
that are affected by in?ation. Therefore,
only real growth rates signal quality deal
opportunities arising from the economic
development.
Importance of the depth of the
capital market
Black and Gilson (1998) discuss major dif-
ferences between bank-centered and stock
market-centered capital markets. They
argue that well-developed stock markets,
which allow general partners to exit via
IPOs, are crucial for the establishment of
vibrant VC/PE markets. In general, bank-
centered capital markets show less ability
to produce an ef?cient infrastructure that
supports VC/PE deal-making. They af?rm
that it is not merely the strong stock mar-
ket that is missing in bank-centered capital
markets; it is also the secondary institu-
tions, including the bankers’ conservative
approach to lending and investing, and the
social and ?nancial incentives that reward
entrepreneurs less richly (and penalize fai-
lure more severely), that compromise entre-
preneurial activity. Jeng and Wells (2000)
stress that IPO activity is the main force
behind cyclical swings because it directly
re?ects the returns to the VC/PE funds.
Kaplan and Schoar (2005) con?rm this.
Similar to Black and Gilson (1998), Gom-
pers and Lerner (2000) point out that risk
capital ?ourishes in countries with deep
and liquid stock markets. Likewise, Schert-
ler (2003) uses either the capitalization
of stock markets or the number of listed
I. The Global VCPE Country Attractiveness Index
14 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
companies as a measure for stock market
liquidity and ?nds that it has a signi?cant
impact on VC and PE investments.
Alongside the disadvantages of bank-
centered capital markets, Greene (1998)
emphasizes that low availability of debt
?nancing is an obstacle for start-ups
in many countries. Entrepreneurs need
to ?nd backers —whether banks or VC/
PE funds —who are willing to bear risk.
Cetorelli and Gambera (2001) provide
evidence that bank concentration pro-
motes the growth of those industrial sec-
tors that have a higher need for external
?nance by facilitating credit access to
younger companies.
Importance of taxation
Bruce (2000 and 2002), and Cullen and
Gordon (2002) prove that tax regimes
matter for business entry and exit. Djan-
kov et al. (2008) show that direct and in-
direct taxes affect entrepreneurial activi-
ty. Poterba (1989) builds a decision model
showing the advantages to becoming an
entrepreneur, driven by taxation incen-
tives. Bruce and Gurley (2005) explain
that increases in the personal income tax
can raise the probability of becoming an
entrepreneur: large differences between
personal income tax rates and corporate
tax rates provide an incentive for self-em-
ployment.
Importance of investor protection
and corporate governance
Legal structures and the protection of
property rights strongly in?uence the
attractiveness of a national VC/PE market.
La Porta et al. (1997 and 1998) con?rm
that the legal environment determines
the size and extent of a country’s capi-
tal market and local companies’ ability to
receive outside ?nancing. They emphasize
the differences between statutory law and
the quality of law enforcement in some
countries. Roe (2006) discusses and com-
pares the political determinants of corpo-
rate governance legislation for the major
economies and focuses on the importance
of strong minority shareholder protec-
tion to develop a vibrant capital market.
Glaeser et al. (2001) and Djankov et al.
(2003 and 2005) suggest that parties in
common-law countries have greater ease
in enforcing their rights from commercial
contracts.
Cumming et al. (2006) ?nd that the
quality of a country’s legal system is
more closely related to facilitating VC/PE
backed exits than the size of a country’s
stock market. Cumming et al. (2009)
extend this ?nding and show that cross-
country differences in legality, inclu-
ding legal origin and accounting stan-
dards have a signi?cant impact on the
governance of investments in the VC/PE
industry. Desai et al. (2006) show, that
fairness and property rights protection
largely determine the growth and emer-
gence of new enterprises. Cumming and
Johan (2007) highlight the perceived
importance of regulatory harmonization
with respect to increasing institutional
investor commitments to the asset class.
La Porta et al. (2002) ?nd a lower cost of
capital for companies in countries with
better investor protection, and Lerner
and Schoar (2005) con?rm these ?n-
dings. Johnson et al. (1999) show that
weak property rights limit the reinvest-
ment of pro?ts in start-up companies.
Finally and more broadly, Knack and
Keefer (1995), Mauro (1995), and Svens-
son (1998) demonstrate that property
rights signi?cantly affect investments
and economic growth.
Importance of the human and social
environment
Black and Gilson (1998), Lee and Peterson
(2000), and Baughn and Neupert (2003)
argue that cultures shape both individual
orientation and environmental conditions,
which may lead to different levels of en-
trepreneurial activity. Megginson (2004)
argues that, in order to foster a growing
risk capital industry, the research culture
with respect to universities and national
laboratories plays an important role.
Rigid labor market policies negatively
affect the evolution of a VC/PE market.
Lazear (1990) and Blanchard (1997) dis-
cuss how protection of workers can reduce
employment and growth. It is especially
important for start-up and medium-size
corporations to respond quickly to chan-
ging market conditions. Black and Gilson
(1998) argue that labor market restric-
tions in?uence VC/PE activity, though not
to the same extent as the stock market.
Djankov et al. (2002) investigate the
role of several societal burdens for start-
ups in different countries. They conclude
that the highest barriers and costs are
associated with corruption, crime, a larger
unof?cial economy and bureaucratic de-
lay. It should be noted that this argument
is probably of particular importance in
some emerging countries with perceived
higher levels of corruption.
Importance of entrepreneurial
culture and deal opportunities
The expectation about access to viable
investments is probably the most impor-
tant factor for investors’ international
risk capital allocations. Especially for
the early stage segment, we expect that
the number of potential investments
is related to the research output in an
economy. Gompers and Lerner (1998)
show that both industrial and academic
research and development (R&D) expen-
diture signi?cantly correlates with VC
activity. Kortum and Lerner (2000)
highlight that the growth in VC fundrai-
sing in the mid-1990s may have been due
to a surge of patents in the late 1980s
and 1990s. Schertler (2003) emphasizes
that the number of both R&D employees
and patents, as an approximation of the
human capital endowment, has a posi-
tive and highly signi?cant in?uence on
VC activity. Furthermore, Romain and
von Pottelsberghe de la Potterie (2004)
?nd that start-up activity interacts with
the R&D capital stock, technological op-
portunities and the number of patents.
However, innovations and R&D are not
only important for early stage invest-
ment activity. Without suf?cient R&D
activity it will be impossible for esta-
15 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
blished businesses to create or maintain
market positions with strong products
and brands, which, once established,
attract private equity investors.
Despite the innovative output of a
society, Djankov (2002), and Baughn and
Neupert (2003) argue that bureaucracy in
the form of excessive rules and procedural
requirements, multiple institutions from
which approvals are needed and cumber-
some documentation requirements, may
severely constrain entrepreneurial activity.
Lee and Peterson (2000) stress that the
time and money required to meet such
administrative burdens may discourage
new venture creations.
Summary on the determinants of
vibrant VC and PE markets
The research ?ndings discussed above
emphasize the dif?culty of identifying
the most appropriate parameters for our
index. There is no consensus about a ran-
king of the criteria. While some parame-
ters are more comprehensively discussed,
and certainly of high relevance, it remains
unclear how they interact with others. For
example, it is arguable whether the VC/PE
activity in a country with a high corporate
governance level is affected more by the
liquidity of the national stock market or
by labor regulations.
While an IPO exit is, in principle, pos-
sible at any stock exchange in the world,
the labor market frictions in a particular
country can hardly be evaded. On the
other side, many of the criteria are highly
inter-correlated. Black and Gilson (1998)
call it a “chicken and egg” problem: it is
impossible to detect which factor causes
the other. One line of argumentation is
that modern, open and educated socie-
ties develop a legislation that protects
investors and property rights, which favor
the output of innovation and the deve-
lopment of a capital market. This leads to
economic growth and to demand for VC
and PE. However, the causality might be
reverse: economic growth spurs innova-
tion and the development of modern edu-
cated societies. There is a third suggestion:
only competitive legal environments allow
the development of the societal require-
ments that support innovations, economic
growth, the capital market, and VC and
PE activity. There is a fourth alternative,
which may be more relevant for emerging
economies: low taxes attract investors
who provide ?nancing for growth which
leads to modern and educated societies.
All lines of argument are reasonable
and actually validated by the economic
development of various selected countries
in different historic periods. Nevertheless,
it seems to be the combination of all these
factors which need to be improved in pa-
rallel to increase VC and PE attractiveness
of countries and regions. For this reason,
we do not rely on a selection of a few
parameters: for a country to receive a
high index rank, it needs to achieve a high
score on all of the individual criteria. The-
refore, we structure the determinants to
achieve a more comprehensive result and
to facilitate interpretations.
In a ?rst step, we differentiate the six
key drivers from the foregoing review of
prior research: economic activity, depth
of the capital market, taxation, investor
protection and corporate governance,
human and social environment, and en-
trepreneurial culture and deal opportuni-
ties. We con?rm their choice via a survey
among institutional investors, reported
in Groh and Liechtenstein (2009) and
(2011), and base our index structure upon
them. Unfortunately, none of these key
drivers is directly measurable, so we seek
data series that adequately express their
characters. Hence, we try to ?nd the best
possible proxies for the aforementioned
drivers of VC/PE activity, which must be
available for a large number of countries
at the same time.
I. The Global VCPE Country Attractiveness Index
16 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Building the 2011 index
Assessing six latent key drivers
An important principle of our index is to as-
sess the latent drivers of VC/PE attractiveness.
These are criteria that are not directly ob-
servable, but driven by others which can
be measured. For example, we assume in
a ?rst step that the VC/PE attractiveness of
a country is determined by the six key dri-
vers. However, as pointed out, the key drivers
themselves are not measurable but need to
be estimated with sub-criteria. For example,
it would be ideal to express the quality of
the deal-making environment in a country
by the number of investment banks, M&A
boutiques, law ?rms, accountants and
consultants. But, unfortunately, such data
does not exist on a global scale. Our only
alternative is to gather more general infor-
mation on the level of debt provided by the
banking sector, or estimates about the per-
ceived sophistication of the ?nancial system
and the ease of access to loans. We assume
that these criteria affect the key driver,
depth of the capital market. Even if they are
not perfect proxies, we claimthat the better
these criteria are developed, the more deal-
supporting institutions will exist to facilitate
VC and PE activity. Hence, we assess a driver
with observable data. This principle is main-
tained at all individual levels for the index
construction. An unobservable criterion
is assessed with several proxy parameters.
In principle, we measure the attractiveness
of a country by the six key drivers and use
several proxies for their assessment.
How we disaggregate the six key
drivers
According to the principal to assess latent
key drivers with observable data, we di-
saggregate each one into sub-categories.
These sub-categories are either indivi-
dual data series or constructs of seve-
ral determinants that we name “level-2
constructs.” For example, as documented
in Table 1, we split the key driver “2. Depth
of the capital market” into seven sub-ca-
tegories:
2.1. Size of the stock market
2.2. Stock market liquidity
2.3. IPO market activity
2.4. M&A market activity
2.5. Debt and credit market
2.6. Bank non-performing loans to total
gross loans
2.7. Financial market sophistication
Data series 2.2 and 2.6 are provided by
the Worldbank and data series 2.7 results
from a survey initiated by the World Eco-
nomic Forum (WEF). However, the other
indicators are constructs themselves. For
instance, we assess “2.3. IPO market ac-
tivity” by the issued volume and by the
number of issues. This approach has two
major advantages. First, individual data
series do not gain too much weight when
they are grouped, and this limits the im-
pact of outliers. Second, the overall results
can be traced to more granulated levels
and hence, allow better interpretation and
con?rmation of the ?ndings.
The weighting scheme
We spent a great deal of time re?ning the
statistical analyses and optimizing the
structure of the index. In this new opti-
mized structure, we apply equal weights
for all data series, when we aggregate
them to the level-2 constructs. We use
equal weights for the level-2 constructs to
aggregate them on the next higher level
of the six key drivers.
Finally, the individual weights for the
six key drivers depend on the number
of their level-2 constructs. For example,
“1. Economic activity” consists of three
level-2 constructs, “2. Depth of the capi-
tal market” of seven, while “3. Taxation”
consists of only one. Overall, we use 22 le-
vel-2 constructs for our index, and hence,
“1. Economic activity” receives a weight of
3/22, which is 0.136, while the weight of
“2. Depth of the capital market” is 7/22,
which is 0.318, and for “3. Taxation” it is
1/22 =0.046, respectively.
The advantage of this weighting scheme
is that the key drivers which include more
level-2 constructs and hence, data series,
gain more weight. That way, once again,
we diminish the effect of potential outliers
in our data.
3
The ?nal index structure results from
substantial optimization efforts. We ?nd
that any statistically “more advanced”
techniques do not improve the index qua-
lity. The weighting scheme assigns appro-
priate emphasis according to the explana-
tory power of the individual key drivers.
We will return to this topic in a later sec-
tion of this index.
Separate VC and PE indices
To account for differences with respect to
the two market segments, VC vs. PE, we
propose three related indices. The ?rst
one combines both segments (VCPE). The
second one focuses on early stage VC and
the third index on later stage PE. When
calculating the individual VC and PE in-
dices we discard data series that are less
important for either market segment.
3. Details about the possible statistical approaches
to determineweightsfor thedata seriesareprovided in
the academic paper Groh, Alexander, Liechtenstein,
Heinrich and Lieser, Karsten (2010): "The European
Venture Capital and Private Equity Country Attractiveness
Indices," Journal of CorporateFinance, Volume 16, Issue
2, April 2010, pp. 205 – 224. Related working papers are
available at http://ssrn.com/author=330804.
The six key drivers
1. Economic activity
2. Depth of the capital market
3. Taxation
4. Investor protection and corporate
governance
5. Human and social environment
6. Entrepreneurial culture and deal
opportunities
17 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
VCPE
Index
VC
Index
PE
Index
1 Economic Activity 0.14 0.16 0.19
1.1 Gross Domestic Product 0.33 0.33 0.33
1.1 Size of the econom y (GDP) 0.33 0.33 0.33
1.2 M edium -term real GDP grow th 0.33 0.33 0.33
1.3 Unem ploym ent 0.33 0.33 0.33
2 Depth of the capital market 0.32 0.21 0.44
2.1 Size of the stock market 0.14 0.25 0.14
2.1.1 M arket capitalization of listed com panies 0.50 0.50 0.50
2.1.2 Num ber of listed dom estic com panies 0.50 0.50 0.50
2.2 Stock market liquidity (trading volume) 0.14 0.25 0.14
2.3 IPOmarket activity 0.14 0.25 0.14
2.3.1 M arket volum e 0.50 0.50 0.50
2.3.2 Num ber of IPOs 0.50 0.50 0.50
2.4 M&A market activity 0.14 0.25 0.14
2.4.1 M arket volum e 0.50 0.50 0.50
2.4.2 Num ber of deals 0.50 0.50 0.50
2.5 Debt and credit market 0.14 0.14
2.5.1 Dom estic credit provided by banking sector 0.25 0.25
2.5.2 Ease of access to loans 0.25 0.25
2.5.3 Credit inform ation index 0.25 0.25
2.5.4 Interest rate spread 0.25 0.25
2.6 Bank non-performing loans to total gross loans 0.14 0.14
2.7 Financial market sophistication 0.14 0.14
3 Taxation 0.05 0.05
3.1 Tax incentives and administrative burdens 1.00 1.00
3.1.1 Entrepreneurship incentive 0.33 0.33
3.1.2 Num ber of tax paym ents 0.33 0.33
3.1.3 Tim e spent on tax issues 0.33 0.33
4 Investor protection andcorporategovernance 0.14 0.16 0.19
4.1 Corporate governance 0.33 0.33 0.33
4.1.1 Disclosure index 0.20 0.20 0.20
4.1.2 Director liability index 0.20 0.20 0.20
4.1.3 Shareholder suits index 0.20 0.20 0.20
4.1.4 Legal rights index 0.20 0.20 0.20
4.1.5 Ef cacy of corporate boards 0.20 0.20 0.20
4.2 Security of property rights 0.33 0.33 0.33
4.2.1 Legal enforcem ent of contracts 0.33 0.33 0.33
4.2.2 Property rights 0.33 0.33 0.33
4.2.3 Intellectual property protection 0.33 0.33 0.33
4.3 Quality of legal enforcement 0.33 0.33 0.33
4.3.1 Judicial independence 0.20 0.20 0.20
4.3.2 Im partial courts 0.20 0.20 0.20
4.3.3 Integrity of the legal system 0.20 0.20 0.20
4.3.4 Rule of law 0.20 0.20 0.20
4.3.5 Regulatory quality 0.20 0.20 0.20
VCPE
Index
VC
Index
PE
Index
5 Human and social environment 0.14 0.16 0.12
5.1 Education and human capital 0.33 0.33
5.1.1 Quality of the educational system 0.50 0.50
5.1.2 Quality of scienti c research institutions 0.50 0.50
5.2 Labor market rigidities 0.33 0.33 0.50
5.2.1 Dif culty of hiring index 0.25 0.25 0.25
5.2.2 Rigidity of hours index 0.25 0.25 0.25
5.2.3 Dif culty of ring index 0.25 0.25 0.25
5.2.4 Firing costs 0.25 0.25 0.25
5.3 Bribery and corruption 0.33 0.33 0.50
5.3.1 Bribery and corruption Index 0.33 0.33 0.33
5.3.2 Control of corruption 0.33 0.33 0.33
5.3.3 Extra paym ents/bribes 0.33 0.33 0.33
6 Entrepreneurial culture and deal opportunities 0.22 0.26 0.06
6.1 Innovation 0.20 0.20
6.1.1 General innovativeness index 0.50 0.50
6.1.2 Capacity for innovation 0.50 0.50
6.2 Scienti?c and technical journal articles 0.20 0.20
6.3 Ease of starting and running a business 0.20 0.20
6.3.1 Num ber of procedures to start of business 0.20 0.20
6.3.2 Tim e needed to start a business 0.20 0.20
6.3.3 Costs of business start-up procedures 0.20 0.20
6.3.4 M inim um capital requirem ents 0.20 0.20
6.3.5 Adm inistrative requirem ents 0.20 0.20
6.4 Simplicity of closing a business 0.20 0.20
6.4.1 Tim e for closing a business 0.33 0.33
6.4.2 Costs for closing a business 0.33 0.33
6.4.3 Recovery rate 0.33 0.33
6.5 Corporate R&D 0.20 0.20 1.00
6.5.1 Com pany spending on R&D 0.50 0.50 0.50
6.5.2 Utility patents 0.50 0.50 0.50
Table 1: Structure of the VCPE Index, the separate VC, and PE Indices, and the weighting schemes
I. The Global VCPE Country Attractiveness Index
18 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
For the VC index, we regard the level-2
construct “2.5. Debt and credit market” as
having minor importance and hence, dis-
card it. We further delete “2.6. Bank non-
performing loans to total gross loans,”
and “2.7. Financial market sophistication”
from the VC index.
For the PE index, we discard key driver
“3. Taxation,” because the criteria consi-
dered are hardly relevant for the later
stage segment. Similarly, we drop “5.1.
Education and human capital” from the
human and social environment key driver
and only keep “6.5. Corporate R&D” to as-
sess the deal opportunities related to cor-
porate proprietary research output.
The weights for the individual index
items in the separate VC and PE indices
are determined in the same way.
Table 1 presents the structures and
the weights of the individual data series,
as well as constructs for the combined
VCPE, and the separate VC and PE indices.
We provide more detailed information on
the data series in the appendix. There, we
also explain the exact data aggregation
technique.
Changes with respect to the prior
index version
The proposed data series, the index struc-
ture and the applied weights result from
comprehensive analyses on the drivers of
VC and PE activity. Our goal is to provide
a framework for measuring a country’s
attractiveness with respect to the VC and
PE asset classes. Not much prior academic
research has elaborated on this issue to such
a broad scope. Usually, the country samples
of other researchers are not as large as in
our index, and our data also tracks many
of the countries for a longer time period.
Therefore, we bene?t froma remarkable
data collection allowing us to contribute to
academic research on the topic.
We ?nd that several key drivers have
a high importance for the state of a
country’s VC and PE market while others
are less important. Depth of the capital
market has the highest explanatory power
for cross-sectional VC and PE activity. This
key driver is followed by entrepreneu-
rial culture and deal opportunities. Next
comes economic activity, investor pro-
tection and corporate governance on an
equal level, followed by human and social
environment, then ?nally by taxation. This
decrease in importance is mirrored by the
weights we assign to the key drivers. The-
refore, the chosen index structure assures
a weighting scheme that corresponds with
the actual impact of the six key drivers.
We did not follow this rigorous approach
in the 2009/10 edition of the index, where
we kept the weights of the six key drivers
balanced.
Following the same rationale to im-
prove the quality of the 2011 index, we
discarded several data series we used in
the 2009/10 index. Notably, we deleted
some data series describing the tax envi-
ronment from the index. Surprisingly, we
detected no correlation between margi-
nal corporate tax rates, pro?t and capital
gains taxes, and VC/PE activity across our
sample countries. First, tax rules depend on
the will of governments and are somehow
arbitrary, hardly correlating with other so-
cio-economic characteristics. Second, we
interpret this as the consequence of gene-
ral partners’ efforts to create transparent
deal and fund structures, so that national
tax regimes do not affect the success of
VC/PE investments. The tax regimes are
probably more important with respect to
the location of limited partners’ head-
quarters instead of the investee ?rms’. For
this reason, we only rely on the data series
that evaluate entrepreneurial tax incen-
tives and administrative burdens (for the
VC and the combined VCPE index) because
they are relevant on the level of the target
?rms. Similarly, we also discard the level-2
construct, measuring internet and com-
puter technology infrastructure, from our
2011 index.
Furthermore, again due to a lack of
correlation, we discarded GDP per capi-
ta from our list of data series. If we fo-
cused on developed countries, individual
wealth would be an important indicator
for VC and PE activity. However, including
emerging economies, this data series is
contradictory as it has a strong negative
correlation with economic growth. The
fastest-growing VC and PE markets still
have low GDP per capita ratios, and hence,
only one of the two drivers can be valid on
a broad cross-sectional scope.
Finally, we discard the in?ation rate
from our list of data series because using
real GDP growth we already control for
in?ation.
Beside the criteria that we need to ex-
clude for their missing explanatory power
with respect to VC and PE activity, we
have discarded other data series with a
predominantly lower quality in their latest
update. A few of the ready-made indices
and survey results we included in 2009/10
edition no longer quali?ed for their in-
clusion due to perplexing rankings and a
doubtful index quality.
As a consequence, we present a much
leaner index, based on 54 data series
(compared to 66 data series in our 2009/10
edition). The structure of the 2011 index
is more comprehensive and its statistical
quality has increased.
19 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
The countries covered
We aim to cover as many countries as pos-
sible. The selection of the sample countries
is purely driven by data availability. We are
able to increase our coverage from 66 in
the 2009/10 edition to 80 countries for
2011. Unfortunately, the African conti-
nent is still under-represented with only
eight nations, but we hope to expand the
number in future index editions when
more data becomes available. We consider
the following 80 nations and assign them
to eight different geographic regions as
they are de?ned by the International Mo-
netary Fund (IMF). The 14 “new entrants”
are highlighted.
Africa (8): Algeria, Egypt, Kenya, Morocco, Namibia,
Nigeria, South Africa, Tunisia
Asia (16): Armenia, China, Hong Kong, India,
Indonesia, Japan, Kazakhstan, South Korea,
Kyrgyzstan, Malaysia, Philippines, Russia,
Singapore, Taiwan, Thailand, Vietnam
Australasia (2): Australia, New Zealand
Eastern Europe (18): Albania, Bosnia-Herzegovina, Bulgaria,
Croatia, Czech Republic, Estonia, Georgia,
Hungary, Latvia, Lithuania, Macedonia,
Moldova, Poland, Romania, Slovakia,
Slovenia, Turkey, Ukraine
Latin America (10): Argentina, Brazil, Chile, Columbia,
Ecuador, Mexico, Paraguay, Peru,
Uruguay, Venezuela
Middle East (7): Bahrain, Israel, Jordan, Kuwait, Oman,
Saudi Arabia, United Arab Emirates
North America (2): USA, Canada
Western Europe (17): Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy,
Luxembourg, Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland,
United Kingdom
I. The Global VCPE Country Attractiveness Index
The VCPE country attractiveness ranking
We gathered the individual data series
fromTable 1 for our sample countries from
2000 onwards to most recent data retrie-
ved by the end of 2010. We calculated the
2011 index scores and realized that the US
remains the most attractive for VC and PE
allocations, retaining its ranking fromthe
2009/10 index. However, the distance to its
followers has decreased compared to last
year. This can be mainly attributed to the
(economic) consequences of the ?nancial
crisis. We rescale the US score to 100,
4
and
its two followers, the United Kingdomand
Canada catch up to a level of 93.3%, com-
pared to 85.8% in 2010.
4. Weexplain therescaling procedurein moredetailsin the
appendix.
Exhibit 1 presents the ranking of The Glo-
bal VCPE Country Attractiveness Index 2011.
The exhibit is open to debate. Some readers
might argue that particular countries are
ranked too high, others too low. However, we
note that the index ranking is the result of
commonly available, transparent, aggrega-
ted socio-economic data, which is relevant
for investors in VC and PE assets. The results
can be traced to the level of the individual
data series, and hence, can be con?rmed.
Please note, the underlying data is
most the recent data available, but does
not include future projections. Therefore,
we show the current attractiveness ran-
king and leave it to investors and advi-
sers to enrich the information we prepare
with their own knowledge, experience and
expectations upon which to draw their
conclusions.
20 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
21 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
0 10 20 30 40 50 70 60 80 90 100
0 10 20 30 40 50 70 60 80 90 100
Kyrgyzstan (80.)
Venezuela (79.)
Paraguay (78.)
Algeria (77.)
Bosnia-Herzegovina (76.)
Albania (75.)
Ecuador (74.)
Macedonia (73.)
Moldova (72.)
Armenia (71.)
Namibia (70.)
Georgia (69.)
Ukraine (68.)
Latvia (67.)
Argentina (66.)
Uruguay (65.)
Nigeria (64.)
Kenya (63.)
Slovakia (62.)
Kazakhstan (61.)
Romania (60.)
Peru (59.)
Philippines (58.)
Lithuania (57.)
Tunisia (56.)
Egypt (55.)
Morocco (54.)
Vietnam (53.)
Croatia (52.)
Bulgaria (51.)
Bahrain (50.)
Estonia (49.)
Indonesia (48.)
Colombia (47.)
Oman (46.)
Slovenia (45.)
Greece (44.)
Brazil (43.)
Mexico (42.)
Russian Federation (41.)
Hungary (40.)
Turkey (39.)
Jordan (38.)
Czech Republic (37.)
Poland (36.)
Kuwait (35.)
Thailand (34.)
Luxembourg (33.)
Italy (32.)
Portugal (31.)
India (30.)
Chile (29.)
United Arab Ermiates (28.)
Taiwan (27.)
South Africa (26.)
Saudi Arabia (25.)
Ireland (24.)
Spain (23.)
Austria (22.)
Israel (21.)
China (20.)
New Zealand (19.)
Malaysia (18.)
Korea, South (17.)
Hong Kong (16.)
Belgium (15.)
France (14.)
Norway (13.)
Denmark (12.)
Finland (11.)
Germany (10.)
Netherlands (9.)
Sweden (8.)
Australia (7.)
Japan (6.)
Switzerland (5.)
Singapore (4.)
Canada (5.)
United Kingdom (2.)
United States (1.) 100.0
93.3
93.3
92.4
91.8
90.9
90.2
85.0
84.3
82.8
82.3
81.8
81.0
79.6
76.8
76.5
75.7
72.5
72.5
72.3
72.2
71.7
69.1
67.7
67.5
66.9
62.4
61.6
61.5
61.4
60.4
59.6
59.3
59.3
57.9
57.4
55.0
53.2
52.8
52.0
51.1
48.7
48.7
47.9
46.8
45.6
45.3
45.2
44.8
44.3
44.1
43.4
42.2
41.8
41.8
41.5
41.3
41.2
41.1
41.0
39.1
39.1
38.3
37.1
36.8
36.4
29.4
27.8
27.2
26.4
25.3
22.0
19.3
17.9
17.8
17.3
17.1
15.7
15.2
14.4
VCPE Country Attractiveness Score 2011
Exhibit 1: 2011 VCPE Country Attractiveness Index
Exhibit 2: rankings according to the three different indices
I. The Global VCPE Country Attractiveness Index
22 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
United States
United Kingdom
Canada
Singapore
Switzerland
Japan
Australia
Sweden
Netherlands
Germany
Finland
Denmark
Norway
France
Belgium
Hong Kong
Korea, South
Malaysia
New Zealand
China
Israel
Austria
Spain
Ireland
Saudi Arabia
South Africa
Taiwan
United Arab Emirates
Chile
India
Portugal
Italy
Luxembourg
Thailand
Kuwait
Poland
Czech Republic
Jordan
Turkey
Hungary
Russian Federation
Mexico
Brazil
Greece
Slovenia
Oman
Colombia
Indonesia
Estonia
Bahrain
Bulgaria
Croatia
Vietnam
Morocco
Egypt
Tunisia
Lithuania
Philippines
Peru
Romania
Kazakhstan
Slovakia
Kenya
Nigeria
Uruguay
Argentina
Latvia
Ukraine
Georgia
Namibia
Armenia
Moldova
Macedonia
Ecuador
Albania
Bosnia-Herzegovina
Algeria
Paraguay
Venezuela
Kyrgyzstan
0 10 20 30 40 50 60 70 80
0 10 20 30 40 50 60 70 80
VCPE Country Attractiveness Ranking
Rankings according to the separate
VC and PE indices
Exhibit 2 combines the VCPE index with
the rankings according to the separate
VC and PE indices. The triangles mark the
VCPE index ranks. The diamonds designate
the VC index and the squares represent
the PE index ranks.
The VC index country ranking does
not change remarkably compared to the
combined VCPE index ranking. It remains
stable because we do not alter the index
structure to a great extent between the
2009/10 and 2011 editions. However, we
receive a much stronger ranking variation
if we exclusively focus on the PE segment.
For the PE index, we discard taxation
as well as constructs and data series that
are related to education, high-tech inno-
vation and starting or running businesses
in early stages. This results in Hong Kong,
China, South Africa, Taiwan, India, Bra-
zil, Bahrain, the Philippines and Peru in-
creasing its rank by several places. The ra-
tionale for these improvements is simple:
competitive disadvantages with respect
to education and innovation are no lon-
ger considered, but the weight of the ca-
pital market key driver has increased at
the same time. As these countries have
(meanwhile) relatively deep capital mar-
kets, their attractiveness for later stage
investment increases.
In contrast, we ?nd that New Zealand,
Ireland, Slovenia, the Baltics and Tu-
nisia lose several ranks focusing on PE
attractiveness. This can be mainly attri-
buted to two factors: a strong impact of
the recent ?nancial crisis and, resulting
from discarding competitive advantages
of these countries in the PE index, in par-
ticular with respect to taxation.
23 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
I. The Global VCPE Country Attractiveness Index
The general pattern: what renders
the US so attractive?
We broke down the index scores to the le-
vel of the six key driving forces, and then
further down to the level-2 constructs in
order to enhance the discussion about the
ranking. We found a typical pattern with
respect to the attractiveness of countries
for VC and PE allocations. We demonstrate
this pattern by comparing the ?rst ranked
with the 10th and 20th ranked country,
namely the US, Germany and China. Ex-
hibit 3 presents the key driver scores of
Germany and China compared to the US
(which scores 100 for each key driver by
de?nition).
Exhibit 3 reveals four important im-
plications. First, the United States (US)
generally ranks ahead of other developed
economies (e.g., Germany) with respect to
most of the six key drivers of VC and PE
attractiveness, but especially to its capi-
tal market. Second, emerging countries
(e.g., China) strongly attracts venture ca-
pital and private equity investors by their
economic growth. Third, many countries
provide tax incentives that support en-
trepreneurial activity. Fourth, emerging
countries score sometimes notably below
the developed economies in terms of in-
vestor protection and corporate gover-
nance, human and social environment,
and entrepreneurial culture and deal op-
portunities. This pattern becomes evident
by further analyses which are presented
in the appendix of this annual where
we benchmark every individual country
against the US.
Focusing on the developed countries
we ?nd many economically strong na-
tions with vibrant entrepreneurial cultures
and deal opportunities, with an excellent
human capital and social environment.
However, the ?nally decisive criteria for
the lower score compared with the US are
the ?nancial markets, and investor pro-
tection and corporate governance rules.
These ?ndings point to the discussion
about the competition of legal systems
and the relation between law and ?nance,
as all strong countries score highly for the
investor protection and corporate gover-
nance key driver. Strong investor protec-
tion and corporate governance legislation
spurs the development of a national ca-
pital market, which is required for the es-
tablishment of VC and PE deal supporting
institutions.
Comparisons of countries
6. Entrepreneurial
Culture and Deal
Opportunities
5. Human and
Social Environment
4. Investor Protection and
Corporate Governance
3. Taxation
2. Depth of Capital
Market
1. Economic Activity
China (20.)
Germany (10.)
United States (1.)
25
0
50
75
100
125
150
Exhibit 3: six key driving forces – comparison of the
United States, Germany and China
24 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
We brake-down our analysis on the le-
vel-2 constructs and provide more details
that support the detected general pattern.
Exhibit 4 points to the distance between
the scores of the US, Germany and China
with respect to the level-2 constructs that
asses the capital market and corporate
governance. It also reveals the extraor-
dinary state and growth of the Chinese
economy, and its well developed capital
market. The difference of the investor pro-
tection and corporate governance key dri-
ver scores between the US and Germany
results from a higher appreciation of the
US’ corporate governance rules. On the
other side, Germany leads with respect to
several other criteria, in particular with an
advanced protection of property rights, a
higher quality of the legal system, a lower
perception of bribery and corruption, and
regarding its general innovation capacity.
In addition, the exhibit shows that the VC/
PE attractiveness of the human and social
environment in the US is mainly driven
by its liberal labor market, while per-
ceived bribery and corruption remains an
investment obstacle in China. Finally, the
excellent score of the US for the entre-
preneurial culture and deal opportunities
key driver is mainly related to academic
research output and to the administrative
simplicity and cost of starting, running
and closing businesses.
Exhibit 4: level-2 constructs – comparison of the United States, Germany and China
0 20 40 60 80 100 120 140 160 180 200
0 20 40 60 80 100 120 140 160 180 200
6.5 Corporate R&D
6.4 Simplicity of Closing a Business
6.3 Ease of Starting and Running a Business
6.2 Scientific and Technical Journal Articles
6.1 Innovation
5.3 Bribing and Corruption
5.2 Labor Market Rigidities
5.1 Education and Human Capital
4.3 Quality of Legal Enforcement
4.2 Security of Property Rights
4.1 Corporate Governance
3.1 Tax Incentives and Administrative Burdens
2.7 Financial Market Sophistication
2.6 Bank Non-Performing Loans to Total Gross Loans
2.4 M&A Market Activity
2.3 IPO Market Activity
2.2 Stock Market Liquidity (Trading Volume)
2.1 Size of the Stock Market
1.3 Unemployment
1.2 Medium-Term Real GDP Growth
1.1 Size of the Economy (GDP)
China (20.)
Germany (10.)
United States (1.)
VCPE Country Attractiveness Score 2011
25 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
I. The Global VCPE Country Attractiveness Index
Historic comparison —improvements
of VCPE investment conditions and
?nancial crisis impact
In order to demonstrate shifts in VCPE
country attractiveness, we compare the
ranking for 2011 with 2007. It should be
noted that some data series, e.g., the Ge-
neral Innovation Index (GII) do not date
back as far. However, we assume that
this and similar indicators did not change
substantially between 2007 and their
?rst publication, and hence, keep them
constant.
The comparison presented in Exhi-
bit 5 shows the rank changes (positive to
the right and negative to the left) of our
sample countries between the 2007 and
the 2011 index. It provides interesting in-
sights and reveals a strong increase of VC
and PE attractiveness for several countries,
and the impact of the ?nancial and econo-
mic crisis on others. It should be stressed
that the index scores are calculated relative
to all other countries of the sample. That
means those countries that gained or lost
ranking positions did not necessarily im-
prove/deteriorate their investment condi-
tions in absolute terms. They might just
have outperformed/been outperformed by
others in the international competition to
attract capital resources.
We ?nd that Brazil, Saudi Arabia, and
Indonesia are the “winners.” For an inter-
pretation of this ?nding, we refer to the
detailed country analyses in the appendix
of this annual and note that Brazil gains
these 14 ranking positions almost exclu-
sively due to its tremendous economic
growth. Although this is a remarkable in-
crease of VC/PE attractiveness it should be
interpreted with some caution as, despite
its growth, Brazil is only ranked number
43 in our index. For a further increase of
Brazil’s attractiveness, other key drivers
need to be strengthened. This is equally
valid for Indonesia. The country scores
particularly low with respect to investor
protection and corporate governance (for
this key driver, Indonesia only ranks num-
ber 75), and the gain of ranking positions
is dominantly caused by its economic
growth. For Saudi Arabia, the rationale
is different. Not only economic growth
contributes to its more favorable ranking,
Saudi Arabia substantially improved in all
other important key drivers.
We continue with the interpretation
of Exhibit 5 and note that the increase
of ranking positions of Vietnam is caused
by the initiation of capital market acti-
vity: stock market trading volume, M&A
and banking activity increased from very
low levels. This is also similar for Bahrain.
Exhibit 5 further reveals that all the
Middle East countries substantially im-
proved their rankings. In addition, the
North African countries, Tunisia and Mo-
rocco, experienced remarkable econo-
mic growth; this is equally valid for the
Western European countries, Portugal and
Germany. Taking Germany as an example,
the importance of the economic activity
key driver should be noted. For countries
with a general very favorable VC/PE in-
vestment environment, economic growth
rates can be responsible for volatile ranks.
At the other end of the exhibit, we
?nd those countries that lost ranking
positions in the global competition. The
Baltics, Turkey, Ireland, Romania, and Slo-
vakia conclude the list of countries that
decreased their ranks. For Turkey, the de-
gradation results from a lack of economic
growth and from a deterioration with res-
pect to its human and social environment
(relative to the other sample countries).
For Ireland, the Baltics, Romania and Slo-
vakia, the downgrade is a direct conse-
quence of the ?nancial/economic crisis.
Lacking economic growth is superimposed
by frozen debt markets and low capital
market activity. This result should alert in-
vestors as these countries were highly ap-
preciated target countries for VC and PE
investors in the past. However, the once
expected economic growth did not mate-
rialize on a suf?cient scope; respectively,
it was not sustainable without improving
the general socio-economic environment
as measured by the other key drivers. For
this reason, a VC/PE bet on growth in a
particular country is risky as the country
might fail to develop the appropriate in-
vestment environment at the same pace.
26 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
-15 -12 -9 -6 -3 0 3 6 9 12 15
Slovakia (62.)
Romania (60.)
Lithuania (57.)
Latvia (67.)
Ireland (24.)
Turkey (39.)
Estonia (49.)
Kazakhstan (61.)
Venezuela (79.)
Thailand (34.)
Korea, South (17.)
Argentina (66.)
Philippines (58.)
Greece (44.)
Russian Federation (41.)
Luxembourg (33.)
India (30.)
Spain (23.)
Egypt (55.)
Czech Republic (37.)
South Africa (26.)
Singapore (4.)
Kyrgyzstan (80.)
Israel (21.)
Finland (11.)
Ukraine (68.)
Poland (36.)
Norway (13.)
Moldova (72.)
Hong Kong (16.)
Georgia (69.)
Bulgaria (51.)
Algeria (77.)
Uruguay (65.)
United States (1.)
Taiwan (27.)
Switzerland (5.)
Sweden (8.)
Slovenia (45.)
Namibia (70.)
Japan (6.)
Italy (32.)
Ecuador (74.)
Australia (7.)
United Kingdom (2.)
Netherlands (9.)
Denmark (12.)
Chile (29.)
Canada (3.)
Bosnia-Herzegovina (76.)
Austria (22.)
Armenia (71.)
Paraguay (78.)
Nigeria (64.)
Mexico (42.)
Macedonia (73.)
Colombia (47.)
New Zealand (19.)
Malaysia (18.)
Hungary (40.)
France (14.)
Croatia (52.)
Belgium (15.)
Peru (59.)
Jordan (38.)
Albania (75.)
United Arab Emirates (28.)
Oman (46.)
Kuwait (35.)
China (20.)
Kenya (63.)
Germany (10.)
Portugal (31.)
Morocco (54.)
Tunisia (56.)
Bahrain (50.)
Vietnam (53.)
Saudi Arabia (25.)
Indonesia (48.)
Brazil (43.)
-14
-13
-11
-11
-10
-8
-8
-7
-6
-6
-6
-6
-5
-5
-4
-4
-4
-3
-3
-3
-2
-2
-2
-2
-2
-1
-1
-1
-1
-1
-1
-1
-1
0
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
1
1
2
2
2
2
2
3
3
3
3
3
3
4
4
4
5
5
5
5
6
6
7
7
8
8
9
11
11
14
-15 -12 -9 -6 -3 0 3 6 9 12 15
(-) Deterioration or (+) improvement of ranking position
27 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Exhibit 5: rank changes between 2007 and 2011
I. The Global VCPE Country Attractiveness Index
Emerging countries,
and exceptional opportunities in BRIC?
Among the emerging economies, inves-
tors are paying particular attention to
the development of the BRIC (Brazil, Rus-
sian Federation, India and China) econo-
mies. The expected economic growth and
catch-up potential resulting from the size
of their population, the availability of
natural resources and transition to liberal
markets justi?es the exposure in BRIC. As
already noted, Brazil is the top performing
country in terms of its gain of overall
ranking positions between the 2007 and
2011 index versions, and China leads the
ranking with respect to its exceptional
economic growth. The pace of the eco-
nomic and capital market development,
especially in China and India, is indeed
astonishing. However, the other key dri-
ving forces of VC and PE attractiveness
are often neglected. Exhibit 6 presents
the six key drivers for the BRIC countries.
As mentioned before, this pattern is very
similar for most of the emerging markets.
The exhibit reveals the skewness
among the key driving factors of VC and
PE attractiveness. All of the BRIC countries
are characterized by a peak with respect
to their economic activity. Nevertheless
the Russian Federation demonstrates only
89% of the economic activity key driver of
the US. Despite the deep capital markets
in China and India, and the heterogeneous
characteristics with regard to taxation, all
other key driver scores remain relatively
low. This observation is con?rmed by the
scores of the level-2 constructs.
25
0
50
75
100
125
150
6. Entrepreneurial
Culture and Deal
Opportunities
5. Human and
Social Environment
4. Investor Protection and
Corporate Governance
3. Taxation
2. Depth of Capital
Market
1. Economic Activity
India (30.)
China (20.)
Russian Federation (41.)
Brazil (43.)
Exhibit 6: the six key drivers for BRIC
Exhibit 7 presents the scores of the le-
vel-2 constructs for the BRIC economies.
It con?rms China’s exceptional position
regarding its economic size and growth
also compared to Brazil, the Russian Fede-
ration and India.
However, likewise it reveals some
concerns about emerging market VC
and PE. Issues with respect to corpo-
rate governance and the protection of
investors’ rights still remain investment
obstacles in BRIC. Further, perceived bri-
bery and corruption levels are high, while
innovation and corporate R&D remains
relatively low. We know from the BRIC
and other emerging markets that growth
and development is mainly concentrated
in particular hubs or certain regions, but
not widespread. We also know that the
bene?t of wealth creation is allocated to
rather small fractions of the population
only. This presents not only a socio-eco-
nomic challenge for politicians in many
emerging countries, but is also re?ected
in their attractiveness for VC and PE. If
the countries cannot transfer the wealth
effects of growth to a broader part of
their population it is unlikely to improve
the other key driving forces for VC and
PE attractiveness. If the pace of econo-
mic growth slows down, the countries will
deteriorate their VCPE attractiveness ran-
king. This happened to the Russian Federa-
tion, which lost four ranks as presented in
Exhibit 5, due to lower economic growth.
As previously argued, this is similar for
the other emerging countries (the Baltics,
Turkey, Romania, and Slovakia) ranked at
the bottom in Exhibit 5.
5
5. Wenotethat India’slossof four ranking positionsis
caused by a deterioration of perceived investor protection
and lower scoresin doing businessindicators, but de?nitely
not by economic growth.
28 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Exhibit 7: level-2 constructs for BRIC
0 20 40 60 80 100 120 140 160 180 200
0 20 40 60 80 100 120 140 160 180 200
6.5 Corporate R&D
6.4 Simplicity of Closing a Business
6.3 Ease of Starting and Running a Business
6.2 Scientific and Technical Journal Articles
6.1 Innovation
5.3 Bribing and Corruption
5.2 Labor Market Rigidities
5.1 Education and Human Capital
4.3 Quality of Legal Enforcement
4.2 Security of Property Rights
4.1 Corporate Governance
3.1 Tax Incentives and Administrative Burdens
2.7 Financial Market Sophistication
2.6 Bank Non-Performing Loans to Total Gross Loans
2.4 M&A Market Activity
2.3 IPO Market Activity
2.2 Stock Market Liquidity (Trading Volume)
2.1 Size of the Stock Market
1.3 Unemployment
1.2 Medium-Term Real GDP Growth
1.1 Size of the Economy (GDP)
India (30.)
China (20.)
Russian Federation (41.)
Brazil (43.)
VCPE Country Attractiveness Score 2011
In summary, BRIC and other emerging
markets provide many investment oppor-
tunities and have strong needs to ?nance
their expected economic growth. Howe-
ver, expected growth is often already
priced and does not allow extra pro?ts.
It is also more challenging in emerging
countries to get access to transactions be-
cause of the immaturity of their deal sup-
porting institutional environment. Hence,
deal ?ow can be cumbersome and costly.
Furthermore, we should acknowledge that
investing in corporations is only the minor
part of VC/PE business. Adding value and
exiting are at least of equal importance.
In fast-growth economies, the potential
of general partners to add value (other
than ?nancing) might be limited. In ad-
dition, successfully exiting transactions
becomes dif?cult, even if public capital
markets are well developed, when the
protection of investors is insuf?cient, and
when bureaucracy and perceived bribery
and corruption lower the returns to inves-
tors. Limited partners should well consider
advantages and disadvantages of emer-
ging and developed VC and PE markets as
exceptional growth opportunities come at
some cost. Finally, and this is particularly
important for emerging markets because
of their recent boom, the public stock
markets provide investment alternatives
to capitalize on expected growth.
29 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
I. The Global VCPE Country Attractiveness Index
Tracking power of our index
Our index ranks the attractiveness of
countries to receive VC/PE allocations
from institutional investors based on
many socio-economic data series. The
composite measure can deviate from
the actual risk capital market activity
and these deviations might point to an
inaccuracy of our measure. With respect
to their allocations, investors are often
in?uenced by herding behavior and fol-
low trends to certain countries and
regions. However, the countries might
not have suf?ciently developed “VC/PE
infrastructure” to absorb the committed
capital, leading to over-funding. The VC/
PE infrastructure is exactly what we aim
to assess with our index: can we expect
suf?cient deal opportunities resulting
from the entrepreneurial culture in a
country, from its economic soundness, or
from innovations? Are potential transac-
tions ef?ciently supported by the ?nan-
cial community? Are the public stock and
M&A markets liquid enough to facilitate
divestments? Are investors’ concerns le-
gally taken care of? We do not claim that
our index always provides the correct
answer to these questions. But, we sub-
mit that it is very helpful in this respect.
Therefore, we expect deviations between
our attractiveness measure and actual VC
and PE activity in the particular countries
to be at a minimum level.
To analyze the tracking power of
our index, we compare the index scores
with the actual VC and PE activity in the
various countries, using the data from
Thomson Financial. Our activity measure
is the natural logarithm of an average of
all VC and PE investments made by the
general partners in a certain country over
the last three years. We use the natural
logarithm to account for the large acti-
vity divergence (e.g., activity in the US vs.
several emerging countries), and we use
an average over three years to smooth
?uctuations. Especially for some emer-
ging countries, annual activity ?uctuates
strongly from peak levels to zero in sub-
sequent years. We chose the criterion “lo-
cation of the general partners” —and not
of the investments —for the following
reason: some ?nancial centers serve as
hubs and channel VC and PE abroad.
Investors allocate their capital in these
hubs because they rely on the ef?ciency
of the ?nancial community there. This is
exactly what we try to measure with our
index. In fact, we focus on the demand
for VC and PE in a particular economy,
and likewise on the state of the profes-
sional ?nancial community that supports
the supply side and directs the funds
to the investee corporations. Therefore,
investments according to the location
of the general partners correspond best
to the concept of our index. In addition,
we use investments —and not raised
funds —because our index measures the
“absorption capacity” (either caused by
direct local demand or by channeling
funds abroad) of the particular econo-
mies. Funds raised might deviate from
this capacity due to herding behavior of
investors, caused by over-optimism or
negligence.
30 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Exhibit 8: tracking power of our index
1,000,000
100,000
10,000
1,000
100
10
1
0
20 30 10 40 50 60 70 80 90 100 110
VCPE Country Attractiveness Scores 2011
T
h
r
e
e
y
e
a
r
s
a
v
e
r
a
g
e
o
f
V
C
a
n
d
P
E
i
n
v
e
s
t
m
e
n
t
s
b
y
g
e
n
e
r
a
l
p
a
r
t
n
e
r
s
p
e
r
c
o
u
n
t
r
y
[
U
S
D
m
n
]
The statistical measure for such a com-
parison is the Pearson correlation coef?-
cient. It ranges between 0 and 1, where 0
signals “no” and 1 “perfect tracking.” The
coef?cient for our index is 0.8336, signa-
ling that the index performs well when
tracking a country’s investment activity.
However, it is calculated including only
the 58 countries from our sample with
non-zero investment activity. We illus-
trate the high correlation in Exhibit 8.
Exhibit 8 reveals the tracking power of
our index. We plot the countries’ invest-
ment activity on their index scores and
can identify a strong link. We note that the
prior 2009/10 index correlated with 0.8104
which was already a very satisfying result.
Nevertheless, we could still improve the
tracking power of the index due to our op-
timization effort and the slight changes of
the index structure and weights in the 2011
version. If we compare the results of our
VC index with VC activity (only), the corre-
lation is 0.8242. The correlation of our PE
index with actual PE activity is 0.8347. All
these results can be considered excellent
from a methodological perspective and
all correlations could be improved compa-
red to the prior index version. However, it
should be noted that there are inhomoge-
neous de?nitions of VC and PE among the
globe. Especially in emerging countries,
some transactions might better be called
“infrastructure investments” or “project
?nancing” instead of VC transactions. Simi-
larly, some investments in later stage com-
pany life cycles rather resemble “expansion
or development capital” than traditional
buyout structures. Also for this reason of
varying de?nitions of VC/PE among the
globe, we determine the combined Global
VC and PE Country Attractiveness Index
which provides a joint score for both asset
classes.
31 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
I. The Global VCPE Country Attractiveness Index
Our index and historic VC/PE returns
Concurrent to the ?nding that our index
performs well when tracking VC and PE
activity in countries, it is of particular
interest to analyze if it also corresponds
with country performance. Unfortuna-
tely, performance ?gures are still one of
the best kept secrets in the VC and PE
industry. The principle not to disclose
information on returns is equally valid
in developed and in emerging markets.
On top of that, the emerging VC and PE
markets are young with a general low
activity (despite some exceptions) and
hence, only a very few transactions from
which achieved returns can be calcula-
ted. Therefore, an assessment of VC and
PE performance is even more challenging
for the developing countries than for the
developed. Commercial data suppliers
only provide very limited performance
?gures. The only means to get reliable
performance data on a suf?cient scope
for empirical analyses is via the exten-
sive effort to collect private placement
memoranda (PPMs). A private placement
memorandum is a document edited by a
general partner that raises a VC/PE fund
and solicits capital commitments from
institutional investors. It is a marketing
document used for fundraising purpose.
General partners provide information
about their track records and the per-
formance of individual transactions in
PPMs. The ?gures are audited and inves-
tors trust them. However, only success-
ful general partners raise a subsequent
fund and edit a PPM. Therefore, their use
is criticized by academic researchers, as
average performance ?gures from PPMs
are upward biased. Nevertheless, there is
no reason to believe that this upward bias
is different among particular countries.
This means benchmarking countries is
feasible because then countries are com-
pared relative to each other and the ab-
solute terms are not important.
Lopez-de-Silanes, Phalippou and Gotts-
chalg (2010) put together from PPMs the
most comprehensive database on VC and
PE returns at the investment level contai-
ning the performance and characteristics
of 7,453 investments, thereof 1,694 in
emerging countries. The ?rst transaction
considered was closed in 1971 and the last
prior to 2006. We are grateful to Ludovic
Phalippou for providing us with aggrega-
ted country returns from this database.
These returns are compiled as the mean
average of gross internal rates of return
of all transactions in a particular country.
We are aware that this is a rough estimate,
disregarding different transaction closing
dates (fund vintage years), industries, deal
structures and development cycles of the
particular VC/PE markets. Unfortunately,
controlling for these effects is impossible
with the available data on VC/PE and on
our global scope. In addition, an IRR is a
capital and time weighted return measure
that requires a reinvestment assumption
and that has aggregation issues as descri-
bed in Phalippou (2008). However, the IRR
pitfalls are the same for all transactions
and for all of our countries. Therefore,
they do not affect our cross-sectional
country benchmarking approach.
With these aggregate country perfor-
mance measures, we can analyze to what
extent our index not only tracks VC and
PE market activity but also the average re-
turns. We can match the index scores of 49
countries (thereof 24 emerging countries)
with their aggregate performance data.
We ?nd that the correlation between the
index scores and a country’s average gross
internal rate of return is 0.56. This high
correlation is expressed in Exhibit 9, which
represents the average of the country re-
turns and index scores when we group the
countries into deciles with respect to their
index scores.
32 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Exhibit 9: historic performance and our index
40%
10%
5%
35%
30%
25%
20%
15%
0%
30 40 50 60 70 80 90 100
Average index scores for 49 sample countries grouped into deciles
A
v
e
r
a
g
e
I
R
R
o
f
4
9
s
a
m
p
l
e
c
o
u
n
t
r
i
e
s
g
r
o
u
p
e
d
i
n
t
o
d
e
c
i
l
e
s
Exhibit 9 reveals that our index is not
only a valid proxy for VC and PE activity,
it is also a good indicator for aggregate
country returns. The averages of historic
gross internal rates of return were actual-
ly larger in countries that rank higher in
our index than in countries that rank low.
Nevertheless, there are “outliers,” meaning
low ranked countries with high returns
and vice versa. Additionally, of course,
there is a strong dispersion of returns
within the particular countries, driven by
the existence of very successful transac-
tions in any of them. We highlight that
the internal rates of returns collected by
Lopez-de-Silanes, Phalippou and Gotts-
chalg (2010) are calculated gross of any
fees. We can assume that fees are higher
for investors in markets with less compe-
tition among general partners. Therefore,
we expect the less competitive emerging
markets to be more costly for investors.
This effect supports our result and should
increase the correlation if we considered
net returns to investors.
33 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
I. The Global VCPE Country Attractiveness Index
Summary and outlook
We provide a composite measure that
determines the attractiveness of 80
countries to receive capital allocations
from investors in the VC and PE asset
class. The composite measure is based on
six main criteria: economic activity, depth
of the capital markets, taxation, investor
protection and corporate governance, the
human and social environment, and entre-
preneurial culture and deal opportunities.
The de?nition of these criteria is based on
an extensive review of academic literature
and on a survey we conducted among
institutional investors prior to our study.
The six criteria are not directly observable,
so we use proxy variables to assess them
for each country. As a result, we receive
a country ranking, as well as provide
detailed analyses on the strengths and
weaknesses of the particular nations and
information on the historic development
of the criteria. Our index performs well
when tracking real VC and PE activity and
historic aggregate country performance.
However, it must not be interpreted as a
crystal ball for investment advisers. We
highlight our intention to challenge the
discussion about the determinants of vi-
brant VC and PE markets and to propose
a valuable informational tool, but not an
arbitrage instrument.
We ?nd a general pattern if we com-
pare the country characteristics. There is a
lot of dispersion with respect to the six key
drivers. Some countries attract investors
with tax incentives. Many countries show
strong entrepreneurial culture and deal
opportunities. There is great dispersion in
economic activity, especially with respect
to the emerging markets and in the human
and social environment. However, the two
key criteria, investor protection and cor-
porate governance, and depth of capital
markets, make the difference. The com-
mon law countries dominate the others
regarding these criteria. We can conclude
that strong investor protection and cor-
porate governance rules lead to liquid and
ef?cient capital markets, and these evoke
the required professional community to
secure deal ?ow and exit opportunities for
VC and PE funds. This ultimately affects
a country’s attractiveness for institutional
investments in the VC and PE asset class.
However, this discussion re?ects the
capital supply side only. We should also
take into account that, as revealed by
our analyses, many countries lack several
important characteristics. Without a suf-
?cient entrepreneurial culture and deal
opportunities, with rigid labor markets,
bribery and corruption, there will be ?rst,
less demand for VC and PE and second, re-
turns to investors diminish.
Emerging VC and PE provides interes-
ting opportunities to investors. However,
it is the discussed lack of balance of the
key driving forces that renders emerging
VC/PE allocation decisions challenging.
Exceptional growth opportunities come
at the cost of disadvantageous conditions
with respect to investors’ protection, less
liquid exit markets, innovation capacity
and perceived bribery and corruption.
We invite you to observe and thorou-
ghly analyze our results. If you are an
investor, please enrich the provided in-
formation with your own expertise and
knowledge about the key driving forces
and market conditions in the particular
countries to make your allocation deci-
sions. If you are a politician, please use our
analyses as demonstration how investors
evaluate and benchmark your country. If
you are a researcher, and this is equally
valid for the whole constituency, please
do not hesitate to criticize our approach
and ?ndings. We will continue to update
our index annually.
As the index evolves, we aim to cover
more countries, assuming the right data is
available. We will include new data series
(discard others), and further optimize the
data selection and index structure. Hence,
we very much appreciate any critique and
comment.
34 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
35 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
36 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
How are fund size and fund
performance related?
II.
37 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
II. How are fund size and fund performance related?
38 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
First, we provided new descriptive statis-
tics and stylized facts on the distribution
of performance, duration and size of PE
investments around the world. We found a
dramatic dispersion in the rate of returns:
investments in the 75th percentile have
an internal rate of return (IRR) of 50%,
whereas those in the 10th percentile earn
nothing. Most investments in our dataset
are relatively long-lived, with the median
duration of the investments being nearly
four years. But evidence emerged fromour
analysis that the long-lived investments
are not the ones that deliver high returns.
In fact, we observed a strong negative as-
sociation between performance and dura-
tion. Quick ?ips (investments held less than
two years), which account for 12% of all PE
investments, have median IRR (Public Mar-
ket Equivalent [PME]) of 85% (1.94), whe-
reas investments that were held more than
six years, which account for nearly 18% of
all PE investments, had a median IRR (PME)
of only 8% (0.79).
Our statistics uncovered additio-
nal stylized facts for investments across
countries. We documented substantial
underperformance of investments in emer-
ging markets, which may be of interest
given their recent spectacular growth
surges. The data also allowed us to show,
for the ?rst time, that most PE invest-
ments around the world are small equi-
ty-wise. The median equity investment is
US$10 million only. The large deals trum-
peted in the press are, by far, the exception.
Second, we identi?ed the drivers behind
the great variation in the performance of
PE investments. Our investment-level data
allowed us to document the performance
impact of several investment and PE ?rm
characteristics. We found that the small
investments outperformed the larger ones.
In addition, and contrary to some of the
arguments by fund managers, our results
show a close connection between public
and private equity: the average stock-mar-
ket return over the life of an investment
has a signi?cant impact on IRR.
Our most important ?nding, however,
is that PE ?rm scale is a signi?cant and
consistent driver of returns. Casual evi-
dence suggests that the scale of PE ?rms is
an important concern for investors. Lerner
et al. (2005) argue that “the unprecedented
growth of the private equity industry
appears to have changed the industry in
some permanent ways. First was the scale
at which private equity groups operated.
These concerns were particularly acute on
the buyout side, where multi-billion-dol-
lar funds have become the norm.” Along
similar lines, Swensen et al. (1999) repor-
ted that “many LBO ?rms appear to have
explicitly lowered their return hurdles […],
pricing deals to yield returns in the mid-
to-high teens.” Indeed, the current scale
of several PE ?rms contrasts sharply with
that of PE ?rms 20 years ago. When com-
paring the 16 professionals at KKR and the
470 at RJR Nabisco’s headquarters, Jensen
(1989) suggested that PE ?rms were posi-
tioned to generate superior performance
partly because they were lean and focused
organizations.
Today, the industry is more concentra-
ted (Cornelius et al. 2007) and PE ?rms
sometimes have hundreds of professionals
from a variety of backgrounds doing a
large number of deals around the world.
Blackstone, a prominent PE ?rm, des-
Giants at the gate: diseconomies of scale
in private equity investment returns
My co-authors, Florencio Lopez-de-Silanes and Oliver Gottschalg, and I have put together the
largest and most up-to-date dataset on PE investment performance and characteristics. Our
data comes fromfund-raising private placement memorandums (PPMs) that we have collected
over the past eight years frominvestors on every continent. After applying a number of ?lters,
mainly to eliminate those investments that are too young to have a meaningful return, our
?nal sample contained 7,453 investments made in 81 countries by 254 PE ?rms between
1971 and 2005. This data allowed us to derive statistics for issues that are often debated in
private equity and to document the main drivers of the cross-section of returns. Prompted by
the large increases in the size of PE funds, we paid special attention to the impact of scale on
returns and found evidence of the potential mechanisms that power this relationship.
Guest contribution by:
Ludovic Phalippou
Associate Professor of Finance
University of Oxford Said Business School
[email protected]
39 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
cribes itself as: “A ?rmof 1,300 professio-
nals in 15 of?ces worldwide. But we are
more than that, our portfolio companies
employ nearly one million people around
the world making us a major factor in eco-
nomies around the world. If our portfolio
holdings and transactions were combined
into a single company, [we] would rank as
the equivalent of number 13 in the For-
tune 500.” If a similar calculation were
applied to KKR, it would place KKR ?fth
in the Fortune 500 ranking, just ahead of
General Electric. This change in the indus-
try raises the question: can large PE ?rms
deliver suf?cient returns?
There is a large body of theoretical lite-
rature on the connection between a ?rm’s
size and its performance; the emerging
consensus seems to be that “the key trade-
off an organization confronts occurs
between communication and knowledge
costs.” Garicano (2000, abstract) notes:
“As a ?rm accumulates activity, it bene?ts
from an increased utilization of its know-
ledge (i.e., it leverages its know-how), but
it is penalized by greater communication
needs (i.e., people need to sit in endless
meetings trying to ?nd an agreement).”
Although diseconomies of scale may be
important for industrial ?rms, they may
not lead to differences in returns across
?nancial intermediaries such as PE ?rms.
If agents are rational (e.g., investors are
not limited in the number of funds they
can monitor), the market for capital is
competitive and there are no other fric-
tions (e.g., no agency con?icts), then there
should be no difference in the returns of-
fered by different ?rms. If large ?rms were
to offer lower returns, all else being equal,
they would simply receive less capital and
would no longer remain large. But most of
these arguments are unlikely to hold true
in PE. For example, the provision of capital
for PE ?rms is not continuous. Investors
can only add capital to a PE ?rm every two
to four years, when a new fund is raised.
This means that, if a ?rm turns out to be
too big, it takes a few years for investors
to adjust its size.
In view of these theoretical arguments,
communication costs should be a key de-
terminant of performance. Using the data
we gathered for individual investments,
we were able to create a proxy for the
volume of information communicated in
the ?rmover the life of each investment.
Speci?cally, we measured ?rm scale for
each investment as the average number of
simultaneously held investments managed
by the ?rmover the investment’s life. We
believe this is a good measure because it
captures two key features connecting scale
and returns in PE. PE ?rms are supposed to
monitor, closely and continually, each of
the companies in their portfolio. In addi-
tion, each investment, regardless of its size,
probably requires a similar amount of time
and communication. So, the number of
investments under management is a good
proxy for ?rmscale. Because we did not
have a time-series of returns for PE ?rms,
we related the total performance of each
investment to the average scale of the ?rm
over the life of the investment.
Our empirical estimates show that
?rm scale is a robust and consistent
driver of the cross-section of returns
of PE investments. Investments held at
times of a high number of simultaneous
investments (SI) underperform substan-
tially. The economic magnitude of the
scale effect is large: a one-standard-de-
viation increase in SI decreases IRR by
9%. Investments in the lowest SI decile
earn a median IRR (PME) of 36% (1.65),
whereas those in the highest SI decile
earn a median IRR (PME) of 16% (1.08).
These results hold in a regression setting
controlling for other factors that could
be associated with performance, inclu-
ding several investment characteristics,
PE ?rm characteristics and ?xed effects
(country, industry, and time).
We performed a series of tests which
corroborated the robustness of the nega-
tive scale effect. Diseconomies of scale
were present across subsamples; they sur-
vived the use of alternative econometric
methods and they were not the result of
a simple mechanical effect resulting from
?rms exiting best-performing investments
faster. We also showed that survivorship
bias, differences in risk and reverse causa-
lity were unlikely to explain our ?ndings.
The third and ?nal element of our work
was to test some additional predictions of
diseconomies of scale models and to pro-
vide evidence of the potential mechanisms
explaining the negative scale effect. We col-
lected additional data fromPE directories,
PE ?rmwebsites, managers’ biographies and
the PPMs to develop proxies for the orga-
nizational structure of PE ?rms. These mea-
sures provided empirical support for the idea
that hierarchical ?rms and organizations
where the information ?ow is more dif?cult,
face higher marginal communication costs
and, thus, display greater diseconomies of
scale. Our data shows that independent PE
?rms, those with ?atter decision structures
and those with professionals of similar back-
grounds, exhibited less pronounced scale
diseconomies. We also found that disecono-
mies of scale decreased over the life of the
?rm. This is consistent with investor’s lear-
ning about the effect. The effect decreases
regularly and has disappeared beyond the
10th anniversary. This is also consistent with
PE ?rms handling communication better as
they become more experienced. This means
that the scale of a PE ?rmbeyond its 10th
anniversary is not predictive for its future
performance.
II. How are fund size and fund performance related?
40 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Valuation is important to both venture
capital (VC) ?rms and entrepreneurs, and is
therefore a contentious negotiation point.
For the investors, their return mainly results
fromthe capital gain between closing and
exit. For entrepreneurs, the pre-money
valuation determines their dilution after
the VC’s investment. In our paper “Fund
size, limited attention and valuation of
venture capital backed ?rms” (Journal of
Empirical Finance, volume 18, issue 1, Ja-
nuary 2011, pages 2-15), we examined how
characteristics of venture capital funds, in
particular, fund size impact the pricing in
the venture capital industry. It is clear that
the 2/20 rule can be an incentive to VCs to
grow their fund size. When a fund becomes
large, the ?xed part of the fee can become
as important as the carry. Since the typi-
cal VC fund has seen an increase in capital
managed per partner as fund sizes grew, we
raised two simple questions:
1. Are investment managers still able
to provide appropriate quantity and
quality of services to their investee
corporations if they manage a larger
amount of capital?
2. If there is a decline in the quantity
or quality or both of their services,
(how) does this affect the valuations
of their investees or the performance
they deliver to their investors?
We addressed these two questions by
looking at a sample of 9,266 ?nancing
rounds with valuation data of US VC tran-
sactions between 1991 and 2006 provided
by the VentureXpert database. Table 2 sets
out our observations, ordered by year.
We postulated that reputable VCs are
likely to pay lower prices. We also assu-
med that fund size can be related to
reputation. Moreover, larger funds can
have more negotiation power and, hence,
might also pay lower prices. However, if a
fund grows too big, i.e., beyond its optimal
scale, human capital levels might not keep
up with the capital under management.
This can dilute the managers’ attention to
Fund size, limited attention and valuation
of VC backed ?rms
“We all had too much money. It was just too easy … The problem… was that the funds had
grown so big that the 2% became as important as the 20% ... Success had less to do with
performance or risk management … and more to do with bulking up.”
A Confession by a Private Equity Manager, The New York Times (September 22, 2009).
Year Number of ?nancing rounds Rounds with valuation data
1991 1,136 78
1992 1,302 265
1993 1,058 230
1994 1,111 312
1995 1,014 343
1996 1,328 429
1997 1,497 535
1998 1,581 755
1999 2,457 1,296
2000 3,571 1,966
2001 2,314 1,137
2002 1,726 615
2003 1,684 494
2004 1,800 351
2005 1,987 250
2006 2,188 210
All years 27,754 9,266
Table 2: our sample transactions ordered by year
Guest contribution by:
Douglas Cumming
Professor in Finance and Entrepreneurship,
Ontario Research Chair in Economics and
Cross Cultural Studies
[email protected]
Na Dai
Assistant Professor of Finance at the
school of business at SUNY–Albany
[email protected]
41 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
particular transactions. Furthermore, more
capital under management could result in
less rigorous decision-making behavior,
and higher entry valuations. In addition,
diluted attention might reduce the VC’s
value-adding capacity. Either way, less
time spent monitoring the portfolio can
lead to lower returns to investors.
To address these questions, we ?rst grou-
ped the transactions fromTable 2 according
to the different industries of the investee
?rms, and according to the fund size of their
backers. Table 3 presents this segmentation.
Table 3 reveals that the highest valua-
tions were achieved in the communication
technology sector and that larger funds
were engaged in higher-value transactions.
This is, in principle, no reason for concern,
as large cap funds should focus on large cap
investments. However, it becomes an issue,
if the larger general partners (GP) systemati-
cally pay higher prices than the smaller ones,
or if they are less successful in divesting
their holdings. Therefore, we analyzed via
numerous multivariate regressions whether
there was a relationship between pre-money
valuations and a GP’s reputation, its fund
size, measures of attention to the portfolio
companies, and various characteristics of
the ventures, such as entrepreneurial ?rm’s
size, their stage of development, industry,
location and VC market conditions, inclu-
ding committed capital and number of IPOs
during the previous year. We rated a VC’s re-
putation by the number of IPOs undertaken
and used a proxy for the capital managed
per partner of a fund to assess the atten-
tion devoted to the portfolio. Additionally,
we veri?ed whether fund size or insuf?cient
monitoring impacted the performance of
the ventures. Unfortunately, without having
performance data for the particular transac-
tions, we had to use a proxy. We differentia-
ted successful fromfailed deals and used an
indicator for a trade sale or an IPO exit prior
to 2007 for all ?nancing rounds before 2003
to asses a GP’s portfolio performance.
Our analyses con?rmed that reputable
VCs pay lower prices for ventures of similar
quality. We also found a convex (U-shaped)
relationship between fund size and valua-
tion. This means that, to a certain extent,
larger funds can receive smaller valuations,
probably because of superior negotiation
power or the bene?t of an assumed better
reputation. However, this trend was reversed
when the funds operated beyond their opti-
mal level. This effect was even stronger for
the less prestigious GPs. We also con?rmed
the theory that limited attention affects va-
luation. We realized there was a strong link
between our proxy for capital under mana-
gement per partner and the prices the GPs
paid. Finally, we found a concave (inverse U-
shaped) relationship between the fund size
and the probability for successful exits. That
means that the probability for a successful
exit ?rst increases with the size of the GP,
but diminishes again, having surpassed its
optimal scale.
Our ?ndings are important for investors
in venture capital assets. There is a scale
diseconomy, which we believe relates, at
least in part, to human capital constraints.
General partners do often not increase
human capital levels proportionally to
the growth in fund size. Limited partners
should carefully gauge the development of
funds that are increasing in size; the value-
adding potential of general partners can
decrease with their size, in turn, causing
lower returns to investors.
Table 3: our sample transactions ordered according to their industry
and to the size of their backers
Pre-money valuation [US$m]
Mean Median Observations
Industry
Com puter related 42.2 18.7 4032
Com m unication 68.4 25.9 1771
M edical/health/life sciences 30.8 18.2 1395
Biotechnology 40.0 19.2 790
Sem iconductor 46.9 20.5 623
Non-tech 42.3 17.7 655
VC fund size
Largest quartile 74.1 34.2 2311
Second quartile 45.4 22.7 2293
Third quartile 33.1 17.1 2344
Sm allest quartile 30.1 12.8 2318
42 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
An insight into
different VC
and PE markets
III.
43 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
III. An insight into different VC and PE markets
44 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
In the Eurozone, as in the global VCPE
market, the levels of activity have remai-
ned well below the pre-crisis peaks, re-
minding us that the road to full recovery
will be long and possibly bumpy. The re-
covery is also likely to take the VCPE sec-
tor into new territory. First, risk appetite
is unlikely to return to pre-crisis levels.
This will have an ongoing impact on the
availability of external ?nance. Second,
VCPE houses will have to operate in a
different legislative and regulatory envi-
ronment, with increased reporting and
capital obligations. Finally, VCPE houses
are changing the way they operate: ex-
perience has shown that value creation
is best achieved within long-term and
close commitments. For the investors,
this means putting more of their own
money, knowledge and expertise into the
investee company.
While this consolidation was ongoing,
a two-speed recovery was under way.
Today, the Eurozone presents itself as
increasingly heterogeneous with a robust
economic rebound in the core economies
(Germany, France, Netherlands, Belgium,
Austria and Finland), and weak perfor-
mance in the periphery (Greece, Ireland,
Portugal and Spain, and to a lesser extent,
Italy). This widening gap presents VCPE
houses with a choice of investment op-
portunities to suit the highest and lowest
risk investment models.
Taking stock: Eurozone’s strengths
and weaknesses for VCPE investment
VCPE investment is in?uenced by a range
of factors that can be grouped into six
categories, which we analyze more closely
in this report: economic activity; entre-
preneurial culture; depth of a capital mar-
ket; taxation; investor protection and cor-
porate governance; and the human and
social environment.
The tendency for Eurozone VCPE acti-
vity to lag other countries and regions is
partly the result of de?ciencies in a num-
ber of these areas. Over the past decade,
and even well before the 2010 Eurozone
sovereign crisis, economic activity has ty-
pically risen more slowly in the Eurozone
than in the US or Scandinavia. In the 10
years to 2007, Eurozone GDP growth ave-
raged 2.3% per year compared with 3% in
the US.
7
Moreover, a wealth of indicators
and anecdotes support the view that it is
more dif?cult to start a business in the
Eurozone than in many other advanced
economies. The World Bank ranks Ger-
many 88th in the world in terms of ease
of starting a business, with the top ranks
dominated by nimble Asian countries.
8
As
venture capital targets young companies
hurdles to entrepreneurship, including
complicated and lengthy legal require-
ments or íssues in obtaining access to
7. Oxford Economics
8. World Bank Doing Businessindicators
Is the Eurozone still an attractive location
for VC and PE investors?
VCPE markets in the Eurozone have returned to growth, but they are facing a new,
more competitive environment. Limited partners have new attitudes to risk and
responsibility; high ?nancial gearing has been replaced with new business models that
focus on long-termgrowth; and the regulatory environment is more intense than ever.
With investment opportunities in emerging markets still increasing and the Eurozone
in the midst of a sovereign crisis, is it still an attractive investment location?
Guest contribution by:
Julie Teigland
Leader of Strategic Growth Markets
- Europe, Middle East, India and Africa
Ernst & Young
[email protected]
2010 —a year of consolidation and
timid recovery in PE and VC activity
Global private equity (PE) and venture ca-
pital (VC) —VCPE —investment is recove-
ring fromthe signi?cant falls experienced
during the crisis. In the Eurozone, 2010 was
a year of consolidation and the start of a
timid recovery for VCPE. With the worst
of the global crisis behind us and inves-
tors’ risk appetites returning, PE activity
increased signi?cantly and exit numbers
improved strongly, up from227 in 2009
to 268 in 2010.
6
In particular, there was
an increase in the number of large IPOs of
more than US$500min value, although the
overall number of listings remained low.
Nevertheless, the improved availability of
?nancing helped kick-start the recovery, as
debt markets came back to life.
6. Has privateequity comeout of theslump? Sachin Date,
Ernst & Young, January 2011
45 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
?nance, severely limit VC opportunities. To
continue with the German example, there
are roughly nine steps required to start
a company in Germany, compared with
around ?ve in the OECD on average, and it
costs around 5% of the average personal
annual income to set up a business com-
pared with just 1.5% in the US.
Some Eurozone countries also fare
quite badly in terms of investor protection.
For instance, the World Bank’s indicators
highlight examples such as limited direc-
tor liability in France or limited disclosure
rules and practices in Spain. Factors such
as these may deter limited partners from
investing in Eurozone companies.
Similarly, the Eurozone lags behind
other leading nations in areas of human
and social environment, such as the qua-
lity of the education system, with the
large Eurozone countries behind Asian
and Scandinavian countries in terms of
basic educational achievements. They also
lag the US and the UK (and increasingly
Asia) in terms of quality and quantity of
academic research.
Furthermore, VCPE ?rms sometimes
need to restructure the company in which
they are investing. To do so, they must
comply with local labor legislation and
practices, which, in turn, are key factors
affecting the industry’s potential. Busi-
nesses in the larger Eurozone countries
such as France and Spain often ?nd them-
selves constrained by rigid hiring and ?-
ring practices and in?exible working time
practices. This also applies to some smaller
member countries such as Slovenia or the
new joiner, Estonia.
Forgotten strengths
The picture of the Eurozone market for
VCPE investors is by no means unendingly
bleak. Some of the Eurozone’s shining stars
have attracted VCPE investors. To name just
a few:
• The Netherlands provides an investor-
friendly environment, with one of the
best track records for intellectual pro-
perty protection and legal rights enfor-
cement.
• Finland’s labor force is highly skilled
and ?exible. Finland ranked third in
the 2009 PISA survey of student per-
formance.
• German companies are more inno-
vative than most, with world leaders
in a number of industries ranging
frompharmaceuticals to solar panels
to highly specialized machinery —
according to the World Bank, Germany
spends 2.6% of GDP on research and
development, more than the world
(2.2%) and EU (2%) average.
These examples show what is possible
to achieve within a European context and
explain why VCPE investors have kept a
high interest and stakes in the region.
Overall, the three countries mentioned
above provide some of the most favorable
environments for VCPE ?rms to conduct
business in. Our survey shows them ran-
king among the top nations in terms of
innovation, ef?ciency of business start-up
and closure regulations.
III. An insight into different VC and PE markets
46 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Will the recovery continue in 2011 or
will the Eurozone lose out to the US
and Asia?
A number of factors are likely to support
a further recovery in VCPE activity in the
Eurozone this year. First, economic acti-
vity, and thereby prospects for returns on
investments, should continue to improve
in the core Eurozone countries. These
countries experienced robust growth in
2010, with the main engine of recovery
gradually shifting from exports to domes-
tic activity and, in particular, ?xed assets
investment. While the core Eurozone faces
its own challenges, with large budget
de?cits and an aging population, these
issues are surmountable and this group
of countries should be able to achieve
robust, if unremarkable, growth. This pro-
vides a relatively secure environment for
VCPE ?rms to operate in.
Second, we estimate that there is a
staggering US$138b of “dry powder” ca-
pital held by European PE ?rms seeking
investment opportunities before their
investment periods expire.
9
However, there are also signi?cant
challenges; the Eurozone is competing
with other potential locations for PE
investment. As that growth is likely to
be signi?cantly lower in the Eurozone
than in other regions, many PE houses
may prefer to focus on other parts of the
world. The Ernst & Young Eurozone Fore-
cast expects annual average GDP growth
of only 1.8% per year over the next ?ve
years in the Eurozone, about half as much
as in the US and compared with around
7.5% in emerging markets. The sove-
reign bond crisis, which erupted in 2010,
highlighted signi?cant ?aws in Euro-
9. Has privateequity comeout of theslump? Sachin Date,
Ernst & Young, January 2011
Exhibit 10: Eurozone divergence
85
90
95
100
105
110
2000 2002 2004 2006 2008 2010 2012 2014
2008=100
Periphery
Core
Core = Germany, France, Netherlands & Belgium
Periphery = Italy, Spain, Greece, Portugal & Ireland
Sources: OxfordEconomics
zone economies, which will take years of
painful adjustment to repair. Signi?cant
?scal and structural issues need to be
addressed and potentially adjusted. For
example, ?scal adjustment involves large
spending cuts, wage freezes or wage cuts
for public sector employees and some tax
increases mainly in the form of higher
VAT rates. In the Ernst & Young Euro-
zone Forecast we estimate that, for the
Eurozone as a whole, ?scal restructuring
will amount to around 1% of GDP for
the next few years, a sharp reversal from
the large stimulus packages put together
during the global crisis.
The Eurozone needs to restructure its
economy to remain competitive
In terms of structural issues, a number
of countries in the periphery need to
reshape their economies in two ways.
First, these countries (excepting Ireland)
need to tackle their competitiveness
(or lack therof). This includes wage and
cost restraints and an overhaul of pro-
ductivity-enhancing practices. Secondly,
these countries need to ?nd new sources
of growth. For Ireland and Spain, this
is partially due to the collapse of the
construction and its unlikely return to
pre-crisis levels in the near term. For the
other countries, it is means discovering
and exploring areas of expertise that
generate signi?cant export revenues. In
all cases, these changes imply a radical
rethink of the way that businesses are
organized, the sectors that they ope-
rate in and of the education and trai-
ning of the workforce that is required.
These processes will be disruptive. They
may create some opportunities for VCPE
?rms, but distinguishing the promising
targets from the others in the transition
process will be dif?cult.
The restructuring needed in the peri-
phery implies that there will be a much
weaker performance than in the core Eu-
rozone. In the next ?ve years, we expect
47 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
the periphery to grow by only around
1.3% per year compared with 2.1% for
the core Eurozone.
10
This is a signi?cant
change from the years before the crisis
when the periphery consistently out-
performed the core Eurozone. This may
imply a change of focus for VCPE houses.
Apart from affecting relative returns,
divergence within the Eurozone has a
number of signi?cant implications. The
Eurozone sovereign crisis has also put
into question the future of the mone-
tary union, something that was taken
for granted as recently as 2009. While it
seems likely that the European Monetary
Union will continue in its current form,
investors are now pricing in the risk of
a debt restructuring by some Eurozone
members. This radical change in sen-
timent affects availability of ?nance
in the periphery. Moreover, economic
divergence is likely to make policy deci-
sions more dif?cult, further hampering
economic integration of the Eurozone
countries. As a result, this may dampen
any prospects of economies of scale for
those companies which operate in seve-
ral markets.
External ?nance likely to remain tight
Other challenges for the VCPE indus-
try may include access to ?nance and
rising costs. The implementation of the
AIFM Directive (which will regulate non-
UCITS fund managers) in national law
over the next few years will impose si-
gni?cant costs on VCPE ?rms that could
drive investors to look to other regions
not affected by the legislation —despite
the fact that the harmonization objec-
tive underpinning this directive is a wel-
come development. In particular, there
10. Oxford Economics
is widespread concern that the AIFM
Directive will prevent non-EU funds from
investing. The disclosure rules would also
put EU ?rms at a disadvantage as non-EU
investors would avoid the heavy disclo-
sure burden. Recent bank lending surveys
indicate banks’ continued cautiousness in
granting loans to businesses. This partly
accounts for why, at the end of 2010, the
outstanding amount of loans to busi-
nesses was barely back to the level of one
year earlier. Furthermore, the activity in
debt markets remains low by the stan-
dards of the pre-crisis years. Structured
?nance with high gearing will not work
in Europe for the forseeable future (for
deals greater US$100m, we found that
about 58% of equity was employed to
fund them)
11
and VCPE ?rms will need
to continue putting in higher levels of
equity into buyout deals.
11. Has privateequity comeout of theslump? Sachin Date,
Ernst & Young, January 2011
There are also concerns about the fu-
ture of corporate taxation in the EU. The
need to reduce public budget de?cits may
lead some governments to raise corporate
taxes to levels that would make the Euro-
zone uncompetitive compared with other
regions of the world. Moreover, there are
proposals to harmonize corporate taxes
within the EU to avoid what politicians
describe as unfair tax competition. This
means that the relatively low tax rates
of Ireland and Slovakia cannot be ta-
ken for granted in the future. This will
increase the level of uncertainty about
the business environment and discourage
investment in the Eurozone.
All of these factors will make for a
challenging environment that may hin-
der VCPE activity by deterring ?rms from
investing in the Eurozone and hampering
PE houses’ ability to exit their investment
at a time when many hold large portfolios
that are coming to maturity.
Exhibit 11: loans to non-?nancial corporations
-40
-30
-20
-10
0
10
20
30
40
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
% year
Germany
Spain
France
Ireland
Sources: OxfordEconomics/Haver analytics
III. An insight into different VC and PE markets
48 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Opportunity for bargain deals in
Europe?
The depressed economic environment in
the Eurozone’s periphery may, however,
present attractive valuations for some
deals. A number of emerging markets have
expressed interest in making medium- to
long-term investments in Portugal and
Spain, for instance. But we think that the
crucial issue in balancing risks and poten-
tial rewards is the solidity of the PE inves-
tors’ ?nancial backing.
Investing in the periphery presents si-
gni?cant risk and the prospect of several
years of low or negative returns. The risk
of sovereign debt restructuring by one pe-
ripheral country still remains signi?cant. If
it happens, it seems unlikely that restruc-
turing will proceed in an orderly fashion.
It may send shock waves through ?nancial
markets of the restructuring country and
other peripherals, as well as those of the
core Eurozone. The contagion could be
signi?cant as European banks (and mainly
German and French banks) own more than
US$1.5b of debt from Greece, Ireland,
Portugal and Spain.
12
Debt restructu-
ring could undermine the banks’ balance
sheets in the core of the Eurozone, with
repercussions for economic activity in
these countries too. Such a shock may
also send the euro exchange rate spiraling
downward, impling a signi?cant currency
risk to investors.
It is worth commenting that the Euro-
zone periphery is actually a heteroge-
12. Bank of International Settlements
neous area; Ireland is grouped with other
countries in the south due to its ?scal and
banking woes, but the fundamentals of
the Irish economy are signi?cantly stron-
ger than those of Greece or Portugal, with
a large and still thriving high-tech sector
that should present attractive opportuni-
ties for VCPE. This is why, in the medium
term, we are much more optimistic about
Ireland than we are about the other pe-
ripheral countries. We believe that the
Irish economy has the ability to return to
growth rates of around 3.5% in the second
half of this decade, compared with pro-
bably only 1.5%-2% for Greece, Portugal
and Spain.
As a result, only those investors that are
able to survive a protracted rough patch
should consider such opportunities in the
periphery.
What can policymakers and
lawmakers do to foster VCPE activity?
Research indicates that VCPE activity has
signi?cant positive impacts on the eco-
nomy as a whole. For instance, studies by
the World Economic Forum found that,
in the years after VCPE transactions, pro-
ductivity growth is higher in target ?rms
than in similar companies. This suggests
that policymakers should seriously consi-
der fostering the development of VCPE by
strengthening corporate governance and
investor protection, and by avoiding exces-
sive taxation and regulation. So while much
of the policy debate focuses on tightening
the regulation of the sector, this needs to be
implemented alongside measures that help
catalyze the positive spillovers of VCPE on
the rest of the economy. As mentioned, ac-
cess to funds is one of the main weaknesses
Exhibit 12: European banks claims on "peripherals"
0
100
200
300
400
500
600
700
800
Greece Portugal Spain Ireland
US$ billion
Sources: OxfordEconomics/Haver analytics
49 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
in VCPE development in the Eurozone. This
can be enhanced within the framework of
new regulatory rules, for instance, by gran-
ting tax concessions to investments in high-
tech sectors or by setting up public co-in-
vestment of high-tech focused funds. The
European Investment Bank (EIB) is already
active in the VC market and has provided
?nancial support to a number of projects.
However, the EIB lent €79b in 2009, which
represents only 0.7% of the EU’s GDP.
13
This
type of action may need to be increased to
keep Europe’s place in the global economy.
The potential negative impact on
growth of Eurozone ?scal restructuring in
the years ahead will make it even more im-
portant for governments to foster activity
in the private sector. Indeed, cash-strapped
government departments will not be able
to sustain, let alone increase, funding of
research and innovation. As the emerging
markets move up the value chain, it will
be increasingly important for advanced
economies to keep a technological edge.
VCPE offers a channel to fund research and
innovation privately. Indeed, VC is key to
funding young and entrepreneurial com-
panies, those that drive innovation, therby
vital to the Eurozone’s future. Finally, it
would pay to ensure rapid growth in some
nascent sectors that would involve a ?rst
mover advantage. High-tech, biotech and
green technology are all areas in which the
Eurozone could gain signi?cantly fromlea-
ding other countries and regions. They are
also capital-intensive sectors that are ideal
13. European Investment Bank
recipients of VCPE investments. In this res-
pect, scale is a signi?cant issue. This calls
for the deeper integration of the European
VC industry promoted by pan-European
regulation and legislation.
Adapting to a challenging and
changing environment
Overall, the unfolding economic recovery
should provide a more favorable back-
ground for VCPE ?rms in the Eurozone.
Estonia’s entry to the Eurozone on 1 Ja-
nuary 2011 is a testimony to the region’s
attractiveness and the bene?ts that are
still to be gained from the institutional
setup. Nonetheless, the Eurozone also
presents a number of challenges, inclu-
ding limited access to ?nance, relatively
rigid labor markets, and opaque corpo-
rate governance. The outlook is further
clouded by uncertainties around the risk
of debt restructuring in some Eurozone
countries that would send shockwaves
through ?nancial markets and lead to a
signi?cant depreciation of the euro ex-
change rate. At a time when governments
are focusing on spending cuts, and bud-
gets for public-funded research are pared
back, growing the Eurozone VCPE industry
that can ?nance innovation and help new
companies reach a critical size should be
a very attractive option. For this to hap-
pen though, the policy rhetoric needs to
move from a focus on tighter regulation
to intelligent regulation that promotes
VCPE ?rms that are committed to deliver
value to their investors and the economies
they operate in.
III. An insight into different VC and PE markets
50 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Investing in Africa – challenges and opportunities
The 2011 Global VC/PE Country
Attractiveness Index sees African countries
moving up the rankings, increasing their
position relative to counterparts in Latin
America and Central and Eastern Europe.
Better economic forecasts are central to
this improvement, just as they are to the
overall level of VC/PE activity in Africa.
Output growth in Sub-Saharan Africa is
projected to accelerate to 5.5% in 2011 by
the International Monetary Fund (IMF),
14
with GDP forecast to grow by more than
7% in oil exporters Nigeria and Angola, at
nearly 6% in Kenya and at a steadier 3.5%
in regional hub South Africa. Natural re-
sources are a key driver of expansion, but
economic reform, increasing cross-border
trade and expansionary public spending
are also signi?cant factors.
14. IMF, World Economic Outlook, October 2010
As economic output grows, increasing
amounts of development capital will be
required, both for infrastructure and for
corporate investment. Africa’s growing
middle classes are providing a particular
stimulus to industries such as consumer
goods, telecoms, ?nancial services and
pharmaceuticals, leading to a growing
need for investment capital. Government
?nance, bank borrowing and the ?nancial
markets are all potential funding sources.
Even so, there will always be some gaps
between what governments can afford to
fund and what banks or other investors
are willing to lend, and it is here that VC/
PE investors often ?nd interesting invest-
ment opportunities, whether in private
sector companies or though public pri-
vate partnerships.
Economic growth in North Africa has
also been forecast to be strongly positive
in 2011, although political unrest may
yet have an effect on IMF forecasts that
are mainly in the 4%-5% band, including
5.5% in regional powerhouse Egypt.
Nonetheless, there is much more to VC/PE
activity in Africa than economic growth
prospects in a handful of countries and
industries. In the rest of this article, we
explore some of the features of VC/PE
investment in Africa from three different
perspectives.
51 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
The full scope of VC/PE activity in Africa
spans a large range of countries, indus-
tries and investments, so it follows that
the way deals are identi?ed, assessed,
funded and executed also varies widely.
Investment professionals who specialize in
VC/PE transactions are well placed to spot
patterns as they emerge.
One such pattern is geographic. The
well-established hubs of VC/PE activity
are South Africa and Nigeria, often used
as stepping stones into other regional
markets. In addition to countries such
as Namibia and Kenya covered by the
2011 Index, Victor Kgomoeswana of
Ernst & Young’s Africa Business Center
identi?es Angola, Ghana, Tanzania and
the Democratic Republic of Congo as
countries with emerging appeal for PE
investors. Mr. Kgomoeswana also points
to the growing role of regionalization.
Kenya, Tanzania, Uganda, Rwanda and
Burundi now form a common market in
East Africa, helping to generate larger
investment opportunities and encoura-
ging companies to expand their geogra-
phic footprint.
Patterns can also be seen when it comes
to the industries attracting VC/PE invest-
ment. Again, Mr. Kgomoeswana identi?es
some common themes. “With many Afri-
can countries coming from a low physical
and economic infrastructure base; roads,
telecoms, power generation and ?nan-
cial services are all attractive industries;
along with secondary sectors such as
construction,” he says. “Growing consu-
mer spending power is giving the retail
and consumer products industries a boost
too.” In addition to the obvious appeal of
hydrocarbons and other natural resources,
Mr. Kgomoeswana also points to African
potential for growth in renewable energy
such as hydroelectric and solar power.
African investment opportunities
tend to have uniquely African features.
One is the way that new technology
can open up new possibilities by leap-
frogging historic problems. Information
technology and communication techno-
logy in particular have the scope to help
other industries achieve dramatic leaps
forward, typi?ed by the rapid develop-
ment of mobile phone-based banking in
Kenya. A similar area of potential fusion
receiving growing attention – again with
obvious social bene?ts – is telemedicine
and e-health.
Tax is another area where African PE
investments often differ from those in
developed markets. Craig Miller, Ernst &
Young’s Transaction Tax leader for Africa
points to three particular features. “One
is that the ?nance cost of acquiring a
company’s shares is rarely tax deductible,”
he explains. “This re?ects a desire for an
even-handed approach, given that do-
mestic dividends are usually untaxed.” The
second feature is the challenge of extrac-
ting pro?t across borders, owing to the
withholding taxes applied by many Afri-
can countries to dividends, interest, royal-
ties and fees paid to foreign investors. The
third feature is that PE investments may
be liable to capital gains tax on disposal,
although Mr. Miller points out that with
careful planning, the effect of CGT arising
upon exit may be reduced.
There are, of course, many factors for
VC and PE ?rms to consider when wei-
ghing possible investments in Africa. Gra-
ham Stokoe of Ernst & Young’s Transac-
tion Advisory Services practice for Africa
points to the importance of developing
local knowledge and contacts as a means
to identify and assess potential invest-
ment opportunities. “Identifying and re-
taining high-quality management teams
with the skills to evolve what are often
family-run businesses into something
more is critical too,” he adds.
Mr. Stokoe also highlights the impor-
tance of understanding political sen-
sitivities, “particularly when it comes
to assets involving natural resources or
opportunities involving government led
infrastructure projects.” Again, to po-
tentially reduce these risks, Mr. Stokoe
and Mr. Kgomoeswana both stress the
importance of building personal rela-
tionships and local knowledge. Above
all, they emphasize the need for patience
and an open, transparent approach that
addresses the potential concerns of all
stakeholders. Investors prepared to take
pains with their approach are likely to
?nd a range of potentially attractive in-
vestments waiting to be made.
Critical success factors when conducting VC/PE deals in Africa
III. An insight into different VC and PE markets
52 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Just as in other markets, an African PE
fund managed by a company looking
for buyout opportunities or the chance
to supply an established company with
growth capital will typically be looking
to invest in companies that have already
achieved success but have the potential
to step up in scale. The size of invest-
ment a fund seeks to make will vary
depending on its size and reach, whether
local, national, regional or pan-African.
At the larger end of the scale, funds will
typically be seeking to invest in compa-
nies with the potential to achieve regio-
nal dominance.
One such group of funds are the Pan-
African Investment Partners funds (PAIP
I and II) managed by Kingdom Zephyr
Africa Management (KZAM). KZAM is
owned by New York investment house
Zephyr Management, L.P. and Kingdom
Holding Company, the investment hol-
ding vehicle controlled by HRH Prince
Alwaleed Bin Talal Bin Abdulaziz Alsaud
of Saudi Arabia. As a ?rm, KZAM typically
looks for opportunities in the US$30m-
US$75m bracket, with a focus on three
investment themes.
“First, we are interested in opportuni-
ties that address the needs of the rapidly
growing African middle class,” says Jo-
hannesburg-based partner Robert Horton.
KZAM is certainly not alone in identifying
the high percentage of many countries’
populations that are younger than 30 – in
many cases, with far better levels of edu-
cation than those of their parents – as a
growth opportunity. “We look in particu-
lar for industries with direct exposure to
the aspirations of this group,” explains
Mr. Horton, citing the telecoms, ?nancial
services, and affordable housing sectors
as examples. The knock-on effect of hou-
sing construction and growing consumer
spending can also be felt in sectors such
as cement, power generation, consumer
goods and agribusiness.
Second on the list of investment the-
mes is regional expansion. The PAIP funds
have a history of investing in local Afri-
can businesses with the potential to grow
into multi-country enterprises. Regio-
nally expanding businesses are central
to KZAM’s investment strategy because
they bene?t from the diversi?cation
of currency and country-speci?c risks,
attract more experienced management
and offer improved exit options. Business
expansion is also the key to sustainable
regional economic development and in-
tegration, something KZAM has a history
of championing,
The third KZAM investment theme is
partnering with portfolio companies to
achieve the company’s long-tem per-
formance goals. KZAM works closely
with investee companies, providing the
assistance necessary to strengthen ope-
rations, advance business strategy and
enhance governance, ultimately propel-
ling the company and the investment to
success.
Recently, KZAM has been seeing po-
tential growth opportunities come out of
transformation – something which tends
to be more speci?c to a particular mar-
ket – and connections with other emer-
ging markets. Transformational programs
such as black economic empowerment in
South Africa and oil and gas indigeniza-
tion in Nigeria can lead to a shake-up in
ownership and a chance for fresh capital
and external expertise in strategy or go-
vernance to be put to work. On the sub-
ject of connections with other emerging
markets, “It goes without saying that
Asian demand for natural resources gives
many African mining and resources com-
panies exceptionally good growth pro-
?les,” says Mr. Horton. He cites the fact
that African companies are increasingly
building cross-border business under
their own steam as further evidence of
the potential for growth.
If the potential attractions of private
equity investment in Africa are so com-
pelling, what about the supposed dif?-
culties – such as political interference?
Mr. Horton does not dismiss the role that
political factors can play in African tran-
sactions, but stresses that most problems
can be overcome with a sensitive, intel-
ligent and restrained approach. He gives
the example of one opportunity “that on
the face of it was an obvious take pri-
vate, exit public investment.” However
it was decided that maintaining a local
listing would help to maintain local sup-
port without overturning the economics
of the transaction. In the end that par-
ticular deal did not take place, but it
illustrated an approach that Mr Horton
feels can generate long-term goodwill
without eroding rates of return.
Doing PE deals in Africa – one ?rm’s approach
53 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Within the VC/PE universe, VC in Africa is
de?ned much as it is elsewhere – equity
funding of technology-driven businesses
that are aiming for rapid growth in inter-
national markets. At the same time, VC in
Africa has some features all its own.
For now, South Africa represents Afri-
ca’s most developed VC market. A recent
survey
15
of 33 South African VC funds
commissioned by The Southern African
Venture Capital and Private Equity Asso-
ciation (SAVCA) showed that at least
R2.6b was invested in VC assets between
2000 and July 2010, although the true to-
tal could well be higher. The study found
several indications of the VC industry’s
sophistication in South Africa. One was
the range of VC fund types, which include
independents, single-sponsored funds, go-
vernment funds, family of?ces and corpo-
rate venturing. The dominance of private
sector VC investments during the decade
and the spread of industries targeted for
investment were other positive indicators.
As J-P Fourie, Executive Of?cer of SAVCA
puts it: “The report provides real evidence
that VC is an active, albeit emerging sector
in South Africa.”
15. SAVCA VentureSolutions2010
At the same time, the study identi?ed
some weaknesses. One key area identi?ed
by almost all surveyed ?rms as needing
improvement is South Africa’s exchange
controls. These can restrict the outward
movement of expertise and capital,
and were cited by some as a reason for
having lost transactions to internatio-
nal VC funds. At a time in the economic
cycle when many funds are looking to exit
investments, SAVCA also sees a need for
public sector funds to step in and ?ll the
resulting hiatus in the provision of early
stage capital. The role of the government-
backed Technology Innovation Agency,
which has taken longer than anticipated
to get up and running, is expected to be
crucial in this area. “As well as the good
news, it is also clear that a lot needs to be
done by public and private stakeholders to
encourage and strengthen the VC indus-
try,” says Mr. Fourie.
In comparison with South Africa, the
VC industry in many African nations is
still in the early stages of development.
As an asset class, VC in Africa tends to
be less accessible than conventional SME
?nance or later stage PE ?nance. Govern-
ment and multilateral funds are generally
predominant, and corporate venturing is
often more common than independently
managed VC investment. Weak levels of
investor protection can be a limitation on
VC activity in some countries, but as in the
wider African PE market, local knowledge
and local contacts are crucial to mitiga-
ting many potential risks. Another peren-
nial problem – which is also not restricted
to the VC asset class – is ?nding good-
quality management teams.
Nonetheless, there are African VC
funds looking for fast-scaling invest-
ments across the region. Adlevo Capital,
based in Mauritius (there fund is in Mau-
ritius but they have of?ces in Johannes-
burg and Lagos – see www.adlevocapital.
com, is one example of an independent VC
?rm seeking technology-driven invest-
ments that can offer attractive returns
and achieve social development goals in
Sub-Saharan Africa. These goals re?ect a
sense that, at its best, VC activity can play
a valuable role in stimulating grass-roots
economic development in Africa, as well
as representing an attractive investment
class in its own right.
An African perspective on venture capital
54 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Regional and
country pro?les
IV.
55 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
IV. Regional and country pro?les
56 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Separate VC and PE indices and comparison within
peer group
The chart left shows the country’s ranking position for the com-
bined VCPE and for the separate VC and PE country attractiveness
indices over time. On the right, we present the country relative
to its peers. The peer group is determined by nine countries of
the same region. If we cover less than nine countries from a par-
ticular region we add countries from other regions to the peer
group. The set of peers is not always the same. It is the selection
of eight other countries in alphabetical order, plus the country
in question.
The Global Venture Capital and Private Equity
Country Attractiveness Index in detail
The second page of information for the individual countries pre-
sents the ranks achieved for each of the level-2 constructs. Once
again, the arrows mark ranking changes, and the crosses indicate
the country’s position measured in quartiles, with respect to all
other countries from the sample.
Basic Facts and Opportunities and Challenges
“Basic Facts” comprises main indicators such as GDP, population,
and their growth rates, and the country’s position with respect
to its IPO, M&A, VC and PE market activity expressed in quartiles
of the sample of countries. The section “Opportunities and Chal-
lenges” provides the reader with a SWOT analysis regarding the
country’s VCPE investment conditions. These analyses are provi-
ded by local teams from Ernst & Young.
VCPE-Ranking and Key Factor Performance
The “VCPE-Ranking” table exhibits the index values and the ran-
king positions of the country for the overall index, and for each
key driver separately, for the 2007 through to 2011. Next to the
current rank, the change of a ranking position is indicated by
green arrows for an increase in rank, red arrows for a decrease
and yellow arrows indicate no movement. The quartiles indicate
the country’s position among all the countries in the sample. The
spider chart on the right shows the performance of each key dri-
ver compared to the average of the region where the country is
located.
We note that the overall VCPE ranking is not the average rank
fromall the key drivers. First, the key drivers have different weights,
and second, the ranking is always the result of a benchmark pro-
cess: the rank of a country also depends on the ranks of the key
drivers of the other sample countries. A simple example helps to
explain this issue and why countries can improve or deteriorate
their ranking without respective improvements or deteriorations
of their key drivers: imagine there are four countries to benchmark
with the following key driver ranks (and assumed equal weights of
all key drivers for this example):
Key drivers/ranks
Country
A B C D
Economic activity 2 1 3 4
Depth of a capital market 2 1 3 4
Taxation 2 3 1 4
Investor protection and corporate governance 2 3 1 4
Human and social environment 2 3 4 1
Entrepreneurial culture and opportunities 2 3 4 1
Overall rank 1 2 3 4
Even if country A ranks on the second position with all the key
driver scores its ?nal rank is number one.
The ?rst page of the performance overview shows basic facts, a SWOT-analysis, the country’s
key driver ranks, the ranks according to the separate VC and PE Indices, as well as a comparison
within the regional peer group.
