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Legatum's 2014 Prosperity Index: Asia Positives For Entrepreneurship, Indonesia, Mongolia

This article is more than 9 years old.

The 2014 edition of the Legatum Prosperity Index was released in early November. A key difference in how the Index is calculated compared to other indices of global economies is that it "is the only global measurement of prosperity based on both income and wellbeing." Those seeing the Index for the first time may find some surprising rankings as the Index equally weights the eight categories (or sub-indices) that combine to make the rank of a country: Economy, Entrepreneurship & Opportunity, Governance, Education, Health, Safety & Security, Personal Freedom and Social Capital.

Now with six years of comparable rankings for the original 110 countries included in the earliest reports, one can begin to see some countries trending up and others trending down. The below interview with Harriet Maltby, a Government & Economic Policy Researcher with the Legatum Institute, provides penetrating Asia-specific insights into the data that makes up the indices.

As a global tool, the Legatum Prosperity Index can be very handy as each of these eight categories is sortable and can be re-weighted for user purposes on the ranking page. The shuffleboard feature also can shed light on matters as it allows sorting the Legatum Prosperity Index in an infographic format by region, year of Index, indices, place in ranking (high, middle, low) and combinations thereof. Christopher Chandler of New Zealand's Chandler brothers is the silent founding backer of the Legatum Institute Foundation and other branches of the Legatum brand.

In the above chart, it is clear that Hong Kong, China, Sri Lanka, Indonesia and Bangladesh are trending up to varying degrees while India's ranking has declined to barely being ahead of Bangladesh.

The Legatum Prosperity Index offers another way to think about and rate how economies and quality of life within them are developing hand-in-hand. As noted in a recent report by the World Bank on the gender gap in education in Asia, magical oversimplified solutions are never the sole answer to improving people's standard of living. At the same time, there is a large body of research linking improvements in the quality of social indicators with countries' experiences of rising economic success.

Viewed through Legatum's Prosperity Index lens, users can: find the consistencies and anomalies of how social and economic indicators move together, or do not; gain an objective framework to assess how these associations link; see how advances in one area may encourage another in disparate countries; and better understand how prosperity grows.

Harriet Maltby, a Government & Economic Policy Researcher with the Legatum Institute,  provides deeper insight into the facts behind the report results in the interview conducted via e-mail below.

Jon Springer: The Entrepreneurship & Opportunity Index has shown the most growth globally, more than doubling since the Legatum Prosperity Index began in 2009. Where do you see the exemplars of this in Asia?

Harriet Maltby: The biggest risers in Entrepreneurship & Opportunity in the last 6 years are: Indonesia, Kazakhstan, and Vietnam. Within this sub-index, our indicators seek to capture 3 main elements: the entrepreneurial environment, access to opportunity, and innovative activity.

Indonesia

  • Improvement in the state of the entrepreneurial environment where we have seen improvement in infrastructure and perceptions:
    o   Secure internet servers per 1m people: 1 in 2008, 4.1 in 2013.
    o   Mobile phones per 100 people:  62 in 2008, 122 in 2013.
    o   % thinking it a good environment for entrepreneurs: 65% in 2009, 81% in 2010.
    o   Business start-up costs remain high, at 20.5% GNI per capita.
  • We have not seen much movement in indicators that signify innovative activity:
    o   Research & Development (R&D) spending has risen only marginally as a percentage of GDP: from 0.41% in 2008 to 0.45% in 2012.
    o   Information & Communication Technology (ICT) exports have fallen from 4.6% of total exports in 2008 to 4.1% in 2012.
  • Access to opportunity has improved:
    o   Uneven economic development has fallen from 8.1 in 2009, to 6.9 in 2013. [Uneven economic development ranges from 0-10 with 0 being the most even development.]
    o   Indonesia has the highest perception of opportunity in the world at 99% believing working hard can get you ahead. This is a slight rise on 2009 (97%) but within the margin of error.

Kazakhstan

  • Significant improvement in the state of the entrepreneurial environment:
    o   Secure internet servers per 1m people: 2 in 2008, 9.4 in 2013.
    o   Mobile phones per 100 people: 95 in 2008, 181 in 2013.
    o   High percentage thinking it a good environment for entrepreneurs: 79% in 2009, 81% in 2010.
    o   Business start-up costs are very low, at 0.6% GNI per capita.
  • Limited evidence of improved innovative activity:
    o   R&D spending has risen slightly as a percentage of GDP: from 0.54% in 2008 to 1.02% in 2012.
    o   ICT exports have risen from 0.05% of total exports in 2008 to 0.44% in 2012.
  • Access to opportunity has improved slightly:
    o   Uneven economic development has fallen slightly from 6.4 in 2009, to 5.3 in 2013.
    o   Perceptions of opportunity have not changed over 6 years: was 76% in 2009, 74% in 2013 (error is 3%). However, significant fall since 2012, when it reached 85%.

