Of the entire group of former Soviet states, only the Baltic states have shown significant progress and pulled themselves into the lower third of this latest ranking with most other former Soviet states except Russia mired well below the rest of the developed world.
Global market still divided
The Global Competitiveness Report 2007-2008 saw the United States take the number one ranking with Switzerland in second position, followed by Denmark, Sweden, Germany, Finland and Singapore, respectively.
Chile is the highest ranked country in Latin America, followed by Mexico and Costa Rica. China and India continue to lead the way among large developing economies.
Several countries in the Middle East and North Africa region are in the upper half of the rankings, led by Israel, Kuwait, Qatar, Tunisia, Saudi Arabia and the United Arab Emirates.
In sub-Saharan Africa, only South Africa and Mauritius feature in the top half of the rankings, with several countries from the region positioned at the very bottom.
“The United States confirms its position as the most competitive economy in the world. The efficiency of the country’s markets, the sophistication of its business community, the impressive capacity for technological innovation that exists within a first-rate system of universities and research centres, all contribute to making the United States a highly competitive economy,” said Xavier Sala-i-Martin, Professor of Economics at Columbia University and co-editor of the report.
“However, some weaknesses, particularly related to macroeconomic imbalances, continue to present a risk to the country’s overall competitiveness potential, and to the global economy as a whole. This danger has most recently been demonstrated by the fallout and contagion caused by the country’s sub-prime mortgage crisis and the ensuing global credit crunch,” he added.
The rankings are calculated from both publicly available data and the Executive Opinion Survey, a comprehensive annual survey conducted by the World Economic Forum together with its network of Partner Institutes.
In Ukraine, the WEF’s partner is the Centre for Social and Economic Research – CASE Ukraine – which receives most of its financial support from the European Commission and research grants.
Increasingly authoritative audit
This year, over 11,000 business leaders were polled in a record 131 countries. The survey is designed to capture a broad range of factors affecting an economy’s business climate. The report also includes comprehensive listings of the main strengths and weaknesses of countries, making it possible to identify key priorities for policy reform.
“Economic policy, especially at the microeconomic level, needs to set priorities that reflect the most important constraints to competitiveness in each country. The GCR enables countries to move beyond abstract theoretical policy debates and identify the specific tasks ahead of them,” explained Michael E. Porter, Harvard Business School Professor, and co-director of the report.
“In an uncertain global financial environment it is more important than ever for countries to put into place the fundamentals underpinning economic growth and development. The World Economic Forum has for many years played a facilitating role in this process by providing detailed assessments of the productive potential of nations worldwide,” noted Klaus Schwab, WEF founder and executive chair.
The Global Competitiveness Report’s overall competitiveness ranking is the Global Competitiveness Index (GCI), developed for the World Economic Forum by Columbia University Professor Xavier Sala-i-Martin and originally introduced in 2004. This year’s GCI has been refined based on testing and expert feedback.
Twelve pillars of competitiveness
The GCI is based on 12 pillars of competitiveness, providing a comprehensive picture of the competitiveness landscape in countries around the world at all stages of development.
The pillars include: Institutions, Infrastructure, Macroeconomic Stability, Health and Primary Education, Higher Education and Training, Goods Market Efficiency, Labor Market Efficiency, Financial Market Sophistication, Technological Readiness, Market Size, Business Sophistication and Innovation.
A second part of the report provides a more detailed examination of the microeconomic aspects of competitiveness, presented in the Business Competitiveness Index (BCI) led by Professor Porter.
Countries that do well on the GCI also tend to do well on the BCI but there are some important differences. “Many countries have achieved progress by opening up to the world economy, stabilising macroeconomic policies and removing internal barriers to competition. Our findings reveal the need to build underlying microeconomic competitiveness to translate these gains into sustained prosperity. If improvements in the business environment and company sophistication fail to materialise – and they often require significant shifts in company and country – nations expose themselves to declining competitiveness and are vulnerable to economic and social risks,” said Professor Porter.
The BCI finds many European countries, especially Switzerland, Norway and Spain, to have wages far higher than levels that could be realistically supported by their competitiveness.
Casting the net wider and wider
The World Economic Forum continues to expand geographic coverage in the report. Featuring a total of 131 countries, this year’s report is the most comprehensive of its type. Coverage has been expanded to Puerto Rico, Libya, Oman, Saudi Arabia, Senegal, Syria and Uzbekistan. In addition, Serbia and Montenegro, previously analyzed as a single country, are now included separately.
The report contains a detailed country/economy profile for each of the 131 economies featured in the study, providing a comprehensive summary of the overall position in the rankings as well as the most prominent competitive advantages and competitive disadvantages of each country/economy based on the analysis used in computing the rankings. Also included is an extensive section of data tables with global rankings covering over 110 indicators.
Furthermore, this year’s report includes a number of discussions of selected countries including Germany, Malaysia, Mexico and the United Arab Emirates, providing an in-depth analysis of the issues affecting national competitiveness.