How to read the country and regional pro?les
1
2
3
4
59 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual 59
1EconomicActivity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Sizeof theEconomy(GDP) 7 36,0 7
1.2 Medium-TermReal GDPGrowth 4 136,7 1
1.3 Unemployment 8 93,7 7
2DepthofCapital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Sizeof theStockMarket 6 52,1 6
2.2 StockMarket Liquidity(TradingVolume) 6 12,2 6
2.3 IPOMarket Activity 7 18,4 7
2.4 M&AMarket Activity 7 25,3 8
2.5 Debt andCredit Market 7 63,6 6
2.6 BankNon-PerformingLoanstoTotal GrossLoans 8 59,9 8
2.7 Financial Market Sophistication 6 58,5 5
3Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 TaxIncentivesandAdministrativeBurdens 6 92,6 6
4InvestorProtectionandCorporateGovernance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 CorporateGovernance 7 65,3 5
4.2 Securityof PropertyRights 6 61,4 6
4.3 Qualityof Legal Enforcement 7 57,8 7
5HumanandSocial Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 EducationandHumanCapital 7 45,4 7
5.2 Labor Market Rigidities 5 65,2 5
5.3 BribingandCorruption 8 35,9 8
6Entrepreneurial CultureandDeal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation 7 24,8 7
6.2 ScientificandTechnical Journal Articles 6 46,3 6
6.3 Easeof StartingandRunningaBusiness 6 77,1 6
6.4 Simplicityof ClosingaBusiness 5 65,3 5
6.5 CorporateR&D 8 17,7 8
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
4
IV. Regional and country pro?les
58 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Africa
Strengths
With a population of one billion and a growing middle class and urban
population, Africa is poised for long-termeconomic growth
Abundant solar energy, hydro-electric potential and geothermal capacity
Weaknesses
Infrastructure, which requires annual investments over US$10b for the
next 10 years, continues to slow down trade with high costs of imports
and exports
Shortage of skills, aggravated by the effects of migration as well as the
requirement by some African countries to hire locals
Corruption still threatens service delivery and sociopolitical stability
Opportunities
Growth in internet penetration places Africa on the information
superhighway
Exponential growth in mobile communications (over 50%in under 10
years) has halved the cost of digital communication
Mineral and other resources are still being discovered in areas previously
not considered. For example, Angola and Ghana are the new oil giants and
Tanzania is a growing gold producer
Threats
Political risk
Growing trend toward resource nationalismand local ownership could
dampen investors’ appetite
Governments' intervention in corporate or M&A activity
Outlook
The African economy looks set to achieve sustained growth by a rate
above the global average
Africa’s large middle class and working population should drive growth in
consumer products and improve the region’s economic prospects by 2050
Any disruption to the global economic recovery could mean a slower
economic recovery for Africa
Victor Kgomoeswana, Ernst & Young
[email protected]
2007 2011 Quartile
Rank Value Rank
NorthAmerica 1 97,4 1
Australasia 2 83,8 2
WesternEurope 3 78,5 3
Asia 4 65,4 4
MiddleEast 5 62,9 5
Africa 7 47,3 6
EasternEurope 6 44,4 7
LatinAmerica 8 44,0 8
4th 1st
5
6
7
8
2006 2007 2008 2009 2010 2011
In
d
e
x R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depthof Capital
Market
Taxation
Investor
Protectionand
Corporate
Humanand
Social
Environment
Entrepr. Culture
andDeal
Opportunities
Africa World
united 5totes = 100 Points
GDP 1082 [bnUSD] IPOVolume
Population 408 [mn] M&AVolume
GDPGrowth VCActivity
Pop. Growth PEActivity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPERanking 7 47,3 6
EconomicActivity 6 77,2 7
Depthof Capital Market 6 35,1 6
Taxation 6 92,6 6
Inv. Prot./Corp. Gov. 6 61,5 6
Human/Social Env. 7 47,4 7
Entrepr. Cult./Deal Opp. 7 40,0 8
4th 1st
2
3
57 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1
IV. Regional and country pro?les
58 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Africa
Strengths
• W ith a population of one billion and a grow ing m iddle class and urban
population, Africa is poised for long-term econom ic grow th
• Abundant solar energy, hydro-electric potential and geotherm al capacity
Weaknesses
• Infrastructure, w hich requires annual investm ents over US$10b for the
next 10 years, continues to slow dow n trade w ith high costs of im ports
and exports
• Shortage of skills, aggravated by the effects of m igration as w ell as the
requirem ent by som e African countries to hire locals
• Corruption still threatens service delivery and sociopolitical stability
Opportunities
• Grow th in internet penetration places Africa on the inform ation
superhighw ay
• Exponential grow th in m obile com m unications (over 50% in under 10
years) has halved the cost of digital com m unication
• M ineral and other resources are still being discovered in areas previously
not considered. For exam ple, Angola and Ghana are the new oil giants and
Tanzania is a grow ing gold producer
Threats
• Political risk
• Grow ing trend tow ard resource nationalism and local ow nership could
dam pen investors’appetite
• Governm ents' intervention in corporate or M &A activity
Outlook
• The African econom y looks set to achieve sustained grow th by a rate
above the global average
• Africa’s large m iddle class and w orking population should drive grow th in
consum er products and im prove the region’s econom ic prospects by 2050
• Any disruption to the global econom ic recovery could m ean a slow er
econom ic recovery for Africa
Victor Kgomoeswana, Ernst & Young
[email protected]
2007 2011 Quartile
Rank Value Rank
North America 1 97,4 1
Australasia 2 83,8 2
Western Europe 3 78,5 3
Asia 4 65,4 4
Middle East 5 62,9 5
Africa 7 47,3 6
Eastern Europe 6 44,4 7
Latin America 8 44,0 8
4th 1st
5
6
7
8
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Africa World
United States=100 Points
GDP 1082 [bn USD] IPO Volume
Population 408 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 7 47,3 6
Economic Activity 6 77,2 7
Depth of Capital Market 6 35,1 6
Taxation 6 92,6 6
Inv. Prot./Corp. Gov. 6 61,5 6
Human/Social Env. 7 47,4 7
Entrepr. Cult./Deal Opp. 7 40,0 8
4th 1st
59 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual 59
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
7 36,0 7
1.2 Medium-Term Real GDP Growth
4 136,7 1
1.3 Unemployment
8 93,7 7
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
6 52,1 6
2.2 Stock Market Liquidity (Trading Volume)
6 12,2 6
2.3 IPO Market Activity
7 18,4 7
2.4 M&A Market Activity
7 25,3 8
2.5 Debt and Credit Market
7 63,6 6
2.6 Bank Non-Performing Loans to Total Gross Loans
8 59,9 8
2.7 Financial Market Sophistication
6 58,5 5
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
6 92,6 6
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
7 65,3 5
4.2 Security of Property Rights
6 61,4 6
4.3 Quality of Legal Enforcement
7 57,8 7
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
7 45,4 7
5.2 Labor Market Rigidities
5 65,2 5
5.3 Bribing and Corruption
8 35,9 8
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
7 24,8 7
6.2 Scientific and Technical Journal Articles
6 46,3 6
6.3 Ease of Starting and Running a Business
6 77,1 6
6.4 Simplicity of Closing a Business
5 65,3 5
6.5 Corporate R&D
8 17,7 8
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
60 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Asia
2007 2011 Quartile
Rank Value Rank
North America 1 97,4 1
Australasia 2 83,8 2
Western Europe 3 78,5 3
Asia 4 65,4 4
Middle East 5 62,9 5
Africa 7 47,3 6
Eastern Europe 6 44,4 7
Latin America 8 44,0 8
4th 1st
0
1
2
3
4
5
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Asia World
United States=100 Points
GDP 17049 [bn USD] IPO Volume
Population 3406 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 4 65,4 4
Economic Activity 1 93,0 2
Depth of Capital Market 4 58,6 4
Taxation 4 95,2 5
Inv. Prot./Corp. Gov. 5 69,6 5
Human/Social Env. 5 60,6 5
Entrepr. Cult./Deal Opp. 4 57,8 4
4th 1st
Strengths
• Fastest-grow ing region of the w orld econom y for m any years –set to
continue, largely driven by China and India
• Strong position in m any m anufacturing sectors –in som e the result of
leading technologies, in others the advantage of com paratively low er
labor costs than other regions
Weaknesses
• Adm inistrative inef ciencies and w eaker corporate governance in som e
m arkets
Opportunities
• Debt headw inds in the US and EU m ay encourage Asian m arkets to
rebalance their econom ies and prom ote dom estic dem and; this could
stim ulate strong grow th in the service sectors if accom panied by
structural reform and liberalization
• Rapid increase in the num ber of urban m iddle-class consum ers
• A m ove aw ay from the fam ily-ow ned business m odel could lead to
increased private equity investm ent
Threats
• Political tension in som e m arkets could lead to potential for con ict if
unresolved
• Asia needs to look at further im proving corporate and adm inistrative
governance in general, and avoid arbitrary regulatory and business
decisions that m ay discourage foreign investm ent
• Infrastructure challenges could hinder expansion in potentially fast-
grow ing econom ies
Outlook
• Asia has a positive econom ic outlook, but m uch of this is already factored
into asset valuations, w ith a num ber of equity m arkets at or above their
pre-crisis peaks after m ajor foreign buying during 2010
• The banking sector is in relatively good shape; non-perform ing loan ratios
are signi cantly low er than a few years ago
• Both China and India are looking to dam pen credit grow th in 2011 as part
of efforts to contain in ation
• Concerns about excessive capital in ow s have led to an increase in capital
control m easures
Bill Delves, Ernst & Young
[email protected]
61 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
4 51,6 4
1.2 Medium-Term Real GDP Growth
3 135,4 2
1.3 Unemployment
3 115,2 2
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
2 70,6 3
2.2 Stock Market Liquidity (Trading Volume)
5 29,0 3
2.3 IPO Market Activity
3 52,5 3
2.4 M&A Market Activity
4 57,4 4
2.5 Debt and Credit Market
5 70,1 5
2.6 Bank Non-Performing Loans to Total Gross Loans
7 96,7 6
2.7 Financial Market Sophistication
5 56,6 6
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
4 95,2 5
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
4 71,8 4
4.2 Security of Property Rights
5 69,1 5
4.3 Quality of Legal Enforcement
5 68,0 5
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
4 64,8 4
5.2 Labor Market Rigidities
4 70,9 4
5.3 Bribing and Corruption
5 48,6 6
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
4 51,6 4
6.2 Scientific and Technical Journal Articles
4 50,5 4
6.3 Ease of Starting and Running a Business
5 75,6 7
6.4 Simplicity of Closing a Business
4 70,8 4
6.5 Corporate R&D
4 46,4 4
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
62 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Australasia
2007 2011 Quartile
Rank Value Rank
North America 1 97,4 1
Australasia 2 83,8 2
Western Europe 3 78,5 3
Asia 4 65,4 4
Middle East 5 62,9 5
Africa 7 47,3 6
Eastern Europe 6 44,4 7
Latin America 8 44,0 8
4th 1st
0
1
2
3
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Australasia
World
United States=100 Points
GDP 1321 [bn USD] IPO Volume
Population 26 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 2 83,8 2
Economic Activity 7 91,1 3
Depth of Capital Market 3 64,5 3
Taxation 2 107,5 2
Inv. Prot./Corp. Gov. 1 110,1 1
Human/Social Env. 1 108,7 1
Entrepr. Cult./Deal Opp. 3 79,5 3
4th 1st
Strengths
• Strong innovation and R&D capacity
• Dem ocratic and stable political, regulatory and legal environm ent
• Strong econom y supported by sound banking and capital m arket regim es
Weaknesses
• Low tax incentives
• VCPE perform ances patchy
Opportunities
• Strong stock m arket culture
• PE exits and m aturing secondary m arket
• M &A m arket recovering
Threats
• Interest rates are biased upw ard on in ation
• Increasing com petition from w ell-funded corporates
Outlook
• There will be pressure from lim ited partners (LPs) to exit investee com panies
• The region w ill have high interest rate environm ents and generally strong
currencies
• Financing and acquisition opportunities are expected to increase
• Strong econom ies w ill support corporate pro tability and generate good
short-term grow th prospects
Bryan Zekulich, Ernst & Young
[email protected]
63 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
3 54,8 3
1.2 Medium-Term Real GDP Growth
7 118,2 5
1.3 Unemployment
1 116,7 1
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
4 61,9 5
2.2 Stock Market Liquidity (Trading Volume)
4 22,7 5
2.3 IPO Market Activity
2 54,2 2
2.4 M&A Market Activity
2 66,4 2
2.5 Debt and Credit Market
2 89,5 2
2.6 Bank Non-Performing Loans to Total Gross Loans
1 117,2 1
2.7 Financial Market Sophistication
2 87,7 3
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
2 107,5 2
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
1 103,9 1
4.2 Security of Property Rights
1 105,7 1
4.3 Quality of Legal Enforcement
1 121,5 1
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
2 101,5 2
5.2 Labor Market Rigidities
2 96,8 1
5.3 Bribing and Corruption
1 130,8 1
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
3 74,4 3
6.2 Scientific and Technical Journal Articles
2 72,5 2
6.3 Ease of Starting and Running a Business
2 104,6 2
6.4 Simplicity of Closing a Business
2 103,4 2
6.5 Corporate R&D
3 54,5 3
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
64 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Eastern Europe
2007 2011 Quartile
Rank Value Rank
North America 1 97,4 1
Australasia 2 83,8 2
Western Europe 3 78,5 3
Asia 4 65,4 4
Middle East 5 62,9 5
Africa 7 47,3 6
Eastern Europe 6 44,4 7
Latin America 8 44,0 8
4th 1st
0
1
2
3
4
5
6
7
8
9
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Eastern Europe
World
United States=100 Points
GDP 2216 [bn USD] IPO Volume
Population 241 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 6 44,4 7
Economic Activity 5 64,7 8
Depth of Capital Market 8 26,4 8
Taxation 5 95,4 4
Inv. Prot./Corp. Gov. 7 60,3 7
Human/Social Env. 6 55,0 6
Entrepr. Cult./Deal Opp. 6 46,0 6
4th 1st
Strengths
• Generous tax incentives am ong m ost of the Eastern European countries
• Strong stock m arket in Poland
Weaknesses
• Generally w eak capital m arket structure in the region
• Lack of experience in structuring and com pleting com plex transactions
• Currency volatility in som e countries
Opportunities
• Rising entrepreneurial culture and opportunities for VC investors
• Ongoing privatization projects
• Reform of legal system s provides increasing security and attractive
environm ent for VCPE
Threats
• Funding can be dif cult for local general partners (GPs)
• Less stable regulatory and enforcem ent environm ent than in W estern
Europe
Outlook
• The regim e of tax incentives is expected to continue
• Experience in leverage transactions w ill increase across the region
Margaret Dezse, Ernst & Young
[email protected]
65 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
8 29,6 8
1.2 Medium-Term Real GDP Growth
1 100,0 6
1.3 Unemployment
7 91,5 8
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
8 28,9 8
2.2 Stock Market Liquidity (Trading Volume)
7 3,5 8
2.3 IPO Market Activity
8 15,4 8
2.4 M&A Market Activity
6 29,0 7
2.5 Debt and Credit Market
6 57,8 7
2.6 Bank Non-Performing Loans to Total Gross Loans
6 84,9 7
2.7 Financial Market Sophistication
8 40,0 8
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
5 95,4 4
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
5 64,7 6
4.2 Security of Property Rights
7 56,1 7
4.3 Quality of Legal Enforcement
6 60,6 6
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
6 51,8 6
5.2 Labor Market Rigidities
7 64,8 6
5.3 Bribing and Corruption
6 49,6 5
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
6 35,8 6
6.2 Scientific and Technical Journal Articles
5 46,8 5
6.3 Ease of Starting and Running a Business
4 88,9 5
6.4 Simplicity of Closing a Business
7 59,7 7
6.5 Corporate R&D
7 23,1 7
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
66 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Latin America
2007 2011 Quartile
Rank Value Rank
North America 1 97,4 1
Australasia 2 83,8 2
Western Europe 3 78,5 3
Asia 4 65,4 4
Middle East 5 62,9 5
Africa 7 47,3 6
Eastern Europe 6 44,4 7
Latin America 8 44,0 8
4th 1st
6
7
8
9
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Latin America
World
United States=100 Points
GDP 4281 [bn USD] IPO Volume
Population 491 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 8 44,0 8
Economic Activity 4 83,1 4
Depth of Capital Market 7 32,6 7
Taxation 8 90,5 8
Inv. Prot./Corp. Gov. 8 44,8 8
Human/Social Env. 8 42,1 8
Entrepr. Cult./Deal Opp. 8 40,1 7
4th 1st
Strengths
• Latin Am erica has proved to be m ore robust after the last global crisis and
its econom ic perform ance is currently at an all-tim e high
• Im provem ent of capital m arkets developm ent com pared w ith previous
periods
• Increase in the region’s GDP, private consum ption and investm ent
• Strong tax incentives contributing com prehensively to the region’s
appreciation
Weaknesses
• Despite the positive grow th rates, high historical volatility
• Lack of entrepreneurial culture delaying the developm ent of new com panies
• Poor application of the appropriate regulations and laws in several countries
• Im perfection on credit m arkets
• Disparity in grow th across the region
• Accelerated in ation in 2010 exceeded projections due to a stronger than
expected recovery
• Nom inal and real appreciations in m ost currencies during 2010
Opportunities
• Public effort to prom ote start-ups and innovation
Threats
• High perception of corruption and w eak judicial system in m any countries
• Investor protection and corporate governance structures are still
underdeveloped in com parison w ith developed countries
• M ost countries m anaged to escape the im pact of higher com m odity prices
through currency appreciation
• Presidential elections and new ly elected governm ents m ight increase the
uncertainty related to policy-m aking
• External shocks are likely to have a negative im pact through both trade
and nancial channels
Outlook
• Alm ost every econom y is expected to grow strongly, w ith only a few
rem aining under populist governm ents
• In ation projections are expected to be m issed (although still one digit
rates in alm ost every country)
• Lack of basic infrastructure is delaying developm ent, but provides new
investm ent opportunities
• VCPE industry is being developed in som e countries, w hile rem aining
alm ost non-existent in others
Daniel Serventi, Ernst & Young
[email protected]
67 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
5 46,0 5
1.2 Medium-Term Real GDP Growth
5 119,5 4
1.3 Unemployment
5 104,3 4
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
7 40,7 7
2.2 Stock Market Liquidity (Trading Volume)
8 4,7 7
2.3 IPO Market Activity
6 18,6 6
2.4 M&A Market Activity
5 39,3 5
2.5 Debt and Credit Market
8 52,9 8
2.6 Bank Non-Performing Loans to Total Gross Loans
4 104,9 4
2.7 Financial Market Sophistication
7 50,6 7
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
8 90,5 8
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
8 53,2 8
4.2 Security of Property Rights
8 41,5 8
4.3 Quality of Legal Enforcement
8 40,8 8
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
8 35,4 8
5.2 Labor Market Rigidities
8 56,6 8
5.3 Bribing and Corruption
7 37,2 7
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
8 23,4 8
6.2 Scientific and Technical Journal Articles
7 45,8 7
6.3 Ease of Starting and Running a Business
8 68,2 8
6.4 Simplicity of Closing a Business
8 59,2 8
6.5 Corporate R&D
6 23,9 6
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
68 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Middle East
2007 2011 Quartile
Rank Value Rank
North America 1 97,4 1
Australasia 2 83,8 2
Western Europe 3 78,5 3
Asia 4 65,4 4
Middle East 5 62,9 5
Africa 7 47,3 6
Eastern Europe 6 44,4 7
Latin America 8 44,0 8
4th 1st
0
1
2
3
4
5
6
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Middle East
World
United States=100 Points
GDP 1112 [bn USD] IPO Volume
Population 52 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 5 62,9 5
Economic Activity 3 80,4 5
Depth of Capital Market 5 55,2 5
Taxation 7 92,0 7
Inv. Prot./Corp. Gov. 4 73,8 4
Human/Social Env. 4 70,4 4
Entrepr. Cult./Deal Opp. 5 51,4 5
4th 1st
Strengths
• Increasing oil prices in 2011 are expected to spur M iddle East econom ic
grow th
• Retreating in ation
Weaknesses
• W eak and underdeveloped nancial m arkets follow ing crisis
• Fiscal budget further burdened by the Governm ent’s initiative to provide
nationals w ith state subsidies and aid
Opportunities
• The Gulf Cooperation Council (GCC) has launched a Gulf m onetary
authority w ith the prospect of a single GCC currency, further easing trade
transactions w ithin the region
• Huge infrastructural investm ents are paving the w ay to econom ic
diversi cation in the region
• There is a focus on businesses w ishing to transform from fam ily business
to corporate structure
• Assets are available at attractive valuations
Threats
• The M iddle East’s longer-term outlook is at risk from Islam ic extrem ism
and terrorism
• Sanctions against Iran’s nuclear proliferation strategy could create tension
in the region, in turn affecting investors’con dence
• Recovery in the region's property m arket could be longer and m ore
protracted than rst expected, particularly in light of stricter lending
standards for businesses and consum ers
Outlook
• In ation is expected to rem ain relatively stable during 2011, w hile
unem ploym ent and a lack of structural reform s form the region’s core
social issues
Phil Gandier, Ernst & Young
[email protected]
69 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
6 37,8 6
1.2 Medium-Term Real GDP Growth
2 125,6 3
1.3 Unemployment
6 109,5 3
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
5 79,6 2
2.2 Stock Market Liquidity (Trading Volume)
3 27,5 4
2.3 IPO Market Activity
5 38,8 5
2.4 M&A Market Activity
8 32,2 6
2.5 Debt and Credit Market
4 74,0 4
2.6 Bank Non-Performing Loans to Total Gross Loans
5 103,5 5
2.7 Financial Market Sophistication
4 74,3 4
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
7 92,0 7
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
6 63,4 7
4.2 Security of Property Rights
4 74,4 4
4.3 Quality of Legal Enforcement
4 85,4 4
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
5 62,1 5
5.2 Labor Market Rigidities
3 78,5 3
5.3 Bribing and Corruption
4 71,6 4
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
5 46,6 5
6.2 Scientific and Technical Journal Articles
8 43,0 8
6.3 Ease of Starting and Running a Business
7 96,6 3
6.4 Simplicity of Closing a Business
6 61,6 6
6.5 Corporate R&D
5 30,0 5
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
70 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
North America
2007 2011 Quartile
Rank Value Rank
North America 1 97,4 1
Australasia 2 83,8 2
Western Europe 3 78,5 3
Asia 4 65,4 4
Middle East 5 62,9 5
Africa 7 47,3 6
Eastern Europe 6 44,4 7
Latin America 8 44,0 8
4th 1st
0
1
2
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
North America
World
United States=100 Points
GDP 16358 [bn USD] IPO Volume
Population 343 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 1 97,4 1
Economic Activity 2 95,1 1
Depth of Capital Market 1 94,0 1
Taxation 3 104,5 3
Inv. Prot./Corp. Gov. 2 103,1 2
Human/Social Env. 2 104,2 2
Entrepr. Cult./Deal Opp. 1 95,2 1
4th 1st
Strengths
• Better econom ic recovery com pared w ith other developed m arkets,
particularly Europe
• Recovery of nancial m arkets
• Strong innovation and entrepreneurship culture
• Fully developed and robust VCPE “ecosystem ”
Weaknesses
• Econom ic recovery not strong enough to show effects on unem ploym ent
and to drive substantial increase in dom estic dem and
• High individual debt and possible further deleverage of individuals
• Continuous decrease in the num ber of VC funds
• Decline of VC-backed IPOs
Opportunities
• Innovation and fast grow th can be seen in segm ents such as cleantech,
cloud com puting, social netw orks, w ireless and security
• W orldw ide econom ic rebound and grow th of em erging m arkets is driving
dem and for com m odities (i.e., energy in Canada) and innovation
• PE-backed IPOs are back
Threats
• Succession planning in som e funds
• The lack of exits is im pacting the ability to raise new or follow -on funds
• Global com petition is accelerating
• State de cit is likely to lead to increase in taxation and w ill continue to
w eaken the US dollar, thus adding foreign exchange risk
Outlook
• Industry is strong, w ith investm ent and grow th opportunities in new and
innovative segm ents
• A consolidation of players in the VC industry is expected
71 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
1 86,0 1
1.2 Medium-Term Real GDP Growth
6 99,9 7
1.3 Unemployment
2 100,0 5
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
1 93,9 1
2.2 Stock Market Liquidity (Trading Volume)
1 73,0 1
2.3 IPO Market Activity
1 91,5 1
2.4 M&A Market Activity
1 91,8 1
2.5 Debt and Credit Market
1 98,5 1
2.6 Bank Non-Performing Loans to Total Gross Loans
2 106,5 3
2.7 Financial Market Sophistication
1 107,1 1
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
3 104,5 3
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
2 101,5 2
4.2 Security of Property Rights
2 97,2 2
4.3 Quality of Legal Enforcement
2 111,0 2
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
1 106,0 1
5.2 Labor Market Rigidities
1 95,8 2
5.3 Bribing and Corruption
3 111,5 2
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
1 90,6 1
6.2 Scientific and Technical Journal Articles
1 91,6 1
6.3 Ease of Starting and Running a Business
1 105,1 1
6.4 Simplicity of Closing a Business
1 106,1 1
6.5 Corporate R&D
1 84,6 1
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
72 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Western Europe
2007 2011 Quartile
Rank Value Rank
North America 1 97,4 1
Australasia 2 83,8 2
Western Europe 3 78,5 3
Asia 4 65,4 4
Middle East 5 62,9 5
Africa 7 47,3 6
Eastern Europe 6 44,4 7
Latin America 8 44,0 8
4th 1st
0
1
2
3
4
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Western Europe
World
United States=100 Points
GDP 16166 [bn USD] IPO Volume
Population 408 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 3 78,5 3
Economic Activity 8 80,2 6
Depth of Capital Market 2 66,5 2
Taxation 1 109,9 1
Inv. Prot./Corp. Gov. 3 90,7 3
Human/Social Env. 3 83,6 3
Entrepr. Cult./Deal Opp. 2 80,7 2
4th 1st
Strengths
• Deep nancial m arkets
• The im portance of VCPE, as an asset class, is recognized in the investm ent
landscape
• PE acquisition activity has rebounded and exit opportunities have
reappeared in M &A m arkets. Leverage is returning and is m ore accessible
than in the last tw o years
• Som e sectors, such as green technology, that offer high potential to VCPE
rm s are given a prim e focus by European policy-m akers
Weaknesses
• M edium -term grow th potential rem ains m uted, m arred by the possibility
of renew ed sovereign bond tensions
• W estern European m arket rem ains fragm ented
• Com petition for quality assets is erce
Opportunities
• The EU2020 grow th agenda could prom ote PE investm ent as a source of
innovation
• Valuations are attractive in a num ber of countries
• PE rm s have signi cant am ounts of “dry pow der”capital to invest
• De nition of voluntary industry standards could help achieve an effective
regulatory system
Threats
• Econom ic pow er is m oving to em erging m arkets
• Regulation is still being de ned
• The political quagm ire m ay fail to address the key reform priorities to take
W estern Europe out of this crisis
• Availability of external funds and leverage is likely to rem ain below pre-crisis
levels for som e tim e
• IPOs rem ain dif cult
Outlook
• There is a large portfolio of PE backed European assets that houses w ill
need to exit in order to create returns, so the ow of assets to m arket is
set to increase
• Larger deals w ill appear w ith increasing frequency. As credit becom es
increasingly available, so transactions should continue to scale up in size
• VCPE rm s are likely to continue strengthening relationships w ith
investee rm s
• Fundraising conditions w ill rem ain challenging as LPs selectively focus on
funding top quartile perform ers w ith proven track records
Sachin Date, Ernst & Young
[email protected]
73 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
2 59,3 2
1.2 Medium-Term Real GDP Growth
8 87,1 8
1.3 Unemployment
4 99,7 6
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
3 63,4 4
2.2 Stock Market Liquidity (Trading Volume)
2 38,9 2
2.3 IPO Market Activity
4 44,7 4
2.4 M&A Market Activity
3 61,8 3
2.5 Debt and Credit Market
3 84,9 3
2.6 Bank Non-Performing Loans to Total Gross Loans
3 107,4 2
2.7 Financial Market Sophistication
3 92,7 2
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
1 109,9 1
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
3 72,4 3
4.2 Security of Property Rights
3 94,7 3
4.3 Quality of Legal Enforcement
3 108,9 3
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
3 87,7 3
5.2 Labor Market Rigidities
6 62,4 7
5.3 Bribing and Corruption
2 106,6 3
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
2 82,3 2
6.2 Scientific and Technical Journal Articles
3 72,4 3
6.3 Ease of Starting and Running a Business
3 93,8 4
6.4 Simplicity of Closing a Business
3 95,4 3
6.5 Corporate R&D
2 64,3 2
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
74 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Albania
2007 2011 Quartile
Rank Value Rank
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
Moldova 71 22,0 72
Macedonia 75 19,3 73
Albania 79 17,8 75
Bosnia-Herzegovina 77 17,3 76
4th 1st
72
73
74
75
76
77
78
79
80
81
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Albania
Eastern Europe
United States=100 Points
GDP 12 [bn USD] IPO Volume
Population 3 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Tirana ++Official Language: Albanian ++Currency: Lek
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 79 17,8 75
Economic Activity 71 52,1 70
Depth of Capital Market 79 6,4 79
Taxation 55 89,8 65
Inv. Prot./Corp. Gov. 76 36,7 72
Human/Social Env. 75 39,2 63
Entrepr. Cult./Deal Opp. 80 11,5 78
4th 1st
Strengths
• One of the few econom ies in South-East Europe to avoid recession in 2009
• Assigned B+ credit rating by S&P (in line w ith M oody’s B1 rating) in April
2010, supported by solid grow th perform ance and long-term potential
• The only South-East European econom y to have successfully im plem ented
e-Procurem ent
• Tourism developing into a signi cant sector: Albania w as ranked as
num ber one destination of 2011 by travel guide publisher Lonely Planet
• Highly skilled, exible and adaptable labor force and also one of the low est
labor costs in the region
Weaknesses
• One of the poorest econom ies in Europe
• Real estate property title disputes
• Inadequate infrastructure, although m any projects are underway to im prove
the situation
• Intricate tax system
Opportunities
• Trade liberalization agreem ents betw een EU and Albania
• Gatew ay to the Balkans Free Trade Area; Albania is part of CEFTA
• EU m em bership is in progress; m em ber of UN, NATO, W TO and other
international organizations
• M ore exibility in the international m obility and training of Albanian
w orkforce after visa requirem ents w ere abolished in Decem ber 2010
• No sector is excluded to foreign investors
Threats
• Political hostility betw een Albania’s m ain parties
• High levels of governm ent debt and current account de cit
• Heavy dependence on rem ittances (about 15% of GDP), especially from
slow -grow ing southern European countries
Outlook
• GDP grow th in Albania is estim ated to have slow ed to 2.8% in 2010,
w ith m oderate acceleration tow ard 4% is expected in the next few years
• In ation expected to be around 3% over the next few years, in line w ith
the Bank of Albania’s target
• Conditions in the VCPE m arket have im proved since 2007, but there is
a long w ay to go, w ith ranking for 2011 still w ell below its peers
Dr. AlexandrosKarakitis, Ernst & Young
[email protected]
75 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
74 11,5 74
1.2 Medium-Term Real GDP Growth
32 142,0 13
1.3 Unemployment
72 87,1 65
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
78 1,6 78
2.2 Stock Market Liquidity (Trading Volume)
78 1,2 78
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
78 11,7 70
2.5 Debt and Credit Market
72 54,3 61
2.6 Bank Non-Performing Loans to Total Gross Loans
41 75,3 73
2.7 Financial Market Sophistication
79 4,7 79
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
55 89,8 65
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
74 89,1 12
4.2 Security of Property Rights
76 15,0 75
4.3 Quality of Legal Enforcement
73 36,9 69
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
78 34,3 68
5.2 Labor Market Rigidities
34 66,1 37
5.3 Bribing and Corruption
69 26,6 63
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
80 19,9 69
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
51 94,9 28
6.4 Simplicity of Closing a Business
77 15,4 77
6.5 Corporate R&D
80 6,8 69
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
76 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Algeria
2007 2011 Quartile
Rank Value Rank
South Africa 24 66,9 26
Egypt 52 41,8 55
Morocco 61 41,8 54
Tunisia 64 41,5 56
Kenya 69 38,3 63
Nigeria 66 37,1 64
Namibia 70 26,4 70
Algeria 76 17,1 77
4th 1st
70
72
74
76
78
80
82
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Algeria Africa
United States=100 Points
GDP 157 [bn USD] IPO Volume
Population 35 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Algiers++Official Language: Arabic (official), French (official), Arabic (national), Tamazight (national) ++Currency: Algerian Dinar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 76 17,1 77
Economic Activity 56 77,1 49
Depth of Capital Market 80 2,9 80
Taxation 59 92,2 56
Inv. Prot./Corp. Gov. 73 32,7 73
Human/Social Env. 66 35,5 70
Entrepr. Cult./Deal Opp. 71 25,4 70
4th 1st
Strengths
• A strong oil and petroleum industry
• High literacy rates am ong youth and adults com pared to its peers
• Able to export pow er to Europe due to its proxim ity
Weaknesses
• Relative to its North African peers, high cost of im ports and exports
• Ranked as a dif cult place to do business by the W orld Bank
• Lack of access to nancial services for 70% of the population
Opportunities
• In addition to the oil and gas sector, com panies in the electrical and light
industries are em erging as interesting targets for VCPE investm ent due to
their grow th potential
Threats
• Political instability in North Africa
Outlook
• Potential in m ining, now that the recovery of the global econom y is on
track
• Low econom ic grow th: recovery depends on how the rest of the North
African region perform s, and could be affected by political developm ents
in the region
Jean-Pierre Letartre, Ernst & Young
[email protected]
77 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
47 43,5 48
1.2 Medium-Term Real GDP Growth
56 128,4 20
1.3 Unemployment
67 82,2 67
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
78 1,6 78
2.2 Stock Market Liquidity (Trading Volume)
78 1,2 78
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
73 1,0 80
2.5 Debt and Credit Market
79 22,4 77
2.6 Bank Non-Performing Loans to Total Gross Loans
76 37,6 76
2.7 Financial Market Sophistication
80 1,2 80
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
59 92,2 56
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
76 40,0 68
4.2 Security of Property Rights
68 26,7 71
4.3 Quality of Legal Enforcement
63 32,7 71
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
75 31,2 73
5.2 Labor Market Rigidities
48 57,6 48
5.3 Bribing and Corruption
63 24,8 64
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
78 7,6 76
6.2 Scientific and Technical Journal Articles
54 48,4 54
6.3 Ease of Starting and Running a Business
63 59,0 70
6.4 Simplicity of Closing a Business
32 76,7 33
6.5 Corporate R&D
73 6,3 73
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
78 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Argentina
2007 2011 Quartile
Rank Value Rank
Chile 30 61,5 29
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
4th 1st
50
52
54
56
58
60
62
64
66
68
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Argentina
Latin America
United States=100 Points
GDP 344 [bn USD] IPO Volume
Population 41 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Buenos Aires ++Official Language: Spanish ++Currency: Argentine Peso
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 60 36,4 66
Economic Activity 9 87,5 29
Depth of Capital Market 52 21,9 62
Taxation 68 95,9 49
Inv. Prot./Corp. Gov. 77 22,3 77
Human/Social Env. 73 39,9 59
Entrepr. Cult./Deal Opp. 44 46,0 45
4th 1st
Strengths
• Quality of accounting standards, w hich are generally in line w ith
international standards
• Adoption of IFRS for listed com panies scheduled for 2012
• Long history of VCPE
Weaknesses
• Bureaucracy and lack of strong policy fram ew ork
• Com plex tax environm ent: generally m oderate corporate taxation but w ith
local and national tax layers to increase the com plexity
• Lack of speci c fram ew ork for fund form ation and operation
• Sm all stock exchange w hich does not provide signi cant equity nancing
• Slow judicial system to enforce the corporate governance requirem ents
Opportunities
• Foreign investm ent plays a prim e role in Argentina’s econom ic
developm ent
• Signi cant support for new investm ents especially for start-ups and
entrepreneurial activity
Threats
• The state becam e m ore interventionist after the crisis and has regained
control over a series of businesses (especially relating to public services)
• Renationalization of social security system has restricted institutional
investm ent in VCPE funds
• Com plex exchange controls and regulation has been im plem ented to
discourage speculative capital in ow s
• High perception of corruption
• High levels of in ation
Outlook
• Argentina’s econom ic perform ance is vulnerable to international
developm ents due to its dependence on com m odities
• Political uncertainty due to Nestor Kirchner’s death and the presidential
election in 2011
• In ation is expected to accelerate as the Governm ent w ill m ost likely
m aintain highly expansionary scal and m onetary policies ahead of the
October presidential election
• Despite econom ic and political uncertainty, PE funds rem ain active in
Argentina
Ernesto San Gil, Ernst & Young
[email protected]
79 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
31 53,3 27
1.2 Medium-Term Real GDP Growth
6 136,0 16
1.3 Unemployment
62 92,4 61
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
57 34,0 57
2.2 Stock Market Liquidity (Trading Volume)
63 2,7 55
2.3 IPO Market Activity
43 27,1 46
2.4 M&A Market Activity
41 49,8 38
2.5 Debt and Credit Market
63 22,5 76
2.6 Bank Non-Performing Loans to Total Gross Loans
46 102,1 36
2.7 Financial Market Sophistication
62 8,3 78
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
68 95,9 49
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
60 43,0 67
4.2 Security of Property Rights
78 11,4 78
4.3 Quality of Legal Enforcement
77 22,5 77
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
65 50,0 47
5.2 Labor Market Rigidities
77 57,5 49
5.3 Bribing and Corruption
66 22,1 66
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
64 28,5 57
6.2 Scientific and Technical Journal Articles
30 66,0 30
6.3 Ease of Starting and Running a Business
65 52,7 74
6.4 Simplicity of Closing a Business
48 63,9 50
6.5 Corporate R&D
46 32,6 38
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
80 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Armenia
2007 2011 Quartile
Rank Value Rank
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
Philippines 53 41,2 58
Kazakhstan 54 39,1 61
Armenia 72 25,3 71
Kyrgyzstan 78 14,4 80
4th 1st
68
69
70
71
72
73
74
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Armenia Asia
United States=100 Points
GDP 8 [bn USD] IPO Volume
Population 3 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Yerevan ++Official Language: Armenian (official), Russian ++Currency: Dram
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 72 25,3 71
Economic Activity 53 38,3 73
Depth of Capital Market 77 9,9 76
Taxation 73 74,3 75
Inv. Prot./Corp. Gov. 60 43,0 62
Human/Social Env. 60 36,7 67
Entrepr. Cult./Deal Opp. 67 34,3 60
4th 1st
Strengths
• Governm ent com m itted to im prove country attractiveness for investors
(infrastructure developm ent, integration of tax system , strengthening of
the nancial sector)
• Good progress in privatization
• Resilient banking sector
• W TO m em bership
• M ineral deposits (copper, uranium , gold, m olybdenum )
• High level of literacy (99.7% for m ales and 99.2% for fem ales)
Weaknesses
• High level of m arket m onopolization
• Com plicated tax adm inistration system w hich, along w ith perceived high
corruption, leads to high transaction costs
• Borders w ith neighboring Turkey and Azerbaijan are closed, im peding
energy im ports and good exports
• M igration of higher skilled w orkers
Opportunities
• Authorities have im plem ented policies that should deepen the capital m arket
• Good potential for developing sm all hydro pow er plants
• Grow th of IT m arket
• Rapid grow th in the m obile telecom m unications m arket
• Fram ework Financing Agreem ent has been signed between the Republic
of Arm enia and Asian Developm ent Bank to im plem ent North-South Road
Corridor Investm ent Program . The total cost of the Program over the period
2009 to 2017 is expected to be US$1,453m equivalent
Threats
• Political relations w ith Turkey rem ain tense
• The econom y is vulnerable to econom ic dow nturn in Russia, due to its
strong dependence on cash rem ittances from Russia
• Corruption, low level of corporate culture and business ethics m ay hinder
external investm ents opportunities
Outlook
• In ation is expected to recede gradually (from 8.2% in 2010), rem aining
betw een 3% -4% in the m edium term
• Arm enia suffers from a high current account de cit (29.5% of GDP in
2009), and relies on large in ow s to nance it; although the current
account de cit is expected to narrow in the m edium term , a signi cant
external im balance w ill persist unless Arm enia achieves a considerable
restructuring of the dom estic econom y
Eric Hayrapetyan, Ernst & Young
[email protected]
81 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
77 6,9 78
1.2 Medium-Term Real GDP Growth
2 71,0 75
1.3 Unemployment
42 114,3 26
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
75 12,8 75
2.2 Stock Market Liquidity (Trading Volume)
75 1,2 77
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
77 15,8 68
2.5 Debt and Credit Market
71 35,8 72
2.6 Bank Non-Performing Loans to Total Gross Loans
34 90,4 57
2.7 Financial Market Sophistication
75 11,8 75
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
73 74,3 75
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
58 39,5 69
4.2 Security of Property Rights
58 50,0 53
4.3 Quality of Legal Enforcement
68 40,1 62
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
66 31,7 72
5.2 Labor Market Rigidities
14 77,6 23
5.3 Bribing and Corruption
68 20,0 69
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
68 27,1 60
6.2 Scientific and Technical Journal Articles
62 43,0 62
6.3 Ease of Starting and Running a Business
38 95,0 26
6.4 Simplicity of Closing a Business
28 82,1 26
6.5 Corporate R&D
78 5,2 76
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
82 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Australia
2007 2011 Quartile
Rank Value Rank
United States 1 100,0 1
Singapore 2 92,4 4
United Kingdom 3 93,3 2
Canada 4 93,3 3
Switzerland 5 91,8 5
Australia 7 90,2 7
Japan 6 90,9 6
Sweden 8 85,0 8
New Zealand 22 72,5 19
4th 1st
1
2
3
4
5
6
7
8
2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Australia
Australasia
United States=100 Points
GDP 1193 [bn USD] IPO Volume
Population 22 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Canberra ++Official Language: English, native and other languages ++Currency: Australian Dollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 7 90,2 7
Economic Activity 42 98,7 7
Depth of Capital Market 6 80,2 6
Taxation 13 108,2 14
Inv. Prot./Corp. Gov. 11 98,8 10
Human/Social Env. 6 108,0 5
Entrepr. Cult./Deal Opp. 16 82,7 15
4th 1st
Strengths
• Strong com m odity prices driving investm ent boom
• Dem ocratic and stable political, regulatory and legal environm ent
• Strong banking and capital m arket regim es
• Signi cant num ber of VCPE investm ents under m anagem ent
Weaknesses
• High interest rate environm ent
• Heavy reliance on com m odity cycle and com paratively high tax rates
• Strong com petition from both local and overseas investors
Opportunities
• Strong stock m arket culture
• PE exits and m aturing secondary m arket
• M &A m arket recovering
Threats
• High AU$ im pacting im ports and dom estic activity
• Interest rates are biased upw ard due to expected in ation
• Australian Tax Of ce (ATO) review of tax arrangem ents on offshore entities
• Dif cult fund-raising environm ent
• Increasing com petition from w ell-funded corporates
Outlook
• There w ill be pressure from LPs to exit investee com panies w ith new fund-
raising becom ing dif cult
• Com m odity-led activity w ill result in a tw o-speed econom y, broadening to
strong dom estic dem and in 2011
• Strong AU$ and high interest rates w ill negatively im pact global
investm ent allocations
Bryan Zekulich, Ernst & Young
[email protected]
83 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
15 68,7 13
1.2 Medium-Term Real GDP Growth
66 120,2 29
1.3 Unemployment
22 116,5 22
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
7 84,0 13
2.2 Stock Market Liquidity (Trading Volume)
15 39,3 18
2.3 IPO Market Activity
6 74,5 5
2.4 M&A Market Activity
4 82,3 5
2.5 Debt and Credit Market
13 90,0 8
2.6 Bank Non-Performing Loans to Total Gross Loans
1 117,2 4
2.7 Financial Market Sophistication
5 100,0 11
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
13 108,2 14
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
16 79,8 18
4.2 Security of Property Rights
5 100,9 12
4.3 Quality of Legal Enforcement
8 119,7 9
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
8 101,9 9
5.2 Labor Market Rigidities
18 99,3 2
5.3 Bribing and Corruption
9 124,5 8
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
24 73,7 21
6.2 Scientific and Technical Journal Articles
11 79,3 11
6.3 Ease of Starting and Running a Business
11 101,8 14
6.4 Simplicity of Closing a Business
13 102,8 13
6.5 Corporate R&D
18 63,1 17
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
84 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Austria
2007 2011 Quartile
Rank Value Rank
France 17 79,6 14
Belgium 18 76,8 15
Austria 23 71,7 22
Spain 20 69,1 23
Ireland 14 67,7 24
Portugal 38 60,4 31
Italy 32 59,6 32
Luxembourg 29 59,3 33
Greece 39 47,9 44
4th 1st
20
21
22
23
24
25
26
27
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Austria
Western Europe
United States=100 Points
GDP 388[bn USD] IPO Volume
Population 8 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Vienna ++Official Language: German (official nationwide); Slovene, Croatian, Hungarian (each official in one region) ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 23 71,7 22
Economic Activity 58 86,0 31
Depth of Capital Market 28 47,9 33
Taxation 8 109,3 9
Inv. Prot./Corp. Gov. 14 91,7 17
Human/Social Env. 14 92,1 14
Entrepr. Cult./Deal Opp. 17 77,4 17
4th 1st
Strengths
• Strong econom ic perform ance, m aking it an interesting niche m arket, w ith
a sim ilar range of com panies and industries as Germ any, but sm aller
Weaknesses
• Still perceived as a “closed shop,”needing a lot of effort for little return in
term s of deal ow and transaction size
Opportunities
• M any hidden cham pions and fam ily-ow ned com panies w ith succession
problem s
Threats
• Som ew hat export oriented, w hich puts businesses under sim ilar risks as
those seen in Germ any
Outlook
• Austria w ill rem ain a niche m arket, but m ight be used as base for Eastern
European
• Acquisitions, as it offers good resources w ith the necessary language skills
and cultural understanding
Gerhard Schwartz, Ernst & Young
[email protected]
85 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
26 54,7 26
1.2 Medium-Term Real GDP Growth
71 95,7 55
1.3 Unemployment
21 121,4 10
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
43 34,6 56
2.2 Stock Market Liquidity (Trading Volume)
38 10,8 38
2.3 IPO Market Activity
34 36,5 36
2.4 M&A Market Activity
37 47,7 40
2.5 Debt and Credit Market
12 85,3 16
2.6 Bank Non-Performing Loans to Total Gross Loans
31 106,9 25
2.7 Financial Market Sophistication
16 96,5 15
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
8 109,3 9
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
36 60,0 39
4.2 Security of Property Rights
4 105,8 8
4.3 Quality of Legal Enforcement
5 121,2 7
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
13 90,4 17
5.2 Labor Market Rigidities
33 74,3 33
5.3 Bribing and Corruption
10 116,3 13
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
14 82,9 16
6.2 Scientific and Technical Journal Articles
24 69,2 24
6.3 Ease of Starting and Running a Business
24 88,6 43
6.4 Simplicity of Closing a Business
23 88,3 22
6.5 Corporate R&D
17 61,7 19
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
86 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Bahrain
2007 2011 Quartile
Rank Value Rank
Israel 19 72,2 21
Saudi Arabia 36 67,5 25
United Arab Emirates 33 61,6 28
Kuwait 40 57,9 35
Jordan 42 53,2 38
Oman 51 45,6 46
Bahrain 58 44,3 50
4th 1st
35
40
45
50
55
60
65
70
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Bahrain
Middle East
United States=100 Points
GDP 23 [bn USD] IPO Volume
Population 1 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Manama ++Official Language: Arabic ++Currency: Bahraini Dinar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 58 44,3 50
Economic Activity 50 69,3 55
Depth of Capital Market 48 43,0 41
Taxation 39 97,6 46
Inv. Prot./Corp. Gov. 31 74,0 27
Human/Social Env. 29 65,9 28
Entrepr. Cult./Deal Opp. 73 17,4 72
4th 1st
Strengths
• Econom ic grow th rebound back from 3.1% in 2009 to 4.1% in 2010;
driven by rising dem and for re ned oil and alum inum
• M ore diversi ed econom y than Gulf peers
• A regional nancial hub, w ith a w ell-developed banking sector and a
grow ing Islam ic nance industry
Weaknesses
• Risk from oil price m ovem ents, as exports and services are highly
vulnerable to changes in dem and in the extrem ely oil-dependent Gulf
sub-region
• Partially transparent public nances, due to the persistence of opaque
“extra-budgetary transactions”
Opportunities
• The Kingdom is a leading force in the developm ent of Islam ic nance
• A package of labor m arket reform s backed by the Econom ic Developm ent
Board should im prove productivity and boost grow th
• Large-scale investm ents have created a decent infrastructure, including
telecom s and a m odern road system betw een tow ns
Threats
• As the dinar is pegged to the US dollar, dollar w eakness is leading to
im ported in ation
• There are high rates of unem ploym ent and poverty am ong the Shia
population
• Due to the recent political unrest, m easures of credit risk have increased as
investors fret over regional instability
Outlook
• In ation should recede for a second consecutive year, despite rising
com m odity prices
JamesA. Moye, Ernst & Young
[email protected]
87 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
70 19,7 70
1.2 Medium-Term Real GDP Growth
23 140,8 14
1.3 Unemployment
24 120,1 14
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
27 71,9 23
2.2 Stock Market Liquidity (Trading Volume)
47 6,3 44
2.3 IPO Market Activity
56 30,7 42
2.4 M&A Market Activity
69 22,4 64
2.5 Debt and Credit Market
29 89,7 9
2.6 Bank Non-Performing Loans to Total Gross Loans
54 104,5 29
2.7 Financial Market Sophistication
18 92,9 17
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
39 97,6 46
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
37 61,6 36
4.2 Security of Property Rights
29 78,3 26
4.3 Quality of Legal Enforcement
35 83,9 27
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
55 45,8 54
5.2 Labor Market Rigidities
8 90,9 9
5.3 Bribing and Corruption
30 68,5 32
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
57 34,2 49
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
17 81,2 52
6.4 Simplicity of Closing a Business
24 85,3 24
6.5 Corporate R&D
70 6,8 69
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
88 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Belgium
2007 2011 Quartile
Rank Value Rank
France 17 79,6 14
Belgium 18 76,8 15
Austria 23 71,7 22
Spain 20 69,1 23
Ireland 14 67,7 24
Portugal 38 60,4 31
Italy 32 59,6 32
Luxembourg 29 59,3 33
Greece 39 47,9 44
4th 1st
10
12
14
16
18
20
22
24
26
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Belgium
Western Europe
United States=100 Points
GDP 472[bn USD] IPO Volume
Population 11 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Brussels ++Official Language: Dutch (Flemish), French, German (all official) ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 18 76,8 15
Economic Activity 65 81,8 39
Depth of Capital Market 23 57,5 26
Taxation 5 110,7 7
Inv. Prot./Corp. Gov. 15 91,5 18
Human/Social Env. 13 92,4 13
Entrepr. Cult./Deal Opp. 14 83,2 14
4th 1st
Strengths
• Attractive tax system for PE m arket
• Strong educational system w ith highly skilled w orkforce and im portant
R&D activity
Weaknesses
• Poorly developed capital m arket com pared to its peers
Opportunities
• M ost SM Es are still in private hands
• There is a strong entrepreneurial culture w ith good deal opportunities
Outlook
• Belgium is in a good position com pared w ith other countries
• Valuation m ultiples w ill increase due to econom ic recovery in the
Netherlands
Marcel van Rijnswou, Ernst & Young
[email protected]
89 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
18 57,2 21
1.2 Medium-Term Real GDP Growth
74 93,3 57
1.3 Unemployment
50 102,7 46
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
28 49,7 39
2.2 Stock Market Liquidity (Trading Volume)
33 17,2 31
2.3 IPO Market Activity
24 45,0 29
2.4 M&A Market Activity
26 59,4 22
2.5 Debt and Credit Market
23 80,7 21
2.6 Bank Non-Performing Loans to Total Gross Loans
26 108,9 21
2.7 Financial Market Sophistication
16 103,5 8
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
5 110,7 7
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
13 86,4 15
4.2 Security of Property Rights
18 89,6 21
4.3 Quality of Legal Enforcement
19 98,8 21
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
3 108,0 5
5.2 Labor Market Rigidities
29 75,0 29
5.3 Bribing and Corruption
19 97,3 20
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
15 84,9 13
6.2 Scientific and Technical Journal Articles
20 72,5 20
6.3 Ease of Starting and Running a Business
32 93,6 35
6.4 Simplicity of Closing a Business
6 110,5 6
6.5 Corporate R&D
16 62,6 18
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
90 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Bosnia-Herzegovina
2007 2011 Quartile
Rank Value Rank
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
Moldova 71 22,0 72
Macedonia 75 19,3 73
Albania 79 17,8 75
Bosnia-Herzegovina 77 17,3 76
4th 1st
73
74
75
76
77
78
79
80
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Bosnia-Herzegovina
Eastern Europe
United States=100 Points
GDP 20 [bn USD] IPO Volume
Population 4 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Sarajevo ++Official Language: Bosnian, Croatian, Serbian ++Currency: Convertible Mark
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 77 17,3 76
Economic Activity 77 37,5 74
Depth of Capital Market 76 7,6 78
Taxation 70 88,0 68
Inv. Prot./Corp. Gov. 74 25,1 76
Human/Social Env. 68 35,8 69
Entrepr. Cult./Deal Opp. 77 12,8 76
4th 1st
Strengths
• W ell-capitalized and relatively com petitive banking sector
• Fixing the currency to the euro has helped anchor m acroeconom ic policy
• Relatively exible labor m arket
Weaknesses
• Com plicated political and constitutional structure has been a hindrance
to reform
• W eak enforcem ent of the judicial system
• Privatization program has virtually stalled; sale of m ajor com panies in
the alum inum , construction, telecom m unications and trade sectors is
necessary to prom ote com petitiveness
• Developm ent of capital m arkets is at a low level
• Unem ploym ent is persistently high, at over 30%
• Low standard of education (only 67% of children attend secondary
education)
• Low levels of innovation (R&D spending is only 0.03% of GDP)
Opportunities
• Som e investm ent and liberalizations in railw ays w ill provide better
transport infrastructure
• Strengthening of the deposit insurance schem e w ill underpin stability in
the banking sector
• Som e political appetite for m oving forw ard w ith privatization
• Regional trade liberalization has expanded, leading to increased
com petition in dom estic agricultural m arkets
Threats
• The Governm ent has failed to im plem ent scal reform
• High costs and low com petition m ay lim it capital spending
• Political deadlock could endanger econom ic recovery
• Structural rigidities have led to a w eak investm ent environm ent
• Export-driven grow th leaves the econom y vulnerable to external shocks
• FDI has been diverted to m ore politically stable neighbors
Outlook
• Political instability, structural rigidities and a large state presence are
signi cant dow nside risks to forecasts for GDP grow th
• The need for key econom ic and political reform s causes uncertainties in
the VCPE environm ent
91 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
72 17,6 71
1.2 Medium-Term Real GDP Growth
34 104,6 44
1.3 Unemployment
79 28,6 79
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
78 1,6 78
2.2 Stock Market Liquidity (Trading Volume)
78 1,2 78
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
60 9,2 73
2.5 Debt and Credit Market
55 54,9 59
2.6 Bank Non-Performing Loans to Total Gross Loans
52 99,3 41
2.7 Financial Market Sophistication
77 15,3 74
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
70 88,0 68
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
62 44,2 66
4.2 Security of Property Rights
77 13,8 77
4.3 Quality of Legal Enforcement
72 26,1 74
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
74 33,4 71
5.2 Labor Market Rigidities
41 63,8 39
5.3 Bribing and Corruption
65 21,6 68
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
76 11,2 74
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
67 57,3 71
6.4 Simplicity of Closing a Business
45 67,2 41
6.5 Corporate R&D
76 7,9 68
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
92 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Brazil
2007 2011 Quartile
Rank Value Rank
Chile 30 61,5 29
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
4th 1st
30
35
40
45
50
55
60
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Brazil
Latin America
United States=100 Points
GDP 1910 [bn USD] IPO Volume
Population 195 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Brasilia ++Official Language: Portuguese ++Currency: Brazilian Real
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 57 48,7 43
Economic Activity 27 100,1 4
Depth of Capital Market 34 51,2 31
Taxation 79 21,1 79
Inv. Prot./Corp. Gov. 58 43,1 61
Human/Social Env. 63 38,5 64
Entrepr. Cult./Deal Opp. 70 43,0 50
4th 1st
Strengths
• Around one-third of all M &A transactions involving PE in 2010
• Global m ega funds starting operations in 2010
• PE-backed IPOs accounting for alm ost 30% of all IPOs in the boom years of
2006 and 2007
• Low im pact of recent presidential elections on econom ic prospects
Weaknesses
• VCPE is still in its infancy in Brazil and not w ell know n in the m arket
• Lim ited debt and credit m arket hindering leveraged buyout activity
• M ore dif cult and lengthy due diligence process com pared w ith m ore
m ature econom ies
• PE deals dom inated by relatively sm all transactions (average deal size of
US$30m -US$60m )
Opportunities
• Econom y grow ing at an average 5% (alm ost 8% in 2010) w ith signi cant
increase in the num ber of m iddle-class fam ilies rising from low incom e in
the last 5 to 10 years
• Highly fragm ented m arket in m any sectors, w ith consolidation opportunities
• Interest rates being reduced gradually, increasing the need for investm ents
in alternative asset classes by local pension funds and other institutional
investors
• Low penetration of VCPE investm ent in the econom y com pared w ith m ore
m ature econom ies
• High dem and for infrastructure investm ents, including for the 2014 W orld
Cup and 2016 Sum m er Olym pics to be held in Brazil
Threats
• Com plex and bureaucratic tax and labor regulatory environm ent
• A m ore active local capital m arket is giving local entrepreneurs m ore choice,
and increasing com petition for PE com panies
• Rem aining uncertainties and risks w ith respect to in ation and exchange
rate uctuations
• Higher com petition for deals in certain industries has increased asset prices
Outlook
• It is perceived that PE backing has a positive im pact on the m anagem ent,
nancial and corporate governance restructure of Brazilian portfolio
com panies
• PE-backed IPOs tend to outperform those w ith no PE sponsors
CarlosR. Asciutti, Ernst & Young
[email protected]
93 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
10 74,6 8
1.2 Medium-Term Real GDP Growth
54 133,4 17
1.3 Unemployment
52 100,9 50
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
34 57,1 34
2.2 Stock Market Liquidity (Trading Volume)
39 18,8 28
2.3 IPO Market Activity
21 62,0 13
2.4 M&A Market Activity
19 70,5 14
2.5 Debt and Credit Market
69 23,1 75
2.6 Bank Non-Performing Loans to Total Gross Loans
48 99,3 41
2.7 Financial Market Sophistication
18 85,9 20
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
79 21,1 79
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
56 44,9 63
4.2 Security of Property Rights
57 48,2 54
4.3 Quality of Legal Enforcement
64 36,9 68
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
63 46,8 50
5.2 Labor Market Rigidities
70 31,6 73
5.3 Bribing and Corruption
54 38,7 54
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
32 41,5 38
6.2 Scientific and Technical Journal Articles
16 75,5 16
6.3 Ease of Starting and Running a Business
80 20,7 79
6.4 Simplicity of Closing a Business
80 47,9 65
6.5 Corporate R&D
29 47,3 27
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
94 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Bulgaria
2007 2011 Quartile
Rank Value Rank
Turkey 31 52,8 39
Hungary 43 52,0 40
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
Lithuania 46 41,3 57
Slovakia 48 39,1 62
4th 1st
44
46
48
50
52
54
56
58
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Bulgaria
Eastern Europe
United States=100 Points
GDP 51 [bn USD] IPO Volume
Population 7 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Sofia ++Official Language: Bulgarian, Turkish, Roma ++Currency: Bulgarian Lev
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 50 44,1 51
Economic Activity 41 68,8 57
Depth of Capital Market 51 30,4 54
Taxation 47 98,7 44
Inv. Prot./Corp. Gov. 57 40,5 64
Human/Social Env. 47 47,9 53
Entrepr. Cult./Deal Opp. 49 48,6 41
4th 1st
Strengths
• M acroeconom ic stability
• Excellent tax environm ent
• Cost advantage
• Increasing num ber of investm ent opportunities
Weaknesses
• Fragile and underdeveloped M &A m arket
• Relatively sm all deal size
• Below standard quality of target inform ation
• Restricted bank nancing to corporates
Opportunities
• Em erging m arket w ith high grow th potential
• Signi cant grow th opportunities in the service sector
• EU funding (including grants) available for a num ber of sectors
Threats
• Slow recovery from the dow nturn
• Sm all m arket
• Governm ent policies
Outlook
• The VCPE m arket in Bulgaria is still recovering from the crisis, w ith activity
lagging behind other Central Eastern Europe m arkets
• Opportunities are expected to arise from sm aller size deals and niche
segm ents
• Labor-intensive industries continue to offer cost advantages
Diana Nikolaeva, Ernst & Young
[email protected]
95 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
63 29,4 61
1.2 Medium-Term Real GDP Growth
28 100,3 48
1.3 Unemployment
55 110,3 34
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
53 39,8 48
2.2 Stock Market Liquidity (Trading Volume)
55 2,4 59
2.3 IPO Market Activity
48 25,4 48
2.4 M&A Market Activity
45 42,5 48
2.5 Debt and Credit Market
43 66,6 37
2.6 Bank Non-Performing Loans to Total Gross Loans
32 104,1 30
2.7 Financial Market Sophistication
70 33,0 64
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
47 98,7 44
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
41 50,8 54
4.2 Security of Property Rights
66 32,9 70
4.3 Quality of Legal Enforcement
58 39,7 63
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
61 44,8 55
5.2 Labor Market Rigidities
32 74,6 32
5.3 Bribing and Corruption
49 32,9 62
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
70 30,3 55
6.2 Scientific and Technical Journal Articles
44 54,7 44
6.3 Ease of Starting and Running a Business
45 94,8 29
6.4 Simplicity of Closing a Business
44 64,8 48
6.5 Corporate R&D
55 26,7 48
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
96 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Canada
2007 2011 Quartile
Rank Value Rank
United States 1 100,0 1
Singapore 2 92,4 4
United Kingdom 3 93,3 2
Canada 4 93,3 3
Switzerland 5 91,8 5
Australia 7 90,2 7
Japan 6 90,9 6
Sweden 8 85,0 8
Netherlands 10 84,3 9
4th 1st
0
1
2
3
4
5
6
7
8
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Canada
North America
United States=100 Points
GDP 1556 [bn USD] IPO Volume
Population 34 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Ottawa ++Official Language: English, French (both official); other ++Currency: Canadian Dollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 4 93,3 3
Economic Activity 45 89,4 24
Depth of Capital Market 5 86,0 5
Taxation 14 108,8 11
Inv. Prot./Corp. Gov. 10 103,8 7
Human/Social Env. 4 107,7 6
Entrepr. Cult./Deal Opp. 7 89,3 8
4th 1st
Strengths
• W ell-regulated banking sector w hich underpins nancial stability
• Rapid econom ic grow th since the recession, rising by an estim ated 2.9%
in 2010
• Sm all budget de cits (4% ) com pared w ith m ost developed countries
• Net exporter of energy
• W ell-run legal system , sim ilar to that of the US
• High standards of education w ith a w ell-educated w orkforce
Weaknesses
• Loss of com petitiveness vis-à-vis the US, due to an appreciation of
currency and slow er productivity grow th
• Less m ature VCPE m arket than in the US
• Close integration w ith US capital m arkets, leaving Canadian m arkets
vulnerable to shocks
• Relatively length and costly enforcem ent of contracts
Opportunities
• High energy prices create investm ent opportunities in the Alberta Oil Sands
• Liberal im m igration law s w ill help counteract the adverse effects of an
aging population
• Underserved PE m arket relative to that of the US (5% of GDP in Canada
vs. 7% in the US) suggests it has potential to grow
• Proxim ity to the US gives Canada access to the largest VCPE m arket in the
w orld
Threats
• Household debt is high (about 90% of GDP), suggesting low consum er
spending
• There is potential w eakening in the housing m arket
• The slow dow n in the US econom y is leading to decreased dem and for
Canadian exports
• A dram atic fall in energy prices m akes extraction of oil from tar sands
unpro table
Outlook
• Although GDP grow th is forecast to slow in 2011, to 2.4% , Canada’s
m edium -term grow th prospects look solid
• Rapid business sector investm ent in 2011-12 w ill result in trend grow th
of about 3%
97 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
8 72,0 9
1.2 Medium-Term Real GDP Growth
67 99,3 52
1.3 Unemployment
30 100,0 53
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
8 87,7 9
2.2 Stock Market Liquidity (Trading Volume)
18 46,0 15
2.3 IPO Market Activity
2 83,0 3
2.4 M&A Market Activity
5 83,5 4
2.5 Debt and Credit Market
3 96,6 4
2.6 Bank Non-Performing Loans to Total Gross Loans
8 113,0 13
2.7 Financial Market Sophistication
5 114,1 2
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
14 108,8 11
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
10 101,1 7
4.2 Security of Property Rights
21 91,5 19
4.3 Quality of Legal Enforcement
9 121,0 8
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
5 111,1 3
5.2 Labor Market Rigidities
6 91,4 7
5.3 Bribing and Corruption
12 122,9 9
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
17 80,2 17
6.2 Scientific and Technical Journal Articles
7 83,2 7
6.3 Ease of Starting and Running a Business
4 109,7 6
6.4 Simplicity of Closing a Business
4 112,1 4
6.5 Corporate R&D
14 69,1 15
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
98 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Chile
2007 2011 Quartile
Rank Value Rank
Chile 30 61,5 29
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
4th 1st
25
26
27
28
29
30
31
32
33
34
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Chile
Latin America
United States=100 Points
GDP 197 [bn USD] IPO Volume
Population 17 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Santiago ++Official Language: Spanish ++Currency: Chilean Peso
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 30 61,5 29
Economic Activity 29 84,6 36
Depth of Capital Market 38 50,1 32
Taxation 7 109,5 8
Inv. Prot./Corp. Gov. 28 75,9 26
Human/Social Env. 25 68,4 25
Entrepr. Cult./Deal Opp. 33 50,0 37
4th 1st
Strengths
• Strong and developed capital m arket
• Good GDP grow th (despite the im pact of natural disasters, such as
earthquakes)
• Laws on VCPE funds form ation and operation, and regulations to stim ulate
the VCPE industry
• Low levels of corruption: ranked 21 of 178 countries in Transparency
International’s 2010 Corruption Perceptions Index
• Considerable entrepreneurial dynam ism
• Transparent and clearly de ned legislation concerning foreign investm ent:
foreign investors enjoy the sam e rights as nationals and are able to
operate in all but a few restricted areas
• Sim pli ed procedures to obtain the Chilean tax identi cation num ber
required for inw ard investm ents
• Recently strengthened corporate governance law s
• M andatory IFRS application for listed com panies
Weaknesses
• Double taxation for foreign investors from m ost countries, w ith a com plex
tax environm ent
• Slow judicial system : court proceedings can be subject to long delays, and
high costs rem ain a barrier to pursuing legal actions
• Low levels of m arket capitalization, in addition to high costs of m eeting
listing requirem ents, lim iting accessibility of IPOs for the m ajority of SM Es
Opportunities
• Pension funds and insurance com panies are an im portant source of long-
term nancing and are allow ed to invest in VCPE funds. How ever, these
investm ents are lim ited to a sm all percentage of their assets
Threats
• A certain level of legal protection for property rights, although
enforcem ent has been questioned
• The cost of protecting tradem arks and patents is high, and the country
rem ains on the US Special 301 W atch List for intellectual property violations
Outlook
• Chile has a w ell-developed and experienced VCPE industry
• Chile's environm ent is characterized by a positive attitude toward foreign
investm ent, good infrastructural quality and a relatively liberal labor m arket
Christian Lefevre, Ernst & Young
[email protected]
99 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
40 46,3 43
1.2 Medium-Term Real GDP Growth
38 120,6 27
1.3 Unemployment
29 108,5 35
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
21 77,2 20
2.2 Stock Market Liquidity (Trading Volume)
42 9,4 41
2.3 IPO Market Activity
58 24,7 50
2.4 M&A Market Activity
38 51,8 34
2.5 Debt and Credit Market
24 80,3 23
2.6 Bank Non-Performing Loans to Total Gross Loans
11 113,7 10
2.7 Financial Market Sophistication
22 92,9 17
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
7 109,5 8
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
25 66,0 32
4.2 Security of Property Rights
40 65,7 39
4.3 Quality of Legal Enforcement
22 100,6 18
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
59 45,9 53
5.2 Labor Market Rigidities
23 74,9 31
5.3 Bribing and Corruption
20 93,2 21
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
39 38,2 45
6.2 Scientific and Technical Journal Articles
38 60,5 38
6.3 Ease of Starting and Running a Business
25 90,7 39
6.4 Simplicity of Closing a Business
63 46,8 66
6.5 Corporate R&D
40 32,0 39
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
100 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
China
2007 2011 Quartile
Rank Value Rank
Singapore 2 92,4 4
Japan 6 90,9 6
Hong Kong 15 76,5 16
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
4th 1st
12
14
16
18
20
22
24
26
28
30
32
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
150
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
China Asia
United States=100 Points
GDP 5365 [bn USD] IPO Volume
Population 1334 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Beijing++Official Language: Standard Mandarin Chinese ++Currency: Chinese Yuan (Renminbi)
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 25 72,3 20
Economic Activity 1 129,2 1
Depth of Capital Market 25 72,8 12
Taxation 56 105,8 21
Inv. Prot./Corp. Gov. 56 58,3 48
Human/Social Env. 50 50,9 48
Entrepr. Cult./Deal Opp. 24 66,0 23
4th 1st
Strengths
• Strong and stable GDP grow th over the m edium term
• Large pool of potential PE investm ents and price-to-earnings ratios at
IPOs tend to be at least tw ice as high as in the US and Hong Kong
• Fast-grow ing m iddle class w ith high savings w ill drive dem and for
consum er and nancial goods
• Urbanization to second and third tier cities provides grow th opportunities
and plentiful supply of low -cost labor
Weaknesses
• The success of the large Governm ent-led stim ulus package is progressing
to the stage of interest rate and bank regulatory capital increases being
applied to keep in ation in check
• Intellectual property rights rem ain a focus despite a certain level of
im provem ent in the situation
• Approval tim es for dom estic IPOs vary, w ith som e proceeding at an
expected pace, w hile a few can take several years
Opportunities
• China has the ability to get ahead of developed econom ies in the adoption
of green technologies
• Greater provision of a range of nancial instrum ents for consum ers and
corporates w ill be a necessary part of nancial sector reform for China
over the next 10 years
Threats
• An oversupply in som e segm ents of the property m arket m ay render it
vulnerable to asset price volatility
• Certain regulatory approvals can take som e tim e, relying on local
know ledge such as the process for IPO approval
Outlook
• Real GDP grow th is expected to average 8% over the next 10 years
• There is a large am ount of state-controlled sources for PE rm s, including
5% of dom estic insurance com panies’assets and the National Social
Security Fund, w hich m anages China’s pension resources and represents
the w orld’s largest pool of investm ent capital for PE
Lawrence Lau, Ernst & Young
[email protected]
101 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
4 87,4 2
1.2 Medium-Term Real GDP Growth
3 197,3 1
1.3 Unemployment
15 125,0 7
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
18 82,1 15
2.2 Stock Market Liquidity (Trading Volume)
25 49,5 13
2.3 IPO Market Activity
4 86,5 2
2.4 M&A Market Activity
7 79,1 6
2.5 Debt and Credit Market
52 73,8 27
2.6 Bank Non-Performing Loans to Total Gross Loans
65 104,1 30
2.7 Financial Market Sophistication
61 50,6 53
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
56 105,8 21
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
70 46,7 61
4.2 Security of Property Rights
42 72,0 37
4.3 Quality of Legal Enforcement
55 59,0 51
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
35 65,2 35
5.2 Labor Market Rigidities
47 52,4 58
5.3 Bribing and Corruption
61 38,6 55
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
26 55,6 29
6.2 Scientific and Technical Journal Articles
5 87,1 5
6.3 Ease of Starting and Running a Business
72 63,1 69
6.4 Simplicity of Closing a Business
57 63,8 51
6.5 Corporate R&D
19 64,1 16
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
102 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Colombia
2007 2011 Quartile
Rank Value Rank
Chile 30 61,5 29
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
4th 1st
40
42
44
46
48
50
52
54
56
58
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Colombia
Latin America
United States=100 Points
GDP 267 [bn USD] IPO Volume
Population 46 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Bogota ++Official Language: Spanish ++Currency: Colombian Peso
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 49 45,3 47
Economic Activity 32 79,2 42
Depth of Capital Market 49 33,0 51
Taxation 69 97,8 45
Inv. Prot./Corp. Gov. 71 37,5 71
Human/Social Env. 44 50,0 50
Entrepr. Cult./Deal Opp. 43 45,5 46
4th 1st
Strengths
• Consolidation of the regulatory structure in the last tw o years, including
reporting requirem ents for investors, and providing a secondary m arket
for liquidity and a fram ew ork for form ation and operation of VCPE
• Im provem ent of capital m arket developm ent com pared w ith previous
periods
• VCPE foreign investm ent funds not subject to incom e tax
• Im provem ent of corporate governance standards for listed com panies
• Low restrictions for foreign investm ents in new ventures, acquisitions or
expansions
• Low barriers to participation by pension funds and institutional investors
in VCPE funds
Weaknesses
• Undersized stock m arket w ith a sm all num ber of rm s listed and lim ited
activity; thus, IPOs are not viable exit options
• Bankruptcy law s in place but poorly enforced
• Signi cant gaps com pared w ith international accounting standards
• Lack of investm ent in physical infrastructure
• New and inexperienced VCPE industry
Opportunities
• VCPE investm ents have signi cantly increased since 2008
• A reduction of restrictions w ill now allow further participation of pension
funds in PE/VC activities
• Governm ent support of entrepreneurship and business creation
Threats
• High perception of corruption and w eak judicial system
• Security still rem ains a concern (specially in som e rural areas)
Outlook
• The upw ard trend in FDI w ill rem ain in 2011 as the Governm ent considers
this to be one of the m ain engines of econom ic grow th for the com ing
years
• Colom bia is likely to receive an investm ent grade status during Q2 of 2011
• In ation is likely to rem ain under control and at historically low levels
Luz María Jaramillo, Ernst & Young
[email protected]
103 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
38 50,1 33
1.2 Medium-Term Real GDP Growth
31 113,4 37
1.3 Unemployment
68 87,5 63
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
58 48,6 40
2.2 Stock Market Liquidity (Trading Volume)
50 3,1 51
2.3 IPO Market Activity
51 17,0 58
2.4 M&A Market Activity
43 48,5 39
2.5 Debt and Credit Market
46 59,3 51
2.6 Bank Non-Performing Loans to Total Gross Loans
37 93,1 54
2.7 Financial Market Sophistication
55 61,2 45
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
69 97,8 45
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
38 82,8 16
4.2 Security of Property Rights
72 26,0 72
4.3 Quality of Legal Enforcement
74 24,5 76
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
49 43,7 56
5.2 Labor Market Rigidities
24 77,0 24
5.3 Bribing and Corruption
51 37,2 56
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
49 23,8 62
6.2 Scientific and Technical Journal Articles
52 49,5 52
6.3 Ease of Starting and Running a Business
57 81,5 51
6.4 Simplicity of Closing a Business
20 83,9 25
6.5 Corporate R&D
52 24,2 50
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
104 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Croatia
2007 2011 Quartile
Rank Value Rank
Hungary 43 52,0 40
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
4th 1st
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Croatia
Eastern Europe
United States=100 Points
GDP 64 [bn USD] IPO Volume
Population 4 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Zagreb ++Official Language: Croatian ++Currency: Croatian Kuna
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 55 43,4 52
Economic Activity 60 65,1 60
Depth of Capital Market 60 28,4 55
Taxation 4 118,0 2
Inv. Prot./Corp. Gov. 53 40,4 66
Human/Social Env. 51 47,7 54
Entrepr. Cult./Deal Opp. 35 49,5 38
4th 1st
Strengths
• Signi cant dem and for all types of nancing
• Governm ent strategy for innovations (BICRO and CRANE)
Weaknesses
• VCPE m arket is in an initial phase of developm ent
• Lim ited num ber of large potential investm ents
• Legal and business conditions do not support a dynam ic SM E sector, due
to lack of sim ple licensing and registration processes, and barriers for
investm ents
Opportunities
• Traditional bank loans are m ore expensive and less easily available
• Grow th potential in com panies that are active in Croatia and neighboring
countries
• Untapped m idsize m arket
Threats
• Cultural structure does not contribute to the developm ent of
entrepreneurship
• Reduced availability of debt nancing and general illiquidity
Outlook
• The Croatian m arket is traditionally bank oriented, and reduced access
to bank loans for SM Es is expected to provide a platform for m ore VCPE
activities
• Hidden values are expected to be increasingly tapped by VCPE in the near
future
BalazsTuske, Ernst & Young
[email protected]
105 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
58 32,3 58
1.2 Medium-Term Real GDP Growth
53 84,3 68
1.3 Unemployment
66 101,3 48
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
41 57,3 32
2.2 Stock Market Liquidity (Trading Volume)
57 3,1 52
2.3 IPO Market Activity
61 19,0 55
2.4 M&A Market Activity
54 22,6 63
2.5 Debt and Credit Market
70 56,8 54
2.6 Bank Non-Performing Loans to Total Gross Loans
61 87,0 64
2.7 Financial Market Sophistication
49 40,0 56
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
4 118,0 2
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
68 23,0 78
4.2 Security of Property Rights
49 50,1 52
4.3 Quality of Legal Enforcement
53 57,3 53
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
45 48,9 48
5.2 Labor Market Rigidities
59 46,7 62
5.3 Bribing and Corruption
50 47,7 48
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
44 35,0 48
6.2 Scientific and Technical Journal Articles
41 56,5 41
6.3 Ease of Starting and Running a Business
48 84,3 48
6.4 Simplicity of Closing a Business
53 60,7 56
6.5 Corporate R&D
35 29,4 44
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
106 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Czech Republic
2007 2011 Quartile
Rank Value Rank
Poland 35 57,4 36
Czech Republic 34 55,0 37
Turkey 31 52,8 39
Hungary 43 52,0 40
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
4th 1st
30
31
32
33
34
35
36
37
38
39
40
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Czech Republic
Eastern Europe
United States=100 Points
GDP 194 [bn USD] IPO Volume
Population 11 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Prague ++Official Language: Czech ++Currency: Czech Koruna
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 34 55,0 37
Economic Activity 24 79,1 43
Depth of Capital Market 45 38,3 45
Taxation 58 90,0 64
Inv. Prot./Corp. Gov. 43 58,9 47
Human/Social Env. 21 74,5 20
Entrepr. Cult./Deal Opp. 37 53,3 33
4th 1st
Strengths
• Relatively strong m id-term econom ic grow th prospects
• Strategic location in Central Europe bordering w ith strong econom ies
(Germ any, Austria, Poland)
• The second highest GDP (PPP) per capita in Central and Eastern Europe
• Highly educated and skilled labor force, w ith a w ell-developed
infrastructure
• Developed real estate m arket
Weaknesses
• Illiquid capital m arket
• Negative perception/low pro le of VCPEs as a source of nance
• Financial reporting under local accounting standards
• Few opportunities for large investm ents (>500m )
• Low er quality of legal enforcem ent and uncertain tax environm ent
Opportunities
• M any good com panies w ith poor nancial m anagem ent
• Large pool of ow ner-m anaged businesses w here ow ners are now reaching
retirem ent
• Com panies still struggling to obtain credit from banks and looking for
other sources of nance
• Opportunities in non-cyclical industries such as health care
• New governm ent w ith a strong m andate and priorities com prising
pension and health care reform , and the strengthening of the anti-
corruption law
Threats
• Foreign currency exchange (FX) volatility (postponem ent of a decision
regarding Euro adoption to the next governm ent i.e., 2014)
• Negative im pact of cuts in governm ent spending on econom ic grow th
• Uncertain im pact of a global econom ic recovery on the prospects of an
export-oriented econom y
Outlook
• Continuing recovery of VCPE opportunities to execute leveraged
transaction w ith com panies show ing reasonable grow th prospects
LubosKratochvil, Ernst & Young
[email protected]
107 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
43 46,2 45
1.2 Medium-Term Real GDP Growth
30 95,9 54
1.3 Unemployment
37 112,0 32
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
62 33,2 59
2.2 Stock Market Liquidity (Trading Volume)
40 8,8 42
2.3 IPO Market Activity
49 20,4 53
2.4 M&A Market Activity
42 45,9 42
2.5 Debt and Credit Market
35 66,6 36
2.6 Bank Non-Performing Loans to Total Gross Loans
49 97,9 48
2.7 Financial Market Sophistication
37 68,2 36
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
58 90,0 64
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
29 60,6 38
4.2 Security of Property Rights
61 46,6 58
4.3 Quality of Legal Enforcement
39 72,5 38
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
23 83,8 21
5.2 Labor Market Rigidities
13 85,4 13
5.3 Bribing and Corruption
40 57,8 39
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
29 64,1 24
6.2 Scientific and Technical Journal Articles
29 66,2 29
6.3 Ease of Starting and Running a Business
56 79,1 54
6.4 Simplicity of Closing a Business
74 28,1 74
6.5 Corporate R&D
31 45,5 29
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
108 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Denmark
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
0
5
10
15
20
25
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Denmark
Western Europe
United States=100 Points
GDP 314 [bn USD] IPO Volume
Population 6 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Copenhagen ++Official Language: Danish ++Currency: Danish Krone
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 13 81,8 12
Economic Activity 61 77,7 47
Depth of Capital Market 22 59,3 24
Taxation 3 117,6 3
Inv. Prot./Corp. Gov. 4 106,3 5
Human/Social Env. 2 108,4 4
Entrepr. Cult./Deal Opp. 13 88,7 10
4th 1st
Strengths
• Increased econom ic activity w ith entrepreneurs
• Strong VC environm ent w ith local as w ell as international players
• Increased political focus on providing nances to the business com m unity
• Increase in corporate earnings
Weaknesses
• Low end of the VC m arket not pow erful enough and few players only
• Several exits from PE houses m ay increase com petition in buy-side
processes
Opportunities
• The VCPE m odel receives positive interest from the public
• M id-size PE houses have raised funds recently
• Good entrepreneurship in technologies and products
• Hum an resource environm ent is business friendly
Threats
• Financial m arket is still repositioning on the back of the nancial crisis
• Im balance betw een nancing opportunities and m arket pricing on
com panies
• Com petition from industrial buyers
Outlook
• Increased PE deal activity is expected
Jakob Fogt, Ernst & Young
[email protected]
109 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
27 52,1 30
1.2 Medium-Term Real GDP Growth
73 79,9 70
1.3 Unemployment
14 112,5 29
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
30 54,6 36
2.2 Stock Market Liquidity (Trading Volume)
24 24,9 26
2.3 IPO Market Activity
41 39,6 33
2.4 M&A Market Activity
23 53,3 31
2.5 Debt and Credit Market
6 88,7 10
2.6 Bank Non-Performing Loans to Total Gross Loans
5 118,5 2
2.7 Financial Market Sophistication
9 85,9 20
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
3 117,6 3
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
11 89,4 11
4.2 Security of Property Rights
8 104,7 11
4.3 Quality of Legal Enforcement
1 128,5 1
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
6 102,1 8
5.2 Labor Market Rigidities
7 91,6 6
5.3 Bribing and Corruption
3 136,1 2
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
8 96,3 7
6.2 Scientific and Technical Journal Articles
22 70,0 22
6.3 Ease of Starting and Running a Business
5 104,7 9
6.4 Simplicity of Closing a Business
19 109,4 7
6.5 Corporate R&D
12 71,2 12
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
110 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Ecuador
2007 2011 Quartile
Rank Value Rank
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
Venezuela 73 15,2 79
4th 1st
68
69
70
71
72
73
74
75
76
77
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Ecuador
Latin America
United States=100 Points
GDP 62 [bn USD] IPO Volume
Population 14 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Quito ++Official Language: Spanish ++Currency: U.S. Dollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 74 17,9 74
Economic Activity 37 75,3 52
Depth of Capital Market 71 11,2 73
Taxation 44 93,9 51
Inv. Prot./Corp. Gov. 79 16,2 79
Human/Social Env. 77 16,1 78
Entrepr. Cult./Deal Opp. 75 11,9 77
4th 1st
Strengths
• Subject to US levels of m onetary discipline under the dollarization regim e,
strengthening control over in ation
• Increase in private consum ption and investm ent, driven by im proved
consum er con dence and a grow th in energy and infrastructure
investm ent projects
• M oderate in ation rates
Weaknesses
• Lack of legal fram ew ork for VCPE form ation and operation
• Lack of political stability
• High perception of corruption
• Perception of slow judicial system
• Unpredictable governm ent policies
• Inadequate intellectual property rights protection
• Com plexity of starting a business
• Lim ited access to international capital m arkets, due to the politically
driven decision to default on 2012 and 2030 bonds
Opportunities
• Global energy dem and is likely to increase, outpacing oil supply grow th,
leading to higher oil prices and higher revenues for oil producers, like Ecuador
Threats
• Ecuador’s econom ic perform ance is vulnerable to international
developm ents due to its dependence on com m odities
• The Governm ent seeks to increase state control over the country’s
strategic sectors
• Foreign investors, speci cally from the oil and gas sectors, have been
engaged in disputes w ith the Governm ent over scal m atters
• As of 2010, Ecuador is no longer a m em ber of ICSID (International Centre
for Settlem ent of Investm ent Disputes), w hich m ay im pact investor
con dence
• Ecuador has unilaterally rescinded several foreign investm ent protection
agreem ents
Outlook
• The outlook for Ecuador is uncertain: low er oil prices and w eaker external
dem and could dam pen the country’s m ajor sources of foreign currency
(US$) and public sector revenue
• Foreign investm ent has been jeopardized by the new constitution, w hich
prioritizes national over foreign investm ent
Milton Vasconez, Ernst & Young
[email protected]
111 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
60 32,0 60
1.2 Medium-Term Real GDP Growth
27 132,0 18
1.3 Unemployment
44 101,3 48
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
71 23,0 66
2.2 Stock Market Liquidity (Trading Volume)
69 1,3 70
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
62 7,2 77
2.5 Debt and Credit Market
74 43,6 69
2.6 Bank Non-Performing Loans to Total Gross Loans
43 103,4 33
2.7 Financial Market Sophistication
70 22,4 70
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
44 93,9 51
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
72 32,0 75
4.2 Security of Property Rights
74 14,4 76
4.3 Quality of Legal Enforcement
79 9,2 79
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
77 20,3 79
5.2 Labor Market Rigidities
72 19,6 78
5.3 Bribing and Corruption
75 10,5 76
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
75 8,8 75
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
69 55,7 72
6.4 Simplicity of Closing a Business
69 36,3 72
6.5 Corporate R&D
61 13,1 59
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
112 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Egypt
2007 2011 Quartile
Rank Value Rank
South Africa 24 66,9 26
Egypt 52 41,8 55
Morocco 61 41,8 54
Tunisia 64 41,5 56
Kenya 69 38,3 63
Nigeria 66 37,1 64
Namibia 70 26,4 70
Algeria 76 17,1 77
4th 1st
35
40
45
50
55
60
65
70
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Egypt Africa
United States=100 Points
GDP 216 [bn USD] IPO Volume
Population 78 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Cairo ++Official Language: Arabic ++Currency: Egyptian Pound
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 52 41,8 55
Economic Activity 40 89,8 21
Depth of Capital Market 47 37,8 47
Taxation 63 90,7 60
Inv. Prot./Corp. Gov. 52 49,6 51
Human/Social Env. 70 24,7 76
Entrepr. Cult./Deal Opp. 50 32,2 65
4th 1st
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Strengths
• High-grow th econom y, w hich w as sustained even during the recession
• W ell-established stock m arket –in the top ve according to m arket cap
in Africa
• High levels of literacy am ong youth and adults as w ell as a reasonable
Gini coef cient (a statistical m easure of w ealth distribution am ong people
relative to its peers) (32% )
Weaknesses
• Access to nancial services is lim ited
Opportunities
• Prospects are good in a vast range of industries including pharm aceuticals,
chem icals, tourism , light m anufacturing and food processing
• Pharm aceuticals and food processing are a priority across Africa; therefore
Egypt is w ell positioned to lead these sectors
Threats
• Continued uncertainty around the political trajectory
Outlook
• Grow th is not expected to drop in the future, particularly now the global
econom ic recovery seem s to be on track
• Egypt is of signi cance to the M iddle East, due to its physical and cultural
proxim ity to the region
• The resolution of the political crisis is crucial
Abdulaziz Al-Sowailim, Ernst & Young
[email protected]
113 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
50 47,5 39
1.2 Medium-Term Real GDP Growth
47 155,8 8
1.3 Unemployment
65 97,8 59
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
26 65,6 27
2.2 Stock Market Liquidity (Trading Volume)
30 17,6 29
2.3 IPO Market Activity
42 27,6 45
2.4 M&A Market Activity
49 44,0 43
2.5 Debt and Credit Market
50 72,0 31
2.6 Bank Non-Performing Loans to Total Gross Loans
78 19,0 78
2.7 Financial Market Sophistication
67 57,7 47
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
63 90,7 60
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
65 44,6 64
4.2 Security of Property Rights
56 46,8 57
4.3 Quality of Legal Enforcement
50 58,6 52
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
76 20,8 78
5.2 Labor Market Rigidities
60 30,9 74
5.3 Bribing and Corruption
59 23,4 65
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
67 18,1 71
6.2 Scientific and Technical Journal Articles
37 61,0 37
6.3 Ease of Starting and Running a Business
74 95,1 25
6.4 Simplicity of Closing a Business
70 40,8 71
6.5 Corporate R&D
39 8,0 67
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
114 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Estonia
2007 2011 Quartile
Rank Value Rank
Czech Republic 34 55,0 37
Turkey 31 52,8 39
Hungary 43 52,0 40
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
Lithuania 46 41,3 57
4th 1st
30
35
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Estonia
Eastern Europe
United States=100 Points
GDP 19 [bn USD] IPO Volume
Population 1 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Tallinn ++Official Language: Estonian ++Currency:
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 41 44,8 49
Economic Activity 34 35,5 76
Depth of Capital Market 54 26,0 56
Taxation 32 101,4 37
Inv. Prot./Corp. Gov. 24 79,6 24
Human/Social Env. 32 63,4 31
Entrepr. Cult./Deal Opp. 30 53,8 32
4th 1st
Strengths
• Sim ple and attractive tax system
• Governm ent e-services and low level of bureaucracy
• Very exible labor m arket –the crisis proved that internal devaluation is
possible
Weaknesses
• Sm all econom y and, therefore, sm all M &A m arket
• Low liquidity and sm all size of stock exchange
• Dependency on the econom ic strength of Scandinavian countries, w hich
are the m ain export m arkets and also the m ain source of foreign capital
in ow s
Opportunities
• Recent adoption of the euro and the resulting reduction of currency risk is
likely to increase investor’s interest tow ards Estonia
• Governm ent’s low indebtedness and high rating of governm ent debt
enable the support of dom estic dem and
Threats
• Baltic region, w hich is seen as one area, eclipses the am enities of Estonia
• Up to 15% expected unem ploym ent rate in the near future hinders
dom estic dem and
Outlook
• Adoption of the euro and the governm ent’s continuing focus on the
openness of the econom y should attract foreign VCPE interest
• Estonia’s attractiveness w ill also depend on econom ic grow th prospects
com pared w ith the other Eastern European countries
Lili Kirikal, Ernst & Young
[email protected]
115 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
69 17,0 72
1.2 Medium-Term Real GDP Growth
7 34,1 79
1.3 Unemployment
27 76,8 69
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
63 20,1 69
2.2 Stock Market Liquidity (Trading Volume)
52 2,5 58
2.3 IPO Market Activity
64 12,2 62
2.4 M&A Market Activity
61 24,9 60
2.5 Debt and Credit Market
22 73,8 28
2.6 Bank Non-Performing Loans to Total Gross Loans
1 107,5 23
2.7 Financial Market Sophistication
22 68,2 36
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
32 101,4 37
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
27 64,3 33
4.2 Security of Property Rights
22 84,6 23
4.3 Quality of Legal Enforcement
23 92,6 23
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
25 75,3 26
5.2 Labor Market Rigidities
71 38,4 68
5.3 Bribing and Corruption
25 88,0 24
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
33 55,0 30
6.2 Scientific and Technical Journal Articles
50 50,2 50
6.3 Ease of Starting and Running a Business
10 108,8 7
6.4 Simplicity of Closing a Business
36 69,9 39
6.5 Corporate R&D
45 21,4 53
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
116 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Finland
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
0
2
4
6
8
10
12
14
16
18
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Finland
Western Europe
United States=100 Points
GDP 240 [bn USD] IPO Volume
Population 5 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Helsinki ++Official Language: Finnish, Swedish ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 9 82,3 11
Economic Activity 46 72,3 53
Depth of Capital Market 15 64,4 19
Taxation 6 113,9 5
Inv. Prot./Corp. Gov. 5 106,0 6
Human/Social Env. 8 92,8 12
Entrepr. Cult./Deal Opp. 5 93,7 3
4th 1st
Strengths
• High education and R&D contribution
• Healthy banking sector
Weaknesses
• Relatively sm all m arkets to support “the business case”
• Early-stage VC nancing needing further developm ent
Opportunities
• New sectors arising, such as cleantech and engineering
• Developm ent of globally leading clusters in certain strong industries
Threats
• Increasing im portance of globalization
• Failure to m aintain advanced telecom sector
Outlook
• Finland w ill be seen as an interesting area in w hich to invest
Sakari Laine, Ernst & Young
sakari.laine@?.ey.com
117 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
32 48,8 35
1.2 Medium-Term Real GDP Growth
60 76,8 72
1.3 Unemployment
44 100,9 50
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
24 62,3 28
2.2 Stock Market Liquidity (Trading Volume)
7 55,9 9
2.3 IPO Market Activity
37 24,8 49
2.4 M&A Market Activity
25 51,7 35
2.5 Debt and Credit Market
18 87,3 13
2.6 Bank Non-Performing Loans to Total Gross Loans
5 117,8 3
2.7 Financial Market Sophistication
18 100,0 11
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
6 113,9 5
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
15 80,7 17
4.2 Security of Property Rights
2 119,6 1
4.3 Quality of Legal Enforcement
2 123,6 3
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
2 105,3 6
5.2 Labor Market Rigidities
49 56,5 50
5.3 Bribing and Corruption
1 134,3 5
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
9 106,6 3
6.2 Scientific and Technical Journal Articles
23 69,6 23
6.3 Ease of Starting and Running a Business
2 112,3 5
6.4 Simplicity of Closing a Business
5 110,9 5
6.5 Corporate R&D
11 78,0 8
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
118 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
France
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
0
5
10
15
20
25
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
France
Western Europe
United States=100 Points
GDP 2649 [bn USD] IPO Volume
Population 63 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Paris ++Official Language: French ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 17 79,6 14
Economic Activity 68 89,8 20
Depth of Capital Market 13 73,6 11
Taxation 18 104,7 25
Inv. Prot./Corp. Gov. 23 85,4 19
Human/Social Env. 23 67,6 26
Entrepr. Cult./Deal Opp. 12 82,5 16
4th 1st
Strengths
• Strong and sophisticated fram ew ork for VCPE transactions
• Com eback of large leveraged buyouts (LBOs), particularly secondary deals,
thanks to im proved debt m arkets
• Consistent deal ow of high-quality, high-tech projects
Weaknesses
• French GPs realize less international deals than their European peers,
e.g., UK, Germ any, Sw eden
• Cleantech investm ents w ere late to develop in France, but are now
accelerating
• Few prim ary PE deals
Opportunities
• Tax policy in favor of asset class: “FCPI,”“Loi TEPA”
• Tax policy in favor of innovation: “crédit im pôt recherche,”“OSEO”
incentives
• Developm ent of ESG (environm ental, social and governance) principles
and best practices
Threats
• Only a few large funds of funds
• French em erging com panies nd it dif cult to grow (after a few years
in business) and to becom e m arket leaders
Outlook
• Policy debate on how to drive banks and insurance investm ent and
long-term savings tow ard VCPE
• Im pact of Solvency II, Basel III
• Crisis-delayed PE portfolio exits are now on the m arket
• French tax policies m ay foster new prom ising opportunities for VCPE
Paul Gerber, Ernst & Young
[email protected]
119 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
6 78,6 5
1.2 Medium-Term Real GDP Growth
77 93,0 58
1.3 Unemployment
57 99,1 55
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
17 71,3 24
2.2 Stock Market Liquidity (Trading Volume)
16 44,7 16
2.3 IPO Market Activity
11 64,3 11
2.4 M&A Market Activity
6 75,0 8
2.5 Debt and Credit Market
27 78,0 25
2.6 Bank Non-Performing Loans to Total Gross Loans
40 101,4 38
2.7 Financial Market Sophistication
13 96,5 15
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
18 104,7 25
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
54 59,1 42
4.2 Security of Property Rights
11 105,0 10
4.3 Quality of Legal Enforcement
20 100,3 19
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
14 88,4 18
5.2 Labor Market Rigidities
73 35,3 70
5.3 Bribing and Corruption
17 99,1 19
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
6 88,9 11
6.2 Scientific and Technical Journal Articles
6 84,5 6
6.3 Ease of Starting and Running a Business
31 83,9 49
6.4 Simplicity of Closing a Business
27 80,1 29
6.5 Corporate R&D
9 75,7 9
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
120 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Georgia
2007 2011 Quartile
Rank Value Rank
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
Moldova 71 22,0 72
Macedonia 75 19,3 73
Albania 79 17,8 75
Bosnia-Herzegovina 77 17,3 76
4th 1st
63
64
65
66
67
68
69
70
71
72
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Georgia
Eastern Europe
United States=100 Points
GDP 11 [bn USD] IPO Volume
Population 4 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Tbilisi ++Official Language: Georgian ++Currency: Lari
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 68 27,2 69
Economic Activity 69 40,3 72
Depth of Capital Market 66 12,4 71
Taxation 67 90,0 63
Inv. Prot./Corp. Gov. 69 44,0 60
Human/Social Env. 64 48,3 52
Entrepr. Cult./Deal Opp. 58 26,8 69
4th 1st
Strengths
• Good m edium -term GDP grow th potential
• One of the best business environm ents in Eastern Europe and the
Caucasus: business start-ups are com paratively quick, w ith m inim al
adm inistrative requirem ents and hiring and low labor m arket frictions
• Very good progress in large-scale privatization (m anufacturing, energy,
telecom m unications and health care)
Weaknesses
• Virtually no VCPE activity
• Non-bank nancial sector underdeveloped
• Heavy reliance on m etals and fossil fuels for export revenues
Opportunities
• The Governm ent, nancially supported by the IM F, is w orking to im prove
infrastructure and energy supply
• The internet services m arket has just started to develop, and the
regulatory authority aim s to provide a supportive environm ent by
increasing broadband deploym ent and by better regulating connection
tariffs
Threats
• FDI w as a key driver of pre-crisis grow th, but halved during 2009-2010.
If FDI in ow s do not pick up considerably, this w ould slow dow n by
m edium -term grow th
• Tensions continue w ith Russia over the breakaw ay republics of Abkhazia
and Adjara and the autonom ous South Ossetia region, as w ell as over
delays to Russia’s W orld Trade Organization accession. (Russia is one of
Georgia’s m ajor partners in term s of trade, investm ent and rem ittances)
• High governm ent debt and de cits could be a drag on infrastructure
projects
Outlook
• GDP grow th of m ore than 5% p.a. expected for the next ve years
• High in ation, currently at 11.2 % w ill probably recede from 2012
• Grow th could increase further if relations w ith Russia ease and
governm ent efforts to im prove infrastructure take effect
• Debt and credit m arkets are likely to strengthen further, albeit from
a low level
George Bazgadze, Ernst & Young
[email protected]
121 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
76 10,4 75
1.2 Medium-Term Real GDP Growth
11 97,0 53
1.3 Unemployment
71 65,2 71
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
68 18,2 73
2.2 Stock Market Liquidity (Trading Volume)
66 1,2 74
2.3 IPO Market Activity
62 1,0 67
2.4 M&A Market Activity
64 16,5 67
2.5 Debt and Credit Market
76 51,9 63
2.6 Bank Non-Performing Loans to Total Gross Loans
14 92,5 55
2.7 Financial Market Sophistication
67 25,9 67
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
67 90,0 63
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
57 55,3 46
4.2 Security of Property Rights
71 35,5 68
4.3 Quality of Legal Enforcement
70 43,4 59
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
66 26,1 74
5.2 Labor Market Rigidities
69 90,9 8
5.3 Bribing and Corruption
62 47,6 49
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
74 14,3 72
6.2 Scientific and Technical Journal Articles
64 41,3 64
6.3 Ease of Starting and Running a Business
18 115,7 3
6.4 Simplicity of Closing a Business
52 64,8 47
6.5 Corporate R&D
58 3,1 79
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
122 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Germany
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
0
5
10
15
20
25
30
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Germany
Western Europe
United States=100 Points
GDP 3335 [bn USD] IPO Volume
Population 82 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Berlin ++Official Language: German ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 16 82,8 10
Economic Activity 72 90,6 17
Depth of Capital Market 16 67,5 16
Taxation 31 107,1 16
Inv. Prot./Corp. Gov. 12 96,3 14
Human/Social Env. 18 80,9 18
Entrepr. Cult./Deal Opp. 3 91,8 5
4th 1st
Strengths
• Large num ber of interesting targets of all sizes and strong potential from
privately ow ned businesses facing succession problem s
• Europe’s leading econom y, w ith diverse portfolio of industries
• Very strong infrastructure and reliable adm inistration
• Cultural attitude tow ards perform ance and diligence
Weaknesses
• The Governm ent is looking to bring in stricter regulations and governance
around the quality of m anagem ent and diligence procedures, w hich m ay
decline deal–m aking attractiveness
Opportunities
• The m acroeconom ic environm ent is very favorable w ith forecasts
predicting that Germ any should becom e even stronger
• As w e predicted in our last issue, com prehensive restructuring has placed
m any com panies in strong com petitive positions
• The loan situation is still fraught, causing m any com panies to look for
other sources of capital, w here VCPE represents a good option
Threats
• Germ any’s current strength is m ainly export driven and therefore strongly
dependent on global recovery
• The im proved tax position and other legislation, w hich w as changed
during the crisis, m ight be reversed if the econom y keeps grow ing
• Regulations deriving from the AIFM Directive m eans that investors’access
to certain products m ay be restricted, w hich m ay change their portfolio
diversi cation m odels
Outlook
• The m arket is returning to its form er (prior crisis) perform ance w here
m any interesting com panies are em erging as investm ent targets: They
operate in niche grow th m arkets, have a great technological advantage,
and a deep innovation culture. These com panies are w ell positioned to
participate in the recovering w orld econom y and grow th in em erging
m arkets
Stefan Ostheim, Ernst & Young
[email protected]
123 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
3 81,5 4
1.2 Medium-Term Real GDP Growth
78 87,3 63
1.3 Unemployment
49 104,5 42
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
36 53,5 37
2.2 Stock Market Liquidity (Trading Volume)
20 33,6 20
2.3 IPO Market Activity
13 60,3 15
2.4 M&A Market Activity
8 73,6 9
2.5 Debt and Credit Market
21 75,8 26
2.6 Bank Non-Performing Loans to Total Gross Loans
46 102,1 36
2.7 Financial Market Sophistication
13 103,5 8
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
31 107,1 16
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
18 72,3 23
4.2 Security of Property Rights
3 106,2 7
4.3 Quality of Legal Enforcement
14 116,2 15
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
12 102,4 7
5.2 Labor Market Rigidities
68 45,0 64
5.3 Bribing and Corruption
15 114,9 14
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
2 103,3 5
6.2 Scientific and Technical Journal Articles
4 87,6 4
6.3 Ease of Starting and Running a Business
36 86,6 46
6.4 Simplicity of Closing a Business
21 88,8 21
6.5 Corporate R&D
3 93,8 3
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
124 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Greece
2007 2011 Quartile
Rank Value Rank
France 17 79,6 14
Belgium 18 76,8 15
Austria 23 71,7 22
Spain 20 69,1 23
Ireland 14 67,7 24
Portugal 38 60,4 31
Italy 32 59,6 32
Luxembourg 29 59,3 33
Greece 39 47,9 44
4th 1st
30
32
34
36
38
40
42
44
46
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Greece
Western Europe
United States=100 Points
GDP 322[bn USD] IPO Volume
Population 11 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Athens ++Official Language: Greek ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 39 47,9 44
Economic Activity 47 76,4 50
Depth of Capital Market 30 46,0 37
Taxation 30 107,1 17
Inv. Prot./Corp. Gov. 50 47,1 54
Human/Social Env. 62 31,7 73
Entrepr. Cult./Deal Opp. 42 42,1 52
4th 1st
Strengths
• Tax and legal environm ent supporting VCPE
• New governm ent policies to "fast track" investm ents (particularly in
tourism and real estate)
Weaknesses
• Non-existent debt m arkets due to prevailing m arket conditions.
