Like the weather, business climates are rarely the same for long. They heat up, luring additional facility investment with an increasingly warm, inviting atmosphere. But sometimes they cool down, and the falling mercury brings a cold snap in new and expanded plants, offices and other facilities.

A review of recent business climate changes in the world's major economic regions shows some of both patterns. But most countries' tax, incentives and other moves during the past year will make their investment atmosphere warmer than before, not cooler. Highlights include:

• The European Commission (EC) is reworking the European Union's (EU) incentives map, which means some countries will be able to offer more competitive incentives packages next year. But some nations' offerings will be more meager.

• Most of northern Europe has ratcheted up its competitiveness in the hunt for new business. Finland, in fact, ranks No. 3 worldwide in that key business climate measure (see chart). Meanwhile, Germany's attractiveness continues to rise.

• Along the Pacific Rim, most countries are still struggling to extricate themselves from the economic woes wrought by the worst recession in decades. The happy exceptions: Singapore, which is capitalizing on a business exodus from Hong Kong, and Australia.

• The business climate picture in South America is mixed. Some countries, such as Argentina and Chile, have remained islands of stability despite the economic difficulties battering much of the continent. Brazil, Colombia and Venezuela are faring less well.

• Turning to North America, the United States continues to provide one of the world's most positive business climates. Canadian provinces enacted a slew of business-boosting laws this year and Mexico's economy is growing.

• In the Middle East, Dubai's warm business climate stands in stark contrast to the less-than-inviting atmosphere found in many countries in that part of the world (see sidebar article).

Here's more on business climate changes in Europe, Asia, South America and North America.

Europe: The Shifting Sands of Incentives
Like sand castles on the beach, location incentives aren't exactly permanent. Incentives' ebb and flow are usually in synch with overall economic health and prosperity, which means that as development and growth occur, incentives often recede into the surf.

That's currently the case in Europe. "The EU incentives map is changing," says Richard Greene, Utrecht, Netherlands-based managing consultant with Ernst & Young (www.eyi.com). "It's being redrawn now, and governments are in negotiation as to which areas are going to be incented and which are not. Actually, it's already been redrawn; the results just haven't been announced publicly yet."

Places that have been offering incentives might lose some of their financial lures -- specifically because they've done so well in attracting business. The EC action is the first major shift in Europe's incentives map since 1992.

"Ireland, for instance, has been a highly incented area," Greene says. "It's not only had a 10 percent tax rate, but it's been pretty liberal with incentives too. Several years ago it had a high unemployment rate, and the EC felt it needed help in reaching the level of development in other EU countries. But over the last seven years, the Irish unemployment rate has dropped from 15 percent or so to about 8 percent. There's been a great inflow of business, and many parts of Ireland, like Cork, Dublin, Limerick and Galway, are doing very well. They don't need that high level of incentives anymore."

A few areas, though, might well end up with a larger incentives treasure chest with which to entice new facilities. One of those is England's South Yorkshire area, which is still recovering from mining closures. Its unemployment rate is about 15 percent.

"Some places, like northern Scotland, southern Portugal and southern Spain, as well as Belfast and most of Greece, will continue to have a high level of incentives," Greene ventures. "Of course, as the EU considers bringing in new members from eastern Europe, it will have to balance all this again after 2002 or 2003 if additional countries are added. The Czech Republic, Slovenia, Estonia, Poland and Hungary are the countries that are closest to being able to enter the EU."

European countries are free to administer incentives as they wish, but the limits they impose are watched carefully, analysts say. There's a lot of complaining to the EC right now, and some new-facility projects are being fined because they're getting incentives that are over the maximum level.

Besides the pending EU incentives changes, here's a recap of other new developments affecting European business climates:

• Denmark and Italy recently signed new tax treaties with the United States, subject to ratification by the U.S. government (see tax and incentive charts following this feature).

• After severely reducing its incentives program a couple of years ago, the Czech Republic has now bulked up its offerings, including both tax abatements and grants. "It found that it'd lost a real tool to compete in the market," Greene reports.

• Germany has reduced its corporate tax rate -- one of Europe's highest -- from 45 percent to 40 percent. Observers say many companies have been expanding elsewhere in recent years to avoid the stiff levy.

• In Ireland, corporate tax rates are in flux. Its eye-popping low 10 percent rate still applies to many types of investment for several more years. But the rate for all corporate entities will rise to 12.5 percent on Jan. 1, 2003.

Asian Stars: Singapore, Australia
Asian countries whose economies have emerged mostly intact despite the region's well documented economic trauma can be counted on one hand: China, Taiwan, Australia and Singapore. The latter two in that list are the real business-climate stars in Asia.

Singapore, in fact, ranks No. 2 worldwide in competitiveness in The World Competiveness Yearbook 1999(www.imd.ch/wcy/). The Yearbook, published annually by the Lausanne, Switzerland-based International Institute for Management Development, "analyzes and ranks the ability of a nation to provide an environment that sustains the competitiveness of enterprises."

Singapore now has a new 10 percent rebate for corporate income tax payable in the current year, or the year of assessment. "It's really been quite the winner of a lot of new investment going into Asia, especially that coming from Hong Kong," Greene says. "Singapore's economic downturn wasn't as bad as in other Asian countries."

The other big winner in Asia is Australia. "A lot of investment is going there," he reports. In other Asian developments, Japan has reduced its corporate tax from 37.5 percent to 34.5 percent in an effort to stimulate its economy. "They're having kind of a rough go," Greene explains.

Other countries are also revamping tax and investment policies to lure new business. The Philippines recently reduced its corporate tax to 33 percent, down from 34 percent. And Malaysia has relaxed foreign equity and export conditions to stimulate foreign investment.

Tough Times In South America
Several global companies, including Rolls-Royce, Black & Decker and Royal Philips Electronics, have announced new facilities in South America this year (mostly in Brazil). Those moves attest to the business opportunities that await savvy investors. Still, economic difficulties continue in several key South American markets.

In Brazil, the ongoing debt problem is giving some investors pause. Colombia and Venezuela have struggled with economic recession. Among positive developments is Venezuela's new tax treaty with the United States, which is awaiting U.S. Senate advice and consent. If approved, the treaty will enter into force Jan. 1, 2000, and that would be good news for Venezuelan businesses that want to tap the U.S. market.

The Argentine and Chilean economies, on the other hand, have remained much more stable in recent times than their neighbors, analysts say.

North America's Leaders: United States, Canada
In terms of economic might, the United States is North America's 400-pound gorilla. And it's "the absolute leader in world competitiveness," gushes the World Competitiveness Yearbook .

Indeed, with the exception of a nine-month recession in 1990-91, the U.S. economy has been growing since November 1982. Inflation is low, and operating costs continue to be reasonable. At the core of U.S. competitiveness, the Yearbook reports, is a unique ability to grow via technological innovations. Moreover, the United States is capitalizing on the Internet and e-commerce more than any other country.

Recent business climate boosts include a new federal R&D credit, a work opportunity credit and a capital investment tax credit. Of course, business climates vary greatly among the country's 50 states. See the state-by-state legislative profiles for information on new laws, regulations and other moves.

Armed with competitive operating costs, widespread availability of skilled workers and numerous other strengths, Canada's competitiveness in the hunt for new business is probably at an all-time high. In fact, the Yearbook pegs Canada as the world's No. 10 most competitive country.

Significant new actions in Mexico include a corporate tax reduction from 35 percent to 34 percent. What's more, a portion of Mexico's corporate tax may be deferred to the extent earnings are reinvested in the company.     SS