US tops competitiveness rankings

Despite being buffeted by the biggest financial crisis raging since the 1930s, the United States remains resilient enough to top the overall ranking in The Global Competitiveness Report 2008-2009, released last month by the World Economic Forum.

Switzerland is in second position followed by Denmark, Sweden and Singapore. European economies continue to prevail in the top 10, with Finland, Germany and the Netherlands following suit. The United Kingdom, while remaining very competitive, has dropped by three places and out of the top 10, mainly attributable to a weakening of its financial markets.

China continues to lead the way among large developing economies, moving up to join the top 30. All of the BRIC economies figure in the top half of the ranking, with China followed by India, Russia and Brazil. Several Asian economies performed strongly with Japan, Hong Kong, Republic of Korea and Taiwan in the top 20. In Latin America, Chile is the highest ranked country, followed by Panama, Costa Rica and Mexico.

 

A number of countries in the Middle East and North Africa region are in the upper half of the rankings, led by Israel, Qatar, Saudi Arabia, United Arab Emirates, Kuwait and Tunisia, with particular improvements noted in the Gulf States since last year. In sub-Saharan Africa, South Africa, Botswana and Mauritius feature in the top half of the rankings, with several countries from the region measurably improving their competitiveness.

The rankings are calculated from both publicly available data and the Executive Opinion Survey, a comprehensive annual survey conducted by the WEF together with its network of Partner Institutes (leading research institutes and business organisations) in the countries covered by the report. This year, over 12,000 business leaders were polled in a record 134 economies. The survey is designed to capture a broad range of factors affecting an economy's business climate.

The Global Competitiveness Report's main competitiveness ranking is the Global Competitiveness Index (GCI), developed for the WEF by Sala-i-Martin and originally introduced in 2004. The GCI is based on 12 pillars of competitiveness- Institutions, Infrastructure, Macroeconomic Stability, Health and Primary Education, Higher Education and Training, Goods Market Efficiency, Labour Market Efficiency, Financial Market Sophistication, Technological Readiness, Market Size, Business Sophistication and Innovation.

Rankings of the BRIC countries are as follows:

 

China enters the top 30 this year, up four places from last year. The country benefits greatly from its large and rapidly growing foreign and domestic market size, enabling significant economies of scale. Macroeconomic stability also remains a source of competitive advantage, with the government budget moving into surplus, and manageable debt levels, although rising inflation has become an area of concern. Innovation too is finding favour, with rising company spending on R&D coupled with strong university-industry research collaboration, and an increasing rate of patenting.

China's key competitive weakness is related to its financial market, with restricted capital flows, inadequate regulation of securities exchanges, and doubts about the soundness of the banking sector. Private institutions are perceived as weak, with insufficient protection of minority shareholders' interests, inefficient corporate boards, and weak accounting and auditing standards. To spur on further innovation, there is a need to address the low enrolment rates at the secondary and tertiary education levels.

 

India, at 50th place, derives substantial advantages not only from its market, but also from its strong business sophistication and innovation. The country is endowed with strong business clusters and many local suppliers, and ranks an impressive third for the availability of scientists and engineers and 27th for the quality of its research institutions. India's overall competitive position is weakened by its macroeconomic instability at 109th, with the government running one of the highest deficits in the world, unsustainable levels of government debt, and fairly high inflation. Health and primary education is another area of concern. Certain labour market efficiency indicators are also poor, including female participation in the labour force and the ease with which firms can hire and fire.

 

Russia is ranked 51st, up seven places from last year. Russia's main strengths are its large market size and improving macroeconomic stability (partly thanks to windfall oil revenues). However, structural weaknesses have been holding it back. There is a perceived lack of government efficiency, a lack of independence of the judiciary, and a lack of a non-partisan government in its dealings with the private sector. Private institutions score low in corporate ethics. Russia is also riddled by inefficient goods and financial markets, slowing down development.

 

Brazil, at 64th place, posts a remarkable eight-position improvement. The country has continued to move towards sounder public finances. Brazil's main competitive advantages include its large domestic market size, access to a relatively sophisticated financial market in the region, dexterity in adapting technology to leverage ICT, a high degree of sophistication in its business sector, and prowess in generating innovation. But there is room for improvement still, as Brazil has high debt levels, a low national savings rate and high interest rates. A general distrust of public institutions among the business community, weak public ethics, government inefficiencies, and concerns about the security situation in the country are drawbacks.