• VCs having to nance up to 100% of m any investm ents
• Sm all PE houses dom inating the m arket and focusing on sm all ticket deals
• Large corporates often controlled by fam ilies w ho are actively engaged in
day-to-day operations
• Lack of experienced/professional m anagem ent
Opportunities
• There are plenty of distressed-type opportunities
• Even solid/stable corporates are looking to restructure their debt
• M any corporates are looking to divest businesses to raise cash
Threats
• Con dence is at an all-tim e low
• The fear of Greece defaulting on its debt obligations is deterring a lot of
foreign investors
Outlook
• The m arket w ill continue to be dif cult for VCPEs
• M ost local PEs are nourishing existing investm ents rather than m aking
new ones
• The m arket has becom e a buyer's m arket; m any com panies are looking for
re nancing and investm ent
• Exits are extrem ely dif cult
Michael Chourdakis, Ernst & Young
[email protected]
125 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
28 52,4 29
1.2 Medium-Term Real GDP Growth
62 85,8 64
1.3 Unemployment
55 99,1 55
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
29 46,0 42
2.2 Stock Market Liquidity (Trading Volume)
34 12,5 37
2.3 IPO Market Activity
28 45,6 28
2.4 M&A Market Activity
39 51,6 36
2.5 Debt and Credit Market
30 68,4 35
2.6 Bank Non-Performing Loans to Total Gross Loans
62 86,3 66
2.7 Financial Market Sophistication
41 54,1 51
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
30 107,1 17
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
73 25,8 76
4.2 Security of Property Rights
43 59,8 43
4.3 Quality of Legal Enforcement
37 67,9 42
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
57 33,4 69
5.2 Labor Market Rigidities
78 22,5 77
5.3 Bribing and Corruption
44 42,5 51
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
62 22,2 67
6.2 Scientific and Technical Journal Articles
25 68,7 25
6.3 Ease of Starting and Running a Business
70 53,2 73
6.4 Simplicity of Closing a Business
30 79,3 31
6.5 Corporate R&D
49 20,4 55
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
126 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Hong Kong
2007 2011 Quartile
Rank Value Rank
Singapore 2 92,4 4
Japan 6 90,9 6
Hong Kong 15 76,5 16
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
4th 1st
0
2
4
6
8
10
12
14
16
18
20
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
HongKong
Asia
United States=100 Points
GDP 224 [bn USD] IPO Volume
Population 7 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: HongKong++Official Language: Chinese, English ++Currency: HongKongDollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 15 76,5 16
Economic Activity 11 85,6 33
Depth of Capital Market 2 98,3 2
Taxation 25 102,6 34
Inv. Prot./Corp. Gov. 3 110,7 3
Human/Social Env. 9 97,7 9
Entrepr. Cult./Deal Opp. 64 32,8 64
4th 1st
Strengths
• Key global nancial center w ith professional labor m arket and nancial
infrastructure
• One of the easiest places in the w orld to establish a business or generate
an IPO
• W ell-placed to bene t from m ainland China’s high grow th and nancial
m arket developm ent
• Quick IPO approval process com pared w ith the m ainland –im portant for
fast-grow ing com panies
Weaknesses
• Econom y is concentrated in the nancial sector and vulnerable to
dow nturns in w orld trade and nancial liquidity
• Strong rises in dom estic and com m ercial property in recent years store up
the potential for asset price volatility
Opportunities
• Potential for global investors to access the renm inbi-denom inated bond
m arket in Hong Kong
• Large increase in use of w ind and solar pow er in m ainland China over
the next decade, w ith the aim of producing a fth of m ainland China’s
energy from renew able sources; this is already generating signi cant PE
transactions in Hong Kong
• The rem oval of taxes and duties on w ine in 2008 has seen Hong Kong
becom e a gatew ay for w ine trade in Asia, challenging New York for the
position of largest w ine auction center in the w orld
Threats
• High valuations, particularly in property sectors, m ay reduce the num ber
of transactions
• M anaging capital in ow s and in ationary pressures w ith the dollar peg
rem ains a key challenge
• The ow of IPO slow ed tow ard the end of 2010 as m ainland China began
tightening m onetary policy, low ering share prices in Hong Kong
Outlook
• Real GDP grow th is expected to average 5% over the next ve years
• Hong Kong is a key part of the grow ing integration of trade w ithin Asia
• Hong Kong w ill be a key part of m ainland China’s nancial developm ent
and can capitalize on this by providing a range of nancial instrum ents
targeted at m ainland investors
Lawrence Lau, Ernst & Young
[email protected]
127 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
35 47,9 37
1.2 Medium-Term Real GDP Growth
17 111,5 40
1.3 Unemployment
22 117,4 17
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
1 143,8 1
2.2 Stock Market Liquidity (Trading Volume)
4 111,4 2
2.3 IPO Market Activity
8 71,9 6
2.4 M&A Market Activity
11 71,1 12
2.5 Debt and Credit Market
17 85,4 15
2.6 Bank Non-Performing Loans to Total Gross Loans
21 114,4 9
2.7 Financial Market Sophistication
2 110,6 4
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
25 102,6 34
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
3 107,1 5
4.2 Security of Property Rights
7 109,5 6
4.3 Quality of Legal Enforcement
16 115,6 16
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
24 80,4 22
5.2 Labor Market Rigidities
3 98,1 4
5.3 Bribing and Corruption
14 118,2 12
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
23 63,4 26
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
3 118,0 2
6.4 Simplicity of Closing a Business
15 101,7 15
6.5 Corporate R&D
23 49,7 26
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
128 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Hungary
2007 2011 Quartile
Rank Value Rank
Poland 35 57,4 36
Czech Republic 34 55,0 37
Turkey 31 52,8 39
Hungary 43 52,0 40
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
4th 1st
35
37
39
41
43
45
47
49
51
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Hungary
Eastern Europe
United States=100 Points
GDP 146 [bn USD] IPO Volume
Population 10 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Budapest ++Official Language: Hungarian ++Currency: Forint
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 43 52,0 40
Economic Activity 49 68,1 58
Depth of Capital Market 46 36,2 49
Taxation 16 108,7 12
Inv. Prot./Corp. Gov. 35 66,4 38
Human/Social Env. 53 49,2 51
Entrepr. Cult./Deal Opp. 32 56,7 30
4th 1st
Strengths
• Com petitive tax regim e supporting investm ent and econom ic grow th
• Large cum ulated FDI w ith signi cant new investm ents in the autom otive
sector and shared service centers
• Post-privatization phase
• Know n to have grow n talent and know -how in selected industries
Weaknesses
• Volatile currency
• Lim ited num ber of large potential investm ents
• Underdeveloped stock m arket, resulting in lim ited m arket liquidity and
poor exit opportunities
Opportunities
• Untapped m idsize m arket, w hich is a priority in the governm ent’s
econom ic policy
• Grow th potential of Hungarian com panies w hich have already invested in
neighboring countries; cross-border activity w ithin the region
• M arket consolidation in various industries, disposals, reorganizations of
international players
• Dif culty in raising nance for local players
• Values to be created by im proving corporate culture
• Com m encem ent of the EU-funded “Jerem ie-Program ”to help VC activities
and to encourage com panies to com e to m arket w ill result in viable
investm ent opportunities
Threats
• Reduced availability of debt nancing
• International investor con dence
• Uncertainty regarding the governm ent’s m acroeconom ic policies
Outlook
• M any opportunities: a grow ing num ber of deals in selected industries
(due to the crisis), follow ed by reignited econom ic grow th, and local and
regional consolidation
• Investm ent of EU and governm ent funds as seed capital w ill create a good
deal ow in the technology sector in tw o to three years
BalazsTuske, Ernst & Young
[email protected]
129 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
48 42,6 50
1.2 Medium-Term Real GDP Growth
55 75,1 74
1.3 Unemployment
42 98,7 57
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
59 27,2 64
2.2 Stock Market Liquidity (Trading Volume)
37 8,8 43
2.3 IPO Market Activity
60 20,7 52
2.4 M&A Market Activity
44 39,5 52
2.5 Debt and Credit Market
34 64,3 42
2.6 Bank Non-Performing Loans to Total Gross Loans
34 100,0 39
2.7 Financial Market Sophistication
48 64,7 41
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
16 108,7 12
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
45 54,8 48
4.2 Security of Property Rights
25 77,0 28
4.3 Quality of Legal Enforcement
38 69,4 40
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
42 67,5 33
5.2 Labor Market Rigidities
76 29,4 76
5.3 Bribing and Corruption
34 60,2 38
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
40 47,3 34
6.2 Scientific and Technical Journal Articles
33 64,7 33
6.3 Ease of Starting and Running a Business
42 82,4 50
6.4 Simplicity of Closing a Business
42 70,9 38
6.5 Corporate R&D
42 32,7 37
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
130 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
India
2007 2011 Quartile
Rank Value Rank
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
4th 1st
19
21
23
25
27
29
31
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
India Asia
United States=100 Points
GDP 1468 [bn USD] IPO Volume
Population 1185 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: New Delhi ++Official Language: Hindi, English ++Currency: Indian Rupee
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 26 61,4 30
Economic Activity 3 108,9 2
Depth of Capital Market 18 68,9 15
Taxation 62 84,9 72
Inv. Prot./Corp. Gov. 42 59,6 46
Human/Social Env. 43 53,1 46
Entrepr. Cult./Deal Opp. 45 38,5 54
4th 1st
Strengths
• One of the fastest grow ing econom ies; high dom estic consum ption-driven
grow th
• Strong entrepreneurial ecosystem and private sector
• VCPE investm ents grow ing at CAGR of 63% (from US$1 billion in 2002 to
US$51.6 billion by 2010)
• High intellectual capital, leading to em ergence of VC hotspots (e.g., Bengaluru)
• Active equity capital and transaction m arkets facilitating exit options
• Vibrant VCPE m arket w ith m ore than 250 GPs and m ost of the large global
funds
Weaknesses
• Regulatory restrictions on foreign investm ent in certain sectors, albeit
easing gradually
• Lack of availability of debt for transactions
Opportunities
• Signi cant grow th in dispensable incom e and hence dem and for products
and services
• Capital is required for core sectors (e.g., infrastructure, m anufacturing,
health care)
• Stable governm ent w ith a long-term secular and grow th-oriented outlook
Threats
• Com petition from em erging nations (e.g., Brazil, China) to attract foreign
VCPE funds
• The im pact of proposed w idespread changes in regulatory and tax policy
is not fully clear
Outlook
• Heightened PE interest and activity levels are expected as a result of
broad-based econom ic grow th, stable governm ent and strong capital
m arkets
• Greater involvem ent of global funds is expected, together w ith the
em ergence of a dom estic LP com m unity
• Grow th capital m inority deals are expected to rem ain the m ajor them e
w ith buyouts still rare
Mayank Rastogi, Ernst & Young
[email protected]
131 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
14 71,3 11
1.2 Medium-Term Real GDP Growth
9 171,2 2
1.3 Unemployment
59 105,8 40
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
15 81,7 16
2.2 Stock Market Liquidity (Trading Volume)
22 35,8 19
2.3 IPO Market Activity
7 75,4 4
2.4 M&A Market Activity
13 70,7 13
2.5 Debt and Credit Market
49 66,5 38
2.6 Bank Non-Performing Loans to Total Gross Loans
43 104,8 28
2.7 Financial Market Sophistication
30 68,2 36
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
62 84,9 72
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
22 72,5 22
4.2 Security of Property Rights
60 43,5 61
4.3 Quality of Legal Enforcement
42 67,2 43
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
29 75,3 26
5.2 Labor Market Rigidities
44 59,8 45
5.3 Bribing and Corruption
55 33,2 60
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
25 41,9 36
6.2 Scientific and Technical Journal Articles
12 78,6 12
6.3 Ease of Starting and Running a Business
66 36,6 77
6.4 Simplicity of Closing a Business
78 13,3 78
6.5 Corporate R&D
24 53,0 24
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
132 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Indonesia
2007 2011 Quartile
Rank Value Rank
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
4th 1st
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Indonesia
Asia
United States=100 Points
GDP 670 [bn USD] IPO Volume
Population 233 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Jakarta ++Official Language: Indonesian ++Currency: Rupiah
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 59 45,2 48
Economic Activity 25 99,6 6
Depth of Capital Market 39 46,6 35
Taxation 66 91,0 58
Inv. Prot./Corp. Gov. 75 27,5 75
Human/Social Env. 67 39,3 61
Entrepr. Cult./Deal Opp. 69 34,5 59
4th 1st
Strengths
• Large, young and grow ing m iddle-incom e population
• Abundance of natural resources
• Political stability and am bition to develop the econom y
Weaknesses
• Tax system covers double taxation on incom e and heavy spending on
subsidies.
• Inadequate infrastructure in som e areas
• Legal system com paratively less developed than in other m arkets and
perceived w idespread corruption
• Larger com panies tend to be state or fam ily ow ned
• Physical infrastructure is considered substandard. M oreover, the
archipelagic nature of the country m akes it dif cult to w eave national
infrastructure together
Opportunities
• Valuations are m ore attractive than in other m ajor Asian countries
• Large untapped potential for natural resource exploration and
infrastructure developm ent
• The governm ent is targeting a 15% increase in investm ent from
US$23b to US$ 27b, of w hich 65% from foreign investors; in 2010, total
investm ent increased by 54.2% , w ith 424 projects w orth US$3.8b realized
in Q1 2010 alone
• Core sectors rem ain energy, m ining, plantations and infrastructure, w ith
retail, com m unications and pharm aceuticals likely to experience fast-
grow th
• If reform s to land law s are im plem ented, this w ill lead to m any investm ent
opportunities in the property m arket
• Indonesia is expected to reach investm ent grade, im proving access to nance
Threats
• Concerns that the outcom e of the 2014 presidential elections m ay result
in a potential shift of the current business and investm ent landscape
• Continuous am endm ents in Investm ent’s Negative List m ay discourage
foreign investors
• Unpredictable and contradictory Governm ent policies and or regulations
Outlook
• Robust grow th, underpinned by strong dom estic dem and
• VCPE m arkets w ill probably continue to develop quickly as the
com petition from Indonesia’s neighbors is increasing
Giuseppe Nicolosi, Ernst & Young
[email protected]
133 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
22 61,5 18
1.2 Medium-Term Real GDP Growth
37 155,5 9
1.3 Unemployment
63 103,1 44
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
45 41,9 46
2.2 Stock Market Liquidity (Trading Volume)
45 9,5 40
2.3 IPO Market Activity
25 55,5 18
2.4 M&A Market Activity
29 58,4 24
2.5 Debt and Credit Market
59 65,2 40
2.6 Bank Non-Performing Loans to Total Gross Loans
63 98,6 45
2.7 Financial Market Sophistication
57 57,7 47
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
66 91,0 58
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
53 48,8 57
4.2 Security of Property Rights
79 9,4 79
4.3 Quality of Legal Enforcement
61 45,3 57
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
31 68,6 32
5.2 Labor Market Rigidities
62 40,6 66
5.3 Bribing and Corruption
74 21,9 67
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
45 39,7 40
6.2 Scientific and Technical Journal Articles
60 44,1 60
6.3 Ease of Starting and Running a Business
76 74,5 58
6.4 Simplicity of Closing a Business
71 33,2 73
6.5 Corporate R&D
62 11,2 61
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
134 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Ireland
2007 2011 Quartile
Rank Value Rank
France 17 79,6 14
Belgium 18 76,8 15
Austria 23 71,7 22
Spain 20 69,1 23
Ireland 14 67,7 24
Portugal 38 60,4 31
Italy 32 59,6 32
Luxembourg 29 59,3 33
Greece 39 47,9 44
4th 1st
0
5
10
15
20
25
30
35
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Ireland
Western Europe
United States=100 Points
GDP 217[bn USD] IPO Volume
Population 5 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Dublin ++Official Language: Irish, English ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 14 67,7 24
Economic Activity 20 59,8 68
Depth of Capital Market 24 43,9 39
Taxation 2 116,5 4
Inv. Prot./Corp. Gov. 8 98,2 11
Human/Social Env. 10 100,1 7
Entrepr. Cult./Deal Opp. 19 75,8 20
4th 1st
Strengths
• Strong focus on indigenous entrepreneurs/start-ups
• VCPE co-investing w ith governm ent funding, w hich reduces need for
institutional capital
• Strong productivity and high value added export sectors
Weaknesses
• Lim ited debt available
• Low risk appetite
• A num ber of sectors w hich VCPE nd less attractive such as retail, leisure
and construction
Opportunities
• Governm ent focus on high potential and "sm art econom y" businesses,
such as new green technologies
• Strong m edical device/pharm aceutical industry and renew able energy
opportunities
• Valuations are com ing dow n as there are less funding alternatives
available to investees
Threats
• Recession is signi cantly deeper than in other countries
• Com pany failures are increasing
• Declining opportunities for start-ups in the recession, except in defensive
sectors
Outlook
• Increasing VCPE focus on technology and biotech, w ith high expertise
developed in these sectors and less com petition from private high net
w orth funds, due to their exposure in declining m arkets
• The governm ent w ill provide tax breaks
John O’Halloran, Ernst & Young
[email protected]
135 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
30 47,5 38
1.2 Medium-Term Real GDP Growth
39 56,4 77
1.3 Unemployment
18 79,9 68
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
42 33,9 58
2.2 Stock Market Liquidity (Trading Volume)
36 13,0 36
2.3 IPO Market Activity
26 31,1 40
2.4 M&A Market Activity
30 52,4 32
2.5 Debt and Credit Market
7 65,9 39
2.6 Bank Non-Performing Loans to Total Gross Loans
11 102,7 35
2.7 Financial Market Sophistication
13 64,7 41
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
2 116,5 4
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
7 86,5 14
4.2 Security of Property Rights
20 92,1 17
4.3 Quality of Legal Enforcement
13 119,0 11
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
11 99,4 13
5.2 Labor Market Rigidities
10 88,4 11
5.3 Bribing and Corruption
16 114,2 15
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
20 65,5 23
6.2 Scientific and Technical Journal Articles
35 63,0 35
6.3 Ease of Starting and Running a Business
9 101,3 15
6.4 Simplicity of Closing a Business
8 108,4 8
6.5 Corporate R&D
22 55,3 22
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
136 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Israel
2007 2011 Quartile
Rank Value Rank
Israel 19 72,2 21
Saudi Arabia 36 67,5 25
United Arab Emirates 33 61,6 28
Kuwait 40 57,9 35
Jordan 42 53,2 38
Oman 51 45,6 46
Bahrain 58 44,3 50
4th 1st
12
14
16
18
20
22
24
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Israel
Middle East
United States=100 Points
GDP 199 [bn USD] IPO Volume
Population 8 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Jerusalem++Official Language: Hebrew, Arabic ++Currency: New Israeli Sheqel
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 19 72,2 21
Economic Activity 33 85,4 34
Depth of Capital Market 19 58,9 25
Taxation 29 104,3 27
Inv. Prot./Corp. Gov. 20 79,9 23
Human/Social Env. 20 71,7 22
Entrepr. Cult./Deal Opp. 18 76,2 18
4th 1st
Strengths
• W ell-developed PE and VC m arket
• One of the m ost advanced econom ies in the region
• Good infrastructural environm ent for high-tech industries, including
a skilled labor-force, w ith a large num ber of high-tech specialists
• High corporate spending on R&D
• Culture that prom otes entrepreneurship
• Signi cant incentives from governm ent: from R&D grant to low tax regim e
• Advance practical education at IDF
Weaknesses
• Sm all dom estic m arket, and far off any m ajor foreign m arket
• Politically isolated in the region
• Lack of regional trade integration
• Only few w ell established big high-tech corporations (due to quick exits at
the start up phase)
• Strong NIS vs. dollar causes to increase labor cost and decrease pro ts
Opportunities
• Prom ising environm ent for VC, w ith a high num ber of technology start-ups
• Strong grow th potential, w ith a pronounced culture of innovation
• Rapidly evolving m edical technology, softw are, m edia and electronics
sectors
• Governm ent incentives w ould secure further investm ent of VC com m unity
Threats
• National security is under constant threat
• Uncertainties have increased, with turm oil in a series of Arab countries, and
in particular after the regim e change in Egypt; the old regim e had signed
a peace treaty with Israel, now, Israel’s m edium -term security outlook will be
strongly in uenced by the outcom e of national elections in Egypt
Outlook
• The econom y is forecast to grow at a sim ilar rate in 2011, before grow th
gradually declining to just below 4% during the next ve years
• In ation is expected to pick up to 3.2% in 2011, but stabilizing at 2.7%
thereafter
• The Governm ent de cit increased to 4.4% in 2009, but declined to 3% in
2010, w ith further narrow ing expected in the next few years
Oren Bar-On, Ernst & Young
[email protected]
137 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
41 46,4 42
1.2 Medium-Term Real GDP Growth
45 123,7 24
1.3 Unemployment
52 108,5 35
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
16 77,5 19
2.2 Stock Market Liquidity (Trading Volume)
26 21,8 27
2.3 IPO Market Activity
18 48,5 27
2.4 M&A Market Activity
33 47,7 41
2.5 Debt and Credit Market
26 69,5 34
2.6 Bank Non-Performing Loans to Total Gross Loans
27 110,3 18
2.7 Financial Market Sophistication
22 82,4 26
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
29 104,3 27
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
9 95,2 9
4.2 Security of Property Rights
39 57,2 46
4.3 Quality of Legal Enforcement
21 93,8 22
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
22 76,7 24
5.2 Labor Market Rigidities
38 58,8 47
5.3 Bribing and Corruption
28 81,6 28
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
13 89,8 10
6.2 Scientific and Technical Journal Articles
21 71,8 21
6.3 Ease of Starting and Running a Business
16 98,3 23
6.4 Simplicity of Closing a Business
55 56,3 60
6.5 Corporate R&D
10 72,1 11
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
138 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Italy
2007 2011 Quartile
Rank Value Rank
France 17 79,6 14
Belgium 18 76,8 15
Austria 23 71,7 22
Spain 20 69,1 23
Ireland 14 67,7 24
Portugal 38 60,4 31
Italy 32 59,6 32
Luxembourg 29 59,3 33
Greece 39 47,9 44
4th 1st
25
30
35
40
45
50
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Italy
Western Europe
United States=100 Points
GDP 2121[bn USD] IPO Volume
Population 60 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Rome ++Official Language: Italian ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 32 59,6 32
Economic Activity 75 84,8 35
Depth of Capital Market 26 51,5 30
Taxation 34 103,4 30
Inv. Prot./Corp. Gov. 49 45,3 57
Human/Social Env. 46 52,6 47
Entrepr. Cult./Deal Opp. 22 67,3 21
4th 1st
Strengths
• W ell-developed econom y (innovative designs and inexpensive production
techniques), w ith highly specialized industrial districts and niches of
excellence
• Relatively stable banking system
• Com paratively low indebtedness of com bined fam ilies and com panies
(below 120% of GDP vs. an EU average of above 185% )
Weaknesses
• Com plicated tax system w ith com paratively high tax rates, resulting in still
high evasion rates –estim ated at over €300b of undeclared pro ts
• High sovereign debt (approxim ately 118% of GDP) and lim ited space for
governm ent stim ulus m easures
• Rigidity of labor m arket (but com paratively low cost of labor), w ith a
gap betw een highly protected perm anent w orkers and poorly protected
tem porary w orkers
Opportunities
• Im provem ent in public labor productivity is expected due to perform ance-
linked salary to be introduced after 2010
• Progress has been m ade in labor productivity in the private sector, w ith
som e key breakthroughs (e.g., Fiat)
• Recent reform s have set the stage for further progress (e.g., com petitive
tendering, enhanced role of the antitrust authority, rem oval of obsolete
legislation, secondary school and university)
Threats
• The fam ily-centered m odel of capitalism is suffering from w eak corporate
governance and a generation change
• Lack of m easures to attract talents from abroad or to retain Italian ones
m ay affect grow th/innovation in the long term
• Realization of crucial prospected reform s (energy, justice, bureaucracy) is
currently underm ined by an unusually high level of political strife
Outlook
• The latest forecasts show Italian GDP grow ing at around 1% both in 2011
and 2012 — slow er than the rest of the euro area — supported by soaring
exports, but still affected by w eak consum er spending and austerity
m easures im posed by the governm ent
Carlo Pelloni, Ernst & Young
[email protected]
139 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
7 75,9 7
1.2 Medium-Term Real GDP Growth
79 76,4 73
1.3 Unemployment
33 105,4 41
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
39 43,8 45
2.2 Stock Market Liquidity (Trading Volume)
21 25,7 25
2.3 IPO Market Activity
15 54,7 19
2.4 M&A Market Activity
9 72,4 11
2.5 Debt and Credit Market
44 61,8 48
2.6 Bank Non-Performing Loans to Total Gross Loans
58 87,0 64
2.7 Financial Market Sophistication
55 40,0 56
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
34 103,4 30
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
63 34,7 73
4.2 Security of Property Rights
48 47,4 56
4.3 Quality of Legal Enforcement
51 56,4 55
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
62 48,5 49
5.2 Labor Market Rigidities
39 61,6 43
5.3 Bribing and Corruption
38 48,6 47
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
21 56,2 28
6.2 Scientific and Technical Journal Articles
8 82,8 8
6.3 Ease of Starting and Running a Business
58 74,4 60
6.4 Simplicity of Closing a Business
33 73,9 35
6.5 Corporate R&D
26 53,8 23
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
140 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Japan
2007 2011 Quartile
Rank Value Rank
Singapore 2 92,4 4
Japan 6 90,9 6
Hong Kong 15 76,5 16
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
4th 1st
0
2
4
6
8
10
12
14
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Japan Asia
United States=100 Points
GDP 5273 [bn USD] IPO Volume
Population 127 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Tokyo ++Official Language: Japanese ++Currency: Yen
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 6 90,9 6
Economic Activity 57 94,3 9
Depth of Capital Market 7 78,7 7
Taxation 27 101,4 36
Inv. Prot./Corp. Gov. 13 97,1 13
Human/Social Env. 15 91,0 15
Entrepr. Cult./Deal Opp. 2 102,3 1
4th 1st
Strengths
• The w orld’s third-largest econom y
• M arket-leading technology in m any sectors
• Firm ly established econom ic and social infrastructure
Weaknesses
• Unique corporate governance culture differs from W estern standards
• High corporate tax burdens on corporate cash ow
• Stringent legislative protection of em ployee rights prevents exible
w orkforce, rightsizing and adaptation of hum an resource m anagem ent
initiatives to corporate strategies
Opportunities
• Com panies receive only lim ited investm ents but w ould certainly bene t
from VCPE as they are usually broadly diversi ed w ith m any non-core
activities
• Succession issues in fam ily-ow ned businesses foster VCPE investm ent
• Take-private deals and PIPEs are becom ing m ore understood and accepted
by m anagem ent
Threats
• Increasingly negative sentim ent tow ard VCPE, as VCPE investors are
not seen as appropriately supporting investee com panies in the current
econom ic clim ate
• Increasingly dif cult funding environm ent
• Decreasing valuations of public com panies reveal m issed/unfavorable
VCPE exit opportunities
Outlook
• M ore Japanese com panies are likely to aim at expanding their business
into the global m arket, requiring additional funds and professional
support from VCPE
• M any com panies w ill nd it increasingly hard to obtain access to
additional capital and w ill need to deploy their capital m ore effectively
• M any com panies w ill be forced to divest non-core businesses in order to
create shareholder value
Satoshi Sekine, Ernst & Young Transaction
[email protected]
141 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
2 87,2 3
1.2 Medium-Term Real GDP Growth
76 79,8 71
1.3 Unemployment
15 120,5 13
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
11 86,3 11
2.2 Stock Market Liquidity (Trading Volume)
10 46,8 14
2.3 IPO Market Activity
3 68,7 8
2.4 M&A Market Activity
3 84,4 3
2.5 Debt and Credit Market
5 102,2 1
2.6 Bank Non-Performing Loans to Total Gross Loans
25 108,9 21
2.7 Financial Market Sophistication
37 71,8 31
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
27 101,4 36
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
14 88,1 13
4.2 Security of Property Rights
13 99,3 14
4.3 Quality of Legal Enforcement
18 104,5 17
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
21 86,2 19
5.2 Labor Market Rigidities
9 85,6 12
5.3 Bribing and Corruption
18 102,0 17
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
3 106,1 4
6.2 Scientific and Technical Journal Articles
2 89,4 2
6.3 Ease of Starting and Running a Business
34 99,9 20
6.4 Simplicity of Closing a Business
3 114,9 2
6.5 Corporate R&D
2 103,1 1
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
142 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Jordan
2007 2011 Quartile
Rank Value Rank
Israel 19 72,2 21
Saudi Arabia 36 67,5 25
United Arab Emirates 33 61,6 28
Kuwait 40 57,9 35
Jordan 42 53,2 38
Oman 51 45,6 46
Bahrain 58 44,3 50
4th 1st
30
32
34
36
38
40
42
44
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Jordan
Middle East
United States=100 Points
GDP 25 [bn USD] IPO Volume
Population 6 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Amman ++Official Language: Arabic ++Currency: Jordanian Dinar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 42 53,2 38
Economic Activity 55 63,7 63
Depth of Capital Market 42 55,7 27
Taxation 28 102,0 35
Inv. Prot./Corp. Gov. 41 61,1 43
Human/Social Env. 26 61,8 34
Entrepr. Cult./Deal Opp. 54 33,0 62
4th 1st
Strengths
• One of the m ost w ell-regulated and transparent banking system s in the
region
• Successful im plem entation, by the Central Bank of Jordan, of m easures to
im prove supervision and capital position of banks over the past few years;
non-perform ing loans have since declined and Basel II standards have
been im plem ented
• Relatively stable, both econom ically and politically, w hich, alongside its
close proxim ity to Iraq, bodes w ell for long-term trade and investm ent
opportunities
Weaknesses
• Relatively scant natural resources: phosphates and potash are the only
signi cant m ineral deposits, and w ater resources are lim ited
• Unem ploym ent and poverty: governm ent prom ises of an im proved
w elfare system and job creation have been slow to m aterialize
Opportunities
• The Kingdom has bene ted from robust regional econom ic grow th
through an upsurge in trade, tourism and foreign investm ent
• Political instability in Lebanon bene ts Jordan’s tourism industry as visitors
to the Levant region seek an alternative destination
Threats
• Jordan's current account de cit and onerous debt pro le create a
trem endous am ount of dow nw ard pressure on the dinar, w hile additional
secondary pressure com es from com m odity price sw ings and security
threats to the M iddle East region
• Lack of conventional oil reserves m eans that the country is vulnerable to
? uctuating global prices
Outlook
• W ith ongoing instability in Iraq, Jordan w ill continue to act as a safe
services and logistics hub for business activity in the GCC
Samar Obaid, Ernst & Young
[email protected]
143 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
71 20,6 68
1.2 Medium-Term Real GDP Growth
13 148,6 11
1.3 Unemployment
72 84,4 66
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
9 114,3 4
2.2 Stock Market Liquidity (Trading Volume)
12 51,5 11
2.3 IPO Market Activity
63 33,3 39
2.4 M&A Market Activity
65 28,0 59
2.5 Debt and Credit Market
40 60,8 50
2.6 Bank Non-Performing Loans to Total Gross Loans
55 91,8 56
2.7 Financial Market Sophistication
44 54,1 51
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
28 102,0 35
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
52 46,4 62
4.2 Security of Property Rights
41 64,2 40
4.3 Quality of Legal Enforcement
36 76,4 37
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
30 46,1 52
5.2 Labor Market Rigidities
26 76,7 26
5.3 Bribing and Corruption
32 66,6 33
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
52 22,9 64
6.2 Scientific and Technical Journal Articles
55 46,5 55
6.3 Ease of Starting and Running a Business
73 80,7 53
6.4 Simplicity of Closing a Business
54 55,5 61
6.5 Corporate R&D
60 8,3 66
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
144 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Kazakhstan
2007 2011 Quartile
Rank Value Rank
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
Philippines 53 41,2 58
Kazakhstan 54 39,1 61
Armenia 72 25,3 71
Kyrgyzstan 78 14,4 80
4th 1st
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Kazakhstan
Asia
United States=100 Points
GDP 126 [bn USD] IPO Volume
Population 16 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Astana ++Official Language: Kazakh, Russian ++Currency: Tenge
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 54 39,1 61
Economic Activity 10 82,1 37
Depth of Capital Market 56 24,7 59
Taxation 49 92,2 55
Inv. Prot./Corp. Gov. 55 45,3 58
Human/Social Env. 56 36,4 68
Entrepr. Cult./Deal Opp. 51 38,5 55
4th 1st
Strengths
• Rich oil and gas and m ineral resources, including coal and uranium
• Strong public nances, including a large petroleum stabilization fund and
low governm ent debt
• Political and social stability since independence
• High FDI in ow per capita com pared w ith m any of its peers
• Active state participation in restructuring of system atic nancial institutions
• State National W ealth Fund active in setting up PE funds w ith foreign
investors
Weaknesses
• Overdependence on hydrocarbons and m ineral resources
• Banking sector still has a high share of non-perform ing loans representing
an ongoing risk to banks’capital and constraining recovery in dom estic
dem and
• Corporate sector rem ains highly leveraged
• High level of dollarization
• Insuf cient corporate governance requirem ents
• Perceived high levels of corruption by Eastern European standards
Opportunities
• Econom ic diversi cation and industrialization, particularly tow ard higher
value-added activities
• Large privatization program scheduled to begin in 2012
• Deepening local capital m arkets and a w ell-functioning governm ent
benchm ark yield curve
• Developm ent of Single Econom ic Space and Custom s Union w ith Russia
and Belarus
• Plans to join W orld Trade Organization
• Developm ent of PPP to nance m odernization of energy-generating and
transm ission assets
Threats
• A signi cant drop in oil and other com m odity prices w ould im pact
econom ic grow th
• Particularly vulnerable to w eakness in EU, and China and Russian grow th
dow nturn
Outlook
• Conditions are likely to im prove in the near future subject to speedy
resolution of the non-perform ing loans issue in Kazakhstan’s nancial system
Timur Pulatov, Ernst & Young
[email protected]
145 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
54 40,8 53
1.2 Medium-Term Real GDP Growth
5 120,6 28
1.3 Unemployment
47 112,5 29
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
46 38,6 51
2.2 Stock Market Liquidity (Trading Volume)
54 2,2 62
2.3 IPO Market Activity
45 13,3 61
2.4 M&A Market Activity
50 42,3 49
2.5 Debt and Credit Market
75 41,8 70
2.6 Bank Non-Performing Loans to Total Gross Loans
59 85,6 67
2.7 Financial Market Sophistication
62 33,0 64
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
49 92,2 55
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
49 49,9 55
4.2 Security of Property Rights
51 43,3 62
4.3 Quality of Legal Enforcement
62 42,9 60
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
46 34,9 65
5.2 Labor Market Rigidities
16 82,5 17
5.3 Bribing and Corruption
71 16,8 71
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
54 27,2 59
6.2 Scientific and Technical Journal Articles
68 37,9 68
6.3 Ease of Starting and Running a Business
33 89,7 40
6.4 Simplicity of Closing a Business
39 74,5 34
6.5 Corporate R&D
59 12,3 60
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
146 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
2007 2011 Quartile
Rank Value Rank
South Africa 24 66,9 26
Egypt 52 41,8 55
Morocco 61 41,8 54
Tunisia 64 41,5 56
Kenya 69 38,3 63
Nigeria 66 37,1 64
Namibia 70 26,4 70
Algeria 76 17,1 77
4th 1st
60
62
64
66
68
70
72
74
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Kenya Africa
United States=100 Points
GDP 32 [bn USD] IPO Volume
Population 41 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Nairobi ++Official Language: English, Swahili ++Currency: Kenyan Shilling
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 69 38,3 63
Economic Activity 62 63,7 62
Depth of Capital Market 69 24,9 58
Taxation 57 88,4 67
Inv. Prot./Corp. Gov. 59 41,3 63
Human/Social Env. 69 36,8 66
Entrepr. Cult./Deal Opp. 62 42,7 51
4th 1st
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Kenya
Strengths
• Strong and liquid stock m arket w ith a good track record of corporate
activity in banking and telecom m unications
• Leads the w ay in nding innovative solutions to the lack of access to
banking services, e.g., follow ing M -Pesa (a m obile phone-based m oney
transfer service)
• VC Houses have been looking for opportunities to fund innovative
ventures in the ICT space
Weaknesses
• Despite a liquid stock m arket and grow th in the property m arket, there is a
lack of access to banking services for consum ers, particularly in m ortgage
lending
• There are incidents of banks using depositors’m oney to buy governm ent
bonds because it is m uch safer than retail lending –there has been a
reported 400% (approxim ate) grow th in the governm ent bond m arket
Opportunities
• Because m ost com panies in the East African Com m unity (EAC) are cross-
listed on the m ain stock exchanges (Nairobi Stock Exchange, Jerusalem
Stock Exchange and Uganda Securities Exchange) one can expect there
w ill be a lot of corporate activity in the near future
• The farther the regionalization of the EAC progresses, the m ore one can
expect to see M &A or IPOs in the region
• Kenyan banks and East African airlines continue to expand, laying the
foundation for future M &As
Threats
• Progress in Kenya’s nancial m arkets, although it is able to lead, w ill
alw ays depend on the stability of the region
• The com m on m arket protocol poses a threat because regional blocs take
a long tim e to solidify it: this m ay delay som e com m ercial decisions that
could trigger M &A activity
Outlook
• Generally considered a gatew ay into Africa, Kenya is relatively m ore
advanced than the rest of the EAC, and w ill continue to bene t from the
ongoing regionalization of the African econom y
• East Africa is on track to create a com m on currency before 2020, having
already established a com m on custom s union and started building a
com m on trading platform for the region (w ith nearly 140 m illion people)
Gitahi Gachahi, Ernst & Young
[email protected]
147 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
66 23,9 67
1.2 Medium-Term Real GDP Growth
33 123,7 23
1.3 Unemployment
68 87,5 63
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
52 45,6 43
2.2 Stock Market Liquidity (Trading Volume)
53 3,0 53
2.3 IPO Market Activity
55 16,6 59
2.4 M&A Market Activity
67 11,2 72
2.5 Debt and Credit Market
57 62,0 46
2.6 Bank Non-Performing Loans to Total Gross Loans
80 58,8 75
2.7 Financial Market Sophistication
49 64,7 41
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
57 88,4 67
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
30 57,7 43
4.2 Security of Property Rights
62 43,1 63
4.3 Quality of Legal Enforcement
71 28,2 73
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
28 67,1 34
5.2 Labor Market Rigidities
28 76,8 25
5.3 Bribing and Corruption
78 9,6 77
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
61 30,2 56
6.2 Scientific and Technical Journal Articles
58 44,9 58
6.3 Ease of Starting and Running a Business
64 69,6 64
6.4 Simplicity of Closing a Business
61 48,1 64
6.5 Corporate R&D
64 31,1 42
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
148 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Korea, South
2007 2011 Quartile
Rank Value Rank
Singapore 2 92,4 4
Japan 6 90,9 6
Hong Kong 15 76,5 16
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
4th 1st
6
8
10
12
14
16
18
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Korea, South
Asia
United States=100 Points
GDP 991 [bn USD] IPO Volume
Population 49 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Seoul ++Official Language: Korean ++Currency: South Korean Won
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 11 75,7 17
Economic Activity 16 101,0 3
Depth of Capital Market 12 64,8 18
Taxation 24 105,5 24
Inv. Prot./Corp. Gov. 21 72,3 30
Human/Social Env. 24 61,4 35
Entrepr. Cult./Deal Opp. 8 86,4 12
4th 1st
Strengths
• Solid, diversi ed econom y w ith high standard of education
• Globally com petitive in m any m ajor m anufacturing sectors, such as
electronics, telecom s, autom obile, shipbuilding and nuclear pow er
• Increasingly strong trade links w ith China
• Am ong the m ost ef cient and transparent m arkets in the w orld for
availability of credit
Weaknesses
• Econom ic dynam ism concentrated in m anufacturing and technology
sectors. The service sectors have created relatively few er new jobs during
the recovery
• Steady reduction in FDI in ow s over the last ve years, suggesting an
increasingly challenging business environm ent for foreign investors
• Large am ount of debt in 2006-08 for the non- nancial corporate sector
• Relatively high loan to deposit ratio of banks
• Som e com panies encum bered by in exible practices, including boards that
have com paratively less accountability for corporate actions
• A strong union culture, m aking labor restructuring dif cult and the high
cost of ring
Opportunities
• M edium -term grow th outlook am ong the highest of the large econom ies
• Corporate restructuring
• M ajor expansion in new sectors prom oted by the Governm ent, such as
green energy
Threats
• Dom inance of the econom y by the large conglom erates, m aking it
relatively m ore dif cult for new rm s to grow, either in existing or new
industries
• Perception that tensions w ith North Korea w ill raise the risk of potentially
challenging developm ents in the Korean peninsula
Outlook
• Korea has a positive m edium -term grow th outlook, given its strengths
in technology and boost from China; how ever, this has been re ected in
sharply rising equity prices, w hich are now above their 2007 peaks
• Signi cant pressure on the exchange rate to appreciate could trigger
further capital control m easures
Ki Whan Jung, Ernst & Young
[email protected]
149 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
12 66,4 15
1.2 Medium-Term Real GDP Growth
52 121,1 26
1.3 Unemployment
8 128,1 4
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
20 75,1 21
2.2 Stock Market Liquidity (Trading Volume)
11 61,4 5
2.3 IPO Market Activity
10 68,3 9
2.4 M&A Market Activity
15 75,0 7
2.5 Debt and Credit Market
20 60,8 49
2.6 Bank Non-Performing Loans to Total Gross Loans
14 113,0 13
2.7 Financial Market Sophistication
31 29,4 66
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
24 105,5 24
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
24 54,9 47
4.2 Security of Property Rights
15 84,7 22
4.3 Quality of Legal Enforcement
26 81,3 31
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
18 69,4 31
5.2 Labor Market Rigidities
50 47,0 61
5.3 Bribing and Corruption
31 71,1 31
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
12 76,6 19
6.2 Scientific and Technical Journal Articles
10 79,5 10
6.3 Ease of Starting and Running a Business
30 94,4 33
6.4 Simplicity of Closing a Business
10 104,4 11
6.5 Corporate R&D
4 80,3 7
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
150 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Kuwait
2007 2011 Quartile
Rank Value Rank
Israel 19 72,2 21
Saudi Arabia 36 67,5 25
United Arab Emirates 33 61,6 28
Kuwait 40 57,9 35
Jordan 42 53,2 38
Oman 51 45,6 46
Bahrain 58 44,3 50
4th 1st
25
27
29
31
33
35
37
39
41
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Kuwait
Middle East
United States=100 Points
GDP 126 [bn USD] IPO Volume
Population 2 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Kuwait City ++Official Language: Arabic ++Currency: Kuwaiti Dinar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 40 57,9 35
Economic Activity 7 88,2 28
Depth of Capital Market 41 54,2 29
Taxation 78 89,3 66
Inv. Prot./Corp. Gov. 34 67,6 36
Human/Social Env. 35 57,3 39
Entrepr. Cult./Deal Opp. 48 41,4 53
4th 1st
Strengths
• Independent m onetary policy
• Fiscal surplus on account of oil w ealth
Weaknesses
• Vulnerability to w orld oil prices: oil accounts for about 50% of GDP, m ore
than 80% of governm ent revenues and over 90% of total export earnings,
w ith the non-oil econom y still relatively underdeveloped
• Lim ited success of attem pts to “Kuw aitize”private sector em ploym ent
• Severe im pact of global nancial crisis on Kuw aiti banks; elevated
exposure to the Dubai W orld crisis w ill continue to w eigh in on lending
grow th in the future
Opportunities
• In ation has decreased, reducing the risks to consum er spending
• The Governm ent has am ple assets in sovereign w ealth and reserve funds
to keep the econom y a oat in spite of low er oil prices
Threats
• Kuw ait is over-reliant on the hydrocarbon sector
• As the sole state in the GCC region that prom otes a quasi-dem ocratic
regim e, its political risk pro le also rem ains a key threat, w hich in turn
could dam age investor sentim ent
Outlook
• Kuw ait’s political risk pro le rem ains a key threat that could hurt investor
sentim ent
• Kuw ait is an attractive staging point for com panies and investors
interested doing business in Iraq
Varun Sharma, Ernst & Young
[email protected]
151 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
51 40,8 54
1.2 Medium-Term Real GDP Growth
10 119,9 30
1.3 Unemployment
2 140,2 1
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
22 73,7 22
2.2 Stock Market Liquidity (Trading Volume)
27 32,9 21
2.3 IPO Market Activity
54 29,8 43
2.4 M&A Market Activity
63 39,3 53
2.5 Debt and Credit Market
36 71,2 33
2.6 Bank Non-Performing Loans to Total Gross Loans
51 99,3 41
2.7 Financial Market Sophistication
37 68,2 36
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
78 89,3 66
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
34 51,3 53
4.2 Security of Property Rights
38 75,1 33
4.3 Quality of Legal Enforcement
28 80,1 32
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
58 43,1 57
5.2 Labor Market Rigidities
12 80,9 19
5.3 Bribing and Corruption
36 54,1 45
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
53 28,4 58
6.2 Scientific and Technical Journal Articles
56 45,1 56
6.3 Ease of Starting and Running a Business
59 64,0 68
6.4 Simplicity of Closing a Business
35 65,0 46
6.5 Corporate R&D
54 22,7 52
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
152 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Kyrgyztan
2007 2011 Quartile
Rank Value Rank
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
Philippines 53 41,2 58
Kazakhstan 54 39,1 61
Armenia 72 25,3 71
Kyrgyzstan 78 14,4 80
4th 1st
74
75
76
77
78
79
80
81
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Kyrgyzstan
Asia
United States=100 Points
GDP 5 [bn USD] IPO Volume
Population 6 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Bishkek ++Official Language: Kyrgyz, Russian ++Currency: Som
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 78 14,4 80
Economic Activity 79 25,4 77
Depth of Capital Market 75 8,7 77
Taxation 72 75,2 74
Inv. Prot./Corp. Gov. 72 31,6 74
Human/Social Env. 78 18,5 77
Entrepr. Cult./Deal Opp. 78 8,0 80
4th 1st
Strengths
• High grow th potential, estim ated around 8% per year before the crisis
• Gold deposits, w ith gold m ining contributing 10% -15% to GDP
• Strong IM F support and nancial support from international donors
• Favorable corporate disclosure practices and director liability rules
• Ef cient legislation for new business starts
Weaknesses
• Very low GDP per capita and a sm all econom y w ith GDP of less than
US$5b
• Low investor con dence caused by the nationalization of the largest
private bank and six others under tem porary adm inistration
• Insuf cient independence for the Kyrgyz Central Bank to conduct
m onetary policy successfully
Opportunities
• Privatization in energy, telecom m unications and nancial sectors
• Energy infrastructure-related investm ents are estim ated to reach
US$550m betw een 2011-13, according to the IM F
• Potential m em bership of the Custom s Union, w ith Russia, Kazakhstan
and Belarus
Threats
• A political crisis escalated in 2010 that culm inated in the establishm ent
of a new parliam entary dem ocracy; ethnic tensions are still high and,
if political and social tensions persist, this w ould have a detrim ental
im pact on grow th
• Dependence on stability in other econom ies: around 40% of GDP is
generated by rem ittances from Kyrgyz w orking abroad, m ainly in Russia
• Krzgyzstan is at the center of US-Russian rivalry for control of con ict-
prone Central Asia; both pow ers have m ilitary bases in the country
Outlook
• Addressing the im m ediate effects of the political crisis has required
a considerable increase in public spending w hich the IM F estim ated at
over 4% of GDP; this has resulted in a steep deterioration of the budget
de cit
• Very poor outlook for the VCPE m arkets w ith low scores on m ost criteria:
a sm all econom y, w ith high political risk, undeveloped capital m arkets,
perceived high levels of bribery and corruption, an unattractive taxation
system and a low level of legal enforcem ent
153 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
80 1,0 80
1.2 Medium-Term Real GDP Growth
64 150,6 10
1.3 Unemployment
50 108,5 35
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
76 10,8 76
2.2 Stock Market Liquidity (Trading Volume)
58 2,0 64
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
75 5,7 79
2.5 Debt and Credit Market
68 29,1 74
2.6 Bank Non-Performing Loans to Total Gross Loans
59 85,6 67
2.7 Financial Market Sophistication
76 11,8 75
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
72 75,2 74
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
50 71,6 24
4.2 Security of Property Rights
73 17,2 74
4.3 Quality of Legal Enforcement
76 25,7 75
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
69 21,8 77
5.2 Labor Market Rigidities
30 79,0 21
5.3 Bribing and Corruption
80 3,7 79
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
77 4,9 79
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
46 94,6 31
6.4 Simplicity of Closing a Business
67 43,6 68
6.5 Corporate R&D
76 1,6 80
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
154 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Latvia
2007 2011 Quartile
Rank Value Rank
Croatia 55 43,4 52
Romania 47 41,0 60
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
Moldova 71 22,0 72
Macedonia 75 19,3 73
4th 1st
50
55
60
65
70
75
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Latvia
Eastern Europe
United States=100 Points
GDP 24 [bn USD] IPO Volume
Population 2 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Riga ++Official Language: Latvian ++Currency: Latvian Lat
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 56 29,4 67
Economic Activity 22 12,8 79
Depth of Capital Market 61 13,6 66
Taxation 38 104,4 26
Inv. Prot./Corp. Gov. 29 71,4 33
Human/Social Env. 45 55,1 41
Entrepr. Cult./Deal Opp. 61 44,1 49
4th 1st
Strengths
• Joint European resources for m icro to m edium enterprises (JEREM IE)
initiative has increased start-up and expansion funding for com panies
w ith exceptional grow th potential
• Stable political backdrop
• Transparent and relatively ef cient legal system
• Despite recent tax increases, the tax system in Latvia rem ains attractive in
a regional context for potential investors
Weaknesses
• The Latvian VC sector is underdeveloped com pared w ith other European
countries, in part due to illiquid nancial m arkets
• The default of som e aggressively leveraged PE investm ents (m ade prior to
the dow nturn) has had a negative effect on the reputation of Latvia’s PE
sector
• The IM F bailout m eans that the Governm ent’s m anagem ent of the
econom y is hindered by signi cant scal restrictions
Opportunities
• Eurozone entry in 2014 could provide greater econom ic stability
• Latvia is keen to develop trade links w ith Russia
• As a result of econom ic crisis, the banking sector has refocused from
nancing real estate developm ent to productive and export-oriented
econom y sectors
Threats
• The fallout from the banking collapse and subsequent slow econom ic
recovery has constrained banking liquidity
• The cycle of slow lending, depressed assets and falling real incom es m ight
be dif cult to break
• Longer-term grow th prospects hindered by falling population and
structurally high unem ploym ent
Outlook
• The econom ic backdrop rem ains challenging, but this m ay offer investors
attractive valuations
• Foreign VCPE Houses are likely to be attracted back to Latvia if it can
dem onstrate that its econom y is rm ly on the road to recovery, as
indicated by the recently increasing num ber of ongoing transactions by
PE Houses
RaimondsKulbergs, Ernst & Young Baltic SIA
[email protected]
155 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
67 20,2 69
1.2 Medium-Term Real GDP Growth
4 2,0 80
1.3 Unemployment
33 53,2 75
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
69 18,4 72
2.2 Stock Market Liquidity (Trading Volume)
70 1,2 72
2.3 IPO Market Activity
57 1,0 67
2.4 M&A Market Activity
70 20,2 65
2.5 Debt and Credit Market
38 50,1 65
2.6 Bank Non-Performing Loans to Total Gross Loans
8 95,9 50
2.7 Financial Market Sophistication
44 40,0 56
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
38 104,4 26
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
17 70,0 25
4.2 Security of Property Rights
35 73,3 34
4.3 Quality of Legal Enforcement
40 71,0 39
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
50 55,3 40
5.2 Labor Market Rigidities
55 55,7 52
5.3 Bribing and Corruption
42 54,5 44
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
56 37,2 46
6.2 Scientific and Technical Journal Articles
65 40,6 65
6.3 Ease of Starting and Running a Business
21 94,9 27
6.4 Simplicity of Closing a Business
47 61,6 53
6.5 Corporate R&D
75 18,7 57
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
156 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Lithuania
2007 2011 Quartile
Rank Value Rank
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
4th 1st
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Lithuania
Eastern Europe
United States=100 Points
GDP 35[bn USD] IPO Volume
Population 3 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Vilnius ++Official Language: Lithuanian ++Currency: Lithuanian Litas
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 46 41,3 57
Economic Activity 30 42,2 71
Depth of Capital Market 57 22,6 60
Taxation 9 103,2 32
Inv. Prot./Corp. Gov. 36 66,4 37
Human/Social Env. 42 53,1 45
Entrepr. Cult./Deal Opp. 34 50,9 35
4th 1st
Strengths
• Flexibility of m arket players presents good prospects for the future
• Open m arket, w ith good relationships w ith both W estern and Eastern
Europe
• Governm ent and EU initiatives to support/develop seed capital nancing
and VC
• Attractive tax environm ent (including low corporate incom e tax rate and
taxation of capital gains deriving from transfer of shares)
Weaknesses
• Lack of available capital and innovation in using alternative m eans of
nancing
• Lack of substantial and structured support from the governm ent in
expanding high-grow th industries
• Lack of developed capital m arkets w hich w ould assure easy and exible
exits from businesses, or additional funding
Opportunities
• Relatively low -priced m arket; recovery could reveal m ore opportunities for
VCPE investm ents
• Num erous opportunities related to the operational effectiveness of
businesses, synergies and m anagem ent allow value creation by investors
• Increased activity and actions of VCPE representatives, governm ent
initiatives, as w ell as real-life investm ent cases, increase aw areness and
recognition of VCPE as source of nancing in the eyes of entrepreneurs;
this m ight result in m ore deals in the m arket
• Potential privatizations of state-ow ned enterprises perform ing com m ercial
functions m ight contribute to the increasing deal ow
Threats
• Very lim ited credit m arket reopening
• Dif culties in regaining trust and interest from foreign investors
Outlook
• Recovery of the econom y, the existence of a num ber of viable businesses
that survived the econom ic dow nturn and need capital for expansion,
privatizations, the reshuf ing of capital betw een various ow ners and
positive changes in the tax legislation w ill attract investors and w ill drive
the m arket tow ards higher activity
RolandasLaukaitis, Ernst & Young
[email protected]
157 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
65 25,0 66
1.2 Medium-Term Real GDP Growth
16 48,7 78
1.3 Unemployment
26 61,6 73
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
60 22,3 67
2.2 Stock Market Liquidity (Trading Volume)
51 1,6 68
2.3 IPO Market Activity
65 11,9 63
2.4 M&A Market Activity
55 30,2 57
2.5 Debt and Credit Market
32 57,2 53
2.6 Bank Non-Performing Loans to Total Gross Loans
20 89,0 61
2.7 Financial Market Sophistication
49 47,1 54
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
9 103,2 32
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
33 62,4 35
4.2 Security of Property Rights
28 70,3 38
4.3 Quality of Legal Enforcement
45 66,9 44
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
37 58,7 39
5.2 Labor Market Rigidities
63 46,0 63
5.3 Bribing and Corruption
43 55,3 41
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
45 43,7 35
6.2 Scientific and Technical Journal Articles
51 49,6 51
6.3 Ease of Starting and Running a Business
26 92,4 37
6.4 Simplicity of Closing a Business
25 86,6 23
6.5 Corporate R&D
51 19,6 56
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
158 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Luxembourg
2007 2011 Quartile
Rank Value Rank
France 17 79,6 14
Belgium 18 76,8 15
Austria 23 71,7 22
Spain 20 69,1 23
Ireland 14 67,7 24
Portugal 38 60,4 31
Italy 32 59,6 32
Luxembourg 29 59,3 33
Greece 39 47,9 44
4th 1st
20
22
24
26
28
30
32
34
36
38
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Luxembourg
Western Europe
United States=100 Points
GDP 50[bn USD] IPO Volume
Population 0 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Luxembourg++Official Language: Luxermbourgish, French, German ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 29 59,3 33
Economic Activity 43 67,8 59
Depth of Capital Market 43 38,3 46
Taxation 23 103,8 29
Inv. Prot./Corp. Gov. 17 93,8 15
Human/Social Env. 33 66,6 27
Entrepr. Cult./Deal Opp. 25 64,1 26
4th 1st
Strengths
• M ultilingual and internationally oriented quali ed w orkforce
• No constraints applicable to pension funds w hen investing in VCPE, and
no geographical restrictions for investm ents outside Luxem bourg
• Favorable tax policy for investm ents in VCPE, including new exem ption
from subscription tax for all m icro nance investm ent vehicles, intellectual
property and R&D expenditures
• Com plete portfolio of products enabling m axim um exibility in legal, tax
and operational structuring
Weaknesses
• Lack of speci c tax rate for SM Es
• Lim ited deal ow
• Fiscal incentives to support investm ent in R&D at com pany level could be
enhanced
Opportunities
• AIFM Directive: track record in PE-regulated products w ith independent
depositary, re-dom iciliation of businesses looking for an onshore European
VCPE fund label, m obilization of all industry players to ensure sw ift and
pragm atic im plem entation process w ith a view to turning AIFM into a
pow erful m arketing brand for cross-border distribution of VCPE funds
• Stock options tax treatm ent could be used to support talent retention in
investee com pany
• VCPE structures are very relevant for investm ent in distressed and im pact
nance (e.g., cleantech, m icro nance, renew able energies)
• M odernization of the lim ited partnership regim e
Threats
• Duplication of available products and tax incentives by com petitive
locations
• Treaty access requires strict com pliance w ith substance requirem ents
• Constraints im posed on non-EU m anagers for the distribution of their
Luxem bourg funds w ithin Europe by the AIFM Directive
Outlook
• Thanks to a tradition of innovation and the client-focused attitude of
authorities, Luxem bourg has m anaged to position itself as a m ajor center
for VCPE onshore investm ent and fund structuring in Europe
Axelle Ferey, Ernst & Young
[email protected]
159 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
59 29,4 62
1.2 Medium-Term Real GDP Growth
46 88,5 61
1.3 Unemployment
19 119,6 15
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
19 78,1 18
2.2 Stock Market Liquidity (Trading Volume)
71 2,4 60
2.3 IPO Market Activity
27 30,9 41
2.4 M&A Market Activity
48 43,9 44
2.5 Debt and Credit Market
65 35,5 73
2.6 Bank Non-Performing Loans to Total Gross Loans
1 119,2 1
2.7 Financial Market Sophistication
3 114,1 2
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
23 103,8 29
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
35 63,6 34
4.2 Security of Property Rights
12 109,6 5
4.3 Quality of Legal Enforcement
10 118,6 12
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
34 75,7 25
5.2 Labor Market Rigidities
74 32,2 72
5.3 Bribing and Corruption
11 120,9 11
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
19 84,6 14
6.2 Scientific and Technical Journal Articles
70 34,0 70
6.3 Ease of Starting and Running a Business
15 98,7 21
6.4 Simplicity of Closing a Business
37 72,9 37
6.5 Corporate R&D
28 52,2 25
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
160 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Macedonia
2007 2011 Quartile
Rank Value Rank
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
Moldova 71 22,0 72
Macedonia 75 19,3 73
Albania 79 17,8 75
Bosnia-Herzegovina 77 17,3 76
4th 1st
71
72
73
74
75
76
77
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Macedonia
Eastern Europe
United States=100 Points
GDP 9[bn USD] IPO Volume
Population 2 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Skopje ++Official Language: Macedonian ++Currency: Macedonian Denar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 75 19,3 73
Economic Activity 80 11,2 80
Depth of Capital Market 70 10,3 74
Taxation 46 100,2 39
Inv. Prot./Corp. Gov. 63 45,9 56
Human/Social Env. 59 56,6 40
Entrepr. Cult./Deal Opp. 76 14,5 74
4th 1st
Strengths
• Fram ework for econom ic stability provided by tight scal and m onetary policy
• Large-scale privatization program , w ith private sector accounting for
around 80% of output and em ploym ent
• Relatively robust m edium -term growth outlook due to high capital spending
• Relative ease of setting up a business
• Ongoing support from the European Investm ent Bank contributing to
nance for big infrastructure projects
Weaknesses
• Unem ploym ent rate of m ore than 30%
• Developm ent of capital m arkets in its infancy
• Large inform al econom y w ith lim ited scope for tax receipts
• W eak judicial system threatening political stability
• Poor enforcem ent of property rights
Opportunities
• The 2011 budget includes a large increase in spending on health,
education, transport and infrastructure
• A new anti-crisis package w ill im prove access to credit for SM Es
• The Governm ent abolished the 10% ceiling on foreign investm ent on the
Skopje Stock Exchange
• M acedonia entered the Schengen Agreem ent in Decem ber 2009, providing
greater opportunities for cross-border travel
• Progress in EU accession has been a priority under the Hungarian EU
presidency
Threats
• A deterioration in the Eurozone could stall the export-driven recovery
• A w ide trade de cit leaves the econom y vulnerable to external shocks
• M arket reform law s have been im plem ented ineffectively
Outlook
• In the m edium term , GDP grow th is expected to average m ore than 4%
• Privatization and high capital spending w ill create opportunities for VCPE
in the near term
• Risks com e from the uncertainty of the econom ic outlook, as w ell as from
a w eak judicial system and concerns surrounding the enforcem ent of
property rights
FotisDemetriou, Ernst & Young
[email protected]
Kalina Sukarova, Ernst & Young
[email protected]
161 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
78 8,5 77
1.2 Medium-Term Real GDP Growth
57 117,8 33
1.3 Unemployment
80 1,4 80
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
66 23,3 65
2.2 Stock Market Liquidity (Trading Volume)
60 1,8 66
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
66 7,7 76
2.5 Debt and Credit Market
67 44,4 67
2.6 Bank Non-Performing Loans to Total Gross Loans
75 73,9 74
2.7 Financial Market Sophistication
70 11,8 75
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
46 100,2 39
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
40 60,9 37
4.2 Security of Property Rights
67 41,9 64
4.3 Quality of Legal Enforcement
69 37,8 66
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
53 52,5 46
5.2 Labor Market Rigidities
57 81,9 18
5.3 Bribing and Corruption
64 42,2 52
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
71 22,5 65
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
62 100,9 16
6.4 Simplicity of Closing a Business
72 44,1 67
6.5 Corporate R&D
72 6,3 73
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
162 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Malaysia
2007 2011 Quartile
Rank Value Rank
Hong Kong 15 76,5 16
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
4th 1st
12
14
16
18
20
22
24
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Malaysia Asia
United States=100 Points
GDP 213 [bn USD] IPO Volume
Population 29 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Kuala Lumpur ++Official Language: Bahasa Melayu ++Currency: Malaysian Ringgit
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 21 72,5 18
Economic Activity 17 90,1 19
Depth of Capital Market 20 62,9 21
Taxation 45 101,2 38
Inv. Prot./Corp. Gov. 19 85,1 20
Human/Social Env. 19 71,2 24
Entrepr. Cult./Deal Opp. 23 66,9 22
4th 1st
Strengths
• Established regulatory fram ew ork and nancial m arkets, both
conventional and Islam ic
• Governm ent support and tax incentives for the VCPE industry
Weaknesses
• Sources of capital com e predom inantly from governm ent agencies
• Governm ental and regulatory approval processes for m ovem ent of capital
and labor rem ain suboptim al despite current liberalization m easures
• Governm ent-linked investm ent corporations (GLICs) and governm ent-
linked com panies (GLCs) continue to add to their portfolios through direct
investm ents, w hich stiffens com petition for larger deals
• Local PE and VC m anagers’skills can be im proved
Opportunities
• The Governm ent’s Econom ic Transform ation Program w ill see large and
diversi ed conglom erates and GLCs continue to rebalance their portfolios
through divestm ent of non-core businesses and through partnerships w ith
private corporations/equity
• Several GLICs hold substantial direct investm ents in related enterprises
w hich provide attractive consolidation opportunities
• Liberalization of foreign equity restrictions should w iden the spectrum of
opportunities in PIPEs and buyouts by foreign funds
Threats
• Increased com petition for already lim ited quality deals by special purpose
acquisition com panies (SPACs) that raise public capital
• Governm ent-driven national PE m anagem ent com pany’s (Ekuinas’)
participation in direct investm ents as w ell as acting as fund of funds
Outlook
• Cautious optim ism is returning, but com petition in the industry is likely
to increase
Kevin Chew, Ernst & Young
[email protected]
163 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
39 47,3 40
1.2 Medium-Term Real GDP Growth
29 123,0 25
1.3 Unemployment
6 125,9 6
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
10 89,8 8
2.2 Stock Market Liquidity (Trading Volume)
32 15,9 32
2.3 IPO Market Activity
12 56,6 17
2.4 M&A Market Activity
14 67,9 16
2.5 Debt and Credit Market
11 94,0 6
2.6 Bank Non-Performing Loans to Total Gross Loans
71 87,6 62
2.7 Financial Market Sophistication
28 85,9 20
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
45 101,2 38
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
4 110,6 4
4.2 Security of Property Rights
31 72,8 36
4.3 Quality of Legal Enforcement
32 76,6 36
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
17 84,8 20
5.2 Labor Market Rigidities
19 75,0 30
5.3 Bribing and Corruption
35 56,7 40
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
22 64,1 24
6.2 Scientific and Technical Journal Articles
45 53,0 45
6.3 Ease of Starting and Running a Business
20 97,0 24
6.4 Simplicity of Closing a Business
40 69,6 40
6.5 Corporate R&D
21 58,4 21
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
164 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Mexico
2007 2011 Quartile
Rank Value Rank
Chile 30 61,5 29
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
4th 1st
39
40
41
42
43
44
45
46
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Mexico
Latin America
United States=100 Points
GDP 996 [bn USD] IPO Volume
Population 109 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Mexico City ++Official Language: Spanish ++Currency: Mexican Peso
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 44 48,7 42
Economic Activity 21 89,5 23
Depth of Capital Market 40 36,6 48
Taxation 52 95,6 50
Inv. Prot./Corp. Gov. 66 48,4 53
Human/Social Env. 58 40,9 57
Entrepr. Cult./Deal Opp. 31 49,2 39
4th 1st
Strengths
• Tax treatm ents present advantages for certain aspects of PE/VC investm ent
• Quality of accounting standards, w hich are generally in line w ith
international standards
• Adoption of IFRS for listed com panies scheduled for 2012
Weaknesses
• Lack of proper VCPE fund form ation and operation regulations
• W eak enforcem ent of the protection of IP law
• IPOs rem ain a dif cult and unattractive exit option for VCPE investm ents
• Perception of slow judicial system
Threats
• High perception of corruption
• Concerns about the ability of the authorities to control the drug trade
• Increased drug-related violence could discourage new ventures
Opportunities
• Regulation provides strong protection for m inority shareholder’s rights
• Recently adopted reform s in the investm ent regim e of pension funds
(Afores) now allow pension funds to invest in PE/VC funds.
• Im provem ent in the am ount and quality of entrepreneurial activity,
including program s sponsored by the Governm ent
• Low in ation levels
• M exico presents a favorable com m ercial environm ent w ith a large
and increasingly sophisticated dom estic m arket, m aking it a grow ing
destination for trade and investm ent
Outlook
• The econom y rem ains overly reliant on US dem and, and is closely tied
to the US econom ic cycle, leaving the country vulnerable to econom ic
dif culties in the US
• GDP grow th prospects for 2011 and beyond assum e a low er contribution
of exports and an increasing role of local dem and
• Capital in ow levels are expected to return progressively to pre-crisis levels
• The local environm ent is w ell positioned to assim ilate the presidential
elections scheduled for 2012
Victor A. Tiburcio, Ernst & Young
[email protected]
165 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
13 66,5 14
1.2 Medium-Term Real GDP Growth
58 92,4 59
1.3 Unemployment
4 117,0 21
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
55 39,4 49
2.2 Stock Market Liquidity (Trading Volume)
49 5,0 49
2.3 IPO Market Activity
32 37,7 35
2.4 M&A Market Activity
31 56,1 26
2.5 Debt and Credit Market
54 53,9 62
2.6 Bank Non-Performing Loans to Total Gross Loans
29 98,6 45
2.7 Financial Market Sophistication
44 40,0 56
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
52 95,6 50
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
75 49,3 56
4.2 Security of Property Rights
53 51,0 50
4.3 Quality of Legal Enforcement
57 45,1 58
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
68 38,4 62
5.2 Labor Market Rigidities
52 53,9 56
5.3 Bribing and Corruption
56 32,9 61
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
47 23,6 63
6.2 Scientific and Technical Journal Articles
26 67,9 26
6.3 Ease of Starting and Running a Business
54 77,9 55
6.4 Simplicity of Closing a Business
26 81,8 27
6.5 Corporate R&D
37 28,1 46
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
166 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Moldova
2007 2011 Quartile
Rank Value Rank
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
Moldova 71 22,0 72
Macedonia 75 19,3 73
Albania 79 17,8 75
Bosnia-Herzegovina 77 17,3 76
4th 1st
67
68
69
70
71
72
73
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Moldova
Eastern Europe
United States=100 Points
GDP 5[bn USD] IPO Volume
Population 4 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Chisinau ++Official Language: Moldovan (Romanian) ++Currency: Moldovan Leu
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 71 22,0 72
Economic Activity 76 24,5 78
Depth of Capital Market 74 10,2 75
Taxation 54 90,9 59
Inv. Prot./Corp. Gov. 54 46,6 55
Human/Social Env. 61 40,1 58
Entrepr. Cult./Deal Opp. 68 20,3 71
4th 1st
Strengths
• Strong recovery of industrial production and trade in 2010
• IM F and EU developm ent assistance ensures nancing of external de cit
• Financial sector relatively sound; banks rem ain liquid w ith m inim al
exposure to toxic assets
Weaknesses
• Europe’s poorest country –GDP per person around US$3,000 (purchasing
pow er parity)
• Underdeveloped private sector
• Non-transparent ownership of banks and inadequate corporate governance
• Lim ited access to nance for SM Es
• Poor governance and perceived high levels of corruption in public sector
and the police
• W eak governm ent: a series of indeterm inate elections has left the political
direction unclear
Opportunities
• W orld Bank support for social assistance, education, justice and infrastructure
in 2011; further talks of initiating projects to im prove the investm ent clim ate
and facilitate developm ent of the private sector are under w ay
• Autonom ous trade preferences extended in 2008 –likely to diversify
exports and stim ulate econom ic grow th
• Sim pli cation of FDI regulations to attract capital in ow s from the EU
• 0% Corporate Incom e Tax and com petitive Personal Incom e Tax rates
com pared w ith other countries
Threats
• Ongoing political tension w ith Russia over Russian troops in breakaw ay
territory of Transnistria
• Over-dependence on Russia for energy (petroleum , coal and natural gas)
• Unsustainable level of public nances
• High levels of em igration
Outlook
• Econom ic grow th is expected to increase, driven by international dem and
from m ain trading partners –particularly the EU
• Upward in ationary pressures due to increases in energy tariffs, depreciation
of exchange rate and increase in excise taxes pose risk to grow th
• External factors, e.g., high volatility of rem ittances and uncertainty over
export dem and, will im pact growth, in part because of the trade restrictions
(on M oldovan agricultural exports) im plem ented in Russia
Alexander Milcev, Ernst & Young
[email protected]
167 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
79 1,2 79
1.2 Medium-Term Real GDP Growth
25 108,0 42
1.3 Unemployment
41 116,5 22
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
65 32,4 61
2.2 Stock Market Liquidity (Trading Volume)
68 2,2 61
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
72 6,7 78
2.5 Debt and Credit Market
78 15,4 78
2.6 Bank Non-Performing Loans to Total Gross Loans
56 84,9 69
2.7 Financial Market Sophistication
73 18,9 73
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
54 90,9 59
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
43 52,1 52
4.2 Security of Property Rights
52 45,5 60
4.3 Quality of Legal Enforcement
59 42,8 61
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
70 34,9 66
5.2 Labor Market Rigidities
46 55,1 53
5.3 Bribing and Corruption
60 33,6 59
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
65 4,4 80
6.2 Scientific and Technical Journal Articles
69 37,3 69
6.3 Ease of Starting and Running a Business
47 84,9 47
6.4 Simplicity of Closing a Business
50 65,0 45
6.5 Corporate R&D
73 3,9 78
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
168 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Morocco
2007 2011 Quartile
Rank Value Rank
South Africa 24 66,9 26
Egypt 52 41,8 55
Morocco 61 41,8 54
Tunisia 64 41,5 56
Kenya 69 38,3 63
Nigeria 66 37,1 64
Namibia 70 26,4 70
Algeria 76 17,1 77
4th 1st
50
52
54
56
58
60
62
64
66
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Morocco
Africa
United States=100 Points
GDP 91 [bn USD] IPO Volume
Population 32 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Rabat ++Official Language: Arabic ++Currency: Moroccan Dirham
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 61 41,8 54
Economic Activity 44 82,1 38
Depth of Capital Market 50 39,7 44
Taxation 40 97,3 47
Inv. Prot./Corp. Gov. 68 40,2 67
Human/Social Env. 72 27,0 75
Entrepr. Cult./Deal Opp. 63 33,7 61
4th 1st
Strengths
• High econom ic grow th
• M edium -sized stock m arket and a high level of credit extension to the
private sector
• A range of m ineral resources, including coal, nickel, uranium , zinc and gold
• Low cost of exports and im ports
Weaknesses
• Low access to nancial services for over 65% of the population
Opportunities
• Depending on stability in the region, w ith regard to Algeria and the
deadlock in the W estern Sahara (Africa’s longest running territorial
dispute), M orocco could follow the lead of other North African countries
in strengthening its ties w ith Europe, w hile exploiting the opportunities of
expanding its enterprises into the rest of the continent
• The country is pursuing m em bership of the European Union, w hich could
be advantageous for econom ic grow th
Threats
• Political unrest in M orocco m ay ensue in connection w ith the deadlock in
the W estern Sahara
Outlook
• M ore M oroccan com panies could expand into the rest of the continent,
sparking outw ard corporate activity –one bank is already featured in the
Boston Consulting Group’s 40 African Challengers
• The econom y is expected to recover, although the region is facing an
uncertain future in the light of the unrest in Tunisia and Egypt, and
relations w ith W estern Sahara
Abdulaziz Al-Sowailim, Ernst & Young
[email protected]
169 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
56 36,7 57
1.2 Medium-Term Real GDP Growth
42 146,2 12
1.3 Unemployment
60 103,1 44
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
40 67,4 25
2.2 Stock Market Liquidity (Trading Volume)
41 10,6 39
2.3 IPO Market Activity
53 19,1 54
2.4 M&A Market Activity
56 34,3 54
2.5 Debt and Credit Market
60 71,8 32
2.6 Bank Non-Performing Loans to Total Gross Loans
74 79,4 71
2.7 Financial Market Sophistication
49 57,7 47
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
40 97,3 47
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
78 19,3 79
4.2 Security of Property Rights
55 54,3 47
4.3 Quality of Legal Enforcement
48 62,1 47
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
64 34,7 67
5.2 Labor Market Rigidities
79 16,7 79
5.3 Bribing and Corruption
58 34,1 58
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
69 20,0 68
6.2 Scientific and Technical Journal Articles
49 50,3 49
6.3 Ease of Starting and Running a Business
39 94,4 32
6.4 Simplicity of Closing a Business
46 67,1 42
6.5 Corporate R&D
69 6,8 69
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
170 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Namibia
2007 2011 Quartile
Rank Value Rank
South Africa 24 66,9 26
Egypt 52 41,8 55
Morocco 61 41,8 54
Tunisia 64 41,5 56
Kenya 69 38,3 63
Nigeria 66 37,1 64
Namibia 70 26,4 70
Algeria 76 17,1 77
4th 1st
62
64
66
68
70
72
74
2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Namibia
Africa
United States=100 Points
GDP 10 [bn USD] IPO Volume
Population 2 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Windhoek ++Official Language: English ++Currency: Namibian Dollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 70 26,4 70
Economic Activity 74 37,1 75
Depth of Capital Market 68 13,3 68
Taxation 53 90,0 62
Inv. Prot./Corp. Gov. 25 83,5 21
Human/Social Env. 52 57,4 38
Entrepr. Cult./Deal Opp. 74 13,9 75
4th 1st
Strengths
• Strong and grow ing m ining industry
• Reasonably liquid stock m arket w ith som e cross-listings from neighboring
South Africa
Weaknesses
• Despite grow th in the m ining industry, the M ining Charter, currently under
consideration, could slow dow n som e of the corporate activity
Opportunities
• Corporate activity in Africa is expected to recover, w ith m ining seeing the
m ost of the action thanks to grow th in uranium and diam ond m ining
Threats
• Recovery of the m ining industry is not as quick as expected
Outlook
• Nam ibia’s econom ic activity w ill continue to track that of South Africa:
for exam ple, in interest rate m ovem ents and currency uctuations
• Considering the upw ard trend in Africa’s econom ies, Nam ibia is w ell
positioned to grow over the next couple of years
Gerhard Fourie, Ernst & Young
[email protected]
171 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
75 9,7 76
1.2 Medium-Term Real GDP Growth
20 111,5 39
1.3 Unemployment
76 47,4 76
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
74 15,8 74
2.2 Stock Market Liquidity (Trading Volume)
73 1,3 71
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
68 8,0 75
2.5 Debt and Credit Market
42 62,8 45
2.6 Bank Non-Performing Loans to Total Gross Loans
37 99,3 41
2.7 Financial Market Sophistication
35 71,8 31
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
53 90,0 62
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
19 76,0 21
4.2 Security of Property Rights
23 91,5 20
4.3 Quality of Legal Enforcement
34 83,6 28
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
73 36,5 64
5.2 Labor Market Rigidities
15 82,6 16
5.3 Bribing and Corruption
46 62,9 34
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
72 13,5 73
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
61 75,9 57
6.4 Simplicity of Closing a Business
34 73,9 36
6.5 Corporate R&D
70 6,8 69
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
172 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Netherlands
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
1
3
5
7
9
11
13
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Netherlands
Western Europe
United States=100 Points
GDP 797 [bn USD] IPO Volume
Population 16 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Amsterdam++Official Language: Dutch ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 10 84,3 9
Economic Activity 59 89,6 22
Depth of Capital Market 8 72,4 13
Taxation 15 113,7 6
Inv. Prot./Corp. Gov. 16 91,8 16
Human/Social Env. 17 88,8 16
Entrepr. Cult./Deal Opp. 10 87,0 11
4th 1st
Strengths
• Attractive tax system : low tax rate, high bene ts for PE rm s
• VCPE still of great econom ic im portance
• Highly skilled w orkforce resulting in m any R&D activity centers
Weaknesses
• Sharpening of the (European) corporate governance rules and m ore
pressure from regulators on LPs to protect assets
• IPO m arket unstable due to low trade volum es
• M any foreign and local VCPE funds in the Dutch m arket
• Highly com petitive VCPE m arket, as a consequence of the stable
governm ent, robust legal fram ew ork, strong property rights and a w ell
developed nancial m arket
Opportunities
• Portfolio repositioning by VCPE rm s
• Better integration of acquisition w ithin rm s, w ith stronger focus on post-
m erger integration
Threats
• LPs look at risk, return and liquidity of VCPE funds m ore critically than
pre-crisis
• W all of m aturity, re nancing of large am ounts of debt through 2013-15
• Capital m oves to em erging m arkets
Outlook
• M arket sentim ents are still depressed; how ever, VCPE m arket is in recovery
• Valuation m ultiples w ill increase due to econom ic recovery in the
Netherlands
• Larger buyouts w ill m ake a com eback
• High M &A volum e and m ore secondary buyout transactions are
anticipated
Marcel van Rijnswou, Ernst & Young
[email protected]
173 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
16 63,7 16
1.2 Medium-Term Real GDP Growth
75 93,5 56
1.3 Unemployment
17 121,0 12
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
23 54,8 35
2.2 Stock Market Liquidity (Trading Volume)
8 51,2 12
2.3 IPO Market Activity
17 49,4 25
2.4 M&A Market Activity
17 66,8 17
2.5 Debt and Credit Market
2 97,8 3
2.6 Bank Non-Performing Loans to Total Gross Loans
14 115,1 7
2.7 Financial Market Sophistication
5 100,0 11
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
15 113,7 6
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
28 67,2 31
4.2 Security of Property Rights
16 94,1 16
4.3 Quality of Legal Enforcement
4 122,3 5
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
9 100,2 11
5.2 Labor Market Rigidities
53 54,6 54
5.3 Bribing and Corruption
8 127,7 7
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
11 94,4 8
6.2 Scientific and Technical Journal Articles
14 78,2 14
6.3 Ease of Starting and Running a Business
27 89,6 41
6.4 Simplicity of Closing a Business
7 107,8 9
6.5 Corporate R&D
13 70,1 13
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
174 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Strengths
•
Weaknesses
•
Opportunities
•
Threats
•
Outlook
•
????