Ukraine: good news and bad news
In spite of what is perceived as progress in some sectors, Ukraine only managed to secure the 73rd spot in the 2007-2008 rankings. The factors involved in Ukraine’s low ranking are many, but most observers believe that the country’s well-deserved reputation for corruption, a poor judicial system and chaotic tax regulation were major factors in the low ranking.
Steven Pifer, a former US ambassador to Ukraine, recently spoke about some of the factors that left Ukraine mired well below Russia and the Baltic states. “While the recent parliamentary elections were certified as free and fair by international observers, the trends aren’t as positive with regard to corruption.
“The new Ukrainian government – with the full support of the parliament – needs to make rooting out corruption an immediate priority. This includes cleaning up the judicial system, breaking corrupt linkages between business and government, and working with the parliament to improve outdated anti-corruption legislation,” Pifer said on October 23 in regard to an earlier corruption report commissioned by the Atlantic Council of the United States.
Corrupt courts holding Ukraine back
Vladimir Dubrovskiy, a senior economist and member of the supervisory board of CASE Ukraine, who managed CASE’s work with WEF, told Business Ukraine that he considers Ukraine’s institutions its weakest point. “Our system is in crisis because of our courts,” Dubrovskiy said.
Dubrovskiy also pointed to Ukraine’s tax system as another of the more acute problem areas. “In rating impediments to competitiveness, tax implementation is more important than the tax rate.”
However, Dubrovskiy pointed to what he considers some bright spots on the otherwise dismal Ukrainian horizon so far as competitiveness is concerned. “Yes, people are becoming more attentive to the economic advice that we provide. The current minister of the economy is trying to use the proper indicators in his decision making and Yulia Tymoshenko is also listening.
“In practical terms, we are holding a mirror up to Ukraine. We believe that providing our government with the right mirror image of the economy is a good thing.”
Euro 2012 and tourism troubles
Ukraine’s successful bid to co-host the Euro 2012 European football championships should be a very good thing for the travel and tourism sector of Ukraine’s economy, assuming that all the announced infrastructure improvements do eventually become reality.
An earlier WEF competitiveness survey on travel and tourism demonstrated just how badly investment is needed to transform Ukraine into a serious tourist industry player.
Of the 124 countries ranked in the travel/tourism competitiveness survey, Ukraine finished in 114th place on “Attitude toward tourists”; 114th on “Government prioritisation of the travel and tourism industry”; 110th on “International air transport network”; and 104th on “Road infrastructure.”
With infrastructure spending of at least USD 20 billion planned before Euro 2012, this should have a considerable impact on Ukraine’s competitiveness ranking, both general and tourist-related, but with a general competitiveness ranking of 73rd out of 131 and a travel/tourism ranking of 78 out of 121, there is obviously a very long way to go.
Russia rises but deficiencies persist
Russia, with by far the largest economy in the former Soviet Union (FSU), made a moderately strong advance over its showing in last year’s rankings. However, even with its growing energy billions and a huge hard currency reserve, Russia was only ranked 58th out of the 131 nation economies ranked.
“Despite the country’s large market size and improving macroeconomic management, Russia places 58th, below other large European countries,” the World Economic Forum’s Global Competitiveness Index said.
The country’s low position is mainly due to “weaknesses in its institutional environment and business standards, lack of government efficiency, lack of independence of the judiciary in meting out justice, and more general concerns about government favoritism in its dealings with the private sector,” the report said.
In one of its most negative comments in regard to Russia, the reports also said the “environment for the protection of property rights is extremely poor and worsening” in Russia.
Other former Soviet Union states
For other former Soviet states the rankings vary greatly, from highly competitive to abysmally low.
The highest ranking among former Soviet states, even higher than its Baltic neighbours and some central and western European nations, was Estonia’s impressive 27th place finish. WEF experts attributed the tiny republic’s progress to “the efficiency of Estonia’s government institutions, the excellent management of public finances and its aggressiveness in adopting new technologies.”
Estonia’s Baltic neighbours, Lithuania and Latvia, also came up with quite respectable rankings, 38th and 45th, respectively. Except for the three Baltic States, all other former Soviet republics were ranked below Russia.
Kazakhstan, with an economy that is widely considered the best developed in the Commonwealth of Independent States, was ranked 61st, only one place ahead of its neighbour, Uzbekistan (62nd).
Azerbaijan, the Caucasus state that has seen the highest rate of economic growth in the FSU in recent years thanks to its increasing importance as an oil producing and exporting country, was ranked 66th. Georgia ranked only 90th.
Armenia (93rd), Moldova (97th), Tajikistan (117th) and Kyrgyzstan (119th) were placed toward the bottom of the list. Meanwhile, Turkmenistan and Belarus were left entirely out of the rankings as the most closed economies to foreign investors.
