Why do potential investors favor one country over another? The answer can differ depending on the priorities of individual investors. A service-oriented business process outsourcer, for instance, may have very different requirements and goals from an industrial manufacturer, which is why countries like China and the Philippines attract very diverse types of investments. For all investors, scoping out a proper investment destination is crucial. 

On the whole, however, there are certain elements that all investors consider before they set up shop anywhere, be it at home or overseas. Here are 10 important things that make a certain location an attractive place to invest:

1.) Solid Economic Fundamentals

Economic diversity, reasonable fiscal and monetary policies, strong infrastructure development, a responsive government, and a high human development index are all indicators of a country with good economic fundamentals.

Countries with strong economic fundamentals are usually safer bets for investors. These countries’ economies will, in most cases, be resistant to catastrophic external events such as market crashes and pandemics. This means that investors can be reasonably sure that their investments will be safe in the long term.

2.) Stable Politics

While unstable politics can indicate opportunity, few investors are willing to take the risk. Investors who plan on doing business for the long term will generally prefer a location with a stable political climate.

Instability can cause local prices to fluctuate and increase the likelihood of undesirable government interference, presenting serious challenges for investors. Political stability helps maintain predictability, which in turn reduces investors’ exposure to risk.

3.) Levels of Infrastructure Development

Infrastructure quality and comprehensiveness are key drivers for both local and foreign direct investment (FDI). Roads, airports, seaports, bridges, and railways are, after all, essential for transporting goods as well as employees. Likewise, the presence of well-developed power, water, and digital infrastructure helps lower the cost of setting up and running a business. All other things being equal, a location with the highest levels of infrastructure development tends to attract more investors.

That being said, countries with an overall level of infrastructure development that is not yet at par with the best of the developed world are now able to level the playing field by creating economic estates or economic zones that are especially designed to cater to investors. In the Philippines, for example, the Philippine Economic Zone Authority, together with private sector partners like Aboitiz InfraCapital, is able to attract locators by developing full-service, industrial-anchored mixed-use, and sustainable economic centers that offer all the infrastructure and economic incentives necessary for investors to thrive.

4.) Secure Legal Frameworks 

Investors are generally averse to arbitrary government interference and the lack of protection for private assets, including intellectual property (IP). As such, investors prefer locations where they can be assured that their rights are protected so that they can fully benefit from their work and innovations in the long term. Given this, locations with an independent judiciary and strong IP laws tend to be favored over more freewheeling areas.

5.) Investment Incentives

As mentioned, countries that offer incentives that could significantly lower a business’s operating costs —or that could benefit individual investors are more likely to attract investment. Public policy tools like tax breaks, local grants, special visas, legal exemptions, and even citizenships through investment are often leveraged to enable countries or special economic zones to attract foreign direct investments (FDIs).

6.) Reasonable Business Costs for Projected Returns

It’s a persistent myth that investors will always choose the lowest-cost locations. Of the countries that received the most FDIs from 2009 to 2020, countries in the developed world with high living costs consistently topped the list. Even China, the outlier in the list and often considered to be a low-cost investment destination, is significantly more expensive to invest in than many other countries.

Instead of simply choosing the lowest-cost locations, investors tend to choose locations that promise to return much more than they paid. Capital outlay and overhead costs still matter, but most investors are ready to choose a more expensive location if they could promise higher returns, over time.

7.) Access to High-Quality Labor

Countries that score highly on the Human Development Index (HDI) tend to attract more investment. People from countries with high HDI figures tend to be capable of more economic output compared to people from countries with a lower HDI. Countries with relatively low living costs and medium to high HDIs such as the Philippines tend to attract a lot of investment, as investors can pay good wages at lower costs while still enjoying high-quality labor inputs.

8.) Geographic and Logistics Advantages

Countries that are located close to major markets or are major markets themselves can enjoy a significant transportation cost advantage—provided that they have the levels of infrastructure development that allow them to harness it. Manufacturers, in particular, will tend to set up operations in geographic locations that are closely linked to their target markets.

9.) Local Availability of Investment Capital

The more businesses there are in a location, the easier it is for financial institutions to justify setting up operations in that area. When businesses have better access to banking services, they have more chances to secure loans and other forms of financing. More access to local funding and banking services tend to create a business environment that attracts even more investors as well as venture capitalists.

Some locations, such as Dubai, Singapore, Shanghai, and Dallas can also attract large numbers of high-net-worth individuals (HNWIs). (HNWIs) may not necessarily live in these cities for the long term but they may visit regularly, often drawn to the businesses and investment destination within these locations. When a location starts to have a large number of (HNWIs), investors may consider locating in these areas to increase networking opportunities and gather investments and pledges from these individuals. 

10.) Favorable Exchange Rates

Setting aside the cost of living and real wages, a country with a lower-valued currency can enable investors who have significant cash reserves of a higher-valued currency to buy more. Investors who are interested in optimizing their business costs may choose locations for your investment destination, where the local currency is projected to maintain favorable exchange rates over the medium to long term. 

While national policymakers and economic planners cannot possibly get every potential investor, they can help increase their country’s chances. By focusing on the areas above, they can maximize the possibility of not only attracting high-quality investments but retaining existing ones as well.