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
New Zealand
2007 2011 Quartile
Rank Value Rank
United States 1 100,0 1
Singapore 2 92,4 4
United Kingdom 3 93,3 2
Canada 4 93,3 3
Switzerland 5 91,8 5
Australia 7 90,2 7
Japan 6 90,9 6
Sweden 8 85,0 8
New Zealand 22 72,5 19
4th 1st
15
17
19
21
23
25
27
29
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
New Zealand
Australasia
United States=100 Points
GDP 128 [bn USD] IPO Volume
Population 4 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Wellington ++ Official Language: English, M?ori ++ Currency: New Zealand Dollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 22 72,5 19
Economic Activity 66 78,5 44
Depth of Capital Market 31 43,7 40
Taxation 21 106,6 20
Inv. Prot./Corp. Gov. 2 117,8 2
Human/Social Env. 5 109,3 3
Entrepr. Cult./Deal Opp. 20 75,9 19
4th 1st
Strengths
• Lim ited liability partnership regim e, consistent w ith global investm ent
structures
• Positive buying opportunities for PE as price expectations have declined
• Signi cant num ber of PE-ow ned assets m eaning secondary options m ay
develop
Weaknesses
• Relatively w eak capital m arket
• Slow recovery from recessionary im pacts of the global nancial crisis
• Low level of investm ent in plant and m achinery
• Young VC industry facing signi cant challenges
Opportunities
• The export m arket is developing in a strong grow th region of Asia
• New Zealand’s largest trading partner (Australia) is strong
• Interest rates are low and the NZ$ relatively w eak
Threats
• Deleveraging im pact is reducing the availability of credit and debt for
corporate transactions
• There is uncertainty around the tim ing of econom ic recovery
• Australia- and New Zealand-based LPs are reducing exposure to the PE
industry, leading to few er m anagers over tim e
Outlook
• There are positive buying opportunities given the recessionary econom y
and w eak NZ$
• GDP grow th is slow ly recovering in a tough econom ic environm ent
• New Zealand is hosting the 2011 Rugby W orld Cup
• 2011 is election year (Novem ber), w ith the asset sales program a key issue,
particularly for New Zealand capital m arkets
AndrewTaylor, Ernst & Young
[email protected]
175 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
52 41,0 51
1.2 Medium-Term Real GDP Growth
70 100,4 47
1.3 Unemployment
11 117,4 17
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
50 37,7 54
2.2 Stock Market Liquidity (Trading Volume)
43 6,0 47
2.3 IPO Market Activity
35 33,6 38
2.4 M&A Market Activity
20 50,5 37
2.5 Debt and Credit Market
10 88,7 11
2.6 Bank Non-Performing Loans to Total Gross Loans
1 117,2 4
2.7 Financial Market Sophistication
26 75,3 30
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
21 106,6 20
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
2 121,3 2
4.2 Security of Property Rights
9 109,7 4
4.3 Quality of Legal Enforcement
6 122,8 4
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
19 100,9 10
5.2 Labor Market Rigidities
4 94,3 5
5.3 Bribing and Corruption
2 137,1 1
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
28 74,9 20
6.2 Scientific and Technical Journal Articles
31 65,8 31
6.3 Ease of Starting and Running a Business
7 107,3 8
6.4 Simplicity of Closing a Business
11 103,7 12
6.5 Corporate R&D
30 45,9 28
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
176 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Nigeria
2007 2011 Quartile
Rank Value Rank
South Africa 24 66,9 26
Egypt 52 41,8 55
Morocco 61 41,8 54
Tunisia 64 41,5 56
Kenya 69 38,3 63
Nigeria 66 37,1 64
Namibia 70 26,4 70
Algeria 76 17,1 77
4th 1st
50
52
54
56
58
60
62
64
66
68
2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Nigeria Africa
United States=100 Points
GDP 208 [bn USD] IPO Volume
Population 158 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Abuja ++Official Language: English ++Currency: Naira
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 66 37,1 64
Economic Activity 12 96,0 8
Depth of Capital Market 65 25,1 57
Taxation 71 79,8 73
Inv. Prot./Corp. Gov. 61 44,0 59
Human/Social Env. 76 35,4 71
Entrepr. Cult./Deal Opp. 57 28,9 67
4th 1st
Strengths
• Entrepreneurial culture
• Large population, m aking it an attractive m arket for consum er products
• Recent im provem ents and consolidation of the banking sector as w ell as
ongoing reform of the asset m anagem ent industry have created a w orld-
class nancial services sector
• Currently, the banking sector has the highest potential for M &A in Africa
Weaknesses
• Poor infrastructure, especially roads
• Poor security of pow er supply
Opportunities
• Investors can bene t from recent reform s in the nancial services sector
and anchor their investm ents for the region
• Although seen as Nigeria’s m ain w eakness, its poor infrastructure
represents an opportunity in the form of investm ent by the African
Developm ent Bank w hich is com m itm ent to im proving the continent’s
infrastructure over the next decade
• The discovery of oil in Ghana has created an opportunity for Nigeria-based
oil com panies –both drilling and exploration –to expand on the back of
their experience in the W est African region
• The Governm ent has announced that agriculture and m ining are som e of
the sectors identi ed to diversify the Nigerian econom y –offering plenty
of incentives for investors
Threats
• Although there are efforts to m ake the petroleum sector m ore ef cient
and stable, there are still dif culties experienced by m ultinationals
operating in the country, particularly due to the intensifying cam paigns by
m ilitant groups
Outlook
• Still the m ost populous country in Africa, Nigeria is always a country to watch
• The m obile com m unications industry provides a proof that
m ultinationals can successfully launch and grow their businesses in
Africa –and considering the current w ave of corporate activity in m obile
com m unications, Nigeria is positioned w ell to bene t
Henry Egbiki, Ernst & Young
[email protected]
177 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
42 47,0 41
1.2 Medium-Term Real GDP Growth
19 162,7 4
1.3 Unemployment
8 115,6 24
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
61 43,9 44
2.2 Stock Market Liquidity (Trading Volume)
62 4,9 50
2.3 IPO Market Activity
52 25,8 47
2.4 M&A Market Activity
59 30,0 58
2.5 Debt and Credit Market
80 13,5 80
2.6 Bank Non-Performing Loans to Total Gross Loans
73 77,4 72
2.7 Financial Market Sophistication
57 36,5 62
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
71 79,8 73
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
20 59,5 41
4.2 Security of Property Rights
63 47,4 55
4.3 Quality of Legal Enforcement
75 30,3 72
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
50 39,5 60
5.2 Labor Market Rigidities
11 84,4 15
5.3 Bribing and Corruption
79 13,3 73
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
60 22,3 66
6.2 Scientific and Technical Journal Articles
53 48,7 53
6.3 Ease of Starting and Running a Business
50 36,4 78
6.4 Simplicity of Closing a Business
58 58,0 58
6.5 Corporate R&D
62 8,8 65
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
178 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Norway
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
1
3
5
7
9
11
13
15
17
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Norway
Western Europe
United States=100 Points
GDP 437 [bn USD] IPO Volume
Population 5 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Oslo ++Official Language: Norwegian (Bokmål and Nynorsk) ++Currency: Norvegian Krone
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 12 81,0 13
Economic Activity 52 91,3 15
Depth of Capital Market 17 63,0 20
Taxation 10 109,0 10
Inv. Prot./Corp. Gov. 6 106,4 4
Human/Social Env. 16 84,0 17
Entrepr. Cult./Deal Opp. 15 84,0 13
4th 1st
Strengths
• Overall strong econom ic perform ance, w ith good GDP grow th and positive
effects on em ploym ent
• Strong VCPE environm ent w ith local and Nordic players
• Increased attention from large international PE players
• Large am ount of VC funds
• Strong VCPE environm ent, focusing on energy, oil services and ICT
Weaknesses
• Lim ited num ber of large PE funds in Norw ay
• Econom y strongly dependent on the energy sector
• Overall lim ited depth of the capital m arket
Opportunities
• Norw ay has approxim ately €4,000m in com m itted non-invested capital
• A large portion of investm ents are m ature, leading to a signi cant num ber
of sell processes expected in 2011 and 2012
• W ell-developed cleantech, oil and energy sectors offer investors the
greatest opportunities
• Innovation has an increasingly high ranking
• A signi cant num ber of IPOs are expected to take place during 2011; IPOs
are again view ed as an exit opportunity
Threats
• Norw ay has an over-heated econom y and increasing interest rates
Outlook
• Norw ay rem ains attractive for overseas investors, especially w ith an
econom y at full speed, low unem ploym ent rates and strong focus tow ards
energy and oil services
• The strong dom estic econom y should provide further investm ent
opportunities
Vegard Stevning, Ernst & Young
[email protected]
179 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
25 56,2 23
1.2 Medium-Term Real GDP Growth
68 104,8 43
1.3 Unemployment
7 129,0 3
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
31 46,8 41
2.2 Stock Market Liquidity (Trading Volume)
17 32,3 22
2.3 IPO Market Activity
20 42,8 30
2.4 M&A Market Activity
21 61,0 21
2.5 Debt and Credit Market
19 83,4 18
2.6 Bank Non-Performing Loans to Total Gross Loans
10 115,1 7
2.7 Financial Market Sophistication
18 103,5 8
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
10 109,0 10
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
12 90,1 10
4.2 Security of Property Rights
6 109,7 3
4.3 Quality of Legal Enforcement
7 121,9 6
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
15 90,6 16
5.2 Labor Market Rigidities
42 53,8 57
5.3 Bribing and Corruption
7 121,8 10
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
18 90,3 9
6.2 Scientific and Technical Journal Articles
27 67,4 27
6.3 Ease of Starting and Running a Business
8 100,1 18
6.4 Simplicity of Closing a Business
2 114,5 3
6.5 Corporate R&D
20 59,9 20
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
180 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Oman
2007 2011 Quartile
Rank Value Rank
Israel 19 72,2 21
Saudi Arabia 36 67,5 25
United Arab Emirates 33 61,6 28
Kuwait 40 57,9 35
Jordan 42 53,2 38
Oman 51 45,6 46
Bahrain 58 44,3 50
4th 1st
40
42
44
46
48
50
52
54
56
58
60
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Oman
Middle East
United States=100 Points
GDP 62 [bn USD] IPO Volume
Population 3 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Muscat ++Official Language: Arabic ++Currency: Rial Omani
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 51 45,6 46
Economic Activity 70 61,1 66
Depth of Capital Market 55 31,1 53
Taxation 48 92,4 54
Inv. Prot./Corp. Gov. 37 71,9 31
Human/Social Env. 31 71,9 21
Entrepr. Cult./Deal Opp. 53 32,9 63
4th 1st
Strengths
• Prudent scal policy
• Key potential source of foreign exchange in tourism
Weaknesses
• Sm all dom estic m arket w ith a population of 2.25m
• Vulnerability of econom y to w orld price shocks, due to dependence on
hydrocarbons
• M aturity of Om ani oil elds and decline in oil production, m eaning that,
at current output levels, known oil reserves will be exhausted within 20 years;
in response, the Om ani Governm ent has prioritized the production and
export of natural gas
Opportunities
• Construction is boom ing around the industrial port of Sohar, though m ost
services depend on a healthy oil econom y
• Industrial enterprises m ay be eligible for tax exem ptions for up to 10 years
• A free trade agreem ent with the US cam e into force in January 2009 m aking
consum er and industrial m erchandise trade duty free, the aim being to
create a M iddle East Free Trade Area by 2013
• The agreem ent provides effective enforcem ent of labor and environm ent
law s, and enhances existing intellectual property rights protection
Threats
• The “Om anization”drive to create m ore jobs for citizens som etim es involves
bans or lim its on em ploying expatriate w orkers, constraining em ployers’
freedom of choice
• As Om an is not a m em ber of OPEC, there is a w idening price differential
betw een Om an’s sour grade crude oil and OPEC producers’grades
• Om an’s internet connectivity lags behind its Gulf peers, w ith only Iraq
scoring low er in the region
Outlook
• The budget plan for scal year 2011 envisions a 13.2% increase in spending
for the year, w ith 2.53m rials (US$6.69b) in new capital investm ent
expenses, and total spending of 8.13b rials, up from the 7.18b rials under
the budget plan for 2010
• Governm ent expenditure on the developm ent of facilities w ill rem ain
strong and w ill be com plem ented by foreign investm ent
Rajeev Singh, Ernst & Young
[email protected]
181 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
62 32,0 59
1.2 Medium-Term Real GDP Growth
50 168,3 3
1.3 Unemployment
77 42,4 77
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
49 61,6 29
2.2 Stock Market Liquidity (Trading Volume)
48 6,2 45
2.3 IPO Market Activity
47 18,2 57
2.4 M&A Market Activity
76 11,4 71
2.5 Debt and Credit Market
56 55,7 57
2.6 Bank Non-Performing Loans to Total Gross Loans
57 104,1 30
2.7 Financial Market Sophistication
37 61,2 45
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
48 92,4 54
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
61 48,6 59
4.2 Security of Property Rights
33 83,8 25
4.3 Quality of Legal Enforcement
24 91,1 24
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
43 62,8 36
5.2 Labor Market Rigidities
25 79,4 20
5.3 Bribing and Corruption
33 74,5 29
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
37 30,8 54
6.2 Scientific and Technical Journal Articles
67 39,1 67
6.3 Ease of Starting and Running a Business
41 44,0 76
6.4 Simplicity of Closing a Business
41 65,2 44
6.5 Corporate R&D
67 11,1 62
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
182 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Paraguay
2007 2011 Quartile
Rank Value Rank
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
Venezuela 73 15,2 79
4th 1st
71
72
73
74
75
76
77
78
79
80
81
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Paraguay
Latin America
United States=100 Points
GDP 17 [bn USD] IPO Volume
Population 6 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Asunción ++Official Language: Spanish, Guaraní ++Currency: Guaraní
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 80 15,7 78
Economic Activity 73 61,1 67
Depth of Capital Market 78 12,3 72
Taxation 51 91,2 57
Inv. Prot./Corp. Gov. 78 21,4 78
Human/Social Env. 80 5,7 80
Entrepr. Cult./Deal Opp. 79 10,5 79
4th 1st
Strengths
• Governm ent encouragem ent of foreign investm ent and guarantee of
equal treatm ent for foreign investors
• No form al restrictions on foreign investm ent
• Tax incentives for entrepreneurs and com panies
• One of the low est tax burdens in the region and the low est of M ercosur
• Protection of intellectual property rights by regulation
Weaknesses
• Lack of legal fram ew ork for VCPE form ation and operation
• W eak judicial system , although regulation has been im proved
• Sm all capital m arkets
• M any fam ily-ow ned com panies are concerned about losing control, so
public offerings are not frequent
Threats
• High perception of corruption
Opportunities
• No restrictions on investm ents
Outlook
• The m acroeconom ic environm ent has been positive during 2010 and the
outlook for 2011 rem ains positive
• Paraguay is on an upw ard trend of developing changes to prom ote further
foreign investm ent
Rafael López Fracchina, Ernst & Young
[email protected]
183 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
73 16,1 73
1.2 Medium-Term Real GDP Growth
61 118,7 31
1.3 Unemployment
32 119,2 16
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
72 18,8 71
2.2 Stock Market Liquidity (Trading Volume)
76 1,2 75
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
80 8,1 74
2.5 Debt and Credit Market
66 43,8 68
2.6 Bank Non-Performing Loans to Total Gross Loans
43 112,4 15
2.7 Financial Market Sophistication
78 47,1 54
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
51 91,2 57
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
64 35,1 72
4.2 Security of Property Rights
75 23,1 73
4.3 Quality of Legal Enforcement
78 12,0 78
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
80 1,2 80
5.2 Labor Market Rigidities
75 30,9 75
5.3 Bribing and Corruption
77 4,8 78
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
79 6,4 78
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
79 71,1 62
6.4 Simplicity of Closing a Business
64 53,1 62
6.5 Corporate R&D
79 5,2 76
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
184 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Peru
2007 2011 Quartile
Rank Value Rank
Chile 30 61,5 29
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
4th 1st
40
45
50
55
60
65
70
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Peru
Latin America
United States=100 Points
GDP 146 [bn USD] IPO Volume
Population 29 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Lima ++Official Language: Spanish, Quéchua ++Currency: Nuevo Sol
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 63 41,1 59
Economic Activity 23 91,3 14
Depth of Capital Market 62 31,3 52
Taxation 41 96,9 48
Inv. Prot./Corp. Gov. 65 49,1 52
Human/Social Env. 74 39,5 60
Entrepr. Cult./Deal Opp. 55 29,0 66
4th 1st
Strengths
• IFRS requirem ent for listed rm s
• High corporate governance requirem ents, dem anding strong nancial
disclosure for com panies
• History of PE funds, w ith som e operating successfully for several years
Weaknesses
• Restrictions on investm ent in VCPE by pension funds: a sm all percentage
of capital allow ed
• W eak, slow judiciary, w ith a perception of corruption
• Inconsistent enforcem ent of legislation in the country
Opportunities
• Costs of starting a business are relatively low
• The Governm ent rem ains com m itted to pursuing an investor-friendly
business clim ate, w ith a Foreign Investm ent Law w hich offers autom atic
investm ent authorization and the sam e investm ent conditions to foreign
and national investors
• IPOs have com e back to Peruvian capital m arkets, w hich could represent
an exit strategy for VCPE funds in the future
Threats
• IP protection is regulated; how ever, enforcem ent has been an issue
• The tax environm ent is com plex and taxation for VCPE is expensive,
but tax stability agreem ents to increase investor attractiveness have
been reached
• Regulatory fram ew orks for fund form ation and operation rem ain
incom plete, and capital m arket reform projects to im prove VCPE have
been delayed for a num ber of years
Outlook
• Econom ic activity looks set to rem ain w ell supported by private dem and
and investm ent and the outlook for 2011 is positive
• Recent changes to Peruvian regulations are allow ing increased activity
• Under Alan Garcia’s presidency, Peru has m aintained an aggressive trade
policy that has allow ed it to sign free trade agreem ents w ith the US,
Chile, Singapore, Thailand, China, Canada and the Republic of Korea
Jorge Hernando Medina, Ernst & Young
[email protected]
185 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
53 42,6 49
1.2 Medium-Term Real GDP Growth
26 156,3 7
1.3 Unemployment
37 114,3 26
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
37 57,2 33
2.2 Stock Market Liquidity (Trading Volume)
56 2,7 56
2.3 IPO Market Activity
66 10,0 64
2.4 M&A Market Activity
47 43,7 45
2.5 Debt and Credit Market
61 50,2 64
2.6 Bank Non-Performing Loans to Total Gross Loans
53 105,5 27
2.7 Financial Market Sophistication
41 82,4 26
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
41 96,9 48
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
42 78,8 19
4.2 Security of Property Rights
70 38,5 66
4.3 Quality of Legal Enforcement
67 39,1 64
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
79 25,1 75
5.2 Labor Market Rigidities
56 61,9 42
5.3 Bribing and Corruption
53 39,7 53
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
66 18,7 70
6.2 Scientific and Technical Journal Articles
66 40,6 66
6.3 Ease of Starting and Running a Business
71 68,8 65
6.4 Simplicity of Closing a Business
43 62,3 52
6.5 Corporate R&D
56 6,3 73
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
186 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Philippines
2007 2011 Quartile
Rank Value Rank
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
Philippines 53 41,2 58
Kazakhstan 54 39,1 61
Armenia 72 25,3 71
Kyrgyzstan 78 14,4 80
4th 1st
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Philippines
Asia
United States=100 Points
GDP 181 [bn USD] IPO Volume
Population 94 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Manila ++Official Language: Filipino (based on Tagalog), English ++Currency: Philippine Peso
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 53 41,2 58
Economic Activity 31 85,9 32
Depth of Capital Market 44 41,1 43
Taxation 61 90,6 61
Inv. Prot./Corp. Gov. 64 38,0 70
Human/Social Env. 65 30,7 74
Entrepr. Cult./Deal Opp. 66 28,3 68
4th 1st
Strengths
• Cum ulative investm ents of P3.8 trillion expected betw een 2011 and 2016
• High m arket potential from young and grow ing m iddle incom e population
• Rem ittances from over eight m illion Filipinos overseas contribute over
10% of GDP
• Highly educated professionals and a large pool of affordable w orkforce
• Increasing consum er spending, driven by rising per capita incom e (over
US$2,000) and a grow ing population
Weaknesses
• Inadequate infrastructure in selected areas and sectors
• Budget de cit lim its the Governm ent’s ability to undertake infrastructure
im provem ents (how ever, the Governm ent is pushing PPP for infrastructure
developm ent, w hich w ill lead to increased infrastructure investm ents)
• Innovation structure capacity is som ew hat lim ited
Opportunities
• Investm ent and trade opportunities from free trade agreem ents betw een
ASEAN and other Asian countries are increasing
• Increased globalization, particularly in offshore and outsourcing activities
in the US, provides investm ent opportunities
• The grow th drivers for investm ent are food, technology, infrastructure and
tourism
• Valuations are attractive com pared w ith its Asian neighbors
• Im proving corporate governance and the ongoing effort to stam p out
corruption should attract investm ents
Threats
• Econom ic reform is slow
• There is a perception of w idespread corruption and security issues
Outlook
• Broad-based consum er dem and and resurgent exports and investm ents
should support econom ic grow th, w ith the potential for higher grow th if
substantial infrastructure reform s are undertaken
• Global outsourcing is expected to accelerate
• Sustained econom ic grow th in the Asian region w ill provide the Philippines
a m ajor source of skilled workers
Renato J. Galve, Ernst & Young
[email protected]
Alexander Dacanay, Ernst & Young
[email protected]
187 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
46 45,3 46
1.2 Medium-Term Real GDP Growth
35 125,9 21
1.3 Unemployment
48 111,2 33
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
38 50,1 38
2.2 Stock Market Liquidity (Trading Volume)
46 5,1 48
2.3 IPO Market Activity
38 42,6 31
2.4 M&A Market Activity
36 54,4 29
2.5 Debt and Credit Market
58 54,3 60
2.6 Bank Non-Performing Loans to Total Gross Loans
67 89,7 59
2.7 Financial Market Sophistication
44 68,2 36
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
61 90,6 61
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
69 38,1 70
4.2 Security of Property Rights
64 37,6 67
4.3 Quality of Legal Enforcement
60 38,4 65
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
47 40,2 59
5.2 Labor Market Rigidities
45 54,5 55
5.3 Bribing and Corruption
73 13,2 74
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
59 24,5 61
6.2 Scientific and Technical Journal Articles
63 42,9 63
6.3 Ease of Starting and Running a Business
75 49,2 75
6.4 Simplicity of Closing a Business
76 12,8 79
6.5 Corporate R&D
36 27,5 47
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
188 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Poland
2007 2011 Quartile
Rank Value Rank
Poland 35 57,4 36
Czech Republic 34 55,0 37
Turkey 31 52,8 39
Hungary 43 52,0 40
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
4th 1st
30
32
34
36
38
40
42
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Poland
Eastern Europe
United States=100 Points
GDP 479 [bn USD] IPO Volume
Population 38 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Warsaw ++ Official Language: Polish ++ Currency: Z?oty
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 35 57,4 36
Economic Activity 35 92,0 12
Depth of Capital Market 37 42,6 42
Taxation 36 98,9 42
Inv. Prot./Corp. Gov. 45 62,7 42
Human/Social Env. 39 64,2 30
Entrepr. Cult./Deal Opp. 40 52,3 34
4th 1st
Strengths
• Stable m acroeconom ic situation w ith good grow th prospects
• Size of m arket and continuous grow th of entrepreneurial base
• Good availability of nancing and funds
• High absorption of EU funds and grow ing infrastructure investm ents
• Change in perception of VCPE: from rescue in a crisis situation to a good
source of experience and knowledge of international m arkets, and a chance
for a com pany’s international expansion
Weaknesses
• Stable m acroeconom ic grow th factors threatened by high unem ploym ent
rate and high level of public debt
• Highly com petitive m arket
• High pricing expectations of sellers and excessive com pany valuations
Opportunities
• Positive signals from the m arket and stable investor con dence levels
• High level of FDI increased by privatization program s
• Planned IPOs of Polish and foreign com panies at W arsaw Stock Exchange
• Grow ing num ber of public and private investors w ith interest in VCPE
assets
• Increased deal activity –2010 saw a few large and m any m edium -size
PE transactions, and several new transactions are planned for 2011
• Consolidation trend in the m arket, leading to an increasing num ber of
transactions
Threats
• Problem s w ith fund-raising, potentially increased by new EU restrictions
• New EU regulations on inform ation requirem ents and transparency
• High level of investor caution
Outlook
• Continuous growth in Poland and relative weakness of foreign com petitors
create a good opportunity for Polish com panies in foreign M &A transactions
and international expansion, both of w hich have been rare
• High levels of pre-crisis accum ulated funds to be invested in upcom ing
periods
Anna Zervakos, Ernst & Young
[email protected]
189 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
24 57,4 20
1.2 Medium-Term Real GDP Growth
48 130,5 19
1.3 Unemployment
74 104,0 43
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
44 39,3 50
2.2 Stock Market Liquidity (Trading Volume)
44 6,1 46
2.3 IPO Market Activity
23 59,6 16
2.4 M&A Market Activity
34 55,6 27
2.5 Debt and Credit Market
48 61,8 47
2.6 Bank Non-Performing Loans to Total Gross Loans
66 90,4 57
2.7 Financial Market Sophistication
59 57,7 47
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
36 98,9 42
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
32 69,2 26
4.2 Security of Property Rights
59 51,3 49
4.3 Quality of Legal Enforcement
46 69,3 41
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
39 59,2 38
5.2 Labor Market Rigidities
31 73,1 34
5.3 Bribing and Corruption
48 61,1 37
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
58 40,8 39
6.2 Scientific and Technical Journal Articles
19 72,5 19
6.3 Ease of Starting and Running a Business
52 74,0 61
6.4 Simplicity of Closing a Business
60 56,8 59
6.5 Corporate R&D
38 31,4 41
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
190 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Portugal
2007 2011 Quartile
Rank Value Rank
France 17 79,6 14
Belgium 18 76,8 15
Austria 23 71,7 22
Spain 20 69,1 23
Ireland 14 67,7 24
Portugal 38 60,4 31
Italy 32 59,6 32
Luxembourg 29 59,3 33
Greece 39 47,9 44
4th 1st
20
25
30
35
40
45
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Portugal
Western Europe
United States=100 Points
GDP 226[bn USD] IPO Volume
Population 11 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Lisbon ++Official Language: Portuguese ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 38 60,4 31
Economic Activity 78 75,7 51
Depth of Capital Market 32 47,3 34
Taxation 19 107,0 18
Inv. Prot./Corp. Gov. 30 68,0 35
Human/Social Env. 36 59,3 37
Entrepr. Cult./Deal Opp. 28 62,1 27
4th 1st
Strengths
• Very attractive tax conditions for business angels and VCPE funds
• Close links w ith high-grow th countries such as Brazil and Angola
• Portuguese language –key strategic asset
Weaknesses
• Negative im pact of austerity m easures for scal consolidation
• Lack of rollout capital to fund innovation in biotech and environm ent
• Absence of Portuguese com panies on the NYSE Alternext stock exchange
Opportunities
• Increase in R&D spending w ill boost innovation in a few years
• Niche segm ents in industry related to m edical devices and renew able
energy and environm ent
• Corporate turnaround funds
• Need for consolidation in traditional industries w ith room for build-up
acquisitions
• Room for specialized funds
• Clusters w ith good potential: energy, life sciences and leisure
Threats
• Sm all size of dom estic m arket
• Low grow th of Portuguese econom y
Outlook
• Increase of distressed asset deals
• M odest levels of fund-raising and investm ent
• Buyouts penalized by dif cult credit environm ent
José Gonzaga Rosa, Ernst & Young
[email protected]
Miguel Farinha, Ernst & Young
[email protected]
191 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
34 48,1 36
1.2 Medium-Term Real GDP Growth
80 88,0 62
1.3 Unemployment
46 102,7 46
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
51 40,3 47
2.2 Stock Market Liquidity (Trading Volume)
35 14,1 33
2.3 IPO Market Activity
40 23,3 51
2.4 M&A Market Activity
32 51,8 33
2.5 Debt and Credit Market
15 84,2 17
2.6 Bank Non-Performing Loans to Total Gross Loans
24 106,9 25
2.7 Financial Market Sophistication
26 85,9 20
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
19 107,0 18
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
46 48,7 58
4.2 Security of Property Rights
27 77,5 27
4.3 Quality of Legal Enforcement
25 83,2 30
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
36 62,4 37
5.2 Labor Market Rigidities
65 41,0 65
5.3 Bribing and Corruption
23 81,6 27
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
35 49,6 32
6.2 Scientific and Technical Journal Articles
32 65,6 32
6.3 Ease of Starting and Running a Business
49 92,2 38
6.4 Simplicity of Closing a Business
17 92,0 19
6.5 Corporate R&D
44 33,4 36
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
192 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Romania
2007 2011 Quartile
Rank Value Rank
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
4th 1st
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Romania
Eastern Europe
United States=100 Points
GDP 169 [bn USD] IPO Volume
Population 21 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Bucharest ++Official Language: Romanian ++Currency: Romanian Leu
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 47 41,0 60
Economic Activity 19 80,3 40
Depth of Capital Market 53 21,2 63
Taxation 76 63,0 77
Inv. Prot./Corp. Gov. 46 59,7 45
Human/Social Env. 55 46,0 55
Entrepr. Cult./Deal Opp. 41 46,9 44
4th 1st
Strengths
• Low er private sector debt position (vs. Bulgaria, Ukraine and Hungary):
30% of GDP (BM I, Q1 2011)
• Relatively stable local currency (EUR1=RON4.26 at 17 January 2011;
RON4.2 average for the last tw o years. Source: National Bank of Rom ania)
Weaknesses
• Pricing gap betw een sellers and buyers, particularly visible for those w ell-
positioned com panies that cam e through the crisis w ith strong results
• Scarce (for real estate and start-ups) and expensive leverage for
transactions; large percentage of equity required by local banks for new
industries (e.g., renew able energy)
Opportunities
• A signi cant m arket, w ith approxim ately 22 m illion people
• M arket currently dom inated by buyers
• Potential for grow th in the services sector: 53% of GDP in 2009 vs. 59% in
the Czech Republic and 67% in Poland (Source: Datam onitor)
• VC: certain tax incentives for private investors w ho set up or run SM Es
(participation should not exceed 1.25m )
Threats
• Low population grow th rates w ill result in a shrinkage of future consum er
m arket size
• M igration of skilled labor force to other European countries
• Special rem uneration schem es in place to m inim ize tax
Outlook
• Rom anian econom y estim ated to rebound in 2011 (real GDP projected
grow th for 2011 is +1.5% according to the National Prognosis Com m ission
report in Novem ber 2010). Recovery process potentially slow er than that
of other EU27 countries
• M ore intense activity on the transactions m arket in 2011, as the
con dence of investors in the econom y increases
• Local M &A m arket w ill continue to be sensitive and reactive to econom ic
and scal governm ental decisions
Cornelia Bumbacea, Ernst & Young
[email protected]
193 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
45 44,4 47
1.2 Medium-Term Real GDP Growth
22 99,4 51
1.3 Unemployment
40 117,4 17
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
48 34,9 55
2.2 Stock Market Liquidity (Trading Volume)
59 1,9 65
2.3 IPO Market Activity
50 18,2 56
2.4 M&A Market Activity
40 43,4 46
2.5 Debt and Credit Market
53 55,7 56
2.6 Bank Non-Performing Loans to Total Gross Loans
69 25,9 77
2.7 Financial Market Sophistication
62 25,9 67
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
76 63,0 77
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
26 67,4 30
4.2 Security of Property Rights
50 53,1 48
4.3 Quality of Legal Enforcement
54 59,5 50
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
52 42,2 58
5.2 Labor Market Rigidities
54 51,2 59
5.3 Bribing and Corruption
57 45,0 50
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
55 32,0 52
6.2 Scientific and Technical Journal Articles
43 55,9 43
6.3 Ease of Starting and Running a Business
13 98,5 22
6.4 Simplicity of Closing a Business
62 61,1 55
6.5 Corporate R&D
48 21,1 54
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
194 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Russian Federation
2007 2011 Quartile
Rank Value Rank
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
Philippines 53 41,2 58
Kazakhstan 54 39,1 61
Armenia 72 25,3 71
Kyrgyzstan 78 14,4 80
4th 1st
25
27
29
31
33
35
37
39
41
43
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Russian Federation
Asia
United States=100 Points
GDP 1509 [bn USD] IPO Volume
Population 142 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Moscow ++Official Language: Russian ++Currency: Russian Ruble
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 37 51,1 41
Economic Activity 5 88,7 26
Depth of Capital Market 36 46,5 36
Taxation 60 93,1 53
Inv. Prot./Corp. Gov. 62 38,3 69
Human/Social Env. 57 34,0 72
Entrepr. Cult./Deal Opp. 29 56,7 31
4th 1st
Strengths
• M oderately optim istic econom ic recovery supported by grow ing oil prices
• Low level of state debt
• Forecasts suggest stable exchange rate of the national currency
• Governm ental support for VCPE investm ents in nanotechnologies
(through the foundation and operation of RUSNANO, the state-ow ned
corporation) and for innovation in general
Weaknesses
• Low levels of transparency
• Lack of solid track record in VCPE obstruct nancing on favorable term s
• W eak private sector, infrastructure and corporate governance
• Low per capita incom e, w ith a signi cant difference betw een m ajor cities
and other geographies
Opportunities
• Preparations for 2014 Olym pics and 2018 W orld Cup are expected to
create a substantial ow of infrastructure opportunities
• A second w ave of privatization announced by the Governm ent is expected
to becom e one of the key drivers of M &A deals
• M any business are w illing to dispose of non-core assets, w hich m ay result
in additional ow of deals
Threats
• A fall in the oil price m ay substantially dam age the econom y
• An increasing proportion of the econom y is being controlled by the state
• Com petition from other em erging nations (e.g., China) for VCPE capital
• Investm ent fund cash ow s show that there w as a signi cant out ow of
cash in the second half of 2010
• Foreign investors are tired of w aiting for reform s and im provem ents
Outlook
• VCPE players could be attracted if transparency increases
• M any global players see Russia as having stronger prospects in the near-
and m id-term than m ost developed m arkets
Leonid Saveliev, Ernst & Young
[email protected]
195 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
11 71,6 10
1.2 Medium-Term Real GDP Growth
21 101,4 46
1.3 Unemployment
37 96,0 60
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
25 80,0 17
2.2 Stock Market Liquidity (Trading Volume)
28 14,0 34
2.3 IPO Market Activity
22 61,9 14
2.4 M&A Market Activity
18 68,9 15
2.5 Debt and Credit Market
77 46,4 66
2.6 Bank Non-Performing Loans to Total Gross Loans
33 94,5 52
2.7 Financial Market Sophistication
62 22,4 70
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
60 93,1 53
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
59 37,0 71
4.2 Security of Property Rights
65 40,7 65
4.3 Quality of Legal Enforcement
66 37,4 67
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
32 53,3 45
5.2 Labor Market Rigidities
43 60,8 44
5.3 Bribing and Corruption
70 12,1 75
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
48 38,9 43
6.2 Scientific and Technical Journal Articles
13 78,5 13
6.3 Ease of Starting and Running a Business
53 77,7 56
6.4 Simplicity of Closing a Business
51 59,2 57
6.5 Corporate R&D
32 41,6 33
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
196 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Saudi Arabia
2007 2011 Quartile
Rank Value Rank
Israel 19 72,2 21
Saudi Arabia 36 67,5 25
United Arab Emirates 33 61,6 28
Kuwait 40 57,9 35
Jordan 42 53,2 38
Oman 51 45,6 46
Bahrain 58 44,3 50
4th 1st
20
22
24
26
28
30
32
34
36
38
40
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Saudi Arabia
Middle East
United States=100 Points
GDP 432 [bn USD] IPO Volume
Population 26 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Riyadh ++Official Language: Arabic ++Currency: Saudi Riyal
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 36 67,5 25
Economic Activity 28 93,7 10
Depth of Capital Market 35 59,8 23
Taxation 65 86,2 70
Inv. Prot./Corp. Gov. 40 73,0 29
Human/Social Env. 48 65,6 29
Entrepr. Cult./Deal Opp. 47 60,5 28
4th 1st
Strengths
• M ain OPEC sw ing producer
• Grow th in the non-oil sector and im proved infrastructure, due to recent
oil price boom
• Solid dom estic dem and for goods, services and infrastructure (in spite of
the global econom ic crisis) due to large and grow ing local population
Weaknesses
• Over-dependence on oil: shifts in global oil prices are likely to affect
exports and governm ent revenues
• Shortage of m arketable skills am ong nationals and a high unem ploym ent
rate am ong Saudi citizens, creating private sector dependence on
expatriate labor
• Stringent lending criteria and the need by banks to increase provisions for
non-perform ing loans, slow ing dow n credit recovery
Opportunities
• Huge governm ent infrastructure spending spurs grow th and offers
opportunities in transport (railw ays, airports and ports), property
construction and independent w ater and pow er plants for local and
foreign investors
• Saudi Arabia is considering privatization of som e state-ow ned com panies,
offering great opportunities to investors
Threats
• Any attacks on oil facilities could lead to a disruption of output, w hich
w ould be extrem ely detrim ental to the overall econom y, given the reliance
on this sector
• Perceptions of high security risk deter som e investors and add to the cost
of insurance
Outlook
• Encouraged by the country’s im pressive oil reserves, com bined with a positive
outlook for global oil prices, investor sentim ent tow ard the m arket is
expected to im prove over the m edium to long term
Tanuj Paruthi, Ernst & Young
[email protected]
197 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
23 56,1 24
1.2 Medium-Term Real GDP Growth
51 125,1 22
1.3 Unemployment
30 117,4 17
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
33 60,6 30
2.2 Stock Market Liquidity (Trading Volume)
1 43,9 17
2.3 IPO Market Activity
39 54,6 20
2.4 M&A Market Activity
79 32,6 56
2.5 Debt and Credit Market
41 63,2 44
2.6 Bank Non-Performing Loans to Total Gross Loans
29 111,0 16
2.7 Financial Market Sophistication
49 82,4 26
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
65 86,2 70
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
47 68,3 28
4.2 Security of Property Rights
37 73,1 35
4.3 Quality of Legal Enforcement
41 77,9 35
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
41 71,4 30
5.2 Labor Market Rigidities
61 64,1 38
5.3 Bribing and Corruption
47 61,7 36
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
27 48,7 33
6.2 Scientific and Technical Journal Articles
46 52,4 46
6.3 Ease of Starting and Running a Business
77 112,7 4
6.4 Simplicity of Closing a Business
59 65,8 43
6.5 Corporate R&D
34 42,9 32
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
198 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Singapore
2007 2011 Quartile
Rank Value Rank
Singapore 2 92,4 4
Japan 6 90,9 6
Hong Kong 15 76,5 16
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
4th 1st
0
1
2
3
4
5
6
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Singapore
Asia
United States=100 Points
GDP 195 [bn USD] IPO Volume
Population 5 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Singapore ++Official Language: English, Mandarin, Malay, Tamil ++Currency: Singapore Dollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 2 92,4 4
Economic Activity 8 87,2 30
Depth of Capital Market 9 78,1 8
Taxation 26 103,2 31
Inv. Prot./Corp. Gov. 1 118,9 1
Human/Social Env. 1 115,2 1
Entrepr. Cult./Deal Opp. 11 89,2 9
4th 1st
Strengths
• Corporate perception of VCPE is positive
• Liberal nancial environm ent conducive to optim izing innovative
nancing structures and access to a w ell-developed capital m arket
• Governm ent has an active role through co-investm ent in new enterprises
• Excellent living environm ent w ith access to talent, and favorable taxation
for VCPE funds and individuals. Singapore is the regional hub for PE
activity in South East Asia
• M ore sophistication am ong the corporate com m unity, m aking deals
easier to execute
Weaknesses
• Governm ent links w ith som e of the largest local com panies, lim iting their
need for external capital
• VC m arket less robust than the PE m arket
Opportunities
• Certain sectors present consolidation opportunities
• A num ber of businesses are going through generational change
• Deal size is suitable for the lim ited leverage environm ent
• Favorable m arket conditions provide a good exit w indow for PE portfolios
Threats
• Stock-m arket m ultiples have becom e m ore attractive, offering ef cient
alternatives for capital raising
• W hile com petition from hedge funds has declined, alternative nancing
sources still present a source of com petition to VCPE
• Com petition for deals is strong, due to the large quantum of “dry pow der”
resulting in higher deal m ultiples
Outlook
• Given m ost PE funds are regionally focused, capital w ill ow to those
regional m arkets that offer the best opportunities
• Strong fundam entals for econom ic grow th and a liberal, supportive
Governm ent should support the grow th of VCPE activity
• Increased liquidity and stabilization of nancial m arkets have supported
a re-em ergence of VCPE activity
• The next one to tw o years could present good opportunities for PE
portfolio exits
• Asia-focused funds have signi cantly increased and w ill continue to do
so as m ore LPs seek access to the Asian grow th story
Luke Pais, Ernst & Young
[email protected]
199 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
44 46,2 44
1.2 Medium-Term Real GDP Growth
14 118,3 32
1.3 Unemployment
10 121,4 10
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
6 91,8 7
2.2 Stock Market Liquidity (Trading Volume)
13 58,0 7
2.3 IPO Market Activity
14 63,2 12
2.4 M&A Market Activity
16 66,0 18
2.5 Debt and Credit Market
28 80,5 22
2.6 Bank Non-Performing Loans to Total Gross Loans
39 111,0 16
2.7 Financial Market Sophistication
9 89,4 19
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
26 103,2 31
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
1 123,0 1
4.2 Security of Property Rights
1 117,2 2
4.3 Quality of Legal Enforcement
15 116,6 14
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
4 114,0 2
5.2 Labor Market Rigidities
2 99,3 2
5.3 Bribing and Corruption
4 135,0 3
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
16 83,9 15
6.2 Scientific and Technical Journal Articles
28 67,3 28
6.3 Ease of Starting and Running a Business
1 123,7 1
6.4 Simplicity of Closing a Business
1 116,1 1
6.5 Corporate R&D
15 69,7 14
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
200 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Slovakia
2007 2011 Quartile
Rank Value Rank
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
Moldova 71 22,0 72
4th 1st
40
45
50
55
60
65
70
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Slovakia
Eastern Europe
United States=100 Points
GDP 91 [bn USD] IPO Volume
Population 5 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Bratislava ++Official Language: Slovak ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 48 39,1 62
Economic Activity 38 72,2 54
Depth of Capital Market 59 16,0 65
Taxation 50 93,2 52
Inv. Prot./Corp. Gov. 38 63,8 41
Human/Social Env. 38 53,6 42
Entrepr. Cult./Deal Opp. 39 49,0 40
4th 1st
Strengths
• GDP grow th, falling external vulnerability and tight public nances are
expected as a result of econom ic and business-friendly reform s perform ed
in the past
• Skilled w orkforce attracting FDI
• Healthy banking sector able to respond to the nancing needs of
enterprises and to provide loans
• The introduction of Euro has protected Slovak econom y volatile FX rates
Weaknesses
• W ith its large export-oriented m anufacturing sector, the econom y is
heavily exposed to foreign dem and
• Cost-based com petitiveness is no longer suf cient in m any industries
• Further pursuit of m arket reform s is less of a priority for the current
governm ent
• Dependence on econom ic developm ent in other countries affected by
econom ic crisis
Opportunities
• Privatization of state-ow ned com panies
• M arket saturation low er than in W estern European countries
• Increased in ow of EU funds in the nancing period 2007-13 is expected
to lead to a substantial ow of investm ent into infrastructure
Threats
• As the currencies of Central European peers continue to depreciate against
the euro, the com petitiveness of Slovakia’s export-oriented m anufacturing
sector w ill be affected
• Export-oriented econom y w ith a signi cant exposure to the autom otive
industry
• Substantial dependence on Russia’s gas/oil supplies
• Eurozone entry m eans loss of exchange rate exibility and poses a threat
to price levels
Outlook
• Forecast to be one of the Eurozone countries w ith the fastest econom ic
recovery and grow th
• Grow th prospects rem ain positive, despite the current global turm oil
• Structural reform s should gradually im prove the health of public nance
and country prospects
Jozef Mathia, Ernst & Young
[email protected]
201 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
55 36,8 56
1.2 Medium-Term Real GDP Growth
24 111,3 41
1.3 Unemployment
70 92,0 62
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
70 21,8 68
2.2 Stock Market Liquidity (Trading Volume)
74 1,2 75
2.3 IPO Market Activity
59 1,0 67
2.4 M&A Market Activity
52 23,4 61
2.5 Debt and Credit Market
39 63,4 43
2.6 Bank Non-Performing Loans to Total Gross Loans
42 98,6 45
2.7 Financial Market Sophistication
33 71,8 31
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
50 93,2 52
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
23 69,2 27
4.2 Security of Property Rights
45 62,6 42
4.3 Quality of Legal Enforcement
44 60,0 49
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
56 37,2 63
5.2 Labor Market Rigidities
21 75,5 28
5.3 Bribing and Corruption
39 54,9 42
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
41 35,7 47
6.2 Scientific and Technical Journal Articles
42 56,2 42
6.3 Ease of Starting and Running a Business
37 88,1 44
6.4 Simplicity of Closing a Business
56 61,2 54
6.5 Corporate R&D
50 26,0 49
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
202 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Slovenia
2007 2011 Quartile
Rank Value Rank
Poland 35 57,4 36
Czech Republic 34 55,0 37
Turkey 31 52,8 39
Hungary 43 52,0 40
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
4th 1st
40
42
44
46
48
50
52
54
56
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Slovenia
Eastern Europe
United States=100 Points
GDP 48 [bn USD] IPO Volume
Population 2 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Ljubljana ++Official Language: Slovene ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 45 46,8 45
Economic Activity 51 65,0 61
Depth of Capital Market 63 22,2 61
Taxation 12 105,7 23
Inv. Prot./Corp. Gov. 33 64,7 40
Human/Social Env. 28 60,4 36
Entrepr. Cult./Deal Opp. 26 65,6 25
4th 1st
Strengths
• One of the strongest econom ies in Central and Eastern Europe
• High dem and for nancing
• M em ber of the Eurozone –lacks the currency risk associated w ith m any
of its peers
Weaknesses
• Very lim ited num ber of local VCPE funds and transactions in the past
• Unfavorable tax and legal regulations for VCPE investm ents
• Lim ited num ber of potential large investm ents
Opportunities
• Generally underdeveloped VCPE m arket provides room for new m arket
entrants
• Increased dem and for capital injections
• Potential for participation in the privatization of num erous state-ow ned/
in uenced com panies
Threats
• Legal and business conditions are not supporting a dynam ic SM E sector
due to com plicated licensing and registration processes and investm ent
barriers
• Lack of m aturity in deal-m aking, slow legal processing and
underdeveloped capital m arket
Outlook
• Sm all num ber of transactions, lack of regulatory fram ew ork
• Dif culties in accessing traditional bank nancing and the lack of
experience in restructuring w ill drive dem and for m ore VCPE activities
• Start-ups exhibiting a dedicated grow th and global reach present
undervalued opportunities to GPs
BalazsTuske, Ernst & Young
[email protected]
203 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
61 28,9 63
1.2 Medium-Term Real GDP Growth
49 83,6 69
1.3 Unemployment
27 113,4 28
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
56 37,7 53
2.2 Stock Market Liquidity (Trading Volume)
61 2,2 62
2.3 IPO Market Activity
66 5,7 65
2.4 M&A Market Activity
57 23,0 62
2.5 Debt and Credit Market
33 56,6 55
2.6 Bank Non-Performing Loans to Total Gross Loans
34 109,6 19
2.7 Financial Market Sophistication
41 40,0 56
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
12 105,7 23
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
21 54,1 49
4.2 Security of Property Rights
44 62,7 41
4.3 Quality of Legal Enforcement
33 79,9 33
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
27 73,6 28
5.2 Labor Market Rigidities
64 34,8 71
5.3 Bribing and Corruption
24 85,9 25
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
31 66,3 22
6.2 Scientific and Technical Journal Articles
40 57,2 40
6.3 Ease of Starting and Running a Business
40 103,0 11
6.4 Simplicity of Closing a Business
31 80,9 28
6.5 Corporate R&D
33 38,3 34
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
204 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
South Africa
2007 2011 Quartile
Rank Value Rank
South Africa 24 66,9 26
Egypt 52 41,8 55
Morocco 61 41,8 54
Tunisia 64 41,5 56
Kenya 69 38,3 63
Nigeria 66 37,1 64
Namibia 70 26,4 70
Algeria 76 17,1 77
4th 1st
17
18
19
20
21
22
23
24
25
26
27
2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
South Africa
Africa
United States=100 Points
GDP 327 [bn USD] IPO Volume
Population 50 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Pretoria (administrative); CapeTown (legislative); Bloemfontein (judiciary) ++Official Language: Afrikaans, English and others++Currency: Rand
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 24 66,9 26
Economic Activity 67 58,5 69
Depth of Capital Market 14 76,1 9
Taxation 37 102,6 33
Inv. Prot./Corp. Gov. 22 82,2 22
Human/Social Env. 40 50,6 49
Entrepr. Cult./Deal Opp. 27 58,1 29
4th 1st
Strengths
• Advanced and liquid stock m arkets
• Good track record of m ajor PE deals, especially in the retail sector
• Solid banking sector
• Good oversight and protection of investors
Weaknesses
• Grow th has not led to a rise in em ploym ent gures
• Skills shortage is still high and the education system is still battling to
m eet the requirem ents of the job m arket
Opportunities
• Although grow th is not as robust as in the rest of the continent,
South Africa rem ains an im portant gatew ay for m ultinationals investing
in Africa, and w ill continue to bene t from the in? ow of FDI, even if
it is destined for other countries
Threats
• Pressure on the Governm ent to create jobs has led to som e am biguity
about w hat policies w ill be follow ed, e.g., law s on labor brokers
• The nationalization debate rem ains crucial, and there is no outright
direction as to w hich w ay it w ill go
• Any dip in the developed econom ies, or in China’s econom ic resurgence,
m ight ham per grow th of m ain exports, such as those in the autom otive
and resources sector
Outlook
• Econom ic grow th is expected to com e in below African average
• Business con dence is generally up; m ost of the com pany reports in
the rst quarter of 2011 show a positive trend
• There is a m ajor retail industry takeover underw ay w ith the general
backing of the country, although there are som e hurdles related to
the labor unions
• M ajor sectors are expected to grow, including the autom otive industry where
forecasts are of an 11% grow th in sales in 2011
• M ajor banks are beginning to see higher rates of credit applications
(som e banks reported a 40% increase in credit applications), w ith
repossession rates at a record low
Ajen Sita, Ernst & Young
[email protected]
205 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
29 52,6 28
1.2 Medium-Term Real GDP Growth
43 112,1 38
1.3 Unemployment
78 34,0 78
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
3 121,4 2
2.2 Stock Market Liquidity (Trading Volume)
14 56,6 8
2.3 IPO Market Activity
36 39,8 32
2.4 M&A Market Activity
24 59,3 23
2.5 Debt and Credit Market
8 90,3 7
2.6 Bank Non-Performing Loans to Total Gross Loans
21 93,8 53
2.7 Financial Market Sophistication
9 107,1 7
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
37 102,6 33
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
5 111,4 3
4.2 Security of Property Rights
30 75,6 31
4.3 Quality of Legal Enforcement
43 66,0 45
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
60 33,4 70
5.2 Labor Market Rigidities
36 62,6 41
5.3 Bribing and Corruption
37 62,1 35
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
34 41,8 37
6.2 Scientific and Technical Journal Articles
34 64,0 34
6.3 Ease of Starting and Running a Business
44 89,0 42
6.4 Simplicity of Closing a Business
49 64,5 49
6.5 Corporate R&D
27 43,2 31
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
206 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Spain
2007 2011 Quartile
Rank Value Rank
France 17 79,6 14
Belgium 18 76,8 15
Austria 23 71,7 22
Spain 20 69,1 23
Ireland 14 67,7 24
Portugal 38 60,4 31
Italy 32 59,6 32
Luxembourg 29 59,3 33
Greece 39 47,9 44
4th 1st
10
12
14
16
18
20
22
24
26
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Spain
Western Europe
United States=100 Points
GDP 1425[bn USD] IPO Volume
Population 46 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Madrid ++Official Language: Spanish ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 20 69,1 23
Economic Activity 36 69,2 56
Depth of Capital Market 11 73,8 10
Taxation 22 106,7 19
Inv. Prot./Corp. Gov. 26 71,7 32
Human/Social Env. 37 53,4 43
Entrepr. Cult./Deal Opp. 21 65,7 24
4th 1st
Strengths
• W ell-established PE m arket, especially am ong m iddle-m arket players
• High-level fund m anagers w ith proven experience in the PE m arket
• M ature capital m arkets in line w ith the size of the Spanish econom y,
including the M ercado Alternativo Bursátil (Spain’s alternative investm ent
m arket) has adapted to the size of com pany that m any PE funds have in
their portfolios
• Strong banking system
• High level of hum an capital
Weaknesses
• Lack of labor m arket exibility and m obility w hich has led to a high level
of unem ploym ent and econom ic cost
• Restricted access to credit
• High level of bureaucracy, w ith regulatory differences in each of the
country’s 17 autonom ous com m unities
Opportunities
• Grow th through expansion into Latin Am erica, w here Spanish com panies
have historically been successful
• High returns achievable by investing at the bottom of the econom ic cycle
Threats
• Restructuring of national savings banks, w hich threatens the Spanish
nancial system
• Increased pessim ism tow ard investm ent in Spain due to the econom ic
outlook of the country
• Investm ent analysis com prom ised by focus on portfolio m anagem ent
• A prolonged econom ic dow nturn could, over tim e, lead to a loss in
hum an capital due to m igration of talent abroad w here there are greater
opportunities
Outlook
• Declining volum e of investm ents/divestm ents
• Signi cant labor m arket reform s to em ploym ent law, collective bargaining
and pensions, as w ell as a scal adjustm ent, w ill be required to achieve
long-term sustainable grow th
• PE sector looks set to continue to play an im portant role in the
developm ent of the econom y through the m anagem ent of com panies in
nancial dif culty
Pedro Rodríguez, Ernst & Young
[email protected]
207 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
9 70,9 12
1.2 Medium-Term Real GDP Growth
63 85,1 66
1.3 Unemployment
54 54,9 74
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
12 82,3 14
2.2 Stock Market Liquidity (Trading Volume)
9 59,3 6
2.3 IPO Market Activity
29 51,0 24
2.4 M&A Market Activity
10 73,0 10
2.5 Debt and Credit Market
14 78,8 24
2.6 Bank Non-Performing Loans to Total Gross Loans
11 97,3 49
2.7 Financial Market Sophistication
22 85,9 20
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
22 106,7 19
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
31 55,5 45
4.2 Security of Property Rights
26 76,8 30
4.3 Quality of Legal Enforcement
27 86,6 26
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
39 46,8 50
5.2 Labor Market Rigidities
67 38,7 67
5.3 Bribing and Corruption
22 84,2 26
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
30 50,7 31
6.2 Scientific and Technical Journal Articles
9 80,4 9
6.3 Ease of Starting and Running a Business
43 74,4 59
6.4 Simplicity of Closing a Business
18 93,0 18
6.5 Corporate R&D
25 43,4 30
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
208 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Sweden
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
0
2
4
6
8
10
12
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Sweden
Western Europe
United States=100 Points
GDP 440 [bn USD] IPO Volume
Population 9 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Stockholm++Official Language: Swedish ++Currency: Swedish Krona
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 8 85,0 8
Economic Activity 39 78,2 45
Depth of Capital Market 10 70,6 14
Taxation 1 119,1 1
Inv. Prot./Corp. Gov. 18 97,4 12
Human/Social Env. 12 95,7 11
Entrepr. Cult./Deal Opp. 6 93,1 4
4th 1st
Strengths
• Long-established VCPE industry
• Sw edish com panies tend to think globally from start-up
Weaknesses
• Som e uncertainty rem ains in the IPO m arket, w ith few PE exits by IPO
• Relatively rigid labor m arket and high em ployee-related taxation
Opportunities
• Large public sector beginning to open to com petition
• Strong M &A m arket w ith signi cant transaction activity
• Further leveraging of Sw eden's strengths in technology, innovation and
entrepreneurship
Threats
• Currently strong Sw edish Krona threatens export com petitiveness
• Continued w eakness in Eurozone increases the risk of defaults am ong
VCPE-backed com panies
Outlook
• Sw eden rem ains attractive to both local and overseas investors, and has
a m ature and sophisticated M &A m arket
David Ramm, Ernst & Young
[email protected]
209 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
19 56,3 22
1.2 Medium-Term Real GDP Growth
59 84,5 67
1.3 Unemployment
36 100,4 52
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
14 66,0 26
2.2 Stock Market Liquidity (Trading Volume)
6 52,1 10
2.3 IPO Market Activity
31 35,2 37
2.4 M&A Market Activity
12 64,7 19
2.5 Debt and Credit Market
16 88,5 12
2.6 Bank Non-Performing Loans to Total Gross Loans
14 113,7 10
2.7 Financial Market Sophistication
5 110,6 4
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
1 119,1 1
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
39 76,2 20
4.2 Security of Property Rights
19 96,3 15
4.3 Quality of Legal Enforcement
3 126,2 2
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
9 109,1 4
5.2 Labor Market Rigidities
37 59,6 46
5.3 Bribing and Corruption
5 134,9 4
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
7 112,2 1
6.2 Scientific and Technical Journal Articles
15 75,6 15
6.3 Ease of Starting and Running a Business
14 102,5 13
6.4 Simplicity of Closing a Business
16 94,4 17
6.5 Corporate R&D
6 85,4 4
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
210 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Switzerland
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
0
1
2
3
4
5
6
7
8
9
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Switzerland
Western Europe
United States=100 Points
GDP 510 [bn USD] IPO Volume
Population 8 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Bern ++Official Language: German, French, Italian, Romansh ++Currency: Swiss Franc
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 5 91,8 5
Economic Activity 54 90,4 18
Depth of Capital Market 4 92,2 3
Taxation 11 108,4 13
Inv. Prot./Corp. Gov. 27 74,0 28
Human/Social Env. 3 112,1 2
Entrepr. Cult./Deal Opp. 9 89,7 6
4th 1st
Strengths
• Strong bio-tech, m ed-tech and pharm aceutical focus; generally,
innovative high-tech industries
• Research universities provide a ow of technology spin-offs
• Strong lobbying/support netw orks im prove the VCPE scal and regulatory
environm ent
• Plenty of business angels
• Liberal labor law
• Excellent tax treaty netw ork
Weaknesses
• Sm all m arket
• Grow ing num ber of PE houses focus on the m arket; Sw iss corporates are
also m ore active, causing m ore intense com petition
Opportunities
• Presence of m ajor m ultinationals leads to spin-off opportunities
(especially in chem icals and consum er goods)
• Large cash pools looking for opportunities
• Bio-tech opportunities resulting from depressed prices
Threats
• Increased regulation post- nancial crisis
Outlook
• The positive short-term outlook and the increased focus on Sw itzerland as
a “deal country”w ill foster the excellent current position
LouisSiegrist, Ernst & Young
[email protected]
211 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
20 58,1 19
1.2 Medium-Term Real GDP Growth
69 102,6 45
1.3 Unemployment
12 123,6 8
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
2 115,7 3
2.2 Stock Market Liquidity (Trading Volume)
2 118,5 1
2.3 IPO Market Activity
19 49,2 26
2.4 M&A Market Activity
27 62,9 20
2.5 Debt and Credit Market
9 94,3 5
2.6 Bank Non-Performing Loans to Total Gross Loans
5 117,2 4
2.7 Financial Market Sophistication
1 121,2 1
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
11 108,4 13
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
71 32,3 74
4.2 Security of Property Rights
10 105,0 9
4.3 Quality of Legal Enforcement
12 119,1 10
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
1 122,7 1
5.2 Labor Market Rigidities
22 89,3 10
5.3 Bribing and Corruption
6 128,6 6
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
4 111,6 2
6.2 Scientific and Technical Journal Articles
17 74,5 17
6.3 Ease of Starting and Running a Business
6 104,2 10
6.4 Simplicity of Closing a Business
29 78,7 32
6.5 Corporate R&D
5 85,3 5
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
212 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Taiwan
2007 2011 Quartile
Rank Value Rank
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
4th 1st
15
17
19
21
23
25
27
29
31
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Taiwan Asia
United States=100 Points
GDP 418 [bn USD] IPO Volume
Population 23 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Taipei ++Official Language: Standard Mandarin Chinese ++Currency: New Taiwan Dollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 27 62,4 27
Economic Activity 15 90,6 16
Depth of Capital Market 21 66,1 17
Taxation 33 104,1 28
Inv. Prot./Corp. Gov. 32 76,0 25
Human/Social Env. 30 62,7 33
Entrepr. Cult./Deal Opp. 56 36,7 56
4th 1st
Strengths
• Global leader in high-tech m anufacturing
• Highly educated labor force
• Growth is underpinned by very good infrastructure and sound m onetary
and scal policy; politically stable
• Governm ent debt is just 26% of GDP and in ation has averaged 1% over
the last decade
Weaknesses
• Rapidly aging population, with the num ber of working people forecasted
to begin shrinking in 2016
• High land and labor costs com pared with East Asian neighbors
• Reliance on world m arkets, with exports equaling around 70% of GDP
Opportunities
• Taiwan’s access to the dom estic m arket in m ainland China has im proved
with the signing of the Econom ic Cooperation Fram ework Agreem ent (ECFA),
which will reduce tariffs on 15% of Taiwan’s exports to m ainland China
• Relaxed regulations regarding capital investm ent in m ainland China
• The Taiwan stock exchange (TW SE) is well developed
• The high-technology VC m arket is well established and encouraged by the
Governm ent
Threats
• Taiwan is highly dependent on international m arkets, with the level of
dom estic consum ption rising by just 20% over the period 2000-09, com pared
with a 31% rise in GDP
• In the m edium term the aging population will apply increasing pressure on
the Governm ent’s budget
• Increasing exports to m ainland China, in the context of past tensions
Outlook
• GDP is forecast to grow by 4.5% in 2011
• Utilizing its skilled workforce and existing position, the econom y should retain
its leading position in the high-tech industries in the m edium term
• The increasingly free m ovem ent of capital between m ainland China and
Taiwan will encourage listing activity on the TW SE
• The potential synergy between Taiwan and Chinese m ainland com panies
rem ain strong
Audry Ho, Ernst & Young
[email protected]
213 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
21 55,7 25
1.2 Medium-Term Real GDP Growth
36 116,0 36
1.3 Unemployment
12 115,2 25
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
13 94,1 6
2.2 Stock Market Liquidity (Trading Volume)
19 30,5 23
2.3 IPO Market Activity
9 64,6 10
2.4 M&A Market Activity
28 53,5 30
2.5 Debt and Credit Market
31 73,7 29
2.6 Bank Non-Performing Loans to Total Gross Loans
71 87,6 62
2.7 Financial Market Sophistication
36 85,9 20
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
33 104,1 28
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
51 60,0 40
4.2 Security of Property Rights
24 84,2 24
4.3 Quality of Legal Enforcement
29 86,8 25
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
20 93,3 15
5.2 Labor Market Rigidities
66 37,0 69
5.3 Bribing and Corruption
29 71,5 30
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
10 77,8 18
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
28 100,6 17
6.4 Simplicity of Closing a Business
12 102,0 14
6.5 Corporate R&D
7 83,2 6
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
214 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Thailand
2007 2011 Quartile
Rank Value Rank
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
Philippines 53 41,2 58
Kazakhstan 54 39,1 61
4th 1st
25
26
27
28
29
30
31
32
33
34
35
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Thailand Asia
United States=100 Points
GDP 298 [bn USD] IPO Volume
Population 65 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Bangkok ++Official Language: Thai ++Currency: Baht
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 28 59,3 34
Economic Activity 18 93,7 11
Depth of Capital Market 27 54,9 28
Taxation 42 99,0 41
Inv. Prot./Corp. Gov. 44 60,7 44
Human/Social Env. 41 53,2 44
Entrepr. Cult./Deal Opp. 38 47,7 43
4th 1st
Strengths
• Dynam ic and solid econom y w ith strong GDP grow th
• Im proved fundam ental com petitiveness driven by the shift from industrial
to service and creative econom y and the increased stability of the
nancial m arket
Weaknesses
• Banking-oriented econom y and m arket perception of VCPE is not w idely
recognized
• Dependence on capital and low cost of labor
• SM Es are the m ain source of em ploym ent, though w ith a lesser
contribution to the GDP
Opportunities
• Strong governm ent support for “Regional Of ce Headquarter”concept
• The Governm ent’s substantial investm ent in public infrastructure,
particularly transportation and the utilization of alternative energy
• Regional cooperation, w ith both bilateral and m ultilateral arrangem ents,
supports increased productivity and free com petition in the dom estic
m arket
• Corporate valuation is one of the low est in the region despite substantial
grow th and a w ell-perform ing econom y. This creates a signi cant
valuation gap
Threats
• The situation for natural resources is declining
• M arket perception of corruption and uncertain regulatory regim es
• W orsening econom ic situation in US and Europe creates dow nw ard
pressure on the value of the currency, reducing the com petitiveness
of the export m arket and adversely affecting the foreign investm ent
environm ent
• Concerns about the political environm ent im pact the con dence of both
consum ers and investors
Outlook
• M &A activity is expected to rise as the econom y rebounds and
corporations plan for inorganic grow th
• Increased liquidity and the rebound of capital m arkets during the past
year should create an attractive environm ent for VCPE activity
Vorapoj Amnauypanit, Ernst & Young
[email protected]
215 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
33 51,5 32
1.2 Medium-Term Real GDP Growth
40 116,1 35
1.3 Unemployment
1 137,5 2
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
32 58,0 31
2.2 Stock Market Liquidity (Trading Volume)
29 17,6 30
2.3 IPO Market Activity
16 52,8 22
2.4 M&A Market Activity
22 57,7 25
2.5 Debt and Credit Market
25 83,0 19
2.6 Bank Non-Performing Loans to Total Gross Loans
70 81,5 70
2.7 Financial Market Sophistication
32 71,8 31
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
42 99,0 41
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
44 67,6 29
4.2 Security of Property Rights
36 58,5 44
4.3 Quality of Legal Enforcement
52 56,6 54
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
43 53,7 43
5.2 Labor Market Rigidities
17 78,6 22
5.3 Bribing and Corruption
52 35,6 57
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
42 33,1 51
6.2 Scientific and Technical Journal Articles
39 58,7 39
6.3 Ease of Starting and Running a Business
23 92,8 36
6.4 Simplicity of Closing a Business
68 43,0 69
6.5 Corporate R&D
43 31,7 40
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
216 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Tunisia
2007 2011 Quartile
Rank Value Rank
South Africa 24 66,9 26
Egypt 52 41,8 55
Morocco 61 41,8 54
Tunisia 64 41,5 56
Kenya 69 38,3 63
Nigeria 66 37,1 64
Namibia 70 26,4 70
Algeria 76 17,1 77
4th 1st
45
50
55
60
65
70
75
2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Tunisia Africa
United States=100 Points
GDP 41 [bn USD] IPO Volume
Population 10 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Tunis ++Official Language: Arabic ++Currency: Tunisian Dinar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 64 41,5 56
Economic Activity 63 61,6 65
Depth of Capital Market 73 20,0 64
Taxation 43 98,7 43
Inv. Prot./Corp. Gov. 51 68,3 34
Human/Social Env. 34 62,7 32
Entrepr. Cult./Deal Opp. 46 44,6 48
4th 1st
Strengths
• A w ell-established internet netw ork and access
• Relatively higher levels of education and other social indicators, and
reasonable incom e equality
• Com petitive level of protection for investors and ease of doing business, as
w ell as a low cost of im ports and exports
Weaknesses
• Lack of access to nancial services for m ore than 60% of the population
Opportunities
• The m ain opportunities for VCPE investm ent lay w ithin the m ain grow th
industries in Tunisia –the tourism , textiles, agribusiness and technology
sectors
• Am ong the top ve countries in Africa in term s of internet penetration,
Tunisia is w ell poised to com pete in the m odern global econom y
Threats
• The biggest threat is the recent political upheaval and sudden change of
governm ent
Outlook
• M oderate grow th econom y
• W ith the im proving protection of property rights having been Tunisia’s
strength, investors w ill w ant to see a conclusion to the political standoff
before com m itting to Tunisia
• The stock m arket is reasonably liquid and corporate activity has been on
an upw ard trajectory over the past 24 m onths
Abdulaziz Al-Sowailim, Ernst & Young
[email protected]
217 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
64 26,9 64
1.2 Medium-Term Real GDP Growth
44 137,7 15
1.3 Unemployment
75 63,0 72
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
67 31,1 62
2.2 Stock Market Liquidity (Trading Volume)
65 2,6 57
2.3 IPO Market Activity
66 15,6 60
2.4 M&A Market Activity
74 13,6 69
2.5 Debt and Credit Market
47 72,2 30
2.6 Bank Non-Performing Loans to Total Gross Loans
79 14,2 79
2.7 Financial Market Sophistication
49 71,8 31
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
43 98,7 43
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
77 52,9 51
4.2 Security of Property Rights
34 75,3 32
4.3 Quality of Legal Enforcement
31 79,9 34
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
26 80,2 23
5.2 Labor Market Rigidities
51 56,4 51
5.3 Bribing and Corruption
41 54,6 43
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
38 39,3 42
6.2 Scientific and Technical Journal Articles
47 52,4 47
6.3 Ease of Starting and Running a Business
19 94,8 30
6.4 Simplicity of Closing a Business
22 89,2 20
6.5 Corporate R&D
64 10,1 63
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
218 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Turkey
2007 2011 Quartile
Rank Value Rank
Poland 35 57,4 36
Czech Republic 34 55,0 37
Turkey 31 52,8 39
Hungary 43 52,0 40
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
4th 1st
30
32
34
36
38
40
42
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Turkey
Eastern Europe
United States=100 Points
GDP 711 [bn USD] IPO Volume
Population 72 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Ankara ++Official Language: Turkish ++Currency: Turkish Lira
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 31 52,8 39
Economic Activity 6 77,6 48
Depth of Capital Market 33 45,4 38
Taxation 20 105,8 22
Inv. Prot./Corp. Gov. 48 51,3 50
Human/Social Env. 49 45,7 56
Entrepr. Cult./Deal Opp. 36 50,0 36
4th 1st
Strengths
• Follow ing the rebound in Q2 2009, high and sustainable grow th potential
for nearly all industries, especially in consum er-related sectors
• Highly developed entrepreneurial skills
• Increasing understanding and acceptance of VCPE
• High-quality professional m anagem ent despite being an em erging m arket
Weaknesses
• Lack of skilled w orkforce for certain industries, despite high
unem ploym ent rate
• Low protection of intellectual property rights
• Highly volatile m arket
Opportunities
• A substantial young population, grow ing m iddle class and increasing per
capita incom e w ill drive grow th in the consum er products sector
• The level of institutionalization and transparency is expected to increase
substantially w ith the enforcem ent of a new trade law, enacted in January
2011
• There is a grow ing appetite for acquisition nance, supported by a local
banking system that is healthy and liquid
• IPO and M &A activity is increasing, as the econom y grow s; regulators are
offering substantial incentives, such as low ering the m inim um percentage
? oat and pro tability requirem ents, and the introduction of secondary
m arkets for com panies that cannot m eet the listing requirem ents
• The m ajority of businesses are sm all- to m edium -sized and fam ily ow ned,
w ith fam ily m em bers still active in daily m anagem ent
Outlook
• Turkey is a high potential grow th m arket
• The legal and regulatory fram ew ork is still converging to the EU system
Demet Ozdemir, Ernst Young
[email protected]
219 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
17 62,3 17
1.2 Medium-Term Real GDP Growth
12 100,1 49
1.3 Unemployment
61 75,0 70
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
54 37,8 52
2.2 Stock Market Liquidity (Trading Volume)
31 13,6 35
2.3 IPO Market Activity
30 38,0 34
2.4 M&A Market Activity
35 55,5 28
2.5 Debt and Credit Market
45 59,2 52
2.6 Bank Non-Performing Loans to Total Gross Loans
50 95,9 50
2.7 Financial Market Sophistication
33 64,7 41
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
20 105,8 22
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
67 48,2 60
4.2 Security of Property Rights
47 46,3 59
4.3 Quality of Legal Enforcement
47 60,5 48
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
48 38,9 61
5.2 Labor Market Rigidities
58 47,5 60
5.3 Bribing and Corruption
45 51,8 46
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
43 31,8 53
6.2 Scientific and Technical Journal Articles
18 73,5 18
6.3 Ease of Starting and Running a Business
29 87,1 45
6.4 Simplicity of Closing a Business
66 52,2 63
6.5 Corporate R&D
47 29,5 43
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
220 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Ukraine
2007 2011 Quartile
Rank Value Rank
Romania 47 41,0 60
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
Moldova 71 22,0 72
Macedonia 75 19,3 73
Albania 79 17,8 75
4th 1st
54
56
58
60
62
64
66
68
70
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Ukraine
Eastern Europe
United States=100 Points
GDP 127 [bn USD] IPO Volume
Population 46 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Kyiv ++Official Language: Ukrainian ++Currency: Hryvnia
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 67 27,8 68
Economic Activity 14 62,1 64
Depth of Capital Market 64 13,2 69
Taxation 80 18,8 80
Inv. Prot./Corp. Gov. 67 40,4 65
Human/Social Env. 54 38,5 65
Entrepr. Cult./Deal Opp. 65 34,8 57
4th 1st
Strengths
• Im proved relations w ith M oscow, w hich has positively im pacted Ukraine’s
political risk pro le and resulted in short-term stability
• Extension of a US$15.2b em ergency stand-by agreem ent from the IM F
signi cantly reduced the likelihood of a sovereign credit default
• Advantageous geographic location m eans great potential as a
transportation and agricultural hub
Weaknesses
• Political instability, econom ic m ism anagem ent, corruption and cronyism
are the biggest challenges
• Low possibility of form ing parliam entary m ajorities, and w eak governm ent
policy-m aking in the near future
• Absence of a developed stock m arket
• Production facilities and infrastructure are outdated and require
signi cant capex
Opportunities
• The investm ent environm ent is im proving, as the country m oves tow ard
m arket liberalization, cutting back on regulation and rem oving num erous
licensing requirem ents
• The new tax code is expected to bring cuts in incom e and VAT tax rates
betw een 2011 and 2014, and reduces the com plexity and burden of tax
com pliance
• Low labor costs
• EURO 2012 football cham pionship hosted by Ukraine and Poland
Threats
• The new tax code m ay reinforce the use of tax optim ization schem es by
Ukrainian entities
• Ukraine’s legal system continues to receive a high level of criticism
from investors for its inef ciency, frequent delays and com m on political
interference
Outlook
• Ukraine’s econom y is expected to underperform its peers due to its
overleveraged banking system , high levels of external debt, w eak public
nances and poor dem ographics
• Relatively cheap assets have signi cant potential for future grow th
Vitalii Kuzub, Ernst & Young
[email protected]
Aaron Johnson, Ernst & Young
[email protected]
221 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
49 40,9 52
1.2 Medium-Term Real GDP Growth
18 59,5 76
1.3 Unemployment
33 98,7 57
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
47 32,8 60
2.2 Stock Market Liquidity (Trading Volume)
67 1,7 67
2.3 IPO Market Activity
46 28,8 44
2.4 M&A Market Activity
46 41,4 51
2.5 Debt and Credit Market
73 39,0 71
2.6 Bank Non-Performing Loans to Total Gross Loans
77 1,2 80
2.7 Financial Market Sophistication
66 22,4 70
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
80 18,8 80
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
55 57,3 44
4.2 Security of Property Rights
69 35,2 69
4.3 Quality of Legal Enforcement
65 32,7 70
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
33 54,0 42
5.2 Labor Market Rigidities
35 70,3 36
5.3 Bribing and Corruption
67 15,0 72
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
51 39,6 41
6.2 Scientific and Technical Journal Articles
36 62,9 36
6.3 Ease of Starting and Running a Business
68 68,7 66
6.4 Simplicity of Closing a Business
79 10,4 80
6.5 Corporate R&D
41 28,7 45
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
222 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
United Arab Emirates
2007 2011 Quartile
Rank Value Rank
Israel 19 72,2 21
Saudi Arabia 36 67,5 25
United Arab Emirates 33 61,6 28
Kuwait 40 57,9 35
Jordan 42 53,2 38
Oman 51 45,6 46
Bahrain 58 44,3 50
4th 1st
20
22
24
26
28
30
32
34
36
38
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
United Arab
Emirates
Middle East
United States=100 Points
GDP 245 [bn USD] IPO Volume
Population 5 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Abu Dhabi ++Official Language: Arabic ++Currency: UAE Dirham
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 33 61,6 28
Economic Activity 4 89,0 25
Depth of Capital Market 29 62,5 22
Taxation 77 26,2 78
Inv. Prot./Corp. Gov. 39 65,8 39
Human/Social Env. 22 78,3 19
Entrepr. Cult./Deal Opp. 59 47,7 42
4th 1st
Strengths
• One of the m ost liberal trade regim es in the Gulf, attracting strong capital
? ow s across the region
• High num ber of expatriate w orkers at all levels of the econom y, m aking up
for the otherw ise sm all w orkforce
• Strong rebound in foreign trade activity and exports, w hich is im proving
tourism and econom ic conditions
Weaknesses
• W eak credit grow th and a still uncertain outlook for Dubai’s property
m arket underpin the prospect of a m ore pronounced recovery, follow ing
the 2009 global nancial crisis
• A cautious approach should be follow ed by investors in Dubai, follow ing
the 2011 due date for the repaym ent of US$16b in debt obligations
• Currency peg to the dollar, giving less control over m onetary policy and
reducing the ability to tackle in ationary pressure
• Risk pro le and investor perceptions affected by events elsew here (e.g.,
US concerns about regional m ilitant groups and Iranian w eapons of m ass
destruction program s) due to the state’s location in a volatile region
Opportunities
• Investm ent is encouraged by the Governm ent through low taxation,
im port duties and other incentives, thereby strengthening the country’s
tourism , trade and nancial sectors
• Com paratively exible rules on expatriate em ploym ent encourage the
proliferation of corporates in the region
• Econom ic diversi cation of gas, tourism , nancial services and high-tech
industries offers som e protection against volatile oil prices
Threats
• Heavy subsidies on utilities and agriculture, com bined w ith an outdated
tax system , have contributed to persistent scal de cits in the past
• Several high-pro le construction projects have been delayed and the
property m arket crash could threaten future developm ent
Outlook
• Ongoing declines in real estate prices and a continuing w eak outlook
for dom estic dem and (particularly in Dubai) underpin the view that core
in ationary pressures w ill be relatively m uted over the com ing year
Azhar Zafar, Ernst & Young
[email protected]
223 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
37 49,0 34
1.2 Medium-Term Real GDP Growth
8 116,4 34
1.3 Unemployment
4 123,6 8
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
35 85,3 12
2.2 Stock Market Liquidity (Trading Volume)
23 30,1 24
2.3 IPO Market Activity
33 51,2 23
2.4 M&A Market Activity
51 41,9 50
2.5 Debt and Credit Market
37 82,5 20
2.6 Bank Non-Performing Loans to Total Gross Loans
64 103,4 33
2.7 Financial Market Sophistication
29 78,8 29
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
77 26,2 78
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
66 44,5 65
4.2 Security of Property Rights
32 77,0 29
4.3 Quality of Legal Enforcement
30 83,2 29
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
38 73,0 29
5.2 Labor Market Rigidities
27 72,1 35
5.3 Bribing and Corruption
26 91,4 22
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
36 58,7 27
6.2 Scientific and Technical Journal Articles
57 45,0 57
6.3 Ease of Starting and Running a Business
35 102,9 12
6.4 Simplicity of Closing a Business
73 26,1 75
6.5 Corporate R&D
68 34,9 35
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
224 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
United Kingdom
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
0
1
2
3
4
5
6
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
United Kingdom
Western Europe
United States=100 Points
GDP 2223 [bn USD] IPO Volume
Population 62 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: London ++Official Language: English ++Currency: Pound Sterling
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 3 93,3 2
Economic Activity 48 88,6 27
Depth of Capital Market 3 91,1 4
Taxation 17 107,7 15
Inv. Prot./Corp. Gov. 7 103,4 8
Human/Social Env. 7 96,3 10
Entrepr. Cult./Deal Opp. 4 89,4 7
4th 1st
Strengths
• Established global VCPE and nancial centre, w ith large num bers of assets
currently under VCPE ow nership
• PE, as an asset class, is recognized as an im portant part of the econom y
• Signi cant rebounding of PE acquisition activity in 2010, w ith exit
opportunities reappearing in M &A m arkets
• Leverage is returning and is m uch m ore accessible than in the last tw o
years
Weaknesses
• Caution created by continuing econom ic uncertainty
• Fierce com petition for quality assets
• Dif cult to establish the stability and grow th prospects of individual target
assets w hile em erging from the recession
• IPO m arkets not a w idely accessible exit route for PE assets in the past tw o
years
Opportunities
• M any attractive investm ent opportunities w ill com e to m arket as the
pent-up ow of exits continues
• Assets acquired by the banks during econom ic dif culties are expected to
com e to m arket
• W hile fund-raising still rem ains dif cult, liquidity concerns are likely to
recede and fundraising should recover
Threats
• M acroeconom ic uncertainty continues
• An increased regulatory burden m ay be placed upon PE; the full im pact of
the regulatory changes are yet to becom e clear
• Re nancing challenges rem ain for PE-backed assets
• The IPO m arket as an exit route for PE rem ains uncertain
Outlook
• There is a large portfolio of PE-backed UK assets expected to be exited,
so the ow of assets to m arket is set to increase
• As credit becom es increasingly available by investors searching for yield in
the current low -interest rate environm ent, transactions should continue
to scale up in size; sim ilarly, as investors search for yield, term s w ill shift in
favour of borrow ers
• Fund-raising conditions w ill rem ain challenging
Sachin Date, Ernst & Young
[email protected]
225 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
5 76,4 6
1.2 Medium-Term Real GDP Growth
72 85,2 65
1.3 Unemployment
25 106,7 39
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
5 86,9 10
2.2 Stock Market Liquidity (Trading Volume)
5 93,8 4
2.3 IPO Market Activity
5 70,2 7
2.4 M&A Market Activity
2 86,7 2
2.5 Debt and Credit Market
4 86,5 14
2.6 Bank Non-Performing Loans to Total Gross Loans
19 109,6 19
2.7 Financial Market Sophistication
9 110,6 4
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
17 107,7 15
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
8 102,5 6
4.2 Security of Property Rights
17 91,8 18
4.3 Quality of Legal Enforcement
11 117,5 13
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
16 98,2 14
5.2 Labor Market Rigidities
5 84,9 14
5.3 Bribing and Corruption
13 107,1 16
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
5 87,1 12
6.2 Scientific and Technical Journal Articles
3 87,8 3
6.3 Ease of Starting and Running a Business
22 93,9 34
6.4 Simplicity of Closing a Business
9 107,1 10
6.5 Corporate R&D
8 74,3 10
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
226 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
United States of America
2007 2011 Quartile
Rank Value Rank
United States 1 100,0 1
Singapore 2 92,4 4
United Kingdom 3 93,3 2
Canada 4 93,3 3
Switzerland 5 91,8 5
Australia 7 90,2 7
Japan 6 90,9 6
Sweden 8 85,0 8
Netherlands 10 84,3 9
4th 1st
0
1
2
3
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
United States
North America
United States=100 Points
GDP 14802 [bn USD] IPO Volume
Population 309 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Washington D.C. ++Official Language: English ++Currency: USDollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 1 100,0 1
Economic Activity 26 100,0 5
Depth of Capital Market 1 100,0 1
Taxation 35 100,0 40
Inv. Prot./Corp. Gov. 9 100,0 9
Human/Social Env. 11 100,0 8
Entrepr. Cult./Deal Opp. 1 100,0 2
4th 1st
Strengths
• Better econom ic recovery com pared to other developed m arkets,
particularly Europe
• Recovery of nancial m arkets
• Strong innovation and entrepreneurship culture
• Fully developed and robust VCPE “ecosystem ”
Weaknesses
• Econom ic recovery not strong enough to show effects on unem ploym ent
• Fragile recovery of dom estic dem and w ith individuals threatened by falling
house prices and high unem ploym ent
• High individual debt and possible further deleverage of individual
households
• Continuous decrease in the num ber of VC funds
• Decline of VC-backed IPOs
Opportunities
• Robust innovation and fast grow th can be seen in segm ents such as
cleantech, cloud com puting, social netw orks, w ireless and security
• Opportunities for strategic partnerships are increasing
• PE-backed IPOs are back
Threats
• Succession planning in som e funds
• Lack of exits im pacting the ability to raise new or follow on funds
• Pressure from certain lim ited partners to de ne new LP-GP term s
• Accelerated global com petition
• State de cit is likely to lead to an increase in taxation and w ill continue to
w eaken the US dollar, thus adding foreign exchange risk
Outlook
• Industry is strong w ith investm ent and grow th opportunities in new and
innovative segm ents
• The consolidation of players in the VC industry is expected
Gil Forer, Ernst & Young
[email protected]
227 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
1 100,0 1
1.2 Medium-Term Real GDP Growth
65 100,0 50
1.3 Unemployment
19 100,0 53
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
4 100,0 5
2.2 Stock Market Liquidity (Trading Volume)
3 100,0 3
2.3 IPO Market Activity
1 100,0 1
2.4 M&A Market Activity
1 100,0 1
2.5 Debt and Credit Market
1 100,0 2
2.6 Bank Non-Performing Loans to Total Gross Loans
14 100,0 39
2.7 Financial Market Sophistication
3 100,0 11
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
35 100,0 40
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
6 100,0 8
4.2 Security of Property Rights
14 100,0 13
4.3 Quality of Legal Enforcement
17 100,0 20
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
7 100,0 12
5.2 Labor Market Rigidities
1 100,0 1
5.3 Bribing and Corruption
27 100,0 18
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
1 100,0 6
6.2 Scientific and Technical Journal Articles
1 100,0 1
6.3 Ease of Starting and Running a Business
12 100,0 19
6.4 Simplicity of Closing a Business
14 100,0 16
6.5 Corporate R&D
1 100,0 2
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
228 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Uruguay
2007 2011 Quartile
Rank Value Rank
Chile 30 61,5 29
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
4th 1st
62
63
64
65
66
67
68
69
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Uruguay
Latin America
United States=100 Points
GDP 40 [bn USD] IPO Volume
Population 3 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Montevideo ++Official Language: Spanish ++Currency: Peso Uruguayo
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 65 36,8 65
Economic Activity 64 77,8 46
Depth of Capital Market 72 12,7 70
Taxation 75 86,0 71
Inv. Prot./Corp. Gov. 47 58,0 49
Human/Social Env. 27 71,6 23
Entrepr. Cult./Deal Opp. 52 44,7 47
4th 1st
Strengths
• Low levels of corruption; ranked 24th out of 178 countries in Transparency
International’s 2010 Corruption Perceptions Index
• Low levels of organized crim e
• IFRS requirem ent for all rm s
• Faster, less costly resolution of bankruptcies, w ith higher recovery rate
than other countries in the region
• Equal treatm ent of foreign and national investors
Weaknesses
• Lack of legal fram ew ork for VCPE form ation and operation
• Com plex and expensive tax environm ent
• Institutional investm ent only allow ed in rated instrum ents w ith adequate
governance standards
• Underdeveloped capital m arket, concentrated in sovereign debt, m eaning
IPOs are not a viable exit option for VCPE funds
Threats
• M inority shareholders’rights are w eak, and transparency is perceived as an
issue for these shareholders
• Low protection of intellectual property rights, w ith com plex patent
registration
Opportunities
• Inw ard investm ents have sim ple registration rules, no reserve required and
no exchange controls
• Im provem ent has been seen in the judicial system
• Public and private efforts have been m ade to prom ote entrepreneurial
activity and start-ups
Outlook
• The VCPE activity w ill likely decelerate during 2011
• The country could m ake its VCPE business environm ent m ore attractive by
adopting a better legal fram ew ork for nationally dom iciled fund form ation
and operation, and reducing restrictions on institutional investors
Jose Ricardo Villarmarzo, Ernst & Young
[email protected]
229 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
68 26,7 65
1.2 Medium-Term Real GDP Growth
41 157,1 6
1.3 Unemployment
64 112,5 29
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
77 9,1 77
2.2 Stock Market Liquidity (Trading Volume)
77 1,2 73
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
71 19,2 66
2.5 Debt and Credit Market
64 55,6 58
2.6 Bank Non-Performing Loans to Total Gross Loans
27 113,7 10
2.7 Financial Market Sophistication
67 40,0 56
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
75 86,0 71
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
48 53,6 50
4.2 Security of Property Rights
46 58,4 45
4.3 Quality of Legal Enforcement
49 62,2 46
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
53 53,7 43
5.2 Labor Market Rigidities
20 76,6 27
5.3 Bribing and Corruption
21 89,4 23
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
63 33,2 50
6.2 Scientific and Technical Journal Articles
61 44,0 61
6.3 Ease of Starting and Running a Business
55 65,8 67
6.4 Simplicity of Closing a Business
38 79,6 30
6.5 Corporate R&D
57 23,2 51
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
230 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Venezuela
2007 2011 Quartile
Rank Value Rank
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
Venezuela 73 15,2 79
4th 1st
70
71
72
73
74
75
76
77
78
79
80
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Venezuela
Latin America
United States=100 Points
GDP 301 [bn USD] IPO Volume
Population 29 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Caracas ++Official Language: Spanish ++Currency: Bolívar Fuerte
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 73 15,2 79
Economic Activity 2 80,0 41
Depth of Capital Market 67 13,5 67
Taxation 74 73,5 76
Inv. Prot./Corp. Gov. 80 4,2 80
Human/Social Env. 79 8,0 79
Entrepr. Cult./Deal Opp. 72 15,5 73
4th 1st
Strengths
• Foreign investors are granted alm ost equal treatm ent as nationals, w ith
few restrictions
Weaknesses
• Unattractive legal fram ew ork for foreign investors
• Lack of legal fram ew ork for the form ation and operation of VCPE
• Lack of political stability
• Sharp fall of foreign investm ent over recent years
• High levels of corruption, crim e, bureaucracy and a politically driven
judicial environm ent
• Currency devaluation trend and com plex foreign exchange regulation that
signi cantly lim its FX access
• Low investor protection and governance structure
Threats
• GDP contraction for tw o consecutive years and a negative outlook for
GDP grow th in 2011
• In ation continues to be the highest in the Latin Am erican region
• An energy crisis is likely to occur and no investm ents are projected in the
short and m id term
• Ongoing nationalization and expropriation processes in several industries
and sectors
• Strong regulation that discourages transferability of foreign currency
(dividend paym ents/disinvestm ents)
Opportunities
• There w ill only be lim ited opportunities for foreign investors if the
Governm ent continues to expropriate com panies from both local and
foreign investors
• In the future, as attitudes tow ards investm ent changes and legislation and
practices are adapted to re ect this, m ore opportunities for VCPE investors
should arise
Outlook
• Negative econom ic outlook for 2011
• Scarcity of investm ent opportunities, high uncertainty and political
instability is likely to continue
• Environm ent of m arket-unfriendly legal reform s is anticipated
• Underinvestm ent is expected due to lack of guarantees
Jairo A. Labrador, Ernst & Young
[email protected]
231 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
36 51,6 31
1.2 Medium-Term Real GDP Growth
1 91,7 60
1.3 Unemployment
58 108,0 38
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
73 19,3 70
2.2 Stock Market Liquidity (Trading Volume)
72 1,3 69
2.3 IPO Market Activity
66 2,5 66
2.4 M&A Market Activity
53 33,7 55
2.5 Debt and Credit Market
62 13,5 79
2.6 Bank Non-Performing Loans to Total Gross Loans
21 107,5 23
2.7 Financial Market Sophistication
60 25,9 67
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
74 73,5 76
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
80 7,9 80
4.2 Security of Property Rights
80 4,2 80
4.3 Quality of Legal Enforcement
80 2,2 80
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
72 24,0 76
5.2 Labor Market Rigidities
80 15,6 80
5.3 Bribing and Corruption
76 1,4 80
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
73 7,0 77
6.2 Scientific and Technical Journal Articles
48 51,8 48
6.3 Ease of Starting and Running a Business
78 7,5 80
6.4 Simplicity of Closing a Business
75 18,3 76
6.5 Corporate R&D
53 18,1 58
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
232 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Vietnam
2007 2011 Quartile
Rank Value Rank
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
Philippines 53 41,2 58
Kazakhstan 54 39,1 61
Armenia 72 25,3 71
Kyrgyzstan 78 14,4 80
4th 1st
50
52
54
56
58
60
62
64
66
68
70
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Vietnam Asia
United States=100 Points
GDP 103 [bn USD] IPO Volume
Population 89 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Hanoi ++Official Language: Vietnamese ++Currency: D?ng
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 62 42,2 53
Economic Activity 13 91,7 13
Depth of Capital Market 58 33,2 50
Taxation 64 87,8 69
Inv. Prot./Corp. Gov. 70 39,8 68
Human/Social Env. 71 39,2 62
Entrepr. Cult./Deal Opp. 60 34,7 58
4th 1st
Strengths
• Abundance of natural resources (particularly rice, coffee and tea)
• Com paratively low labor costs
• Political stability
• Strong entrepreneurial culture
• Strong and grow ing dom estic dem and
Weaknesses
• VC nascent w orking population, lacking practical experience in various
sectors
• Adm inistrative procedures still lagging behind regional peers
• Underdeveloped nancial m arkets
• Relatively w eak corporate governance
• Financial reporting not yet in line w ith international standards
Opportunities
• A rise in the standard of living is creating increasing dem and for products
and services, particularly in em erging urban centers
• Exports to the US, China and ASEAN bloc are grow ing, along w ith
increased m arket access through bilateral and m ultilateral trade
agreem ents
• Vietnam ese enterprises have a greater appetite and scope for operational
and nancial im provem ents
• Infrastructural dem and is driven by the transform ation of the econom y
Threats
• M ore tim e-consum ing to do business than in neighboring countries due
to relatively stricter governm ent regulations
• High in ation rate
• Escalating cost of borrow ing Relatively slow er progress in the equalization
process, infrastructural developm ent and adm inistrative reform s
Outlook
• The econom y is expected to expand by m ore than 6% this year, supported
by strong dom estic dem and and increasingly diverse exports.
• High potential in consum er sectors
• Strong position in com m odities production, w ith potential for m ore
natural resource exploration and infrastructure developm ent
• A recently low ered sovereign credit rating (from Ba3 to B1) and concern
about in ation w ill present challenges for the public sector to gain
investors’con dence
• Potential for higher grow th, provided econom ic reform s are im plem ented
ef ciently to reduce the cost of doing business in Vietnam
TomHerron, Ernst & Young
[email protected]
233 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
57 38,3 55
1.2 Medium-Term Real GDP Growth
15 158,4 5
1.3 Unemployment
3 127,2 5
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
64 29,8 63
2.2 Stock Market Liquidity (Trading Volume)
64 3,0 54
2.3 IPO Market Activity
44 54,3 21
2.4 M&A Market Activity
58 43,3 47
2.5 Debt and Credit Market
51 65,1 41
2.6 Bank Non-Performing Loans to Total Gross Loans
67 89,7 59
2.7 Financial Market Sophistication
74 36,5 62
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
64 87,8 69
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
79 23,3 77
4.2 Security of Property Rights
54 50,4 51
4.3 Quality of Legal Enforcement
56 53,6 56
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
71 55,3 40
5.2 Labor Market Rigidities
40 62,7 40
5.3 Bribing and Corruption
72 17,4 70
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
50 38,4 44
6.2 Scientific and Technical Journal Articles
59 44,7 59
6.3 Ease of Starting and Running a Business
60 71,0 63
6.4 Simplicity of Closing a Business
65 41,2 70
6.5 Corporate R&D
66 10,1 63
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
234 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Appendices
Methodology, technical descriptions,
limitations, data descriptions,
data sources and references
V.
235 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
V. Appendices
Computation of the index
236 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Normalization
In order to make the cross-sectional data series comparable, the
raw data has to be converted into a common range. The rescaling
method is used to normalize indicators to such a range by linear
transformation. Thereby, 100 represents the best score, while 1
the worst.
For every individual variable, we de?ne whether high values
in?uence the attractiveness for investors positively or negatively,
and hence, assign 100 points either to the highest score (e.g., in
case of the GDP per capita) or to the lowest (e.g., in case of high
hiring costs).
The sub-item points for every country are calculated accor-
ding to the following formula:
• y
q,i
=normalized value of category q and country i
• x
q,i
=raw data value of category q and country i
• min(x
q
) =minimumraw data value of category q
within the sample
• max(x
q
) =maximumraw data value of category q
within the sample
Example
Rawdata value
[any unit]
1
(lowest value in
sample)
12 20
(highest value
in sample)
Norm alized value
[1-100]
99x[(1-1)/
(20-1)]+1=1
99x[(12-1)/
(20-1)]+1=58
99x[(20-1)/
(20-1)]+1=100
The VCPE attractiveness of each country is computed by calculating a weighted average
of country performance scores in the six key drivers. The scores within each key driver are
derived fromthe level-2 constructs, respectively fromseveral raw data series.
Aggregation
For the index-score calculation, we use geometric aggregation
because it is better suited than arithmetic aggregation. Geome-
tric aggregation rewards those countries or those sub-indicators
with higher scores. Overall, a shortcoming in the value of one
variable or sub-index can be compensated by a surplus in ano-
ther. Compensability is constant in linear aggregation, while it is
smaller in geometric aggregation for the sub-indicators with low
values. Therefore, countries with low scores in some sub-indices
would bene?t from linear aggregation.
For this reason, we use geometric aggregation as follows.
• Index Value
i
=index value of country i
• y
q,i
=normalized value of category q and country i
• w
q
=weight of category q
Example
Category
Economic
activity
Depth of a
capital market
Investor
protection
W eight 0.5 0.25 0.25
Norm alized value
of country i (y
q,i
)
30 40 50
Index value for the
country
(30
0.5
) x (40
0.25
) x (50
0.25
) = 36.63
237 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Weighting
After calculating the performance scores for each data series on
the lowest level, the scores are aggregated using the aforemen-
tioned aggregation method. On the lowest level, items are aggre-
gated with equal weights, i.e., the weights are derived from the
number of components that are aggregated.
The following Exhibit shows the aggregation path from the
normalized and de?ated (raw) data series to the ?nal VCPE
Country Attractiveness Index score.
(Raw) Data Series
normalized, deflated
equal weights equal weights
weights according
number of items
Sub-Items
Agregation
with
Key-factors
Economic
Activity
3/22
1/22
3/22
Capital
Markets
VPC Index
Score
Taxation
Inv. Prot. &
Index
7/22
V. Appendices
238 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Correlation is a measure for the strength and directionality of a
linear relationship between two variables. The Pearson-Correla-
tion-Coef?cient p
x,y
, ranges from 0 to ±1 (or 0 to ±100%), with
0 indicating a non-linear or missing relationship between two
data sets and ±1 indicating perfect linearity. A positive (negative)
correlation indicates a positive (negative) relationship.
To test the results of the index calculations, we calculate the
correlation between the index scores with the control variable.
The results of these analyses are displayed in the following Table.
The correlation coef?cients are very high for all cases considered.
These high values proof the accuracy of the index scores and its
ability to measure a countries’ attractiveness for investors in VC
and PE funds.
Statistical validation of the index
VCPE investments
LN (average 2007-2009)
VC investments
LN (average 2007-2009)
PE investments
LN (average 2007-2009)
VC/PE index
2011
0.8336 - -
VC index
2011
- 0.8242 -
PE index
2011
- - 0.8347
239 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
V. Appendices
240 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Table with sources and explanations
of the data series
Indicators Dimension
for index
calculation
Positive/
negative
impact
VC PE Explanation Source
1 Economic activity
1.1 Total econom ic
size
[LN GDP in USD] + X X The econom ic size of a country is m easured by its gross dom estic
product (GDP), w hich is the sum of gross value added by all resident
producers in the econom y plus any product taxes, m inus any
subsidies not included in the value of the products. It is calculated
w ithout m aking deductions for depreciation of fabricated assets or
for depletion and degradation of natural resources.
Eurom onitor International
M onetary Fund,
International Financial
Statistics
1.2 M edium -term real
GDP grow th
[% ] + X X Gross dom estic product is the sum of gross value added by all
resident producers in the econom y plus any product taxes, m inus any
subsidies not included in the value of the products. It is calculated
w ithout m aking deductions for depreciation of fabricated assets or
for depletion and degradation of natural resources.
Real GDP: the num ber reached by valuing all the productive activity
w ithin the country at a speci c year's prices. W hen econom ic activity
of tw o or m ore tim e periods is valued at the sam e year's prices, the
resulting gure allow s com parison of purchasing pow er over tim e,
since the effects of in? ation have been rem oved by m aintaining
constant prices.
Eurom onitor International
M onetary Fund,
International Financial
Statistics and W orld
Econom ic Outlook/UN/
national statistics
1.3 Unem ploym ent
rate
[% ] - X X Unem ploym ent rate: the ILO international standard de nition of
unem ploym ent is based on the follow ing three criteria w hich should
be satis ed sim ultaneously: w ithout w ork, currently available for
w ork and seeking w ork.
Eurom onitor International
from International Labor
Organization (ILO)
2 Depth of capital market
2.1 Size of the stock m arket
2.1.1 M arket
capitalization of
listed com panies
[% of GDP] + X X M arket capitalization is the share price tim es the num ber of shares
outstanding. Listed dom estic com panies are the dom estically
incorporated com panies listed on the country's stock exchanges at
the end of the year. Listed com panies does not include investm ent
com panies, m utual funds, or other collective investm ent vehicles.
W orld Bank (W orld
Developm ent Indicator)
2.1.2 Listed dom estic
com panies
[LN num ber] + X X Listed dom estic com panies are the dom estically incorporated
com panies listed on the country's stock exchanges at the end of the
year. This indicator does not include investm ent com panies, m utual
funds, or other collective investm ent vehicles.
W orld Bank (W orld
Developm ent Indicator)
2.2 Stock m arket
liquidity (trading
volum e)
[% of GDP] + X X Stock m arket total value traded refers to the total value of shares
traded during the period. This indicator com plem ents the m arket
capitalization ratio by show ing w hether m arket size is m atched by
trading.
W orld Bank (W orld
Developm ent Indicator)
2.3 IPO m arket activity
2.3.1 IPO m arket
volum e
[LN USDm ] + X X Proceeds am ount plus overallotm ent sold in this m arket:
This data series show s the proceeds am ount of the issue in this
m arket plus the overallotm ent am ount (a.k.a., green shoe) sold in this
m arket; i.e., num ber of shares in this m arket plus the overallotm ent
shares sold in this m arket m ultiplied by the offer price. A green shoe
clause in an underw riting agreem ent provides that, in the case of
excess dem and, the issuer w ill authorize additional shares to be sold
through the existing syndicate.
Thom son One Banker
2.3.2 Num ber of IPOs [LN num ber] + X X Num ber of initial public offerings (IPOs) in a country. Thom son One Banker
241 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Indicators Dimension
for index
calculation
Positive/
negative
impact
VC PE Explanation Source
2.4 M &A m arket activity
2.4.1 M &A m arket
volum e
[LN USDm ] + X X The data com prise M &A ranking value including net debt of target.
According to Thom son, the ranking value is calculated as follows:
RANKVAL = the sum of VALNOLIA, straight debt, short-term debt and
preferred equity, m inus cash.
VALNOLIA: transaction value excluding liabilities assum ed;
transaction value m inus the value of any liabilities agreed to be
assum ed in the transaction.
Thom son One Banker
2.4.2 Num ber of M &A
deals
[LN num ber] + X X Num ber of M &A deals in a country. Thom son One Banker
2.5 Debt and credit m arket
2.5.1 Dom estic credit
provided by
banking sector
[% of GDP] + - X Dom estic credit provided by the banking sector includes all credit to
various sectors on a gross basis, w ith the exception of credit to the
central governm ent, w hich is net. The banking sector includes
m onetary authorities and deposit m oney banks, as w ell as other
banking institutions w here data are available (including institutions
that do not accept transferable deposits but do incur such liabilities
as tim e and savings deposits). Exam ples of other banking institutions
are savings and m ortgage loan institutions and building and loan
associations.
W orld Bank (W orld
Developm ent Indicator)
2.5.2 Ease of access to
loans
[-] + - X This data series m easures the perceived sim plicity of obtaining a bank
loan in a country w ith only a good business plan and no collateral.
W orld Econom ic Forum
2.5.3 Credit inform ation
index
[-] + - X The depth of credit inform ation index m easures rules affecting the
scope, accessibility and quality of credit inform ation available
through either public or private credit registries. The index ranges
from 0 to 6, w ith higher values indicating the availability of m ore
credit inform ation, from either a public registry or a private bureau,
to facilitate lending decisions. If the registry is not operational or has
coverage of less than 0.1% of the adult population, the score on the
depth of credit inform ation index is 0.
W orld Bank, Doing
Business
2.5.4 Interest rate
spread
[% ] - - X Interest rate spread is the interest rate charged by banks on loans to
prim e custom ers m inus the interest rate paid by com m ercial or
sim ilar banks for dem and, tim e, or savings deposits.
W orld Econom ic Forum ;
W orld Developm ent
Indicators
2.6 Bank non-
perform ing loans
to total gross
loans
[% ] - - X Bank non-perform ing loans to total gross loans are the value of
non-perform ing loans divided by the total value of the loan
portfolio (including non-perform ing loans before the deduction of
speci c loan-loss provisions). The loan am ount recorded as
non-perform ing should be the gross value of the loan as recorded
on the balance sheet, not just the am ount that is overdue.
W orld Bank (W orld
Developm ent Indicator)
2.7 Financial m arket
sophistication
[-] + - X This data series m easures the perceived level of sophistication of
nancial m arkets in a country. The index ranges 1 to 7, w ith higher
values indicating that nancial m arket sophistication is excellent by
international standards and low values indicating that it is poor by
international standards.
W orld Econom ic Forum
V. Appendices
242 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Indicators Dimension
for index
calculation
Positive/
negative
impact
VC PE Explanation Source
3 Taxation
3.1 Tax incentives and adm inistrative burdens
3.1.1 Entrepreneurship
incentive
[% ] + X - Difference: incom e tax m inus corporate tax. The m eaning of this
driver is based on the fact that an em ployee tends to becom e
entrepreneur if the individual tax paym ent is signi cant higher than
the corporate tax.
W orld Bank (W orld
Developm ent Indicator);
Fraser Institute
3.1.2 Num ber of tax
paym ents
[#] - X - The tax paym ents indicator re ects the total num ber of taxes and
contributions paid, the m ethod of paym ent, the frequency of paym ent
and the num ber of agencies involved for this standardized case during
the second year of operation. It includes paym ents m ade by the
com pany on consum ption taxes, such as sales tax or value added tax.
These taxes are traditionally w ithheld on behalf of the consum er.
Although they do not affect the incom e statem ents of the com pany,
they add to the adm inistrative burden of com plying w ith the tax
system and so are included in the tax paym ents m easure.
W orld Bank (Doing
Business)
3.1.3 Tim e spent on tax
issues
[Hours per year] - X - Tim e is recorded in hours per year. The indicator m easures the tim e to
prepare, le and pay (or w ithhold) three m ajor types of taxes and
contributions: the corporate incom e tax, value added or sales tax and
labor taxes, including payroll taxes and social contributions.
Preparation tim e includes the tim e to collect all inform ation
necessary to com pute the tax payable. If separate accounting books
m ust be kept for tax purposes — or separate calculations m ade — the
tim e associated w ith these processes is included. This extra tim e is
included only if the regular accounting w ork is not enough to ful ll
the tax accounting requirem ents. Filing tim e includes the tim e to
com plete all necessary tax form s and m ake all necessary calculations.
Paym ent tim e is the hours needed to m ake the paym ent online or at
the tax of ce. W here taxes and contributions are paid in person, the
tim e includes delays w hile w aiting.
W orld Bank (Doing
Business)
4 Investor protection and corporate governance
4.1 Corporate governance
4.1.1 Disclosure index [-] + X X This index m easures the extent to w hich transparency of enterprise
related party transactions exists. The index ranges from 0 to 10, w ith
higher values indicating greater disclosure.
W orld Bank (Doing
Business)
4.1.2 Director liability
index
[-] + X X This index m easures the extent of liability for self-dealing. For
exam ple, the interested director is either not liable or liable only in
cases of bad faith, intent, or gross negligence. The index ranges from
0 to 10, w ith higher values indicating greater liability of directors.
W orld Bank (Doing
Business)
4.1.3 Shareholder suits
index
[-] + X X This index m easures the extent of shareholders’ability to sue of cers
and directors for m isconduct. The index ranges from 0 to 10, w ith
higher values indicating greater pow ers of shareholders to challenge
the transaction.
W orld Bank (Doing
Business)
4.1.4 Legal rights index [-] + X X The strength of legal rights index m easures the degree to w hich
collateral and bankruptcy law s protect the rights of borrow ers and
lenders, and thus facilitate lending. The index ranges from 0 to 10,
w ith higher scores indicating that collateral and bankruptcy law s are
better designed to expand access to credit.
W orld Bank (Doing
Business)
4.1.5 Ef cacy of
corporate boards
[-] + X X Corporate governance by investors and boards of directors in your
country is characterized by (1 = m anagem ent has little
accountability, 7 = investors and boards exert strong supervision of
m anagem ent decisions).
W orld Econom ic Forum
4.2 Security of property rights
4.2.1 Legal enforcem ent
of contracts
[-] + X X This com ponent estim ates for the tim e and m oney required to collect
a clear-cut debt. The index ranges from 1 to 10, w ith higher values
indicating stronger legal enforcem ent of contracts.
Fraser Institute
243 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Indicators Dimension
for index
calculation
Positive/
negative
impact
VC PE Explanation Source
4.2.2 Property rights [-] + X X Property rights is an assessm ent of the ability of individual to
accum ulate private property, secured by clear law s that are fully
enforced by the state. The index ranges from 1 to 10, w ith higher
values indicating higher protection of property rights.
Fraser Institute
4.2.3 Intellectual
property
protection
[-] + X X This data series m easures the perceived “intellectual property
protection”in a country. The index ranges from 1 to 7, w ith higher
values indicating that Intellectual property protection and
anti-counterfeiting m easures in a country are strong and enforced
w hereas low values indicate the opposite.
W orld Econom ic Forum
(Executive Opinion Survey
2007, 2008)
4.3 Quality of legal enforcem ent
4.3.1 Judicial
independence
[-] + X X This data series m easures the perceived judicial independence in a
country. The index ranges from 1 to 7, w ith higher values indicating
that the judiciary in a country is independent from political
in? uences of m em bers of governm ent, citizens, or rm s and low er
values indicating that it is heavily in? uenced.
W orld Econom ic Forum
(Global Com petitiveness
Report)
4.3.2 Im partial courts [-] + X X This data series m easures the perceived quality of the legal
fram ew ork in a country. The index ranges from 0 to 10, w ith higher
values indicating that the fram ew ork in a country for private
businesses to settle disputes and challenge the legality of
governm ent actions and/or regulations follow s a clear, neutral
process. Low er values indicate that the fram ew ork seem s to be
inef cient and subject to m anipulation.
Fraser Institute
4.3.3 Integrity of the
legal system
[-] + X X This com ponent is based on tw o sub-com ponents. Each sub-
com ponent equals half of the total. The “law ”sub-com ponent
assesses the strength and im partiality of the legal system , and the
“order”sub-com ponent assesses popular observance of the law. The
index ranges from 0 to 10. High rating values indicate a sound legal
system .
Fraser Institute, PRS Group
(International Country
Risk Guide)
4.3.4 Rule of law [-] + X X Rule of law m easures the extent to w hich agents have con dence in
and abide by the rules of society, in particular the quality of contract
enforcem ent, the police, and the courts, as w ell as the likelihood of
crim e and violence. The index ranges from -2.5 to 2.5 w ith higher
values corresponding to better governance outcom es.
W orld Bank (W orldw ide
Governance Indicator)
4.3.5 Regulatory quality [-] + X X Regulatory quality m easures the ability of the governm ent to
form ulate and im plem ent sound policies and regulations that perm it
and prom ote private sector developm ent. The index ranges from -2.5
to 2.5 w ith higher values corresponding to better governance
outcom es.
W orld Bank (W orldw ide
Governance Indicator)
5 Human and social environment
5.1 Education and hum an capital
5.1.1 Quality of the
educational
system
[-] + X - This data series m easures the perceived quality of the educational
system in a country. The index ranges from 1 to 7, w ith higher values
indicating that the educational system in a country m eets the needs
of a com petitive econom y. Low values indicate that the system does
not m eet the needs of a com petitive econom y.
W orld Econom ic Forum
5.1.2 Quality of
scienti c research
institutions
[-] + X - This data series m easures the perceived quality of scienti c research
institutions in a country. The index ranges from 1 to 7, w ith higher
values indicating that Scienti c research institutions in a country
(e.g., university laboratories, governm ent laboratories) are the best in
their elds internationally. Low values indicate that they are not
com petitive or non-existent.
W orld Econom ic Forum
V. Appendices
244 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Indicators Dimension
for index
calculation
Positive/
negative
impact
VC PE Explanation Source
5.2 Labor m arket rigidities
5.2.1 Dif culty of hiring
index
[-] - X X This index m easures the dif culty of hiring regarding:
(i) w hether xed-term contracts are prohibited for perm anent tasks
(ii) the m axim um cum ulative duration of xed-term contracts
(iii) the ratio of the m inim um w age for a trainee or rst tim e
em ployee to the average value added per w orker
The index ranges from 0 to 100. High scores are assigned to countries
w here xed-term contracts are prohibited for perm anent tasks, the
m axim um cum ulative duration of xed-term contracts is low, and if
the ratio of the m inim um w age to the average value added per
w orker is high.
W orld Bank (Doing
Business)
5.2.2 Rigidity of hours
index
[-] - X X This index m easures the rigidity of hours index regarding ve
com ponents:
(i) w hether night w ork is unrestrictedw hether w eekend w ork is
unrestricted
(ii) w hether the w ork w eek can consist of 5.5 days
(iii) w hether the w ork w eek can extend to 50 hours or m ore
(including overtim e) for tw o m onths a year to respond to a
seasonal increase in production
(iv) w hether paid annual vacation is 21 w orking days or few er
The index ranges from 0 to 100. High scores are assigned to countries
w here the ve before m entioned statem ents are not true.
W orld Bank (Doing
Business)
5.2.3 Dif culty of ring
index
[-] - X X The dif culty of ring index has eight com ponents:
(i) w hether redundancy is disallow ed as a basis for term inating
w orkers
(ii) w hether the em ployer needs to notify a third party (such as a
governm ent agency) to term inate 1 redundant w orker
(iii) w hether the em ployer needs to notify a third party to term inate
a group of 25 redundant w orkers
(iv) w hether the em ployer needs approval from a third party to
term inate 1 redundant w orker
(v) w hether the em ployer needs approval from a third party to
term inate a group of 25 redundant w orkers
(vi) w hether the law requires the em ployer to reassign or retrain a
w orker before m aking the w orker redundant
(vii) w hether priority rules apply for redundancies
(viii) w hether priority rules apply for reem ploym ent
For the rst question an answ er of yes for w orkers of any incom e
level gives a score of 10 and m eans that the rest of the questions
do not apply. An answ er of yes to question (iv) gives a score of 2.
For every other question, if the answ er is yes, a score of 1 is
assigned; otherw ise a score of 0 is given. Questions (i) and (iv), as
the m ost restrictive regulations, have greater w eight in the
construction of the index.
W orld Bank (Doing
Business)
5.2.4 Firing costs [W eeks of
w ages]
- X X The ring cost indicator m easures the cost of advance notice
requirem ents, severance paym ents and penalties due w hen
term inating a redundant w orker, expressed in w eeks of salary. If the
ring cost adds up to eight or few er w eeks of salary, a score of 0 is
assigned. If the cost adds up to m ore than eight w eeks of salary, the
score is the num ber of w eeks. One m onth is recorded as four and
one-third w eeks.
W orld Bank (Doing
Business)
245 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Indicators Dimension
for index
calculation
Positive/
negative
impact
VC PE Explanation Source
5.3 Bribery and corruption
5.3.1 Bribery and
corruption index
[-] + X X This index describes the overall extent of corruption (frequency and/
or size of bribes) in the public and political sectors. The index ranges
from 0 to 10. Countries w here bribery and corruption cases are
frequent receive a low rating score.
Transparency International
5.3.2 Control of
corruption
[-] + X X This data series m easures the perception of the extent to w hich
public pow er is exercised for private gain, including both petty and
grand form s of corruption, as w ell as "capture" of the state by elites
and private interests. Countries in w hich seem ingly public pow er is
frequently used for private gain a low rating score. The index ranges
from -2.5 to 2.5 w ith higher values corresponding to better
governance outcom es.
W orld Bank (W orldw ide
Governance Indicator)
5.3.3 Extra paym ents/
bribes
[-] + X X This index m easures the frequency of extra paym ents and bribes
rm s pay in a country. The index ranges from 0 to 10 w ith higher
values corresponding to better governance outcom es. Countries
w here these paym ents are frequent receive a low rating score.
Fraser Institute
6 Entrepreneurial culture and deal opportunities
6.1 Innovation
6.1.1 General
innovativeness
index
[-] + X - The fram ew ork groups the eight pillars of innovation into tw o
categories: inputs and outputs. The ve input pillars –institutions
and policies, hum an capacity, infrastructure, technological
sophistication and business m arkets and capital –represent aspects
w hich enhance the capacity of a nation to generate ideas and
leverage them for innovative products and services. The three output
pillars –know ledge, com petitiveness and w ealth –represent the
ultim ate bene ts of innovation for a nation — m ore know ledge
creation, increased com petitiveness and greater w ealth generation.
Each pillar of the GII m odel is m easured by a num ber of quantitative
and qualitative variables. The averaged scores for the input and
output pillars together give an overall score — the GII. The values of
each variable for the country are scaled on a range of 1 to 7.
INSEAD
6.1.2 Capacity for
innovation
[-] + X - This index m easures the perceived capacity for innovation in a
country. The index ranges from 1 to 7 w ith higher values indicating
that com panies obtain technology by conducting form al research
and pioneering their ow n new products and processes. Low values
indicate that com panies obtain technology exclusively from licensing
or im itating foreign com panies.
W orld Econom ic Forum
6.2 Scienti c and
technical journal
articles
[LN num ber] + X - The data series scienti c and technical journal articles refer to the
num ber of scienti c and engineering articles published in the
follow ing elds: physics, biology, chem istry, m athem atics, clinical
m edicine, biom edical research, engineering and technology, and
earth.
W orld Bank (W orld
Developm ent Indicator)
6.3 Ease of starting and running a business
6.3.1 Num ber of
procedures to
start of business
[#] - X - This data series provides the average num ber of adm inistrative
procedures necessary to start a business in a country.
A procedure is de ned as any interaction of the com pany founder
w ith external parties (for exam ple, governm ent agencies, law yers,
auditors or notaries). Interactions betw een com pany founders or
com pany of cers and em ployees are not counted as procedures. Only
procedures required of all businesses are covered. Industry-speci c
procedures are excluded. For exam ple, procedures to com ply w ith
environm ental regulations are included only w hen they apply to all
businesses conducting general com m ercial or industrial activities.
Procedures that the com pany undergoes to connect to electricity,
w ater, gas and w aste disposal services are not included.
W orld Bank (Doing
Business)
V. Appendices
246 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Indicators Dimension
for index
calculation
Positive/
negative
impact
VC PE Explanation Source
6.3.2 Tim e needed to
start a business
[Days] - X - This data series provides the average num ber of days necessary to
start a business in a country.
Tim e is recorded in calendar days. The m easure captures the m edian
duration that incorporation law yers indicate is necessary to com plete
a procedure w ith m inim um follow -up w ith governm ent agencies and
no extra paym ents. It is assum ed that the m inim um tim e required for
each procedure is one day.
W orld Bank (Doing
Business)
6.3.3 Cost of business
start-up
procedures
[% of incom e
per capita]
- X - This data series provides the average am ount of m oney necessary to
start a business in a country.
Cost is recorded as a percentage of the country’s incom e per capita.
It includes all of cial fees and fees for legal or professional services if
such services are required by law. Fees for purchasing and legalizing
com pany books are included if these transactions are required by law.
The cost excludes bribes.
W orld Bank (Doing
Business)
6.3.4 M inim um capital
requirem ents
[% of incom e
per capita]
- X - The paid-in m inim um capital requirem ent re ects the am ount that
the entrepreneur needs to deposit in a bank or w ith a notary before
registration and up to three m onths follow ing in corporation and is
recorded as a percentage of the country’s incom e per capita. The
am ount is typically speci ed in the com m ercial code or the com pany
law. M any countries have a m inim um capital requirem ent but allow
businesses to pay only a part of it before registration, w ith the rest to
be paid after the rst year of operation.
W orld Bank (Doing
Business)
6.3.5 Adm inistrative
requirem ents
[-] + X - This data series m easures the perceived adm inistrative requirem ents
in a country. The index ranges from 0 to 10 w ith higher values
indicating that com plying w ith adm inistrative requirem ents (perm its,
regulations, reporting) issued by the governm ent in a country is not
burdensom e. Low er values indicate that the adm inistrative
requirem ents are perceived as burdensom e.
Fraser Institute
6.4 Sim plicity of closing a business
6.4.1 Tim e for closing a
business
[Years] - X - This data series provides the average num ber of years necessary to
close a business in a country.
Tim e is recorded in calendar years. Inform ation is collected on the
sequence of procedures and on w hether any procedures can be
carried out sim ultaneously. Potential delay tactics by the parties, such
as the ling of dilatory appeals or requests for extension, are taken
into consideration.
W orld Bank (Doing
Business)
6.4.2 Costs for closing a
business
[% of estate] - X - This data series provides the average costs of closing a business in a
country.
The cost of the proceedings is recorded as a percentage of the
estate’s value. The cost is calculated on the basis of survey responses
by insolvency practitioners and includes court fees as w ell as fees of
insolvency practitioners, independent assessors, law yers and
accountants. Respondents provide cost estim ates from am ong the
follow ing options: less than 2% , 2% –5% , 5% –8% , 8% –11% ,
11% –18% , 18% –25% , 25% –33% , 33% –50% , 50% –75% and m ore
than 75% of the value of the business estate.
W orld Bank (Doing
Business)
247 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Indicators Dimension
for index
calculation
Positive/
negative
impact
VC PE Explanation Source
6.4.3 Recovery rate [Cents on USD] + X - The recovery rate is recorded as cents on the dollar recouped by
creditors through the bankruptcy or insolvency proceedings. The
calculation takes into account w hether the business em erges from
the proceedings as a going concern as w ell as costs and the loss in
value due to the tim e spent closing dow n. If the business keeps
operating, no value is lost on the initial claim , set at 100 cents on the
dollar. If it does not, the initial 100 cents on the dollar are reduced to
70 cents on the dollar. Then the of cial costs of the insolvency
procedure are deducted (one cent for each percentage of the initial
value). Finally, the value lost as a result of the tim e the m oney
rem ains tied up in insolvency proceedings is taken into account,
including the loss of value due to depreciation of the hotel furniture.
Consistent w ith international accounting practice, the depreciation
rate for furniture is taken to be 20% . The furniture is assum ed to
account for a quarter of the total value of assets. The recovery rate is
the present value of the rem aining proceeds, based on end-2006
lending rates from the IM F’s International Financial Statistics,
supplem ented w ith data from central banks.
W orld Bank (Doing
Business)
6.5 Corporate R&D
6.5.1 Com pany
spending on R&D
[-] + X X This index m easures the com pany spending on R&D in a country. The
index ranges from 1 to 7 w ith higher values indicating that
com panies in a country spend heavily on research and developm ent
relative to international peers. Low values indicate that com panies do
not spend m oney on research and developm ent.
W orld Econom ic Forum
6.5.2 Utility patents [LN Num ber] + X X This data series provides the num ber of utility patents (i.e., patents
for invention) granted betw een 1 January and 31 Decem ber 2007,
per m illion population.
W orld Econom ic Forum
Correlation data
Venture capital
investm ents
LN [USDm ] X Am ount of venture capital investm ents in a country per year. The
country is de ned by fund location. Thom son Reuters uses the term
to describe the universe of venture investing. It does not include
buyout investing, m ezzanine investing, fund of fund investing,
secondaries, etc.
Thom son One
Private equity
investm ents
LN [USDm ] X Am ount of private equity investm ents in a country per year. The
country is de ned by fund location. Thom son Reuters uses the term
to describe the universe of private equity investing. It does include
buyout investing, m ezzanine investing, fund of fund investing,
secondaries, etc.
Thom son One
Venture capital
and private equity
investm ents
LN [USDm ] X X The sum of venture capital and private equity investm ents in a
country per year.
Thom son One
V. Appendices
248 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
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KortumS, Lerner J. Assessing the contribution
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La Porta R, Lopez-de-Silanes F, Shleifer A,
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2011 annual
The Global Venture Capital and Private
Equity Country Attractiveness Index
This report presents the results of a com prehensive research project on how to
m easure the attractiveness of a country for equity capital investors. Designed
to be an index produced annually, it is a dynam ic product.
An online version that uses the most recent data and allows for country
comparisons can be found at http://blog.iese.edu/vcpeindex/
Ernst & Young are delighted to be associated w ith the report and hope that the
inform ation is unique in supporting PE and VC houses w ith equity investm ent
decisions and governm ents on w hat needs to be done to attract international
risk capital.
Sponsored by and in cooperation w ith
doc_863776332.pdf
The Global Venture Capital and Private Equity Country Attractiveness Index
Sponsored by
Alexander Groh, Heinrich Liechtenstein and Karsten Lieser
2011 annual
The Global Venture Capital
and Private Equity
Country Attractiveness Index
and in coopeeration w ith
Alexander Groh, Heinrich Liechtenstein and Karsten Lieser
2011 annual
The Global Venture Capital and Private Equity
Country Attractiveness Index
Sponsored by and in coopeeration w ith
This publication contains inform ation in sum m ary form and is
therefore intended for general guidance only. It is not intended to
be a substitute for detailed research or the exercise of profession
al judgm ent. Neither EYGM Lim ited nor any other m em ber of the
global Ernst & Young organization can accept any responsibility
for loss occasioned to any person acting or refraining from action
as a result of any m aterial in this publication. On any speci c
m atter, reference should be m ade to the appropriate advisor.
Contents
Forew ord from the research team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Sponsors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
About the editors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Research team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
I. The Global VCPE Country Attractiveness Index. . . . . . . . . . . . . . . . . . . . . . . 10
How to m easure a country’s attractiveness for lim ited partners . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Building the 2011 index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
The VCPE country attractiveness ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Com parisons of countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Em erging countries, and exceptional opportunities in BRIC?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Tracking pow er of our index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Our index and historic VCPE returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Sum m ary and outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
II. How are fund size and fund performance related?. . . . . . . . . . . . . . . . 36
Giants at the gate: diseconom ies of scale in private equity investm ent returns. . . . . . . . . . 38
Fund size, lim ited attention and valuation of VC backed rm s . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
III. An insight into different VC and PE markets . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Is the Eurozone still an attractive location for VC and PE investors?. . . . . . . . . . . . . . . . . . . . . . 44
Investing in Africa –challenges and opportunities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
IV. Regional and country pro?les. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
How to read the country and regional pro les . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
V. Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234
Com putation of the index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
Statistical validation of the index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
Table w ith sources and explanations of the data series. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
7 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
We are pleased to present the second edition of our Global Venture Capital
and Private Equity Country Attractiveness Index. The index seeks to measure
the attractiveness of countries for investors in venture capital (VC) and private
equity (PE) limited partnerships.
There are two notable changes with respect to the ?rst index edition. First, we
have increased our coverage to 80 countries and include many more emerging
economies. Second, we have optimized the index structure and excellently
track real VC and PE market activity. This optimization also allows a better
interpretation of the VC and PE driving forces. However, we do not only present
evidence for a high explanatory power of our index with respect to investment
activity. We also analyze how aggregate country performance matches our index
ranking. This way, we demonstrate the quality of our composite measure and
its value to investors.
We invite your feedback to help us improve future index editions. In the future,
selected data series may be substituted by newer or more appropriate data.
Additional data could be added, while other series with poor explanatory power
can be deleted. The quality of data and the number of countries covered will
increase in future indices and as a result, our index remains a dynamic
research product that always considers the most relevant and recent data.
We believe this index is unique in providing information on the VC and PE capital
market segment with such a broad scope. We trust investors appreciate the
information generated to aid their decision-making; politicians may utilize
the index to benchmark their countries and to make improvements to attract
international risk capital.
We would not have been able to realize this project without contributions from
our sponsors, and we greatly appreciate the support of Ernst & Young and IESE
Business School, with their International Center for Financial Research (CIIF).
Beside our own analyses, we invited other academic researchers to contribute
to this annual. Therefore, you will ?nd two guest articles discussing the link
between the size of VC and PE ?rms and their success. We hope that you ?nd
our our 2011 VCPE Country Attractiveness Index of value.
Website
Please visit our website http://blog.iese.edu/vcpeindex
where you will ?nd more information, links to literature,
and several analytical tools for country benchmarking purposes.
Foreword
from the research team
8 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
IESE CIIF, International Center for Financial Research
is an interdisciplinary center w ith an international outlook and
a focus on teaching and nance research. It w as created at the
beginning of 1992 to channel the nancial research interests held
by a m ultidisciplinary group of professors at IESE Business School
–University of Navarra.
CIIF's main objectives are:
•To nd answ ers to the questions w hich confront both the
ow ners and m anagers of nance com panies, and the nance
directors of all kinds of com pany w ithin the perform ance of
their duties
•To develop new tools for nancial m anagem ent
•To study in depth the changes that occur in the m arket, and their
effects on the nancial dim ension of business activity
IESE Business School – University of Navarra is one of the
w orld´s top 10 business schools and has pioneered executive
education in Europe since its establishm ent in Barcelona in 1958.
W ith a truly global outlook, IESE currently runs executive-education
program s in four continents. IESE is distinguished for its general-
m anagem ent approach, its extensive use of the case m ethod, its
international outreach, and its em phasis on placing people at the
heart of m anagerial decision-m aking.
Sponsors
We are grateful to our sponsors Ernst & Young and IESE
Business School/CIIF for their support, feedback and
their direct and professional contributions to the index.
Ernst & Young is a global leader in assurance, tax, transaction
and advisory services. W orldw ide, our 141,000 people are united by
our shared values and an unw avering com m itm ent to quality. W e
m ake a difference by helping our people, our clients and our w ider
com m unities achieve their potential.
Potential is a key word for equity capital m anagem ent. Deal success
doesn’t end w hen the deal closes. Acquirers know success and
stakeholder value lie in portfolio com panies’continued grow th
under their w atch and after their exits.
Our private equity and venture capital practices therefore offer
a holistic, tailored approach that encom passes the needs of funds,
their M &A process and portfolio com panies w hile addressing
m arket, industry and regulatory concerns and opportunities.
W e hope that the Global VC/PE Country Attractiveness Index
proves to be a valuable tool in helping funds navigate through this
uncertain tim e. For m ore inform ation please visit w w w.ey.com
9 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
About the editors
Prof. Alexander Groh Research team
Alexander Groh
Associate Professor,
EMLYON Business School,
[email protected]
Heinrich Liechtenstein
Assistant Professor,
IESE Business School Barcelona,
[email protected]
Karsten Lieser
Project Manager,
IESE Business School Barcelona,
[email protected]
Thomas Lang
Research Assistant,
IESE Business School Barcelona
Markus Biesinger
Research Assistant,
IESE Business School Barcelona
Moritz Huismann
Research Assistant,
IESE Business School Barcelona
Florian Braun
Research Assistant,
IESE Business School Barcelona
Sarp Vardarizi
Research Assistant,
IESE Business School Barcelona
Dr. Alexander Groh is Associate Professor
of Finance at EMLYON Business School,
France. He held visiting positions at The
University of New South Wales, Sydney,
Australia, IESE Business School, Barcelona,
Spain, and INSEAD, Fontainebleau, France.
His research activities focus on VC and PE,
and include valuation issues, performance
measurement and socio-economic deter-
minants for the development of vibrant
VC and PE markets. His papers have been
published in the Journal of Banking and
Finance, the Journal of Corporate Finance,
the Journal of International Money and
Finance, the Quarterly Journal of Finance
and Accounting, the Journal of European
Financial Management, the Journal of
Alternative Investments, and in Venture
Capital. He is involved in training courses
for the European Venture Capital and Pri-
vate Equity Association (EVCA), and has
worked for Quadriga Capital, a Frankfurt
based Private Equity fund, since 1996.
Dr. Alexander Groh was born in Frank-
furt, Germany. He received a joint Master’s
Degree of Mechanical Engineering and
Business Administration from Darmstadt
University of Technology, where he also
gained his Doctoral Degree in Finance.
Prof. Heinrich Liechtenstein
Dr. Heinrich Liechtenstein is Assistant Pro-
fessor of Financial Management at IESE
Business School, Barcelona – University
of Navarra, Spain. His areas of interest are
entrepreneurial ?nance, VC and PE, wealth
management and owners’ strategies. He is
active in several supervisory and advisory
boards of family holdings and founda-
tions, as well as a private equity ?rm.
Dr. Liechtenstein has experience in
wealth management and owners’ strate-
gies at Liechtenstein Global Trust, a family
holding, and as a consultant at The Boston
Consulting Group. He has previously foun-
ded and sold two companies.
Dr. Liechtenstein was born in Leoben,
Austria, and received an MA in Business
Administration from the University of
Graz, an MBA from IESE Business School,
and a Doctoral Degree of Business and
Economic Sciences from the University of
Vienna.
Karsten Lieser
Karsten Lieser is a Project Manager at the
IESE International Center for Financial
Research (IESE CIIF) in Barcelona. He cur-
rently manages the Global VCPE Country
Attractiveness Index project and works
on strategy and research assignments in
the Alternative Investment sector for va-
rious consultancy ?rms. The focus of his
research is the investigation of determi-
nants of Venture Capital, Private Equity,
and Real Estate investments and the de-
velopment of tools to guide investors on
their geographic asset allocation deci-
sions. Prior to joining IESE CIIF, he worked
in the asset and fund management de-
partments of REInvest, SCM Strategic Ca-
pital Management, and AXA – Real Estate.
