site-img5When it comes to investment one country (China P.R.) standards head and shoulders above the rest, with a gross capital formation (as a % of GDP) at 48% over each of the past 5 years. It’s one of the main reasons China continues to grow. It’s enabled by a large savings ratio (around 50%), also highest in the world and large foreign direct investment inflows (also highest in the world). Mongolia is the only other country to exceed 40% in gross capital formation. Gross capital formation consists of outlays on additions to the fixed assets of the economy plus net changes in the level of inventories. Fixed assets include land improvements (fences, ditches, drains, and so on); plant, machinery, and equipment purchases; and the construction of roads, railways, and the like, including schools, offices, hospitals, private residential dwellings, and commercial and industrial buildings (World Bank 2013).


Capital investment builds productive capacity, that is, the productive resources, entrepreneurial capabilities and production linkages which determine the capacity of a country to produce goods and services and enable it to grow and develop. It also builds growth in productivity, without which income growth is limited, risky and dependent on favourable terms of trade. Without investment in productive capacity the other main driver of growth in GDP, consumption, remains constrained.