I finally had a chance to look over the latest Global Competitiveness Report (2012-2013), an annual publication of the World Economic Forum (WEF), and I thought it would be interesting to see how the participating Arab countries were doing.
This year’s top 10 remain dominated by (northern) European countries, with Switzerland (1), Finland (3), Sweden (4), the Netherlands (5), Germany (6), and the United Kingdom (8) ranking among the most competitive economies. Others include the United States (7), Singapore (2), Hong Kong (9) and Japan (10).
So, what do these rankings actually mean? The index is calculated using over 110 variables, of which two thirds come from the WEF's Executive Opinion Survey (in which some 14,000 Business leaders from the participating countries are canvassed), and one third from publicly available sources such as the United Nations. The variables are organized into twelve pillars, considered determinants of competitiveness.
It turns out of course, that the ranking are not a simple matter of adding up indicators. The weights given to each pillar change according to whether the economies being assessed are factor, efficiency, or innovation-driven. For example, the sophistication and innovation factors contribute 10% to the final score in factor and efficiency-driven economies, but 30% in innovation-driven economies. Intermediate values are used for economies in transition from one stage to another.
In stage one, for factor driven economies, the key pillars for competitiveness are: institutions, infrastructure, a stable macro framework and good health and primary education.
In stage two economies, higher education, efficient goods, labor and financial markets, the ability to harness technologies and internal and external market size have more weight.
In stage three, for innovation-driven economies, business sophistication and innovation are given greater weight.
So, how did the Arab countries do? Well, as in all things, it varies by country and groupings of countries (See table below for their 2012-2013 rankings).*
* This year Libya participated for the first time, while the security situation in Syria did not allow for the survey to be carried out. Tunisia is also missing from this year's GCI since a structural break in the data did not allow for comparisons with previous years.
The oil rich countries of the GCC rank quite high since they do well fiscally and enjoy macro stability, good infrastructure, financial sector depth, and institutional capacity. However, the level of economic development matters here. The Report characterizes Kuwait, Qatar and Saudi Arabia as transitioning from factor driven economies (stage one) into efficiency driven economies (stage two). Egypt, Algeria, and Libya are also in this group. Yemen is the only one in the factor-driven stage one while Morocco and Jordan are in the efficiency-driven, stage two. Bahrain, Lebanon and Oman are transitioning from stage two to stage three. The UAE is the only country in the innovation-driven, stage three.
The Report provides some country specific summaries (link provided above). The write-up on Egypt provides insight into post-Arab Spring changes, and I thought it useful to share a country context’s effect on the ranking.
Egypt’s Executive Opinion poll revealed significant, though probably short-term weaknesses due to the uprising. Government efficiency dropped 22 places to 106 in the global rankings and security dropped by 40 to 128. However, Egypt’s many advantages were also noted; including its large market size and proximity to key global markets. To take advantage of this, the summary noted, the country’s productive potential across the domestic economy needed to be raised.
The summary also drew attention to three areas of critical concern. First, the macro environment is down to 138 globally, due to growing fiscal deficit, rising public debt, and inflationary pressures. A credible fiscal consolidation is needed but will not be easy, given rising energy prices and the burden of energy subsidies that account for a large share of public expenditure. However, the summary comes to the salient conclusion that better targeting of subsidies could lead to fiscal consolidation and better protection for the vulnerable.
Second, enhancing domestic competition would bring efficiency gains and energize the economy by encouraging new entrants.
Third, making labor markets flexible and more efficient would increase employment in the medium term.
This underlines the Report’s view that unemployment is the key challenge in the Arab world, with the solution residing in a combination of growing the private sector, diversifying the economy, addressing the skills mismatch and promoting meritocracy. Good to note that these are all measures largely supported by Egypt’s new government.
The really encouraging news, though, from Egypt’s 2012-2013 survey was the significant improvements in the institutions pillar, with a majority of respondents citing a marked decline in favoritism being displayed by officials and much stronger corporate ethics.
The surveys point to what is clearly the right path for the future. Credible public and private institutions providing greater transparency and accountability are critical factors to successful economic and social reforms. If this continues, I expect Egypt to improve much more than its global rankings.
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