Currently, Mr. Lieser is enrolled in a
Ph.D. program in Finance at Darmstadt
University of Technology, Germany with
a full-time research position at IESE Bu-
siness School Barcelona, Spain. He gra-
duated as Master in Business Administra-
tion and Civil Engineering from Darmstadt
University of Technology, Germany and
also studied at EPFL and HEC Lausanne,
Switzerland, and IESE Business School
Barcelona, Spain.
10 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Written by Alexander Groh, EMLYON Business School, [email protected],
Heinrich Liechtenstein, [email protected], and Karsten Lieser, [email protected], IESE Business School Barcelona.
The Global VCPE Country
Attractiveness Index
I.
11 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
If institutional investors are unfamiliar with the
socio-economic environment of countries they
cannot make rational international allocation
decisions. They try to overcome potential
information de?cits and gather data and analyze
the determinants they deemimportant before
investing in a particular country. However,
this process is time consuming and costly.
Additionally, due to the current pace of economic
development of many emerging countries,
selecting those that support VC and PE activity
becomes more and more cumbersome. Our index
guides institutional investors solving the problem
where to allocate capital. We aggregate and
provide the most important information they
require for their international VC and PE allocation
decisions. However, this information cannot
substitute investors’ own efforts to build up
country knowledge and experience. It can only
facilitate this process.
We propose a composite measure that benchmarks
the attractiveness of 80 countries to receive VC
and PE allocations fromlimited partners. Our
intention is to serve the investment community,
preparing and analyzing a large quantity of
socio-economic data. However, not only the
?nancial community can bene?t fromour
research, also politicians may conclude that
vibrant risk capital markets increase innovation,
entrepreneurial activity, economic growth,
employment, competitiveness and wealth and
hence, might be interested in increasing the
supply of risk capital for their countries.
Currently, there is a major shift of focus from
“traditional”VC and PE countries towards
emerging regions. Emerging countries attract
investors by exceptional growth opportunities
that require substantial funding. This shift is
also supported by the aftermath of the ?nancial
crisis that strongly affected the established VC
and PE markets. It is sometimes argued that
exceptional growth in emerging markets fuels
future VC and PE activity, and that the whole
business model needs to be redesigned. However,
as we discuss in this index, growth opportunities
are not the only factor that renders countries
attractive for VC and PE investors, and it is these
broader conditions that motivate our index.
I. The Global VCPE Country Attractiveness Index
12 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
How to measure a country’s attractiveness
for limited partners
13 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
What are institutional investors’
international VC and PE allocation
criteria?
Our index addresses institutional investors’
concerns and evaluates countries with res-
pect to their criteria for international VC
and PE allocations. These criteria include,
in the ?rst instance, the expected deal
opportunities in a country or region from
a macro perspective. Of course, they also
include particular investment strategies of
fund management teams, the general par-
tners’ competences, their track records and
other parameters.
1
The limited partners
evaluate these determinants in their due
diligence process before committing to a
particular general partner. However, these
criteria are beyond the scope of our index
because they depend on individual cases
and undisclosed data.
Another concern investors commu-
nicated to us is the level of valuations in
various countries. But, unfortunately, a
comparison of international transaction
multiples is impossible for us for two rea-
sons. First, little information exists on tran-
saction multiples. Second, multiples re?ect
the relationship between growth expecta-
tions and opportunity cost of capital. It is
not feasible for us to estimate these pa-
rameters for all our sample countries and
to ?nd a correct benchmarking approach.
Our index follows a practical approach and
points to the opportunities that should
arise from the current socio-economic
environment in a country, and as a result,
contribute to the macro perspective of the
capital allocation process.
Our index provides valuable informa-
tion to investors as it summarizes all the
important socio-economic factors into
1. For moredetailspleaserefer to Groh, Alexander and
Liechtenstein, Heinrich (2011): TheFirst Step of theCapital
Flow fromInstitutionsto Entrepreneurs: “TheCriteria
for Sorting VentureCapital Funds”, European Financial
Management Journal, forthcoming. Related working papers
areavailableat http://ssrn.com/author=330804
one single composite measure. The de-
cisive factors that render a country at-
tractive and the determinants of vibrant
VC and PE markets have been extensively
studied. In our index we give a brief over-
view over the ?ndings of these studies and
group the articles into six sub-chapters.
These sub-chapters reveal the structure of
our index: each heading represents one of
six “key drivers” for the attractiveness of a
country for limited partners:
1. Economic activity
2. Depth of the capital market
3. Taxation
4. Investor protection and corporate
governance
5. Human and social environment
6. Entrepreneurial culture and deal
opportunities
These key drivers name and de?ne a subset
of criteria we need to assess for all of our
sample countries.
2
Importance of economic activity
Intuitively, the state of a country’s eco-
nomy affects its VC/PE market activity. An
economy’s size and employment levels are
also proxies for prosperity, the number of
its local corporations and entrepreneurial
activity, and hence, also for expected VC
and PE deal ?ow. Capitalizing on economic
growth requires investments and provides
a rationale for institutional investors to
enter into certain countries. Gompers and
Lerner (1998) argue that more attractive
VC and PE investment opportunities exist
if an economy is growing quickly. Romain
and van Pottelsberghe de la Potterie (2004)
?nd that VC/PE activity is cyclical and si-
gni?cantly related to GDP growth. Wilken
2. For a comprehensivereview pleaserefer to Groh,
Alexander, Liechtenstein, Heinrich and Lieser, Karsten
(2010): “TheEuropean VentureCapital and PrivateEquity
Country AttractivenessIndices”, Journal of Corporate
Finance, Volume16, Issue2, April 2010, pp. 205 – 224.
Related working papersareavailableat http://ssrn.com/
author=330804
(1979) argues that a situation of economic
prosperity and development facilitates en-
trepreneurship, as it provides a greater ac-
cumulation of capital for investments. The
ease of start-ups is expected to be related
to societal wealth, not solely due to the
availability of start-up ?nancing, but also
to higher income among potential cus-
tomers in the domestic market. However,
GDP is measured in current market prices
that are affected by in?ation. Therefore,
only real growth rates signal quality deal
opportunities arising from the economic
development.
Importance of the depth of the
capital market
Black and Gilson (1998) discuss major dif-
ferences between bank-centered and stock
market-centered capital markets. They
argue that well-developed stock markets,
which allow general partners to exit via
IPOs, are crucial for the establishment of
vibrant VC/PE markets. In general, bank-
centered capital markets show less ability
to produce an ef?cient infrastructure that
supports VC/PE deal-making. They af?rm
that it is not merely the strong stock mar-
ket that is missing in bank-centered capital
markets; it is also the secondary institu-
tions, including the bankers’ conservative
approach to lending and investing, and the
social and ?nancial incentives that reward
entrepreneurs less richly (and penalize fai-
lure more severely), that compromise entre-
preneurial activity. Jeng and Wells (2000)
stress that IPO activity is the main force
behind cyclical swings because it directly
re?ects the returns to the VC/PE funds.
Kaplan and Schoar (2005) con?rm this.
Similar to Black and Gilson (1998), Gom-
pers and Lerner (2000) point out that risk
capital ?ourishes in countries with deep
and liquid stock markets. Likewise, Schert-
ler (2003) uses either the capitalization
of stock markets or the number of listed
I. The Global VCPE Country Attractiveness Index
14 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
companies as a measure for stock market
liquidity and ?nds that it has a signi?cant
impact on VC and PE investments.
Alongside the disadvantages of bank-
centered capital markets, Greene (1998)
emphasizes that low availability of debt
?nancing is an obstacle for start-ups
in many countries. Entrepreneurs need
to ?nd backers —whether banks or VC/
PE funds —who are willing to bear risk.
Cetorelli and Gambera (2001) provide
evidence that bank concentration pro-
motes the growth of those industrial sec-
tors that have a higher need for external
?nance by facilitating credit access to
younger companies.
Importance of taxation
Bruce (2000 and 2002), and Cullen and
Gordon (2002) prove that tax regimes
matter for business entry and exit. Djan-
kov et al. (2008) show that direct and in-
direct taxes affect entrepreneurial activi-
ty. Poterba (1989) builds a decision model
showing the advantages to becoming an
entrepreneur, driven by taxation incen-
tives. Bruce and Gurley (2005) explain
that increases in the personal income tax
can raise the probability of becoming an
entrepreneur: large differences between
personal income tax rates and corporate
tax rates provide an incentive for self-em-
ployment.
Importance of investor protection
and corporate governance
Legal structures and the protection of
property rights strongly in?uence the
attractiveness of a national VC/PE market.
La Porta et al. (1997 and 1998) con?rm
that the legal environment determines
the size and extent of a country’s capi-
tal market and local companies’ ability to
receive outside ?nancing. They emphasize
the differences between statutory law and
the quality of law enforcement in some
countries. Roe (2006) discusses and com-
pares the political determinants of corpo-
rate governance legislation for the major
economies and focuses on the importance
of strong minority shareholder protec-
tion to develop a vibrant capital market.
Glaeser et al. (2001) and Djankov et al.
(2003 and 2005) suggest that parties in
common-law countries have greater ease
in enforcing their rights from commercial
contracts.
Cumming et al. (2006) ?nd that the
quality of a country’s legal system is
more closely related to facilitating VC/PE
backed exits than the size of a country’s
stock market. Cumming et al. (2009)
extend this ?nding and show that cross-
country differences in legality, inclu-
ding legal origin and accounting stan-
dards have a signi?cant impact on the
governance of investments in the VC/PE
industry. Desai et al. (2006) show, that
fairness and property rights protection
largely determine the growth and emer-
gence of new enterprises. Cumming and
Johan (2007) highlight the perceived
importance of regulatory harmonization
with respect to increasing institutional
investor commitments to the asset class.
La Porta et al. (2002) ?nd a lower cost of
capital for companies in countries with
better investor protection, and Lerner
and Schoar (2005) con?rm these ?n-
dings. Johnson et al. (1999) show that
weak property rights limit the reinvest-
ment of pro?ts in start-up companies.
Finally and more broadly, Knack and
Keefer (1995), Mauro (1995), and Svens-
son (1998) demonstrate that property
rights signi?cantly affect investments
and economic growth.
Importance of the human and social
environment
Black and Gilson (1998), Lee and Peterson
(2000), and Baughn and Neupert (2003)
argue that cultures shape both individual
orientation and environmental conditions,
which may lead to different levels of en-
trepreneurial activity. Megginson (2004)
argues that, in order to foster a growing
risk capital industry, the research culture
with respect to universities and national
laboratories plays an important role.
Rigid labor market policies negatively
affect the evolution of a VC/PE market.
Lazear (1990) and Blanchard (1997) dis-
cuss how protection of workers can reduce
employment and growth. It is especially
important for start-up and medium-size
corporations to respond quickly to chan-
ging market conditions. Black and Gilson
(1998) argue that labor market restric-
tions in?uence VC/PE activity, though not
to the same extent as the stock market.
Djankov et al. (2002) investigate the
role of several societal burdens for start-
ups in different countries. They conclude
that the highest barriers and costs are
associated with corruption, crime, a larger
unof?cial economy and bureaucratic de-
lay. It should be noted that this argument
is probably of particular importance in
some emerging countries with perceived
higher levels of corruption.
Importance of entrepreneurial
culture and deal opportunities
The expectation about access to viable
investments is probably the most impor-
tant factor for investors’ international
risk capital allocations. Especially for
the early stage segment, we expect that
the number of potential investments
is related to the research output in an
economy. Gompers and Lerner (1998)
show that both industrial and academic
research and development (R&D) expen-
diture signi?cantly correlates with VC
activity. Kortum and Lerner (2000)
highlight that the growth in VC fundrai-
sing in the mid-1990s may have been due
to a surge of patents in the late 1980s
and 1990s. Schertler (2003) emphasizes
that the number of both R&D employees
and patents, as an approximation of the
human capital endowment, has a posi-
tive and highly signi?cant in?uence on
VC activity. Furthermore, Romain and
von Pottelsberghe de la Potterie (2004)
?nd that start-up activity interacts with
the R&D capital stock, technological op-
portunities and the number of patents.
However, innovations and R&D are not
only important for early stage invest-
ment activity. Without suf?cient R&D
activity it will be impossible for esta-
15 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
blished businesses to create or maintain
market positions with strong products
and brands, which, once established,
attract private equity investors.
Despite the innovative output of a
society, Djankov (2002), and Baughn and
Neupert (2003) argue that bureaucracy in
the form of excessive rules and procedural
requirements, multiple institutions from
which approvals are needed and cumber-
some documentation requirements, may
severely constrain entrepreneurial activity.
Lee and Peterson (2000) stress that the
time and money required to meet such
administrative burdens may discourage
new venture creations.
Summary on the determinants of
vibrant VC and PE markets
The research ?ndings discussed above
emphasize the dif?culty of identifying
the most appropriate parameters for our
index. There is no consensus about a ran-
king of the criteria. While some parame-
ters are more comprehensively discussed,
and certainly of high relevance, it remains
unclear how they interact with others. For
example, it is arguable whether the VC/PE
activity in a country with a high corporate
governance level is affected more by the
liquidity of the national stock market or
by labor regulations.
While an IPO exit is, in principle, pos-
sible at any stock exchange in the world,
the labor market frictions in a particular
country can hardly be evaded. On the
other side, many of the criteria are highly
inter-correlated. Black and Gilson (1998)
call it a “chicken and egg” problem: it is
impossible to detect which factor causes
the other. One line of argumentation is
that modern, open and educated socie-
ties develop a legislation that protects
investors and property rights, which favor
the output of innovation and the deve-
lopment of a capital market. This leads to
economic growth and to demand for VC
and PE. However, the causality might be
reverse: economic growth spurs innova-
tion and the development of modern edu-
cated societies. There is a third suggestion:
only competitive legal environments allow
the development of the societal require-
ments that support innovations, economic
growth, the capital market, and VC and
PE activity. There is a fourth alternative,
which may be more relevant for emerging
economies: low taxes attract investors
who provide ?nancing for growth which
leads to modern and educated societies.
All lines of argument are reasonable
and actually validated by the economic
development of various selected countries
in different historic periods. Nevertheless,
it seems to be the combination of all these
factors which need to be improved in pa-
rallel to increase VC and PE attractiveness
of countries and regions. For this reason,
we do not rely on a selection of a few
parameters: for a country to receive a
high index rank, it needs to achieve a high
score on all of the individual criteria. The-
refore, we structure the determinants to
achieve a more comprehensive result and
to facilitate interpretations.
In a ?rst step, we differentiate the six
key drivers from the foregoing review of
prior research: economic activity, depth
of the capital market, taxation, investor
protection and corporate governance,
human and social environment, and en-
trepreneurial culture and deal opportuni-
ties. We con?rm their choice via a survey
among institutional investors, reported
in Groh and Liechtenstein (2009) and
(2011), and base our index structure upon
them. Unfortunately, none of these key
drivers is directly measurable, so we seek
data series that adequately express their
characters. Hence, we try to ?nd the best
possible proxies for the aforementioned
drivers of VC/PE activity, which must be
available for a large number of countries
at the same time.
I. The Global VCPE Country Attractiveness Index
16 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Building the 2011 index
Assessing six latent key drivers
An important principle of our index is to as-
sess the latent drivers of VC/PE attractiveness.
These are criteria that are not directly ob-
servable, but driven by others which can
be measured. For example, we assume in
a ?rst step that the VC/PE attractiveness of
a country is determined by the six key dri-
vers. However, as pointed out, the key drivers
themselves are not measurable but need to
be estimated with sub-criteria. For example,
it would be ideal to express the quality of
the deal-making environment in a country
by the number of investment banks, M&A
boutiques, law ?rms, accountants and
consultants. But, unfortunately, such data
does not exist on a global scale. Our only
alternative is to gather more general infor-
mation on the level of debt provided by the
banking sector, or estimates about the per-
ceived sophistication of the ?nancial system
and the ease of access to loans. We assume
that these criteria affect the key driver,
depth of the capital market. Even if they are
not perfect proxies, we claimthat the better
these criteria are developed, the more deal-
supporting institutions will exist to facilitate
VC and PE activity. Hence, we assess a driver
with observable data. This principle is main-
tained at all individual levels for the index
construction. An unobservable criterion
is assessed with several proxy parameters.
In principle, we measure the attractiveness
of a country by the six key drivers and use
several proxies for their assessment.
How we disaggregate the six key
drivers
According to the principal to assess latent
key drivers with observable data, we di-
saggregate each one into sub-categories.
These sub-categories are either indivi-
dual data series or constructs of seve-
ral determinants that we name “level-2
constructs.” For example, as documented
in Table 1, we split the key driver “2. Depth
of the capital market” into seven sub-ca-
tegories:
2.1. Size of the stock market
2.2. Stock market liquidity
2.3. IPO market activity
2.4. M&A market activity
2.5. Debt and credit market
2.6. Bank non-performing loans to total
gross loans
2.7. Financial market sophistication
Data series 2.2 and 2.6 are provided by
the Worldbank and data series 2.7 results
from a survey initiated by the World Eco-
nomic Forum (WEF). However, the other
indicators are constructs themselves. For
instance, we assess “2.3. IPO market ac-
tivity” by the issued volume and by the
number of issues. This approach has two
major advantages. First, individual data
series do not gain too much weight when
they are grouped, and this limits the im-
pact of outliers. Second, the overall results
can be traced to more granulated levels
and hence, allow better interpretation and
con?rmation of the ?ndings.
The weighting scheme
We spent a great deal of time re?ning the
statistical analyses and optimizing the
structure of the index. In this new opti-
mized structure, we apply equal weights
for all data series, when we aggregate
them to the level-2 constructs. We use
equal weights for the level-2 constructs to
aggregate them on the next higher level
of the six key drivers.
Finally, the individual weights for the
six key drivers depend on the number
of their level-2 constructs. For example,
“1. Economic activity” consists of three
level-2 constructs, “2. Depth of the capi-
tal market” of seven, while “3. Taxation”
consists of only one. Overall, we use 22 le-
vel-2 constructs for our index, and hence,
“1. Economic activity” receives a weight of
3/22, which is 0.136, while the weight of
“2. Depth of the capital market” is 7/22,
which is 0.318, and for “3. Taxation” it is
1/22 =0.046, respectively.
The advantage of this weighting scheme
is that the key drivers which include more
level-2 constructs and hence, data series,
gain more weight. That way, once again,
we diminish the effect of potential outliers
in our data.
3
The ?nal index structure results from
substantial optimization efforts. We ?nd
that any statistically “more advanced”
techniques do not improve the index qua-
lity. The weighting scheme assigns appro-
priate emphasis according to the explana-
tory power of the individual key drivers.
We will return to this topic in a later sec-
tion of this index.
Separate VC and PE indices
To account for differences with respect to
the two market segments, VC vs. PE, we
propose three related indices. The ?rst
one combines both segments (VCPE). The
second one focuses on early stage VC and
the third index on later stage PE. When
calculating the individual VC and PE in-
dices we discard data series that are less
important for either market segment.
3. Details about the possible statistical approaches
to determineweightsfor thedata seriesareprovided in
the academic paper Groh, Alexander, Liechtenstein,
Heinrich and Lieser, Karsten (2010): "The European
Venture Capital and Private Equity Country Attractiveness
Indices," Journal of CorporateFinance, Volume 16, Issue
2, April 2010, pp. 205 – 224. Related working papers are
available at http://ssrn.com/author=330804.
The six key drivers
1. Economic activity
2. Depth of the capital market
3. Taxation
4. Investor protection and corporate
governance
5. Human and social environment
6. Entrepreneurial culture and deal
opportunities
17 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
VCPE
Index
VC
Index
PE
Index
1 Economic Activity 0.14 0.16 0.19
1.1 Gross Domestic Product 0.33 0.33 0.33
1.1 Size of the econom y (GDP) 0.33 0.33 0.33
1.2 M edium -term real GDP grow th 0.33 0.33 0.33
1.3 Unem ploym ent 0.33 0.33 0.33
2 Depth of the capital market 0.32 0.21 0.44
2.1 Size of the stock market 0.14 0.25 0.14
2.1.1 M arket capitalization of listed com panies 0.50 0.50 0.50
2.1.2 Num ber of listed dom estic com panies 0.50 0.50 0.50
2.2 Stock market liquidity (trading volume) 0.14 0.25 0.14
2.3 IPOmarket activity 0.14 0.25 0.14
2.3.1 M arket volum e 0.50 0.50 0.50
2.3.2 Num ber of IPOs 0.50 0.50 0.50
2.4 M&A market activity 0.14 0.25 0.14
2.4.1 M arket volum e 0.50 0.50 0.50
2.4.2 Num ber of deals 0.50 0.50 0.50
2.5 Debt and credit market 0.14 0.14
2.5.1 Dom estic credit provided by banking sector 0.25 0.25
2.5.2 Ease of access to loans 0.25 0.25
2.5.3 Credit inform ation index 0.25 0.25
2.5.4 Interest rate spread 0.25 0.25
2.6 Bank non-performing loans to total gross loans 0.14 0.14
2.7 Financial market sophistication 0.14 0.14
3 Taxation 0.05 0.05
3.1 Tax incentives and administrative burdens 1.00 1.00
3.1.1 Entrepreneurship incentive 0.33 0.33
3.1.2 Num ber of tax paym ents 0.33 0.33
3.1.3 Tim e spent on tax issues 0.33 0.33
4 Investor protection andcorporategovernance 0.14 0.16 0.19
4.1 Corporate governance 0.33 0.33 0.33
4.1.1 Disclosure index 0.20 0.20 0.20
4.1.2 Director liability index 0.20 0.20 0.20
4.1.3 Shareholder suits index 0.20 0.20 0.20
4.1.4 Legal rights index 0.20 0.20 0.20
4.1.5 Ef cacy of corporate boards 0.20 0.20 0.20
4.2 Security of property rights 0.33 0.33 0.33
4.2.1 Legal enforcem ent of contracts 0.33 0.33 0.33
4.2.2 Property rights 0.33 0.33 0.33
4.2.3 Intellectual property protection 0.33 0.33 0.33
4.3 Quality of legal enforcement 0.33 0.33 0.33
4.3.1 Judicial independence 0.20 0.20 0.20
4.3.2 Im partial courts 0.20 0.20 0.20
4.3.3 Integrity of the legal system 0.20 0.20 0.20
4.3.4 Rule of law 0.20 0.20 0.20
4.3.5 Regulatory quality 0.20 0.20 0.20
VCPE
Index
VC
Index
PE
Index
5 Human and social environment 0.14 0.16 0.12
5.1 Education and human capital 0.33 0.33
5.1.1 Quality of the educational system 0.50 0.50
5.1.2 Quality of scienti c research institutions 0.50 0.50
5.2 Labor market rigidities 0.33 0.33 0.50
5.2.1 Dif culty of hiring index 0.25 0.25 0.25
5.2.2 Rigidity of hours index 0.25 0.25 0.25
5.2.3 Dif culty of ring index 0.25 0.25 0.25
5.2.4 Firing costs 0.25 0.25 0.25
5.3 Bribery and corruption 0.33 0.33 0.50
5.3.1 Bribery and corruption Index 0.33 0.33 0.33
5.3.2 Control of corruption 0.33 0.33 0.33
5.3.3 Extra paym ents/bribes 0.33 0.33 0.33
6 Entrepreneurial culture and deal opportunities 0.22 0.26 0.06
6.1 Innovation 0.20 0.20
6.1.1 General innovativeness index 0.50 0.50
6.1.2 Capacity for innovation 0.50 0.50
6.2 Scienti?c and technical journal articles 0.20 0.20
6.3 Ease of starting and running a business 0.20 0.20
6.3.1 Num ber of procedures to start of business 0.20 0.20
6.3.2 Tim e needed to start a business 0.20 0.20
6.3.3 Costs of business start-up procedures 0.20 0.20
6.3.4 M inim um capital requirem ents 0.20 0.20
6.3.5 Adm inistrative requirem ents 0.20 0.20
6.4 Simplicity of closing a business 0.20 0.20
6.4.1 Tim e for closing a business 0.33 0.33
6.4.2 Costs for closing a business 0.33 0.33
6.4.3 Recovery rate 0.33 0.33
6.5 Corporate R&D 0.20 0.20 1.00
6.5.1 Com pany spending on R&D 0.50 0.50 0.50
6.5.2 Utility patents 0.50 0.50 0.50
Table 1: Structure of the VCPE Index, the separate VC, and PE Indices, and the weighting schemes
I. The Global VCPE Country Attractiveness Index
18 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
For the VC index, we regard the level-2
construct “2.5. Debt and credit market” as
having minor importance and hence, dis-
card it. We further delete “2.6. Bank non-
performing loans to total gross loans,”
and “2.7. Financial market sophistication”
from the VC index.
For the PE index, we discard key driver
“3. Taxation,” because the criteria consi-
dered are hardly relevant for the later
stage segment. Similarly, we drop “5.1.
Education and human capital” from the
human and social environment key driver
and only keep “6.5. Corporate R&D” to as-
sess the deal opportunities related to cor-
porate proprietary research output.
The weights for the individual index
items in the separate VC and PE indices
are determined in the same way.
Table 1 presents the structures and
the weights of the individual data series,
as well as constructs for the combined
VCPE, and the separate VC and PE indices.
We provide more detailed information on
the data series in the appendix. There, we
also explain the exact data aggregation
technique.
Changes with respect to the prior
index version
The proposed data series, the index struc-
ture and the applied weights result from
comprehensive analyses on the drivers of
VC and PE activity. Our goal is to provide
a framework for measuring a country’s
attractiveness with respect to the VC and
PE asset classes. Not much prior academic
research has elaborated on this issue to such
a broad scope. Usually, the country samples
of other researchers are not as large as in
our index, and our data also tracks many
of the countries for a longer time period.
Therefore, we bene?t froma remarkable
data collection allowing us to contribute to
academic research on the topic.
We ?nd that several key drivers have
a high importance for the state of a
country’s VC and PE market while others
are less important. Depth of the capital
market has the highest explanatory power
for cross-sectional VC and PE activity. This
key driver is followed by entrepreneu-
rial culture and deal opportunities. Next
comes economic activity, investor pro-
tection and corporate governance on an
equal level, followed by human and social
environment, then ?nally by taxation. This
decrease in importance is mirrored by the
weights we assign to the key drivers. The-
refore, the chosen index structure assures
a weighting scheme that corresponds with
the actual impact of the six key drivers.
We did not follow this rigorous approach
in the 2009/10 edition of the index, where
we kept the weights of the six key drivers
balanced.
Following the same rationale to im-
prove the quality of the 2011 index, we
discarded several data series we used in
the 2009/10 index. Notably, we deleted
some data series describing the tax envi-
ronment from the index. Surprisingly, we
detected no correlation between margi-
nal corporate tax rates, pro?t and capital
gains taxes, and VC/PE activity across our
sample countries. First, tax rules depend on
the will of governments and are somehow
arbitrary, hardly correlating with other so-
cio-economic characteristics. Second, we
interpret this as the consequence of gene-
ral partners’ efforts to create transparent
deal and fund structures, so that national
tax regimes do not affect the success of
VC/PE investments. The tax regimes are
probably more important with respect to
the location of limited partners’ head-
quarters instead of the investee ?rms’. For
this reason, we only rely on the data series
that evaluate entrepreneurial tax incen-
tives and administrative burdens (for the
VC and the combined VCPE index) because
they are relevant on the level of the target
?rms. Similarly, we also discard the level-2
construct, measuring internet and com-
puter technology infrastructure, from our
2011 index.
Furthermore, again due to a lack of
correlation, we discarded GDP per capi-
ta from our list of data series. If we fo-
cused on developed countries, individual
wealth would be an important indicator
for VC and PE activity. However, including
emerging economies, this data series is
contradictory as it has a strong negative
correlation with economic growth. The
fastest-growing VC and PE markets still
have low GDP per capita ratios, and hence,
only one of the two drivers can be valid on
a broad cross-sectional scope.
Finally, we discard the in?ation rate
from our list of data series because using
real GDP growth we already control for
in?ation.
Beside the criteria that we need to ex-
clude for their missing explanatory power
with respect to VC and PE activity, we
have discarded other data series with a
predominantly lower quality in their latest
update. A few of the ready-made indices
and survey results we included in 2009/10
edition no longer quali?ed for their in-
clusion due to perplexing rankings and a
doubtful index quality.
As a consequence, we present a much
leaner index, based on 54 data series
(compared to 66 data series in our 2009/10
edition). The structure of the 2011 index
is more comprehensive and its statistical
quality has increased.
19 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
The countries covered
We aim to cover as many countries as pos-
sible. The selection of the sample countries
is purely driven by data availability. We are
able to increase our coverage from 66 in
the 2009/10 edition to 80 countries for
2011. Unfortunately, the African conti-
nent is still under-represented with only
eight nations, but we hope to expand the
number in future index editions when
more data becomes available. We consider
the following 80 nations and assign them
to eight different geographic regions as
they are de?ned by the International Mo-
netary Fund (IMF). The 14 “new entrants”
are highlighted.
Africa (8): Algeria, Egypt, Kenya, Morocco, Namibia,
Nigeria, South Africa, Tunisia
Asia (16): Armenia, China, Hong Kong, India,
Indonesia, Japan, Kazakhstan, South Korea,
Kyrgyzstan, Malaysia, Philippines, Russia,
Singapore, Taiwan, Thailand, Vietnam
Australasia (2): Australia, New Zealand
Eastern Europe (18): Albania, Bosnia-Herzegovina, Bulgaria,
Croatia, Czech Republic, Estonia, Georgia,
Hungary, Latvia, Lithuania, Macedonia,
Moldova, Poland, Romania, Slovakia,
Slovenia, Turkey, Ukraine
Latin America (10): Argentina, Brazil, Chile, Columbia,
Ecuador, Mexico, Paraguay, Peru,
Uruguay, Venezuela
Middle East (7): Bahrain, Israel, Jordan, Kuwait, Oman,
Saudi Arabia, United Arab Emirates
North America (2): USA, Canada
Western Europe (17): Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy,
Luxembourg, Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland,
United Kingdom
I. The Global VCPE Country Attractiveness Index
The VCPE country attractiveness ranking
We gathered the individual data series
fromTable 1 for our sample countries from
2000 onwards to most recent data retrie-
ved by the end of 2010. We calculated the
2011 index scores and realized that the US
remains the most attractive for VC and PE
allocations, retaining its ranking fromthe
2009/10 index. However, the distance to its
followers has decreased compared to last
year. This can be mainly attributed to the
(economic) consequences of the ?nancial
crisis. We rescale the US score to 100,
4
and
its two followers, the United Kingdomand
Canada catch up to a level of 93.3%, com-
pared to 85.8% in 2010.
4. Weexplain therescaling procedurein moredetailsin the
appendix.
Exhibit 1 presents the ranking of The Glo-
bal VCPE Country Attractiveness Index 2011.
The exhibit is open to debate. Some readers
might argue that particular countries are
ranked too high, others too low. However, we
note that the index ranking is the result of
commonly available, transparent, aggrega-
ted socio-economic data, which is relevant
for investors in VC and PE assets. The results
can be traced to the level of the individual
data series, and hence, can be con?rmed.
Please note, the underlying data is
most the recent data available, but does
not include future projections. Therefore,
we show the current attractiveness ran-
king and leave it to investors and advi-
sers to enrich the information we prepare
with their own knowledge, experience and
expectations upon which to draw their
conclusions.
20 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
21 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
0 10 20 30 40 50 70 60 80 90 100
0 10 20 30 40 50 70 60 80 90 100
Kyrgyzstan (80.)
Venezuela (79.)
Paraguay (78.)
Algeria (77.)
Bosnia-Herzegovina (76.)
Albania (75.)
Ecuador (74.)
Macedonia (73.)
Moldova (72.)
Armenia (71.)
Namibia (70.)
Georgia (69.)
Ukraine (68.)
Latvia (67.)
Argentina (66.)
Uruguay (65.)
Nigeria (64.)
Kenya (63.)
Slovakia (62.)
Kazakhstan (61.)
Romania (60.)
Peru (59.)
Philippines (58.)
Lithuania (57.)
Tunisia (56.)
Egypt (55.)
Morocco (54.)
Vietnam (53.)
Croatia (52.)
Bulgaria (51.)
Bahrain (50.)
Estonia (49.)
Indonesia (48.)
Colombia (47.)
Oman (46.)
Slovenia (45.)
Greece (44.)
Brazil (43.)
Mexico (42.)
Russian Federation (41.)
Hungary (40.)
Turkey (39.)
Jordan (38.)
Czech Republic (37.)
Poland (36.)
Kuwait (35.)
Thailand (34.)
Luxembourg (33.)
Italy (32.)
Portugal (31.)
India (30.)
Chile (29.)
United Arab Ermiates (28.)
Taiwan (27.)
South Africa (26.)
Saudi Arabia (25.)
Ireland (24.)
Spain (23.)
Austria (22.)
Israel (21.)
China (20.)
New Zealand (19.)
Malaysia (18.)
Korea, South (17.)
Hong Kong (16.)
Belgium (15.)
France (14.)
Norway (13.)
Denmark (12.)
Finland (11.)
Germany (10.)
Netherlands (9.)
Sweden (8.)
Australia (7.)
Japan (6.)
Switzerland (5.)
Singapore (4.)
Canada (5.)
United Kingdom (2.)
United States (1.) 100.0
93.3
93.3
92.4
91.8
90.9
90.2
85.0
84.3
82.8
82.3
81.8
81.0
79.6
76.8
76.5
75.7
72.5
72.5
72.3
72.2
71.7
69.1
67.7
67.5
66.9
62.4
61.6
61.5
61.4
60.4
59.6
59.3
59.3
57.9
57.4
55.0
53.2
52.8
52.0
51.1
48.7
48.7
47.9
46.8
45.6
45.3
45.2
44.8
44.3
44.1
43.4
42.2
41.8
41.8
41.5
41.3
41.2
41.1
41.0
39.1
39.1
38.3
37.1
36.8
36.4
29.4
27.8
27.2
26.4
25.3
22.0
19.3
17.9
17.8
17.3
17.1
15.7
15.2
14.4
VCPE Country Attractiveness Score 2011
Exhibit 1: 2011 VCPE Country Attractiveness Index
Exhibit 2: rankings according to the three different indices
I. The Global VCPE Country Attractiveness Index
22 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
United States
United Kingdom
Canada
Singapore
Switzerland
Japan
Australia
Sweden
Netherlands
Germany
Finland
Denmark
Norway
France
Belgium
Hong Kong
Korea, South
Malaysia
New Zealand
China
Israel
Austria
Spain
Ireland
Saudi Arabia
South Africa
Taiwan
United Arab Emirates
Chile
India
Portugal
Italy
Luxembourg
Thailand
Kuwait
Poland
Czech Republic
Jordan
Turkey
Hungary
Russian Federation
Mexico
Brazil
Greece
Slovenia
Oman
Colombia
Indonesia
Estonia
Bahrain
Bulgaria
Croatia
Vietnam
Morocco
Egypt
Tunisia
Lithuania
Philippines
Peru
Romania
Kazakhstan
Slovakia
Kenya
Nigeria
Uruguay
Argentina
Latvia
Ukraine
Georgia
Namibia
Armenia
Moldova
Macedonia
Ecuador
Albania
Bosnia-Herzegovina
Algeria
Paraguay
Venezuela
Kyrgyzstan
0 10 20 30 40 50 60 70 80
0 10 20 30 40 50 60 70 80
VCPE Country Attractiveness Ranking
Rankings according to the separate
VC and PE indices
Exhibit 2 combines the VCPE index with
the rankings according to the separate
VC and PE indices. The triangles mark the
VCPE index ranks. The diamonds designate
the VC index and the squares represent
the PE index ranks.
The VC index country ranking does
not change remarkably compared to the
combined VCPE index ranking. It remains
stable because we do not alter the index
structure to a great extent between the
2009/10 and 2011 editions. However, we
receive a much stronger ranking variation
if we exclusively focus on the PE segment.
For the PE index, we discard taxation
as well as constructs and data series that
are related to education, high-tech inno-
vation and starting or running businesses
in early stages. This results in Hong Kong,
China, South Africa, Taiwan, India, Bra-
zil, Bahrain, the Philippines and Peru in-
creasing its rank by several places. The ra-
tionale for these improvements is simple:
competitive disadvantages with respect
to education and innovation are no lon-
ger considered, but the weight of the ca-
pital market key driver has increased at
the same time. As these countries have
(meanwhile) relatively deep capital mar-
kets, their attractiveness for later stage
investment increases.
In contrast, we ?nd that New Zealand,
Ireland, Slovenia, the Baltics and Tu-
nisia lose several ranks focusing on PE
attractiveness. This can be mainly attri-
buted to two factors: a strong impact of
the recent ?nancial crisis and, resulting
from discarding competitive advantages
of these countries in the PE index, in par-
ticular with respect to taxation.
23 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
I. The Global VCPE Country Attractiveness Index
The general pattern: what renders
the US so attractive?
We broke down the index scores to the le-
vel of the six key driving forces, and then
further down to the level-2 constructs in
order to enhance the discussion about the
ranking. We found a typical pattern with
respect to the attractiveness of countries
for VC and PE allocations. We demonstrate
this pattern by comparing the ?rst ranked
with the 10th and 20th ranked country,
namely the US, Germany and China. Ex-
hibit 3 presents the key driver scores of
Germany and China compared to the US
(which scores 100 for each key driver by
de?nition).
Exhibit 3 reveals four important im-
plications. First, the United States (US)
generally ranks ahead of other developed
economies (e.g., Germany) with respect to
most of the six key drivers of VC and PE
attractiveness, but especially to its capi-
tal market. Second, emerging countries
(e.g., China) strongly attracts venture ca-
pital and private equity investors by their
economic growth. Third, many countries
provide tax incentives that support en-
trepreneurial activity. Fourth, emerging
countries score sometimes notably below
the developed economies in terms of in-
vestor protection and corporate gover-
nance, human and social environment,
and entrepreneurial culture and deal op-
portunities. This pattern becomes evident
by further analyses which are presented
in the appendix of this annual where
we benchmark every individual country
against the US.
Focusing on the developed countries
we ?nd many economically strong na-
tions with vibrant entrepreneurial cultures
and deal opportunities, with an excellent
human capital and social environment.
However, the ?nally decisive criteria for
the lower score compared with the US are
the ?nancial markets, and investor pro-
tection and corporate governance rules.
These ?ndings point to the discussion
about the competition of legal systems
and the relation between law and ?nance,
as all strong countries score highly for the
investor protection and corporate gover-
nance key driver. Strong investor protec-
tion and corporate governance legislation
spurs the development of a national ca-
pital market, which is required for the es-
tablishment of VC and PE deal supporting
institutions.
Comparisons of countries
6. Entrepreneurial
Culture and Deal
Opportunities
5. Human and
Social Environment
4. Investor Protection and
Corporate Governance
3. Taxation
2. Depth of Capital
Market
1. Economic Activity
China (20.)
Germany (10.)
United States (1.)
25
0
50
75
100
125
150
Exhibit 3: six key driving forces – comparison of the
United States, Germany and China
24 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
We brake-down our analysis on the le-
vel-2 constructs and provide more details
that support the detected general pattern.
Exhibit 4 points to the distance between
the scores of the US, Germany and China
with respect to the level-2 constructs that
asses the capital market and corporate
governance. It also reveals the extraor-
dinary state and growth of the Chinese
economy, and its well developed capital
market. The difference of the investor pro-
tection and corporate governance key dri-
ver scores between the US and Germany
results from a higher appreciation of the
US’ corporate governance rules. On the
other side, Germany leads with respect to
several other criteria, in particular with an
advanced protection of property rights, a
higher quality of the legal system, a lower
perception of bribery and corruption, and
regarding its general innovation capacity.
In addition, the exhibit shows that the VC/
PE attractiveness of the human and social
environment in the US is mainly driven
by its liberal labor market, while per-
ceived bribery and corruption remains an
investment obstacle in China. Finally, the
excellent score of the US for the entre-
preneurial culture and deal opportunities
key driver is mainly related to academic
research output and to the administrative
simplicity and cost of starting, running
and closing businesses.
Exhibit 4: level-2 constructs – comparison of the United States, Germany and China
0 20 40 60 80 100 120 140 160 180 200
0 20 40 60 80 100 120 140 160 180 200
6.5 Corporate R&D
6.4 Simplicity of Closing a Business
6.3 Ease of Starting and Running a Business
6.2 Scientific and Technical Journal Articles
6.1 Innovation
5.3 Bribing and Corruption
5.2 Labor Market Rigidities
5.1 Education and Human Capital
4.3 Quality of Legal Enforcement
4.2 Security of Property Rights
4.1 Corporate Governance
3.1 Tax Incentives and Administrative Burdens
2.7 Financial Market Sophistication
2.6 Bank Non-Performing Loans to Total Gross Loans
2.4 M&A Market Activity
2.3 IPO Market Activity
2.2 Stock Market Liquidity (Trading Volume)
2.1 Size of the Stock Market
1.3 Unemployment
1.2 Medium-Term Real GDP Growth
1.1 Size of the Economy (GDP)
China (20.)
Germany (10.)
United States (1.)
VCPE Country Attractiveness Score 2011
25 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
I. The Global VCPE Country Attractiveness Index
Historic comparison —improvements
of VCPE investment conditions and
?nancial crisis impact
In order to demonstrate shifts in VCPE
country attractiveness, we compare the
ranking for 2011 with 2007. It should be
noted that some data series, e.g., the Ge-
neral Innovation Index (GII) do not date
back as far. However, we assume that
this and similar indicators did not change
substantially between 2007 and their
?rst publication, and hence, keep them
constant.
The comparison presented in Exhi-
bit 5 shows the rank changes (positive to
the right and negative to the left) of our
sample countries between the 2007 and
the 2011 index. It provides interesting in-
sights and reveals a strong increase of VC
and PE attractiveness for several countries,
and the impact of the ?nancial and econo-
mic crisis on others. It should be stressed
that the index scores are calculated relative
to all other countries of the sample. That
means those countries that gained or lost
ranking positions did not necessarily im-
prove/deteriorate their investment condi-
tions in absolute terms. They might just
have outperformed/been outperformed by
others in the international competition to
attract capital resources.
We ?nd that Brazil, Saudi Arabia, and
Indonesia are the “winners.” For an inter-
pretation of this ?nding, we refer to the
detailed country analyses in the appendix
of this annual and note that Brazil gains
these 14 ranking positions almost exclu-
sively due to its tremendous economic
growth. Although this is a remarkable in-
crease of VC/PE attractiveness it should be
interpreted with some caution as, despite
its growth, Brazil is only ranked number
43 in our index. For a further increase of
Brazil’s attractiveness, other key drivers
need to be strengthened. This is equally
valid for Indonesia. The country scores
particularly low with respect to investor
protection and corporate governance (for
this key driver, Indonesia only ranks num-
ber 75), and the gain of ranking positions
is dominantly caused by its economic
growth. For Saudi Arabia, the rationale
is different. Not only economic growth
contributes to its more favorable ranking,
Saudi Arabia substantially improved in all
other important key drivers.
We continue with the interpretation
of Exhibit 5 and note that the increase
of ranking positions of Vietnam is caused
by the initiation of capital market acti-
vity: stock market trading volume, M&A
and banking activity increased from very
low levels. This is also similar for Bahrain.
Exhibit 5 further reveals that all the
Middle East countries substantially im-
proved their rankings. In addition, the
North African countries, Tunisia and Mo-
rocco, experienced remarkable econo-
mic growth; this is equally valid for the
Western European countries, Portugal and
Germany. Taking Germany as an example,
the importance of the economic activity
key driver should be noted. For countries
with a general very favorable VC/PE in-
vestment environment, economic growth
rates can be responsible for volatile ranks.
At the other end of the exhibit, we
?nd those countries that lost ranking
positions in the global competition. The
Baltics, Turkey, Ireland, Romania, and Slo-
vakia conclude the list of countries that
decreased their ranks. For Turkey, the de-
gradation results from a lack of economic
growth and from a deterioration with res-
pect to its human and social environment
(relative to the other sample countries).
For Ireland, the Baltics, Romania and Slo-
vakia, the downgrade is a direct conse-
quence of the ?nancial/economic crisis.
Lacking economic growth is superimposed
by frozen debt markets and low capital
market activity. This result should alert in-
vestors as these countries were highly ap-
preciated target countries for VC and PE
investors in the past. However, the once
expected economic growth did not mate-
rialize on a suf?cient scope; respectively,
it was not sustainable without improving
the general socio-economic environment
as measured by the other key drivers. For
this reason, a VC/PE bet on growth in a
particular country is risky as the country
might fail to develop the appropriate in-
vestment environment at the same pace.
26 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
-15 -12 -9 -6 -3 0 3 6 9 12 15
Slovakia (62.)
Romania (60.)
Lithuania (57.)
Latvia (67.)
Ireland (24.)
Turkey (39.)
Estonia (49.)
Kazakhstan (61.)
Venezuela (79.)
Thailand (34.)
Korea, South (17.)
Argentina (66.)
Philippines (58.)
Greece (44.)
Russian Federation (41.)
Luxembourg (33.)
India (30.)
Spain (23.)
Egypt (55.)
Czech Republic (37.)
South Africa (26.)
Singapore (4.)
Kyrgyzstan (80.)
Israel (21.)
Finland (11.)
Ukraine (68.)
Poland (36.)
Norway (13.)
Moldova (72.)
Hong Kong (16.)
Georgia (69.)
Bulgaria (51.)
Algeria (77.)
Uruguay (65.)
United States (1.)
Taiwan (27.)
Switzerland (5.)
Sweden (8.)
Slovenia (45.)
Namibia (70.)
Japan (6.)
Italy (32.)
Ecuador (74.)
Australia (7.)
United Kingdom (2.)
Netherlands (9.)
Denmark (12.)
Chile (29.)
Canada (3.)
Bosnia-Herzegovina (76.)
Austria (22.)
Armenia (71.)
Paraguay (78.)
Nigeria (64.)
Mexico (42.)
Macedonia (73.)
Colombia (47.)
New Zealand (19.)
Malaysia (18.)
Hungary (40.)
France (14.)
Croatia (52.)
Belgium (15.)
Peru (59.)
Jordan (38.)
Albania (75.)
United Arab Emirates (28.)
Oman (46.)
Kuwait (35.)
China (20.)
Kenya (63.)
Germany (10.)
Portugal (31.)
Morocco (54.)
Tunisia (56.)
Bahrain (50.)
Vietnam (53.)
Saudi Arabia (25.)
Indonesia (48.)
Brazil (43.)
-14
-13
-11
-11
-10
-8
-8
-7
-6
-6
-6
-6
-5
-5
-4
-4
-4
-3
-3
-3
-2
-2
-2
-2
-2
-1
-1
-1
-1
-1
-1
-1
-1
0
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
1
1
2
2
2
2
2
3
3
3
3
3
3
4
4
4
5
5
5
5
6
6
7
7
8
8
9
11
11
14
-15 -12 -9 -6 -3 0 3 6 9 12 15
(-) Deterioration or (+) improvement of ranking position
27 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Exhibit 5: rank changes between 2007 and 2011
I. The Global VCPE Country Attractiveness Index
Emerging countries,
and exceptional opportunities in BRIC?
Among the emerging economies, inves-
tors are paying particular attention to
the development of the BRIC (Brazil, Rus-
sian Federation, India and China) econo-
mies. The expected economic growth and
catch-up potential resulting from the size
of their population, the availability of
natural resources and transition to liberal
markets justi?es the exposure in BRIC. As
already noted, Brazil is the top performing
country in terms of its gain of overall
ranking positions between the 2007 and
2011 index versions, and China leads the
ranking with respect to its exceptional
economic growth. The pace of the eco-
nomic and capital market development,
especially in China and India, is indeed
astonishing. However, the other key dri-
ving forces of VC and PE attractiveness
are often neglected. Exhibit 6 presents
the six key drivers for the BRIC countries.
As mentioned before, this pattern is very
similar for most of the emerging markets.
The exhibit reveals the skewness
among the key driving factors of VC and
PE attractiveness. All of the BRIC countries
are characterized by a peak with respect
to their economic activity. Nevertheless
the Russian Federation demonstrates only
89% of the economic activity key driver of
the US. Despite the deep capital markets
in China and India, and the heterogeneous
characteristics with regard to taxation, all
other key driver scores remain relatively
low. This observation is con?rmed by the
scores of the level-2 constructs.
25
0
50
75
100
125
150
6. Entrepreneurial
Culture and Deal
Opportunities
5. Human and
Social Environment
4. Investor Protection and
Corporate Governance
3. Taxation
2. Depth of Capital
Market
1. Economic Activity
India (30.)
China (20.)
Russian Federation (41.)
Brazil (43.)
Exhibit 6: the six key drivers for BRIC
Exhibit 7 presents the scores of the le-
vel-2 constructs for the BRIC economies.
It con?rms China’s exceptional position
regarding its economic size and growth
also compared to Brazil, the Russian Fede-
ration and India.
However, likewise it reveals some
concerns about emerging market VC
and PE. Issues with respect to corpo-
rate governance and the protection of
investors’ rights still remain investment
obstacles in BRIC. Further, perceived bri-
bery and corruption levels are high, while
innovation and corporate R&D remains
relatively low. We know from the BRIC
and other emerging markets that growth
and development is mainly concentrated
in particular hubs or certain regions, but
not widespread. We also know that the
bene?t of wealth creation is allocated to
rather small fractions of the population
only. This presents not only a socio-eco-
nomic challenge for politicians in many
emerging countries, but is also re?ected
in their attractiveness for VC and PE. If
the countries cannot transfer the wealth
effects of growth to a broader part of
their population it is unlikely to improve
the other key driving forces for VC and
PE attractiveness. If the pace of econo-
mic growth slows down, the countries will
deteriorate their VCPE attractiveness ran-
king. This happened to the Russian Federa-
tion, which lost four ranks as presented in
Exhibit 5, due to lower economic growth.
As previously argued, this is similar for
the other emerging countries (the Baltics,
Turkey, Romania, and Slovakia) ranked at
the bottom in Exhibit 5.
5
5. Wenotethat India’slossof four ranking positionsis
caused by a deterioration of perceived investor protection
and lower scoresin doing businessindicators, but de?nitely
not by economic growth.
28 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Exhibit 7: level-2 constructs for BRIC
0 20 40 60 80 100 120 140 160 180 200
0 20 40 60 80 100 120 140 160 180 200
6.5 Corporate R&D
6.4 Simplicity of Closing a Business
6.3 Ease of Starting and Running a Business
6.2 Scientific and Technical Journal Articles
6.1 Innovation
5.3 Bribing and Corruption
5.2 Labor Market Rigidities
5.1 Education and Human Capital
4.3 Quality of Legal Enforcement
4.2 Security of Property Rights
4.1 Corporate Governance
3.1 Tax Incentives and Administrative Burdens
2.7 Financial Market Sophistication
2.6 Bank Non-Performing Loans to Total Gross Loans
2.4 M&A Market Activity
2.3 IPO Market Activity
2.2 Stock Market Liquidity (Trading Volume)
2.1 Size of the Stock Market
1.3 Unemployment
1.2 Medium-Term Real GDP Growth
1.1 Size of the Economy (GDP)
India (30.)
China (20.)
Russian Federation (41.)
Brazil (43.)
VCPE Country Attractiveness Score 2011
In summary, BRIC and other emerging
markets provide many investment oppor-
tunities and have strong needs to ?nance
their expected economic growth. Howe-
ver, expected growth is often already
priced and does not allow extra pro?ts.
It is also more challenging in emerging
countries to get access to transactions be-
cause of the immaturity of their deal sup-
porting institutional environment. Hence,
deal ?ow can be cumbersome and costly.
Furthermore, we should acknowledge that
investing in corporations is only the minor
part of VC/PE business. Adding value and
exiting are at least of equal importance.
In fast-growth economies, the potential
of general partners to add value (other
than ?nancing) might be limited. In ad-
dition, successfully exiting transactions
becomes dif?cult, even if public capital
markets are well developed, when the
protection of investors is insuf?cient, and
when bureaucracy and perceived bribery
and corruption lower the returns to inves-
tors. Limited partners should well consider
advantages and disadvantages of emer-
ging and developed VC and PE markets as
exceptional growth opportunities come at
some cost. Finally, and this is particularly
important for emerging markets because
of their recent boom, the public stock
markets provide investment alternatives
to capitalize on expected growth.
29 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
I. The Global VCPE Country Attractiveness Index
Tracking power of our index
Our index ranks the attractiveness of
countries to receive VC/PE allocations
from institutional investors based on
many socio-economic data series. The
composite measure can deviate from
the actual risk capital market activity
and these deviations might point to an
inaccuracy of our measure. With respect
to their allocations, investors are often
in?uenced by herding behavior and fol-
low trends to certain countries and
regions. However, the countries might
not have suf?ciently developed “VC/PE
infrastructure” to absorb the committed
capital, leading to over-funding. The VC/
PE infrastructure is exactly what we aim
to assess with our index: can we expect
suf?cient deal opportunities resulting
from the entrepreneurial culture in a
country, from its economic soundness, or
from innovations? Are potential transac-
tions ef?ciently supported by the ?nan-
cial community? Are the public stock and
M&A markets liquid enough to facilitate
divestments? Are investors’ concerns le-
gally taken care of? We do not claim that
our index always provides the correct
answer to these questions. But, we sub-
mit that it is very helpful in this respect.
Therefore, we expect deviations between
our attractiveness measure and actual VC
and PE activity in the particular countries
to be at a minimum level.
To analyze the tracking power of
our index, we compare the index scores
with the actual VC and PE activity in the
various countries, using the data from
Thomson Financial. Our activity measure
is the natural logarithm of an average of
all VC and PE investments made by the
general partners in a certain country over
the last three years. We use the natural
logarithm to account for the large acti-
vity divergence (e.g., activity in the US vs.
several emerging countries), and we use
an average over three years to smooth
?uctuations. Especially for some emer-
ging countries, annual activity ?uctuates
strongly from peak levels to zero in sub-
sequent years. We chose the criterion “lo-
cation of the general partners” —and not
of the investments —for the following
reason: some ?nancial centers serve as
hubs and channel VC and PE abroad.
Investors allocate their capital in these
hubs because they rely on the ef?ciency
of the ?nancial community there. This is
exactly what we try to measure with our
index. In fact, we focus on the demand
for VC and PE in a particular economy,
and likewise on the state of the profes-
sional ?nancial community that supports
the supply side and directs the funds
to the investee corporations. Therefore,
investments according to the location
of the general partners correspond best
to the concept of our index. In addition,
we use investments —and not raised
funds —because our index measures the
“absorption capacity” (either caused by
direct local demand or by channeling
funds abroad) of the particular econo-
mies. Funds raised might deviate from
this capacity due to herding behavior of
investors, caused by over-optimism or
negligence.
30 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Exhibit 8: tracking power of our index
1,000,000
100,000
10,000
1,000
100
10
1
0
20 30 10 40 50 60 70 80 90 100 110
VCPE Country Attractiveness Scores 2011
T
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r
e
e
y
e
a
r
s
a
v
e
r
a
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e
o
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i
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]
The statistical measure for such a com-
parison is the Pearson correlation coef?-
cient. It ranges between 0 and 1, where 0
signals “no” and 1 “perfect tracking.” The
coef?cient for our index is 0.8336, signa-
ling that the index performs well when
tracking a country’s investment activity.
However, it is calculated including only
the 58 countries from our sample with
non-zero investment activity. We illus-
trate the high correlation in Exhibit 8.
Exhibit 8 reveals the tracking power of
our index. We plot the countries’ invest-
ment activity on their index scores and
can identify a strong link. We note that the
prior 2009/10 index correlated with 0.8104
which was already a very satisfying result.
Nevertheless, we could still improve the
tracking power of the index due to our op-
timization effort and the slight changes of
the index structure and weights in the 2011
version. If we compare the results of our
VC index with VC activity (only), the corre-
lation is 0.8242. The correlation of our PE
index with actual PE activity is 0.8347. All
these results can be considered excellent
from a methodological perspective and
all correlations could be improved compa-
red to the prior index version. However, it
should be noted that there are inhomoge-
neous de?nitions of VC and PE among the
globe. Especially in emerging countries,
some transactions might better be called
“infrastructure investments” or “project
?nancing” instead of VC transactions. Simi-
larly, some investments in later stage com-
pany life cycles rather resemble “expansion
or development capital” than traditional
buyout structures. Also for this reason of
varying de?nitions of VC/PE among the
globe, we determine the combined Global
VC and PE Country Attractiveness Index
which provides a joint score for both asset
classes.
31 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
I. The Global VCPE Country Attractiveness Index
Our index and historic VC/PE returns
Concurrent to the ?nding that our index
performs well when tracking VC and PE
activity in countries, it is of particular
interest to analyze if it also corresponds
with country performance. Unfortuna-
tely, performance ?gures are still one of
the best kept secrets in the VC and PE
industry. The principle not to disclose
information on returns is equally valid
in developed and in emerging markets.
On top of that, the emerging VC and PE
markets are young with a general low
activity (despite some exceptions) and
hence, only a very few transactions from
which achieved returns can be calcula-
ted. Therefore, an assessment of VC and
PE performance is even more challenging
for the developing countries than for the
developed. Commercial data suppliers
only provide very limited performance
?gures. The only means to get reliable
performance data on a suf?cient scope
for empirical analyses is via the exten-
sive effort to collect private placement
memoranda (PPMs). A private placement
memorandum is a document edited by a
general partner that raises a VC/PE fund
and solicits capital commitments from
institutional investors. It is a marketing
document used for fundraising purpose.
General partners provide information
about their track records and the per-
formance of individual transactions in
PPMs. The ?gures are audited and inves-
tors trust them. However, only success-
ful general partners raise a subsequent
fund and edit a PPM. Therefore, their use
is criticized by academic researchers, as
average performance ?gures from PPMs
are upward biased. Nevertheless, there is
no reason to believe that this upward bias
is different among particular countries.
This means benchmarking countries is
feasible because then countries are com-
pared relative to each other and the ab-
solute terms are not important.
Lopez-de-Silanes, Phalippou and Gotts-
chalg (2010) put together from PPMs the
most comprehensive database on VC and
PE returns at the investment level contai-
ning the performance and characteristics
of 7,453 investments, thereof 1,694 in
emerging countries. The ?rst transaction
considered was closed in 1971 and the last
prior to 2006. We are grateful to Ludovic
Phalippou for providing us with aggrega-
ted country returns from this database.
These returns are compiled as the mean
average of gross internal rates of return
of all transactions in a particular country.
We are aware that this is a rough estimate,
disregarding different transaction closing
dates (fund vintage years), industries, deal
structures and development cycles of the
particular VC/PE markets. Unfortunately,
controlling for these effects is impossible
with the available data on VC/PE and on
our global scope. In addition, an IRR is a
capital and time weighted return measure
that requires a reinvestment assumption
and that has aggregation issues as descri-
bed in Phalippou (2008). However, the IRR
pitfalls are the same for all transactions
and for all of our countries. Therefore,
they do not affect our cross-sectional
country benchmarking approach.
With these aggregate country perfor-
mance measures, we can analyze to what
extent our index not only tracks VC and
PE market activity but also the average re-
turns. We can match the index scores of 49
countries (thereof 24 emerging countries)
with their aggregate performance data.
We ?nd that the correlation between the
index scores and a country’s average gross
internal rate of return is 0.56. This high
correlation is expressed in Exhibit 9, which
represents the average of the country re-
turns and index scores when we group the
countries into deciles with respect to their
index scores.
32 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Exhibit 9: historic performance and our index
40%
10%
5%
35%
30%
25%
20%
15%
0%
30 40 50 60 70 80 90 100
Average index scores for 49 sample countries grouped into deciles
A
v
e
r
a
g
e
I
R
R
o
f
4
9
s
a
m
p
l
e
c
o
u
n
t
r
i
e
s
g
r
o
u
p
e
d
i
n
t
o
d
e
c
i
l
e
s
Exhibit 9 reveals that our index is not
only a valid proxy for VC and PE activity,
it is also a good indicator for aggregate
country returns. The averages of historic
gross internal rates of return were actual-
ly larger in countries that rank higher in
our index than in countries that rank low.
Nevertheless, there are “outliers,” meaning
low ranked countries with high returns
and vice versa. Additionally, of course,
there is a strong dispersion of returns
within the particular countries, driven by
the existence of very successful transac-
tions in any of them. We highlight that
the internal rates of returns collected by
Lopez-de-Silanes, Phalippou and Gotts-
chalg (2010) are calculated gross of any
fees. We can assume that fees are higher
for investors in markets with less compe-
tition among general partners. Therefore,
we expect the less competitive emerging
markets to be more costly for investors.
This effect supports our result and should
increase the correlation if we considered
net returns to investors.
33 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
I. The Global VCPE Country Attractiveness Index
Summary and outlook
We provide a composite measure that
determines the attractiveness of 80
countries to receive capital allocations
from investors in the VC and PE asset
class. The composite measure is based on
six main criteria: economic activity, depth
of the capital markets, taxation, investor
protection and corporate governance, the
human and social environment, and entre-
preneurial culture and deal opportunities.
The de?nition of these criteria is based on
an extensive review of academic literature
and on a survey we conducted among
institutional investors prior to our study.
The six criteria are not directly observable,
so we use proxy variables to assess them
for each country. As a result, we receive
a country ranking, as well as provide
detailed analyses on the strengths and
weaknesses of the particular nations and
information on the historic development
of the criteria. Our index performs well
when tracking real VC and PE activity and
historic aggregate country performance.
However, it must not be interpreted as a
crystal ball for investment advisers. We
highlight our intention to challenge the
discussion about the determinants of vi-
brant VC and PE markets and to propose
a valuable informational tool, but not an
arbitrage instrument.
We ?nd a general pattern if we com-
pare the country characteristics. There is a
lot of dispersion with respect to the six key
drivers. Some countries attract investors
with tax incentives. Many countries show
strong entrepreneurial culture and deal
opportunities. There is great dispersion in
economic activity, especially with respect
to the emerging markets and in the human
and social environment. However, the two
key criteria, investor protection and cor-
porate governance, and depth of capital
markets, make the difference. The com-
mon law countries dominate the others
regarding these criteria. We can conclude
that strong investor protection and cor-
porate governance rules lead to liquid and
ef?cient capital markets, and these evoke
the required professional community to
secure deal ?ow and exit opportunities for
VC and PE funds. This ultimately affects
a country’s attractiveness for institutional
investments in the VC and PE asset class.
However, this discussion re?ects the
capital supply side only. We should also
take into account that, as revealed by
our analyses, many countries lack several
important characteristics. Without a suf-
?cient entrepreneurial culture and deal
opportunities, with rigid labor markets,
bribery and corruption, there will be ?rst,
less demand for VC and PE and second, re-
turns to investors diminish.
Emerging VC and PE provides interes-
ting opportunities to investors. However,
it is the discussed lack of balance of the
key driving forces that renders emerging
VC/PE allocation decisions challenging.
Exceptional growth opportunities come
at the cost of disadvantageous conditions
with respect to investors’ protection, less
liquid exit markets, innovation capacity
and perceived bribery and corruption.
We invite you to observe and thorou-
ghly analyze our results. If you are an
investor, please enrich the provided in-
formation with your own expertise and
knowledge about the key driving forces
and market conditions in the particular
countries to make your allocation deci-
sions. If you are a politician, please use our
analyses as demonstration how investors
evaluate and benchmark your country. If
you are a researcher, and this is equally
valid for the whole constituency, please
do not hesitate to criticize our approach
and ?ndings. We will continue to update
our index annually.
As the index evolves, we aim to cover
more countries, assuming the right data is
available. We will include new data series
(discard others), and further optimize the
data selection and index structure. Hence,
we very much appreciate any critique and
comment.
34 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
35 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
36 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
How are fund size and fund
performance related?
II.
37 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
II. How are fund size and fund performance related?
38 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
First, we provided new descriptive statis-
tics and stylized facts on the distribution
of performance, duration and size of PE
investments around the world. We found a
dramatic dispersion in the rate of returns:
investments in the 75th percentile have
an internal rate of return (IRR) of 50%,
whereas those in the 10th percentile earn
nothing. Most investments in our dataset
are relatively long-lived, with the median
duration of the investments being nearly
four years. But evidence emerged fromour
analysis that the long-lived investments
are not the ones that deliver high returns.
In fact, we observed a strong negative as-
sociation between performance and dura-
tion. Quick ?ips (investments held less than
two years), which account for 12% of all PE
investments, have median IRR (Public Mar-
ket Equivalent [PME]) of 85% (1.94), whe-
reas investments that were held more than
six years, which account for nearly 18% of
all PE investments, had a median IRR (PME)
of only 8% (0.79).
Our statistics uncovered additio-
nal stylized facts for investments across
countries. We documented substantial
underperformance of investments in emer-
ging markets, which may be of interest
given their recent spectacular growth
surges. The data also allowed us to show,
for the ?rst time, that most PE invest-
ments around the world are small equi-
ty-wise. The median equity investment is
US$10 million only. The large deals trum-
peted in the press are, by far, the exception.
Second, we identi?ed the drivers behind
the great variation in the performance of
PE investments. Our investment-level data
allowed us to document the performance
impact of several investment and PE ?rm
characteristics. We found that the small
investments outperformed the larger ones.
In addition, and contrary to some of the
arguments by fund managers, our results
show a close connection between public
and private equity: the average stock-mar-
ket return over the life of an investment
has a signi?cant impact on IRR.
Our most important ?nding, however,
is that PE ?rm scale is a signi?cant and
consistent driver of returns. Casual evi-
dence suggests that the scale of PE ?rms is
an important concern for investors. Lerner
et al. (2005) argue that “the unprecedented
growth of the private equity industry
appears to have changed the industry in
some permanent ways. First was the scale
at which private equity groups operated.
These concerns were particularly acute on
the buyout side, where multi-billion-dol-
lar funds have become the norm.” Along
similar lines, Swensen et al. (1999) repor-
ted that “many LBO ?rms appear to have
explicitly lowered their return hurdles […],
pricing deals to yield returns in the mid-
to-high teens.” Indeed, the current scale
of several PE ?rms contrasts sharply with
that of PE ?rms 20 years ago. When com-
paring the 16 professionals at KKR and the
470 at RJR Nabisco’s headquarters, Jensen
(1989) suggested that PE ?rms were posi-
tioned to generate superior performance
partly because they were lean and focused
organizations.
Today, the industry is more concentra-
ted (Cornelius et al. 2007) and PE ?rms
sometimes have hundreds of professionals
from a variety of backgrounds doing a
large number of deals around the world.
Blackstone, a prominent PE ?rm, des-
Giants at the gate: diseconomies of scale
in private equity investment returns
My co-authors, Florencio Lopez-de-Silanes and Oliver Gottschalg, and I have put together the
largest and most up-to-date dataset on PE investment performance and characteristics. Our
data comes fromfund-raising private placement memorandums (PPMs) that we have collected
over the past eight years frominvestors on every continent. After applying a number of ?lters,
mainly to eliminate those investments that are too young to have a meaningful return, our
?nal sample contained 7,453 investments made in 81 countries by 254 PE ?rms between
1971 and 2005. This data allowed us to derive statistics for issues that are often debated in
private equity and to document the main drivers of the cross-section of returns. Prompted by
the large increases in the size of PE funds, we paid special attention to the impact of scale on
returns and found evidence of the potential mechanisms that power this relationship.
Guest contribution by:
Ludovic Phalippou
Associate Professor of Finance
University of Oxford Said Business School
[email protected]
39 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
cribes itself as: “A ?rmof 1,300 professio-
nals in 15 of?ces worldwide. But we are
more than that, our portfolio companies
employ nearly one million people around
the world making us a major factor in eco-
nomies around the world. If our portfolio
holdings and transactions were combined
into a single company, [we] would rank as
the equivalent of number 13 in the For-
tune 500.” If a similar calculation were
applied to KKR, it would place KKR ?fth
in the Fortune 500 ranking, just ahead of
General Electric. This change in the indus-
try raises the question: can large PE ?rms
deliver suf?cient returns?
There is a large body of theoretical lite-
rature on the connection between a ?rm’s
size and its performance; the emerging
consensus seems to be that “the key trade-
off an organization confronts occurs
between communication and knowledge
costs.” Garicano (2000, abstract) notes:
“As a ?rm accumulates activity, it bene?ts
from an increased utilization of its know-
ledge (i.e., it leverages its know-how), but
it is penalized by greater communication
needs (i.e., people need to sit in endless
meetings trying to ?nd an agreement).”
Although diseconomies of scale may be
important for industrial ?rms, they may
not lead to differences in returns across
?nancial intermediaries such as PE ?rms.
If agents are rational (e.g., investors are
not limited in the number of funds they
can monitor), the market for capital is
competitive and there are no other fric-
tions (e.g., no agency con?icts), then there
should be no difference in the returns of-
fered by different ?rms. If large ?rms were
to offer lower returns, all else being equal,
they would simply receive less capital and
would no longer remain large. But most of
these arguments are unlikely to hold true
in PE. For example, the provision of capital
for PE ?rms is not continuous. Investors
can only add capital to a PE ?rm every two
to four years, when a new fund is raised.
This means that, if a ?rm turns out to be
too big, it takes a few years for investors
to adjust its size.
In view of these theoretical arguments,
communication costs should be a key de-
terminant of performance. Using the data
we gathered for individual investments,
we were able to create a proxy for the
volume of information communicated in
the ?rmover the life of each investment.
Speci?cally, we measured ?rm scale for
each investment as the average number of
simultaneously held investments managed
by the ?rmover the investment’s life. We
believe this is a good measure because it
captures two key features connecting scale
and returns in PE. PE ?rms are supposed to
monitor, closely and continually, each of
the companies in their portfolio. In addi-
tion, each investment, regardless of its size,
probably requires a similar amount of time
and communication. So, the number of
investments under management is a good
proxy for ?rmscale. Because we did not
have a time-series of returns for PE ?rms,
we related the total performance of each
investment to the average scale of the ?rm
over the life of the investment.
Our empirical estimates show that
?rm scale is a robust and consistent
driver of the cross-section of returns
of PE investments. Investments held at
times of a high number of simultaneous
investments (SI) underperform substan-
tially. The economic magnitude of the
scale effect is large: a one-standard-de-
viation increase in SI decreases IRR by
9%. Investments in the lowest SI decile
earn a median IRR (PME) of 36% (1.65),
whereas those in the highest SI decile
earn a median IRR (PME) of 16% (1.08).
These results hold in a regression setting
controlling for other factors that could
be associated with performance, inclu-
ding several investment characteristics,
PE ?rm characteristics and ?xed effects
(country, industry, and time).
We performed a series of tests which
corroborated the robustness of the nega-
tive scale effect. Diseconomies of scale
were present across subsamples; they sur-
vived the use of alternative econometric
methods and they were not the result of
a simple mechanical effect resulting from
?rms exiting best-performing investments
faster. We also showed that survivorship
bias, differences in risk and reverse causa-
lity were unlikely to explain our ?ndings.
The third and ?nal element of our work
was to test some additional predictions of
diseconomies of scale models and to pro-
vide evidence of the potential mechanisms
explaining the negative scale effect. We col-
lected additional data fromPE directories,
PE ?rmwebsites, managers’ biographies and
the PPMs to develop proxies for the orga-
nizational structure of PE ?rms. These mea-
sures provided empirical support for the idea
that hierarchical ?rms and organizations
where the information ?ow is more dif?cult,
face higher marginal communication costs
and, thus, display greater diseconomies of
scale. Our data shows that independent PE
?rms, those with ?atter decision structures
and those with professionals of similar back-
grounds, exhibited less pronounced scale
diseconomies. We also found that disecono-
mies of scale decreased over the life of the
?rm. This is consistent with investor’s lear-
ning about the effect. The effect decreases
regularly and has disappeared beyond the
10th anniversary. This is also consistent with
PE ?rms handling communication better as
they become more experienced. This means
that the scale of a PE ?rmbeyond its 10th
anniversary is not predictive for its future
performance.
II. How are fund size and fund performance related?
40 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Valuation is important to both venture
capital (VC) ?rms and entrepreneurs, and is
therefore a contentious negotiation point.
For the investors, their return mainly results
fromthe capital gain between closing and
exit. For entrepreneurs, the pre-money
valuation determines their dilution after
the VC’s investment. In our paper “Fund
size, limited attention and valuation of
venture capital backed ?rms” (Journal of
Empirical Finance, volume 18, issue 1, Ja-
nuary 2011, pages 2-15), we examined how
characteristics of venture capital funds, in
particular, fund size impact the pricing in
the venture capital industry. It is clear that
the 2/20 rule can be an incentive to VCs to
grow their fund size. When a fund becomes
large, the ?xed part of the fee can become
as important as the carry. Since the typi-
cal VC fund has seen an increase in capital
managed per partner as fund sizes grew, we
raised two simple questions:
1. Are investment managers still able
to provide appropriate quantity and
quality of services to their investee
corporations if they manage a larger
amount of capital?
2. If there is a decline in the quantity
or quality or both of their services,
(how) does this affect the valuations
of their investees or the performance
they deliver to their investors?
We addressed these two questions by
looking at a sample of 9,266 ?nancing
rounds with valuation data of US VC tran-
sactions between 1991 and 2006 provided
by the VentureXpert database. Table 2 sets
out our observations, ordered by year.
We postulated that reputable VCs are
likely to pay lower prices. We also assu-
med that fund size can be related to
reputation. Moreover, larger funds can
have more negotiation power and, hence,
might also pay lower prices. However, if a
fund grows too big, i.e., beyond its optimal
scale, human capital levels might not keep
up with the capital under management.
This can dilute the managers’ attention to
Fund size, limited attention and valuation
of VC backed ?rms
“We all had too much money. It was just too easy … The problem… was that the funds had
grown so big that the 2% became as important as the 20% ... Success had less to do with
performance or risk management … and more to do with bulking up.”
A Confession by a Private Equity Manager, The New York Times (September 22, 2009).
Year Number of ?nancing rounds Rounds with valuation data
1991 1,136 78
1992 1,302 265
1993 1,058 230
1994 1,111 312
1995 1,014 343
1996 1,328 429
1997 1,497 535
1998 1,581 755
1999 2,457 1,296
2000 3,571 1,966
2001 2,314 1,137
2002 1,726 615
2003 1,684 494
2004 1,800 351
2005 1,987 250
2006 2,188 210
All years 27,754 9,266
Table 2: our sample transactions ordered by year
Guest contribution by:
Douglas Cumming
Professor in Finance and Entrepreneurship,
Ontario Research Chair in Economics and
Cross Cultural Studies
[email protected]
Na Dai
Assistant Professor of Finance at the
school of business at SUNY–Albany
[email protected]
41 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
particular transactions. Furthermore, more
capital under management could result in
less rigorous decision-making behavior,
and higher entry valuations. In addition,
diluted attention might reduce the VC’s
value-adding capacity. Either way, less
time spent monitoring the portfolio can
lead to lower returns to investors.
To address these questions, we ?rst grou-
ped the transactions fromTable 2 according
to the different industries of the investee
?rms, and according to the fund size of their
backers. Table 3 presents this segmentation.
Table 3 reveals that the highest valua-
tions were achieved in the communication
technology sector and that larger funds
were engaged in higher-value transactions.
This is, in principle, no reason for concern,
as large cap funds should focus on large cap
investments. However, it becomes an issue,
if the larger general partners (GP) systemati-
cally pay higher prices than the smaller ones,
or if they are less successful in divesting
their holdings. Therefore, we analyzed via
numerous multivariate regressions whether
there was a relationship between pre-money
valuations and a GP’s reputation, its fund
size, measures of attention to the portfolio
companies, and various characteristics of
the ventures, such as entrepreneurial ?rm’s
size, their stage of development, industry,
location and VC market conditions, inclu-
ding committed capital and number of IPOs
during the previous year. We rated a VC’s re-
putation by the number of IPOs undertaken
and used a proxy for the capital managed
per partner of a fund to assess the atten-
tion devoted to the portfolio. Additionally,
we veri?ed whether fund size or insuf?cient
monitoring impacted the performance of
the ventures. Unfortunately, without having
performance data for the particular transac-
tions, we had to use a proxy. We differentia-
ted successful fromfailed deals and used an
indicator for a trade sale or an IPO exit prior
to 2007 for all ?nancing rounds before 2003
to asses a GP’s portfolio performance.
Our analyses con?rmed that reputable
VCs pay lower prices for ventures of similar
quality. We also found a convex (U-shaped)
relationship between fund size and valua-
tion. This means that, to a certain extent,
larger funds can receive smaller valuations,
probably because of superior negotiation
power or the bene?t of an assumed better
reputation. However, this trend was reversed
when the funds operated beyond their opti-
mal level. This effect was even stronger for
the less prestigious GPs. We also con?rmed
the theory that limited attention affects va-
luation. We realized there was a strong link
between our proxy for capital under mana-
gement per partner and the prices the GPs
paid. Finally, we found a concave (inverse U-
shaped) relationship between the fund size
and the probability for successful exits. That
means that the probability for a successful
exit ?rst increases with the size of the GP,
but diminishes again, having surpassed its
optimal scale.
Our ?ndings are important for investors
in venture capital assets. There is a scale
diseconomy, which we believe relates, at
least in part, to human capital constraints.
General partners do often not increase
human capital levels proportionally to
the growth in fund size. Limited partners
should carefully gauge the development of
funds that are increasing in size; the value-
adding potential of general partners can
decrease with their size, in turn, causing
lower returns to investors.
Table 3: our sample transactions ordered according to their industry
and to the size of their backers
Pre-money valuation [US$m]
Mean Median Observations
Industry
Com puter related 42.2 18.7 4032
Com m unication 68.4 25.9 1771
M edical/health/life sciences 30.8 18.2 1395
Biotechnology 40.0 19.2 790
Sem iconductor 46.9 20.5 623
Non-tech 42.3 17.7 655
VC fund size
Largest quartile 74.1 34.2 2311
Second quartile 45.4 22.7 2293
Third quartile 33.1 17.1 2344
Sm allest quartile 30.1 12.8 2318
42 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
An insight into
different VC
and PE markets
III.
43 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
III. An insight into different VC and PE markets
44 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
In the Eurozone, as in the global VCPE
market, the levels of activity have remai-
ned well below the pre-crisis peaks, re-
minding us that the road to full recovery
will be long and possibly bumpy. The re-
covery is also likely to take the VCPE sec-
tor into new territory. First, risk appetite
is unlikely to return to pre-crisis levels.
This will have an ongoing impact on the
availability of external ?nance. Second,
VCPE houses will have to operate in a
different legislative and regulatory envi-
ronment, with increased reporting and
capital obligations. Finally, VCPE houses
are changing the way they operate: ex-
perience has shown that value creation
is best achieved within long-term and
close commitments. For the investors,
this means putting more of their own
money, knowledge and expertise into the
investee company.
While this consolidation was ongoing,
a two-speed recovery was under way.
Today, the Eurozone presents itself as
increasingly heterogeneous with a robust
economic rebound in the core economies
(Germany, France, Netherlands, Belgium,
Austria and Finland), and weak perfor-
mance in the periphery (Greece, Ireland,
Portugal and Spain, and to a lesser extent,
Italy). This widening gap presents VCPE
houses with a choice of investment op-
portunities to suit the highest and lowest
risk investment models.
Taking stock: Eurozone’s strengths
and weaknesses for VCPE investment
VCPE investment is in?uenced by a range
of factors that can be grouped into six
categories, which we analyze more closely
in this report: economic activity; entre-
preneurial culture; depth of a capital mar-
ket; taxation; investor protection and cor-
porate governance; and the human and
social environment.
The tendency for Eurozone VCPE acti-
vity to lag other countries and regions is
partly the result of de?ciencies in a num-
ber of these areas. Over the past decade,
and even well before the 2010 Eurozone
sovereign crisis, economic activity has ty-
pically risen more slowly in the Eurozone
than in the US or Scandinavia. In the 10
years to 2007, Eurozone GDP growth ave-
raged 2.3% per year compared with 3% in
the US.
7
Moreover, a wealth of indicators
and anecdotes support the view that it is
more dif?cult to start a business in the
Eurozone than in many other advanced
economies. The World Bank ranks Ger-
many 88th in the world in terms of ease
of starting a business, with the top ranks
dominated by nimble Asian countries.
8
As
venture capital targets young companies
hurdles to entrepreneurship, including
complicated and lengthy legal require-
ments or íssues in obtaining access to
7. Oxford Economics
8. World Bank Doing Businessindicators
Is the Eurozone still an attractive location
for VC and PE investors?
VCPE markets in the Eurozone have returned to growth, but they are facing a new,
more competitive environment. Limited partners have new attitudes to risk and
responsibility; high ?nancial gearing has been replaced with new business models that
focus on long-termgrowth; and the regulatory environment is more intense than ever.
With investment opportunities in emerging markets still increasing and the Eurozone
in the midst of a sovereign crisis, is it still an attractive investment location?
Guest contribution by:
Julie Teigland
Leader of Strategic Growth Markets
- Europe, Middle East, India and Africa
Ernst & Young
[email protected]
2010 —a year of consolidation and
timid recovery in PE and VC activity
Global private equity (PE) and venture ca-
pital (VC) —VCPE —investment is recove-
ring fromthe signi?cant falls experienced
during the crisis. In the Eurozone, 2010 was
a year of consolidation and the start of a
timid recovery for VCPE. With the worst
of the global crisis behind us and inves-
tors’ risk appetites returning, PE activity
increased signi?cantly and exit numbers
improved strongly, up from227 in 2009
to 268 in 2010.
6
In particular, there was
an increase in the number of large IPOs of
more than US$500min value, although the
overall number of listings remained low.
Nevertheless, the improved availability of
?nancing helped kick-start the recovery, as
debt markets came back to life.
6. Has privateequity comeout of theslump? Sachin Date,
Ernst & Young, January 2011
45 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
?nance, severely limit VC opportunities. To
continue with the German example, there
are roughly nine steps required to start
a company in Germany, compared with
around ?ve in the OECD on average, and it
costs around 5% of the average personal
annual income to set up a business com-
pared with just 1.5% in the US.
Some Eurozone countries also fare
quite badly in terms of investor protection.
For instance, the World Bank’s indicators
highlight examples such as limited direc-
tor liability in France or limited disclosure
rules and practices in Spain. Factors such
as these may deter limited partners from
investing in Eurozone companies.
Similarly, the Eurozone lags behind
other leading nations in areas of human
and social environment, such as the qua-
lity of the education system, with the
large Eurozone countries behind Asian
and Scandinavian countries in terms of
basic educational achievements. They also
lag the US and the UK (and increasingly
Asia) in terms of quality and quantity of
academic research.
Furthermore, VCPE ?rms sometimes
need to restructure the company in which
they are investing. To do so, they must
comply with local labor legislation and
practices, which, in turn, are key factors
affecting the industry’s potential. Busi-
nesses in the larger Eurozone countries
such as France and Spain often ?nd them-
selves constrained by rigid hiring and ?-
ring practices and in?exible working time
practices. This also applies to some smaller
member countries such as Slovenia or the
new joiner, Estonia.
Forgotten strengths
The picture of the Eurozone market for
VCPE investors is by no means unendingly
bleak. Some of the Eurozone’s shining stars
have attracted VCPE investors. To name just
a few:
• The Netherlands provides an investor-
friendly environment, with one of the
best track records for intellectual pro-
perty protection and legal rights enfor-
cement.
• Finland’s labor force is highly skilled
and ?exible. Finland ranked third in
the 2009 PISA survey of student per-
formance.
• German companies are more inno-
vative than most, with world leaders
in a number of industries ranging
frompharmaceuticals to solar panels
to highly specialized machinery —
according to the World Bank, Germany
spends 2.6% of GDP on research and
development, more than the world
(2.2%) and EU (2%) average.
These examples show what is possible
to achieve within a European context and
explain why VCPE investors have kept a
high interest and stakes in the region.
Overall, the three countries mentioned
above provide some of the most favorable
environments for VCPE ?rms to conduct
business in. Our survey shows them ran-
king among the top nations in terms of
innovation, ef?ciency of business start-up
and closure regulations.
III. An insight into different VC and PE markets
46 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Will the recovery continue in 2011 or
will the Eurozone lose out to the US
and Asia?
A number of factors are likely to support
a further recovery in VCPE activity in the
Eurozone this year. First, economic acti-
vity, and thereby prospects for returns on
investments, should continue to improve
in the core Eurozone countries. These
countries experienced robust growth in
2010, with the main engine of recovery
gradually shifting from exports to domes-
tic activity and, in particular, ?xed assets
investment. While the core Eurozone faces
its own challenges, with large budget
de?cits and an aging population, these
issues are surmountable and this group
of countries should be able to achieve
robust, if unremarkable, growth. This pro-
vides a relatively secure environment for
VCPE ?rms to operate in.
Second, we estimate that there is a
staggering US$138b of “dry powder” ca-
pital held by European PE ?rms seeking
investment opportunities before their
investment periods expire.
9
However, there are also signi?cant
challenges; the Eurozone is competing
with other potential locations for PE
investment. As that growth is likely to
be signi?cantly lower in the Eurozone
than in other regions, many PE houses
may prefer to focus on other parts of the
world. The Ernst & Young Eurozone Fore-
cast expects annual average GDP growth
of only 1.8% per year over the next ?ve
years in the Eurozone, about half as much
as in the US and compared with around
7.5% in emerging markets. The sove-
reign bond crisis, which erupted in 2010,
highlighted signi?cant ?aws in Euro-
9. Has privateequity comeout of theslump? Sachin Date,
Ernst & Young, January 2011
Exhibit 10: Eurozone divergence
85
90
95
100
105
110
2000 2002 2004 2006 2008 2010 2012 2014
2008=100
Periphery
Core
Core = Germany, France, Netherlands & Belgium
Periphery = Italy, Spain, Greece, Portugal & Ireland
Sources: OxfordEconomics
zone economies, which will take years of
painful adjustment to repair. Signi?cant
?scal and structural issues need to be
addressed and potentially adjusted. For
example, ?scal adjustment involves large
spending cuts, wage freezes or wage cuts
for public sector employees and some tax
increases mainly in the form of higher
VAT rates. In the Ernst & Young Euro-
zone Forecast we estimate that, for the
Eurozone as a whole, ?scal restructuring
will amount to around 1% of GDP for
the next few years, a sharp reversal from
the large stimulus packages put together
during the global crisis.
The Eurozone needs to restructure its
economy to remain competitive
In terms of structural issues, a number
of countries in the periphery need to
reshape their economies in two ways.
First, these countries (excepting Ireland)
need to tackle their competitiveness
(or lack therof). This includes wage and
cost restraints and an overhaul of pro-
ductivity-enhancing practices. Secondly,
these countries need to ?nd new sources
of growth. For Ireland and Spain, this
is partially due to the collapse of the
construction and its unlikely return to
pre-crisis levels in the near term. For the
other countries, it is means discovering
and exploring areas of expertise that
generate signi?cant export revenues. In
all cases, these changes imply a radical
rethink of the way that businesses are
organized, the sectors that they ope-
rate in and of the education and trai-
ning of the workforce that is required.
These processes will be disruptive. They
may create some opportunities for VCPE
?rms, but distinguishing the promising
targets from the others in the transition
process will be dif?cult.
The restructuring needed in the peri-
phery implies that there will be a much
weaker performance than in the core Eu-
rozone. In the next ?ve years, we expect
47 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
the periphery to grow by only around
1.3% per year compared with 2.1% for
the core Eurozone.
10
This is a signi?cant
change from the years before the crisis
when the periphery consistently out-
performed the core Eurozone. This may
imply a change of focus for VCPE houses.
Apart from affecting relative returns,
divergence within the Eurozone has a
number of signi?cant implications. The
Eurozone sovereign crisis has also put
into question the future of the mone-
tary union, something that was taken
for granted as recently as 2009. While it
seems likely that the European Monetary
Union will continue in its current form,
investors are now pricing in the risk of
a debt restructuring by some Eurozone
members. This radical change in sen-
timent affects availability of ?nance
in the periphery. Moreover, economic
divergence is likely to make policy deci-
sions more dif?cult, further hampering
economic integration of the Eurozone
countries. As a result, this may dampen
any prospects of economies of scale for
those companies which operate in seve-
ral markets.
External ?nance likely to remain tight
Other challenges for the VCPE indus-
try may include access to ?nance and
rising costs. The implementation of the
AIFM Directive (which will regulate non-
UCITS fund managers) in national law
over the next few years will impose si-
gni?cant costs on VCPE ?rms that could
drive investors to look to other regions
not affected by the legislation —despite
the fact that the harmonization objec-
tive underpinning this directive is a wel-
come development. In particular, there
10. Oxford Economics
is widespread concern that the AIFM
Directive will prevent non-EU funds from
investing. The disclosure rules would also
put EU ?rms at a disadvantage as non-EU
investors would avoid the heavy disclo-
sure burden. Recent bank lending surveys
indicate banks’ continued cautiousness in
granting loans to businesses. This partly
accounts for why, at the end of 2010, the
outstanding amount of loans to busi-
nesses was barely back to the level of one
year earlier. Furthermore, the activity in
debt markets remains low by the stan-
dards of the pre-crisis years. Structured
?nance with high gearing will not work
in Europe for the forseeable future (for
deals greater US$100m, we found that
about 58% of equity was employed to
fund them)
11
and VCPE ?rms will need
to continue putting in higher levels of
equity into buyout deals.
11. Has privateequity comeout of theslump? Sachin Date,
Ernst & Young, January 2011
There are also concerns about the fu-
ture of corporate taxation in the EU. The
need to reduce public budget de?cits may
lead some governments to raise corporate
taxes to levels that would make the Euro-
zone uncompetitive compared with other
regions of the world. Moreover, there are
proposals to harmonize corporate taxes
within the EU to avoid what politicians
describe as unfair tax competition. This
means that the relatively low tax rates
of Ireland and Slovakia cannot be ta-
ken for granted in the future. This will
increase the level of uncertainty about
the business environment and discourage
investment in the Eurozone.
All of these factors will make for a
challenging environment that may hin-
der VCPE activity by deterring ?rms from
investing in the Eurozone and hampering
PE houses’ ability to exit their investment
at a time when many hold large portfolios
that are coming to maturity.
Exhibit 11: loans to non-?nancial corporations
-40
-30
-20
-10
0
10
20
30
40
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
% year
Germany
Spain
France
Ireland
Sources: OxfordEconomics/Haver analytics
III. An insight into different VC and PE markets
48 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Opportunity for bargain deals in
Europe?
The depressed economic environment in
the Eurozone’s periphery may, however,
present attractive valuations for some
deals. A number of emerging markets have
expressed interest in making medium- to
long-term investments in Portugal and
Spain, for instance. But we think that the
crucial issue in balancing risks and poten-
tial rewards is the solidity of the PE inves-
tors’ ?nancial backing.
Investing in the periphery presents si-
gni?cant risk and the prospect of several
years of low or negative returns. The risk
of sovereign debt restructuring by one pe-
ripheral country still remains signi?cant. If
it happens, it seems unlikely that restruc-
turing will proceed in an orderly fashion.
It may send shock waves through ?nancial
markets of the restructuring country and
other peripherals, as well as those of the
core Eurozone. The contagion could be
signi?cant as European banks (and mainly
German and French banks) own more than
US$1.5b of debt from Greece, Ireland,
Portugal and Spain.
12
Debt restructu-
ring could undermine the banks’ balance
sheets in the core of the Eurozone, with
repercussions for economic activity in
these countries too. Such a shock may
also send the euro exchange rate spiraling
downward, impling a signi?cant currency
risk to investors.
It is worth commenting that the Euro-
zone periphery is actually a heteroge-
12. Bank of International Settlements
neous area; Ireland is grouped with other
countries in the south due to its ?scal and
banking woes, but the fundamentals of
the Irish economy are signi?cantly stron-
ger than those of Greece or Portugal, with
a large and still thriving high-tech sector
that should present attractive opportuni-
ties for VCPE. This is why, in the medium
term, we are much more optimistic about
Ireland than we are about the other pe-
ripheral countries. We believe that the
Irish economy has the ability to return to
growth rates of around 3.5% in the second
half of this decade, compared with pro-
bably only 1.5%-2% for Greece, Portugal
and Spain.
As a result, only those investors that are
able to survive a protracted rough patch
should consider such opportunities in the
periphery.
What can policymakers and
lawmakers do to foster VCPE activity?
Research indicates that VCPE activity has
signi?cant positive impacts on the eco-
nomy as a whole. For instance, studies by
the World Economic Forum found that,
in the years after VCPE transactions, pro-
ductivity growth is higher in target ?rms
than in similar companies. This suggests
that policymakers should seriously consi-
der fostering the development of VCPE by
strengthening corporate governance and
investor protection, and by avoiding exces-
sive taxation and regulation. So while much
of the policy debate focuses on tightening
the regulation of the sector, this needs to be
implemented alongside measures that help
catalyze the positive spillovers of VCPE on
the rest of the economy. As mentioned, ac-
cess to funds is one of the main weaknesses
Exhibit 12: European banks claims on "peripherals"
0
100
200
300
400
500
600
700
800
Greece Portugal Spain Ireland
US$ billion
Sources: OxfordEconomics/Haver analytics
49 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
in VCPE development in the Eurozone. This
can be enhanced within the framework of
new regulatory rules, for instance, by gran-
ting tax concessions to investments in high-
tech sectors or by setting up public co-in-
vestment of high-tech focused funds. The
European Investment Bank (EIB) is already
active in the VC market and has provided
?nancial support to a number of projects.
However, the EIB lent €79b in 2009, which
represents only 0.7% of the EU’s GDP.
13
This
type of action may need to be increased to
keep Europe’s place in the global economy.
The potential negative impact on
growth of Eurozone ?scal restructuring in
the years ahead will make it even more im-
portant for governments to foster activity
in the private sector. Indeed, cash-strapped
government departments will not be able
to sustain, let alone increase, funding of
research and innovation. As the emerging
markets move up the value chain, it will
be increasingly important for advanced
economies to keep a technological edge.
VCPE offers a channel to fund research and
innovation privately. Indeed, VC is key to
funding young and entrepreneurial com-
panies, those that drive innovation, therby
vital to the Eurozone’s future. Finally, it
would pay to ensure rapid growth in some
nascent sectors that would involve a ?rst
mover advantage. High-tech, biotech and
green technology are all areas in which the
Eurozone could gain signi?cantly fromlea-
ding other countries and regions. They are
also capital-intensive sectors that are ideal
13. European Investment Bank
recipients of VCPE investments. In this res-
pect, scale is a signi?cant issue. This calls
for the deeper integration of the European
VC industry promoted by pan-European
regulation and legislation.
Adapting to a challenging and
changing environment
Overall, the unfolding economic recovery
should provide a more favorable back-
ground for VCPE ?rms in the Eurozone.
Estonia’s entry to the Eurozone on 1 Ja-
nuary 2011 is a testimony to the region’s
attractiveness and the bene?ts that are
still to be gained from the institutional
setup. Nonetheless, the Eurozone also
presents a number of challenges, inclu-
ding limited access to ?nance, relatively
rigid labor markets, and opaque corpo-
rate governance. The outlook is further
clouded by uncertainties around the risk
of debt restructuring in some Eurozone
countries that would send shockwaves
through ?nancial markets and lead to a
signi?cant depreciation of the euro ex-
change rate. At a time when governments
are focusing on spending cuts, and bud-
gets for public-funded research are pared
back, growing the Eurozone VCPE industry
that can ?nance innovation and help new
companies reach a critical size should be
a very attractive option. For this to hap-
pen though, the policy rhetoric needs to
move from a focus on tighter regulation
to intelligent regulation that promotes
VCPE ?rms that are committed to deliver
value to their investors and the economies
they operate in.
III. An insight into different VC and PE markets
50 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Investing in Africa – challenges and opportunities
The 2011 Global VC/PE Country
Attractiveness Index sees African countries
moving up the rankings, increasing their
position relative to counterparts in Latin
America and Central and Eastern Europe.
Better economic forecasts are central to
this improvement, just as they are to the
overall level of VC/PE activity in Africa.
Output growth in Sub-Saharan Africa is
projected to accelerate to 5.5% in 2011 by
the International Monetary Fund (IMF),
14
with GDP forecast to grow by more than
7% in oil exporters Nigeria and Angola, at
nearly 6% in Kenya and at a steadier 3.5%
in regional hub South Africa. Natural re-
sources are a key driver of expansion, but
economic reform, increasing cross-border
trade and expansionary public spending
are also signi?cant factors.
14. IMF, World Economic Outlook, October 2010
As economic output grows, increasing
amounts of development capital will be
required, both for infrastructure and for
corporate investment. Africa’s growing
middle classes are providing a particular
stimulus to industries such as consumer
goods, telecoms, ?nancial services and
pharmaceuticals, leading to a growing
need for investment capital. Government
?nance, bank borrowing and the ?nancial
markets are all potential funding sources.
Even so, there will always be some gaps
between what governments can afford to
fund and what banks or other investors
are willing to lend, and it is here that VC/
PE investors often ?nd interesting invest-
ment opportunities, whether in private
sector companies or though public pri-
vate partnerships.
Economic growth in North Africa has
also been forecast to be strongly positive
in 2011, although political unrest may
yet have an effect on IMF forecasts that
are mainly in the 4%-5% band, including
5.5% in regional powerhouse Egypt.
Nonetheless, there is much more to VC/PE
activity in Africa than economic growth
prospects in a handful of countries and
industries. In the rest of this article, we
explore some of the features of VC/PE
investment in Africa from three different
perspectives.
51 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
The full scope of VC/PE activity in Africa
spans a large range of countries, indus-
tries and investments, so it follows that
the way deals are identi?ed, assessed,
funded and executed also varies widely.
Investment professionals who specialize in
VC/PE transactions are well placed to spot
patterns as they emerge.
One such pattern is geographic. The
well-established hubs of VC/PE activity
are South Africa and Nigeria, often used
as stepping stones into other regional
markets. In addition to countries such
as Namibia and Kenya covered by the
2011 Index, Victor Kgomoeswana of
Ernst & Young’s Africa Business Center
identi?es Angola, Ghana, Tanzania and
the Democratic Republic of Congo as
countries with emerging appeal for PE
investors. Mr. Kgomoeswana also points
to the growing role of regionalization.
Kenya, Tanzania, Uganda, Rwanda and
Burundi now form a common market in
East Africa, helping to generate larger
investment opportunities and encoura-
ging companies to expand their geogra-
phic footprint.
Patterns can also be seen when it comes
to the industries attracting VC/PE invest-
ment. Again, Mr. Kgomoeswana identi?es
some common themes. “With many Afri-
can countries coming from a low physical
and economic infrastructure base; roads,
telecoms, power generation and ?nan-
cial services are all attractive industries;
along with secondary sectors such as
construction,” he says. “Growing consu-
mer spending power is giving the retail
and consumer products industries a boost
too.” In addition to the obvious appeal of
hydrocarbons and other natural resources,
Mr. Kgomoeswana also points to African
potential for growth in renewable energy
such as hydroelectric and solar power.
African investment opportunities
tend to have uniquely African features.
One is the way that new technology
can open up new possibilities by leap-
frogging historic problems. Information
technology and communication techno-
logy in particular have the scope to help
other industries achieve dramatic leaps
forward, typi?ed by the rapid develop-
ment of mobile phone-based banking in
Kenya. A similar area of potential fusion
receiving growing attention – again with
obvious social bene?ts – is telemedicine
and e-health.
Tax is another area where African PE
investments often differ from those in
developed markets. Craig Miller, Ernst &
Young’s Transaction Tax leader for Africa
points to three particular features. “One
is that the ?nance cost of acquiring a
company’s shares is rarely tax deductible,”
he explains. “This re?ects a desire for an
even-handed approach, given that do-
mestic dividends are usually untaxed.” The
second feature is the challenge of extrac-
ting pro?t across borders, owing to the
withholding taxes applied by many Afri-
can countries to dividends, interest, royal-
ties and fees paid to foreign investors. The
third feature is that PE investments may
be liable to capital gains tax on disposal,
although Mr. Miller points out that with
careful planning, the effect of CGT arising
upon exit may be reduced.
There are, of course, many factors for
VC and PE ?rms to consider when wei-
ghing possible investments in Africa. Gra-
ham Stokoe of Ernst & Young’s Transac-
tion Advisory Services practice for Africa
points to the importance of developing
local knowledge and contacts as a means
to identify and assess potential invest-
ment opportunities. “Identifying and re-
taining high-quality management teams
with the skills to evolve what are often
family-run businesses into something
more is critical too,” he adds.
Mr. Stokoe also highlights the impor-
tance of understanding political sen-
sitivities, “particularly when it comes
to assets involving natural resources or
opportunities involving government led
infrastructure projects.” Again, to po-
tentially reduce these risks, Mr. Stokoe
and Mr. Kgomoeswana both stress the
importance of building personal rela-
tionships and local knowledge. Above
all, they emphasize the need for patience
and an open, transparent approach that
addresses the potential concerns of all
stakeholders. Investors prepared to take
pains with their approach are likely to
?nd a range of potentially attractive in-
vestments waiting to be made.
Critical success factors when conducting VC/PE deals in Africa
III. An insight into different VC and PE markets
52 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Just as in other markets, an African PE
fund managed by a company looking
for buyout opportunities or the chance
to supply an established company with
growth capital will typically be looking
to invest in companies that have already
achieved success but have the potential
to step up in scale. The size of invest-
ment a fund seeks to make will vary
depending on its size and reach, whether
local, national, regional or pan-African.
At the larger end of the scale, funds will
typically be seeking to invest in compa-
nies with the potential to achieve regio-
nal dominance.
One such group of funds are the Pan-
African Investment Partners funds (PAIP
I and II) managed by Kingdom Zephyr
Africa Management (KZAM). KZAM is
owned by New York investment house
Zephyr Management, L.P. and Kingdom
Holding Company, the investment hol-
ding vehicle controlled by HRH Prince
Alwaleed Bin Talal Bin Abdulaziz Alsaud
of Saudi Arabia. As a ?rm, KZAM typically
looks for opportunities in the US$30m-
US$75m bracket, with a focus on three
investment themes.
“First, we are interested in opportuni-
ties that address the needs of the rapidly
growing African middle class,” says Jo-
hannesburg-based partner Robert Horton.
KZAM is certainly not alone in identifying
the high percentage of many countries’
populations that are younger than 30 – in
many cases, with far better levels of edu-
cation than those of their parents – as a
growth opportunity. “We look in particu-
lar for industries with direct exposure to
the aspirations of this group,” explains
Mr. Horton, citing the telecoms, ?nancial
services, and affordable housing sectors
as examples. The knock-on effect of hou-
sing construction and growing consumer
spending can also be felt in sectors such
as cement, power generation, consumer
goods and agribusiness.
Second on the list of investment the-
mes is regional expansion. The PAIP funds
have a history of investing in local Afri-
can businesses with the potential to grow
into multi-country enterprises. Regio-
nally expanding businesses are central
to KZAM’s investment strategy because
they bene?t from the diversi?cation
of currency and country-speci?c risks,
attract more experienced management
and offer improved exit options. Business
expansion is also the key to sustainable
regional economic development and in-
tegration, something KZAM has a history
of championing,
The third KZAM investment theme is
partnering with portfolio companies to
achieve the company’s long-tem per-
formance goals. KZAM works closely
with investee companies, providing the
assistance necessary to strengthen ope-
rations, advance business strategy and
enhance governance, ultimately propel-
ling the company and the investment to
success.
Recently, KZAM has been seeing po-
tential growth opportunities come out of
transformation – something which tends
to be more speci?c to a particular mar-
ket – and connections with other emer-
ging markets. Transformational programs
such as black economic empowerment in
South Africa and oil and gas indigeniza-
tion in Nigeria can lead to a shake-up in
ownership and a chance for fresh capital
and external expertise in strategy or go-
vernance to be put to work. On the sub-
ject of connections with other emerging
markets, “It goes without saying that
Asian demand for natural resources gives
many African mining and resources com-
panies exceptionally good growth pro-
?les,” says Mr. Horton. He cites the fact
that African companies are increasingly
building cross-border business under
their own steam as further evidence of
the potential for growth.
If the potential attractions of private
equity investment in Africa are so com-
pelling, what about the supposed dif?-
culties – such as political interference?
Mr. Horton does not dismiss the role that
political factors can play in African tran-
sactions, but stresses that most problems
can be overcome with a sensitive, intel-
ligent and restrained approach. He gives
the example of one opportunity “that on
the face of it was an obvious take pri-
vate, exit public investment.” However
it was decided that maintaining a local
listing would help to maintain local sup-
port without overturning the economics
of the transaction. In the end that par-
ticular deal did not take place, but it
illustrated an approach that Mr Horton
feels can generate long-term goodwill
without eroding rates of return.
Doing PE deals in Africa – one ?rm’s approach
53 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Within the VC/PE universe, VC in Africa is
de?ned much as it is elsewhere – equity
funding of technology-driven businesses
that are aiming for rapid growth in inter-
national markets. At the same time, VC in
Africa has some features all its own.
For now, South Africa represents Afri-
ca’s most developed VC market. A recent
survey
15
of 33 South African VC funds
commissioned by The Southern African
Venture Capital and Private Equity Asso-
ciation (SAVCA) showed that at least
R2.6b was invested in VC assets between
2000 and July 2010, although the true to-
tal could well be higher. The study found
several indications of the VC industry’s
sophistication in South Africa. One was
the range of VC fund types, which include
independents, single-sponsored funds, go-
vernment funds, family of?ces and corpo-
rate venturing. The dominance of private
sector VC investments during the decade
and the spread of industries targeted for
investment were other positive indicators.
As J-P Fourie, Executive Of?cer of SAVCA
puts it: “The report provides real evidence
that VC is an active, albeit emerging sector
in South Africa.”
15. SAVCA VentureSolutions2010
At the same time, the study identi?ed
some weaknesses. One key area identi?ed
by almost all surveyed ?rms as needing
improvement is South Africa’s exchange
controls. These can restrict the outward
movement of expertise and capital,
and were cited by some as a reason for
having lost transactions to internatio-
nal VC funds. At a time in the economic
cycle when many funds are looking to exit
investments, SAVCA also sees a need for
public sector funds to step in and ?ll the
resulting hiatus in the provision of early
stage capital. The role of the government-
backed Technology Innovation Agency,
which has taken longer than anticipated
to get up and running, is expected to be
crucial in this area. “As well as the good
news, it is also clear that a lot needs to be
done by public and private stakeholders to
encourage and strengthen the VC indus-
try,” says Mr. Fourie.
In comparison with South Africa, the
VC industry in many African nations is
still in the early stages of development.
