Deloitte UK, in conjunction with the Social Progress Imperative (SPI), has reported that rising social progress in a country attracts FDI, which in turn can be used to drive further progress.
The new report, ‘Foreign Direct Investment and Inclusive Growth: The impacts on social progress’ maps holistic measurement of growth and performance from the Social Progress Index relative to GDP and FDI metrics.
According to the report, social progress can explain some of the trends in FDI and FDI can in turn explain some of the improvements in social progress experienced by nations as they advance.
Significantly, it qualifies how business thrives best in healthy societies.
The report found that FDI can encourage a country’s future social progress through specific support – such as investments in healthcare and education – and indirectly through employment and higher incomes.
In addition, infrastructure, education, strong institutions, and personal and political security – social progress factors – will help attract overseas investment.
Equally important for FDI are quality of life factors, such as tolerance and inclusion, as they help attract the international workforce and investment required for highly skilled industries.
The index identifies three principal pillars of social progress, basic human needs, foundations of wellbeing and opportunity.
Basic human needs covers nutrition and basic medical care, water and sanitation, shelter and personal safety.
As nations move up the development ladder, wellbeing factors including access to basic knowledge, information and communications, health and wellness, and ecosystem sustainability become critical catalysts for further economic, industrial and social development.
Personal rights, freedom, choice, tolerance and access to advanced education are the third pillar marking the ascent to a developed economy.
“This report demonstrates how the Social Progress Index can act as a guide for business and other organisations to make smarter strategic investments and shows governments that policies focused on driving social progress can attract FDI, which in turn advances both economic and social development,” said Steve Almond, Deloitte Global Chairman.
However, in terms of social progress, not all FDI is equal and strong institutions remain integral to drive social progress in the right direction.
When rapid economic growth exceeds the pace of social progress, nations’ advance up the development ladder can slow and falter.
This can happen when rapid economic growth outpaces social progress, FDI disproportionately targets certain sectors and industries, political instability continues, personal safety is poor and a nation is mired in a poverty trap.
The report points toward Brazil, Russia, India and China (BRICs) as examples of those nations struggling to stay the path.
With the majority of FDI now and for the first time flowing into emerging economies, investors and businesses can benefit from a comprehensive map of what factors can drive their development.
The full report can be downloaded here [pdf] and a TED talk by SPI’s Michael Green can be viewed here.