The global financial centres index (GFCI) 3 - Z/Yen

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The Global Financial Centres Index Very little has changed in this sub-sector since GFCI 2. Frankfurt and Sydney have swapped places in the ranking, but all other centres have held onto their positions. Previous research has indicated that the regulatory environment, a strong component of what is referred to here as the ‘business environment’, is one of the most important competitiveness factors for a financial centre. London and New York are still seen as having generally good regulatory environments, although a number of people have been critical of the US, with regard to what is seen as a ‘heavy-handed’ approach to regulating financial services. For example: Financial regulations are better in Western Europe. The US is over regulated – and the Middle East and Russia have a long way to go. However, Hong Kong and Tokyo are actually competitive with Western Europe. Regulatory structures are just one aspect of competitiveness in this area. The Economist Intelligence Unit’s Business Environment Ranking assesses the world’s 82 largest economies, accounting for more than 98% of global output, trade and foreign direct investment. The Ranking measures the quality or attractiveness of a country’s business environment (adjusted for its size), and its components, which include: political and institutional environment, macroeconomic stability, market opportunities, policy towards private enterprise, policy towards foreign investment, foreign trade and exchange regime, tax system, financing the labour market, and infrastructure. The top ten countries, with some other countries selected for comparison, are shown in Table 7. 38
The Global Financial Centres Index Table 7 Business Environment Ranking – Selected Countries* Country Rank 2006 Denmark 1 Finland 2 Canada 3 Singapore 4 Netherlands 5 Ireland 6 United Kingdom 7 United States 8 Hong Kong 10 Taiwan 19 Chile 19 Israel 22 Malaysia 23 South Korea 25 Czech Republic 26 Poland 27 Thailand 37 South Africa 40 Mexico 41 Brazil 42 China 45 Argentina 50 India 57 Russia 58 Pakistan 62 Venezuela 74 *Source: Economist Intelligence Unit Unlike other indices, London (represented by the UK), New York (represented by the US), and Hong Kong do not feature in the top three in this index. This reveals that the size of a financial centre does not necessarily accompany a flexible and welcoming business environment. The smaller countries are rated more highly in this respect. Along these lines, one respondent notes: Dublin is excellent – good reputation and very pragmatic regulation, genuinely keen to encourage business. It also has a good tax environment. Over time, it’s become expensive but good staff can be found… Another key factor in maintaining a competitive advantage globally is taxation. The Total Corporate Tax Rate Index measures the amount of tax payable by the business in the second year of operation, expressed as a share of commercial profits. The total amount of taxes is the sum of all the different taxes payable after accounting for deductions and exemptions. The taxes withheld 39
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