As an asset class, VC in Africa tends to
be less accessible than conventional SME
?nance or later stage PE ?nance. Govern-
ment and multilateral funds are generally
predominant, and corporate venturing is
often more common than independently
managed VC investment. Weak levels of
investor protection can be a limitation on
VC activity in some countries, but as in the
wider African PE market, local knowledge
and local contacts are crucial to mitiga-
ting many potential risks. Another peren-
nial problem – which is also not restricted
to the VC asset class – is ?nding good-
quality management teams.
Nonetheless, there are African VC
funds looking for fast-scaling invest-
ments across the region. Adlevo Capital,
based in Mauritius (there fund is in Mau-
ritius but they have of?ces in Johannes-
burg and Lagos – see www.adlevocapital.
com, is one example of an independent VC
?rm seeking technology-driven invest-
ments that can offer attractive returns
and achieve social development goals in
Sub-Saharan Africa. These goals re?ect a
sense that, at its best, VC activity can play
a valuable role in stimulating grass-roots
economic development in Africa, as well
as representing an attractive investment
class in its own right.
An African perspective on venture capital
54 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Regional and
country pro?les
IV.
55 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
IV. Regional and country pro?les
56 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Separate VC and PE indices and comparison within
peer group
The chart left shows the country’s ranking position for the com-
bined VCPE and for the separate VC and PE country attractiveness
indices over time. On the right, we present the country relative
to its peers. The peer group is determined by nine countries of
the same region. If we cover less than nine countries from a par-
ticular region we add countries from other regions to the peer
group. The set of peers is not always the same. It is the selection
of eight other countries in alphabetical order, plus the country
in question.
The Global Venture Capital and Private Equity
Country Attractiveness Index in detail
The second page of information for the individual countries pre-
sents the ranks achieved for each of the level-2 constructs. Once
again, the arrows mark ranking changes, and the crosses indicate
the country’s position measured in quartiles, with respect to all
other countries from the sample.
Basic Facts and Opportunities and Challenges
“Basic Facts” comprises main indicators such as GDP, population,
and their growth rates, and the country’s position with respect
to its IPO, M&A, VC and PE market activity expressed in quartiles
of the sample of countries. The section “Opportunities and Chal-
lenges” provides the reader with a SWOT analysis regarding the
country’s VCPE investment conditions. These analyses are provi-
ded by local teams from Ernst & Young.
VCPE-Ranking and Key Factor Performance
The “VCPE-Ranking” table exhibits the index values and the ran-
king positions of the country for the overall index, and for each
key driver separately, for the 2007 through to 2011. Next to the
current rank, the change of a ranking position is indicated by
green arrows for an increase in rank, red arrows for a decrease
and yellow arrows indicate no movement. The quartiles indicate
the country’s position among all the countries in the sample. The
spider chart on the right shows the performance of each key dri-
ver compared to the average of the region where the country is
located.
We note that the overall VCPE ranking is not the average rank
fromall the key drivers. First, the key drivers have different weights,
and second, the ranking is always the result of a benchmark pro-
cess: the rank of a country also depends on the ranks of the key
drivers of the other sample countries. A simple example helps to
explain this issue and why countries can improve or deteriorate
their ranking without respective improvements or deteriorations
of their key drivers: imagine there are four countries to benchmark
with the following key driver ranks (and assumed equal weights of
all key drivers for this example):
Key drivers/ranks
Country
A B C D
Economic activity 2 1 3 4
Depth of a capital market 2 1 3 4
Taxation 2 3 1 4
Investor protection and corporate governance 2 3 1 4
Human and social environment 2 3 4 1
Entrepreneurial culture and opportunities 2 3 4 1
Overall rank 1 2 3 4
Even if country A ranks on the second position with all the key
driver scores its ?nal rank is number one.
The ?rst page of the performance overview shows basic facts, a SWOT-analysis, the country’s
key driver ranks, the ranks according to the separate VC and PE Indices, as well as a comparison
within the regional peer group.
How to read the country and regional pro?les
1
2
3
4
59 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual 59
1EconomicActivity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Sizeof theEconomy(GDP) 7 36,0 7
1.2 Medium-TermReal GDPGrowth 4 136,7 1
1.3 Unemployment 8 93,7 7
2DepthofCapital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Sizeof theStockMarket 6 52,1 6
2.2 StockMarket Liquidity(TradingVolume) 6 12,2 6
2.3 IPOMarket Activity 7 18,4 7
2.4 M&AMarket Activity 7 25,3 8
2.5 Debt andCredit Market 7 63,6 6
2.6 BankNon-PerformingLoanstoTotal GrossLoans 8 59,9 8
2.7 Financial Market Sophistication 6 58,5 5
3Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 TaxIncentivesandAdministrativeBurdens 6 92,6 6
4InvestorProtectionandCorporateGovernance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 CorporateGovernance 7 65,3 5
4.2 Securityof PropertyRights 6 61,4 6
4.3 Qualityof Legal Enforcement 7 57,8 7
5HumanandSocial Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 EducationandHumanCapital 7 45,4 7
5.2 Labor Market Rigidities 5 65,2 5
5.3 BribingandCorruption 8 35,9 8
6Entrepreneurial CultureandDeal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation 7 24,8 7
6.2 ScientificandTechnical Journal Articles 6 46,3 6
6.3 Easeof StartingandRunningaBusiness 6 77,1 6
6.4 Simplicityof ClosingaBusiness 5 65,3 5
6.5 CorporateR&D 8 17,7 8
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
4
IV. Regional and country pro?les
58 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Africa
Strengths
With a population of one billion and a growing middle class and urban
population, Africa is poised for long-termeconomic growth
Abundant solar energy, hydro-electric potential and geothermal capacity
Weaknesses
Infrastructure, which requires annual investments over US$10b for the
next 10 years, continues to slow down trade with high costs of imports
and exports
Shortage of skills, aggravated by the effects of migration as well as the
requirement by some African countries to hire locals
Corruption still threatens service delivery and sociopolitical stability
Opportunities
Growth in internet penetration places Africa on the information
superhighway
Exponential growth in mobile communications (over 50%in under 10
years) has halved the cost of digital communication
Mineral and other resources are still being discovered in areas previously
not considered. For example, Angola and Ghana are the new oil giants and
Tanzania is a growing gold producer
Threats
Political risk
Growing trend toward resource nationalismand local ownership could
dampen investors’ appetite
Governments' intervention in corporate or M&A activity
Outlook
The African economy looks set to achieve sustained growth by a rate
above the global average
Africa’s large middle class and working population should drive growth in
consumer products and improve the region’s economic prospects by 2050
Any disruption to the global economic recovery could mean a slower
economic recovery for Africa
Victor Kgomoeswana, Ernst & Young
[email protected]
2007 2011 Quartile
Rank Value Rank
NorthAmerica 1 97,4 1
Australasia 2 83,8 2
WesternEurope 3 78,5 3
Asia 4 65,4 4
MiddleEast 5 62,9 5
Africa 7 47,3 6
EasternEurope 6 44,4 7
LatinAmerica 8 44,0 8
4th 1st
5
6
7
8
2006 2007 2008 2009 2010 2011
In
d
e
x R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depthof Capital
Market
Taxation
Investor
Protectionand
Corporate
Humanand
Social
Environment
Entrepr. Culture
andDeal
Opportunities
Africa World
united 5totes = 100 Points
GDP 1082 [bnUSD] IPOVolume
Population 408 [mn] M&AVolume
GDPGrowth VCActivity
Pop. Growth PEActivity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPERanking 7 47,3 6
EconomicActivity 6 77,2 7
Depthof Capital Market 6 35,1 6
Taxation 6 92,6 6
Inv. Prot./Corp. Gov. 6 61,5 6
Human/Social Env. 7 47,4 7
Entrepr. Cult./Deal Opp. 7 40,0 8
4th 1st
2
3
57 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1
IV. Regional and country pro?les
58 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Africa
Strengths
• W ith a population of one billion and a grow ing m iddle class and urban
population, Africa is poised for long-term econom ic grow th
• Abundant solar energy, hydro-electric potential and geotherm al capacity
Weaknesses
• Infrastructure, w hich requires annual investm ents over US$10b for the
next 10 years, continues to slow dow n trade w ith high costs of im ports
and exports
• Shortage of skills, aggravated by the effects of m igration as w ell as the
requirem ent by som e African countries to hire locals
• Corruption still threatens service delivery and sociopolitical stability
Opportunities
• Grow th in internet penetration places Africa on the inform ation
superhighw ay
• Exponential grow th in m obile com m unications (over 50% in under 10
years) has halved the cost of digital com m unication
• M ineral and other resources are still being discovered in areas previously
not considered. For exam ple, Angola and Ghana are the new oil giants and
Tanzania is a grow ing gold producer
Threats
• Political risk
• Grow ing trend tow ard resource nationalism and local ow nership could
dam pen investors’appetite
• Governm ents' intervention in corporate or M &A activity
Outlook
• The African econom y looks set to achieve sustained grow th by a rate
above the global average
• Africa’s large m iddle class and w orking population should drive grow th in
consum er products and im prove the region’s econom ic prospects by 2050
• Any disruption to the global econom ic recovery could m ean a slow er
econom ic recovery for Africa
Victor Kgomoeswana, Ernst & Young
[email protected]
2007 2011 Quartile
Rank Value Rank
North America 1 97,4 1
Australasia 2 83,8 2
Western Europe 3 78,5 3
Asia 4 65,4 4
Middle East 5 62,9 5
Africa 7 47,3 6
Eastern Europe 6 44,4 7
Latin America 8 44,0 8
4th 1st
5
6
7
8
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Africa World
United States=100 Points
GDP 1082 [bn USD] IPO Volume
Population 408 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 7 47,3 6
Economic Activity 6 77,2 7
Depth of Capital Market 6 35,1 6
Taxation 6 92,6 6
Inv. Prot./Corp. Gov. 6 61,5 6
Human/Social Env. 7 47,4 7
Entrepr. Cult./Deal Opp. 7 40,0 8
4th 1st
59 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual 59
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
7 36,0 7
1.2 Medium-Term Real GDP Growth
4 136,7 1
1.3 Unemployment
8 93,7 7
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
6 52,1 6
2.2 Stock Market Liquidity (Trading Volume)
6 12,2 6
2.3 IPO Market Activity
7 18,4 7
2.4 M&A Market Activity
7 25,3 8
2.5 Debt and Credit Market
7 63,6 6
2.6 Bank Non-Performing Loans to Total Gross Loans
8 59,9 8
2.7 Financial Market Sophistication
6 58,5 5
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
6 92,6 6
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
7 65,3 5
4.2 Security of Property Rights
6 61,4 6
4.3 Quality of Legal Enforcement
7 57,8 7
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
7 45,4 7
5.2 Labor Market Rigidities
5 65,2 5
5.3 Bribing and Corruption
8 35,9 8
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
7 24,8 7
6.2 Scientific and Technical Journal Articles
6 46,3 6
6.3 Ease of Starting and Running a Business
6 77,1 6
6.4 Simplicity of Closing a Business
5 65,3 5
6.5 Corporate R&D
8 17,7 8
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
60 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Asia
2007 2011 Quartile
Rank Value Rank
North America 1 97,4 1
Australasia 2 83,8 2
Western Europe 3 78,5 3
Asia 4 65,4 4
Middle East 5 62,9 5
Africa 7 47,3 6
Eastern Europe 6 44,4 7
Latin America 8 44,0 8
4th 1st
0
1
2
3
4
5
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Asia World
United States=100 Points
GDP 17049 [bn USD] IPO Volume
Population 3406 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 4 65,4 4
Economic Activity 1 93,0 2
Depth of Capital Market 4 58,6 4
Taxation 4 95,2 5
Inv. Prot./Corp. Gov. 5 69,6 5
Human/Social Env. 5 60,6 5
Entrepr. Cult./Deal Opp. 4 57,8 4
4th 1st
Strengths
• Fastest-grow ing region of the w orld econom y for m any years –set to
continue, largely driven by China and India
• Strong position in m any m anufacturing sectors –in som e the result of
leading technologies, in others the advantage of com paratively low er
labor costs than other regions
Weaknesses
• Adm inistrative inef ciencies and w eaker corporate governance in som e
m arkets
Opportunities
• Debt headw inds in the US and EU m ay encourage Asian m arkets to
rebalance their econom ies and prom ote dom estic dem and; this could
stim ulate strong grow th in the service sectors if accom panied by
structural reform and liberalization
• Rapid increase in the num ber of urban m iddle-class consum ers
• A m ove aw ay from the fam ily-ow ned business m odel could lead to
increased private equity investm ent
Threats
• Political tension in som e m arkets could lead to potential for con ict if
unresolved
• Asia needs to look at further im proving corporate and adm inistrative
governance in general, and avoid arbitrary regulatory and business
decisions that m ay discourage foreign investm ent
• Infrastructure challenges could hinder expansion in potentially fast-
grow ing econom ies
Outlook
• Asia has a positive econom ic outlook, but m uch of this is already factored
into asset valuations, w ith a num ber of equity m arkets at or above their
pre-crisis peaks after m ajor foreign buying during 2010
• The banking sector is in relatively good shape; non-perform ing loan ratios
are signi cantly low er than a few years ago
• Both China and India are looking to dam pen credit grow th in 2011 as part
of efforts to contain in ation
• Concerns about excessive capital in ow s have led to an increase in capital
control m easures
Bill Delves, Ernst & Young
[email protected]
61 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
4 51,6 4
1.2 Medium-Term Real GDP Growth
3 135,4 2
1.3 Unemployment
3 115,2 2
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
2 70,6 3
2.2 Stock Market Liquidity (Trading Volume)
5 29,0 3
2.3 IPO Market Activity
3 52,5 3
2.4 M&A Market Activity
4 57,4 4
2.5 Debt and Credit Market
5 70,1 5
2.6 Bank Non-Performing Loans to Total Gross Loans
7 96,7 6
2.7 Financial Market Sophistication
5 56,6 6
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
4 95,2 5
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
4 71,8 4
4.2 Security of Property Rights
5 69,1 5
4.3 Quality of Legal Enforcement
5 68,0 5
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
4 64,8 4
5.2 Labor Market Rigidities
4 70,9 4
5.3 Bribing and Corruption
5 48,6 6
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
4 51,6 4
6.2 Scientific and Technical Journal Articles
4 50,5 4
6.3 Ease of Starting and Running a Business
5 75,6 7
6.4 Simplicity of Closing a Business
4 70,8 4
6.5 Corporate R&D
4 46,4 4
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
62 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Australasia
2007 2011 Quartile
Rank Value Rank
North America 1 97,4 1
Australasia 2 83,8 2
Western Europe 3 78,5 3
Asia 4 65,4 4
Middle East 5 62,9 5
Africa 7 47,3 6
Eastern Europe 6 44,4 7
Latin America 8 44,0 8
4th 1st
0
1
2
3
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Australasia
World
United States=100 Points
GDP 1321 [bn USD] IPO Volume
Population 26 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 2 83,8 2
Economic Activity 7 91,1 3
Depth of Capital Market 3 64,5 3
Taxation 2 107,5 2
Inv. Prot./Corp. Gov. 1 110,1 1
Human/Social Env. 1 108,7 1
Entrepr. Cult./Deal Opp. 3 79,5 3
4th 1st
Strengths
• Strong innovation and R&D capacity
• Dem ocratic and stable political, regulatory and legal environm ent
• Strong econom y supported by sound banking and capital m arket regim es
Weaknesses
• Low tax incentives
• VCPE perform ances patchy
Opportunities
• Strong stock m arket culture
• PE exits and m aturing secondary m arket
• M &A m arket recovering
Threats
• Interest rates are biased upw ard on in ation
• Increasing com petition from w ell-funded corporates
Outlook
• There will be pressure from lim ited partners (LPs) to exit investee com panies
• The region w ill have high interest rate environm ents and generally strong
currencies
• Financing and acquisition opportunities are expected to increase
• Strong econom ies w ill support corporate pro tability and generate good
short-term grow th prospects
Bryan Zekulich, Ernst & Young
[email protected]
63 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
3 54,8 3
1.2 Medium-Term Real GDP Growth
7 118,2 5
1.3 Unemployment
1 116,7 1
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
4 61,9 5
2.2 Stock Market Liquidity (Trading Volume)
4 22,7 5
2.3 IPO Market Activity
2 54,2 2
2.4 M&A Market Activity
2 66,4 2
2.5 Debt and Credit Market
2 89,5 2
2.6 Bank Non-Performing Loans to Total Gross Loans
1 117,2 1
2.7 Financial Market Sophistication
2 87,7 3
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
2 107,5 2
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
1 103,9 1
4.2 Security of Property Rights
1 105,7 1
4.3 Quality of Legal Enforcement
1 121,5 1
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
2 101,5 2
5.2 Labor Market Rigidities
2 96,8 1
5.3 Bribing and Corruption
1 130,8 1
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
3 74,4 3
6.2 Scientific and Technical Journal Articles
2 72,5 2
6.3 Ease of Starting and Running a Business
2 104,6 2
6.4 Simplicity of Closing a Business
2 103,4 2
6.5 Corporate R&D
3 54,5 3
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
64 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Eastern Europe
2007 2011 Quartile
Rank Value Rank
North America 1 97,4 1
Australasia 2 83,8 2
Western Europe 3 78,5 3
Asia 4 65,4 4
Middle East 5 62,9 5
Africa 7 47,3 6
Eastern Europe 6 44,4 7
Latin America 8 44,0 8
4th 1st
0
1
2
3
4
5
6
7
8
9
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Eastern Europe
World
United States=100 Points
GDP 2216 [bn USD] IPO Volume
Population 241 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 6 44,4 7
Economic Activity 5 64,7 8
Depth of Capital Market 8 26,4 8
Taxation 5 95,4 4
Inv. Prot./Corp. Gov. 7 60,3 7
Human/Social Env. 6 55,0 6
Entrepr. Cult./Deal Opp. 6 46,0 6
4th 1st
Strengths
• Generous tax incentives am ong m ost of the Eastern European countries
• Strong stock m arket in Poland
Weaknesses
• Generally w eak capital m arket structure in the region
• Lack of experience in structuring and com pleting com plex transactions
• Currency volatility in som e countries
Opportunities
• Rising entrepreneurial culture and opportunities for VC investors
• Ongoing privatization projects
• Reform of legal system s provides increasing security and attractive
environm ent for VCPE
Threats
• Funding can be dif cult for local general partners (GPs)
• Less stable regulatory and enforcem ent environm ent than in W estern
Europe
Outlook
• The regim e of tax incentives is expected to continue
• Experience in leverage transactions w ill increase across the region
Margaret Dezse, Ernst & Young
[email protected]
65 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
8 29,6 8
1.2 Medium-Term Real GDP Growth
1 100,0 6
1.3 Unemployment
7 91,5 8
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
8 28,9 8
2.2 Stock Market Liquidity (Trading Volume)
7 3,5 8
2.3 IPO Market Activity
8 15,4 8
2.4 M&A Market Activity
6 29,0 7
2.5 Debt and Credit Market
6 57,8 7
2.6 Bank Non-Performing Loans to Total Gross Loans
6 84,9 7
2.7 Financial Market Sophistication
8 40,0 8
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
5 95,4 4
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
5 64,7 6
4.2 Security of Property Rights
7 56,1 7
4.3 Quality of Legal Enforcement
6 60,6 6
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
6 51,8 6
5.2 Labor Market Rigidities
7 64,8 6
5.3 Bribing and Corruption
6 49,6 5
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
6 35,8 6
6.2 Scientific and Technical Journal Articles
5 46,8 5
6.3 Ease of Starting and Running a Business
4 88,9 5
6.4 Simplicity of Closing a Business
7 59,7 7
6.5 Corporate R&D
7 23,1 7
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
66 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Latin America
2007 2011 Quartile
Rank Value Rank
North America 1 97,4 1
Australasia 2 83,8 2
Western Europe 3 78,5 3
Asia 4 65,4 4
Middle East 5 62,9 5
Africa 7 47,3 6
Eastern Europe 6 44,4 7
Latin America 8 44,0 8
4th 1st
6
7
8
9
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Latin America
World
United States=100 Points
GDP 4281 [bn USD] IPO Volume
Population 491 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 8 44,0 8
Economic Activity 4 83,1 4
Depth of Capital Market 7 32,6 7
Taxation 8 90,5 8
Inv. Prot./Corp. Gov. 8 44,8 8
Human/Social Env. 8 42,1 8
Entrepr. Cult./Deal Opp. 8 40,1 7
4th 1st
Strengths
• Latin Am erica has proved to be m ore robust after the last global crisis and
its econom ic perform ance is currently at an all-tim e high
• Im provem ent of capital m arkets developm ent com pared w ith previous
periods
• Increase in the region’s GDP, private consum ption and investm ent
• Strong tax incentives contributing com prehensively to the region’s
appreciation
Weaknesses
• Despite the positive grow th rates, high historical volatility
• Lack of entrepreneurial culture delaying the developm ent of new com panies
• Poor application of the appropriate regulations and laws in several countries
• Im perfection on credit m arkets
• Disparity in grow th across the region
• Accelerated in ation in 2010 exceeded projections due to a stronger than
expected recovery
• Nom inal and real appreciations in m ost currencies during 2010
Opportunities
• Public effort to prom ote start-ups and innovation
Threats
• High perception of corruption and w eak judicial system in m any countries
• Investor protection and corporate governance structures are still
underdeveloped in com parison w ith developed countries
• M ost countries m anaged to escape the im pact of higher com m odity prices
through currency appreciation
• Presidential elections and new ly elected governm ents m ight increase the
uncertainty related to policy-m aking
• External shocks are likely to have a negative im pact through both trade
and nancial channels
Outlook
• Alm ost every econom y is expected to grow strongly, w ith only a few
rem aining under populist governm ents
• In ation projections are expected to be m issed (although still one digit
rates in alm ost every country)
• Lack of basic infrastructure is delaying developm ent, but provides new
investm ent opportunities
• VCPE industry is being developed in som e countries, w hile rem aining
alm ost non-existent in others
Daniel Serventi, Ernst & Young
[email protected]
67 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
5 46,0 5
1.2 Medium-Term Real GDP Growth
5 119,5 4
1.3 Unemployment
5 104,3 4
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
7 40,7 7
2.2 Stock Market Liquidity (Trading Volume)
8 4,7 7
2.3 IPO Market Activity
6 18,6 6
2.4 M&A Market Activity
5 39,3 5
2.5 Debt and Credit Market
8 52,9 8
2.6 Bank Non-Performing Loans to Total Gross Loans
4 104,9 4
2.7 Financial Market Sophistication
7 50,6 7
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
8 90,5 8
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
8 53,2 8
4.2 Security of Property Rights
8 41,5 8
4.3 Quality of Legal Enforcement
8 40,8 8
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
8 35,4 8
5.2 Labor Market Rigidities
8 56,6 8
5.3 Bribing and Corruption
7 37,2 7
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
8 23,4 8
6.2 Scientific and Technical Journal Articles
7 45,8 7
6.3 Ease of Starting and Running a Business
8 68,2 8
6.4 Simplicity of Closing a Business
8 59,2 8
6.5 Corporate R&D
6 23,9 6
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
68 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Middle East
2007 2011 Quartile
Rank Value Rank
North America 1 97,4 1
Australasia 2 83,8 2
Western Europe 3 78,5 3
Asia 4 65,4 4
Middle East 5 62,9 5
Africa 7 47,3 6
Eastern Europe 6 44,4 7
Latin America 8 44,0 8
4th 1st
0
1
2
3
4
5
6
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Middle East
World
United States=100 Points
GDP 1112 [bn USD] IPO Volume
Population 52 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 5 62,9 5
Economic Activity 3 80,4 5
Depth of Capital Market 5 55,2 5
Taxation 7 92,0 7
Inv. Prot./Corp. Gov. 4 73,8 4
Human/Social Env. 4 70,4 4
Entrepr. Cult./Deal Opp. 5 51,4 5
4th 1st
Strengths
• Increasing oil prices in 2011 are expected to spur M iddle East econom ic
grow th
• Retreating in ation
Weaknesses
• W eak and underdeveloped nancial m arkets follow ing crisis
• Fiscal budget further burdened by the Governm ent’s initiative to provide
nationals w ith state subsidies and aid
Opportunities
• The Gulf Cooperation Council (GCC) has launched a Gulf m onetary
authority w ith the prospect of a single GCC currency, further easing trade
transactions w ithin the region
• Huge infrastructural investm ents are paving the w ay to econom ic
diversi cation in the region
• There is a focus on businesses w ishing to transform from fam ily business
to corporate structure
• Assets are available at attractive valuations
Threats
• The M iddle East’s longer-term outlook is at risk from Islam ic extrem ism
and terrorism
• Sanctions against Iran’s nuclear proliferation strategy could create tension
in the region, in turn affecting investors’con dence
• Recovery in the region's property m arket could be longer and m ore
protracted than rst expected, particularly in light of stricter lending
standards for businesses and consum ers
Outlook
• In ation is expected to rem ain relatively stable during 2011, w hile
unem ploym ent and a lack of structural reform s form the region’s core
social issues
Phil Gandier, Ernst & Young
[email protected]
69 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
6 37,8 6
1.2 Medium-Term Real GDP Growth
2 125,6 3
1.3 Unemployment
6 109,5 3
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
5 79,6 2
2.2 Stock Market Liquidity (Trading Volume)
3 27,5 4
2.3 IPO Market Activity
5 38,8 5
2.4 M&A Market Activity
8 32,2 6
2.5 Debt and Credit Market
4 74,0 4
2.6 Bank Non-Performing Loans to Total Gross Loans
5 103,5 5
2.7 Financial Market Sophistication
4 74,3 4
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
7 92,0 7
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
6 63,4 7
4.2 Security of Property Rights
4 74,4 4
4.3 Quality of Legal Enforcement
4 85,4 4
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
5 62,1 5
5.2 Labor Market Rigidities
3 78,5 3
5.3 Bribing and Corruption
4 71,6 4
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
5 46,6 5
6.2 Scientific and Technical Journal Articles
8 43,0 8
6.3 Ease of Starting and Running a Business
7 96,6 3
6.4 Simplicity of Closing a Business
6 61,6 6
6.5 Corporate R&D
5 30,0 5
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
70 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
North America
2007 2011 Quartile
Rank Value Rank
North America 1 97,4 1
Australasia 2 83,8 2
Western Europe 3 78,5 3
Asia 4 65,4 4
Middle East 5 62,9 5
Africa 7 47,3 6
Eastern Europe 6 44,4 7
Latin America 8 44,0 8
4th 1st
0
1
2
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
North America
World
United States=100 Points
GDP 16358 [bn USD] IPO Volume
Population 343 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 1 97,4 1
Economic Activity 2 95,1 1
Depth of Capital Market 1 94,0 1
Taxation 3 104,5 3
Inv. Prot./Corp. Gov. 2 103,1 2
Human/Social Env. 2 104,2 2
Entrepr. Cult./Deal Opp. 1 95,2 1
4th 1st
Strengths
• Better econom ic recovery com pared w ith other developed m arkets,
particularly Europe
• Recovery of nancial m arkets
• Strong innovation and entrepreneurship culture
• Fully developed and robust VCPE “ecosystem ”
Weaknesses
• Econom ic recovery not strong enough to show effects on unem ploym ent
and to drive substantial increase in dom estic dem and
• High individual debt and possible further deleverage of individuals
• Continuous decrease in the num ber of VC funds
• Decline of VC-backed IPOs
Opportunities
• Innovation and fast grow th can be seen in segm ents such as cleantech,
cloud com puting, social netw orks, w ireless and security
• W orldw ide econom ic rebound and grow th of em erging m arkets is driving
dem and for com m odities (i.e., energy in Canada) and innovation
• PE-backed IPOs are back
Threats
• Succession planning in som e funds
• The lack of exits is im pacting the ability to raise new or follow -on funds
• Global com petition is accelerating
• State de cit is likely to lead to increase in taxation and w ill continue to
w eaken the US dollar, thus adding foreign exchange risk
Outlook
• Industry is strong, w ith investm ent and grow th opportunities in new and
innovative segm ents
• A consolidation of players in the VC industry is expected
71 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
1 86,0 1
1.2 Medium-Term Real GDP Growth
6 99,9 7
1.3 Unemployment
2 100,0 5
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
1 93,9 1
2.2 Stock Market Liquidity (Trading Volume)
1 73,0 1
2.3 IPO Market Activity
1 91,5 1
2.4 M&A Market Activity
1 91,8 1
2.5 Debt and Credit Market
1 98,5 1
2.6 Bank Non-Performing Loans to Total Gross Loans
2 106,5 3
2.7 Financial Market Sophistication
1 107,1 1
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
3 104,5 3
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
2 101,5 2
4.2 Security of Property Rights
2 97,2 2
4.3 Quality of Legal Enforcement
2 111,0 2
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
1 106,0 1
5.2 Labor Market Rigidities
1 95,8 2
5.3 Bribing and Corruption
3 111,5 2
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
1 90,6 1
6.2 Scientific and Technical Journal Articles
1 91,6 1
6.3 Ease of Starting and Running a Business
1 105,1 1
6.4 Simplicity of Closing a Business
1 106,1 1
6.5 Corporate R&D
1 84,6 1
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
72 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Western Europe
2007 2011 Quartile
Rank Value Rank
North America 1 97,4 1
Australasia 2 83,8 2
Western Europe 3 78,5 3
Asia 4 65,4 4
Middle East 5 62,9 5
Africa 7 47,3 6
Eastern Europe 6 44,4 7
Latin America 8 44,0 8
4th 1st
0
1
2
3
4
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Western Europe
World
United States=100 Points
GDP 16166 [bn USD] IPO Volume
Population 408 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 3 78,5 3
Economic Activity 8 80,2 6
Depth of Capital Market 2 66,5 2
Taxation 1 109,9 1
Inv. Prot./Corp. Gov. 3 90,7 3
Human/Social Env. 3 83,6 3
Entrepr. Cult./Deal Opp. 2 80,7 2
4th 1st
Strengths
• Deep nancial m arkets
• The im portance of VCPE, as an asset class, is recognized in the investm ent
landscape
• PE acquisition activity has rebounded and exit opportunities have
reappeared in M &A m arkets. Leverage is returning and is m ore accessible
than in the last tw o years
• Som e sectors, such as green technology, that offer high potential to VCPE
rm s are given a prim e focus by European policy-m akers
Weaknesses
• M edium -term grow th potential rem ains m uted, m arred by the possibility
of renew ed sovereign bond tensions
• W estern European m arket rem ains fragm ented
• Com petition for quality assets is erce
Opportunities
• The EU2020 grow th agenda could prom ote PE investm ent as a source of
innovation
• Valuations are attractive in a num ber of countries
• PE rm s have signi cant am ounts of “dry pow der”capital to invest
• De nition of voluntary industry standards could help achieve an effective
regulatory system
Threats
• Econom ic pow er is m oving to em erging m arkets
• Regulation is still being de ned
• The political quagm ire m ay fail to address the key reform priorities to take
W estern Europe out of this crisis
• Availability of external funds and leverage is likely to rem ain below pre-crisis
levels for som e tim e
• IPOs rem ain dif cult
Outlook
• There is a large portfolio of PE backed European assets that houses w ill
need to exit in order to create returns, so the ow of assets to m arket is
set to increase
• Larger deals w ill appear w ith increasing frequency. As credit becom es
increasingly available, so transactions should continue to scale up in size
• VCPE rm s are likely to continue strengthening relationships w ith
investee rm s
• Fundraising conditions w ill rem ain challenging as LPs selectively focus on
funding top quartile perform ers w ith proven track records
Sachin Date, Ernst & Young
[email protected]
73 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
2 59,3 2
1.2 Medium-Term Real GDP Growth
8 87,1 8
1.3 Unemployment
4 99,7 6
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
3 63,4 4
2.2 Stock Market Liquidity (Trading Volume)
2 38,9 2
2.3 IPO Market Activity
4 44,7 4
2.4 M&A Market Activity
3 61,8 3
2.5 Debt and Credit Market
3 84,9 3
2.6 Bank Non-Performing Loans to Total Gross Loans
3 107,4 2
2.7 Financial Market Sophistication
3 92,7 2
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
1 109,9 1
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
3 72,4 3
4.2 Security of Property Rights
3 94,7 3
4.3 Quality of Legal Enforcement
3 108,9 3
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
3 87,7 3
5.2 Labor Market Rigidities
6 62,4 7
5.3 Bribing and Corruption
2 106,6 3
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
2 82,3 2
6.2 Scientific and Technical Journal Articles
3 72,4 3
6.3 Ease of Starting and Running a Business
3 93,8 4
6.4 Simplicity of Closing a Business
3 95,4 3
6.5 Corporate R&D
2 64,3 2
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
74 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Albania
2007 2011 Quartile
Rank Value Rank
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
Moldova 71 22,0 72
Macedonia 75 19,3 73
Albania 79 17,8 75
Bosnia-Herzegovina 77 17,3 76
4th 1st
72
73
74
75
76
77
78
79
80
81
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Albania
Eastern Europe
United States=100 Points
GDP 12 [bn USD] IPO Volume
Population 3 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Tirana ++Official Language: Albanian ++Currency: Lek
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 79 17,8 75
Economic Activity 71 52,1 70
Depth of Capital Market 79 6,4 79
Taxation 55 89,8 65
Inv. Prot./Corp. Gov. 76 36,7 72
Human/Social Env. 75 39,2 63
Entrepr. Cult./Deal Opp. 80 11,5 78
4th 1st
Strengths
• One of the few econom ies in South-East Europe to avoid recession in 2009
• Assigned B+ credit rating by S&P (in line w ith M oody’s B1 rating) in April
2010, supported by solid grow th perform ance and long-term potential
• The only South-East European econom y to have successfully im plem ented
e-Procurem ent
• Tourism developing into a signi cant sector: Albania w as ranked as
num ber one destination of 2011 by travel guide publisher Lonely Planet
• Highly skilled, exible and adaptable labor force and also one of the low est
labor costs in the region
Weaknesses
• One of the poorest econom ies in Europe
• Real estate property title disputes
• Inadequate infrastructure, although m any projects are underway to im prove
the situation
• Intricate tax system
Opportunities
• Trade liberalization agreem ents betw een EU and Albania
• Gatew ay to the Balkans Free Trade Area; Albania is part of CEFTA
• EU m em bership is in progress; m em ber of UN, NATO, W TO and other
international organizations
• M ore exibility in the international m obility and training of Albanian
w orkforce after visa requirem ents w ere abolished in Decem ber 2010
• No sector is excluded to foreign investors
Threats
• Political hostility betw een Albania’s m ain parties
• High levels of governm ent debt and current account de cit
• Heavy dependence on rem ittances (about 15% of GDP), especially from
slow -grow ing southern European countries
Outlook
• GDP grow th in Albania is estim ated to have slow ed to 2.8% in 2010,
w ith m oderate acceleration tow ard 4% is expected in the next few years
• In ation expected to be around 3% over the next few years, in line w ith
the Bank of Albania’s target
• Conditions in the VCPE m arket have im proved since 2007, but there is
a long w ay to go, w ith ranking for 2011 still w ell below its peers
Dr. AlexandrosKarakitis, Ernst & Young
[email protected]
75 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
74 11,5 74
1.2 Medium-Term Real GDP Growth
32 142,0 13
1.3 Unemployment
72 87,1 65
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
78 1,6 78
2.2 Stock Market Liquidity (Trading Volume)
78 1,2 78
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
78 11,7 70
2.5 Debt and Credit Market
72 54,3 61
2.6 Bank Non-Performing Loans to Total Gross Loans
41 75,3 73
2.7 Financial Market Sophistication
79 4,7 79
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
55 89,8 65
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
74 89,1 12
4.2 Security of Property Rights
76 15,0 75
4.3 Quality of Legal Enforcement
73 36,9 69
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
78 34,3 68
5.2 Labor Market Rigidities
34 66,1 37
5.3 Bribing and Corruption
69 26,6 63
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
80 19,9 69
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
51 94,9 28
6.4 Simplicity of Closing a Business
77 15,4 77
6.5 Corporate R&D
80 6,8 69
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
76 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Algeria
2007 2011 Quartile
Rank Value Rank
South Africa 24 66,9 26
Egypt 52 41,8 55
Morocco 61 41,8 54
Tunisia 64 41,5 56
Kenya 69 38,3 63
Nigeria 66 37,1 64
Namibia 70 26,4 70
Algeria 76 17,1 77
4th 1st
70
72
74
76
78
80
82
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Algeria Africa
United States=100 Points
GDP 157 [bn USD] IPO Volume
Population 35 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Algiers++Official Language: Arabic (official), French (official), Arabic (national), Tamazight (national) ++Currency: Algerian Dinar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 76 17,1 77
Economic Activity 56 77,1 49
Depth of Capital Market 80 2,9 80
Taxation 59 92,2 56
Inv. Prot./Corp. Gov. 73 32,7 73
Human/Social Env. 66 35,5 70
Entrepr. Cult./Deal Opp. 71 25,4 70
4th 1st
Strengths
• A strong oil and petroleum industry
• High literacy rates am ong youth and adults com pared to its peers
• Able to export pow er to Europe due to its proxim ity
Weaknesses
• Relative to its North African peers, high cost of im ports and exports
• Ranked as a dif cult place to do business by the W orld Bank
• Lack of access to nancial services for 70% of the population
Opportunities
• In addition to the oil and gas sector, com panies in the electrical and light
industries are em erging as interesting targets for VCPE investm ent due to
their grow th potential
Threats
• Political instability in North Africa
Outlook
• Potential in m ining, now that the recovery of the global econom y is on
track
• Low econom ic grow th: recovery depends on how the rest of the North
African region perform s, and could be affected by political developm ents
in the region
Jean-Pierre Letartre, Ernst & Young
[email protected]
77 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
47 43,5 48
1.2 Medium-Term Real GDP Growth
56 128,4 20
1.3 Unemployment
67 82,2 67
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
78 1,6 78
2.2 Stock Market Liquidity (Trading Volume)
78 1,2 78
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
73 1,0 80
2.5 Debt and Credit Market
79 22,4 77
2.6 Bank Non-Performing Loans to Total Gross Loans
76 37,6 76
2.7 Financial Market Sophistication
80 1,2 80
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
59 92,2 56
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
76 40,0 68
4.2 Security of Property Rights
68 26,7 71
4.3 Quality of Legal Enforcement
63 32,7 71
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
75 31,2 73
5.2 Labor Market Rigidities
48 57,6 48
5.3 Bribing and Corruption
63 24,8 64
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
78 7,6 76
6.2 Scientific and Technical Journal Articles
54 48,4 54
6.3 Ease of Starting and Running a Business
63 59,0 70
6.4 Simplicity of Closing a Business
32 76,7 33
6.5 Corporate R&D
73 6,3 73
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
78 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Argentina
2007 2011 Quartile
Rank Value Rank
Chile 30 61,5 29
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
4th 1st
50
52
54
56
58
60
62
64
66
68
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Argentina
Latin America
United States=100 Points
GDP 344 [bn USD] IPO Volume
Population 41 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Buenos Aires ++Official Language: Spanish ++Currency: Argentine Peso
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 60 36,4 66
Economic Activity 9 87,5 29
Depth of Capital Market 52 21,9 62
Taxation 68 95,9 49
Inv. Prot./Corp. Gov. 77 22,3 77
Human/Social Env. 73 39,9 59
Entrepr. Cult./Deal Opp. 44 46,0 45
4th 1st
Strengths
• Quality of accounting standards, w hich are generally in line w ith
international standards
• Adoption of IFRS for listed com panies scheduled for 2012
• Long history of VCPE
Weaknesses
• Bureaucracy and lack of strong policy fram ew ork
• Com plex tax environm ent: generally m oderate corporate taxation but w ith
local and national tax layers to increase the com plexity
• Lack of speci c fram ew ork for fund form ation and operation
• Sm all stock exchange w hich does not provide signi cant equity nancing
• Slow judicial system to enforce the corporate governance requirem ents
Opportunities
• Foreign investm ent plays a prim e role in Argentina’s econom ic
developm ent
• Signi cant support for new investm ents especially for start-ups and
entrepreneurial activity
Threats
• The state becam e m ore interventionist after the crisis and has regained
control over a series of businesses (especially relating to public services)
• Renationalization of social security system has restricted institutional
investm ent in VCPE funds
• Com plex exchange controls and regulation has been im plem ented to
discourage speculative capital in ow s
• High perception of corruption
• High levels of in ation
Outlook
• Argentina’s econom ic perform ance is vulnerable to international
developm ents due to its dependence on com m odities
• Political uncertainty due to Nestor Kirchner’s death and the presidential
election in 2011
• In ation is expected to accelerate as the Governm ent w ill m ost likely
m aintain highly expansionary scal and m onetary policies ahead of the
October presidential election
• Despite econom ic and political uncertainty, PE funds rem ain active in
Argentina
Ernesto San Gil, Ernst & Young
[email protected]
79 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
31 53,3 27
1.2 Medium-Term Real GDP Growth
6 136,0 16
1.3 Unemployment
62 92,4 61
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
57 34,0 57
2.2 Stock Market Liquidity (Trading Volume)
63 2,7 55
2.3 IPO Market Activity
43 27,1 46
2.4 M&A Market Activity
41 49,8 38
2.5 Debt and Credit Market
63 22,5 76
2.6 Bank Non-Performing Loans to Total Gross Loans
46 102,1 36
2.7 Financial Market Sophistication
62 8,3 78
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
68 95,9 49
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
60 43,0 67
4.2 Security of Property Rights
78 11,4 78
4.3 Quality of Legal Enforcement
77 22,5 77
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
65 50,0 47
5.2 Labor Market Rigidities
77 57,5 49
5.3 Bribing and Corruption
66 22,1 66
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
64 28,5 57
6.2 Scientific and Technical Journal Articles
30 66,0 30
6.3 Ease of Starting and Running a Business
65 52,7 74
6.4 Simplicity of Closing a Business
48 63,9 50
6.5 Corporate R&D
46 32,6 38
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
80 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Armenia
2007 2011 Quartile
Rank Value Rank
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
Philippines 53 41,2 58
Kazakhstan 54 39,1 61
Armenia 72 25,3 71
Kyrgyzstan 78 14,4 80
4th 1st
68
69
70
71
72
73
74
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Armenia Asia
United States=100 Points
GDP 8 [bn USD] IPO Volume
Population 3 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Yerevan ++Official Language: Armenian (official), Russian ++Currency: Dram
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 72 25,3 71
Economic Activity 53 38,3 73
Depth of Capital Market 77 9,9 76
Taxation 73 74,3 75
Inv. Prot./Corp. Gov. 60 43,0 62
Human/Social Env. 60 36,7 67
Entrepr. Cult./Deal Opp. 67 34,3 60
4th 1st
Strengths
• Governm ent com m itted to im prove country attractiveness for investors
(infrastructure developm ent, integration of tax system , strengthening of
the nancial sector)
• Good progress in privatization
• Resilient banking sector
• W TO m em bership
• M ineral deposits (copper, uranium , gold, m olybdenum )
• High level of literacy (99.7% for m ales and 99.2% for fem ales)
Weaknesses
• High level of m arket m onopolization
• Com plicated tax adm inistration system w hich, along w ith perceived high
corruption, leads to high transaction costs
• Borders w ith neighboring Turkey and Azerbaijan are closed, im peding
energy im ports and good exports
• M igration of higher skilled w orkers
Opportunities
• Authorities have im plem ented policies that should deepen the capital m arket
• Good potential for developing sm all hydro pow er plants
• Grow th of IT m arket
• Rapid grow th in the m obile telecom m unications m arket
• Fram ework Financing Agreem ent has been signed between the Republic
of Arm enia and Asian Developm ent Bank to im plem ent North-South Road
Corridor Investm ent Program . The total cost of the Program over the period
2009 to 2017 is expected to be US$1,453m equivalent
Threats
• Political relations w ith Turkey rem ain tense
• The econom y is vulnerable to econom ic dow nturn in Russia, due to its
strong dependence on cash rem ittances from Russia
• Corruption, low level of corporate culture and business ethics m ay hinder
external investm ents opportunities
Outlook
• In ation is expected to recede gradually (from 8.2% in 2010), rem aining
betw een 3% -4% in the m edium term
• Arm enia suffers from a high current account de cit (29.5% of GDP in
2009), and relies on large in ow s to nance it; although the current
account de cit is expected to narrow in the m edium term , a signi cant
external im balance w ill persist unless Arm enia achieves a considerable
restructuring of the dom estic econom y
Eric Hayrapetyan, Ernst & Young
[email protected]
81 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
77 6,9 78
1.2 Medium-Term Real GDP Growth
2 71,0 75
1.3 Unemployment
42 114,3 26
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
75 12,8 75
2.2 Stock Market Liquidity (Trading Volume)
75 1,2 77
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
77 15,8 68
2.5 Debt and Credit Market
71 35,8 72
2.6 Bank Non-Performing Loans to Total Gross Loans
34 90,4 57
2.7 Financial Market Sophistication
75 11,8 75
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
73 74,3 75
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
58 39,5 69
4.2 Security of Property Rights
58 50,0 53
4.3 Quality of Legal Enforcement
68 40,1 62
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
66 31,7 72
5.2 Labor Market Rigidities
14 77,6 23
5.3 Bribing and Corruption
68 20,0 69
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
68 27,1 60
6.2 Scientific and Technical Journal Articles
62 43,0 62
6.3 Ease of Starting and Running a Business
38 95,0 26
6.4 Simplicity of Closing a Business
28 82,1 26
6.5 Corporate R&D
78 5,2 76
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
82 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Australia
2007 2011 Quartile
Rank Value Rank
United States 1 100,0 1
Singapore 2 92,4 4
United Kingdom 3 93,3 2
Canada 4 93,3 3
Switzerland 5 91,8 5
Australia 7 90,2 7
Japan 6 90,9 6
Sweden 8 85,0 8
New Zealand 22 72,5 19
4th 1st
1
2
3
4
5
6
7
8
2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Australia
Australasia
United States=100 Points
GDP 1193 [bn USD] IPO Volume
Population 22 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Canberra ++Official Language: English, native and other languages ++Currency: Australian Dollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 7 90,2 7
Economic Activity 42 98,7 7
Depth of Capital Market 6 80,2 6
Taxation 13 108,2 14
Inv. Prot./Corp. Gov. 11 98,8 10
Human/Social Env. 6 108,0 5
Entrepr. Cult./Deal Opp. 16 82,7 15
4th 1st
Strengths
• Strong com m odity prices driving investm ent boom
• Dem ocratic and stable political, regulatory and legal environm ent
• Strong banking and capital m arket regim es
• Signi cant num ber of VCPE investm ents under m anagem ent
Weaknesses
• High interest rate environm ent
• Heavy reliance on com m odity cycle and com paratively high tax rates
• Strong com petition from both local and overseas investors
Opportunities
• Strong stock m arket culture
• PE exits and m aturing secondary m arket
• M &A m arket recovering
Threats
• High AU$ im pacting im ports and dom estic activity
• Interest rates are biased upw ard due to expected in ation
• Australian Tax Of ce (ATO) review of tax arrangem ents on offshore entities
• Dif cult fund-raising environm ent
• Increasing com petition from w ell-funded corporates
Outlook
• There w ill be pressure from LPs to exit investee com panies w ith new fund-
raising becom ing dif cult
• Com m odity-led activity w ill result in a tw o-speed econom y, broadening to
strong dom estic dem and in 2011
• Strong AU$ and high interest rates w ill negatively im pact global
investm ent allocations
Bryan Zekulich, Ernst & Young
[email protected]
83 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
15 68,7 13
1.2 Medium-Term Real GDP Growth
66 120,2 29
1.3 Unemployment
22 116,5 22
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
7 84,0 13
2.2 Stock Market Liquidity (Trading Volume)
15 39,3 18
2.3 IPO Market Activity
6 74,5 5
2.4 M&A Market Activity
4 82,3 5
2.5 Debt and Credit Market
13 90,0 8
2.6 Bank Non-Performing Loans to Total Gross Loans
1 117,2 4
2.7 Financial Market Sophistication
5 100,0 11
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
13 108,2 14
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
16 79,8 18
4.2 Security of Property Rights
5 100,9 12
4.3 Quality of Legal Enforcement
8 119,7 9
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
8 101,9 9
5.2 Labor Market Rigidities
18 99,3 2
5.3 Bribing and Corruption
9 124,5 8
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
24 73,7 21
6.2 Scientific and Technical Journal Articles
11 79,3 11
6.3 Ease of Starting and Running a Business
11 101,8 14
6.4 Simplicity of Closing a Business
13 102,8 13
6.5 Corporate R&D
18 63,1 17
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
84 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Austria
2007 2011 Quartile
Rank Value Rank
France 17 79,6 14
Belgium 18 76,8 15
Austria 23 71,7 22
Spain 20 69,1 23
Ireland 14 67,7 24
Portugal 38 60,4 31
Italy 32 59,6 32
Luxembourg 29 59,3 33
Greece 39 47,9 44
4th 1st
20
21
22
23
24
25
26
27
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Austria
Western Europe
United States=100 Points
GDP 388[bn USD] IPO Volume
Population 8 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Vienna ++Official Language: German (official nationwide); Slovene, Croatian, Hungarian (each official in one region) ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 23 71,7 22
Economic Activity 58 86,0 31
Depth of Capital Market 28 47,9 33
Taxation 8 109,3 9
Inv. Prot./Corp. Gov. 14 91,7 17
Human/Social Env. 14 92,1 14
Entrepr. Cult./Deal Opp. 17 77,4 17
4th 1st
Strengths
• Strong econom ic perform ance, m aking it an interesting niche m arket, w ith
a sim ilar range of com panies and industries as Germ any, but sm aller
Weaknesses
• Still perceived as a “closed shop,”needing a lot of effort for little return in
term s of deal ow and transaction size
Opportunities
• M any hidden cham pions and fam ily-ow ned com panies w ith succession
problem s
Threats
• Som ew hat export oriented, w hich puts businesses under sim ilar risks as
those seen in Germ any
Outlook
• Austria w ill rem ain a niche m arket, but m ight be used as base for Eastern
European
• Acquisitions, as it offers good resources w ith the necessary language skills
and cultural understanding
Gerhard Schwartz, Ernst & Young
[email protected]
85 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
26 54,7 26
1.2 Medium-Term Real GDP Growth
71 95,7 55
1.3 Unemployment
21 121,4 10
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
43 34,6 56
2.2 Stock Market Liquidity (Trading Volume)
38 10,8 38
2.3 IPO Market Activity
34 36,5 36
2.4 M&A Market Activity
37 47,7 40
2.5 Debt and Credit Market
12 85,3 16
2.6 Bank Non-Performing Loans to Total Gross Loans
31 106,9 25
2.7 Financial Market Sophistication
16 96,5 15
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
8 109,3 9
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
36 60,0 39
4.2 Security of Property Rights
4 105,8 8
4.3 Quality of Legal Enforcement
5 121,2 7
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
13 90,4 17
5.2 Labor Market Rigidities
33 74,3 33
5.3 Bribing and Corruption
10 116,3 13
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
14 82,9 16
6.2 Scientific and Technical Journal Articles
24 69,2 24
6.3 Ease of Starting and Running a Business
24 88,6 43
6.4 Simplicity of Closing a Business
23 88,3 22
6.5 Corporate R&D
17 61,7 19
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
86 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Bahrain
2007 2011 Quartile
Rank Value Rank
Israel 19 72,2 21
Saudi Arabia 36 67,5 25
United Arab Emirates 33 61,6 28
Kuwait 40 57,9 35
Jordan 42 53,2 38
Oman 51 45,6 46
Bahrain 58 44,3 50
4th 1st
35
40
45
50
55
60
65
70
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Bahrain
Middle East
United States=100 Points
GDP 23 [bn USD] IPO Volume
Population 1 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Manama ++Official Language: Arabic ++Currency: Bahraini Dinar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 58 44,3 50
Economic Activity 50 69,3 55
Depth of Capital Market 48 43,0 41
Taxation 39 97,6 46
Inv. Prot./Corp. Gov. 31 74,0 27
Human/Social Env. 29 65,9 28
Entrepr. Cult./Deal Opp. 73 17,4 72
4th 1st
Strengths
• Econom ic grow th rebound back from 3.1% in 2009 to 4.1% in 2010;
driven by rising dem and for re ned oil and alum inum
• M ore diversi ed econom y than Gulf peers
• A regional nancial hub, w ith a w ell-developed banking sector and a
grow ing Islam ic nance industry
Weaknesses
• Risk from oil price m ovem ents, as exports and services are highly
vulnerable to changes in dem and in the extrem ely oil-dependent Gulf
sub-region
• Partially transparent public nances, due to the persistence of opaque
“extra-budgetary transactions”
Opportunities
• The Kingdom is a leading force in the developm ent of Islam ic nance
• A package of labor m arket reform s backed by the Econom ic Developm ent
Board should im prove productivity and boost grow th
• Large-scale investm ents have created a decent infrastructure, including
telecom s and a m odern road system betw een tow ns
Threats
• As the dinar is pegged to the US dollar, dollar w eakness is leading to
im ported in ation
• There are high rates of unem ploym ent and poverty am ong the Shia
population
• Due to the recent political unrest, m easures of credit risk have increased as
investors fret over regional instability
Outlook
• In ation should recede for a second consecutive year, despite rising
com m odity prices
JamesA. Moye, Ernst & Young
[email protected]
87 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
70 19,7 70
1.2 Medium-Term Real GDP Growth
23 140,8 14
1.3 Unemployment
24 120,1 14
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
27 71,9 23
2.2 Stock Market Liquidity (Trading Volume)
47 6,3 44
2.3 IPO Market Activity
56 30,7 42
2.4 M&A Market Activity
69 22,4 64
2.5 Debt and Credit Market
29 89,7 9
2.6 Bank Non-Performing Loans to Total Gross Loans
54 104,5 29
2.7 Financial Market Sophistication
18 92,9 17
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
39 97,6 46
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
37 61,6 36
4.2 Security of Property Rights
29 78,3 26
4.3 Quality of Legal Enforcement
35 83,9 27
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
55 45,8 54
5.2 Labor Market Rigidities
8 90,9 9
5.3 Bribing and Corruption
30 68,5 32
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
57 34,2 49
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
17 81,2 52
6.4 Simplicity of Closing a Business
24 85,3 24
6.5 Corporate R&D
70 6,8 69
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
88 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Belgium
2007 2011 Quartile
Rank Value Rank
France 17 79,6 14
Belgium 18 76,8 15
Austria 23 71,7 22
Spain 20 69,1 23
Ireland 14 67,7 24
Portugal 38 60,4 31
Italy 32 59,6 32
Luxembourg 29 59,3 33
Greece 39 47,9 44
4th 1st
10
12
14
16
18
20
22
24
26
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Belgium
Western Europe
United States=100 Points
GDP 472[bn USD] IPO Volume
Population 11 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Brussels ++Official Language: Dutch (Flemish), French, German (all official) ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 18 76,8 15
Economic Activity 65 81,8 39
Depth of Capital Market 23 57,5 26
Taxation 5 110,7 7
Inv. Prot./Corp. Gov. 15 91,5 18
Human/Social Env. 13 92,4 13
Entrepr. Cult./Deal Opp. 14 83,2 14
4th 1st
Strengths
• Attractive tax system for PE m arket
• Strong educational system w ith highly skilled w orkforce and im portant
R&D activity
Weaknesses
• Poorly developed capital m arket com pared to its peers
Opportunities
• M ost SM Es are still in private hands
• There is a strong entrepreneurial culture w ith good deal opportunities
Outlook
• Belgium is in a good position com pared w ith other countries
• Valuation m ultiples w ill increase due to econom ic recovery in the
Netherlands
Marcel van Rijnswou, Ernst & Young
[email protected]
89 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
18 57,2 21
1.2 Medium-Term Real GDP Growth
74 93,3 57
1.3 Unemployment
50 102,7 46
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
28 49,7 39
2.2 Stock Market Liquidity (Trading Volume)
33 17,2 31
2.3 IPO Market Activity
24 45,0 29
2.4 M&A Market Activity
26 59,4 22
2.5 Debt and Credit Market
23 80,7 21
2.6 Bank Non-Performing Loans to Total Gross Loans
26 108,9 21
2.7 Financial Market Sophistication
16 103,5 8
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
5 110,7 7
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
13 86,4 15
4.2 Security of Property Rights
18 89,6 21
4.3 Quality of Legal Enforcement
19 98,8 21
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
3 108,0 5
5.2 Labor Market Rigidities
29 75,0 29
5.3 Bribing and Corruption
19 97,3 20
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
15 84,9 13
6.2 Scientific and Technical Journal Articles
20 72,5 20
6.3 Ease of Starting and Running a Business
32 93,6 35
6.4 Simplicity of Closing a Business
6 110,5 6
6.5 Corporate R&D
16 62,6 18
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
90 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Bosnia-Herzegovina
2007 2011 Quartile
Rank Value Rank
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
Moldova 71 22,0 72
Macedonia 75 19,3 73
Albania 79 17,8 75
Bosnia-Herzegovina 77 17,3 76
4th 1st
73
74
75
76
77
78
79
80
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Bosnia-Herzegovina
Eastern Europe
United States=100 Points
GDP 20 [bn USD] IPO Volume
Population 4 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Sarajevo ++Official Language: Bosnian, Croatian, Serbian ++Currency: Convertible Mark
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 77 17,3 76
Economic Activity 77 37,5 74
Depth of Capital Market 76 7,6 78
Taxation 70 88,0 68
Inv. Prot./Corp. Gov. 74 25,1 76
Human/Social Env. 68 35,8 69
Entrepr. Cult./Deal Opp. 77 12,8 76
4th 1st
Strengths
• W ell-capitalized and relatively com petitive banking sector
• Fixing the currency to the euro has helped anchor m acroeconom ic policy
• Relatively exible labor m arket
Weaknesses
• Com plicated political and constitutional structure has been a hindrance
to reform
• W eak enforcem ent of the judicial system
• Privatization program has virtually stalled; sale of m ajor com panies in
the alum inum , construction, telecom m unications and trade sectors is
necessary to prom ote com petitiveness
• Developm ent of capital m arkets is at a low level
• Unem ploym ent is persistently high, at over 30%
• Low standard of education (only 67% of children attend secondary
education)
• Low levels of innovation (R&D spending is only 0.03% of GDP)
Opportunities
• Som e investm ent and liberalizations in railw ays w ill provide better
transport infrastructure
• Strengthening of the deposit insurance schem e w ill underpin stability in
the banking sector
• Som e political appetite for m oving forw ard w ith privatization
• Regional trade liberalization has expanded, leading to increased
com petition in dom estic agricultural m arkets
Threats
• The Governm ent has failed to im plem ent scal reform
• High costs and low com petition m ay lim it capital spending
• Political deadlock could endanger econom ic recovery
• Structural rigidities have led to a w eak investm ent environm ent
• Export-driven grow th leaves the econom y vulnerable to external shocks
• FDI has been diverted to m ore politically stable neighbors
Outlook
• Political instability, structural rigidities and a large state presence are
signi cant dow nside risks to forecasts for GDP grow th
• The need for key econom ic and political reform s causes uncertainties in
the VCPE environm ent
91 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
72 17,6 71
1.2 Medium-Term Real GDP Growth
34 104,6 44
1.3 Unemployment
79 28,6 79
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
78 1,6 78
2.2 Stock Market Liquidity (Trading Volume)
78 1,2 78
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
60 9,2 73
2.5 Debt and Credit Market
55 54,9 59
2.6 Bank Non-Performing Loans to Total Gross Loans
52 99,3 41
2.7 Financial Market Sophistication
77 15,3 74
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
70 88,0 68
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
62 44,2 66
4.2 Security of Property Rights
77 13,8 77
4.3 Quality of Legal Enforcement
72 26,1 74
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
74 33,4 71
5.2 Labor Market Rigidities
41 63,8 39
5.3 Bribing and Corruption
65 21,6 68
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
76 11,2 74
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
67 57,3 71
6.4 Simplicity of Closing a Business
45 67,2 41
6.5 Corporate R&D
76 7,9 68
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
92 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Brazil
2007 2011 Quartile
Rank Value Rank
Chile 30 61,5 29
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
4th 1st
30
35
40
45
50
55
60
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Brazil
Latin America
United States=100 Points
GDP 1910 [bn USD] IPO Volume
Population 195 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Brasilia ++Official Language: Portuguese ++Currency: Brazilian Real
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 57 48,7 43
Economic Activity 27 100,1 4
Depth of Capital Market 34 51,2 31
Taxation 79 21,1 79
Inv. Prot./Corp. Gov. 58 43,1 61
Human/Social Env. 63 38,5 64
Entrepr. Cult./Deal Opp. 70 43,0 50
4th 1st
Strengths
• Around one-third of all M &A transactions involving PE in 2010
• Global m ega funds starting operations in 2010
• PE-backed IPOs accounting for alm ost 30% of all IPOs in the boom years of
2006 and 2007
• Low im pact of recent presidential elections on econom ic prospects
Weaknesses
• VCPE is still in its infancy in Brazil and not w ell know n in the m arket
• Lim ited debt and credit m arket hindering leveraged buyout activity
• M ore dif cult and lengthy due diligence process com pared w ith m ore
m ature econom ies
• PE deals dom inated by relatively sm all transactions (average deal size of
US$30m -US$60m )
Opportunities
• Econom y grow ing at an average 5% (alm ost 8% in 2010) w ith signi cant
increase in the num ber of m iddle-class fam ilies rising from low incom e in
the last 5 to 10 years
• Highly fragm ented m arket in m any sectors, w ith consolidation opportunities
• Interest rates being reduced gradually, increasing the need for investm ents
in alternative asset classes by local pension funds and other institutional
investors
• Low penetration of VCPE investm ent in the econom y com pared w ith m ore
m ature econom ies
• High dem and for infrastructure investm ents, including for the 2014 W orld
Cup and 2016 Sum m er Olym pics to be held in Brazil
Threats
• Com plex and bureaucratic tax and labor regulatory environm ent
• A m ore active local capital m arket is giving local entrepreneurs m ore choice,
and increasing com petition for PE com panies
• Rem aining uncertainties and risks w ith respect to in ation and exchange
rate uctuations
• Higher com petition for deals in certain industries has increased asset prices
Outlook
• It is perceived that PE backing has a positive im pact on the m anagem ent,
nancial and corporate governance restructure of Brazilian portfolio
com panies
• PE-backed IPOs tend to outperform those w ith no PE sponsors
CarlosR. Asciutti, Ernst & Young
[email protected]
93 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
10 74,6 8
1.2 Medium-Term Real GDP Growth
54 133,4 17
1.3 Unemployment
52 100,9 50
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
34 57,1 34
2.2 Stock Market Liquidity (Trading Volume)
39 18,8 28
2.3 IPO Market Activity
21 62,0 13
2.4 M&A Market Activity
19 70,5 14
2.5 Debt and Credit Market
69 23,1 75
2.6 Bank Non-Performing Loans to Total Gross Loans
48 99,3 41
2.7 Financial Market Sophistication
18 85,9 20
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
79 21,1 79
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
56 44,9 63
4.2 Security of Property Rights
57 48,2 54
4.3 Quality of Legal Enforcement
64 36,9 68
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
63 46,8 50
5.2 Labor Market Rigidities
70 31,6 73
5.3 Bribing and Corruption
54 38,7 54
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
32 41,5 38
6.2 Scientific and Technical Journal Articles
16 75,5 16
6.3 Ease of Starting and Running a Business
80 20,7 79
6.4 Simplicity of Closing a Business
80 47,9 65
6.5 Corporate R&D
29 47,3 27
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
94 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Bulgaria
2007 2011 Quartile
Rank Value Rank
Turkey 31 52,8 39
Hungary 43 52,0 40
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
Lithuania 46 41,3 57
Slovakia 48 39,1 62
4th 1st
44
46
48
50
52
54
56
58
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Bulgaria
Eastern Europe
United States=100 Points
GDP 51 [bn USD] IPO Volume
Population 7 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Sofia ++Official Language: Bulgarian, Turkish, Roma ++Currency: Bulgarian Lev
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 50 44,1 51
Economic Activity 41 68,8 57
Depth of Capital Market 51 30,4 54
Taxation 47 98,7 44
Inv. Prot./Corp. Gov. 57 40,5 64
Human/Social Env. 47 47,9 53
Entrepr. Cult./Deal Opp. 49 48,6 41
4th 1st
Strengths
• M acroeconom ic stability
• Excellent tax environm ent
• Cost advantage
• Increasing num ber of investm ent opportunities
Weaknesses
• Fragile and underdeveloped M &A m arket
• Relatively sm all deal size
• Below standard quality of target inform ation
• Restricted bank nancing to corporates
Opportunities
• Em erging m arket w ith high grow th potential
• Signi cant grow th opportunities in the service sector
• EU funding (including grants) available for a num ber of sectors
Threats
• Slow recovery from the dow nturn
• Sm all m arket
• Governm ent policies
Outlook
• The VCPE m arket in Bulgaria is still recovering from the crisis, w ith activity
lagging behind other Central Eastern Europe m arkets
• Opportunities are expected to arise from sm aller size deals and niche
segm ents
• Labor-intensive industries continue to offer cost advantages
Diana Nikolaeva, Ernst & Young
[email protected]
95 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
63 29,4 61
1.2 Medium-Term Real GDP Growth
28 100,3 48
1.3 Unemployment
55 110,3 34
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
53 39,8 48
2.2 Stock Market Liquidity (Trading Volume)
55 2,4 59
2.3 IPO Market Activity
48 25,4 48
2.4 M&A Market Activity
45 42,5 48
2.5 Debt and Credit Market
43 66,6 37
2.6 Bank Non-Performing Loans to Total Gross Loans
32 104,1 30
2.7 Financial Market Sophistication
70 33,0 64
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
47 98,7 44
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
41 50,8 54
4.2 Security of Property Rights
66 32,9 70
4.3 Quality of Legal Enforcement
58 39,7 63
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
61 44,8 55
5.2 Labor Market Rigidities
32 74,6 32
5.3 Bribing and Corruption
49 32,9 62
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
70 30,3 55
6.2 Scientific and Technical Journal Articles
44 54,7 44
6.3 Ease of Starting and Running a Business
45 94,8 29
6.4 Simplicity of Closing a Business
44 64,8 48
6.5 Corporate R&D
55 26,7 48
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
96 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Canada
2007 2011 Quartile
Rank Value Rank
United States 1 100,0 1
Singapore 2 92,4 4
United Kingdom 3 93,3 2
Canada 4 93,3 3
Switzerland 5 91,8 5
Australia 7 90,2 7
Japan 6 90,9 6
Sweden 8 85,0 8
Netherlands 10 84,3 9
4th 1st
0
1
2
3
4
5
6
7
8
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Canada
North America
United States=100 Points
GDP 1556 [bn USD] IPO Volume
Population 34 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Ottawa ++Official Language: English, French (both official); other ++Currency: Canadian Dollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 4 93,3 3
Economic Activity 45 89,4 24
Depth of Capital Market 5 86,0 5
Taxation 14 108,8 11
Inv. Prot./Corp. Gov. 10 103,8 7
Human/Social Env. 4 107,7 6
Entrepr. Cult./Deal Opp. 7 89,3 8
4th 1st
Strengths
• W ell-regulated banking sector w hich underpins nancial stability
• Rapid econom ic grow th since the recession, rising by an estim ated 2.9%
in 2010
• Sm all budget de cits (4% ) com pared w ith m ost developed countries
• Net exporter of energy
• W ell-run legal system , sim ilar to that of the US
• High standards of education w ith a w ell-educated w orkforce
Weaknesses
• Loss of com petitiveness vis-à-vis the US, due to an appreciation of
currency and slow er productivity grow th
• Less m ature VCPE m arket than in the US
• Close integration w ith US capital m arkets, leaving Canadian m arkets
vulnerable to shocks
• Relatively length and costly enforcem ent of contracts
Opportunities
• High energy prices create investm ent opportunities in the Alberta Oil Sands
• Liberal im m igration law s w ill help counteract the adverse effects of an
aging population
• Underserved PE m arket relative to that of the US (5% of GDP in Canada
vs. 7% in the US) suggests it has potential to grow
• Proxim ity to the US gives Canada access to the largest VCPE m arket in the
w orld
Threats
• Household debt is high (about 90% of GDP), suggesting low consum er
spending
• There is potential w eakening in the housing m arket
• The slow dow n in the US econom y is leading to decreased dem and for
Canadian exports
• A dram atic fall in energy prices m akes extraction of oil from tar sands
unpro table
Outlook
• Although GDP grow th is forecast to slow in 2011, to 2.4% , Canada’s
m edium -term grow th prospects look solid
• Rapid business sector investm ent in 2011-12 w ill result in trend grow th
of about 3%
97 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
8 72,0 9
1.2 Medium-Term Real GDP Growth
67 99,3 52
1.3 Unemployment
30 100,0 53
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
8 87,7 9
2.2 Stock Market Liquidity (Trading Volume)
18 46,0 15
2.3 IPO Market Activity
2 83,0 3
2.4 M&A Market Activity
5 83,5 4
2.5 Debt and Credit Market
3 96,6 4
2.6 Bank Non-Performing Loans to Total Gross Loans
8 113,0 13
2.7 Financial Market Sophistication
5 114,1 2
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
14 108,8 11
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
10 101,1 7
4.2 Security of Property Rights
21 91,5 19
4.3 Quality of Legal Enforcement
9 121,0 8
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
5 111,1 3
5.2 Labor Market Rigidities
6 91,4 7
5.3 Bribing and Corruption
12 122,9 9
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
17 80,2 17
6.2 Scientific and Technical Journal Articles
7 83,2 7
6.3 Ease of Starting and Running a Business
4 109,7 6
6.4 Simplicity of Closing a Business
4 112,1 4
6.5 Corporate R&D
14 69,1 15
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
98 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Chile
2007 2011 Quartile
Rank Value Rank
Chile 30 61,5 29
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
4th 1st
25
26
27
28
29
30
31
32
33
34
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Chile
Latin America
United States=100 Points
GDP 197 [bn USD] IPO Volume
Population 17 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Santiago ++Official Language: Spanish ++Currency: Chilean Peso
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 30 61,5 29
Economic Activity 29 84,6 36
Depth of Capital Market 38 50,1 32
Taxation 7 109,5 8
Inv. Prot./Corp. Gov. 28 75,9 26
Human/Social Env. 25 68,4 25
Entrepr. Cult./Deal Opp. 33 50,0 37
4th 1st
Strengths
• Strong and developed capital m arket
• Good GDP grow th (despite the im pact of natural disasters, such as
earthquakes)
• Laws on VCPE funds form ation and operation, and regulations to stim ulate
the VCPE industry
• Low levels of corruption: ranked 21 of 178 countries in Transparency
International’s 2010 Corruption Perceptions Index
• Considerable entrepreneurial dynam ism
• Transparent and clearly de ned legislation concerning foreign investm ent:
foreign investors enjoy the sam e rights as nationals and are able to
operate in all but a few restricted areas
• Sim pli ed procedures to obtain the Chilean tax identi cation num ber
required for inw ard investm ents
• Recently strengthened corporate governance law s
• M andatory IFRS application for listed com panies
Weaknesses
• Double taxation for foreign investors from m ost countries, w ith a com plex
tax environm ent
• Slow judicial system : court proceedings can be subject to long delays, and
high costs rem ain a barrier to pursuing legal actions
• Low levels of m arket capitalization, in addition to high costs of m eeting
listing requirem ents, lim iting accessibility of IPOs for the m ajority of SM Es
Opportunities
• Pension funds and insurance com panies are an im portant source of long-
term nancing and are allow ed to invest in VCPE funds. How ever, these
investm ents are lim ited to a sm all percentage of their assets
Threats
• A certain level of legal protection for property rights, although
enforcem ent has been questioned
• The cost of protecting tradem arks and patents is high, and the country
rem ains on the US Special 301 W atch List for intellectual property violations
Outlook
• Chile has a w ell-developed and experienced VCPE industry
• Chile's environm ent is characterized by a positive attitude toward foreign
investm ent, good infrastructural quality and a relatively liberal labor m arket
Christian Lefevre, Ernst & Young
[email protected]
99 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
40 46,3 43
1.2 Medium-Term Real GDP Growth
38 120,6 27
1.3 Unemployment
29 108,5 35
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
21 77,2 20
2.2 Stock Market Liquidity (Trading Volume)
42 9,4 41
2.3 IPO Market Activity
58 24,7 50
2.4 M&A Market Activity
38 51,8 34
2.5 Debt and Credit Market
24 80,3 23
2.6 Bank Non-Performing Loans to Total Gross Loans
11 113,7 10
2.7 Financial Market Sophistication
22 92,9 17
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
7 109,5 8
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
25 66,0 32
4.2 Security of Property Rights
40 65,7 39
4.3 Quality of Legal Enforcement
22 100,6 18
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
59 45,9 53
5.2 Labor Market Rigidities
23 74,9 31
5.3 Bribing and Corruption
20 93,2 21
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
39 38,2 45
6.2 Scientific and Technical Journal Articles
38 60,5 38
6.3 Ease of Starting and Running a Business
25 90,7 39
6.4 Simplicity of Closing a Business
63 46,8 66
6.5 Corporate R&D
40 32,0 39
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
100 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
China
2007 2011 Quartile
Rank Value Rank
Singapore 2 92,4 4
Japan 6 90,9 6
Hong Kong 15 76,5 16
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
4th 1st
12
14
16
18
20
22
24
26
28
30
32
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
150
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
China Asia
United States=100 Points
GDP 5365 [bn USD] IPO Volume
Population 1334 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Beijing++Official Language: Standard Mandarin Chinese ++Currency: Chinese Yuan (Renminbi)
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 25 72,3 20
Economic Activity 1 129,2 1
Depth of Capital Market 25 72,8 12
Taxation 56 105,8 21
Inv. Prot./Corp. Gov. 56 58,3 48
Human/Social Env. 50 50,9 48
Entrepr. Cult./Deal Opp. 24 66,0 23
4th 1st
Strengths
• Strong and stable GDP grow th over the m edium term
• Large pool of potential PE investm ents and price-to-earnings ratios at
IPOs tend to be at least tw ice as high as in the US and Hong Kong
• Fast-grow ing m iddle class w ith high savings w ill drive dem and for
consum er and nancial goods
• Urbanization to second and third tier cities provides grow th opportunities
and plentiful supply of low -cost labor
Weaknesses
• The success of the large Governm ent-led stim ulus package is progressing
to the stage of interest rate and bank regulatory capital increases being
applied to keep in ation in check
• Intellectual property rights rem ain a focus despite a certain level of
im provem ent in the situation
• Approval tim es for dom estic IPOs vary, w ith som e proceeding at an
expected pace, w hile a few can take several years
Opportunities
• China has the ability to get ahead of developed econom ies in the adoption
of green technologies
• Greater provision of a range of nancial instrum ents for consum ers and
corporates w ill be a necessary part of nancial sector reform for China
over the next 10 years
Threats
• An oversupply in som e segm ents of the property m arket m ay render it
vulnerable to asset price volatility
• Certain regulatory approvals can take som e tim e, relying on local
know ledge such as the process for IPO approval
Outlook
• Real GDP grow th is expected to average 8% over the next 10 years
• There is a large am ount of state-controlled sources for PE rm s, including
5% of dom estic insurance com panies’assets and the National Social
Security Fund, w hich m anages China’s pension resources and represents
the w orld’s largest pool of investm ent capital for PE
Lawrence Lau, Ernst & Young
[email protected]
101 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
4 87,4 2
1.2 Medium-Term Real GDP Growth
3 197,3 1
1.3 Unemployment
15 125,0 7
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
18 82,1 15
2.2 Stock Market Liquidity (Trading Volume)
25 49,5 13
2.3 IPO Market Activity
4 86,5 2
2.4 M&A Market Activity
7 79,1 6
2.5 Debt and Credit Market
52 73,8 27
2.6 Bank Non-Performing Loans to Total Gross Loans
65 104,1 30
2.7 Financial Market Sophistication
61 50,6 53
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
56 105,8 21
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
70 46,7 61
4.2 Security of Property Rights
42 72,0 37
4.3 Quality of Legal Enforcement
55 59,0 51
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
35 65,2 35
5.2 Labor Market Rigidities
47 52,4 58
5.3 Bribing and Corruption
61 38,6 55
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
26 55,6 29
6.2 Scientific and Technical Journal Articles
5 87,1 5
6.3 Ease of Starting and Running a Business
72 63,1 69
6.4 Simplicity of Closing a Business
57 63,8 51
6.5 Corporate R&D
19 64,1 16
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
102 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Colombia
2007 2011 Quartile
Rank Value Rank
Chile 30 61,5 29
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
4th 1st
40
42
44
46
48
50
52
54
56
58
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Colombia
Latin America
United States=100 Points
GDP 267 [bn USD] IPO Volume
Population 46 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Bogota ++Official Language: Spanish ++Currency: Colombian Peso
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 49 45,3 47
Economic Activity 32 79,2 42
Depth of Capital Market 49 33,0 51
Taxation 69 97,8 45
Inv. Prot./Corp. Gov. 71 37,5 71
Human/Social Env. 44 50,0 50
Entrepr. Cult./Deal Opp. 43 45,5 46
4th 1st
Strengths
• Consolidation of the regulatory structure in the last tw o years, including
reporting requirem ents for investors, and providing a secondary m arket
for liquidity and a fram ew ork for form ation and operation of VCPE
• Im provem ent of capital m arket developm ent com pared w ith previous
periods
• VCPE foreign investm ent funds not subject to incom e tax
• Im provem ent of corporate governance standards for listed com panies
• Low restrictions for foreign investm ents in new ventures, acquisitions or
expansions
• Low barriers to participation by pension funds and institutional investors
in VCPE funds
Weaknesses
• Undersized stock m arket w ith a sm all num ber of rm s listed and lim ited
activity; thus, IPOs are not viable exit options
• Bankruptcy law s in place but poorly enforced
• Signi cant gaps com pared w ith international accounting standards
• Lack of investm ent in physical infrastructure
• New and inexperienced VCPE industry
Opportunities
• VCPE investm ents have signi cantly increased since 2008
• A reduction of restrictions w ill now allow further participation of pension
funds in PE/VC activities
• Governm ent support of entrepreneurship and business creation
Threats
• High perception of corruption and w eak judicial system
• Security still rem ains a concern (specially in som e rural areas)
Outlook
• The upw ard trend in FDI w ill rem ain in 2011 as the Governm ent considers
this to be one of the m ain engines of econom ic grow th for the com ing
years
• Colom bia is likely to receive an investm ent grade status during Q2 of 2011
• In ation is likely to rem ain under control and at historically low levels
Luz María Jaramillo, Ernst & Young
[email protected]
103 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
38 50,1 33
1.2 Medium-Term Real GDP Growth
31 113,4 37
1.3 Unemployment
68 87,5 63
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
58 48,6 40
2.2 Stock Market Liquidity (Trading Volume)
50 3,1 51
2.3 IPO Market Activity
51 17,0 58
2.4 M&A Market Activity
43 48,5 39
2.5 Debt and Credit Market
46 59,3 51
2.6 Bank Non-Performing Loans to Total Gross Loans
37 93,1 54
2.7 Financial Market Sophistication
55 61,2 45
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
69 97,8 45
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
38 82,8 16
4.2 Security of Property Rights
72 26,0 72
4.3 Quality of Legal Enforcement
74 24,5 76
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
49 43,7 56
5.2 Labor Market Rigidities
24 77,0 24
5.3 Bribing and Corruption
51 37,2 56
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
49 23,8 62
6.2 Scientific and Technical Journal Articles
52 49,5 52
6.3 Ease of Starting and Running a Business
57 81,5 51
6.4 Simplicity of Closing a Business
20 83,9 25
6.5 Corporate R&D
52 24,2 50
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
104 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Croatia
2007 2011 Quartile
Rank Value Rank
Hungary 43 52,0 40
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
4th 1st
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Croatia
Eastern Europe
United States=100 Points
GDP 64 [bn USD] IPO Volume
Population 4 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Zagreb ++Official Language: Croatian ++Currency: Croatian Kuna
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 55 43,4 52
Economic Activity 60 65,1 60
Depth of Capital Market 60 28,4 55
Taxation 4 118,0 2
Inv. Prot./Corp. Gov. 53 40,4 66
Human/Social Env. 51 47,7 54
Entrepr. Cult./Deal Opp. 35 49,5 38
4th 1st
Strengths
• Signi cant dem and for all types of nancing
• Governm ent strategy for innovations (BICRO and CRANE)
Weaknesses
• VCPE m arket is in an initial phase of developm ent
• Lim ited num ber of large potential investm ents
• Legal and business conditions do not support a dynam ic SM E sector, due
to lack of sim ple licensing and registration processes, and barriers for
investm ents
Opportunities
• Traditional bank loans are m ore expensive and less easily available
• Grow th potential in com panies that are active in Croatia and neighboring
countries
• Untapped m idsize m arket
Threats
• Cultural structure does not contribute to the developm ent of
entrepreneurship
• Reduced availability of debt nancing and general illiquidity
Outlook
• The Croatian m arket is traditionally bank oriented, and reduced access
to bank loans for SM Es is expected to provide a platform for m ore VCPE
activities
• Hidden values are expected to be increasingly tapped by VCPE in the near
future
BalazsTuske, Ernst & Young
[email protected]
105 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
58 32,3 58
1.2 Medium-Term Real GDP Growth
53 84,3 68
1.3 Unemployment
66 101,3 48
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
41 57,3 32
2.2 Stock Market Liquidity (Trading Volume)
57 3,1 52
2.3 IPO Market Activity
61 19,0 55
2.4 M&A Market Activity
54 22,6 63
2.5 Debt and Credit Market
70 56,8 54
2.6 Bank Non-Performing Loans to Total Gross Loans
61 87,0 64
2.7 Financial Market Sophistication
49 40,0 56
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
4 118,0 2
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
68 23,0 78
4.2 Security of Property Rights
49 50,1 52
4.3 Quality of Legal Enforcement
53 57,3 53
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
45 48,9 48
5.2 Labor Market Rigidities
59 46,7 62
5.3 Bribing and Corruption
50 47,7 48
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
44 35,0 48
6.2 Scientific and Technical Journal Articles
41 56,5 41
6.3 Ease of Starting and Running a Business
48 84,3 48
6.4 Simplicity of Closing a Business
53 60,7 56
6.5 Corporate R&D
35 29,4 44
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
106 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Czech Republic
2007 2011 Quartile
Rank Value Rank
Poland 35 57,4 36
Czech Republic 34 55,0 37
Turkey 31 52,8 39
Hungary 43 52,0 40
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
4th 1st
30
31
32
33
34
35
36
37
38
39
40
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Czech Republic
Eastern Europe
United States=100 Points
GDP 194 [bn USD] IPO Volume
Population 11 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Prague ++Official Language: Czech ++Currency: Czech Koruna
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 34 55,0 37
Economic Activity 24 79,1 43
Depth of Capital Market 45 38,3 45
Taxation 58 90,0 64
Inv. Prot./Corp. Gov. 43 58,9 47
Human/Social Env. 21 74,5 20
Entrepr. Cult./Deal Opp. 37 53,3 33
4th 1st
Strengths
• Relatively strong m id-term econom ic grow th prospects
• Strategic location in Central Europe bordering w ith strong econom ies
(Germ any, Austria, Poland)
• The second highest GDP (PPP) per capita in Central and Eastern Europe
• Highly educated and skilled labor force, w ith a w ell-developed
infrastructure
• Developed real estate m arket
Weaknesses
• Illiquid capital m arket
• Negative perception/low pro le of VCPEs as a source of nance
• Financial reporting under local accounting standards
• Few opportunities for large investm ents (>500m )
• Low er quality of legal enforcem ent and uncertain tax environm ent
Opportunities
• M any good com panies w ith poor nancial m anagem ent
• Large pool of ow ner-m anaged businesses w here ow ners are now reaching
retirem ent
• Com panies still struggling to obtain credit from banks and looking for
other sources of nance
• Opportunities in non-cyclical industries such as health care
• New governm ent w ith a strong m andate and priorities com prising
pension and health care reform , and the strengthening of the anti-
corruption law
Threats
• Foreign currency exchange (FX) volatility (postponem ent of a decision
regarding Euro adoption to the next governm ent i.e., 2014)
• Negative im pact of cuts in governm ent spending on econom ic grow th
• Uncertain im pact of a global econom ic recovery on the prospects of an
export-oriented econom y
Outlook
• Continuing recovery of VCPE opportunities to execute leveraged
transaction w ith com panies show ing reasonable grow th prospects
LubosKratochvil, Ernst & Young
[email protected]
107 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
43 46,2 45
1.2 Medium-Term Real GDP Growth
30 95,9 54
1.3 Unemployment
37 112,0 32
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
62 33,2 59
2.2 Stock Market Liquidity (Trading Volume)
40 8,8 42
2.3 IPO Market Activity
49 20,4 53
2.4 M&A Market Activity
42 45,9 42
2.5 Debt and Credit Market
35 66,6 36
2.6 Bank Non-Performing Loans to Total Gross Loans
49 97,9 48
2.7 Financial Market Sophistication
37 68,2 36
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
58 90,0 64
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
29 60,6 38
4.2 Security of Property Rights
61 46,6 58
4.3 Quality of Legal Enforcement
39 72,5 38
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
23 83,8 21
5.2 Labor Market Rigidities
13 85,4 13
5.3 Bribing and Corruption
40 57,8 39
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
29 64,1 24
6.2 Scientific and Technical Journal Articles
29 66,2 29
6.3 Ease of Starting and Running a Business
56 79,1 54
6.4 Simplicity of Closing a Business
74 28,1 74
6.5 Corporate R&D
31 45,5 29
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
108 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Denmark
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
0
5
10
15
20
25
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Denmark
Western Europe
United States=100 Points
GDP 314 [bn USD] IPO Volume
Population 6 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Copenhagen ++Official Language: Danish ++Currency: Danish Krone
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 13 81,8 12
Economic Activity 61 77,7 47
Depth of Capital Market 22 59,3 24
Taxation 3 117,6 3
Inv. Prot./Corp. Gov. 4 106,3 5
Human/Social Env. 2 108,4 4
Entrepr. Cult./Deal Opp. 13 88,7 10
4th 1st
Strengths
• Increased econom ic activity w ith entrepreneurs
• Strong VC environm ent w ith local as w ell as international players
• Increased political focus on providing nances to the business com m unity
• Increase in corporate earnings
Weaknesses
• Low end of the VC m arket not pow erful enough and few players only
• Several exits from PE houses m ay increase com petition in buy-side
processes
Opportunities
• The VCPE m odel receives positive interest from the public
• M id-size PE houses have raised funds recently
• Good entrepreneurship in technologies and products
• Hum an resource environm ent is business friendly
Threats
• Financial m arket is still repositioning on the back of the nancial crisis
• Im balance betw een nancing opportunities and m arket pricing on
com panies
• Com petition from industrial buyers
Outlook
• Increased PE deal activity is expected
Jakob Fogt, Ernst & Young
[email protected]
109 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
27 52,1 30
1.2 Medium-Term Real GDP Growth
73 79,9 70
1.3 Unemployment
14 112,5 29
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
30 54,6 36
2.2 Stock Market Liquidity (Trading Volume)
24 24,9 26
2.3 IPO Market Activity
41 39,6 33
2.4 M&A Market Activity
23 53,3 31
2.5 Debt and Credit Market
6 88,7 10
2.6 Bank Non-Performing Loans to Total Gross Loans
5 118,5 2
2.7 Financial Market Sophistication
9 85,9 20
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
3 117,6 3
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
11 89,4 11
4.2 Security of Property Rights
8 104,7 11
4.3 Quality of Legal Enforcement
1 128,5 1
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
6 102,1 8
5.2 Labor Market Rigidities
7 91,6 6
5.3 Bribing and Corruption
3 136,1 2
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
8 96,3 7
6.2 Scientific and Technical Journal Articles
22 70,0 22
6.3 Ease of Starting and Running a Business
5 104,7 9
6.4 Simplicity of Closing a Business
19 109,4 7
6.5 Corporate R&D
12 71,2 12
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
110 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Ecuador
2007 2011 Quartile
Rank Value Rank
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
Venezuela 73 15,2 79
4th 1st
68
69
70
71
72
73
74
75
76
77
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Ecuador
Latin America
United States=100 Points
GDP 62 [bn USD] IPO Volume
Population 14 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Quito ++Official Language: Spanish ++Currency: U.S. Dollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 74 17,9 74
Economic Activity 37 75,3 52
Depth of Capital Market 71 11,2 73
Taxation 44 93,9 51
Inv. Prot./Corp. Gov. 79 16,2 79
Human/Social Env. 77 16,1 78
Entrepr. Cult./Deal Opp. 75 11,9 77
4th 1st
Strengths
• Subject to US levels of m onetary discipline under the dollarization regim e,
strengthening control over in ation
• Increase in private consum ption and investm ent, driven by im proved
consum er con dence and a grow th in energy and infrastructure
investm ent projects
• M oderate in ation rates
Weaknesses
• Lack of legal fram ew ork for VCPE form ation and operation
• Lack of political stability
• High perception of corruption
• Perception of slow judicial system
• Unpredictable governm ent policies
• Inadequate intellectual property rights protection
• Com plexity of starting a business
• Lim ited access to international capital m arkets, due to the politically
driven decision to default on 2012 and 2030 bonds
Opportunities
• Global energy dem and is likely to increase, outpacing oil supply grow th,
leading to higher oil prices and higher revenues for oil producers, like Ecuador
Threats
• Ecuador’s econom ic perform ance is vulnerable to international
developm ents due to its dependence on com m odities
• The Governm ent seeks to increase state control over the country’s
strategic sectors
• Foreign investors, speci cally from the oil and gas sectors, have been
engaged in disputes w ith the Governm ent over scal m atters
• As of 2010, Ecuador is no longer a m em ber of ICSID (International Centre
for Settlem ent of Investm ent Disputes), w hich m ay im pact investor
con dence
• Ecuador has unilaterally rescinded several foreign investm ent protection
agreem ents
Outlook
• The outlook for Ecuador is uncertain: low er oil prices and w eaker external
dem and could dam pen the country’s m ajor sources of foreign currency
(US$) and public sector revenue
• Foreign investm ent has been jeopardized by the new constitution, w hich
prioritizes national over foreign investm ent
Milton Vasconez, Ernst & Young
[email protected]
111 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
60 32,0 60
1.2 Medium-Term Real GDP Growth
27 132,0 18
1.3 Unemployment
44 101,3 48
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
71 23,0 66
2.2 Stock Market Liquidity (Trading Volume)
69 1,3 70
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
62 7,2 77
2.5 Debt and Credit Market
74 43,6 69
2.6 Bank Non-Performing Loans to Total Gross Loans
43 103,4 33
2.7 Financial Market Sophistication
70 22,4 70
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
44 93,9 51
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
72 32,0 75
4.2 Security of Property Rights
74 14,4 76
4.3 Quality of Legal Enforcement
79 9,2 79
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
77 20,3 79
5.2 Labor Market Rigidities
72 19,6 78
5.3 Bribing and Corruption
75 10,5 76
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
75 8,8 75
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
69 55,7 72
6.4 Simplicity of Closing a Business
69 36,3 72
6.5 Corporate R&D
61 13,1 59
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
112 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Egypt
2007 2011 Quartile
Rank Value Rank
South Africa 24 66,9 26
Egypt 52 41,8 55
Morocco 61 41,8 54
Tunisia 64 41,5 56
Kenya 69 38,3 63
Nigeria 66 37,1 64
Namibia 70 26,4 70
Algeria 76 17,1 77
4th 1st
35
40
45
50
55
60
65
70
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Egypt Africa
United States=100 Points
GDP 216 [bn USD] IPO Volume
Population 78 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Cairo ++Official Language: Arabic ++Currency: Egyptian Pound
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 52 41,8 55
Economic Activity 40 89,8 21
Depth of Capital Market 47 37,8 47
Taxation 63 90,7 60
Inv. Prot./Corp. Gov. 52 49,6 51
Human/Social Env. 70 24,7 76
Entrepr. Cult./Deal Opp. 50 32,2 65
4th 1st
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Strengths
• High-grow th econom y, w hich w as sustained even during the recession
• W ell-established stock m arket –in the top ve according to m arket cap
in Africa
• High levels of literacy am ong youth and adults as w ell as a reasonable
Gini coef cient (a statistical m easure of w ealth distribution am ong people
relative to its peers) (32% )
Weaknesses
• Access to nancial services is lim ited
Opportunities
• Prospects are good in a vast range of industries including pharm aceuticals,
chem icals, tourism , light m anufacturing and food processing
• Pharm aceuticals and food processing are a priority across Africa; therefore
Egypt is w ell positioned to lead these sectors
Threats
• Continued uncertainty around the political trajectory
Outlook
• Grow th is not expected to drop in the future, particularly now the global
econom ic recovery seem s to be on track
• Egypt is of signi cance to the M iddle East, due to its physical and cultural
proxim ity to the region
• The resolution of the political crisis is crucial
Abdulaziz Al-Sowailim, Ernst & Young
[email protected]
113 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
50 47,5 39
1.2 Medium-Term Real GDP Growth
47 155,8 8
1.3 Unemployment
65 97,8 59
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
26 65,6 27
2.2 Stock Market Liquidity (Trading Volume)
30 17,6 29
2.3 IPO Market Activity
42 27,6 45
2.4 M&A Market Activity
49 44,0 43
2.5 Debt and Credit Market
50 72,0 31
2.6 Bank Non-Performing Loans to Total Gross Loans
78 19,0 78
2.7 Financial Market Sophistication
67 57,7 47
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
63 90,7 60
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
65 44,6 64
4.2 Security of Property Rights
56 46,8 57
4.3 Quality of Legal Enforcement
50 58,6 52
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
76 20,8 78
5.2 Labor Market Rigidities
60 30,9 74
5.3 Bribing and Corruption
59 23,4 65
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
67 18,1 71
6.2 Scientific and Technical Journal Articles
37 61,0 37
6.3 Ease of Starting and Running a Business
74 95,1 25
6.4 Simplicity of Closing a Business
70 40,8 71
6.5 Corporate R&D
39 8,0 67
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
114 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Estonia
2007 2011 Quartile
Rank Value Rank
Czech Republic 34 55,0 37
Turkey 31 52,8 39
Hungary 43 52,0 40
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
Lithuania 46 41,3 57
4th 1st
30
35
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Estonia
Eastern Europe
United States=100 Points
GDP 19 [bn USD] IPO Volume
Population 1 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Tallinn ++Official Language: Estonian ++Currency:
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 41 44,8 49
Economic Activity 34 35,5 76
Depth of Capital Market 54 26,0 56
Taxation 32 101,4 37
Inv. Prot./Corp. Gov. 24 79,6 24
Human/Social Env. 32 63,4 31
Entrepr. Cult./Deal Opp. 30 53,8 32
4th 1st
Strengths
• Sim ple and attractive tax system
• Governm ent e-services and low level of bureaucracy
• Very exible labor m arket –the crisis proved that internal devaluation is
possible
Weaknesses
• Sm all econom y and, therefore, sm all M &A m arket
• Low liquidity and sm all size of stock exchange
• Dependency on the econom ic strength of Scandinavian countries, w hich
are the m ain export m arkets and also the m ain source of foreign capital
in ow s
Opportunities
• Recent adoption of the euro and the resulting reduction of currency risk is
likely to increase investor’s interest tow ards Estonia
• Governm ent’s low indebtedness and high rating of governm ent debt
enable the support of dom estic dem and
Threats
• Baltic region, w hich is seen as one area, eclipses the am enities of Estonia
• Up to 15% expected unem ploym ent rate in the near future hinders
dom estic dem and
Outlook
• Adoption of the euro and the governm ent’s continuing focus on the
openness of the econom y should attract foreign VCPE interest
• Estonia’s attractiveness w ill also depend on econom ic grow th prospects
com pared w ith the other Eastern European countries
Lili Kirikal, Ernst & Young
[email protected]
115 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
69 17,0 72
1.2 Medium-Term Real GDP Growth
7 34,1 79
1.3 Unemployment
27 76,8 69
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
63 20,1 69
2.2 Stock Market Liquidity (Trading Volume)
52 2,5 58
2.3 IPO Market Activity
64 12,2 62
2.4 M&A Market Activity
61 24,9 60
2.5 Debt and Credit Market
22 73,8 28
2.6 Bank Non-Performing Loans to Total Gross Loans
1 107,5 23
2.7 Financial Market Sophistication
22 68,2 36
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
32 101,4 37
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
27 64,3 33
4.2 Security of Property Rights
22 84,6 23
4.3 Quality of Legal Enforcement
23 92,6 23
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
25 75,3 26
5.2 Labor Market Rigidities
71 38,4 68
5.3 Bribing and Corruption
25 88,0 24
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
33 55,0 30
6.2 Scientific and Technical Journal Articles
50 50,2 50
6.3 Ease of Starting and Running a Business
10 108,8 7
6.4 Simplicity of Closing a Business
36 69,9 39
6.5 Corporate R&D
45 21,4 53
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
116 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Finland
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
0
2
4
6
8
10
12
14
16
18
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Finland
Western Europe
United States=100 Points
GDP 240 [bn USD] IPO Volume
Population 5 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Helsinki ++Official Language: Finnish, Swedish ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 9 82,3 11
Economic Activity 46 72,3 53
Depth of Capital Market 15 64,4 19
Taxation 6 113,9 5
Inv. Prot./Corp. Gov. 5 106,0 6
Human/Social Env. 8 92,8 12
Entrepr. Cult./Deal Opp. 5 93,7 3
4th 1st
Strengths
• High education and R&D contribution
• Healthy banking sector
Weaknesses
• Relatively sm all m arkets to support “the business case”
• Early-stage VC nancing needing further developm ent
Opportunities
• New sectors arising, such as cleantech and engineering
• Developm ent of globally leading clusters in certain strong industries
Threats
• Increasing im portance of globalization
• Failure to m aintain advanced telecom sector
Outlook
• Finland w ill be seen as an interesting area in w hich to invest
Sakari Laine, Ernst & Young
sakari.laine@?.ey.com
117 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
32 48,8 35
1.2 Medium-Term Real GDP Growth
60 76,8 72
1.3 Unemployment
44 100,9 50
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
24 62,3 28
2.2 Stock Market Liquidity (Trading Volume)
7 55,9 9
2.3 IPO Market Activity
37 24,8 49
2.4 M&A Market Activity
25 51,7 35
2.5 Debt and Credit Market
18 87,3 13
2.6 Bank Non-Performing Loans to Total Gross Loans
5 117,8 3
2.7 Financial Market Sophistication
18 100,0 11
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
6 113,9 5
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
15 80,7 17
4.2 Security of Property Rights
2 119,6 1
4.3 Quality of Legal Enforcement
2 123,6 3
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
2 105,3 6
5.2 Labor Market Rigidities
49 56,5 50
5.3 Bribing and Corruption
1 134,3 5
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
9 106,6 3
6.2 Scientific and Technical Journal Articles
23 69,6 23
6.3 Ease of Starting and Running a Business
2 112,3 5
6.4 Simplicity of Closing a Business
5 110,9 5
6.5 Corporate R&D
11 78,0 8
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
118 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
France
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
0
5
10
15
20
25
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
France
Western Europe
United States=100 Points
GDP 2649 [bn USD] IPO Volume
Population 63 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Paris ++Official Language: French ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 17 79,6 14
Economic Activity 68 89,8 20
Depth of Capital Market 13 73,6 11
Taxation 18 104,7 25
Inv. Prot./Corp. Gov. 23 85,4 19
Human/Social Env. 23 67,6 26
Entrepr. Cult./Deal Opp. 12 82,5 16
4th 1st
Strengths
• Strong and sophisticated fram ew ork for VCPE transactions
• Com eback of large leveraged buyouts (LBOs), particularly secondary deals,
thanks to im proved debt m arkets
• Consistent deal ow of high-quality, high-tech projects
Weaknesses
• French GPs realize less international deals than their European peers,
e.g., UK, Germ any, Sw eden
• Cleantech investm ents w ere late to develop in France, but are now
accelerating
• Few prim ary PE deals
Opportunities
• Tax policy in favor of asset class: “FCPI,”“Loi TEPA”
• Tax policy in favor of innovation: “crédit im pôt recherche,”“OSEO”
incentives
• Developm ent of ESG (environm ental, social and governance) principles
and best practices
Threats
• Only a few large funds of funds
• French em erging com panies nd it dif cult to grow (after a few years
in business) and to becom e m arket leaders
Outlook
• Policy debate on how to drive banks and insurance investm ent and
long-term savings tow ard VCPE
• Im pact of Solvency II, Basel III
• Crisis-delayed PE portfolio exits are now on the m arket
• French tax policies m ay foster new prom ising opportunities for VCPE
Paul Gerber, Ernst & Young
[email protected]
119 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
6 78,6 5
1.2 Medium-Term Real GDP Growth
77 93,0 58
1.3 Unemployment
57 99,1 55
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
17 71,3 24
2.2 Stock Market Liquidity (Trading Volume)
16 44,7 16
2.3 IPO Market Activity
11 64,3 11
2.4 M&A Market Activity
6 75,0 8
2.5 Debt and Credit Market
27 78,0 25
2.6 Bank Non-Performing Loans to Total Gross Loans
40 101,4 38
2.7 Financial Market Sophistication
13 96,5 15
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
18 104,7 25
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
54 59,1 42
4.2 Security of Property Rights
11 105,0 10
4.3 Quality of Legal Enforcement
20 100,3 19
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
14 88,4 18
5.2 Labor Market Rigidities
73 35,3 70
5.3 Bribing and Corruption
17 99,1 19
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
6 88,9 11
6.2 Scientific and Technical Journal Articles
6 84,5 6
6.3 Ease of Starting and Running a Business
31 83,9 49
6.4 Simplicity of Closing a Business
27 80,1 29
6.5 Corporate R&D
9 75,7 9
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
120 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Georgia
2007 2011 Quartile
Rank Value Rank
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
Moldova 71 22,0 72
Macedonia 75 19,3 73
Albania 79 17,8 75
Bosnia-Herzegovina 77 17,3 76
4th 1st
63
64
65
66
67
68
69
70
71
72
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Georgia
Eastern Europe
United States=100 Points
GDP 11 [bn USD] IPO Volume
Population 4 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Tbilisi ++Official Language: Georgian ++Currency: Lari
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 68 27,2 69
Economic Activity 69 40,3 72
Depth of Capital Market 66 12,4 71
Taxation 67 90,0 63
Inv. Prot./Corp. Gov. 69 44,0 60
Human/Social Env. 64 48,3 52
Entrepr. Cult./Deal Opp. 58 26,8 69
4th 1st
Strengths
• Good m edium -term GDP grow th potential
• One of the best business environm ents in Eastern Europe and the
Caucasus: business start-ups are com paratively quick, w ith m inim al
adm inistrative requirem ents and hiring and low labor m arket frictions
• Very good progress in large-scale privatization (m anufacturing, energy,
telecom m unications and health care)
Weaknesses
• Virtually no VCPE activity
• Non-bank nancial sector underdeveloped
• Heavy reliance on m etals and fossil fuels for export revenues
Opportunities
• The Governm ent, nancially supported by the IM F, is w orking to im prove
infrastructure and energy supply
• The internet services m arket has just started to develop, and the
regulatory authority aim s to provide a supportive environm ent by
increasing broadband deploym ent and by better regulating connection
tariffs
Threats
• FDI w as a key driver of pre-crisis grow th, but halved during 2009-2010.
If FDI in ow s do not pick up considerably, this w ould slow dow n by
m edium -term grow th
• Tensions continue w ith Russia over the breakaw ay republics of Abkhazia
and Adjara and the autonom ous South Ossetia region, as w ell as over
delays to Russia’s W orld Trade Organization accession. (Russia is one of
Georgia’s m ajor partners in term s of trade, investm ent and rem ittances)
• High governm ent debt and de cits could be a drag on infrastructure
projects
Outlook
• GDP grow th of m ore than 5% p.a. expected for the next ve years
• High in ation, currently at 11.2 % w ill probably recede from 2012
• Grow th could increase further if relations w ith Russia ease and
governm ent efforts to im prove infrastructure take effect
• Debt and credit m arkets are likely to strengthen further, albeit from
a low level
George Bazgadze, Ernst & Young
[email protected]
121 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
76 10,4 75
1.2 Medium-Term Real GDP Growth
11 97,0 53
1.3 Unemployment
71 65,2 71
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
68 18,2 73
2.2 Stock Market Liquidity (Trading Volume)
66 1,2 74
2.3 IPO Market Activity
62 1,0 67
2.4 M&A Market Activity
64 16,5 67
2.5 Debt and Credit Market
76 51,9 63
2.6 Bank Non-Performing Loans to Total Gross Loans
14 92,5 55
2.7 Financial Market Sophistication
67 25,9 67
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
67 90,0 63
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
57 55,3 46
4.2 Security of Property Rights
71 35,5 68
4.3 Quality of Legal Enforcement
70 43,4 59
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
66 26,1 74
5.2 Labor Market Rigidities
69 90,9 8
5.3 Bribing and Corruption
62 47,6 49
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
74 14,3 72
6.2 Scientific and Technical Journal Articles
64 41,3 64
6.3 Ease of Starting and Running a Business
18 115,7 3
6.4 Simplicity of Closing a Business
52 64,8 47
6.5 Corporate R&D
58 3,1 79
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
122 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Germany
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
0
5
10
15
20
25
30
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Germany
Western Europe
United States=100 Points
GDP 3335 [bn USD] IPO Volume
Population 82 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Berlin ++Official Language: German ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 16 82,8 10
Economic Activity 72 90,6 17
Depth of Capital Market 16 67,5 16
Taxation 31 107,1 16
Inv. Prot./Corp. Gov. 12 96,3 14
Human/Social Env. 18 80,9 18
Entrepr. Cult./Deal Opp. 3 91,8 5
4th 1st
Strengths
• Large num ber of interesting targets of all sizes and strong potential from
privately ow ned businesses facing succession problem s
• Europe’s leading econom y, w ith diverse portfolio of industries
• Very strong infrastructure and reliable adm inistration
• Cultural attitude tow ards perform ance and diligence
Weaknesses
• The Governm ent is looking to bring in stricter regulations and governance
around the quality of m anagem ent and diligence procedures, w hich m ay
decline deal–m aking attractiveness
Opportunities
• The m acroeconom ic environm ent is very favorable w ith forecasts
predicting that Germ any should becom e even stronger
• As w e predicted in our last issue, com prehensive restructuring has placed
m any com panies in strong com petitive positions
• The loan situation is still fraught, causing m any com panies to look for
other sources of capital, w here VCPE represents a good option
Threats
• Germ any’s current strength is m ainly export driven and therefore strongly
dependent on global recovery
• The im proved tax position and other legislation, w hich w as changed
during the crisis, m ight be reversed if the econom y keeps grow ing
• Regulations deriving from the AIFM Directive m eans that investors’access
to certain products m ay be restricted, w hich m ay change their portfolio
diversi cation m odels
Outlook
• The m arket is returning to its form er (prior crisis) perform ance w here
m any interesting com panies are em erging as investm ent targets: They
operate in niche grow th m arkets, have a great technological advantage,
and a deep innovation culture. These com panies are w ell positioned to
participate in the recovering w orld econom y and grow th in em erging
m arkets
Stefan Ostheim, Ernst & Young
[email protected]
123 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
3 81,5 4
1.2 Medium-Term Real GDP Growth
78 87,3 63
1.3 Unemployment
49 104,5 42
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
36 53,5 37
2.2 Stock Market Liquidity (Trading Volume)
20 33,6 20
2.3 IPO Market Activity
13 60,3 15
2.4 M&A Market Activity
8 73,6 9
2.5 Debt and Credit Market
21 75,8 26
2.6 Bank Non-Performing Loans to Total Gross Loans
46 102,1 36
2.7 Financial Market Sophistication
13 103,5 8
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
31 107,1 16
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
18 72,3 23
4.2 Security of Property Rights
3 106,2 7
4.3 Quality of Legal Enforcement
14 116,2 15
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
12 102,4 7
5.2 Labor Market Rigidities
68 45,0 64
5.3 Bribing and Corruption
15 114,9 14
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
2 103,3 5
6.2 Scientific and Technical Journal Articles
4 87,6 4
6.3 Ease of Starting and Running a Business
36 86,6 46
6.4 Simplicity of Closing a Business
21 88,8 21
6.5 Corporate R&D
3 93,8 3
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
124 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Greece
2007 2011 Quartile
Rank Value Rank
France 17 79,6 14
Belgium 18 76,8 15
Austria 23 71,7 22
Spain 20 69,1 23
Ireland 14 67,7 24
Portugal 38 60,4 31
Italy 32 59,6 32
Luxembourg 29 59,3 33
Greece 39 47,9 44
4th 1st
30
32
34
36
38
40
42
44
46
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Greece
Western Europe
United States=100 Points
GDP 322[bn USD] IPO Volume
Population 11 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Athens ++Official Language: Greek ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 39 47,9 44
Economic Activity 47 76,4 50
Depth of Capital Market 30 46,0 37
Taxation 30 107,1 17
Inv. Prot./Corp. Gov. 50 47,1 54
Human/Social Env. 62 31,7 73
Entrepr. Cult./Deal Opp. 42 42,1 52
4th 1st
Strengths
• Tax and legal environm ent supporting VCPE
• New governm ent policies to "fast track" investm ents (particularly in
tourism and real estate)
Weaknesses
• Non-existent debt m arkets due to prevailing m arket conditions.
