How Competitive are the Arab Countries?

How do Arab economies fare in terms of “Competitiveness”? Are they able to provide prosperity for their citizens? Are they efficient in using available resources?

Well, according to the Global Competitiveness Report , an annual publication by the World Economic Forum (WEF), Arab economies vary immensely in this regard. For instance, out of 148 countries surveyed in the report, Qatar ranks 13th while only four economies lag behind Yemen in the ranking. But one may ask, how can we measure “Competitiveness”?

The answer is not quite simple. Competitiveness is measured according to an index based on over 110 variables, two thirds of them coming from WEF’s Executive Opinion Survey, which canvasses some 14,000 Business leaders from participating countries, and one third from publicly available sources. The variables are then organized into 12 pillars that are considered determinants of competitiveness. The weight given to each pillar varies based on whether the economies are characterized as factor, efficiency, or innovation driven economies.

In a factor driven economy, or stage one economy, the key pillars for competitiveness are: institutions, infrastructure, a stable macro framework, and good health and primary education systems.

In efficiency-driven economies, stage two, higher education, efficient goods, labor and financial markets, the ability to harness technologies, and both internal and external market size are the most determinant factors.

In innovation-driven economies, stage three, business sophistication and innovation are given greater weight. Intermediate values are used for economies in transition from one stage to another.

With regards to the Arab world, Yemen is considered a factor-driven economy. Algeria, Egypt, Kuwait, Libya, Qatar, and Saudi Arabia are transitioning from factor-driven into efficiency-driven economies.  Jordan and Morocco are considered efficiency-driven, or stage two economies. Bahrain, Lebanon, and Oman are transitioning from stage two to stage three. The United Arab Emirates is the only MENA country considered an innovation-driven economy.

But enough with the suspense, let’s delve into the rankings.

Again this year, European countries topped the charts with Switzerland ranking first, Finland third, Germany fourth, Sweden sixth, the Netherlands eighth, and the United Kingdom tenth. The United States is the only country from the Americas to rank in the top ten coming in fifth place while three Asian countries complete the list of the ten most competitive economies with Singapore second, Hong Kong seventh, and Japan ninth. As for the Arab countries some fare well while others not so much.

Qatar ranks 13th overall and is MENA’s most competitive economy. Its performance rests on a high-quality institutional framework (4th), stable macroeconomics (6th), and an efficient goods market (3rd). The United Arab Emirates takes 19th place. Its ranking reflects the quality of infrastructure (5th), efficient goods markets (4th), macroeconomic stability (7th), public trust in politicians (3rd), and government efficiency (9th). Still, the country needs investments in health (49th) and education (49th). Saudi Arabia dropped two places to 20th. Macroeconomic stability, albeit falling, remains strong (4th). Yet, health and education rank below comparators and the higher education and training pillar (48th) has weakened since 2012. Labor market efficiency declined compared to previous years (70th).  Jordan dropped to 68th, which reflects the macroeconomic challenges it is facing. Boosting growth will require stability and structural reforms, including enhancing labor market efficiency in which Jordan currently ranks 101st. Tariffs remain high (108th). Financing is easier than many other countries (34th) but efforts to stabilize the banking sector should continue (114th). Tunisia comes in at 83. Its ranking reflects challenges the government faces to narrow down the budget deficit and reduce inflation while concomitantly focusing on sustainable growth and high unemployment. Tunisia’s Achilles’ heel is in the labor market efficiency pillar (132nd), which remains a critical area for improvement. Financial markets remain inefficient (129th) and the banking system needs to be stabilized to build trust and confidence. Finally, Egypt dropped 11 positions and ranks 118th. Security challenges and political instability have undermined competitiveness and the country’s growth potential. Easing political friction takes priority but what is also needed are: (i) a credible fiscal consolidation plan with structural reforms to maintain macroeconomic stability; (ii) measures to intensify domestic competition for efficiency gains and energizing the economy via new entrants; and (iii) making labor markets flexible and more efficient in order to allow for significant medium-term increases in employment.

* The security situation in Syria did not allow for the survey. Tunisia missed out on last year's rankings.