Vietnam

  • Objective improvement in the entrepreneurial environment:
    o   Secure internet servers per 1m people: 1.1 in 2008, 8.2 in 2013.
    o   Mobile phones per 100 people:  81 in 2008, 131 in 2013.
    o   Percentage thinking it a good environment for entrepreneurs fell: 83% in 2009, 74% in 2010.
    o   Business start-up costs low, at 7.7% GNI per capita (global average is 19.9%).
  • Mixed evidence of improved innovative activity:
    o   R&D spending has fallen as a percentage of GDP: from 0.76% in 2008 to 0.41% in 2012.
    o   ICT exports have grown from 5.6% of total exports in 2008 to 11.6% in 2012 which puts Vietnam 9th in the region ahead of Japan and Taiwan.
  • Access to opportunity has improved slightly:
    o   Uneven economic development has fallen slightly from 6.5 in 2009, to 5.8 in 2013.
    o   Perceptions of opportunity have improved: 81% in 2009, 87% in 2013.

Springer: Where are the best opportunities for foreigners to support and/or profit from local entrepreneurship in the mid-level and lower ranked countries?

Maltby: The Prosperity Index can give a broad indication of the state of the investment environment in different countries, through measures of rule of law, start-up costs, the ability of regulation to encourage a flourishing private sector and the extent of corruption. Below is how the 24 Asia countries included rank on Prosperity in 2014, along with how they rank within the region on the indicators within the Index that signal the state of the investment environment:

Uzbekistan and Cambodia are two lower ranking countries that have shown significant improvement in Entrepreneurship & Opportunity, however both remain poor environments for investment. Indonesia, whilst the largest improver for Entrepreneurship & Opportunity in the region, also has the highest levels of corruption.

Within the mid-lower ranked countries, some of the most favourable environments are in Mongolia, Kazakhstan, Sri Lanka, Vietnam and Laos.

Our Entrepreneurship & Opportunity sub-index can identify two broad potential targets of investment: the infrastructure to improve the entrepreneurial environment, or developing more innovative sectors of the economy.

As highlighted above, Kazakhstan and Vietnam have improved in Entrepreneurship & Opportunity largely as a result of improvement in their entrepreneurial environments. Vietnam has had limited success in improving its innovative activity, but still falls short of the more successful economies of the region. Kazakhstan has not seen much progress in the last 6 years in terms of innovative activity. Therefore, it is development of the more innovative sectors of these economies that could offer as yet underdeveloped investment opportunities.

We see a similar focus in Entrepreneurship & Opportunity improvement in the development of infrastructure and entrepreneurial conditions in Sri Lanka and Mongolia - as with Kazakhstan and Vietnam - but we have seen very little movement on the indicators that signal more innovative activity.

Laos was only added to the Index in 2012 so we have just 3 years of data and very little information about the innovative economy. What we have seen in those three years is a weakening entrepreneurial environment and negative movement in indicators of infrastructure.

  • Mobile phones per 100 people fell from 87 in 2011 to 66 in 2013.
  • Secure Internet servers per 1m has fallen from 1.3 to 1.

Springer: Mongolia is 50 places ahead of India in the 2014 Legatum Prosperity Index. What is going right in Mongolia that the new Prime Minister to-be should keep up (as the office is currently vacated) and what is going wrong in India that the recently elected Prime Minister Modi needs to fix?

Maltby: Mongolia’s biggest relative improvement has been in the Economy, an area where India has declined. Whilst Mongolia still ranks behind India in the Economy sub-index, it has moved from 90th to 73rd since 2009, whilst India has fallen from 43rd to 58th.

Mongolia’s improvement in the Economy sub-index has been in our measures of macroeconomic policy (an increase in gross domestic savings (higher than India); the large jump in unemployment seen between 2005 and 2010 is now under control; and inflation is falling), as well as economic expectations and satisfaction. For example, satisfaction with living standards has risen from 52% in 2008 to 66% in 2013. A more mixed picture has been seen in foundations for growth, with improvement in capital per worker (higher than India) and market size, but a fall in FDI.

India sees a mixed picture in macroeconomic policy (falling unemployment, but falling gross domestic savings and static inflation at around 10%). Foundations for growth shows a small improvement in indicators like capital per worker and high-tech exports, but India’s problem area is in economic expectations and satisfaction which has seen little improvement in the last 6 years, allowing other countries to overtake. Job market expectations, economic expectations and satisfaction with living standards have shown almost no movement between levels in the 2009 and the 2014 Prosperity Index.