• VCs having to nance up to 100% of m any investm ents
• Sm all PE houses dom inating the m arket and focusing on sm all ticket deals
• Large corporates often controlled by fam ilies w ho are actively engaged in
day-to-day operations
• Lack of experienced/professional m anagem ent
Opportunities
• There are plenty of distressed-type opportunities
• Even solid/stable corporates are looking to restructure their debt
• M any corporates are looking to divest businesses to raise cash
Threats
• Con dence is at an all-tim e low
• The fear of Greece defaulting on its debt obligations is deterring a lot of
foreign investors
Outlook
• The m arket w ill continue to be dif cult for VCPEs
• M ost local PEs are nourishing existing investm ents rather than m aking
new ones
• The m arket has becom e a buyer's m arket; m any com panies are looking for
re nancing and investm ent
• Exits are extrem ely dif cult
Michael Chourdakis, Ernst & Young
[email protected]
125 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
28 52,4 29
1.2 Medium-Term Real GDP Growth
62 85,8 64
1.3 Unemployment
55 99,1 55
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
29 46,0 42
2.2 Stock Market Liquidity (Trading Volume)
34 12,5 37
2.3 IPO Market Activity
28 45,6 28
2.4 M&A Market Activity
39 51,6 36
2.5 Debt and Credit Market
30 68,4 35
2.6 Bank Non-Performing Loans to Total Gross Loans
62 86,3 66
2.7 Financial Market Sophistication
41 54,1 51
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
30 107,1 17
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
73 25,8 76
4.2 Security of Property Rights
43 59,8 43
4.3 Quality of Legal Enforcement
37 67,9 42
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
57 33,4 69
5.2 Labor Market Rigidities
78 22,5 77
5.3 Bribing and Corruption
44 42,5 51
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
62 22,2 67
6.2 Scientific and Technical Journal Articles
25 68,7 25
6.3 Ease of Starting and Running a Business
70 53,2 73
6.4 Simplicity of Closing a Business
30 79,3 31
6.5 Corporate R&D
49 20,4 55
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
126 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Hong Kong
2007 2011 Quartile
Rank Value Rank
Singapore 2 92,4 4
Japan 6 90,9 6
Hong Kong 15 76,5 16
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
4th 1st
0
2
4
6
8
10
12
14
16
18
20
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
HongKong
Asia
United States=100 Points
GDP 224 [bn USD] IPO Volume
Population 7 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: HongKong++Official Language: Chinese, English ++Currency: HongKongDollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 15 76,5 16
Economic Activity 11 85,6 33
Depth of Capital Market 2 98,3 2
Taxation 25 102,6 34
Inv. Prot./Corp. Gov. 3 110,7 3
Human/Social Env. 9 97,7 9
Entrepr. Cult./Deal Opp. 64 32,8 64
4th 1st
Strengths
• Key global nancial center w ith professional labor m arket and nancial
infrastructure
• One of the easiest places in the w orld to establish a business or generate
an IPO
• W ell-placed to bene t from m ainland China’s high grow th and nancial
m arket developm ent
• Quick IPO approval process com pared w ith the m ainland –im portant for
fast-grow ing com panies
Weaknesses
• Econom y is concentrated in the nancial sector and vulnerable to
dow nturns in w orld trade and nancial liquidity
• Strong rises in dom estic and com m ercial property in recent years store up
the potential for asset price volatility
Opportunities
• Potential for global investors to access the renm inbi-denom inated bond
m arket in Hong Kong
• Large increase in use of w ind and solar pow er in m ainland China over
the next decade, w ith the aim of producing a fth of m ainland China’s
energy from renew able sources; this is already generating signi cant PE
transactions in Hong Kong
• The rem oval of taxes and duties on w ine in 2008 has seen Hong Kong
becom e a gatew ay for w ine trade in Asia, challenging New York for the
position of largest w ine auction center in the w orld
Threats
• High valuations, particularly in property sectors, m ay reduce the num ber
of transactions
• M anaging capital in ow s and in ationary pressures w ith the dollar peg
rem ains a key challenge
• The ow of IPO slow ed tow ard the end of 2010 as m ainland China began
tightening m onetary policy, low ering share prices in Hong Kong
Outlook
• Real GDP grow th is expected to average 5% over the next ve years
• Hong Kong is a key part of the grow ing integration of trade w ithin Asia
• Hong Kong w ill be a key part of m ainland China’s nancial developm ent
and can capitalize on this by providing a range of nancial instrum ents
targeted at m ainland investors
Lawrence Lau, Ernst & Young
[email protected]
127 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
35 47,9 37
1.2 Medium-Term Real GDP Growth
17 111,5 40
1.3 Unemployment
22 117,4 17
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
1 143,8 1
2.2 Stock Market Liquidity (Trading Volume)
4 111,4 2
2.3 IPO Market Activity
8 71,9 6
2.4 M&A Market Activity
11 71,1 12
2.5 Debt and Credit Market
17 85,4 15
2.6 Bank Non-Performing Loans to Total Gross Loans
21 114,4 9
2.7 Financial Market Sophistication
2 110,6 4
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
25 102,6 34
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
3 107,1 5
4.2 Security of Property Rights
7 109,5 6
4.3 Quality of Legal Enforcement
16 115,6 16
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
24 80,4 22
5.2 Labor Market Rigidities
3 98,1 4
5.3 Bribing and Corruption
14 118,2 12
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
23 63,4 26
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
3 118,0 2
6.4 Simplicity of Closing a Business
15 101,7 15
6.5 Corporate R&D
23 49,7 26
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
128 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Hungary
2007 2011 Quartile
Rank Value Rank
Poland 35 57,4 36
Czech Republic 34 55,0 37
Turkey 31 52,8 39
Hungary 43 52,0 40
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
4th 1st
35
37
39
41
43
45
47
49
51
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Hungary
Eastern Europe
United States=100 Points
GDP 146 [bn USD] IPO Volume
Population 10 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Budapest ++Official Language: Hungarian ++Currency: Forint
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 43 52,0 40
Economic Activity 49 68,1 58
Depth of Capital Market 46 36,2 49
Taxation 16 108,7 12
Inv. Prot./Corp. Gov. 35 66,4 38
Human/Social Env. 53 49,2 51
Entrepr. Cult./Deal Opp. 32 56,7 30
4th 1st
Strengths
• Com petitive tax regim e supporting investm ent and econom ic grow th
• Large cum ulated FDI w ith signi cant new investm ents in the autom otive
sector and shared service centers
• Post-privatization phase
• Know n to have grow n talent and know -how in selected industries
Weaknesses
• Volatile currency
• Lim ited num ber of large potential investm ents
• Underdeveloped stock m arket, resulting in lim ited m arket liquidity and
poor exit opportunities
Opportunities
• Untapped m idsize m arket, w hich is a priority in the governm ent’s
econom ic policy
• Grow th potential of Hungarian com panies w hich have already invested in
neighboring countries; cross-border activity w ithin the region
• M arket consolidation in various industries, disposals, reorganizations of
international players
• Dif culty in raising nance for local players
• Values to be created by im proving corporate culture
• Com m encem ent of the EU-funded “Jerem ie-Program ”to help VC activities
and to encourage com panies to com e to m arket w ill result in viable
investm ent opportunities
Threats
• Reduced availability of debt nancing
• International investor con dence
• Uncertainty regarding the governm ent’s m acroeconom ic policies
Outlook
• M any opportunities: a grow ing num ber of deals in selected industries
(due to the crisis), follow ed by reignited econom ic grow th, and local and
regional consolidation
• Investm ent of EU and governm ent funds as seed capital w ill create a good
deal ow in the technology sector in tw o to three years
BalazsTuske, Ernst & Young
[email protected]
129 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
48 42,6 50
1.2 Medium-Term Real GDP Growth
55 75,1 74
1.3 Unemployment
42 98,7 57
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
59 27,2 64
2.2 Stock Market Liquidity (Trading Volume)
37 8,8 43
2.3 IPO Market Activity
60 20,7 52
2.4 M&A Market Activity
44 39,5 52
2.5 Debt and Credit Market
34 64,3 42
2.6 Bank Non-Performing Loans to Total Gross Loans
34 100,0 39
2.7 Financial Market Sophistication
48 64,7 41
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
16 108,7 12
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
45 54,8 48
4.2 Security of Property Rights
25 77,0 28
4.3 Quality of Legal Enforcement
38 69,4 40
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
42 67,5 33
5.2 Labor Market Rigidities
76 29,4 76
5.3 Bribing and Corruption
34 60,2 38
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
40 47,3 34
6.2 Scientific and Technical Journal Articles
33 64,7 33
6.3 Ease of Starting and Running a Business
42 82,4 50
6.4 Simplicity of Closing a Business
42 70,9 38
6.5 Corporate R&D
42 32,7 37
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
130 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
India
2007 2011 Quartile
Rank Value Rank
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
4th 1st
19
21
23
25
27
29
31
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
India Asia
United States=100 Points
GDP 1468 [bn USD] IPO Volume
Population 1185 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: New Delhi ++Official Language: Hindi, English ++Currency: Indian Rupee
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 26 61,4 30
Economic Activity 3 108,9 2
Depth of Capital Market 18 68,9 15
Taxation 62 84,9 72
Inv. Prot./Corp. Gov. 42 59,6 46
Human/Social Env. 43 53,1 46
Entrepr. Cult./Deal Opp. 45 38,5 54
4th 1st
Strengths
• One of the fastest grow ing econom ies; high dom estic consum ption-driven
grow th
• Strong entrepreneurial ecosystem and private sector
• VCPE investm ents grow ing at CAGR of 63% (from US$1 billion in 2002 to
US$51.6 billion by 2010)
• High intellectual capital, leading to em ergence of VC hotspots (e.g., Bengaluru)
• Active equity capital and transaction m arkets facilitating exit options
• Vibrant VCPE m arket w ith m ore than 250 GPs and m ost of the large global
funds
Weaknesses
• Regulatory restrictions on foreign investm ent in certain sectors, albeit
easing gradually
• Lack of availability of debt for transactions
Opportunities
• Signi cant grow th in dispensable incom e and hence dem and for products
and services
• Capital is required for core sectors (e.g., infrastructure, m anufacturing,
health care)
• Stable governm ent w ith a long-term secular and grow th-oriented outlook
Threats
• Com petition from em erging nations (e.g., Brazil, China) to attract foreign
VCPE funds
• The im pact of proposed w idespread changes in regulatory and tax policy
is not fully clear
Outlook
• Heightened PE interest and activity levels are expected as a result of
broad-based econom ic grow th, stable governm ent and strong capital
m arkets
• Greater involvem ent of global funds is expected, together w ith the
em ergence of a dom estic LP com m unity
• Grow th capital m inority deals are expected to rem ain the m ajor them e
w ith buyouts still rare
Mayank Rastogi, Ernst & Young
[email protected]
131 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
14 71,3 11
1.2 Medium-Term Real GDP Growth
9 171,2 2
1.3 Unemployment
59 105,8 40
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
15 81,7 16
2.2 Stock Market Liquidity (Trading Volume)
22 35,8 19
2.3 IPO Market Activity
7 75,4 4
2.4 M&A Market Activity
13 70,7 13
2.5 Debt and Credit Market
49 66,5 38
2.6 Bank Non-Performing Loans to Total Gross Loans
43 104,8 28
2.7 Financial Market Sophistication
30 68,2 36
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
62 84,9 72
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
22 72,5 22
4.2 Security of Property Rights
60 43,5 61
4.3 Quality of Legal Enforcement
42 67,2 43
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
29 75,3 26
5.2 Labor Market Rigidities
44 59,8 45
5.3 Bribing and Corruption
55 33,2 60
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
25 41,9 36
6.2 Scientific and Technical Journal Articles
12 78,6 12
6.3 Ease of Starting and Running a Business
66 36,6 77
6.4 Simplicity of Closing a Business
78 13,3 78
6.5 Corporate R&D
24 53,0 24
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
132 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Indonesia
2007 2011 Quartile
Rank Value Rank
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
4th 1st
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Indonesia
Asia
United States=100 Points
GDP 670 [bn USD] IPO Volume
Population 233 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Jakarta ++Official Language: Indonesian ++Currency: Rupiah
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 59 45,2 48
Economic Activity 25 99,6 6
Depth of Capital Market 39 46,6 35
Taxation 66 91,0 58
Inv. Prot./Corp. Gov. 75 27,5 75
Human/Social Env. 67 39,3 61
Entrepr. Cult./Deal Opp. 69 34,5 59
4th 1st
Strengths
• Large, young and grow ing m iddle-incom e population
• Abundance of natural resources
• Political stability and am bition to develop the econom y
Weaknesses
• Tax system covers double taxation on incom e and heavy spending on
subsidies.
• Inadequate infrastructure in som e areas
• Legal system com paratively less developed than in other m arkets and
perceived w idespread corruption
• Larger com panies tend to be state or fam ily ow ned
• Physical infrastructure is considered substandard. M oreover, the
archipelagic nature of the country m akes it dif cult to w eave national
infrastructure together
Opportunities
• Valuations are m ore attractive than in other m ajor Asian countries
• Large untapped potential for natural resource exploration and
infrastructure developm ent
• The governm ent is targeting a 15% increase in investm ent from
US$23b to US$ 27b, of w hich 65% from foreign investors; in 2010, total
investm ent increased by 54.2% , w ith 424 projects w orth US$3.8b realized
in Q1 2010 alone
• Core sectors rem ain energy, m ining, plantations and infrastructure, w ith
retail, com m unications and pharm aceuticals likely to experience fast-
grow th
• If reform s to land law s are im plem ented, this w ill lead to m any investm ent
opportunities in the property m arket
• Indonesia is expected to reach investm ent grade, im proving access to nance
Threats
• Concerns that the outcom e of the 2014 presidential elections m ay result
in a potential shift of the current business and investm ent landscape
• Continuous am endm ents in Investm ent’s Negative List m ay discourage
foreign investors
• Unpredictable and contradictory Governm ent policies and or regulations
Outlook
• Robust grow th, underpinned by strong dom estic dem and
• VCPE m arkets w ill probably continue to develop quickly as the
com petition from Indonesia’s neighbors is increasing
Giuseppe Nicolosi, Ernst & Young
[email protected]
133 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
22 61,5 18
1.2 Medium-Term Real GDP Growth
37 155,5 9
1.3 Unemployment
63 103,1 44
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
45 41,9 46
2.2 Stock Market Liquidity (Trading Volume)
45 9,5 40
2.3 IPO Market Activity
25 55,5 18
2.4 M&A Market Activity
29 58,4 24
2.5 Debt and Credit Market
59 65,2 40
2.6 Bank Non-Performing Loans to Total Gross Loans
63 98,6 45
2.7 Financial Market Sophistication
57 57,7 47
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
66 91,0 58
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
53 48,8 57
4.2 Security of Property Rights
79 9,4 79
4.3 Quality of Legal Enforcement
61 45,3 57
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
31 68,6 32
5.2 Labor Market Rigidities
62 40,6 66
5.3 Bribing and Corruption
74 21,9 67
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
45 39,7 40
6.2 Scientific and Technical Journal Articles
60 44,1 60
6.3 Ease of Starting and Running a Business
76 74,5 58
6.4 Simplicity of Closing a Business
71 33,2 73
6.5 Corporate R&D
62 11,2 61
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
134 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Ireland
2007 2011 Quartile
Rank Value Rank
France 17 79,6 14
Belgium 18 76,8 15
Austria 23 71,7 22
Spain 20 69,1 23
Ireland 14 67,7 24
Portugal 38 60,4 31
Italy 32 59,6 32
Luxembourg 29 59,3 33
Greece 39 47,9 44
4th 1st
0
5
10
15
20
25
30
35
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Ireland
Western Europe
United States=100 Points
GDP 217[bn USD] IPO Volume
Population 5 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Dublin ++Official Language: Irish, English ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 14 67,7 24
Economic Activity 20 59,8 68
Depth of Capital Market 24 43,9 39
Taxation 2 116,5 4
Inv. Prot./Corp. Gov. 8 98,2 11
Human/Social Env. 10 100,1 7
Entrepr. Cult./Deal Opp. 19 75,8 20
4th 1st
Strengths
• Strong focus on indigenous entrepreneurs/start-ups
• VCPE co-investing w ith governm ent funding, w hich reduces need for
institutional capital
• Strong productivity and high value added export sectors
Weaknesses
• Lim ited debt available
• Low risk appetite
• A num ber of sectors w hich VCPE nd less attractive such as retail, leisure
and construction
Opportunities
• Governm ent focus on high potential and "sm art econom y" businesses,
such as new green technologies
• Strong m edical device/pharm aceutical industry and renew able energy
opportunities
• Valuations are com ing dow n as there are less funding alternatives
available to investees
Threats
• Recession is signi cantly deeper than in other countries
• Com pany failures are increasing
• Declining opportunities for start-ups in the recession, except in defensive
sectors
Outlook
• Increasing VCPE focus on technology and biotech, w ith high expertise
developed in these sectors and less com petition from private high net
w orth funds, due to their exposure in declining m arkets
• The governm ent w ill provide tax breaks
John O’Halloran, Ernst & Young
[email protected]
135 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
30 47,5 38
1.2 Medium-Term Real GDP Growth
39 56,4 77
1.3 Unemployment
18 79,9 68
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
42 33,9 58
2.2 Stock Market Liquidity (Trading Volume)
36 13,0 36
2.3 IPO Market Activity
26 31,1 40
2.4 M&A Market Activity
30 52,4 32
2.5 Debt and Credit Market
7 65,9 39
2.6 Bank Non-Performing Loans to Total Gross Loans
11 102,7 35
2.7 Financial Market Sophistication
13 64,7 41
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
2 116,5 4
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
7 86,5 14
4.2 Security of Property Rights
20 92,1 17
4.3 Quality of Legal Enforcement
13 119,0 11
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
11 99,4 13
5.2 Labor Market Rigidities
10 88,4 11
5.3 Bribing and Corruption
16 114,2 15
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
20 65,5 23
6.2 Scientific and Technical Journal Articles
35 63,0 35
6.3 Ease of Starting and Running a Business
9 101,3 15
6.4 Simplicity of Closing a Business
8 108,4 8
6.5 Corporate R&D
22 55,3 22
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
136 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Israel
2007 2011 Quartile
Rank Value Rank
Israel 19 72,2 21
Saudi Arabia 36 67,5 25
United Arab Emirates 33 61,6 28
Kuwait 40 57,9 35
Jordan 42 53,2 38
Oman 51 45,6 46
Bahrain 58 44,3 50
4th 1st
12
14
16
18
20
22
24
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Israel
Middle East
United States=100 Points
GDP 199 [bn USD] IPO Volume
Population 8 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Jerusalem++Official Language: Hebrew, Arabic ++Currency: New Israeli Sheqel
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 19 72,2 21
Economic Activity 33 85,4 34
Depth of Capital Market 19 58,9 25
Taxation 29 104,3 27
Inv. Prot./Corp. Gov. 20 79,9 23
Human/Social Env. 20 71,7 22
Entrepr. Cult./Deal Opp. 18 76,2 18
4th 1st
Strengths
• W ell-developed PE and VC m arket
• One of the m ost advanced econom ies in the region
• Good infrastructural environm ent for high-tech industries, including
a skilled labor-force, w ith a large num ber of high-tech specialists
• High corporate spending on R&D
• Culture that prom otes entrepreneurship
• Signi cant incentives from governm ent: from R&D grant to low tax regim e
• Advance practical education at IDF
Weaknesses
• Sm all dom estic m arket, and far off any m ajor foreign m arket
• Politically isolated in the region
• Lack of regional trade integration
• Only few w ell established big high-tech corporations (due to quick exits at
the start up phase)
• Strong NIS vs. dollar causes to increase labor cost and decrease pro ts
Opportunities
• Prom ising environm ent for VC, w ith a high num ber of technology start-ups
• Strong grow th potential, w ith a pronounced culture of innovation
• Rapidly evolving m edical technology, softw are, m edia and electronics
sectors
• Governm ent incentives w ould secure further investm ent of VC com m unity
Threats
• National security is under constant threat
• Uncertainties have increased, with turm oil in a series of Arab countries, and
in particular after the regim e change in Egypt; the old regim e had signed
a peace treaty with Israel, now, Israel’s m edium -term security outlook will be
strongly in uenced by the outcom e of national elections in Egypt
Outlook
• The econom y is forecast to grow at a sim ilar rate in 2011, before grow th
gradually declining to just below 4% during the next ve years
• In ation is expected to pick up to 3.2% in 2011, but stabilizing at 2.7%
thereafter
• The Governm ent de cit increased to 4.4% in 2009, but declined to 3% in
2010, w ith further narrow ing expected in the next few years
Oren Bar-On, Ernst & Young
[email protected]
137 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
41 46,4 42
1.2 Medium-Term Real GDP Growth
45 123,7 24
1.3 Unemployment
52 108,5 35
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
16 77,5 19
2.2 Stock Market Liquidity (Trading Volume)
26 21,8 27
2.3 IPO Market Activity
18 48,5 27
2.4 M&A Market Activity
33 47,7 41
2.5 Debt and Credit Market
26 69,5 34
2.6 Bank Non-Performing Loans to Total Gross Loans
27 110,3 18
2.7 Financial Market Sophistication
22 82,4 26
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
29 104,3 27
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
9 95,2 9
4.2 Security of Property Rights
39 57,2 46
4.3 Quality of Legal Enforcement
21 93,8 22
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
22 76,7 24
5.2 Labor Market Rigidities
38 58,8 47
5.3 Bribing and Corruption
28 81,6 28
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
13 89,8 10
6.2 Scientific and Technical Journal Articles
21 71,8 21
6.3 Ease of Starting and Running a Business
16 98,3 23
6.4 Simplicity of Closing a Business
55 56,3 60
6.5 Corporate R&D
10 72,1 11
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
138 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Italy
2007 2011 Quartile
Rank Value Rank
France 17 79,6 14
Belgium 18 76,8 15
Austria 23 71,7 22
Spain 20 69,1 23
Ireland 14 67,7 24
Portugal 38 60,4 31
Italy 32 59,6 32
Luxembourg 29 59,3 33
Greece 39 47,9 44
4th 1st
25
30
35
40
45
50
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Italy
Western Europe
United States=100 Points
GDP 2121[bn USD] IPO Volume
Population 60 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Rome ++Official Language: Italian ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 32 59,6 32
Economic Activity 75 84,8 35
Depth of Capital Market 26 51,5 30
Taxation 34 103,4 30
Inv. Prot./Corp. Gov. 49 45,3 57
Human/Social Env. 46 52,6 47
Entrepr. Cult./Deal Opp. 22 67,3 21
4th 1st
Strengths
• W ell-developed econom y (innovative designs and inexpensive production
techniques), w ith highly specialized industrial districts and niches of
excellence
• Relatively stable banking system
• Com paratively low indebtedness of com bined fam ilies and com panies
(below 120% of GDP vs. an EU average of above 185% )
Weaknesses
• Com plicated tax system w ith com paratively high tax rates, resulting in still
high evasion rates –estim ated at over €300b of undeclared pro ts
• High sovereign debt (approxim ately 118% of GDP) and lim ited space for
governm ent stim ulus m easures
• Rigidity of labor m arket (but com paratively low cost of labor), w ith a
gap betw een highly protected perm anent w orkers and poorly protected
tem porary w orkers
Opportunities
• Im provem ent in public labor productivity is expected due to perform ance-
linked salary to be introduced after 2010
• Progress has been m ade in labor productivity in the private sector, w ith
som e key breakthroughs (e.g., Fiat)
• Recent reform s have set the stage for further progress (e.g., com petitive
tendering, enhanced role of the antitrust authority, rem oval of obsolete
legislation, secondary school and university)
Threats
• The fam ily-centered m odel of capitalism is suffering from w eak corporate
governance and a generation change
• Lack of m easures to attract talents from abroad or to retain Italian ones
m ay affect grow th/innovation in the long term
• Realization of crucial prospected reform s (energy, justice, bureaucracy) is
currently underm ined by an unusually high level of political strife
Outlook
• The latest forecasts show Italian GDP grow ing at around 1% both in 2011
and 2012 — slow er than the rest of the euro area — supported by soaring
exports, but still affected by w eak consum er spending and austerity
m easures im posed by the governm ent
Carlo Pelloni, Ernst & Young
[email protected]
139 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
7 75,9 7
1.2 Medium-Term Real GDP Growth
79 76,4 73
1.3 Unemployment
33 105,4 41
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
39 43,8 45
2.2 Stock Market Liquidity (Trading Volume)
21 25,7 25
2.3 IPO Market Activity
15 54,7 19
2.4 M&A Market Activity
9 72,4 11
2.5 Debt and Credit Market
44 61,8 48
2.6 Bank Non-Performing Loans to Total Gross Loans
58 87,0 64
2.7 Financial Market Sophistication
55 40,0 56
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
34 103,4 30
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
63 34,7 73
4.2 Security of Property Rights
48 47,4 56
4.3 Quality of Legal Enforcement
51 56,4 55
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
62 48,5 49
5.2 Labor Market Rigidities
39 61,6 43
5.3 Bribing and Corruption
38 48,6 47
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
21 56,2 28
6.2 Scientific and Technical Journal Articles
8 82,8 8
6.3 Ease of Starting and Running a Business
58 74,4 60
6.4 Simplicity of Closing a Business
33 73,9 35
6.5 Corporate R&D
26 53,8 23
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
140 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Japan
2007 2011 Quartile
Rank Value Rank
Singapore 2 92,4 4
Japan 6 90,9 6
Hong Kong 15 76,5 16
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
4th 1st
0
2
4
6
8
10
12
14
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Japan Asia
United States=100 Points
GDP 5273 [bn USD] IPO Volume
Population 127 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Tokyo ++Official Language: Japanese ++Currency: Yen
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 6 90,9 6
Economic Activity 57 94,3 9
Depth of Capital Market 7 78,7 7
Taxation 27 101,4 36
Inv. Prot./Corp. Gov. 13 97,1 13
Human/Social Env. 15 91,0 15
Entrepr. Cult./Deal Opp. 2 102,3 1
4th 1st
Strengths
• The w orld’s third-largest econom y
• M arket-leading technology in m any sectors
• Firm ly established econom ic and social infrastructure
Weaknesses
• Unique corporate governance culture differs from W estern standards
• High corporate tax burdens on corporate cash ow
• Stringent legislative protection of em ployee rights prevents exible
w orkforce, rightsizing and adaptation of hum an resource m anagem ent
initiatives to corporate strategies
Opportunities
• Com panies receive only lim ited investm ents but w ould certainly bene t
from VCPE as they are usually broadly diversi ed w ith m any non-core
activities
• Succession issues in fam ily-ow ned businesses foster VCPE investm ent
• Take-private deals and PIPEs are becom ing m ore understood and accepted
by m anagem ent
Threats
• Increasingly negative sentim ent tow ard VCPE, as VCPE investors are
not seen as appropriately supporting investee com panies in the current
econom ic clim ate
• Increasingly dif cult funding environm ent
• Decreasing valuations of public com panies reveal m issed/unfavorable
VCPE exit opportunities
Outlook
• M ore Japanese com panies are likely to aim at expanding their business
into the global m arket, requiring additional funds and professional
support from VCPE
• M any com panies w ill nd it increasingly hard to obtain access to
additional capital and w ill need to deploy their capital m ore effectively
• M any com panies w ill be forced to divest non-core businesses in order to
create shareholder value
Satoshi Sekine, Ernst & Young Transaction
[email protected]
141 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
2 87,2 3
1.2 Medium-Term Real GDP Growth
76 79,8 71
1.3 Unemployment
15 120,5 13
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
11 86,3 11
2.2 Stock Market Liquidity (Trading Volume)
10 46,8 14
2.3 IPO Market Activity
3 68,7 8
2.4 M&A Market Activity
3 84,4 3
2.5 Debt and Credit Market
5 102,2 1
2.6 Bank Non-Performing Loans to Total Gross Loans
25 108,9 21
2.7 Financial Market Sophistication
37 71,8 31
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
27 101,4 36
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
14 88,1 13
4.2 Security of Property Rights
13 99,3 14
4.3 Quality of Legal Enforcement
18 104,5 17
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
21 86,2 19
5.2 Labor Market Rigidities
9 85,6 12
5.3 Bribing and Corruption
18 102,0 17
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
3 106,1 4
6.2 Scientific and Technical Journal Articles
2 89,4 2
6.3 Ease of Starting and Running a Business
34 99,9 20
6.4 Simplicity of Closing a Business
3 114,9 2
6.5 Corporate R&D
2 103,1 1
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
142 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Jordan
2007 2011 Quartile
Rank Value Rank
Israel 19 72,2 21
Saudi Arabia 36 67,5 25
United Arab Emirates 33 61,6 28
Kuwait 40 57,9 35
Jordan 42 53,2 38
Oman 51 45,6 46
Bahrain 58 44,3 50
4th 1st
30
32
34
36
38
40
42
44
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Jordan
Middle East
United States=100 Points
GDP 25 [bn USD] IPO Volume
Population 6 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Amman ++Official Language: Arabic ++Currency: Jordanian Dinar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 42 53,2 38
Economic Activity 55 63,7 63
Depth of Capital Market 42 55,7 27
Taxation 28 102,0 35
Inv. Prot./Corp. Gov. 41 61,1 43
Human/Social Env. 26 61,8 34
Entrepr. Cult./Deal Opp. 54 33,0 62
4th 1st
Strengths
• One of the m ost w ell-regulated and transparent banking system s in the
region
• Successful im plem entation, by the Central Bank of Jordan, of m easures to
im prove supervision and capital position of banks over the past few years;
non-perform ing loans have since declined and Basel II standards have
been im plem ented
• Relatively stable, both econom ically and politically, w hich, alongside its
close proxim ity to Iraq, bodes w ell for long-term trade and investm ent
opportunities
Weaknesses
• Relatively scant natural resources: phosphates and potash are the only
signi cant m ineral deposits, and w ater resources are lim ited
• Unem ploym ent and poverty: governm ent prom ises of an im proved
w elfare system and job creation have been slow to m aterialize
Opportunities
• The Kingdom has bene ted from robust regional econom ic grow th
through an upsurge in trade, tourism and foreign investm ent
• Political instability in Lebanon bene ts Jordan’s tourism industry as visitors
to the Levant region seek an alternative destination
Threats
• Jordan's current account de cit and onerous debt pro le create a
trem endous am ount of dow nw ard pressure on the dinar, w hile additional
secondary pressure com es from com m odity price sw ings and security
threats to the M iddle East region
• Lack of conventional oil reserves m eans that the country is vulnerable to
? uctuating global prices
Outlook
• W ith ongoing instability in Iraq, Jordan w ill continue to act as a safe
services and logistics hub for business activity in the GCC
Samar Obaid, Ernst & Young
[email protected]
143 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
71 20,6 68
1.2 Medium-Term Real GDP Growth
13 148,6 11
1.3 Unemployment
72 84,4 66
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
9 114,3 4
2.2 Stock Market Liquidity (Trading Volume)
12 51,5 11
2.3 IPO Market Activity
63 33,3 39
2.4 M&A Market Activity
65 28,0 59
2.5 Debt and Credit Market
40 60,8 50
2.6 Bank Non-Performing Loans to Total Gross Loans
55 91,8 56
2.7 Financial Market Sophistication
44 54,1 51
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
28 102,0 35
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
52 46,4 62
4.2 Security of Property Rights
41 64,2 40
4.3 Quality of Legal Enforcement
36 76,4 37
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
30 46,1 52
5.2 Labor Market Rigidities
26 76,7 26
5.3 Bribing and Corruption
32 66,6 33
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
52 22,9 64
6.2 Scientific and Technical Journal Articles
55 46,5 55
6.3 Ease of Starting and Running a Business
73 80,7 53
6.4 Simplicity of Closing a Business
54 55,5 61
6.5 Corporate R&D
60 8,3 66
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
144 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Kazakhstan
2007 2011 Quartile
Rank Value Rank
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
Philippines 53 41,2 58
Kazakhstan 54 39,1 61
Armenia 72 25,3 71
Kyrgyzstan 78 14,4 80
4th 1st
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Kazakhstan
Asia
United States=100 Points
GDP 126 [bn USD] IPO Volume
Population 16 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Astana ++Official Language: Kazakh, Russian ++Currency: Tenge
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 54 39,1 61
Economic Activity 10 82,1 37
Depth of Capital Market 56 24,7 59
Taxation 49 92,2 55
Inv. Prot./Corp. Gov. 55 45,3 58
Human/Social Env. 56 36,4 68
Entrepr. Cult./Deal Opp. 51 38,5 55
4th 1st
Strengths
• Rich oil and gas and m ineral resources, including coal and uranium
• Strong public nances, including a large petroleum stabilization fund and
low governm ent debt
• Political and social stability since independence
• High FDI in ow per capita com pared w ith m any of its peers
• Active state participation in restructuring of system atic nancial institutions
• State National W ealth Fund active in setting up PE funds w ith foreign
investors
Weaknesses
• Overdependence on hydrocarbons and m ineral resources
• Banking sector still has a high share of non-perform ing loans representing
an ongoing risk to banks’capital and constraining recovery in dom estic
dem and
• Corporate sector rem ains highly leveraged
• High level of dollarization
• Insuf cient corporate governance requirem ents
• Perceived high levels of corruption by Eastern European standards
Opportunities
• Econom ic diversi cation and industrialization, particularly tow ard higher
value-added activities
• Large privatization program scheduled to begin in 2012
• Deepening local capital m arkets and a w ell-functioning governm ent
benchm ark yield curve
• Developm ent of Single Econom ic Space and Custom s Union w ith Russia
and Belarus
• Plans to join W orld Trade Organization
• Developm ent of PPP to nance m odernization of energy-generating and
transm ission assets
Threats
• A signi cant drop in oil and other com m odity prices w ould im pact
econom ic grow th
• Particularly vulnerable to w eakness in EU, and China and Russian grow th
dow nturn
Outlook
• Conditions are likely to im prove in the near future subject to speedy
resolution of the non-perform ing loans issue in Kazakhstan’s nancial system
Timur Pulatov, Ernst & Young
[email protected]
145 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
54 40,8 53
1.2 Medium-Term Real GDP Growth
5 120,6 28
1.3 Unemployment
47 112,5 29
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
46 38,6 51
2.2 Stock Market Liquidity (Trading Volume)
54 2,2 62
2.3 IPO Market Activity
45 13,3 61
2.4 M&A Market Activity
50 42,3 49
2.5 Debt and Credit Market
75 41,8 70
2.6 Bank Non-Performing Loans to Total Gross Loans
59 85,6 67
2.7 Financial Market Sophistication
62 33,0 64
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
49 92,2 55
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
49 49,9 55
4.2 Security of Property Rights
51 43,3 62
4.3 Quality of Legal Enforcement
62 42,9 60
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
46 34,9 65
5.2 Labor Market Rigidities
16 82,5 17
5.3 Bribing and Corruption
71 16,8 71
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
54 27,2 59
6.2 Scientific and Technical Journal Articles
68 37,9 68
6.3 Ease of Starting and Running a Business
33 89,7 40
6.4 Simplicity of Closing a Business
39 74,5 34
6.5 Corporate R&D
59 12,3 60
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
146 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
2007 2011 Quartile
Rank Value Rank
South Africa 24 66,9 26
Egypt 52 41,8 55
Morocco 61 41,8 54
Tunisia 64 41,5 56
Kenya 69 38,3 63
Nigeria 66 37,1 64
Namibia 70 26,4 70
Algeria 76 17,1 77
4th 1st
60
62
64
66
68
70
72
74
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Kenya Africa
United States=100 Points
GDP 32 [bn USD] IPO Volume
Population 41 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Nairobi ++Official Language: English, Swahili ++Currency: Kenyan Shilling
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 69 38,3 63
Economic Activity 62 63,7 62
Depth of Capital Market 69 24,9 58
Taxation 57 88,4 67
Inv. Prot./Corp. Gov. 59 41,3 63
Human/Social Env. 69 36,8 66
Entrepr. Cult./Deal Opp. 62 42,7 51
4th 1st
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Kenya
Strengths
• Strong and liquid stock m arket w ith a good track record of corporate
activity in banking and telecom m unications
• Leads the w ay in nding innovative solutions to the lack of access to
banking services, e.g., follow ing M -Pesa (a m obile phone-based m oney
transfer service)
• VC Houses have been looking for opportunities to fund innovative
ventures in the ICT space
Weaknesses
• Despite a liquid stock m arket and grow th in the property m arket, there is a
lack of access to banking services for consum ers, particularly in m ortgage
lending
• There are incidents of banks using depositors’m oney to buy governm ent
bonds because it is m uch safer than retail lending –there has been a
reported 400% (approxim ate) grow th in the governm ent bond m arket
Opportunities
• Because m ost com panies in the East African Com m unity (EAC) are cross-
listed on the m ain stock exchanges (Nairobi Stock Exchange, Jerusalem
Stock Exchange and Uganda Securities Exchange) one can expect there
w ill be a lot of corporate activity in the near future
• The farther the regionalization of the EAC progresses, the m ore one can
expect to see M &A or IPOs in the region
• Kenyan banks and East African airlines continue to expand, laying the
foundation for future M &As
Threats
• Progress in Kenya’s nancial m arkets, although it is able to lead, w ill
alw ays depend on the stability of the region
• The com m on m arket protocol poses a threat because regional blocs take
a long tim e to solidify it: this m ay delay som e com m ercial decisions that
could trigger M &A activity
Outlook
• Generally considered a gatew ay into Africa, Kenya is relatively m ore
advanced than the rest of the EAC, and w ill continue to bene t from the
ongoing regionalization of the African econom y
• East Africa is on track to create a com m on currency before 2020, having
already established a com m on custom s union and started building a
com m on trading platform for the region (w ith nearly 140 m illion people)
Gitahi Gachahi, Ernst & Young
[email protected]
147 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
66 23,9 67
1.2 Medium-Term Real GDP Growth
33 123,7 23
1.3 Unemployment
68 87,5 63
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
52 45,6 43
2.2 Stock Market Liquidity (Trading Volume)
53 3,0 53
2.3 IPO Market Activity
55 16,6 59
2.4 M&A Market Activity
67 11,2 72
2.5 Debt and Credit Market
57 62,0 46
2.6 Bank Non-Performing Loans to Total Gross Loans
80 58,8 75
2.7 Financial Market Sophistication
49 64,7 41
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
57 88,4 67
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
30 57,7 43
4.2 Security of Property Rights
62 43,1 63
4.3 Quality of Legal Enforcement
71 28,2 73
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
28 67,1 34
5.2 Labor Market Rigidities
28 76,8 25
5.3 Bribing and Corruption
78 9,6 77
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
61 30,2 56
6.2 Scientific and Technical Journal Articles
58 44,9 58
6.3 Ease of Starting and Running a Business
64 69,6 64
6.4 Simplicity of Closing a Business
61 48,1 64
6.5 Corporate R&D
64 31,1 42
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
148 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Korea, South
2007 2011 Quartile
Rank Value Rank
Singapore 2 92,4 4
Japan 6 90,9 6
Hong Kong 15 76,5 16
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
4th 1st
6
8
10
12
14
16
18
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Korea, South
Asia
United States=100 Points
GDP 991 [bn USD] IPO Volume
Population 49 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Seoul ++Official Language: Korean ++Currency: South Korean Won
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 11 75,7 17
Economic Activity 16 101,0 3
Depth of Capital Market 12 64,8 18
Taxation 24 105,5 24
Inv. Prot./Corp. Gov. 21 72,3 30
Human/Social Env. 24 61,4 35
Entrepr. Cult./Deal Opp. 8 86,4 12
4th 1st
Strengths
• Solid, diversi ed econom y w ith high standard of education
• Globally com petitive in m any m ajor m anufacturing sectors, such as
electronics, telecom s, autom obile, shipbuilding and nuclear pow er
• Increasingly strong trade links w ith China
• Am ong the m ost ef cient and transparent m arkets in the w orld for
availability of credit
Weaknesses
• Econom ic dynam ism concentrated in m anufacturing and technology
sectors. The service sectors have created relatively few er new jobs during
the recovery
• Steady reduction in FDI in ow s over the last ve years, suggesting an
increasingly challenging business environm ent for foreign investors
• Large am ount of debt in 2006-08 for the non- nancial corporate sector
• Relatively high loan to deposit ratio of banks
• Som e com panies encum bered by in exible practices, including boards that
have com paratively less accountability for corporate actions
• A strong union culture, m aking labor restructuring dif cult and the high
cost of ring
Opportunities
• M edium -term grow th outlook am ong the highest of the large econom ies
• Corporate restructuring
• M ajor expansion in new sectors prom oted by the Governm ent, such as
green energy
Threats
• Dom inance of the econom y by the large conglom erates, m aking it
relatively m ore dif cult for new rm s to grow, either in existing or new
industries
• Perception that tensions w ith North Korea w ill raise the risk of potentially
challenging developm ents in the Korean peninsula
Outlook
• Korea has a positive m edium -term grow th outlook, given its strengths
in technology and boost from China; how ever, this has been re ected in
sharply rising equity prices, w hich are now above their 2007 peaks
• Signi cant pressure on the exchange rate to appreciate could trigger
further capital control m easures
Ki Whan Jung, Ernst & Young
[email protected]
149 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
12 66,4 15
1.2 Medium-Term Real GDP Growth
52 121,1 26
1.3 Unemployment
8 128,1 4
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
20 75,1 21
2.2 Stock Market Liquidity (Trading Volume)
11 61,4 5
2.3 IPO Market Activity
10 68,3 9
2.4 M&A Market Activity
15 75,0 7
2.5 Debt and Credit Market
20 60,8 49
2.6 Bank Non-Performing Loans to Total Gross Loans
14 113,0 13
2.7 Financial Market Sophistication
31 29,4 66
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
24 105,5 24
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
24 54,9 47
4.2 Security of Property Rights
15 84,7 22
4.3 Quality of Legal Enforcement
26 81,3 31
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
18 69,4 31
5.2 Labor Market Rigidities
50 47,0 61
5.3 Bribing and Corruption
31 71,1 31
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
12 76,6 19
6.2 Scientific and Technical Journal Articles
10 79,5 10
6.3 Ease of Starting and Running a Business
30 94,4 33
6.4 Simplicity of Closing a Business
10 104,4 11
6.5 Corporate R&D
4 80,3 7
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
150 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Kuwait
2007 2011 Quartile
Rank Value Rank
Israel 19 72,2 21
Saudi Arabia 36 67,5 25
United Arab Emirates 33 61,6 28
Kuwait 40 57,9 35
Jordan 42 53,2 38
Oman 51 45,6 46
Bahrain 58 44,3 50
4th 1st
25
27
29
31
33
35
37
39
41
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Kuwait
Middle East
United States=100 Points
GDP 126 [bn USD] IPO Volume
Population 2 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Kuwait City ++Official Language: Arabic ++Currency: Kuwaiti Dinar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 40 57,9 35
Economic Activity 7 88,2 28
Depth of Capital Market 41 54,2 29
Taxation 78 89,3 66
Inv. Prot./Corp. Gov. 34 67,6 36
Human/Social Env. 35 57,3 39
Entrepr. Cult./Deal Opp. 48 41,4 53
4th 1st
Strengths
• Independent m onetary policy
• Fiscal surplus on account of oil w ealth
Weaknesses
• Vulnerability to w orld oil prices: oil accounts for about 50% of GDP, m ore
than 80% of governm ent revenues and over 90% of total export earnings,
w ith the non-oil econom y still relatively underdeveloped
• Lim ited success of attem pts to “Kuw aitize”private sector em ploym ent
• Severe im pact of global nancial crisis on Kuw aiti banks; elevated
exposure to the Dubai W orld crisis w ill continue to w eigh in on lending
grow th in the future
Opportunities
• In ation has decreased, reducing the risks to consum er spending
• The Governm ent has am ple assets in sovereign w ealth and reserve funds
to keep the econom y a oat in spite of low er oil prices
Threats
• Kuw ait is over-reliant on the hydrocarbon sector
• As the sole state in the GCC region that prom otes a quasi-dem ocratic
regim e, its political risk pro le also rem ains a key threat, w hich in turn
could dam age investor sentim ent
Outlook
• Kuw ait’s political risk pro le rem ains a key threat that could hurt investor
sentim ent
• Kuw ait is an attractive staging point for com panies and investors
interested doing business in Iraq
Varun Sharma, Ernst & Young
[email protected]
151 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
51 40,8 54
1.2 Medium-Term Real GDP Growth
10 119,9 30
1.3 Unemployment
2 140,2 1
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
22 73,7 22
2.2 Stock Market Liquidity (Trading Volume)
27 32,9 21
2.3 IPO Market Activity
54 29,8 43
2.4 M&A Market Activity
63 39,3 53
2.5 Debt and Credit Market
36 71,2 33
2.6 Bank Non-Performing Loans to Total Gross Loans
51 99,3 41
2.7 Financial Market Sophistication
37 68,2 36
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
78 89,3 66
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
34 51,3 53
4.2 Security of Property Rights
38 75,1 33
4.3 Quality of Legal Enforcement
28 80,1 32
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
58 43,1 57
5.2 Labor Market Rigidities
12 80,9 19
5.3 Bribing and Corruption
36 54,1 45
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
53 28,4 58
6.2 Scientific and Technical Journal Articles
56 45,1 56
6.3 Ease of Starting and Running a Business
59 64,0 68
6.4 Simplicity of Closing a Business
35 65,0 46
6.5 Corporate R&D
54 22,7 52
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
152 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Kyrgyztan
2007 2011 Quartile
Rank Value Rank
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
Philippines 53 41,2 58
Kazakhstan 54 39,1 61
Armenia 72 25,3 71
Kyrgyzstan 78 14,4 80
4th 1st
74
75
76
77
78
79
80
81
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Kyrgyzstan
Asia
United States=100 Points
GDP 5 [bn USD] IPO Volume
Population 6 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Bishkek ++Official Language: Kyrgyz, Russian ++Currency: Som
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 78 14,4 80
Economic Activity 79 25,4 77
Depth of Capital Market 75 8,7 77
Taxation 72 75,2 74
Inv. Prot./Corp. Gov. 72 31,6 74
Human/Social Env. 78 18,5 77
Entrepr. Cult./Deal Opp. 78 8,0 80
4th 1st
Strengths
• High grow th potential, estim ated around 8% per year before the crisis
• Gold deposits, w ith gold m ining contributing 10% -15% to GDP
• Strong IM F support and nancial support from international donors
• Favorable corporate disclosure practices and director liability rules
• Ef cient legislation for new business starts
Weaknesses
• Very low GDP per capita and a sm all econom y w ith GDP of less than
US$5b
• Low investor con dence caused by the nationalization of the largest
private bank and six others under tem porary adm inistration
• Insuf cient independence for the Kyrgyz Central Bank to conduct
m onetary policy successfully
Opportunities
• Privatization in energy, telecom m unications and nancial sectors
• Energy infrastructure-related investm ents are estim ated to reach
US$550m betw een 2011-13, according to the IM F
• Potential m em bership of the Custom s Union, w ith Russia, Kazakhstan
and Belarus
Threats
• A political crisis escalated in 2010 that culm inated in the establishm ent
of a new parliam entary dem ocracy; ethnic tensions are still high and,
if political and social tensions persist, this w ould have a detrim ental
im pact on grow th
• Dependence on stability in other econom ies: around 40% of GDP is
generated by rem ittances from Kyrgyz w orking abroad, m ainly in Russia
• Krzgyzstan is at the center of US-Russian rivalry for control of con ict-
prone Central Asia; both pow ers have m ilitary bases in the country
Outlook
• Addressing the im m ediate effects of the political crisis has required
a considerable increase in public spending w hich the IM F estim ated at
over 4% of GDP; this has resulted in a steep deterioration of the budget
de cit
• Very poor outlook for the VCPE m arkets w ith low scores on m ost criteria:
a sm all econom y, w ith high political risk, undeveloped capital m arkets,
perceived high levels of bribery and corruption, an unattractive taxation
system and a low level of legal enforcem ent
153 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
80 1,0 80
1.2 Medium-Term Real GDP Growth
64 150,6 10
1.3 Unemployment
50 108,5 35
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
76 10,8 76
2.2 Stock Market Liquidity (Trading Volume)
58 2,0 64
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
75 5,7 79
2.5 Debt and Credit Market
68 29,1 74
2.6 Bank Non-Performing Loans to Total Gross Loans
59 85,6 67
2.7 Financial Market Sophistication
76 11,8 75
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
72 75,2 74
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
50 71,6 24
4.2 Security of Property Rights
73 17,2 74
4.3 Quality of Legal Enforcement
76 25,7 75
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
69 21,8 77
5.2 Labor Market Rigidities
30 79,0 21
5.3 Bribing and Corruption
80 3,7 79
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
77 4,9 79
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
46 94,6 31
6.4 Simplicity of Closing a Business
67 43,6 68
6.5 Corporate R&D
76 1,6 80
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
154 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Latvia
2007 2011 Quartile
Rank Value Rank
Croatia 55 43,4 52
Romania 47 41,0 60
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
Moldova 71 22,0 72
Macedonia 75 19,3 73
4th 1st
50
55
60
65
70
75
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Latvia
Eastern Europe
United States=100 Points
GDP 24 [bn USD] IPO Volume
Population 2 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Riga ++Official Language: Latvian ++Currency: Latvian Lat
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 56 29,4 67
Economic Activity 22 12,8 79
Depth of Capital Market 61 13,6 66
Taxation 38 104,4 26
Inv. Prot./Corp. Gov. 29 71,4 33
Human/Social Env. 45 55,1 41
Entrepr. Cult./Deal Opp. 61 44,1 49
4th 1st
Strengths
• Joint European resources for m icro to m edium enterprises (JEREM IE)
initiative has increased start-up and expansion funding for com panies
w ith exceptional grow th potential
• Stable political backdrop
• Transparent and relatively ef cient legal system
• Despite recent tax increases, the tax system in Latvia rem ains attractive in
a regional context for potential investors
Weaknesses
• The Latvian VC sector is underdeveloped com pared w ith other European
countries, in part due to illiquid nancial m arkets
• The default of som e aggressively leveraged PE investm ents (m ade prior to
the dow nturn) has had a negative effect on the reputation of Latvia’s PE
sector
• The IM F bailout m eans that the Governm ent’s m anagem ent of the
econom y is hindered by signi cant scal restrictions
Opportunities
• Eurozone entry in 2014 could provide greater econom ic stability
• Latvia is keen to develop trade links w ith Russia
• As a result of econom ic crisis, the banking sector has refocused from
nancing real estate developm ent to productive and export-oriented
econom y sectors
Threats
• The fallout from the banking collapse and subsequent slow econom ic
recovery has constrained banking liquidity
• The cycle of slow lending, depressed assets and falling real incom es m ight
be dif cult to break
• Longer-term grow th prospects hindered by falling population and
structurally high unem ploym ent
Outlook
• The econom ic backdrop rem ains challenging, but this m ay offer investors
attractive valuations
• Foreign VCPE Houses are likely to be attracted back to Latvia if it can
dem onstrate that its econom y is rm ly on the road to recovery, as
indicated by the recently increasing num ber of ongoing transactions by
PE Houses
RaimondsKulbergs, Ernst & Young Baltic SIA
[email protected]
155 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
67 20,2 69
1.2 Medium-Term Real GDP Growth
4 2,0 80
1.3 Unemployment
33 53,2 75
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
69 18,4 72
2.2 Stock Market Liquidity (Trading Volume)
70 1,2 72
2.3 IPO Market Activity
57 1,0 67
2.4 M&A Market Activity
70 20,2 65
2.5 Debt and Credit Market
38 50,1 65
2.6 Bank Non-Performing Loans to Total Gross Loans
8 95,9 50
2.7 Financial Market Sophistication
44 40,0 56
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
38 104,4 26
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
17 70,0 25
4.2 Security of Property Rights
35 73,3 34
4.3 Quality of Legal Enforcement
40 71,0 39
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
50 55,3 40
5.2 Labor Market Rigidities
55 55,7 52
5.3 Bribing and Corruption
42 54,5 44
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
56 37,2 46
6.2 Scientific and Technical Journal Articles
65 40,6 65
6.3 Ease of Starting and Running a Business
21 94,9 27
6.4 Simplicity of Closing a Business
47 61,6 53
6.5 Corporate R&D
75 18,7 57
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
156 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Lithuania
2007 2011 Quartile
Rank Value Rank
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
4th 1st
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Lithuania
Eastern Europe
United States=100 Points
GDP 35[bn USD] IPO Volume
Population 3 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Vilnius ++Official Language: Lithuanian ++Currency: Lithuanian Litas
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 46 41,3 57
Economic Activity 30 42,2 71
Depth of Capital Market 57 22,6 60
Taxation 9 103,2 32
Inv. Prot./Corp. Gov. 36 66,4 37
Human/Social Env. 42 53,1 45
Entrepr. Cult./Deal Opp. 34 50,9 35
4th 1st
Strengths
• Flexibility of m arket players presents good prospects for the future
• Open m arket, w ith good relationships w ith both W estern and Eastern
Europe
• Governm ent and EU initiatives to support/develop seed capital nancing
and VC
• Attractive tax environm ent (including low corporate incom e tax rate and
taxation of capital gains deriving from transfer of shares)
Weaknesses
• Lack of available capital and innovation in using alternative m eans of
nancing
• Lack of substantial and structured support from the governm ent in
expanding high-grow th industries
• Lack of developed capital m arkets w hich w ould assure easy and exible
exits from businesses, or additional funding
Opportunities
• Relatively low -priced m arket; recovery could reveal m ore opportunities for
VCPE investm ents
• Num erous opportunities related to the operational effectiveness of
businesses, synergies and m anagem ent allow value creation by investors
• Increased activity and actions of VCPE representatives, governm ent
initiatives, as w ell as real-life investm ent cases, increase aw areness and
recognition of VCPE as source of nancing in the eyes of entrepreneurs;
this m ight result in m ore deals in the m arket
• Potential privatizations of state-ow ned enterprises perform ing com m ercial
functions m ight contribute to the increasing deal ow
Threats
• Very lim ited credit m arket reopening
• Dif culties in regaining trust and interest from foreign investors
Outlook
• Recovery of the econom y, the existence of a num ber of viable businesses
that survived the econom ic dow nturn and need capital for expansion,
privatizations, the reshuf ing of capital betw een various ow ners and
positive changes in the tax legislation w ill attract investors and w ill drive
the m arket tow ards higher activity
RolandasLaukaitis, Ernst & Young
[email protected]
157 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
65 25,0 66
1.2 Medium-Term Real GDP Growth
16 48,7 78
1.3 Unemployment
26 61,6 73
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
60 22,3 67
2.2 Stock Market Liquidity (Trading Volume)
51 1,6 68
2.3 IPO Market Activity
65 11,9 63
2.4 M&A Market Activity
55 30,2 57
2.5 Debt and Credit Market
32 57,2 53
2.6 Bank Non-Performing Loans to Total Gross Loans
20 89,0 61
2.7 Financial Market Sophistication
49 47,1 54
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
9 103,2 32
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
33 62,4 35
4.2 Security of Property Rights
28 70,3 38
4.3 Quality of Legal Enforcement
45 66,9 44
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
37 58,7 39
5.2 Labor Market Rigidities
63 46,0 63
5.3 Bribing and Corruption
43 55,3 41
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
45 43,7 35
6.2 Scientific and Technical Journal Articles
51 49,6 51
6.3 Ease of Starting and Running a Business
26 92,4 37
6.4 Simplicity of Closing a Business
25 86,6 23
6.5 Corporate R&D
51 19,6 56
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
158 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Luxembourg
2007 2011 Quartile
Rank Value Rank
France 17 79,6 14
Belgium 18 76,8 15
Austria 23 71,7 22
Spain 20 69,1 23
Ireland 14 67,7 24
Portugal 38 60,4 31
Italy 32 59,6 32
Luxembourg 29 59,3 33
Greece 39 47,9 44
4th 1st
20
22
24
26
28
30
32
34
36
38
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Luxembourg
Western Europe
United States=100 Points
GDP 50[bn USD] IPO Volume
Population 0 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Luxembourg++Official Language: Luxermbourgish, French, German ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 29 59,3 33
Economic Activity 43 67,8 59
Depth of Capital Market 43 38,3 46
Taxation 23 103,8 29
Inv. Prot./Corp. Gov. 17 93,8 15
Human/Social Env. 33 66,6 27
Entrepr. Cult./Deal Opp. 25 64,1 26
4th 1st
Strengths
• M ultilingual and internationally oriented quali ed w orkforce
• No constraints applicable to pension funds w hen investing in VCPE, and
no geographical restrictions for investm ents outside Luxem bourg
• Favorable tax policy for investm ents in VCPE, including new exem ption
from subscription tax for all m icro nance investm ent vehicles, intellectual
property and R&D expenditures
• Com plete portfolio of products enabling m axim um exibility in legal, tax
and operational structuring
Weaknesses
• Lack of speci c tax rate for SM Es
• Lim ited deal ow
• Fiscal incentives to support investm ent in R&D at com pany level could be
enhanced
Opportunities
• AIFM Directive: track record in PE-regulated products w ith independent
depositary, re-dom iciliation of businesses looking for an onshore European
VCPE fund label, m obilization of all industry players to ensure sw ift and
pragm atic im plem entation process w ith a view to turning AIFM into a
pow erful m arketing brand for cross-border distribution of VCPE funds
• Stock options tax treatm ent could be used to support talent retention in
investee com pany
• VCPE structures are very relevant for investm ent in distressed and im pact
nance (e.g., cleantech, m icro nance, renew able energies)
• M odernization of the lim ited partnership regim e
Threats
• Duplication of available products and tax incentives by com petitive
locations
• Treaty access requires strict com pliance w ith substance requirem ents
• Constraints im posed on non-EU m anagers for the distribution of their
Luxem bourg funds w ithin Europe by the AIFM Directive
Outlook
• Thanks to a tradition of innovation and the client-focused attitude of
authorities, Luxem bourg has m anaged to position itself as a m ajor center
for VCPE onshore investm ent and fund structuring in Europe
Axelle Ferey, Ernst & Young
[email protected]
159 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
59 29,4 62
1.2 Medium-Term Real GDP Growth
46 88,5 61
1.3 Unemployment
19 119,6 15
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
19 78,1 18
2.2 Stock Market Liquidity (Trading Volume)
71 2,4 60
2.3 IPO Market Activity
27 30,9 41
2.4 M&A Market Activity
48 43,9 44
2.5 Debt and Credit Market
65 35,5 73
2.6 Bank Non-Performing Loans to Total Gross Loans
1 119,2 1
2.7 Financial Market Sophistication
3 114,1 2
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
23 103,8 29
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
35 63,6 34
4.2 Security of Property Rights
12 109,6 5
4.3 Quality of Legal Enforcement
10 118,6 12
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
34 75,7 25
5.2 Labor Market Rigidities
74 32,2 72
5.3 Bribing and Corruption
11 120,9 11
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
19 84,6 14
6.2 Scientific and Technical Journal Articles
70 34,0 70
6.3 Ease of Starting and Running a Business
15 98,7 21
6.4 Simplicity of Closing a Business
37 72,9 37
6.5 Corporate R&D
28 52,2 25
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
160 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Macedonia
2007 2011 Quartile
Rank Value Rank
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
Moldova 71 22,0 72
Macedonia 75 19,3 73
Albania 79 17,8 75
Bosnia-Herzegovina 77 17,3 76
4th 1st
71
72
73
74
75
76
77
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Macedonia
Eastern Europe
United States=100 Points
GDP 9[bn USD] IPO Volume
Population 2 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Skopje ++Official Language: Macedonian ++Currency: Macedonian Denar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 75 19,3 73
Economic Activity 80 11,2 80
Depth of Capital Market 70 10,3 74
Taxation 46 100,2 39
Inv. Prot./Corp. Gov. 63 45,9 56
Human/Social Env. 59 56,6 40
Entrepr. Cult./Deal Opp. 76 14,5 74
4th 1st
Strengths
• Fram ework for econom ic stability provided by tight scal and m onetary policy
• Large-scale privatization program , w ith private sector accounting for
around 80% of output and em ploym ent
• Relatively robust m edium -term growth outlook due to high capital spending
• Relative ease of setting up a business
• Ongoing support from the European Investm ent Bank contributing to
nance for big infrastructure projects
Weaknesses
• Unem ploym ent rate of m ore than 30%
• Developm ent of capital m arkets in its infancy
• Large inform al econom y w ith lim ited scope for tax receipts
• W eak judicial system threatening political stability
• Poor enforcem ent of property rights
Opportunities
• The 2011 budget includes a large increase in spending on health,
education, transport and infrastructure
• A new anti-crisis package w ill im prove access to credit for SM Es
• The Governm ent abolished the 10% ceiling on foreign investm ent on the
Skopje Stock Exchange
• M acedonia entered the Schengen Agreem ent in Decem ber 2009, providing
greater opportunities for cross-border travel
• Progress in EU accession has been a priority under the Hungarian EU
presidency
Threats
• A deterioration in the Eurozone could stall the export-driven recovery
• A w ide trade de cit leaves the econom y vulnerable to external shocks
• M arket reform law s have been im plem ented ineffectively
Outlook
• In the m edium term , GDP grow th is expected to average m ore than 4%
• Privatization and high capital spending w ill create opportunities for VCPE
in the near term
• Risks com e from the uncertainty of the econom ic outlook, as w ell as from
a w eak judicial system and concerns surrounding the enforcem ent of
property rights
FotisDemetriou, Ernst & Young
[email protected]
Kalina Sukarova, Ernst & Young
[email protected]
161 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
78 8,5 77
1.2 Medium-Term Real GDP Growth
57 117,8 33
1.3 Unemployment
80 1,4 80
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
66 23,3 65
2.2 Stock Market Liquidity (Trading Volume)
60 1,8 66
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
66 7,7 76
2.5 Debt and Credit Market
67 44,4 67
2.6 Bank Non-Performing Loans to Total Gross Loans
75 73,9 74
2.7 Financial Market Sophistication
70 11,8 75
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
46 100,2 39
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
40 60,9 37
4.2 Security of Property Rights
67 41,9 64
4.3 Quality of Legal Enforcement
69 37,8 66
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
53 52,5 46
5.2 Labor Market Rigidities
57 81,9 18
5.3 Bribing and Corruption
64 42,2 52
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
71 22,5 65
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
62 100,9 16
6.4 Simplicity of Closing a Business
72 44,1 67
6.5 Corporate R&D
72 6,3 73
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
162 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Malaysia
2007 2011 Quartile
Rank Value Rank
Hong Kong 15 76,5 16
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
4th 1st
12
14
16
18
20
22
24
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Malaysia Asia
United States=100 Points
GDP 213 [bn USD] IPO Volume
Population 29 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Kuala Lumpur ++Official Language: Bahasa Melayu ++Currency: Malaysian Ringgit
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 21 72,5 18
Economic Activity 17 90,1 19
Depth of Capital Market 20 62,9 21
Taxation 45 101,2 38
Inv. Prot./Corp. Gov. 19 85,1 20
Human/Social Env. 19 71,2 24
Entrepr. Cult./Deal Opp. 23 66,9 22
4th 1st
Strengths
• Established regulatory fram ew ork and nancial m arkets, both
conventional and Islam ic
• Governm ent support and tax incentives for the VCPE industry
Weaknesses
• Sources of capital com e predom inantly from governm ent agencies
• Governm ental and regulatory approval processes for m ovem ent of capital
and labor rem ain suboptim al despite current liberalization m easures
• Governm ent-linked investm ent corporations (GLICs) and governm ent-
linked com panies (GLCs) continue to add to their portfolios through direct
investm ents, w hich stiffens com petition for larger deals
• Local PE and VC m anagers’skills can be im proved
Opportunities
• The Governm ent’s Econom ic Transform ation Program w ill see large and
diversi ed conglom erates and GLCs continue to rebalance their portfolios
through divestm ent of non-core businesses and through partnerships w ith
private corporations/equity
• Several GLICs hold substantial direct investm ents in related enterprises
w hich provide attractive consolidation opportunities
• Liberalization of foreign equity restrictions should w iden the spectrum of
opportunities in PIPEs and buyouts by foreign funds
Threats
• Increased com petition for already lim ited quality deals by special purpose
acquisition com panies (SPACs) that raise public capital
• Governm ent-driven national PE m anagem ent com pany’s (Ekuinas’)
participation in direct investm ents as w ell as acting as fund of funds
Outlook
• Cautious optim ism is returning, but com petition in the industry is likely
to increase
Kevin Chew, Ernst & Young
[email protected]
163 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
39 47,3 40
1.2 Medium-Term Real GDP Growth
29 123,0 25
1.3 Unemployment
6 125,9 6
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
10 89,8 8
2.2 Stock Market Liquidity (Trading Volume)
32 15,9 32
2.3 IPO Market Activity
12 56,6 17
2.4 M&A Market Activity
14 67,9 16
2.5 Debt and Credit Market
11 94,0 6
2.6 Bank Non-Performing Loans to Total Gross Loans
71 87,6 62
2.7 Financial Market Sophistication
28 85,9 20
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
45 101,2 38
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
4 110,6 4
4.2 Security of Property Rights
31 72,8 36
4.3 Quality of Legal Enforcement
32 76,6 36
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
17 84,8 20
5.2 Labor Market Rigidities
19 75,0 30
5.3 Bribing and Corruption
35 56,7 40
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
22 64,1 24
6.2 Scientific and Technical Journal Articles
45 53,0 45
6.3 Ease of Starting and Running a Business
20 97,0 24
6.4 Simplicity of Closing a Business
40 69,6 40
6.5 Corporate R&D
21 58,4 21
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
164 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Mexico
2007 2011 Quartile
Rank Value Rank
Chile 30 61,5 29
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
4th 1st
39
40
41
42
43
44
45
46
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Mexico
Latin America
United States=100 Points
GDP 996 [bn USD] IPO Volume
Population 109 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Mexico City ++Official Language: Spanish ++Currency: Mexican Peso
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 44 48,7 42
Economic Activity 21 89,5 23
Depth of Capital Market 40 36,6 48
Taxation 52 95,6 50
Inv. Prot./Corp. Gov. 66 48,4 53
Human/Social Env. 58 40,9 57
Entrepr. Cult./Deal Opp. 31 49,2 39
4th 1st
Strengths
• Tax treatm ents present advantages for certain aspects of PE/VC investm ent
• Quality of accounting standards, w hich are generally in line w ith
international standards
• Adoption of IFRS for listed com panies scheduled for 2012
Weaknesses
• Lack of proper VCPE fund form ation and operation regulations
• W eak enforcem ent of the protection of IP law
• IPOs rem ain a dif cult and unattractive exit option for VCPE investm ents
• Perception of slow judicial system
Threats
• High perception of corruption
• Concerns about the ability of the authorities to control the drug trade
• Increased drug-related violence could discourage new ventures
Opportunities
• Regulation provides strong protection for m inority shareholder’s rights
• Recently adopted reform s in the investm ent regim e of pension funds
(Afores) now allow pension funds to invest in PE/VC funds.
• Im provem ent in the am ount and quality of entrepreneurial activity,
including program s sponsored by the Governm ent
• Low in ation levels
• M exico presents a favorable com m ercial environm ent w ith a large
and increasingly sophisticated dom estic m arket, m aking it a grow ing
destination for trade and investm ent
Outlook
• The econom y rem ains overly reliant on US dem and, and is closely tied
to the US econom ic cycle, leaving the country vulnerable to econom ic
dif culties in the US
• GDP grow th prospects for 2011 and beyond assum e a low er contribution
of exports and an increasing role of local dem and
• Capital in ow levels are expected to return progressively to pre-crisis levels
• The local environm ent is w ell positioned to assim ilate the presidential
elections scheduled for 2012
Victor A. Tiburcio, Ernst & Young
[email protected]
165 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
13 66,5 14
1.2 Medium-Term Real GDP Growth
58 92,4 59
1.3 Unemployment
4 117,0 21
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
55 39,4 49
2.2 Stock Market Liquidity (Trading Volume)
49 5,0 49
2.3 IPO Market Activity
32 37,7 35
2.4 M&A Market Activity
31 56,1 26
2.5 Debt and Credit Market
54 53,9 62
2.6 Bank Non-Performing Loans to Total Gross Loans
29 98,6 45
2.7 Financial Market Sophistication
44 40,0 56
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
52 95,6 50
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
75 49,3 56
4.2 Security of Property Rights
53 51,0 50
4.3 Quality of Legal Enforcement
57 45,1 58
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
68 38,4 62
5.2 Labor Market Rigidities
52 53,9 56
5.3 Bribing and Corruption
56 32,9 61
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
47 23,6 63
6.2 Scientific and Technical Journal Articles
26 67,9 26
6.3 Ease of Starting and Running a Business
54 77,9 55
6.4 Simplicity of Closing a Business
26 81,8 27
6.5 Corporate R&D
37 28,1 46
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
166 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Moldova
2007 2011 Quartile
Rank Value Rank
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
Moldova 71 22,0 72
Macedonia 75 19,3 73
Albania 79 17,8 75
Bosnia-Herzegovina 77 17,3 76
4th 1st
67
68
69
70
71
72
73
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Moldova
Eastern Europe
United States=100 Points
GDP 5[bn USD] IPO Volume
Population 4 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Chisinau ++Official Language: Moldovan (Romanian) ++Currency: Moldovan Leu
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 71 22,0 72
Economic Activity 76 24,5 78
Depth of Capital Market 74 10,2 75
Taxation 54 90,9 59
Inv. Prot./Corp. Gov. 54 46,6 55
Human/Social Env. 61 40,1 58
Entrepr. Cult./Deal Opp. 68 20,3 71
4th 1st
Strengths
• Strong recovery of industrial production and trade in 2010
• IM F and EU developm ent assistance ensures nancing of external de cit
• Financial sector relatively sound; banks rem ain liquid w ith m inim al
exposure to toxic assets
Weaknesses
• Europe’s poorest country –GDP per person around US$3,000 (purchasing
pow er parity)
• Underdeveloped private sector
• Non-transparent ownership of banks and inadequate corporate governance
• Lim ited access to nance for SM Es
• Poor governance and perceived high levels of corruption in public sector
and the police
• W eak governm ent: a series of indeterm inate elections has left the political
direction unclear
Opportunities
• W orld Bank support for social assistance, education, justice and infrastructure
in 2011; further talks of initiating projects to im prove the investm ent clim ate
and facilitate developm ent of the private sector are under w ay
• Autonom ous trade preferences extended in 2008 –likely to diversify
exports and stim ulate econom ic grow th
• Sim pli cation of FDI regulations to attract capital in ow s from the EU
• 0% Corporate Incom e Tax and com petitive Personal Incom e Tax rates
com pared w ith other countries
Threats
• Ongoing political tension w ith Russia over Russian troops in breakaw ay
territory of Transnistria
• Over-dependence on Russia for energy (petroleum , coal and natural gas)
• Unsustainable level of public nances
• High levels of em igration
Outlook
• Econom ic grow th is expected to increase, driven by international dem and
from m ain trading partners –particularly the EU
• Upward in ationary pressures due to increases in energy tariffs, depreciation
of exchange rate and increase in excise taxes pose risk to grow th
• External factors, e.g., high volatility of rem ittances and uncertainty over
export dem and, will im pact growth, in part because of the trade restrictions
(on M oldovan agricultural exports) im plem ented in Russia
Alexander Milcev, Ernst & Young
[email protected]
167 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
79 1,2 79
1.2 Medium-Term Real GDP Growth
25 108,0 42
1.3 Unemployment
41 116,5 22
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
65 32,4 61
2.2 Stock Market Liquidity (Trading Volume)
68 2,2 61
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
72 6,7 78
2.5 Debt and Credit Market
78 15,4 78
2.6 Bank Non-Performing Loans to Total Gross Loans
56 84,9 69
2.7 Financial Market Sophistication
73 18,9 73
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
54 90,9 59
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
43 52,1 52
4.2 Security of Property Rights
52 45,5 60
4.3 Quality of Legal Enforcement
59 42,8 61
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
70 34,9 66
5.2 Labor Market Rigidities
46 55,1 53
5.3 Bribing and Corruption
60 33,6 59
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
65 4,4 80
6.2 Scientific and Technical Journal Articles
69 37,3 69
6.3 Ease of Starting and Running a Business
47 84,9 47
6.4 Simplicity of Closing a Business
50 65,0 45
6.5 Corporate R&D
73 3,9 78
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
168 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Morocco
2007 2011 Quartile
Rank Value Rank
South Africa 24 66,9 26
Egypt 52 41,8 55
Morocco 61 41,8 54
Tunisia 64 41,5 56
Kenya 69 38,3 63
Nigeria 66 37,1 64
Namibia 70 26,4 70
Algeria 76 17,1 77
4th 1st
50
52
54
56
58
60
62
64
66
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Morocco
Africa
United States=100 Points
GDP 91 [bn USD] IPO Volume
Population 32 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Rabat ++Official Language: Arabic ++Currency: Moroccan Dirham
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 61 41,8 54
Economic Activity 44 82,1 38
Depth of Capital Market 50 39,7 44
Taxation 40 97,3 47
Inv. Prot./Corp. Gov. 68 40,2 67
Human/Social Env. 72 27,0 75
Entrepr. Cult./Deal Opp. 63 33,7 61
4th 1st
Strengths
• High econom ic grow th
• M edium -sized stock m arket and a high level of credit extension to the
private sector
• A range of m ineral resources, including coal, nickel, uranium , zinc and gold
• Low cost of exports and im ports
Weaknesses
• Low access to nancial services for over 65% of the population
Opportunities
• Depending on stability in the region, w ith regard to Algeria and the
deadlock in the W estern Sahara (Africa’s longest running territorial
dispute), M orocco could follow the lead of other North African countries
in strengthening its ties w ith Europe, w hile exploiting the opportunities of
expanding its enterprises into the rest of the continent
• The country is pursuing m em bership of the European Union, w hich could
be advantageous for econom ic grow th
Threats
• Political unrest in M orocco m ay ensue in connection w ith the deadlock in
the W estern Sahara
Outlook
• M ore M oroccan com panies could expand into the rest of the continent,
sparking outw ard corporate activity –one bank is already featured in the
Boston Consulting Group’s 40 African Challengers
• The econom y is expected to recover, although the region is facing an
uncertain future in the light of the unrest in Tunisia and Egypt, and
relations w ith W estern Sahara
Abdulaziz Al-Sowailim, Ernst & Young
[email protected]
169 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
56 36,7 57
1.2 Medium-Term Real GDP Growth
42 146,2 12
1.3 Unemployment
60 103,1 44
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
40 67,4 25
2.2 Stock Market Liquidity (Trading Volume)
41 10,6 39
2.3 IPO Market Activity
53 19,1 54
2.4 M&A Market Activity
56 34,3 54
2.5 Debt and Credit Market
60 71,8 32
2.6 Bank Non-Performing Loans to Total Gross Loans
74 79,4 71
2.7 Financial Market Sophistication
49 57,7 47
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
40 97,3 47
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
78 19,3 79
4.2 Security of Property Rights
55 54,3 47
4.3 Quality of Legal Enforcement
48 62,1 47
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
64 34,7 67
5.2 Labor Market Rigidities
79 16,7 79
5.3 Bribing and Corruption
58 34,1 58
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
69 20,0 68
6.2 Scientific and Technical Journal Articles
49 50,3 49
6.3 Ease of Starting and Running a Business
39 94,4 32
6.4 Simplicity of Closing a Business
46 67,1 42
6.5 Corporate R&D
69 6,8 69
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
170 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Namibia
2007 2011 Quartile
Rank Value Rank
South Africa 24 66,9 26
Egypt 52 41,8 55
Morocco 61 41,8 54
Tunisia 64 41,5 56
Kenya 69 38,3 63
Nigeria 66 37,1 64
Namibia 70 26,4 70
Algeria 76 17,1 77
4th 1st
62
64
66
68
70
72
74
2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Namibia
Africa
United States=100 Points
GDP 10 [bn USD] IPO Volume
Population 2 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Windhoek ++Official Language: English ++Currency: Namibian Dollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 70 26,4 70
Economic Activity 74 37,1 75
Depth of Capital Market 68 13,3 68
Taxation 53 90,0 62
Inv. Prot./Corp. Gov. 25 83,5 21
Human/Social Env. 52 57,4 38
Entrepr. Cult./Deal Opp. 74 13,9 75
4th 1st
Strengths
• Strong and grow ing m ining industry
• Reasonably liquid stock m arket w ith som e cross-listings from neighboring
South Africa
Weaknesses
• Despite grow th in the m ining industry, the M ining Charter, currently under
consideration, could slow dow n som e of the corporate activity
Opportunities
• Corporate activity in Africa is expected to recover, w ith m ining seeing the
m ost of the action thanks to grow th in uranium and diam ond m ining
Threats
• Recovery of the m ining industry is not as quick as expected
Outlook
• Nam ibia’s econom ic activity w ill continue to track that of South Africa:
for exam ple, in interest rate m ovem ents and currency uctuations
• Considering the upw ard trend in Africa’s econom ies, Nam ibia is w ell
positioned to grow over the next couple of years
Gerhard Fourie, Ernst & Young
[email protected]
171 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
75 9,7 76
1.2 Medium-Term Real GDP Growth
20 111,5 39
1.3 Unemployment
76 47,4 76
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
74 15,8 74
2.2 Stock Market Liquidity (Trading Volume)
73 1,3 71
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
68 8,0 75
2.5 Debt and Credit Market
42 62,8 45
2.6 Bank Non-Performing Loans to Total Gross Loans
37 99,3 41
2.7 Financial Market Sophistication
35 71,8 31
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
53 90,0 62
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
19 76,0 21
4.2 Security of Property Rights
23 91,5 20
4.3 Quality of Legal Enforcement
34 83,6 28
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
73 36,5 64
5.2 Labor Market Rigidities
15 82,6 16
5.3 Bribing and Corruption
46 62,9 34
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
72 13,5 73
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
61 75,9 57
6.4 Simplicity of Closing a Business
34 73,9 36
6.5 Corporate R&D
70 6,8 69
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
172 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Netherlands
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
1
3
5
7
9
11
13
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Netherlands
Western Europe
United States=100 Points
GDP 797 [bn USD] IPO Volume
Population 16 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Amsterdam++Official Language: Dutch ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 10 84,3 9
Economic Activity 59 89,6 22
Depth of Capital Market 8 72,4 13
Taxation 15 113,7 6
Inv. Prot./Corp. Gov. 16 91,8 16
Human/Social Env. 17 88,8 16
Entrepr. Cult./Deal Opp. 10 87,0 11
4th 1st
Strengths
• Attractive tax system : low tax rate, high bene ts for PE rm s
• VCPE still of great econom ic im portance
• Highly skilled w orkforce resulting in m any R&D activity centers
Weaknesses
• Sharpening of the (European) corporate governance rules and m ore
pressure from regulators on LPs to protect assets
• IPO m arket unstable due to low trade volum es
• M any foreign and local VCPE funds in the Dutch m arket
• Highly com petitive VCPE m arket, as a consequence of the stable
governm ent, robust legal fram ew ork, strong property rights and a w ell
developed nancial m arket
Opportunities
• Portfolio repositioning by VCPE rm s
• Better integration of acquisition w ithin rm s, w ith stronger focus on post-
m erger integration
Threats
• LPs look at risk, return and liquidity of VCPE funds m ore critically than
pre-crisis
• W all of m aturity, re nancing of large am ounts of debt through 2013-15
• Capital m oves to em erging m arkets
Outlook
• M arket sentim ents are still depressed; how ever, VCPE m arket is in recovery
• Valuation m ultiples w ill increase due to econom ic recovery in the
Netherlands
• Larger buyouts w ill m ake a com eback
• High M &A volum e and m ore secondary buyout transactions are
anticipated
Marcel van Rijnswou, Ernst & Young
[email protected]
173 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
16 63,7 16
1.2 Medium-Term Real GDP Growth
75 93,5 56
1.3 Unemployment
17 121,0 12
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
23 54,8 35
2.2 Stock Market Liquidity (Trading Volume)
8 51,2 12
2.3 IPO Market Activity
17 49,4 25
2.4 M&A Market Activity
17 66,8 17
2.5 Debt and Credit Market
2 97,8 3
2.6 Bank Non-Performing Loans to Total Gross Loans
14 115,1 7
2.7 Financial Market Sophistication
5 100,0 11
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
15 113,7 6
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
28 67,2 31
4.2 Security of Property Rights
16 94,1 16
4.3 Quality of Legal Enforcement
4 122,3 5
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
9 100,2 11
5.2 Labor Market Rigidities
53 54,6 54
5.3 Bribing and Corruption
8 127,7 7
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
11 94,4 8
6.2 Scientific and Technical Journal Articles
14 78,2 14
6.3 Ease of Starting and Running a Business
27 89,6 41
6.4 Simplicity of Closing a Business
7 107,8 9
6.5 Corporate R&D
13 70,1 13
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
174 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Strengths
•
Weaknesses
•
Opportunities
•
Threats
•
Outlook
•
????
