The Best Countries to Invest in are the Worst

Friday, November 11, 2011

SANTA MONICA, Calif. (MarketWatch) – The United Nations Development Program recently completed its annual Human Development Report, listing the well-being of nations based on their economic prosperity, education levels and life expectancy.

Considering that this column is devoted to investing with an impact, elevating social welfare by investing in, say, Norway, the highest ranked on the HDI, isn’t as easy to do as it might be by investing in, say, the Democratic Republic of the Congo, which is ranked lowest on the index.

Indeed, by taking the bottom-of-the-pyramid approach to the HDI, investors can not only ride the tide of social impact to the top but also to financial return. Here’s how: utilize an asset-allocation approach to social investing. Fashion emerging-market countries as small-cap growth opportunities – Niger, Burundi, Mozambique – and developed countries such as Australia, New Zealand, and the Netherlands, as large-cap income opportunities.

The HDI is constructed by calculating life expectancy at birth, years of schooling, and gross national income per capita. By subtracting HDI from GNI, the UNDP comes up with a non-income HDI value. It lists the values of 187 countries and other territories. The United States ranks fourth on the list. Read more about the HDI.

Like any list the most interesting stuff isn’t so much at the top or the bottom. By now most people know that Nordic countries are better off in terms of quality of life than West African nations. But who would think, for example, that Brazil would sit below Libya, or that Turkey would be eclipsed by Iran?

The premise of the Human Development Report this year is “sustainability and equity.” It says, “New analysis shows how power imbalances and gender inequalities at the national level are linked to reduced access to clean water and improved sanitation, land degradation and illness and death due to air pollution, amplifying the effects associated with income disparities. Gender inequalities also interact with environmental outcomes and make them worse. At the global level, governance arrangements often weaken the voices of developing countries and exclude marginalized groups. But there are alternatives to inequality and unsustainability. Investments that improve equity – for example, in access to renewable energy, water and sanitation, and reproductive health care – could advance both sustainability and human development. Stronger accountability and democratic processes can also improve outcomes.”

Source: MarketWatch (link opens in a new window)