Mongolia ranks ahead of India in the following areas:

Entrepreneurship & Opportunity

  • Whilst India is stronger than Mongolia on measures of innovative activity, Mongolia has a stronger underlying entrepreneurial environment, with significantly lower start-up costs and stronger indicators of key infrastructure (internet and mobile phones). There are just 71 phones per 100 people in India, but 124 in Mongolia.
  • Mongolia also ranks better for access to opportunity. Economic development is more equal. 72% think Mongolia is a good entrepreneurial environment and 89% think that working hard can get you ahead in Mongolia. In India, these figures are 48% and 80% respectively.

Education

  • Mongolia does better than India on access to education (higher enrolment rates across primary, secondary and tertiary education).
  • It also has higher human capital, with higher levels of secondary and tertiary education per worker.
  • The quality of education is more mixed. Whilst Mongolia has smaller classes (29 pupils per teacher compared to India’s 35) and higher perceptions that children learn (71% v 66%), Indians are more satisfied with the quality of their education (74% v Mongolia’s 58%). 

Health

  • In terms of basic health outcomes, the picture is mixed. Mongolians live on average about a year longer than Indians and have significantly lower infant mortality (23 deaths per 1000 v 43.8), but undernourishment is higher in Mongolia.
  • Mongolia outperforms India significantly on measures of health infrastructure and preventative care. There are 0.7 hospital beds per 1000 people in India and 6.8 in Mongolia. Health spending per head is twice as high in Mongolia, and preventative measures like sanitation levels and immunisation rates are higher. In 2012, Mongolia immunised 99% of its children against infectious diseases. In India that was just 72%.

Safety & Security

  • India’s national security is weaker on key measures like state sponsored violence, refugees and Internally Displaced People, group grievances, demographic pressure and war casualties.
  • On personal safety, Mongolia has higher levels of theft and Mongolians feel less safe walking alone at night, but India has higher levels of assault. 

Social Capital

  • Mongolians are more philanthropic and engaged with their communities, with higher rates of volunteering, charitable donation and helping strangers.
  • Whilst Mongolia’s family and friend networks are extremely strong compared to India’s (94% think they can rely on family and friends in times of need, in India that is 56%), India has stronger community networks and higher marriage rates.

Springer: The fastest rising country on your Index in Asia is Indonesia. What has been going well in Indonesia that newly elected President Joko Widodo can capitalise upon?

Maltby: Aside from Entrepreneurship & Opportunity, Indonesia’s strongest improvement in the last 6 years has been in Social Capital (rising from 86th in 2009 to 31st in 2014) and Personal Freedom (102nd in 2009, 88th in 2014).

Within Social Capital, increased philanthropic and benevolent action within society is behind the significant improvement:

  • Volunteering is up from 28% to 40%.
  • Charitable donation is up from 46% to 66%.
  • ‘Helped a stranger’ is up from 36% to 48%.

Within Personal Freedom, Indonesia reached a peak of 67th in the 2012 Index. This was due to:

  • Free choice and civil liberties up from 32% in 2009 to 58% in the 2012 Index.
  • Tolerance of immigration up from 23% to 38%.
  • Tolerance of minorities up from 48% to 66%.
  • Satisfaction with free choice up from 74% to 88%.

Since 2012 however we have seen a decline in Personal Freedom. The 2012 Index data represents peak freedom in Indonesia. Whilst tolerance of minorities has continued to rise to 72% this year, other areas have fallen back:

  • Freedom House has downgraded its assessment of the extent of civil liberties in Indonesia.
  • This has seen free choice and civil liberties fall from its peak 58% to 36% this year.
  • Satisfaction with freedom of choice has fallen too from its peak of 88% to 78% this year.
  • Tolerance of immigration has fallen from its peak of 38% to 30% this year.

Final Word: There are many more details within the report, and within the facts that makeup the Legatum Institute Prosperity Index worth exploring for businesses, entrepreneurs, government officials and NGOs. Ms. Maltby highlights that readers using the report should note:

The Legatum Institute added 32 additional countries in 2012, so when talking about the change in ranking over 6 years, the rankings are based on the 110 original countries. Thus, some of the rankings mentioned may not tally with the rankings stated in the 2014 Index, which as it gives a snapshot of this year, is based on the full 142 countries. Also, specifically on Asia, the regional analysis contained within the published 2014 report uses aggregate scores across the region, which we define as Asia-Pacific, including the 24 countries in Asia plus New Zealand and Australia, both of which were excluded from this Asia focused discussion.

 

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