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
New Zealand
2007 2011 Quartile
Rank Value Rank
United States 1 100,0 1
Singapore 2 92,4 4
United Kingdom 3 93,3 2
Canada 4 93,3 3
Switzerland 5 91,8 5
Australia 7 90,2 7
Japan 6 90,9 6
Sweden 8 85,0 8
New Zealand 22 72,5 19
4th 1st
15
17
19
21
23
25
27
29
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
New Zealand
Australasia
United States=100 Points
GDP 128 [bn USD] IPO Volume
Population 4 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Wellington ++ Official Language: English, M?ori ++ Currency: New Zealand Dollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 22 72,5 19
Economic Activity 66 78,5 44
Depth of Capital Market 31 43,7 40
Taxation 21 106,6 20
Inv. Prot./Corp. Gov. 2 117,8 2
Human/Social Env. 5 109,3 3
Entrepr. Cult./Deal Opp. 20 75,9 19
4th 1st
Strengths
• Lim ited liability partnership regim e, consistent w ith global investm ent
structures
• Positive buying opportunities for PE as price expectations have declined
• Signi cant num ber of PE-ow ned assets m eaning secondary options m ay
develop
Weaknesses
• Relatively w eak capital m arket
• Slow recovery from recessionary im pacts of the global nancial crisis
• Low level of investm ent in plant and m achinery
• Young VC industry facing signi cant challenges
Opportunities
• The export m arket is developing in a strong grow th region of Asia
• New Zealand’s largest trading partner (Australia) is strong
• Interest rates are low and the NZ$ relatively w eak
Threats
• Deleveraging im pact is reducing the availability of credit and debt for
corporate transactions
• There is uncertainty around the tim ing of econom ic recovery
• Australia- and New Zealand-based LPs are reducing exposure to the PE
industry, leading to few er m anagers over tim e
Outlook
• There are positive buying opportunities given the recessionary econom y
and w eak NZ$
• GDP grow th is slow ly recovering in a tough econom ic environm ent
• New Zealand is hosting the 2011 Rugby W orld Cup
• 2011 is election year (Novem ber), w ith the asset sales program a key issue,
particularly for New Zealand capital m arkets
AndrewTaylor, Ernst & Young
[email protected]
175 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
52 41,0 51
1.2 Medium-Term Real GDP Growth
70 100,4 47
1.3 Unemployment
11 117,4 17
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
50 37,7 54
2.2 Stock Market Liquidity (Trading Volume)
43 6,0 47
2.3 IPO Market Activity
35 33,6 38
2.4 M&A Market Activity
20 50,5 37
2.5 Debt and Credit Market
10 88,7 11
2.6 Bank Non-Performing Loans to Total Gross Loans
1 117,2 4
2.7 Financial Market Sophistication
26 75,3 30
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
21 106,6 20
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
2 121,3 2
4.2 Security of Property Rights
9 109,7 4
4.3 Quality of Legal Enforcement
6 122,8 4
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
19 100,9 10
5.2 Labor Market Rigidities
4 94,3 5
5.3 Bribing and Corruption
2 137,1 1
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
28 74,9 20
6.2 Scientific and Technical Journal Articles
31 65,8 31
6.3 Ease of Starting and Running a Business
7 107,3 8
6.4 Simplicity of Closing a Business
11 103,7 12
6.5 Corporate R&D
30 45,9 28
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
176 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Nigeria
2007 2011 Quartile
Rank Value Rank
South Africa 24 66,9 26
Egypt 52 41,8 55
Morocco 61 41,8 54
Tunisia 64 41,5 56
Kenya 69 38,3 63
Nigeria 66 37,1 64
Namibia 70 26,4 70
Algeria 76 17,1 77
4th 1st
50
52
54
56
58
60
62
64
66
68
2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Nigeria Africa
United States=100 Points
GDP 208 [bn USD] IPO Volume
Population 158 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Abuja ++Official Language: English ++Currency: Naira
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 66 37,1 64
Economic Activity 12 96,0 8
Depth of Capital Market 65 25,1 57
Taxation 71 79,8 73
Inv. Prot./Corp. Gov. 61 44,0 59
Human/Social Env. 76 35,4 71
Entrepr. Cult./Deal Opp. 57 28,9 67
4th 1st
Strengths
• Entrepreneurial culture
• Large population, m aking it an attractive m arket for consum er products
• Recent im provem ents and consolidation of the banking sector as w ell as
ongoing reform of the asset m anagem ent industry have created a w orld-
class nancial services sector
• Currently, the banking sector has the highest potential for M &A in Africa
Weaknesses
• Poor infrastructure, especially roads
• Poor security of pow er supply
Opportunities
• Investors can bene t from recent reform s in the nancial services sector
and anchor their investm ents for the region
• Although seen as Nigeria’s m ain w eakness, its poor infrastructure
represents an opportunity in the form of investm ent by the African
Developm ent Bank w hich is com m itm ent to im proving the continent’s
infrastructure over the next decade
• The discovery of oil in Ghana has created an opportunity for Nigeria-based
oil com panies –both drilling and exploration –to expand on the back of
their experience in the W est African region
• The Governm ent has announced that agriculture and m ining are som e of
the sectors identi ed to diversify the Nigerian econom y –offering plenty
of incentives for investors
Threats
• Although there are efforts to m ake the petroleum sector m ore ef cient
and stable, there are still dif culties experienced by m ultinationals
operating in the country, particularly due to the intensifying cam paigns by
m ilitant groups
Outlook
• Still the m ost populous country in Africa, Nigeria is always a country to watch
• The m obile com m unications industry provides a proof that
m ultinationals can successfully launch and grow their businesses in
Africa –and considering the current w ave of corporate activity in m obile
com m unications, Nigeria is positioned w ell to bene t
Henry Egbiki, Ernst & Young
[email protected]
177 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
42 47,0 41
1.2 Medium-Term Real GDP Growth
19 162,7 4
1.3 Unemployment
8 115,6 24
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
61 43,9 44
2.2 Stock Market Liquidity (Trading Volume)
62 4,9 50
2.3 IPO Market Activity
52 25,8 47
2.4 M&A Market Activity
59 30,0 58
2.5 Debt and Credit Market
80 13,5 80
2.6 Bank Non-Performing Loans to Total Gross Loans
73 77,4 72
2.7 Financial Market Sophistication
57 36,5 62
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
71 79,8 73
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
20 59,5 41
4.2 Security of Property Rights
63 47,4 55
4.3 Quality of Legal Enforcement
75 30,3 72
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
50 39,5 60
5.2 Labor Market Rigidities
11 84,4 15
5.3 Bribing and Corruption
79 13,3 73
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
60 22,3 66
6.2 Scientific and Technical Journal Articles
53 48,7 53
6.3 Ease of Starting and Running a Business
50 36,4 78
6.4 Simplicity of Closing a Business
58 58,0 58
6.5 Corporate R&D
62 8,8 65
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
178 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Norway
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
1
3
5
7
9
11
13
15
17
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Norway
Western Europe
United States=100 Points
GDP 437 [bn USD] IPO Volume
Population 5 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Oslo ++Official Language: Norwegian (Bokmål and Nynorsk) ++Currency: Norvegian Krone
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 12 81,0 13
Economic Activity 52 91,3 15
Depth of Capital Market 17 63,0 20
Taxation 10 109,0 10
Inv. Prot./Corp. Gov. 6 106,4 4
Human/Social Env. 16 84,0 17
Entrepr. Cult./Deal Opp. 15 84,0 13
4th 1st
Strengths
• Overall strong econom ic perform ance, w ith good GDP grow th and positive
effects on em ploym ent
• Strong VCPE environm ent w ith local and Nordic players
• Increased attention from large international PE players
• Large am ount of VC funds
• Strong VCPE environm ent, focusing on energy, oil services and ICT
Weaknesses
• Lim ited num ber of large PE funds in Norw ay
• Econom y strongly dependent on the energy sector
• Overall lim ited depth of the capital m arket
Opportunities
• Norw ay has approxim ately €4,000m in com m itted non-invested capital
• A large portion of investm ents are m ature, leading to a signi cant num ber
of sell processes expected in 2011 and 2012
• W ell-developed cleantech, oil and energy sectors offer investors the
greatest opportunities
• Innovation has an increasingly high ranking
• A signi cant num ber of IPOs are expected to take place during 2011; IPOs
are again view ed as an exit opportunity
Threats
• Norw ay has an over-heated econom y and increasing interest rates
Outlook
• Norw ay rem ains attractive for overseas investors, especially w ith an
econom y at full speed, low unem ploym ent rates and strong focus tow ards
energy and oil services
• The strong dom estic econom y should provide further investm ent
opportunities
Vegard Stevning, Ernst & Young
[email protected]
179 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
25 56,2 23
1.2 Medium-Term Real GDP Growth
68 104,8 43
1.3 Unemployment
7 129,0 3
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
31 46,8 41
2.2 Stock Market Liquidity (Trading Volume)
17 32,3 22
2.3 IPO Market Activity
20 42,8 30
2.4 M&A Market Activity
21 61,0 21
2.5 Debt and Credit Market
19 83,4 18
2.6 Bank Non-Performing Loans to Total Gross Loans
10 115,1 7
2.7 Financial Market Sophistication
18 103,5 8
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
10 109,0 10
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
12 90,1 10
4.2 Security of Property Rights
6 109,7 3
4.3 Quality of Legal Enforcement
7 121,9 6
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
15 90,6 16
5.2 Labor Market Rigidities
42 53,8 57
5.3 Bribing and Corruption
7 121,8 10
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
18 90,3 9
6.2 Scientific and Technical Journal Articles
27 67,4 27
6.3 Ease of Starting and Running a Business
8 100,1 18
6.4 Simplicity of Closing a Business
2 114,5 3
6.5 Corporate R&D
20 59,9 20
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
180 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Oman
2007 2011 Quartile
Rank Value Rank
Israel 19 72,2 21
Saudi Arabia 36 67,5 25
United Arab Emirates 33 61,6 28
Kuwait 40 57,9 35
Jordan 42 53,2 38
Oman 51 45,6 46
Bahrain 58 44,3 50
4th 1st
40
42
44
46
48
50
52
54
56
58
60
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Oman
Middle East
United States=100 Points
GDP 62 [bn USD] IPO Volume
Population 3 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Muscat ++Official Language: Arabic ++Currency: Rial Omani
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 51 45,6 46
Economic Activity 70 61,1 66
Depth of Capital Market 55 31,1 53
Taxation 48 92,4 54
Inv. Prot./Corp. Gov. 37 71,9 31
Human/Social Env. 31 71,9 21
Entrepr. Cult./Deal Opp. 53 32,9 63
4th 1st
Strengths
• Prudent scal policy
• Key potential source of foreign exchange in tourism
Weaknesses
• Sm all dom estic m arket w ith a population of 2.25m
• Vulnerability of econom y to w orld price shocks, due to dependence on
hydrocarbons
• M aturity of Om ani oil elds and decline in oil production, m eaning that,
at current output levels, known oil reserves will be exhausted within 20 years;
in response, the Om ani Governm ent has prioritized the production and
export of natural gas
Opportunities
• Construction is boom ing around the industrial port of Sohar, though m ost
services depend on a healthy oil econom y
• Industrial enterprises m ay be eligible for tax exem ptions for up to 10 years
• A free trade agreem ent with the US cam e into force in January 2009 m aking
consum er and industrial m erchandise trade duty free, the aim being to
create a M iddle East Free Trade Area by 2013
• The agreem ent provides effective enforcem ent of labor and environm ent
law s, and enhances existing intellectual property rights protection
Threats
• The “Om anization”drive to create m ore jobs for citizens som etim es involves
bans or lim its on em ploying expatriate w orkers, constraining em ployers’
freedom of choice
• As Om an is not a m em ber of OPEC, there is a w idening price differential
betw een Om an’s sour grade crude oil and OPEC producers’grades
• Om an’s internet connectivity lags behind its Gulf peers, w ith only Iraq
scoring low er in the region
Outlook
• The budget plan for scal year 2011 envisions a 13.2% increase in spending
for the year, w ith 2.53m rials (US$6.69b) in new capital investm ent
expenses, and total spending of 8.13b rials, up from the 7.18b rials under
the budget plan for 2010
• Governm ent expenditure on the developm ent of facilities w ill rem ain
strong and w ill be com plem ented by foreign investm ent
Rajeev Singh, Ernst & Young
[email protected]
181 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
62 32,0 59
1.2 Medium-Term Real GDP Growth
50 168,3 3
1.3 Unemployment
77 42,4 77
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
49 61,6 29
2.2 Stock Market Liquidity (Trading Volume)
48 6,2 45
2.3 IPO Market Activity
47 18,2 57
2.4 M&A Market Activity
76 11,4 71
2.5 Debt and Credit Market
56 55,7 57
2.6 Bank Non-Performing Loans to Total Gross Loans
57 104,1 30
2.7 Financial Market Sophistication
37 61,2 45
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
48 92,4 54
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
61 48,6 59
4.2 Security of Property Rights
33 83,8 25
4.3 Quality of Legal Enforcement
24 91,1 24
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
43 62,8 36
5.2 Labor Market Rigidities
25 79,4 20
5.3 Bribing and Corruption
33 74,5 29
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
37 30,8 54
6.2 Scientific and Technical Journal Articles
67 39,1 67
6.3 Ease of Starting and Running a Business
41 44,0 76
6.4 Simplicity of Closing a Business
41 65,2 44
6.5 Corporate R&D
67 11,1 62
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
182 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Paraguay
2007 2011 Quartile
Rank Value Rank
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
Venezuela 73 15,2 79
4th 1st
71
72
73
74
75
76
77
78
79
80
81
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Paraguay
Latin America
United States=100 Points
GDP 17 [bn USD] IPO Volume
Population 6 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Asunción ++Official Language: Spanish, Guaraní ++Currency: Guaraní
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 80 15,7 78
Economic Activity 73 61,1 67
Depth of Capital Market 78 12,3 72
Taxation 51 91,2 57
Inv. Prot./Corp. Gov. 78 21,4 78
Human/Social Env. 80 5,7 80
Entrepr. Cult./Deal Opp. 79 10,5 79
4th 1st
Strengths
• Governm ent encouragem ent of foreign investm ent and guarantee of
equal treatm ent for foreign investors
• No form al restrictions on foreign investm ent
• Tax incentives for entrepreneurs and com panies
• One of the low est tax burdens in the region and the low est of M ercosur
• Protection of intellectual property rights by regulation
Weaknesses
• Lack of legal fram ew ork for VCPE form ation and operation
• W eak judicial system , although regulation has been im proved
• Sm all capital m arkets
• M any fam ily-ow ned com panies are concerned about losing control, so
public offerings are not frequent
Threats
• High perception of corruption
Opportunities
• No restrictions on investm ents
Outlook
• The m acroeconom ic environm ent has been positive during 2010 and the
outlook for 2011 rem ains positive
• Paraguay is on an upw ard trend of developing changes to prom ote further
foreign investm ent
Rafael López Fracchina, Ernst & Young
[email protected]
183 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
73 16,1 73
1.2 Medium-Term Real GDP Growth
61 118,7 31
1.3 Unemployment
32 119,2 16
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
72 18,8 71
2.2 Stock Market Liquidity (Trading Volume)
76 1,2 75
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
80 8,1 74
2.5 Debt and Credit Market
66 43,8 68
2.6 Bank Non-Performing Loans to Total Gross Loans
43 112,4 15
2.7 Financial Market Sophistication
78 47,1 54
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
51 91,2 57
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
64 35,1 72
4.2 Security of Property Rights
75 23,1 73
4.3 Quality of Legal Enforcement
78 12,0 78
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
80 1,2 80
5.2 Labor Market Rigidities
75 30,9 75
5.3 Bribing and Corruption
77 4,8 78
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
79 6,4 78
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
79 71,1 62
6.4 Simplicity of Closing a Business
64 53,1 62
6.5 Corporate R&D
79 5,2 76
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
184 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Peru
2007 2011 Quartile
Rank Value Rank
Chile 30 61,5 29
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
4th 1st
40
45
50
55
60
65
70
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Peru
Latin America
United States=100 Points
GDP 146 [bn USD] IPO Volume
Population 29 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Lima ++Official Language: Spanish, Quéchua ++Currency: Nuevo Sol
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 63 41,1 59
Economic Activity 23 91,3 14
Depth of Capital Market 62 31,3 52
Taxation 41 96,9 48
Inv. Prot./Corp. Gov. 65 49,1 52
Human/Social Env. 74 39,5 60
Entrepr. Cult./Deal Opp. 55 29,0 66
4th 1st
Strengths
• IFRS requirem ent for listed rm s
• High corporate governance requirem ents, dem anding strong nancial
disclosure for com panies
• History of PE funds, w ith som e operating successfully for several years
Weaknesses
• Restrictions on investm ent in VCPE by pension funds: a sm all percentage
of capital allow ed
• W eak, slow judiciary, w ith a perception of corruption
• Inconsistent enforcem ent of legislation in the country
Opportunities
• Costs of starting a business are relatively low
• The Governm ent rem ains com m itted to pursuing an investor-friendly
business clim ate, w ith a Foreign Investm ent Law w hich offers autom atic
investm ent authorization and the sam e investm ent conditions to foreign
and national investors
• IPOs have com e back to Peruvian capital m arkets, w hich could represent
an exit strategy for VCPE funds in the future
Threats
• IP protection is regulated; how ever, enforcem ent has been an issue
• The tax environm ent is com plex and taxation for VCPE is expensive,
but tax stability agreem ents to increase investor attractiveness have
been reached
• Regulatory fram ew orks for fund form ation and operation rem ain
incom plete, and capital m arket reform projects to im prove VCPE have
been delayed for a num ber of years
Outlook
• Econom ic activity looks set to rem ain w ell supported by private dem and
and investm ent and the outlook for 2011 is positive
• Recent changes to Peruvian regulations are allow ing increased activity
• Under Alan Garcia’s presidency, Peru has m aintained an aggressive trade
policy that has allow ed it to sign free trade agreem ents w ith the US,
Chile, Singapore, Thailand, China, Canada and the Republic of Korea
Jorge Hernando Medina, Ernst & Young
[email protected]
185 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
53 42,6 49
1.2 Medium-Term Real GDP Growth
26 156,3 7
1.3 Unemployment
37 114,3 26
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
37 57,2 33
2.2 Stock Market Liquidity (Trading Volume)
56 2,7 56
2.3 IPO Market Activity
66 10,0 64
2.4 M&A Market Activity
47 43,7 45
2.5 Debt and Credit Market
61 50,2 64
2.6 Bank Non-Performing Loans to Total Gross Loans
53 105,5 27
2.7 Financial Market Sophistication
41 82,4 26
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
41 96,9 48
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
42 78,8 19
4.2 Security of Property Rights
70 38,5 66
4.3 Quality of Legal Enforcement
67 39,1 64
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
79 25,1 75
5.2 Labor Market Rigidities
56 61,9 42
5.3 Bribing and Corruption
53 39,7 53
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
66 18,7 70
6.2 Scientific and Technical Journal Articles
66 40,6 66
6.3 Ease of Starting and Running a Business
71 68,8 65
6.4 Simplicity of Closing a Business
43 62,3 52
6.5 Corporate R&D
56 6,3 73
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
186 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Philippines
2007 2011 Quartile
Rank Value Rank
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
Philippines 53 41,2 58
Kazakhstan 54 39,1 61
Armenia 72 25,3 71
Kyrgyzstan 78 14,4 80
4th 1st
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Philippines
Asia
United States=100 Points
GDP 181 [bn USD] IPO Volume
Population 94 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Manila ++Official Language: Filipino (based on Tagalog), English ++Currency: Philippine Peso
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 53 41,2 58
Economic Activity 31 85,9 32
Depth of Capital Market 44 41,1 43
Taxation 61 90,6 61
Inv. Prot./Corp. Gov. 64 38,0 70
Human/Social Env. 65 30,7 74
Entrepr. Cult./Deal Opp. 66 28,3 68
4th 1st
Strengths
• Cum ulative investm ents of P3.8 trillion expected betw een 2011 and 2016
• High m arket potential from young and grow ing m iddle incom e population
• Rem ittances from over eight m illion Filipinos overseas contribute over
10% of GDP
• Highly educated professionals and a large pool of affordable w orkforce
• Increasing consum er spending, driven by rising per capita incom e (over
US$2,000) and a grow ing population
Weaknesses
• Inadequate infrastructure in selected areas and sectors
• Budget de cit lim its the Governm ent’s ability to undertake infrastructure
im provem ents (how ever, the Governm ent is pushing PPP for infrastructure
developm ent, w hich w ill lead to increased infrastructure investm ents)
• Innovation structure capacity is som ew hat lim ited
Opportunities
• Investm ent and trade opportunities from free trade agreem ents betw een
ASEAN and other Asian countries are increasing
• Increased globalization, particularly in offshore and outsourcing activities
in the US, provides investm ent opportunities
• The grow th drivers for investm ent are food, technology, infrastructure and
tourism
• Valuations are attractive com pared w ith its Asian neighbors
• Im proving corporate governance and the ongoing effort to stam p out
corruption should attract investm ents
Threats
• Econom ic reform is slow
• There is a perception of w idespread corruption and security issues
Outlook
• Broad-based consum er dem and and resurgent exports and investm ents
should support econom ic grow th, w ith the potential for higher grow th if
substantial infrastructure reform s are undertaken
• Global outsourcing is expected to accelerate
• Sustained econom ic grow th in the Asian region w ill provide the Philippines
a m ajor source of skilled workers
Renato J. Galve, Ernst & Young
[email protected]
Alexander Dacanay, Ernst & Young
[email protected]
187 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
46 45,3 46
1.2 Medium-Term Real GDP Growth
35 125,9 21
1.3 Unemployment
48 111,2 33
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
38 50,1 38
2.2 Stock Market Liquidity (Trading Volume)
46 5,1 48
2.3 IPO Market Activity
38 42,6 31
2.4 M&A Market Activity
36 54,4 29
2.5 Debt and Credit Market
58 54,3 60
2.6 Bank Non-Performing Loans to Total Gross Loans
67 89,7 59
2.7 Financial Market Sophistication
44 68,2 36
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
61 90,6 61
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
69 38,1 70
4.2 Security of Property Rights
64 37,6 67
4.3 Quality of Legal Enforcement
60 38,4 65
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
47 40,2 59
5.2 Labor Market Rigidities
45 54,5 55
5.3 Bribing and Corruption
73 13,2 74
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
59 24,5 61
6.2 Scientific and Technical Journal Articles
63 42,9 63
6.3 Ease of Starting and Running a Business
75 49,2 75
6.4 Simplicity of Closing a Business
76 12,8 79
6.5 Corporate R&D
36 27,5 47
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
188 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Poland
2007 2011 Quartile
Rank Value Rank
Poland 35 57,4 36
Czech Republic 34 55,0 37
Turkey 31 52,8 39
Hungary 43 52,0 40
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
4th 1st
30
32
34
36
38
40
42
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Poland
Eastern Europe
United States=100 Points
GDP 479 [bn USD] IPO Volume
Population 38 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Warsaw ++ Official Language: Polish ++ Currency: Z?oty
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 35 57,4 36
Economic Activity 35 92,0 12
Depth of Capital Market 37 42,6 42
Taxation 36 98,9 42
Inv. Prot./Corp. Gov. 45 62,7 42
Human/Social Env. 39 64,2 30
Entrepr. Cult./Deal Opp. 40 52,3 34
4th 1st
Strengths
• Stable m acroeconom ic situation w ith good grow th prospects
• Size of m arket and continuous grow th of entrepreneurial base
• Good availability of nancing and funds
• High absorption of EU funds and grow ing infrastructure investm ents
• Change in perception of VCPE: from rescue in a crisis situation to a good
source of experience and knowledge of international m arkets, and a chance
for a com pany’s international expansion
Weaknesses
• Stable m acroeconom ic grow th factors threatened by high unem ploym ent
rate and high level of public debt
• Highly com petitive m arket
• High pricing expectations of sellers and excessive com pany valuations
Opportunities
• Positive signals from the m arket and stable investor con dence levels
• High level of FDI increased by privatization program s
• Planned IPOs of Polish and foreign com panies at W arsaw Stock Exchange
• Grow ing num ber of public and private investors w ith interest in VCPE
assets
• Increased deal activity –2010 saw a few large and m any m edium -size
PE transactions, and several new transactions are planned for 2011
• Consolidation trend in the m arket, leading to an increasing num ber of
transactions
Threats
• Problem s w ith fund-raising, potentially increased by new EU restrictions
• New EU regulations on inform ation requirem ents and transparency
• High level of investor caution
Outlook
• Continuous growth in Poland and relative weakness of foreign com petitors
create a good opportunity for Polish com panies in foreign M &A transactions
and international expansion, both of w hich have been rare
• High levels of pre-crisis accum ulated funds to be invested in upcom ing
periods
Anna Zervakos, Ernst & Young
[email protected]
189 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
24 57,4 20
1.2 Medium-Term Real GDP Growth
48 130,5 19
1.3 Unemployment
74 104,0 43
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
44 39,3 50
2.2 Stock Market Liquidity (Trading Volume)
44 6,1 46
2.3 IPO Market Activity
23 59,6 16
2.4 M&A Market Activity
34 55,6 27
2.5 Debt and Credit Market
48 61,8 47
2.6 Bank Non-Performing Loans to Total Gross Loans
66 90,4 57
2.7 Financial Market Sophistication
59 57,7 47
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
36 98,9 42
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
32 69,2 26
4.2 Security of Property Rights
59 51,3 49
4.3 Quality of Legal Enforcement
46 69,3 41
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
39 59,2 38
5.2 Labor Market Rigidities
31 73,1 34
5.3 Bribing and Corruption
48 61,1 37
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
58 40,8 39
6.2 Scientific and Technical Journal Articles
19 72,5 19
6.3 Ease of Starting and Running a Business
52 74,0 61
6.4 Simplicity of Closing a Business
60 56,8 59
6.5 Corporate R&D
38 31,4 41
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
190 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Portugal
2007 2011 Quartile
Rank Value Rank
France 17 79,6 14
Belgium 18 76,8 15
Austria 23 71,7 22
Spain 20 69,1 23
Ireland 14 67,7 24
Portugal 38 60,4 31
Italy 32 59,6 32
Luxembourg 29 59,3 33
Greece 39 47,9 44
4th 1st
20
25
30
35
40
45
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Portugal
Western Europe
United States=100 Points
GDP 226[bn USD] IPO Volume
Population 11 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Lisbon ++Official Language: Portuguese ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 38 60,4 31
Economic Activity 78 75,7 51
Depth of Capital Market 32 47,3 34
Taxation 19 107,0 18
Inv. Prot./Corp. Gov. 30 68,0 35
Human/Social Env. 36 59,3 37
Entrepr. Cult./Deal Opp. 28 62,1 27
4th 1st
Strengths
• Very attractive tax conditions for business angels and VCPE funds
• Close links w ith high-grow th countries such as Brazil and Angola
• Portuguese language –key strategic asset
Weaknesses
• Negative im pact of austerity m easures for scal consolidation
• Lack of rollout capital to fund innovation in biotech and environm ent
• Absence of Portuguese com panies on the NYSE Alternext stock exchange
Opportunities
• Increase in R&D spending w ill boost innovation in a few years
• Niche segm ents in industry related to m edical devices and renew able
energy and environm ent
• Corporate turnaround funds
• Need for consolidation in traditional industries w ith room for build-up
acquisitions
• Room for specialized funds
• Clusters w ith good potential: energy, life sciences and leisure
Threats
• Sm all size of dom estic m arket
• Low grow th of Portuguese econom y
Outlook
• Increase of distressed asset deals
• M odest levels of fund-raising and investm ent
• Buyouts penalized by dif cult credit environm ent
José Gonzaga Rosa, Ernst & Young
[email protected]
Miguel Farinha, Ernst & Young
[email protected]
191 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
34 48,1 36
1.2 Medium-Term Real GDP Growth
80 88,0 62
1.3 Unemployment
46 102,7 46
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
51 40,3 47
2.2 Stock Market Liquidity (Trading Volume)
35 14,1 33
2.3 IPO Market Activity
40 23,3 51
2.4 M&A Market Activity
32 51,8 33
2.5 Debt and Credit Market
15 84,2 17
2.6 Bank Non-Performing Loans to Total Gross Loans
24 106,9 25
2.7 Financial Market Sophistication
26 85,9 20
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
19 107,0 18
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
46 48,7 58
4.2 Security of Property Rights
27 77,5 27
4.3 Quality of Legal Enforcement
25 83,2 30
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
36 62,4 37
5.2 Labor Market Rigidities
65 41,0 65
5.3 Bribing and Corruption
23 81,6 27
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
35 49,6 32
6.2 Scientific and Technical Journal Articles
32 65,6 32
6.3 Ease of Starting and Running a Business
49 92,2 38
6.4 Simplicity of Closing a Business
17 92,0 19
6.5 Corporate R&D
44 33,4 36
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
192 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Romania
2007 2011 Quartile
Rank Value Rank
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
4th 1st
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Romania
Eastern Europe
United States=100 Points
GDP 169 [bn USD] IPO Volume
Population 21 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Bucharest ++Official Language: Romanian ++Currency: Romanian Leu
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 47 41,0 60
Economic Activity 19 80,3 40
Depth of Capital Market 53 21,2 63
Taxation 76 63,0 77
Inv. Prot./Corp. Gov. 46 59,7 45
Human/Social Env. 55 46,0 55
Entrepr. Cult./Deal Opp. 41 46,9 44
4th 1st
Strengths
• Low er private sector debt position (vs. Bulgaria, Ukraine and Hungary):
30% of GDP (BM I, Q1 2011)
• Relatively stable local currency (EUR1=RON4.26 at 17 January 2011;
RON4.2 average for the last tw o years. Source: National Bank of Rom ania)
Weaknesses
• Pricing gap betw een sellers and buyers, particularly visible for those w ell-
positioned com panies that cam e through the crisis w ith strong results
• Scarce (for real estate and start-ups) and expensive leverage for
transactions; large percentage of equity required by local banks for new
industries (e.g., renew able energy)
Opportunities
• A signi cant m arket, w ith approxim ately 22 m illion people
• M arket currently dom inated by buyers
• Potential for grow th in the services sector: 53% of GDP in 2009 vs. 59% in
the Czech Republic and 67% in Poland (Source: Datam onitor)
• VC: certain tax incentives for private investors w ho set up or run SM Es
(participation should not exceed 1.25m )
Threats
• Low population grow th rates w ill result in a shrinkage of future consum er
m arket size
• M igration of skilled labor force to other European countries
• Special rem uneration schem es in place to m inim ize tax
Outlook
• Rom anian econom y estim ated to rebound in 2011 (real GDP projected
grow th for 2011 is +1.5% according to the National Prognosis Com m ission
report in Novem ber 2010). Recovery process potentially slow er than that
of other EU27 countries
• M ore intense activity on the transactions m arket in 2011, as the
con dence of investors in the econom y increases
• Local M &A m arket w ill continue to be sensitive and reactive to econom ic
and scal governm ental decisions
Cornelia Bumbacea, Ernst & Young
[email protected]
193 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
45 44,4 47
1.2 Medium-Term Real GDP Growth
22 99,4 51
1.3 Unemployment
40 117,4 17
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
48 34,9 55
2.2 Stock Market Liquidity (Trading Volume)
59 1,9 65
2.3 IPO Market Activity
50 18,2 56
2.4 M&A Market Activity
40 43,4 46
2.5 Debt and Credit Market
53 55,7 56
2.6 Bank Non-Performing Loans to Total Gross Loans
69 25,9 77
2.7 Financial Market Sophistication
62 25,9 67
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
76 63,0 77
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
26 67,4 30
4.2 Security of Property Rights
50 53,1 48
4.3 Quality of Legal Enforcement
54 59,5 50
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
52 42,2 58
5.2 Labor Market Rigidities
54 51,2 59
5.3 Bribing and Corruption
57 45,0 50
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
55 32,0 52
6.2 Scientific and Technical Journal Articles
43 55,9 43
6.3 Ease of Starting and Running a Business
13 98,5 22
6.4 Simplicity of Closing a Business
62 61,1 55
6.5 Corporate R&D
48 21,1 54
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
194 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Russian Federation
2007 2011 Quartile
Rank Value Rank
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
Philippines 53 41,2 58
Kazakhstan 54 39,1 61
Armenia 72 25,3 71
Kyrgyzstan 78 14,4 80
4th 1st
25
27
29
31
33
35
37
39
41
43
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Russian Federation
Asia
United States=100 Points
GDP 1509 [bn USD] IPO Volume
Population 142 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Moscow ++Official Language: Russian ++Currency: Russian Ruble
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 37 51,1 41
Economic Activity 5 88,7 26
Depth of Capital Market 36 46,5 36
Taxation 60 93,1 53
Inv. Prot./Corp. Gov. 62 38,3 69
Human/Social Env. 57 34,0 72
Entrepr. Cult./Deal Opp. 29 56,7 31
4th 1st
Strengths
• M oderately optim istic econom ic recovery supported by grow ing oil prices
• Low level of state debt
• Forecasts suggest stable exchange rate of the national currency
• Governm ental support for VCPE investm ents in nanotechnologies
(through the foundation and operation of RUSNANO, the state-ow ned
corporation) and for innovation in general
Weaknesses
• Low levels of transparency
• Lack of solid track record in VCPE obstruct nancing on favorable term s
• W eak private sector, infrastructure and corporate governance
• Low per capita incom e, w ith a signi cant difference betw een m ajor cities
and other geographies
Opportunities
• Preparations for 2014 Olym pics and 2018 W orld Cup are expected to
create a substantial ow of infrastructure opportunities
• A second w ave of privatization announced by the Governm ent is expected
to becom e one of the key drivers of M &A deals
• M any business are w illing to dispose of non-core assets, w hich m ay result
in additional ow of deals
Threats
• A fall in the oil price m ay substantially dam age the econom y
• An increasing proportion of the econom y is being controlled by the state
• Com petition from other em erging nations (e.g., China) for VCPE capital
• Investm ent fund cash ow s show that there w as a signi cant out ow of
cash in the second half of 2010
• Foreign investors are tired of w aiting for reform s and im provem ents
Outlook
• VCPE players could be attracted if transparency increases
• M any global players see Russia as having stronger prospects in the near-
and m id-term than m ost developed m arkets
Leonid Saveliev, Ernst & Young
[email protected]
195 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
11 71,6 10
1.2 Medium-Term Real GDP Growth
21 101,4 46
1.3 Unemployment
37 96,0 60
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
25 80,0 17
2.2 Stock Market Liquidity (Trading Volume)
28 14,0 34
2.3 IPO Market Activity
22 61,9 14
2.4 M&A Market Activity
18 68,9 15
2.5 Debt and Credit Market
77 46,4 66
2.6 Bank Non-Performing Loans to Total Gross Loans
33 94,5 52
2.7 Financial Market Sophistication
62 22,4 70
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
60 93,1 53
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
59 37,0 71
4.2 Security of Property Rights
65 40,7 65
4.3 Quality of Legal Enforcement
66 37,4 67
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
32 53,3 45
5.2 Labor Market Rigidities
43 60,8 44
5.3 Bribing and Corruption
70 12,1 75
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
48 38,9 43
6.2 Scientific and Technical Journal Articles
13 78,5 13
6.3 Ease of Starting and Running a Business
53 77,7 56
6.4 Simplicity of Closing a Business
51 59,2 57
6.5 Corporate R&D
32 41,6 33
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
196 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Saudi Arabia
2007 2011 Quartile
Rank Value Rank
Israel 19 72,2 21
Saudi Arabia 36 67,5 25
United Arab Emirates 33 61,6 28
Kuwait 40 57,9 35
Jordan 42 53,2 38
Oman 51 45,6 46
Bahrain 58 44,3 50
4th 1st
20
22
24
26
28
30
32
34
36
38
40
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Saudi Arabia
Middle East
United States=100 Points
GDP 432 [bn USD] IPO Volume
Population 26 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Riyadh ++Official Language: Arabic ++Currency: Saudi Riyal
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 36 67,5 25
Economic Activity 28 93,7 10
Depth of Capital Market 35 59,8 23
Taxation 65 86,2 70
Inv. Prot./Corp. Gov. 40 73,0 29
Human/Social Env. 48 65,6 29
Entrepr. Cult./Deal Opp. 47 60,5 28
4th 1st
Strengths
• M ain OPEC sw ing producer
• Grow th in the non-oil sector and im proved infrastructure, due to recent
oil price boom
• Solid dom estic dem and for goods, services and infrastructure (in spite of
the global econom ic crisis) due to large and grow ing local population
Weaknesses
• Over-dependence on oil: shifts in global oil prices are likely to affect
exports and governm ent revenues
• Shortage of m arketable skills am ong nationals and a high unem ploym ent
rate am ong Saudi citizens, creating private sector dependence on
expatriate labor
• Stringent lending criteria and the need by banks to increase provisions for
non-perform ing loans, slow ing dow n credit recovery
Opportunities
• Huge governm ent infrastructure spending spurs grow th and offers
opportunities in transport (railw ays, airports and ports), property
construction and independent w ater and pow er plants for local and
foreign investors
• Saudi Arabia is considering privatization of som e state-ow ned com panies,
offering great opportunities to investors
Threats
• Any attacks on oil facilities could lead to a disruption of output, w hich
w ould be extrem ely detrim ental to the overall econom y, given the reliance
on this sector
• Perceptions of high security risk deter som e investors and add to the cost
of insurance
Outlook
• Encouraged by the country’s im pressive oil reserves, com bined with a positive
outlook for global oil prices, investor sentim ent tow ard the m arket is
expected to im prove over the m edium to long term
Tanuj Paruthi, Ernst & Young
[email protected]
197 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
23 56,1 24
1.2 Medium-Term Real GDP Growth
51 125,1 22
1.3 Unemployment
30 117,4 17
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
33 60,6 30
2.2 Stock Market Liquidity (Trading Volume)
1 43,9 17
2.3 IPO Market Activity
39 54,6 20
2.4 M&A Market Activity
79 32,6 56
2.5 Debt and Credit Market
41 63,2 44
2.6 Bank Non-Performing Loans to Total Gross Loans
29 111,0 16
2.7 Financial Market Sophistication
49 82,4 26
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
65 86,2 70
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
47 68,3 28
4.2 Security of Property Rights
37 73,1 35
4.3 Quality of Legal Enforcement
41 77,9 35
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
41 71,4 30
5.2 Labor Market Rigidities
61 64,1 38
5.3 Bribing and Corruption
47 61,7 36
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
27 48,7 33
6.2 Scientific and Technical Journal Articles
46 52,4 46
6.3 Ease of Starting and Running a Business
77 112,7 4
6.4 Simplicity of Closing a Business
59 65,8 43
6.5 Corporate R&D
34 42,9 32
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
198 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Singapore
2007 2011 Quartile
Rank Value Rank
Singapore 2 92,4 4
Japan 6 90,9 6
Hong Kong 15 76,5 16
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
4th 1st
0
1
2
3
4
5
6
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Singapore
Asia
United States=100 Points
GDP 195 [bn USD] IPO Volume
Population 5 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Singapore ++Official Language: English, Mandarin, Malay, Tamil ++Currency: Singapore Dollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 2 92,4 4
Economic Activity 8 87,2 30
Depth of Capital Market 9 78,1 8
Taxation 26 103,2 31
Inv. Prot./Corp. Gov. 1 118,9 1
Human/Social Env. 1 115,2 1
Entrepr. Cult./Deal Opp. 11 89,2 9
4th 1st
Strengths
• Corporate perception of VCPE is positive
• Liberal nancial environm ent conducive to optim izing innovative
nancing structures and access to a w ell-developed capital m arket
• Governm ent has an active role through co-investm ent in new enterprises
• Excellent living environm ent w ith access to talent, and favorable taxation
for VCPE funds and individuals. Singapore is the regional hub for PE
activity in South East Asia
• M ore sophistication am ong the corporate com m unity, m aking deals
easier to execute
Weaknesses
• Governm ent links w ith som e of the largest local com panies, lim iting their
need for external capital
• VC m arket less robust than the PE m arket
Opportunities
• Certain sectors present consolidation opportunities
• A num ber of businesses are going through generational change
• Deal size is suitable for the lim ited leverage environm ent
• Favorable m arket conditions provide a good exit w indow for PE portfolios
Threats
• Stock-m arket m ultiples have becom e m ore attractive, offering ef cient
alternatives for capital raising
• W hile com petition from hedge funds has declined, alternative nancing
sources still present a source of com petition to VCPE
• Com petition for deals is strong, due to the large quantum of “dry pow der”
resulting in higher deal m ultiples
Outlook
• Given m ost PE funds are regionally focused, capital w ill ow to those
regional m arkets that offer the best opportunities
• Strong fundam entals for econom ic grow th and a liberal, supportive
Governm ent should support the grow th of VCPE activity
• Increased liquidity and stabilization of nancial m arkets have supported
a re-em ergence of VCPE activity
• The next one to tw o years could present good opportunities for PE
portfolio exits
• Asia-focused funds have signi cantly increased and w ill continue to do
so as m ore LPs seek access to the Asian grow th story
Luke Pais, Ernst & Young
[email protected]
199 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
44 46,2 44
1.2 Medium-Term Real GDP Growth
14 118,3 32
1.3 Unemployment
10 121,4 10
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
6 91,8 7
2.2 Stock Market Liquidity (Trading Volume)
13 58,0 7
2.3 IPO Market Activity
14 63,2 12
2.4 M&A Market Activity
16 66,0 18
2.5 Debt and Credit Market
28 80,5 22
2.6 Bank Non-Performing Loans to Total Gross Loans
39 111,0 16
2.7 Financial Market Sophistication
9 89,4 19
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
26 103,2 31
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
1 123,0 1
4.2 Security of Property Rights
1 117,2 2
4.3 Quality of Legal Enforcement
15 116,6 14
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
4 114,0 2
5.2 Labor Market Rigidities
2 99,3 2
5.3 Bribing and Corruption
4 135,0 3
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
16 83,9 15
6.2 Scientific and Technical Journal Articles
28 67,3 28
6.3 Ease of Starting and Running a Business
1 123,7 1
6.4 Simplicity of Closing a Business
1 116,1 1
6.5 Corporate R&D
15 69,7 14
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
200 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Slovakia
2007 2011 Quartile
Rank Value Rank
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
Moldova 71 22,0 72
4th 1st
40
45
50
55
60
65
70
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Slovakia
Eastern Europe
United States=100 Points
GDP 91 [bn USD] IPO Volume
Population 5 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Bratislava ++Official Language: Slovak ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 48 39,1 62
Economic Activity 38 72,2 54
Depth of Capital Market 59 16,0 65
Taxation 50 93,2 52
Inv. Prot./Corp. Gov. 38 63,8 41
Human/Social Env. 38 53,6 42
Entrepr. Cult./Deal Opp. 39 49,0 40
4th 1st
Strengths
• GDP grow th, falling external vulnerability and tight public nances are
expected as a result of econom ic and business-friendly reform s perform ed
in the past
• Skilled w orkforce attracting FDI
• Healthy banking sector able to respond to the nancing needs of
enterprises and to provide loans
• The introduction of Euro has protected Slovak econom y volatile FX rates
Weaknesses
• W ith its large export-oriented m anufacturing sector, the econom y is
heavily exposed to foreign dem and
• Cost-based com petitiveness is no longer suf cient in m any industries
• Further pursuit of m arket reform s is less of a priority for the current
governm ent
• Dependence on econom ic developm ent in other countries affected by
econom ic crisis
Opportunities
• Privatization of state-ow ned com panies
• M arket saturation low er than in W estern European countries
• Increased in ow of EU funds in the nancing period 2007-13 is expected
to lead to a substantial ow of investm ent into infrastructure
Threats
• As the currencies of Central European peers continue to depreciate against
the euro, the com petitiveness of Slovakia’s export-oriented m anufacturing
sector w ill be affected
• Export-oriented econom y w ith a signi cant exposure to the autom otive
industry
• Substantial dependence on Russia’s gas/oil supplies
• Eurozone entry m eans loss of exchange rate exibility and poses a threat
to price levels
Outlook
• Forecast to be one of the Eurozone countries w ith the fastest econom ic
recovery and grow th
• Grow th prospects rem ain positive, despite the current global turm oil
• Structural reform s should gradually im prove the health of public nance
and country prospects
Jozef Mathia, Ernst & Young
[email protected]
201 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
55 36,8 56
1.2 Medium-Term Real GDP Growth
24 111,3 41
1.3 Unemployment
70 92,0 62
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
70 21,8 68
2.2 Stock Market Liquidity (Trading Volume)
74 1,2 75
2.3 IPO Market Activity
59 1,0 67
2.4 M&A Market Activity
52 23,4 61
2.5 Debt and Credit Market
39 63,4 43
2.6 Bank Non-Performing Loans to Total Gross Loans
42 98,6 45
2.7 Financial Market Sophistication
33 71,8 31
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
50 93,2 52
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
23 69,2 27
4.2 Security of Property Rights
45 62,6 42
4.3 Quality of Legal Enforcement
44 60,0 49
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
56 37,2 63
5.2 Labor Market Rigidities
21 75,5 28
5.3 Bribing and Corruption
39 54,9 42
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
41 35,7 47
6.2 Scientific and Technical Journal Articles
42 56,2 42
6.3 Ease of Starting and Running a Business
37 88,1 44
6.4 Simplicity of Closing a Business
56 61,2 54
6.5 Corporate R&D
50 26,0 49
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
202 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Slovenia
2007 2011 Quartile
Rank Value Rank
Poland 35 57,4 36
Czech Republic 34 55,0 37
Turkey 31 52,8 39
Hungary 43 52,0 40
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
4th 1st
40
42
44
46
48
50
52
54
56
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Slovenia
Eastern Europe
United States=100 Points
GDP 48 [bn USD] IPO Volume
Population 2 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Ljubljana ++Official Language: Slovene ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 45 46,8 45
Economic Activity 51 65,0 61
Depth of Capital Market 63 22,2 61
Taxation 12 105,7 23
Inv. Prot./Corp. Gov. 33 64,7 40
Human/Social Env. 28 60,4 36
Entrepr. Cult./Deal Opp. 26 65,6 25
4th 1st
Strengths
• One of the strongest econom ies in Central and Eastern Europe
• High dem and for nancing
• M em ber of the Eurozone –lacks the currency risk associated w ith m any
of its peers
Weaknesses
• Very lim ited num ber of local VCPE funds and transactions in the past
• Unfavorable tax and legal regulations for VCPE investm ents
• Lim ited num ber of potential large investm ents
Opportunities
• Generally underdeveloped VCPE m arket provides room for new m arket
entrants
• Increased dem and for capital injections
• Potential for participation in the privatization of num erous state-ow ned/
in uenced com panies
Threats
• Legal and business conditions are not supporting a dynam ic SM E sector
due to com plicated licensing and registration processes and investm ent
barriers
• Lack of m aturity in deal-m aking, slow legal processing and
underdeveloped capital m arket
Outlook
• Sm all num ber of transactions, lack of regulatory fram ew ork
• Dif culties in accessing traditional bank nancing and the lack of
experience in restructuring w ill drive dem and for m ore VCPE activities
• Start-ups exhibiting a dedicated grow th and global reach present
undervalued opportunities to GPs
BalazsTuske, Ernst & Young
[email protected]
203 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
61 28,9 63
1.2 Medium-Term Real GDP Growth
49 83,6 69
1.3 Unemployment
27 113,4 28
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
56 37,7 53
2.2 Stock Market Liquidity (Trading Volume)
61 2,2 62
2.3 IPO Market Activity
66 5,7 65
2.4 M&A Market Activity
57 23,0 62
2.5 Debt and Credit Market
33 56,6 55
2.6 Bank Non-Performing Loans to Total Gross Loans
34 109,6 19
2.7 Financial Market Sophistication
41 40,0 56
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
12 105,7 23
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
21 54,1 49
4.2 Security of Property Rights
44 62,7 41
4.3 Quality of Legal Enforcement
33 79,9 33
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
27 73,6 28
5.2 Labor Market Rigidities
64 34,8 71
5.3 Bribing and Corruption
24 85,9 25
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
31 66,3 22
6.2 Scientific and Technical Journal Articles
40 57,2 40
6.3 Ease of Starting and Running a Business
40 103,0 11
6.4 Simplicity of Closing a Business
31 80,9 28
6.5 Corporate R&D
33 38,3 34
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
204 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
South Africa
2007 2011 Quartile
Rank Value Rank
South Africa 24 66,9 26
Egypt 52 41,8 55
Morocco 61 41,8 54
Tunisia 64 41,5 56
Kenya 69 38,3 63
Nigeria 66 37,1 64
Namibia 70 26,4 70
Algeria 76 17,1 77
4th 1st
17
18
19
20
21
22
23
24
25
26
27
2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
South Africa
Africa
United States=100 Points
GDP 327 [bn USD] IPO Volume
Population 50 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Pretoria (administrative); CapeTown (legislative); Bloemfontein (judiciary) ++Official Language: Afrikaans, English and others++Currency: Rand
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 24 66,9 26
Economic Activity 67 58,5 69
Depth of Capital Market 14 76,1 9
Taxation 37 102,6 33
Inv. Prot./Corp. Gov. 22 82,2 22
Human/Social Env. 40 50,6 49
Entrepr. Cult./Deal Opp. 27 58,1 29
4th 1st
Strengths
• Advanced and liquid stock m arkets
• Good track record of m ajor PE deals, especially in the retail sector
• Solid banking sector
• Good oversight and protection of investors
Weaknesses
• Grow th has not led to a rise in em ploym ent gures
• Skills shortage is still high and the education system is still battling to
m eet the requirem ents of the job m arket
Opportunities
• Although grow th is not as robust as in the rest of the continent,
South Africa rem ains an im portant gatew ay for m ultinationals investing
in Africa, and w ill continue to bene t from the in? ow of FDI, even if
it is destined for other countries
Threats
• Pressure on the Governm ent to create jobs has led to som e am biguity
about w hat policies w ill be follow ed, e.g., law s on labor brokers
• The nationalization debate rem ains crucial, and there is no outright
direction as to w hich w ay it w ill go
• Any dip in the developed econom ies, or in China’s econom ic resurgence,
m ight ham per grow th of m ain exports, such as those in the autom otive
and resources sector
Outlook
• Econom ic grow th is expected to com e in below African average
• Business con dence is generally up; m ost of the com pany reports in
the rst quarter of 2011 show a positive trend
• There is a m ajor retail industry takeover underw ay w ith the general
backing of the country, although there are som e hurdles related to
the labor unions
• M ajor sectors are expected to grow, including the autom otive industry where
forecasts are of an 11% grow th in sales in 2011
• M ajor banks are beginning to see higher rates of credit applications
(som e banks reported a 40% increase in credit applications), w ith
repossession rates at a record low
Ajen Sita, Ernst & Young
[email protected]
205 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
29 52,6 28
1.2 Medium-Term Real GDP Growth
43 112,1 38
1.3 Unemployment
78 34,0 78
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
3 121,4 2
2.2 Stock Market Liquidity (Trading Volume)
14 56,6 8
2.3 IPO Market Activity
36 39,8 32
2.4 M&A Market Activity
24 59,3 23
2.5 Debt and Credit Market
8 90,3 7
2.6 Bank Non-Performing Loans to Total Gross Loans
21 93,8 53
2.7 Financial Market Sophistication
9 107,1 7
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
37 102,6 33
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
5 111,4 3
4.2 Security of Property Rights
30 75,6 31
4.3 Quality of Legal Enforcement
43 66,0 45
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
60 33,4 70
5.2 Labor Market Rigidities
36 62,6 41
5.3 Bribing and Corruption
37 62,1 35
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
34 41,8 37
6.2 Scientific and Technical Journal Articles
34 64,0 34
6.3 Ease of Starting and Running a Business
44 89,0 42
6.4 Simplicity of Closing a Business
49 64,5 49
6.5 Corporate R&D
27 43,2 31
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
206 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Spain
2007 2011 Quartile
Rank Value Rank
France 17 79,6 14
Belgium 18 76,8 15
Austria 23 71,7 22
Spain 20 69,1 23
Ireland 14 67,7 24
Portugal 38 60,4 31
Italy 32 59,6 32
Luxembourg 29 59,3 33
Greece 39 47,9 44
4th 1st
10
12
14
16
18
20
22
24
26
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Spain
Western Europe
United States=100 Points
GDP 1425[bn USD] IPO Volume
Population 46 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Madrid ++Official Language: Spanish ++Currency: Euro
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 20 69,1 23
Economic Activity 36 69,2 56
Depth of Capital Market 11 73,8 10
Taxation 22 106,7 19
Inv. Prot./Corp. Gov. 26 71,7 32
Human/Social Env. 37 53,4 43
Entrepr. Cult./Deal Opp. 21 65,7 24
4th 1st
Strengths
• W ell-established PE m arket, especially am ong m iddle-m arket players
• High-level fund m anagers w ith proven experience in the PE m arket
• M ature capital m arkets in line w ith the size of the Spanish econom y,
including the M ercado Alternativo Bursátil (Spain’s alternative investm ent
m arket) has adapted to the size of com pany that m any PE funds have in
their portfolios
• Strong banking system
• High level of hum an capital
Weaknesses
• Lack of labor m arket exibility and m obility w hich has led to a high level
of unem ploym ent and econom ic cost
• Restricted access to credit
• High level of bureaucracy, w ith regulatory differences in each of the
country’s 17 autonom ous com m unities
Opportunities
• Grow th through expansion into Latin Am erica, w here Spanish com panies
have historically been successful
• High returns achievable by investing at the bottom of the econom ic cycle
Threats
• Restructuring of national savings banks, w hich threatens the Spanish
nancial system
• Increased pessim ism tow ard investm ent in Spain due to the econom ic
outlook of the country
• Investm ent analysis com prom ised by focus on portfolio m anagem ent
• A prolonged econom ic dow nturn could, over tim e, lead to a loss in
hum an capital due to m igration of talent abroad w here there are greater
opportunities
Outlook
• Declining volum e of investm ents/divestm ents
• Signi cant labor m arket reform s to em ploym ent law, collective bargaining
and pensions, as w ell as a scal adjustm ent, w ill be required to achieve
long-term sustainable grow th
• PE sector looks set to continue to play an im portant role in the
developm ent of the econom y through the m anagem ent of com panies in
nancial dif culty
Pedro Rodríguez, Ernst & Young
[email protected]
207 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
9 70,9 12
1.2 Medium-Term Real GDP Growth
63 85,1 66
1.3 Unemployment
54 54,9 74
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
12 82,3 14
2.2 Stock Market Liquidity (Trading Volume)
9 59,3 6
2.3 IPO Market Activity
29 51,0 24
2.4 M&A Market Activity
10 73,0 10
2.5 Debt and Credit Market
14 78,8 24
2.6 Bank Non-Performing Loans to Total Gross Loans
11 97,3 49
2.7 Financial Market Sophistication
22 85,9 20
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
22 106,7 19
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
31 55,5 45
4.2 Security of Property Rights
26 76,8 30
4.3 Quality of Legal Enforcement
27 86,6 26
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
39 46,8 50
5.2 Labor Market Rigidities
67 38,7 67
5.3 Bribing and Corruption
22 84,2 26
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
30 50,7 31
6.2 Scientific and Technical Journal Articles
9 80,4 9
6.3 Ease of Starting and Running a Business
43 74,4 59
6.4 Simplicity of Closing a Business
18 93,0 18
6.5 Corporate R&D
25 43,4 30
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
208 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Sweden
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
0
2
4
6
8
10
12
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Sweden
Western Europe
United States=100 Points
GDP 440 [bn USD] IPO Volume
Population 9 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Stockholm++Official Language: Swedish ++Currency: Swedish Krona
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 8 85,0 8
Economic Activity 39 78,2 45
Depth of Capital Market 10 70,6 14
Taxation 1 119,1 1
Inv. Prot./Corp. Gov. 18 97,4 12
Human/Social Env. 12 95,7 11
Entrepr. Cult./Deal Opp. 6 93,1 4
4th 1st
Strengths
• Long-established VCPE industry
• Sw edish com panies tend to think globally from start-up
Weaknesses
• Som e uncertainty rem ains in the IPO m arket, w ith few PE exits by IPO
• Relatively rigid labor m arket and high em ployee-related taxation
Opportunities
• Large public sector beginning to open to com petition
• Strong M &A m arket w ith signi cant transaction activity
• Further leveraging of Sw eden's strengths in technology, innovation and
entrepreneurship
Threats
• Currently strong Sw edish Krona threatens export com petitiveness
• Continued w eakness in Eurozone increases the risk of defaults am ong
VCPE-backed com panies
Outlook
• Sw eden rem ains attractive to both local and overseas investors, and has
a m ature and sophisticated M &A m arket
David Ramm, Ernst & Young
[email protected]
209 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
19 56,3 22
1.2 Medium-Term Real GDP Growth
59 84,5 67
1.3 Unemployment
36 100,4 52
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
14 66,0 26
2.2 Stock Market Liquidity (Trading Volume)
6 52,1 10
2.3 IPO Market Activity
31 35,2 37
2.4 M&A Market Activity
12 64,7 19
2.5 Debt and Credit Market
16 88,5 12
2.6 Bank Non-Performing Loans to Total Gross Loans
14 113,7 10
2.7 Financial Market Sophistication
5 110,6 4
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
1 119,1 1
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
39 76,2 20
4.2 Security of Property Rights
19 96,3 15
4.3 Quality of Legal Enforcement
3 126,2 2
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
9 109,1 4
5.2 Labor Market Rigidities
37 59,6 46
5.3 Bribing and Corruption
5 134,9 4
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
7 112,2 1
6.2 Scientific and Technical Journal Articles
15 75,6 15
6.3 Ease of Starting and Running a Business
14 102,5 13
6.4 Simplicity of Closing a Business
16 94,4 17
6.5 Corporate R&D
6 85,4 4
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
210 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Switzerland
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
0
1
2
3
4
5
6
7
8
9
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Switzerland
Western Europe
United States=100 Points
GDP 510 [bn USD] IPO Volume
Population 8 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Bern ++Official Language: German, French, Italian, Romansh ++Currency: Swiss Franc
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 5 91,8 5
Economic Activity 54 90,4 18
Depth of Capital Market 4 92,2 3
Taxation 11 108,4 13
Inv. Prot./Corp. Gov. 27 74,0 28
Human/Social Env. 3 112,1 2
Entrepr. Cult./Deal Opp. 9 89,7 6
4th 1st
Strengths
• Strong bio-tech, m ed-tech and pharm aceutical focus; generally,
innovative high-tech industries
• Research universities provide a ow of technology spin-offs
• Strong lobbying/support netw orks im prove the VCPE scal and regulatory
environm ent
• Plenty of business angels
• Liberal labor law
• Excellent tax treaty netw ork
Weaknesses
• Sm all m arket
• Grow ing num ber of PE houses focus on the m arket; Sw iss corporates are
also m ore active, causing m ore intense com petition
Opportunities
• Presence of m ajor m ultinationals leads to spin-off opportunities
(especially in chem icals and consum er goods)
• Large cash pools looking for opportunities
• Bio-tech opportunities resulting from depressed prices
Threats
• Increased regulation post- nancial crisis
Outlook
• The positive short-term outlook and the increased focus on Sw itzerland as
a “deal country”w ill foster the excellent current position
LouisSiegrist, Ernst & Young
[email protected]
211 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
20 58,1 19
1.2 Medium-Term Real GDP Growth
69 102,6 45
1.3 Unemployment
12 123,6 8
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
2 115,7 3
2.2 Stock Market Liquidity (Trading Volume)
2 118,5 1
2.3 IPO Market Activity
19 49,2 26
2.4 M&A Market Activity
27 62,9 20
2.5 Debt and Credit Market
9 94,3 5
2.6 Bank Non-Performing Loans to Total Gross Loans
5 117,2 4
2.7 Financial Market Sophistication
1 121,2 1
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
11 108,4 13
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
71 32,3 74
4.2 Security of Property Rights
10 105,0 9
4.3 Quality of Legal Enforcement
12 119,1 10
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
1 122,7 1
5.2 Labor Market Rigidities
22 89,3 10
5.3 Bribing and Corruption
6 128,6 6
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
4 111,6 2
6.2 Scientific and Technical Journal Articles
17 74,5 17
6.3 Ease of Starting and Running a Business
6 104,2 10
6.4 Simplicity of Closing a Business
29 78,7 32
6.5 Corporate R&D
5 85,3 5
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
212 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Taiwan
2007 2011 Quartile
Rank Value Rank
Korea, South 11 75,7 17
China 25 72,3 20
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
4th 1st
15
17
19
21
23
25
27
29
31
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Taiwan Asia
United States=100 Points
GDP 418 [bn USD] IPO Volume
Population 23 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Taipei ++Official Language: Standard Mandarin Chinese ++Currency: New Taiwan Dollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 27 62,4 27
Economic Activity 15 90,6 16
Depth of Capital Market 21 66,1 17
Taxation 33 104,1 28
Inv. Prot./Corp. Gov. 32 76,0 25
Human/Social Env. 30 62,7 33
Entrepr. Cult./Deal Opp. 56 36,7 56
4th 1st
Strengths
• Global leader in high-tech m anufacturing
• Highly educated labor force
• Growth is underpinned by very good infrastructure and sound m onetary
and scal policy; politically stable
• Governm ent debt is just 26% of GDP and in ation has averaged 1% over
the last decade
Weaknesses
• Rapidly aging population, with the num ber of working people forecasted
to begin shrinking in 2016
• High land and labor costs com pared with East Asian neighbors
• Reliance on world m arkets, with exports equaling around 70% of GDP
Opportunities
• Taiwan’s access to the dom estic m arket in m ainland China has im proved
with the signing of the Econom ic Cooperation Fram ework Agreem ent (ECFA),
which will reduce tariffs on 15% of Taiwan’s exports to m ainland China
• Relaxed regulations regarding capital investm ent in m ainland China
• The Taiwan stock exchange (TW SE) is well developed
• The high-technology VC m arket is well established and encouraged by the
Governm ent
Threats
• Taiwan is highly dependent on international m arkets, with the level of
dom estic consum ption rising by just 20% over the period 2000-09, com pared
with a 31% rise in GDP
• In the m edium term the aging population will apply increasing pressure on
the Governm ent’s budget
• Increasing exports to m ainland China, in the context of past tensions
Outlook
• GDP is forecast to grow by 4.5% in 2011
• Utilizing its skilled workforce and existing position, the econom y should retain
its leading position in the high-tech industries in the m edium term
• The increasingly free m ovem ent of capital between m ainland China and
Taiwan will encourage listing activity on the TW SE
• The potential synergy between Taiwan and Chinese m ainland com panies
rem ain strong
Audry Ho, Ernst & Young
[email protected]
213 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
21 55,7 25
1.2 Medium-Term Real GDP Growth
36 116,0 36
1.3 Unemployment
12 115,2 25
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
13 94,1 6
2.2 Stock Market Liquidity (Trading Volume)
19 30,5 23
2.3 IPO Market Activity
9 64,6 10
2.4 M&A Market Activity
28 53,5 30
2.5 Debt and Credit Market
31 73,7 29
2.6 Bank Non-Performing Loans to Total Gross Loans
71 87,6 62
2.7 Financial Market Sophistication
36 85,9 20
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
33 104,1 28
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
51 60,0 40
4.2 Security of Property Rights
24 84,2 24
4.3 Quality of Legal Enforcement
29 86,8 25
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
20 93,3 15
5.2 Labor Market Rigidities
66 37,0 69
5.3 Bribing and Corruption
29 71,5 30
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
10 77,8 18
6.2 Scientific and Technical Journal Articles
71 1,0 71
6.3 Ease of Starting and Running a Business
28 100,6 17
6.4 Simplicity of Closing a Business
12 102,0 14
6.5 Corporate R&D
7 83,2 6
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
214 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Thailand
2007 2011 Quartile
Rank Value Rank
Malaysia 21 72,5 18
Taiwan 27 62,4 27
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
Philippines 53 41,2 58
Kazakhstan 54 39,1 61
4th 1st
25
26
27
28
29
30
31
32
33
34
35
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Thailand Asia
United States=100 Points
GDP 298 [bn USD] IPO Volume
Population 65 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Bangkok ++Official Language: Thai ++Currency: Baht
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 28 59,3 34
Economic Activity 18 93,7 11
Depth of Capital Market 27 54,9 28
Taxation 42 99,0 41
Inv. Prot./Corp. Gov. 44 60,7 44
Human/Social Env. 41 53,2 44
Entrepr. Cult./Deal Opp. 38 47,7 43
4th 1st
Strengths
• Dynam ic and solid econom y w ith strong GDP grow th
• Im proved fundam ental com petitiveness driven by the shift from industrial
to service and creative econom y and the increased stability of the
nancial m arket
Weaknesses
• Banking-oriented econom y and m arket perception of VCPE is not w idely
recognized
• Dependence on capital and low cost of labor
• SM Es are the m ain source of em ploym ent, though w ith a lesser
contribution to the GDP
Opportunities
• Strong governm ent support for “Regional Of ce Headquarter”concept
• The Governm ent’s substantial investm ent in public infrastructure,
particularly transportation and the utilization of alternative energy
• Regional cooperation, w ith both bilateral and m ultilateral arrangem ents,
supports increased productivity and free com petition in the dom estic
m arket
• Corporate valuation is one of the low est in the region despite substantial
grow th and a w ell-perform ing econom y. This creates a signi cant
valuation gap
Threats
• The situation for natural resources is declining
• M arket perception of corruption and uncertain regulatory regim es
• W orsening econom ic situation in US and Europe creates dow nw ard
pressure on the value of the currency, reducing the com petitiveness
of the export m arket and adversely affecting the foreign investm ent
environm ent
• Concerns about the political environm ent im pact the con dence of both
consum ers and investors
Outlook
• M &A activity is expected to rise as the econom y rebounds and
corporations plan for inorganic grow th
• Increased liquidity and the rebound of capital m arkets during the past
year should create an attractive environm ent for VCPE activity
Vorapoj Amnauypanit, Ernst & Young
[email protected]
215 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
33 51,5 32
1.2 Medium-Term Real GDP Growth
40 116,1 35
1.3 Unemployment
1 137,5 2
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
32 58,0 31
2.2 Stock Market Liquidity (Trading Volume)
29 17,6 30
2.3 IPO Market Activity
16 52,8 22
2.4 M&A Market Activity
22 57,7 25
2.5 Debt and Credit Market
25 83,0 19
2.6 Bank Non-Performing Loans to Total Gross Loans
70 81,5 70
2.7 Financial Market Sophistication
32 71,8 31
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
42 99,0 41
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
44 67,6 29
4.2 Security of Property Rights
36 58,5 44
4.3 Quality of Legal Enforcement
52 56,6 54
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
43 53,7 43
5.2 Labor Market Rigidities
17 78,6 22
5.3 Bribing and Corruption
52 35,6 57
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
42 33,1 51
6.2 Scientific and Technical Journal Articles
39 58,7 39
6.3 Ease of Starting and Running a Business
23 92,8 36
6.4 Simplicity of Closing a Business
68 43,0 69
6.5 Corporate R&D
43 31,7 40
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
216 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Tunisia
2007 2011 Quartile
Rank Value Rank
South Africa 24 66,9 26
Egypt 52 41,8 55
Morocco 61 41,8 54
Tunisia 64 41,5 56
Kenya 69 38,3 63
Nigeria 66 37,1 64
Namibia 70 26,4 70
Algeria 76 17,1 77
4th 1st
45
50
55
60
65
70
75
2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Tunisia Africa
United States=100 Points
GDP 41 [bn USD] IPO Volume
Population 10 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Tunis ++Official Language: Arabic ++Currency: Tunisian Dinar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 64 41,5 56
Economic Activity 63 61,6 65
Depth of Capital Market 73 20,0 64
Taxation 43 98,7 43
Inv. Prot./Corp. Gov. 51 68,3 34
Human/Social Env. 34 62,7 32
Entrepr. Cult./Deal Opp. 46 44,6 48
4th 1st
Strengths
• A w ell-established internet netw ork and access
• Relatively higher levels of education and other social indicators, and
reasonable incom e equality
• Com petitive level of protection for investors and ease of doing business, as
w ell as a low cost of im ports and exports
Weaknesses
• Lack of access to nancial services for m ore than 60% of the population
Opportunities
• The m ain opportunities for VCPE investm ent lay w ithin the m ain grow th
industries in Tunisia –the tourism , textiles, agribusiness and technology
sectors
• Am ong the top ve countries in Africa in term s of internet penetration,
Tunisia is w ell poised to com pete in the m odern global econom y
Threats
• The biggest threat is the recent political upheaval and sudden change of
governm ent
Outlook
• M oderate grow th econom y
• W ith the im proving protection of property rights having been Tunisia’s
strength, investors w ill w ant to see a conclusion to the political standoff
before com m itting to Tunisia
• The stock m arket is reasonably liquid and corporate activity has been on
an upw ard trajectory over the past 24 m onths
Abdulaziz Al-Sowailim, Ernst & Young
[email protected]
217 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
64 26,9 64
1.2 Medium-Term Real GDP Growth
44 137,7 15
1.3 Unemployment
75 63,0 72
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
67 31,1 62
2.2 Stock Market Liquidity (Trading Volume)
65 2,6 57
2.3 IPO Market Activity
66 15,6 60
2.4 M&A Market Activity
74 13,6 69
2.5 Debt and Credit Market
47 72,2 30
2.6 Bank Non-Performing Loans to Total Gross Loans
79 14,2 79
2.7 Financial Market Sophistication
49 71,8 31
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
43 98,7 43
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
77 52,9 51
4.2 Security of Property Rights
34 75,3 32
4.3 Quality of Legal Enforcement
31 79,9 34
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
26 80,2 23
5.2 Labor Market Rigidities
51 56,4 51
5.3 Bribing and Corruption
41 54,6 43
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
38 39,3 42
6.2 Scientific and Technical Journal Articles
47 52,4 47
6.3 Ease of Starting and Running a Business
19 94,8 30
6.4 Simplicity of Closing a Business
22 89,2 20
6.5 Corporate R&D
64 10,1 63
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
218 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Turkey
2007 2011 Quartile
Rank Value Rank
Poland 35 57,4 36
Czech Republic 34 55,0 37
Turkey 31 52,8 39
Hungary 43 52,0 40
Slovenia 45 46,8 45
Estonia 41 44,8 49
Bulgaria 50 44,1 51
Croatia 55 43,4 52
Romania 47 41,0 60
4th 1st
30
32
34
36
38
40
42
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Turkey
Eastern Europe
United States=100 Points
GDP 711 [bn USD] IPO Volume
Population 72 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Ankara ++Official Language: Turkish ++Currency: Turkish Lira
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 31 52,8 39
Economic Activity 6 77,6 48
Depth of Capital Market 33 45,4 38
Taxation 20 105,8 22
Inv. Prot./Corp. Gov. 48 51,3 50
Human/Social Env. 49 45,7 56
Entrepr. Cult./Deal Opp. 36 50,0 36
4th 1st
Strengths
• Follow ing the rebound in Q2 2009, high and sustainable grow th potential
for nearly all industries, especially in consum er-related sectors
• Highly developed entrepreneurial skills
• Increasing understanding and acceptance of VCPE
• High-quality professional m anagem ent despite being an em erging m arket
Weaknesses
• Lack of skilled w orkforce for certain industries, despite high
unem ploym ent rate
• Low protection of intellectual property rights
• Highly volatile m arket
Opportunities
• A substantial young population, grow ing m iddle class and increasing per
capita incom e w ill drive grow th in the consum er products sector
• The level of institutionalization and transparency is expected to increase
substantially w ith the enforcem ent of a new trade law, enacted in January
2011
• There is a grow ing appetite for acquisition nance, supported by a local
banking system that is healthy and liquid
• IPO and M &A activity is increasing, as the econom y grow s; regulators are
offering substantial incentives, such as low ering the m inim um percentage
? oat and pro tability requirem ents, and the introduction of secondary
m arkets for com panies that cannot m eet the listing requirem ents
• The m ajority of businesses are sm all- to m edium -sized and fam ily ow ned,
w ith fam ily m em bers still active in daily m anagem ent
Outlook
• Turkey is a high potential grow th m arket
• The legal and regulatory fram ew ork is still converging to the EU system
Demet Ozdemir, Ernst Young
[email protected]
219 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
17 62,3 17
1.2 Medium-Term Real GDP Growth
12 100,1 49
1.3 Unemployment
61 75,0 70
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
54 37,8 52
2.2 Stock Market Liquidity (Trading Volume)
31 13,6 35
2.3 IPO Market Activity
30 38,0 34
2.4 M&A Market Activity
35 55,5 28
2.5 Debt and Credit Market
45 59,2 52
2.6 Bank Non-Performing Loans to Total Gross Loans
50 95,9 50
2.7 Financial Market Sophistication
33 64,7 41
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
20 105,8 22
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
67 48,2 60
4.2 Security of Property Rights
47 46,3 59
4.3 Quality of Legal Enforcement
47 60,5 48
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
48 38,9 61
5.2 Labor Market Rigidities
58 47,5 60
5.3 Bribing and Corruption
45 51,8 46
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
43 31,8 53
6.2 Scientific and Technical Journal Articles
18 73,5 18
6.3 Ease of Starting and Running a Business
29 87,1 45
6.4 Simplicity of Closing a Business
66 52,2 63
6.5 Corporate R&D
47 29,5 43
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
220 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Ukraine
2007 2011 Quartile
Rank Value Rank
Romania 47 41,0 60
Lithuania 46 41,3 57
Slovakia 48 39,1 62
Latvia 56 29,4 67
Ukraine 67 27,8 68
Georgia 68 27,2 69
Moldova 71 22,0 72
Macedonia 75 19,3 73
Albania 79 17,8 75
4th 1st
54
56
58
60
62
64
66
68
70
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Ukraine
Eastern Europe
United States=100 Points
GDP 127 [bn USD] IPO Volume
Population 46 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Kyiv ++Official Language: Ukrainian ++Currency: Hryvnia
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 67 27,8 68
Economic Activity 14 62,1 64
Depth of Capital Market 64 13,2 69
Taxation 80 18,8 80
Inv. Prot./Corp. Gov. 67 40,4 65
Human/Social Env. 54 38,5 65
Entrepr. Cult./Deal Opp. 65 34,8 57
4th 1st
Strengths
• Im proved relations w ith M oscow, w hich has positively im pacted Ukraine’s
political risk pro le and resulted in short-term stability
• Extension of a US$15.2b em ergency stand-by agreem ent from the IM F
signi cantly reduced the likelihood of a sovereign credit default
• Advantageous geographic location m eans great potential as a
transportation and agricultural hub
Weaknesses
• Political instability, econom ic m ism anagem ent, corruption and cronyism
are the biggest challenges
• Low possibility of form ing parliam entary m ajorities, and w eak governm ent
policy-m aking in the near future
• Absence of a developed stock m arket
• Production facilities and infrastructure are outdated and require
signi cant capex
Opportunities
• The investm ent environm ent is im proving, as the country m oves tow ard
m arket liberalization, cutting back on regulation and rem oving num erous
licensing requirem ents
• The new tax code is expected to bring cuts in incom e and VAT tax rates
betw een 2011 and 2014, and reduces the com plexity and burden of tax
com pliance
• Low labor costs
• EURO 2012 football cham pionship hosted by Ukraine and Poland
Threats
• The new tax code m ay reinforce the use of tax optim ization schem es by
Ukrainian entities
• Ukraine’s legal system continues to receive a high level of criticism
from investors for its inef ciency, frequent delays and com m on political
interference
Outlook
• Ukraine’s econom y is expected to underperform its peers due to its
overleveraged banking system , high levels of external debt, w eak public
nances and poor dem ographics
• Relatively cheap assets have signi cant potential for future grow th
Vitalii Kuzub, Ernst & Young
[email protected]
Aaron Johnson, Ernst & Young
[email protected]
221 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
49 40,9 52
1.2 Medium-Term Real GDP Growth
18 59,5 76
1.3 Unemployment
33 98,7 57
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
47 32,8 60
2.2 Stock Market Liquidity (Trading Volume)
67 1,7 67
2.3 IPO Market Activity
46 28,8 44
2.4 M&A Market Activity
46 41,4 51
2.5 Debt and Credit Market
73 39,0 71
2.6 Bank Non-Performing Loans to Total Gross Loans
77 1,2 80
2.7 Financial Market Sophistication
66 22,4 70
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
80 18,8 80
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
55 57,3 44
4.2 Security of Property Rights
69 35,2 69
4.3 Quality of Legal Enforcement
65 32,7 70
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
33 54,0 42
5.2 Labor Market Rigidities
35 70,3 36
5.3 Bribing and Corruption
67 15,0 72
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
51 39,6 41
6.2 Scientific and Technical Journal Articles
36 62,9 36
6.3 Ease of Starting and Running a Business
68 68,7 66
6.4 Simplicity of Closing a Business
79 10,4 80
6.5 Corporate R&D
41 28,7 45
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
222 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
United Arab Emirates
2007 2011 Quartile
Rank Value Rank
Israel 19 72,2 21
Saudi Arabia 36 67,5 25
United Arab Emirates 33 61,6 28
Kuwait 40 57,9 35
Jordan 42 53,2 38
Oman 51 45,6 46
Bahrain 58 44,3 50
4th 1st
20
22
24
26
28
30
32
34
36
38
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
United Arab
Emirates
Middle East
United States=100 Points
GDP 245 [bn USD] IPO Volume
Population 5 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Abu Dhabi ++Official Language: Arabic ++Currency: UAE Dirham
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 33 61,6 28
Economic Activity 4 89,0 25
Depth of Capital Market 29 62,5 22
Taxation 77 26,2 78
Inv. Prot./Corp. Gov. 39 65,8 39
Human/Social Env. 22 78,3 19
Entrepr. Cult./Deal Opp. 59 47,7 42
4th 1st
Strengths
• One of the m ost liberal trade regim es in the Gulf, attracting strong capital
? ow s across the region
• High num ber of expatriate w orkers at all levels of the econom y, m aking up
for the otherw ise sm all w orkforce
• Strong rebound in foreign trade activity and exports, w hich is im proving
tourism and econom ic conditions
Weaknesses
• W eak credit grow th and a still uncertain outlook for Dubai’s property
m arket underpin the prospect of a m ore pronounced recovery, follow ing
the 2009 global nancial crisis
• A cautious approach should be follow ed by investors in Dubai, follow ing
the 2011 due date for the repaym ent of US$16b in debt obligations
• Currency peg to the dollar, giving less control over m onetary policy and
reducing the ability to tackle in ationary pressure
• Risk pro le and investor perceptions affected by events elsew here (e.g.,
US concerns about regional m ilitant groups and Iranian w eapons of m ass
destruction program s) due to the state’s location in a volatile region
Opportunities
• Investm ent is encouraged by the Governm ent through low taxation,
im port duties and other incentives, thereby strengthening the country’s
tourism , trade and nancial sectors
• Com paratively exible rules on expatriate em ploym ent encourage the
proliferation of corporates in the region
• Econom ic diversi cation of gas, tourism , nancial services and high-tech
industries offers som e protection against volatile oil prices
Threats
• Heavy subsidies on utilities and agriculture, com bined w ith an outdated
tax system , have contributed to persistent scal de cits in the past
• Several high-pro le construction projects have been delayed and the
property m arket crash could threaten future developm ent
Outlook
• Ongoing declines in real estate prices and a continuing w eak outlook
for dom estic dem and (particularly in Dubai) underpin the view that core
in ationary pressures w ill be relatively m uted over the com ing year
Azhar Zafar, Ernst & Young
[email protected]
223 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
37 49,0 34
1.2 Medium-Term Real GDP Growth
8 116,4 34
1.3 Unemployment
4 123,6 8
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
35 85,3 12
2.2 Stock Market Liquidity (Trading Volume)
23 30,1 24
2.3 IPO Market Activity
33 51,2 23
2.4 M&A Market Activity
51 41,9 50
2.5 Debt and Credit Market
37 82,5 20
2.6 Bank Non-Performing Loans to Total Gross Loans
64 103,4 33
2.7 Financial Market Sophistication
29 78,8 29
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
77 26,2 78
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
66 44,5 65
4.2 Security of Property Rights
32 77,0 29
4.3 Quality of Legal Enforcement
30 83,2 29
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
38 73,0 29
5.2 Labor Market Rigidities
27 72,1 35
5.3 Bribing and Corruption
26 91,4 22
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
36 58,7 27
6.2 Scientific and Technical Journal Articles
57 45,0 57
6.3 Ease of Starting and Running a Business
35 102,9 12
6.4 Simplicity of Closing a Business
73 26,1 75
6.5 Corporate R&D
68 34,9 35
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
224 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
United Kingdom
2007 2011 Quartile
Rank Value Rank
United Kingdom 3 93,3 2
Switzerland 5 91,8 5
Sweden 8 85,0 8
Netherlands 10 84,3 9
Germany 16 82,8 10
Finland 9 82,3 11
Denmark 13 81,8 12
Norway 12 81,0 13
France 17 79,6 14
4th 1st
0
1
2
3
4
5
6
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
United Kingdom
Western Europe
United States=100 Points
GDP 2223 [bn USD] IPO Volume
Population 62 [mn] M&A Volume
GDP Growth VC Activity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: London ++Official Language: English ++Currency: Pound Sterling
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 3 93,3 2
Economic Activity 48 88,6 27
Depth of Capital Market 3 91,1 4
Taxation 17 107,7 15
Inv. Prot./Corp. Gov. 7 103,4 8
Human/Social Env. 7 96,3 10
Entrepr. Cult./Deal Opp. 4 89,4 7
4th 1st
Strengths
• Established global VCPE and nancial centre, w ith large num bers of assets
currently under VCPE ow nership
• PE, as an asset class, is recognized as an im portant part of the econom y
• Signi cant rebounding of PE acquisition activity in 2010, w ith exit
opportunities reappearing in M &A m arkets
• Leverage is returning and is m uch m ore accessible than in the last tw o
years
Weaknesses
• Caution created by continuing econom ic uncertainty
• Fierce com petition for quality assets
• Dif cult to establish the stability and grow th prospects of individual target
assets w hile em erging from the recession
• IPO m arkets not a w idely accessible exit route for PE assets in the past tw o
years
Opportunities
• M any attractive investm ent opportunities w ill com e to m arket as the
pent-up ow of exits continues
• Assets acquired by the banks during econom ic dif culties are expected to
com e to m arket
• W hile fund-raising still rem ains dif cult, liquidity concerns are likely to
recede and fundraising should recover
Threats
• M acroeconom ic uncertainty continues
• An increased regulatory burden m ay be placed upon PE; the full im pact of
the regulatory changes are yet to becom e clear
• Re nancing challenges rem ain for PE-backed assets
• The IPO m arket as an exit route for PE rem ains uncertain
Outlook
• There is a large portfolio of PE-backed UK assets expected to be exited,
so the ow of assets to m arket is set to increase
• As credit becom es increasingly available by investors searching for yield in
the current low -interest rate environm ent, transactions should continue
to scale up in size; sim ilarly, as investors search for yield, term s w ill shift in
favour of borrow ers
• Fund-raising conditions w ill rem ain challenging
Sachin Date, Ernst & Young
[email protected]
225 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
5 76,4 6
1.2 Medium-Term Real GDP Growth
72 85,2 65
1.3 Unemployment
25 106,7 39
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
5 86,9 10
2.2 Stock Market Liquidity (Trading Volume)
5 93,8 4
2.3 IPO Market Activity
5 70,2 7
2.4 M&A Market Activity
2 86,7 2
2.5 Debt and Credit Market
4 86,5 14
2.6 Bank Non-Performing Loans to Total Gross Loans
19 109,6 19
2.7 Financial Market Sophistication
9 110,6 4
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
17 107,7 15
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
8 102,5 6
4.2 Security of Property Rights
17 91,8 18
4.3 Quality of Legal Enforcement
11 117,5 13
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
16 98,2 14
5.2 Labor Market Rigidities
5 84,9 14
5.3 Bribing and Corruption
13 107,1 16
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
5 87,1 12
6.2 Scientific and Technical Journal Articles
3 87,8 3
6.3 Ease of Starting and Running a Business
22 93,9 34
6.4 Simplicity of Closing a Business
9 107,1 10
6.5 Corporate R&D
8 74,3 10
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
226 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
United States of America
2007 2011 Quartile
Rank Value Rank
United States 1 100,0 1
Singapore 2 92,4 4
United Kingdom 3 93,3 2
Canada 4 93,3 3
Switzerland 5 91,8 5
Australia 7 90,2 7
Japan 6 90,9 6
Sweden 8 85,0 8
Netherlands 10 84,3 9
4th 1st
0
1
2
3
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
75
100
125
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
United States
North America
United States=100 Points
GDP 14802 [bn USD] IPO Volume
Population 309 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Washington D.C. ++Official Language: English ++Currency: USDollar
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 1 100,0 1
Economic Activity 26 100,0 5
Depth of Capital Market 1 100,0 1
Taxation 35 100,0 40
Inv. Prot./Corp. Gov. 9 100,0 9
Human/Social Env. 11 100,0 8
Entrepr. Cult./Deal Opp. 1 100,0 2
4th 1st
Strengths
• Better econom ic recovery com pared to other developed m arkets,
particularly Europe
• Recovery of nancial m arkets
• Strong innovation and entrepreneurship culture
• Fully developed and robust VCPE “ecosystem ”
Weaknesses
• Econom ic recovery not strong enough to show effects on unem ploym ent
• Fragile recovery of dom estic dem and w ith individuals threatened by falling
house prices and high unem ploym ent
• High individual debt and possible further deleverage of individual
households
• Continuous decrease in the num ber of VC funds
• Decline of VC-backed IPOs
Opportunities
• Robust innovation and fast grow th can be seen in segm ents such as
cleantech, cloud com puting, social netw orks, w ireless and security
• Opportunities for strategic partnerships are increasing
• PE-backed IPOs are back
Threats
• Succession planning in som e funds
• Lack of exits im pacting the ability to raise new or follow on funds
• Pressure from certain lim ited partners to de ne new LP-GP term s
• Accelerated global com petition
• State de cit is likely to lead to an increase in taxation and w ill continue to
w eaken the US dollar, thus adding foreign exchange risk
Outlook
• Industry is strong w ith investm ent and grow th opportunities in new and
innovative segm ents
• The consolidation of players in the VC industry is expected
Gil Forer, Ernst & Young
[email protected]
227 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
1 100,0 1
1.2 Medium-Term Real GDP Growth
65 100,0 50
1.3 Unemployment
19 100,0 53
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
4 100,0 5
2.2 Stock Market Liquidity (Trading Volume)
3 100,0 3
2.3 IPO Market Activity
1 100,0 1
2.4 M&A Market Activity
1 100,0 1
2.5 Debt and Credit Market
1 100,0 2
2.6 Bank Non-Performing Loans to Total Gross Loans
14 100,0 39
2.7 Financial Market Sophistication
3 100,0 11
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
35 100,0 40
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
6 100,0 8
4.2 Security of Property Rights
14 100,0 13
4.3 Quality of Legal Enforcement
17 100,0 20
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
7 100,0 12
5.2 Labor Market Rigidities
1 100,0 1
5.3 Bribing and Corruption
27 100,0 18
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
1 100,0 6
6.2 Scientific and Technical Journal Articles
1 100,0 1
6.3 Ease of Starting and Running a Business
12 100,0 19
6.4 Simplicity of Closing a Business
14 100,0 16
6.5 Corporate R&D
1 100,0 2
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
228 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Uruguay
2007 2011 Quartile
Rank Value Rank
Chile 30 61,5 29
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
4th 1st
62
63
64
65
66
67
68
69
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Uruguay
Latin America
United States=100 Points
GDP 40 [bn USD] IPO Volume
Population 3 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Montevideo ++Official Language: Spanish ++Currency: Peso Uruguayo
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 65 36,8 65
Economic Activity 64 77,8 46
Depth of Capital Market 72 12,7 70
Taxation 75 86,0 71
Inv. Prot./Corp. Gov. 47 58,0 49
Human/Social Env. 27 71,6 23
Entrepr. Cult./Deal Opp. 52 44,7 47
4th 1st
Strengths
• Low levels of corruption; ranked 24th out of 178 countries in Transparency
International’s 2010 Corruption Perceptions Index
• Low levels of organized crim e
• IFRS requirem ent for all rm s
• Faster, less costly resolution of bankruptcies, w ith higher recovery rate
than other countries in the region
• Equal treatm ent of foreign and national investors
Weaknesses
• Lack of legal fram ew ork for VCPE form ation and operation
• Com plex and expensive tax environm ent
• Institutional investm ent only allow ed in rated instrum ents w ith adequate
governance standards
• Underdeveloped capital m arket, concentrated in sovereign debt, m eaning
IPOs are not a viable exit option for VCPE funds
Threats
• M inority shareholders’rights are w eak, and transparency is perceived as an
issue for these shareholders
• Low protection of intellectual property rights, w ith com plex patent
registration
Opportunities
• Inw ard investm ents have sim ple registration rules, no reserve required and
no exchange controls
• Im provem ent has been seen in the judicial system
• Public and private efforts have been m ade to prom ote entrepreneurial
activity and start-ups
Outlook
• The VCPE activity w ill likely decelerate during 2011
• The country could m ake its VCPE business environm ent m ore attractive by
adopting a better legal fram ew ork for nationally dom iciled fund form ation
and operation, and reducing restrictions on institutional investors
Jose Ricardo Villarmarzo, Ernst & Young
[email protected]
229 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
68 26,7 65
1.2 Medium-Term Real GDP Growth
41 157,1 6
1.3 Unemployment
64 112,5 29
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
77 9,1 77
2.2 Stock Market Liquidity (Trading Volume)
77 1,2 73
2.3 IPO Market Activity
66 1,0 67
2.4 M&A Market Activity
71 19,2 66
2.5 Debt and Credit Market
64 55,6 58
2.6 Bank Non-Performing Loans to Total Gross Loans
27 113,7 10
2.7 Financial Market Sophistication
67 40,0 56
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
75 86,0 71
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
48 53,6 50
4.2 Security of Property Rights
46 58,4 45
4.3 Quality of Legal Enforcement
49 62,2 46
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
53 53,7 43
5.2 Labor Market Rigidities
20 76,6 27
5.3 Bribing and Corruption
21 89,4 23
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
63 33,2 50
6.2 Scientific and Technical Journal Articles
61 44,0 61
6.3 Ease of Starting and Running a Business
55 65,8 67
6.4 Simplicity of Closing a Business
38 79,6 30
6.5 Corporate R&D
57 23,2 51
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
230 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Venezuela
2007 2011 Quartile
Rank Value Rank
Brazil 57 48,7 43
Mexico 44 48,7 42
Colombia 49 45,3 47
Peru 63 41,1 59
Uruguay 65 36,8 65
Argentina 60 36,4 66
Ecuador 74 17,9 74
Paraguay 80 15,7 78
Venezuela 73 15,2 79
4th 1st
70
71
72
73
74
75
76
77
78
79
80
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Venezuela
Latin America
United States=100 Points
GDP 301 [bn USD] IPO Volume
Population 29 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Caracas ++Official Language: Spanish ++Currency: Bolívar Fuerte
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 73 15,2 79
Economic Activity 2 80,0 41
Depth of Capital Market 67 13,5 67
Taxation 74 73,5 76
Inv. Prot./Corp. Gov. 80 4,2 80
Human/Social Env. 79 8,0 79
Entrepr. Cult./Deal Opp. 72 15,5 73
4th 1st
Strengths
• Foreign investors are granted alm ost equal treatm ent as nationals, w ith
few restrictions
Weaknesses
• Unattractive legal fram ew ork for foreign investors
• Lack of legal fram ew ork for the form ation and operation of VCPE
• Lack of political stability
• Sharp fall of foreign investm ent over recent years
• High levels of corruption, crim e, bureaucracy and a politically driven
judicial environm ent
• Currency devaluation trend and com plex foreign exchange regulation that
signi cantly lim its FX access
• Low investor protection and governance structure
Threats
• GDP contraction for tw o consecutive years and a negative outlook for
GDP grow th in 2011
• In ation continues to be the highest in the Latin Am erican region
• An energy crisis is likely to occur and no investm ents are projected in the
short and m id term
• Ongoing nationalization and expropriation processes in several industries
and sectors
• Strong regulation that discourages transferability of foreign currency
(dividend paym ents/disinvestm ents)
Opportunities
• There w ill only be lim ited opportunities for foreign investors if the
Governm ent continues to expropriate com panies from both local and
foreign investors
• In the future, as attitudes tow ards investm ent changes and legislation and
practices are adapted to re ect this, m ore opportunities for VCPE investors
should arise
Outlook
• Negative econom ic outlook for 2011
• Scarcity of investm ent opportunities, high uncertainty and political
instability is likely to continue
• Environm ent of m arket-unfriendly legal reform s is anticipated
• Underinvestm ent is expected due to lack of guarantees
Jairo A. Labrador, Ernst & Young
[email protected]
231 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
36 51,6 31
1.2 Medium-Term Real GDP Growth
1 91,7 60
1.3 Unemployment
58 108,0 38
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
73 19,3 70
2.2 Stock Market Liquidity (Trading Volume)
72 1,3 69
2.3 IPO Market Activity
66 2,5 66
2.4 M&A Market Activity
53 33,7 55
2.5 Debt and Credit Market
62 13,5 79
2.6 Bank Non-Performing Loans to Total Gross Loans
21 107,5 23
2.7 Financial Market Sophistication
60 25,9 67
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
74 73,5 76
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
80 7,9 80
4.2 Security of Property Rights
80 4,2 80
4.3 Quality of Legal Enforcement
80 2,2 80
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
72 24,0 76
5.2 Labor Market Rigidities
80 15,6 80
5.3 Bribing and Corruption
76 1,4 80
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
73 7,0 77
6.2 Scientific and Technical Journal Articles
48 51,8 48
6.3 Ease of Starting and Running a Business
78 7,5 80
6.4 Simplicity of Closing a Business
75 18,3 76
6.5 Corporate R&D
53 18,1 58
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
IV. Regional and country pro?les
232 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
SWOT Analysis
VCPE-Ranking
Comparison within Peer Group
Separate VC and PE Indices
Key Factors Performance
Basic Facts
Vietnam
2007 2011 Quartile
Rank Value Rank
India 26 61,4 30
Thailand 28 59,3 34
Russian Federation 37 51,1 41
Indonesia 59 45,2 48
Vietnam 62 42,2 53
Philippines 53 41,2 58
Kazakhstan 54 39,1 61
Armenia 72 25,3 71
Kyrgyzstan 78 14,4 80
4th 1st
50
52
54
56
58
60
62
64
66
68
70
2006 2007 2008 2009 2010 2011
I
n
d
e
x
R
a
n
k
VC PE VCPE
0
25
50
75
100
Economic
Activity
Depth of Capital
Market
Taxation
Investor
Protection and
Corporate
Human and
Social
Environment
Entrepr. Culture
and Deal
Opportunities
Vietnam Asia
United States=100 Points
GDP 103 [bn USD] IPO Volume
Population 89 [mn] M&A Volume
GDP Growth VCActivity
Pop. Growth PE Activity
'10 '04
Quartile
4th 1st
'10 '04
Capital: Hanoi ++Official Language: Vietnamese ++Currency: D?ng
2007 2011 Quartile
Rank Value Rank
VCPE Ranking 62 42,2 53
Economic Activity 13 91,7 13
Depth of Capital Market 58 33,2 50
Taxation 64 87,8 69
Inv. Prot./Corp. Gov. 70 39,8 68
Human/Social Env. 71 39,2 62
Entrepr. Cult./Deal Opp. 60 34,7 58
4th 1st
Strengths
• Abundance of natural resources (particularly rice, coffee and tea)
• Com paratively low labor costs
• Political stability
• Strong entrepreneurial culture
• Strong and grow ing dom estic dem and
Weaknesses
• VC nascent w orking population, lacking practical experience in various
sectors
• Adm inistrative procedures still lagging behind regional peers
• Underdeveloped nancial m arkets
• Relatively w eak corporate governance
• Financial reporting not yet in line w ith international standards
Opportunities
• A rise in the standard of living is creating increasing dem and for products
and services, particularly in em erging urban centers
• Exports to the US, China and ASEAN bloc are grow ing, along w ith
increased m arket access through bilateral and m ultilateral trade
agreem ents
• Vietnam ese enterprises have a greater appetite and scope for operational
and nancial im provem ents
• Infrastructural dem and is driven by the transform ation of the econom y
Threats
• M ore tim e-consum ing to do business than in neighboring countries due
to relatively stricter governm ent regulations
• High in ation rate
• Escalating cost of borrow ing Relatively slow er progress in the equalization
process, infrastructural developm ent and adm inistrative reform s
Outlook
• The econom y is expected to expand by m ore than 6% this year, supported
by strong dom estic dem and and increasingly diverse exports.
• High potential in consum er sectors
• Strong position in com m odities production, w ith potential for m ore
natural resource exploration and infrastructure developm ent
• A recently low ered sovereign credit rating (from Ba3 to B1) and concern
about in ation w ill present challenges for the public sector to gain
investors’con dence
• Potential for higher grow th, provided econom ic reform s are im plem ented
ef ciently to reduce the cost of doing business in Vietnam
TomHerron, Ernst & Young
[email protected]
233 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
1 Economic Activity
2007 2011 Quartile
Rank Value Rank 4th 1st
1.1 Size of the Economy (GDP)
57 38,3 55
1.2 Medium-Term Real GDP Growth
15 158,4 5
1.3 Unemployment
3 127,2 5
2 Depth of Capital Market
2007 2011 Quartile
Rank Value Rank 4th 1st
2.1 Size of the Stock Market
64 29,8 63
2.2 Stock Market Liquidity (Trading Volume)
64 3,0 54
2.3 IPO Market Activity
44 54,3 21
2.4 M&A Market Activity
58 43,3 47
2.5 Debt and Credit Market
51 65,1 41
2.6 Bank Non-Performing Loans to Total Gross Loans
67 89,7 59
2.7 Financial Market Sophistication
74 36,5 62
3 Taxation
2007 2011 Quartile
Rank Value Rank 4th 1st
3.1 Tax Incentives and Administrative Burdens
64 87,8 69
4 Investor Protection and Corporate Governance
2007 2011 Quartile
Rank Value Rank 4th 1st
4.1 Corporate Governance
79 23,3 77
4.2 Security of Property Rights
54 50,4 51
4.3 Quality of Legal Enforcement
56 53,6 56
5 Human and Social Environment
2007 2011 Quartile
Rank Value Rank 4th 1st
5.1 Education and Human Capital
71 55,3 40
5.2 Labor Market Rigidities
40 62,7 40
5.3 Bribing and Corruption
72 17,4 70
6 Entrepreneurial Culture and Deal Opportunities
2007 2011 Quartile
Rank Value Rank 4th 1st
6.1 Innovation
50 38,4 44
6.2 Scientific and Technical Journal Articles
59 44,7 59
6.3 Ease of Starting and Running a Business
60 71,0 63
6.4 Simplicity of Closing a Business
65 41,2 70
6.5 Corporate R&D
66 10,1 63
1. Economic Activity
Details
2. Depth of Capital Market
4. Investor Protection and Corporate Governance
5. Human and Social Environment
6. Entrepreneurial Culture and Opportunities
3. Taxation
234 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Appendices
Methodology, technical descriptions,
limitations, data descriptions,
data sources and references
V.
235 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
V. Appendices
Computation of the index
236 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Normalization
In order to make the cross-sectional data series comparable, the
raw data has to be converted into a common range. The rescaling
method is used to normalize indicators to such a range by linear
transformation. Thereby, 100 represents the best score, while 1
the worst.
For every individual variable, we de?ne whether high values
in?uence the attractiveness for investors positively or negatively,
and hence, assign 100 points either to the highest score (e.g., in
case of the GDP per capita) or to the lowest (e.g., in case of high
hiring costs).
The sub-item points for every country are calculated accor-
ding to the following formula:
• y
q,i
=normalized value of category q and country i
• x
q,i
=raw data value of category q and country i
• min(x
q
) =minimumraw data value of category q
within the sample
• max(x
q
) =maximumraw data value of category q
within the sample
Example
Rawdata value
[any unit]
1
(lowest value in
sample)
12 20
(highest value
in sample)
Norm alized value
[1-100]
99x[(1-1)/
(20-1)]+1=1
99x[(12-1)/
(20-1)]+1=58
99x[(20-1)/
(20-1)]+1=100
The VCPE attractiveness of each country is computed by calculating a weighted average
of country performance scores in the six key drivers. The scores within each key driver are
derived fromthe level-2 constructs, respectively fromseveral raw data series.
Aggregation
For the index-score calculation, we use geometric aggregation
because it is better suited than arithmetic aggregation. Geome-
tric aggregation rewards those countries or those sub-indicators
with higher scores. Overall, a shortcoming in the value of one
variable or sub-index can be compensated by a surplus in ano-
ther. Compensability is constant in linear aggregation, while it is
smaller in geometric aggregation for the sub-indicators with low
values. Therefore, countries with low scores in some sub-indices
would bene?t from linear aggregation.
For this reason, we use geometric aggregation as follows.
• Index Value
i
=index value of country i
• y
q,i
=normalized value of category q and country i
• w
q
=weight of category q
Example
Category
Economic
activity
Depth of a
capital market
Investor
protection
W eight 0.5 0.25 0.25
Norm alized value
of country i (y
q,i
)
30 40 50
Index value for the
country
(30
0.5
) x (40
0.25
) x (50
0.25
) = 36.63
237 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Weighting
After calculating the performance scores for each data series on
the lowest level, the scores are aggregated using the aforemen-
tioned aggregation method. On the lowest level, items are aggre-
gated with equal weights, i.e., the weights are derived from the
number of components that are aggregated.
The following Exhibit shows the aggregation path from the
normalized and de?ated (raw) data series to the ?nal VCPE
Country Attractiveness Index score.
(Raw) Data Series
normalized, deflated
equal weights equal weights
weights according
number of items
Sub-Items
Agregation
with
Key-factors
Economic
Activity
3/22
1/22
3/22
Capital
Markets
VPC Index
Score
Taxation
Inv. Prot. &
Index
7/22
V. Appendices
238 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Correlation is a measure for the strength and directionality of a
linear relationship between two variables. The Pearson-Correla-
tion-Coef?cient p
x,y
, ranges from 0 to ±1 (or 0 to ±100%), with
0 indicating a non-linear or missing relationship between two
data sets and ±1 indicating perfect linearity. A positive (negative)
correlation indicates a positive (negative) relationship.
To test the results of the index calculations, we calculate the
correlation between the index scores with the control variable.
The results of these analyses are displayed in the following Table.
The correlation coef?cients are very high for all cases considered.
These high values proof the accuracy of the index scores and its
ability to measure a countries’ attractiveness for investors in VC
and PE funds.
Statistical validation of the index
VCPE investments
LN (average 2007-2009)
VC investments
LN (average 2007-2009)
PE investments
LN (average 2007-2009)
VC/PE index
2011
0.8336 - -
VC index
2011
- 0.8242 -
PE index
2011
- - 0.8347
239 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
V. Appendices
240 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Table with sources and explanations
of the data series
Indicators Dimension
for index
calculation
Positive/
negative
impact
VC PE Explanation Source
1 Economic activity
1.1 Total econom ic
size
[LN GDP in USD] + X X The econom ic size of a country is m easured by its gross dom estic
product (GDP), w hich is the sum of gross value added by all resident
producers in the econom y plus any product taxes, m inus any
subsidies not included in the value of the products. It is calculated
w ithout m aking deductions for depreciation of fabricated assets or
for depletion and degradation of natural resources.
Eurom onitor International
M onetary Fund,
International Financial
Statistics
1.2 M edium -term real
GDP grow th
[% ] + X X Gross dom estic product is the sum of gross value added by all
resident producers in the econom y plus any product taxes, m inus any
subsidies not included in the value of the products. It is calculated
w ithout m aking deductions for depreciation of fabricated assets or
for depletion and degradation of natural resources.
Real GDP: the num ber reached by valuing all the productive activity
w ithin the country at a speci c year's prices. W hen econom ic activity
of tw o or m ore tim e periods is valued at the sam e year's prices, the
resulting gure allow s com parison of purchasing pow er over tim e,
since the effects of in? ation have been rem oved by m aintaining
constant prices.
Eurom onitor International
M onetary Fund,
International Financial
Statistics and W orld
Econom ic Outlook/UN/
national statistics
1.3 Unem ploym ent
rate
[% ] - X X Unem ploym ent rate: the ILO international standard de nition of
unem ploym ent is based on the follow ing three criteria w hich should
be satis ed sim ultaneously: w ithout w ork, currently available for
w ork and seeking w ork.
Eurom onitor International
from International Labor
Organization (ILO)
2 Depth of capital market
2.1 Size of the stock m arket
2.1.1 M arket
capitalization of
listed com panies
[% of GDP] + X X M arket capitalization is the share price tim es the num ber of shares
outstanding. Listed dom estic com panies are the dom estically
incorporated com panies listed on the country's stock exchanges at
the end of the year. Listed com panies does not include investm ent
com panies, m utual funds, or other collective investm ent vehicles.
W orld Bank (W orld
Developm ent Indicator)
2.1.2 Listed dom estic
com panies
[LN num ber] + X X Listed dom estic com panies are the dom estically incorporated
com panies listed on the country's stock exchanges at the end of the
year. This indicator does not include investm ent com panies, m utual
funds, or other collective investm ent vehicles.
W orld Bank (W orld
Developm ent Indicator)
2.2 Stock m arket
liquidity (trading
volum e)
[% of GDP] + X X Stock m arket total value traded refers to the total value of shares
traded during the period. This indicator com plem ents the m arket
capitalization ratio by show ing w hether m arket size is m atched by
trading.
W orld Bank (W orld
Developm ent Indicator)
2.3 IPO m arket activity
2.3.1 IPO m arket
volum e
[LN USDm ] + X X Proceeds am ount plus overallotm ent sold in this m arket:
This data series show s the proceeds am ount of the issue in this
m arket plus the overallotm ent am ount (a.k.a., green shoe) sold in this
m arket; i.e., num ber of shares in this m arket plus the overallotm ent
shares sold in this m arket m ultiplied by the offer price. A green shoe
clause in an underw riting agreem ent provides that, in the case of
excess dem and, the issuer w ill authorize additional shares to be sold
through the existing syndicate.
Thom son One Banker
2.3.2 Num ber of IPOs [LN num ber] + X X Num ber of initial public offerings (IPOs) in a country. Thom son One Banker
241 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Indicators Dimension
for index
calculation
Positive/
negative
impact
VC PE Explanation Source
2.4 M &A m arket activity
2.4.1 M &A m arket
volum e
[LN USDm ] + X X The data com prise M &A ranking value including net debt of target.
According to Thom son, the ranking value is calculated as follows:
RANKVAL = the sum of VALNOLIA, straight debt, short-term debt and
preferred equity, m inus cash.
VALNOLIA: transaction value excluding liabilities assum ed;
transaction value m inus the value of any liabilities agreed to be
assum ed in the transaction.
Thom son One Banker
2.4.2 Num ber of M &A
deals
[LN num ber] + X X Num ber of M &A deals in a country. Thom son One Banker
2.5 Debt and credit m arket
2.5.1 Dom estic credit
provided by
banking sector
[% of GDP] + - X Dom estic credit provided by the banking sector includes all credit to
various sectors on a gross basis, w ith the exception of credit to the
central governm ent, w hich is net. The banking sector includes
m onetary authorities and deposit m oney banks, as w ell as other
banking institutions w here data are available (including institutions
that do not accept transferable deposits but do incur such liabilities
as tim e and savings deposits). Exam ples of other banking institutions
are savings and m ortgage loan institutions and building and loan
associations.
W orld Bank (W orld
Developm ent Indicator)
2.5.2 Ease of access to
loans
[-] + - X This data series m easures the perceived sim plicity of obtaining a bank
loan in a country w ith only a good business plan and no collateral.
W orld Econom ic Forum
2.5.3 Credit inform ation
index
[-] + - X The depth of credit inform ation index m easures rules affecting the
scope, accessibility and quality of credit inform ation available
through either public or private credit registries. The index ranges
from 0 to 6, w ith higher values indicating the availability of m ore
credit inform ation, from either a public registry or a private bureau,
to facilitate lending decisions. If the registry is not operational or has
coverage of less than 0.1% of the adult population, the score on the
depth of credit inform ation index is 0.
W orld Bank, Doing
Business
2.5.4 Interest rate
spread
[% ] - - X Interest rate spread is the interest rate charged by banks on loans to
prim e custom ers m inus the interest rate paid by com m ercial or
sim ilar banks for dem and, tim e, or savings deposits.
W orld Econom ic Forum ;
W orld Developm ent
Indicators
2.6 Bank non-
perform ing loans
to total gross
loans
[% ] - - X Bank non-perform ing loans to total gross loans are the value of
non-perform ing loans divided by the total value of the loan
portfolio (including non-perform ing loans before the deduction of
speci c loan-loss provisions). The loan am ount recorded as
non-perform ing should be the gross value of the loan as recorded
on the balance sheet, not just the am ount that is overdue.
W orld Bank (W orld
Developm ent Indicator)
2.7 Financial m arket
sophistication
[-] + - X This data series m easures the perceived level of sophistication of
nancial m arkets in a country. The index ranges 1 to 7, w ith higher
values indicating that nancial m arket sophistication is excellent by
international standards and low values indicating that it is poor by
international standards.
W orld Econom ic Forum
V. Appendices
242 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Indicators Dimension
for index
calculation
Positive/
negative
impact
VC PE Explanation Source
3 Taxation
3.1 Tax incentives and adm inistrative burdens
3.1.1 Entrepreneurship
incentive
[% ] + X - Difference: incom e tax m inus corporate tax. The m eaning of this
driver is based on the fact that an em ployee tends to becom e
entrepreneur if the individual tax paym ent is signi cant higher than
the corporate tax.
W orld Bank (W orld
Developm ent Indicator);
Fraser Institute
3.1.2 Num ber of tax
paym ents
[#] - X - The tax paym ents indicator re ects the total num ber of taxes and
contributions paid, the m ethod of paym ent, the frequency of paym ent
and the num ber of agencies involved for this standardized case during
the second year of operation. It includes paym ents m ade by the
com pany on consum ption taxes, such as sales tax or value added tax.
These taxes are traditionally w ithheld on behalf of the consum er.
Although they do not affect the incom e statem ents of the com pany,
they add to the adm inistrative burden of com plying w ith the tax
system and so are included in the tax paym ents m easure.
W orld Bank (Doing
Business)
3.1.3 Tim e spent on tax
issues
[Hours per year] - X - Tim e is recorded in hours per year. The indicator m easures the tim e to
prepare, le and pay (or w ithhold) three m ajor types of taxes and
contributions: the corporate incom e tax, value added or sales tax and
labor taxes, including payroll taxes and social contributions.
Preparation tim e includes the tim e to collect all inform ation
necessary to com pute the tax payable. If separate accounting books
m ust be kept for tax purposes — or separate calculations m ade — the
tim e associated w ith these processes is included. This extra tim e is
included only if the regular accounting w ork is not enough to ful ll
the tax accounting requirem ents. Filing tim e includes the tim e to
com plete all necessary tax form s and m ake all necessary calculations.
Paym ent tim e is the hours needed to m ake the paym ent online or at
the tax of ce. W here taxes and contributions are paid in person, the
tim e includes delays w hile w aiting.
W orld Bank (Doing
Business)
4 Investor protection and corporate governance
4.1 Corporate governance
4.1.1 Disclosure index [-] + X X This index m easures the extent to w hich transparency of enterprise
related party transactions exists. The index ranges from 0 to 10, w ith
higher values indicating greater disclosure.
W orld Bank (Doing
Business)
4.1.2 Director liability
index
[-] + X X This index m easures the extent of liability for self-dealing. For
exam ple, the interested director is either not liable or liable only in
cases of bad faith, intent, or gross negligence. The index ranges from
0 to 10, w ith higher values indicating greater liability of directors.
W orld Bank (Doing
Business)
4.1.3 Shareholder suits
index
[-] + X X This index m easures the extent of shareholders’ability to sue of cers
and directors for m isconduct. The index ranges from 0 to 10, w ith
higher values indicating greater pow ers of shareholders to challenge
the transaction.
W orld Bank (Doing
Business)
4.1.4 Legal rights index [-] + X X The strength of legal rights index m easures the degree to w hich
collateral and bankruptcy law s protect the rights of borrow ers and
lenders, and thus facilitate lending. The index ranges from 0 to 10,
w ith higher scores indicating that collateral and bankruptcy law s are
better designed to expand access to credit.
W orld Bank (Doing
Business)
4.1.5 Ef cacy of
corporate boards
[-] + X X Corporate governance by investors and boards of directors in your
country is characterized by (1 = m anagem ent has little
accountability, 7 = investors and boards exert strong supervision of
m anagem ent decisions).
W orld Econom ic Forum
4.2 Security of property rights
4.2.1 Legal enforcem ent
of contracts
[-] + X X This com ponent estim ates for the tim e and m oney required to collect
a clear-cut debt. The index ranges from 1 to 10, w ith higher values
indicating stronger legal enforcem ent of contracts.
Fraser Institute
243 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Indicators Dimension
for index
calculation
Positive/
negative
impact
VC PE Explanation Source
4.2.2 Property rights [-] + X X Property rights is an assessm ent of the ability of individual to
accum ulate private property, secured by clear law s that are fully
enforced by the state. The index ranges from 1 to 10, w ith higher
values indicating higher protection of property rights.
Fraser Institute
4.2.3 Intellectual
property
protection
[-] + X X This data series m easures the perceived “intellectual property
protection”in a country. The index ranges from 1 to 7, w ith higher
values indicating that Intellectual property protection and
anti-counterfeiting m easures in a country are strong and enforced
w hereas low values indicate the opposite.
W orld Econom ic Forum
(Executive Opinion Survey
2007, 2008)
4.3 Quality of legal enforcem ent
4.3.1 Judicial
independence
[-] + X X This data series m easures the perceived judicial independence in a
country. The index ranges from 1 to 7, w ith higher values indicating
that the judiciary in a country is independent from political
in? uences of m em bers of governm ent, citizens, or rm s and low er
values indicating that it is heavily in? uenced.
W orld Econom ic Forum
(Global Com petitiveness
Report)
4.3.2 Im partial courts [-] + X X This data series m easures the perceived quality of the legal
fram ew ork in a country. The index ranges from 0 to 10, w ith higher
values indicating that the fram ew ork in a country for private
businesses to settle disputes and challenge the legality of
governm ent actions and/or regulations follow s a clear, neutral
process. Low er values indicate that the fram ew ork seem s to be
inef cient and subject to m anipulation.
Fraser Institute
4.3.3 Integrity of the
legal system
[-] + X X This com ponent is based on tw o sub-com ponents. Each sub-
com ponent equals half of the total. The “law ”sub-com ponent
assesses the strength and im partiality of the legal system , and the
“order”sub-com ponent assesses popular observance of the law. The
index ranges from 0 to 10. High rating values indicate a sound legal
system .
Fraser Institute, PRS Group
(International Country
Risk Guide)
4.3.4 Rule of law [-] + X X Rule of law m easures the extent to w hich agents have con dence in
and abide by the rules of society, in particular the quality of contract
enforcem ent, the police, and the courts, as w ell as the likelihood of
crim e and violence. The index ranges from -2.5 to 2.5 w ith higher
values corresponding to better governance outcom es.
W orld Bank (W orldw ide
Governance Indicator)
4.3.5 Regulatory quality [-] + X X Regulatory quality m easures the ability of the governm ent to
form ulate and im plem ent sound policies and regulations that perm it
and prom ote private sector developm ent. The index ranges from -2.5
to 2.5 w ith higher values corresponding to better governance
outcom es.
W orld Bank (W orldw ide
Governance Indicator)
5 Human and social environment
5.1 Education and hum an capital
5.1.1 Quality of the
educational
system
[-] + X - This data series m easures the perceived quality of the educational
system in a country. The index ranges from 1 to 7, w ith higher values
indicating that the educational system in a country m eets the needs
of a com petitive econom y. Low values indicate that the system does
not m eet the needs of a com petitive econom y.
W orld Econom ic Forum
5.1.2 Quality of
scienti c research
institutions
[-] + X - This data series m easures the perceived quality of scienti c research
institutions in a country. The index ranges from 1 to 7, w ith higher
values indicating that Scienti c research institutions in a country
(e.g., university laboratories, governm ent laboratories) are the best in
their elds internationally. Low values indicate that they are not
com petitive or non-existent.
W orld Econom ic Forum
V. Appendices
244 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Indicators Dimension
for index
calculation
Positive/
negative
impact
VC PE Explanation Source
5.2 Labor m arket rigidities
5.2.1 Dif culty of hiring
index
[-] - X X This index m easures the dif culty of hiring regarding:
(i) w hether xed-term contracts are prohibited for perm anent tasks
(ii) the m axim um cum ulative duration of xed-term contracts
(iii) the ratio of the m inim um w age for a trainee or rst tim e
em ployee to the average value added per w orker
The index ranges from 0 to 100. High scores are assigned to countries
w here xed-term contracts are prohibited for perm anent tasks, the
m axim um cum ulative duration of xed-term contracts is low, and if
the ratio of the m inim um w age to the average value added per
w orker is high.
W orld Bank (Doing
Business)
5.2.2 Rigidity of hours
index
[-] - X X This index m easures the rigidity of hours index regarding ve
com ponents:
(i) w hether night w ork is unrestrictedw hether w eekend w ork is
unrestricted
(ii) w hether the w ork w eek can consist of 5.5 days
(iii) w hether the w ork w eek can extend to 50 hours or m ore
(including overtim e) for tw o m onths a year to respond to a
seasonal increase in production
(iv) w hether paid annual vacation is 21 w orking days or few er
The index ranges from 0 to 100. High scores are assigned to countries
w here the ve before m entioned statem ents are not true.
W orld Bank (Doing
Business)
5.2.3 Dif culty of ring
index
[-] - X X The dif culty of ring index has eight com ponents:
(i) w hether redundancy is disallow ed as a basis for term inating
w orkers
(ii) w hether the em ployer needs to notify a third party (such as a
governm ent agency) to term inate 1 redundant w orker
(iii) w hether the em ployer needs to notify a third party to term inate
a group of 25 redundant w orkers
(iv) w hether the em ployer needs approval from a third party to
term inate 1 redundant w orker
(v) w hether the em ployer needs approval from a third party to
term inate a group of 25 redundant w orkers
(vi) w hether the law requires the em ployer to reassign or retrain a
w orker before m aking the w orker redundant
(vii) w hether priority rules apply for redundancies
(viii) w hether priority rules apply for reem ploym ent
For the rst question an answ er of yes for w orkers of any incom e
level gives a score of 10 and m eans that the rest of the questions
do not apply. An answ er of yes to question (iv) gives a score of 2.
For every other question, if the answ er is yes, a score of 1 is
assigned; otherw ise a score of 0 is given. Questions (i) and (iv), as
the m ost restrictive regulations, have greater w eight in the
construction of the index.
W orld Bank (Doing
Business)
5.2.4 Firing costs [W eeks of
w ages]
- X X The ring cost indicator m easures the cost of advance notice
requirem ents, severance paym ents and penalties due w hen
term inating a redundant w orker, expressed in w eeks of salary. If the
ring cost adds up to eight or few er w eeks of salary, a score of 0 is
assigned. If the cost adds up to m ore than eight w eeks of salary, the
score is the num ber of w eeks. One m onth is recorded as four and
one-third w eeks.
W orld Bank (Doing
Business)
245 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Indicators Dimension
for index
calculation
Positive/
negative
impact
VC PE Explanation Source
5.3 Bribery and corruption
5.3.1 Bribery and
corruption index
[-] + X X This index describes the overall extent of corruption (frequency and/
or size of bribes) in the public and political sectors. The index ranges
from 0 to 10. Countries w here bribery and corruption cases are
frequent receive a low rating score.
Transparency International
5.3.2 Control of
corruption
[-] + X X This data series m easures the perception of the extent to w hich
public pow er is exercised for private gain, including both petty and
grand form s of corruption, as w ell as "capture" of the state by elites
and private interests. Countries in w hich seem ingly public pow er is
frequently used for private gain a low rating score. The index ranges
from -2.5 to 2.5 w ith higher values corresponding to better
governance outcom es.
W orld Bank (W orldw ide
Governance Indicator)
5.3.3 Extra paym ents/
bribes
[-] + X X This index m easures the frequency of extra paym ents and bribes
rm s pay in a country. The index ranges from 0 to 10 w ith higher
values corresponding to better governance outcom es. Countries
w here these paym ents are frequent receive a low rating score.
Fraser Institute
6 Entrepreneurial culture and deal opportunities
6.1 Innovation
6.1.1 General
innovativeness
index
[-] + X - The fram ew ork groups the eight pillars of innovation into tw o
categories: inputs and outputs. The ve input pillars –institutions
and policies, hum an capacity, infrastructure, technological
sophistication and business m arkets and capital –represent aspects
w hich enhance the capacity of a nation to generate ideas and
leverage them for innovative products and services. The three output
pillars –know ledge, com petitiveness and w ealth –represent the
ultim ate bene ts of innovation for a nation — m ore know ledge
creation, increased com petitiveness and greater w ealth generation.
Each pillar of the GII m odel is m easured by a num ber of quantitative
and qualitative variables. The averaged scores for the input and
output pillars together give an overall score — the GII. The values of
each variable for the country are scaled on a range of 1 to 7.
INSEAD
6.1.2 Capacity for
innovation
[-] + X - This index m easures the perceived capacity for innovation in a
country. The index ranges from 1 to 7 w ith higher values indicating
that com panies obtain technology by conducting form al research
and pioneering their ow n new products and processes. Low values
indicate that com panies obtain technology exclusively from licensing
or im itating foreign com panies.
W orld Econom ic Forum
6.2 Scienti c and
technical journal
articles
[LN num ber] + X - The data series scienti c and technical journal articles refer to the
num ber of scienti c and engineering articles published in the
follow ing elds: physics, biology, chem istry, m athem atics, clinical
m edicine, biom edical research, engineering and technology, and
earth.
W orld Bank (W orld
Developm ent Indicator)
6.3 Ease of starting and running a business
6.3.1 Num ber of
procedures to
start of business
[#] - X - This data series provides the average num ber of adm inistrative
procedures necessary to start a business in a country.
A procedure is de ned as any interaction of the com pany founder
w ith external parties (for exam ple, governm ent agencies, law yers,
auditors or notaries). Interactions betw een com pany founders or
com pany of cers and em ployees are not counted as procedures. Only
procedures required of all businesses are covered. Industry-speci c
procedures are excluded. For exam ple, procedures to com ply w ith
environm ental regulations are included only w hen they apply to all
businesses conducting general com m ercial or industrial activities.
Procedures that the com pany undergoes to connect to electricity,
w ater, gas and w aste disposal services are not included.
W orld Bank (Doing
Business)
V. Appendices
246 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Indicators Dimension
for index
calculation
Positive/
negative
impact
VC PE Explanation Source
6.3.2 Tim e needed to
start a business
[Days] - X - This data series provides the average num ber of days necessary to
start a business in a country.
Tim e is recorded in calendar days. The m easure captures the m edian
duration that incorporation law yers indicate is necessary to com plete
a procedure w ith m inim um follow -up w ith governm ent agencies and
no extra paym ents. It is assum ed that the m inim um tim e required for
each procedure is one day.
W orld Bank (Doing
Business)
6.3.3 Cost of business
start-up
procedures
[% of incom e
per capita]
- X - This data series provides the average am ount of m oney necessary to
start a business in a country.
Cost is recorded as a percentage of the country’s incom e per capita.
It includes all of cial fees and fees for legal or professional services if
such services are required by law. Fees for purchasing and legalizing
com pany books are included if these transactions are required by law.
The cost excludes bribes.
W orld Bank (Doing
Business)
6.3.4 M inim um capital
requirem ents
[% of incom e
per capita]
- X - The paid-in m inim um capital requirem ent re ects the am ount that
the entrepreneur needs to deposit in a bank or w ith a notary before
registration and up to three m onths follow ing in corporation and is
recorded as a percentage of the country’s incom e per capita. The
am ount is typically speci ed in the com m ercial code or the com pany
law. M any countries have a m inim um capital requirem ent but allow
businesses to pay only a part of it before registration, w ith the rest to
be paid after the rst year of operation.
W orld Bank (Doing
Business)
6.3.5 Adm inistrative
requirem ents
[-] + X - This data series m easures the perceived adm inistrative requirem ents
in a country. The index ranges from 0 to 10 w ith higher values
indicating that com plying w ith adm inistrative requirem ents (perm its,
regulations, reporting) issued by the governm ent in a country is not
burdensom e. Low er values indicate that the adm inistrative
requirem ents are perceived as burdensom e.
Fraser Institute
6.4 Sim plicity of closing a business
6.4.1 Tim e for closing a
business
[Years] - X - This data series provides the average num ber of years necessary to
close a business in a country.
Tim e is recorded in calendar years. Inform ation is collected on the
sequence of procedures and on w hether any procedures can be
carried out sim ultaneously. Potential delay tactics by the parties, such
as the ling of dilatory appeals or requests for extension, are taken
into consideration.
W orld Bank (Doing
Business)
6.4.2 Costs for closing a
business
[% of estate] - X - This data series provides the average costs of closing a business in a
country.
The cost of the proceedings is recorded as a percentage of the
estate’s value. The cost is calculated on the basis of survey responses
by insolvency practitioners and includes court fees as w ell as fees of
insolvency practitioners, independent assessors, law yers and
accountants. Respondents provide cost estim ates from am ong the
follow ing options: less than 2% , 2% –5% , 5% –8% , 8% –11% ,
11% –18% , 18% –25% , 25% –33% , 33% –50% , 50% –75% and m ore
than 75% of the value of the business estate.
W orld Bank (Doing
Business)
247 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
Indicators Dimension
for index
calculation
Positive/
negative
impact
VC PE Explanation Source
6.4.3 Recovery rate [Cents on USD] + X - The recovery rate is recorded as cents on the dollar recouped by
creditors through the bankruptcy or insolvency proceedings. The
calculation takes into account w hether the business em erges from
the proceedings as a going concern as w ell as costs and the loss in
value due to the tim e spent closing dow n. If the business keeps
operating, no value is lost on the initial claim , set at 100 cents on the
dollar. If it does not, the initial 100 cents on the dollar are reduced to
70 cents on the dollar. Then the of cial costs of the insolvency
procedure are deducted (one cent for each percentage of the initial
value). Finally, the value lost as a result of the tim e the m oney
rem ains tied up in insolvency proceedings is taken into account,
including the loss of value due to depreciation of the hotel furniture.
Consistent w ith international accounting practice, the depreciation
rate for furniture is taken to be 20% . The furniture is assum ed to
account for a quarter of the total value of assets. The recovery rate is
the present value of the rem aining proceeds, based on end-2006
lending rates from the IM F’s International Financial Statistics,
supplem ented w ith data from central banks.
W orld Bank (Doing
Business)
6.5 Corporate R&D
6.5.1 Com pany
spending on R&D
[-] + X X This index m easures the com pany spending on R&D in a country. The
index ranges from 1 to 7 w ith higher values indicating that
com panies in a country spend heavily on research and developm ent
relative to international peers. Low values indicate that com panies do
not spend m oney on research and developm ent.
W orld Econom ic Forum
6.5.2 Utility patents [LN Num ber] + X X This data series provides the num ber of utility patents (i.e., patents
for invention) granted betw een 1 January and 31 Decem ber 2007,
per m illion population.
W orld Econom ic Forum
Correlation data
Venture capital
investm ents
LN [USDm ] X Am ount of venture capital investm ents in a country per year. The
country is de ned by fund location. Thom son Reuters uses the term
to describe the universe of venture investing. It does not include
buyout investing, m ezzanine investing, fund of fund investing,
secondaries, etc.
Thom son One
Private equity
investm ents
LN [USDm ] X Am ount of private equity investm ents in a country per year. The
country is de ned by fund location. Thom son Reuters uses the term
to describe the universe of private equity investing. It does include
buyout investing, m ezzanine investing, fund of fund investing,
secondaries, etc.
Thom son One
Venture capital
and private equity
investm ents
LN [USDm ] X X The sum of venture capital and private equity investm ents in a
country per year.
Thom son One
V. Appendices
248 The Global Venture Capital and Private Equity Country Attractiveness Index - 2011 annual
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Blanchard OJ. The mediumrun. Brookings
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Bruce D. Effects of the United States’ tax
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Bruce D. Taxes and entrepreneurial endurance:
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Bruce D, Gurley T. Taxes and entrepreneurial
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2011 annual
The Global Venture Capital and Private
Equity Country Attractiveness Index
This report presents the results of a com prehensive research project on how to
m easure the attractiveness of a country for equity capital investors. Designed
to be an index produced annually, it is a dynam ic product.
An online version that uses the most recent data and allows for country
comparisons can be found at http://blog.iese.edu/vcpeindex/
Ernst & Young are delighted to be associated w ith the report and hope that the
inform ation is unique in supporting PE and VC houses w ith equity investm ent
decisions and governm ents on w hat needs to be done to attract international
risk capital.
Sponsored by and in cooperation w ith
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