The World Economic Forum released its annual Global Competitiveness Report, which contains Global Competitiveness Index (GCI)—an assessment of competitiveness of 142 countries world-wide based on their macroeconomic situation, business environment, infrastructure and other relevant indicators. All EBRD and SEMED countries are covered, except for Belarus, Turkmenistan and Uzbekistan.
(SEMED refers to Egypt, Jordan, Morocco, and Tunisia.)
The report classifies all economies into three main groups, based on their GDP per capita and commodity dependence. For the first group of “factor-driven” economies, which include Kyrgyz Republic, Moldova and Tajikistan, the key priorities are improvements in the quality of institutions, infrastructure, macroeconomic environment, and basic health and education. For the group of efficiency-driven economies, including Bulgaria, Macedonia FYR and Serbia, the priorities are higher education, efficient functioning of product and labour markets and financial development.
Finally, innovation-driven economies, such as Slovenia, need in addition to focus more on business sophistication, quality of management and innovation. These different priorities are reflected in different weights of respective components in the overall index.
As last year, Switzerland topped the ranking, praised for its innovation culture, technological advances and labour market efficiency. Singapore overtook Sweden into second place thanks to its strengths in terms of financial markets, infrastructure and education. Sweden, ranked 3rd, has particularly high scores for public institutions and business culture.
Estonia, Poland and Lithuania lead the league table in EBRD region, placed 33rd, 41st and 44th globally (Chart 1). Estonia scores highly on education, efficiency of product, labour and financial markets, as well as on commitment to technological progress. Poland’s strengths also include high educational standards and improved soundness of the banking sector, while insufficiently strong macroeconomic environment and poor infrastructure are seen as impediments to improving competitiveness.
Lithuania also scores highly on education and IT literacy, while poorly developed financial market, small market size and macroeconomic weaknesses are seen as key obstacles.
Chart 1. GCI scores in EBRD region and SEMED
More generally, this year’s report pays particular attention to macroeconomic issues and the negative impact of high and rising public debt levels on countries’ competitiveness. Unless debt finance is used to boost productivity, high public indebtedness is likely to negatively affect economic performance in the long term. This explains some downgrades (and upgrades) in this year’s ranking.
When it comes to upgrades in EBRD region, Tajikistan and Albania made most progress, jumping by 11 and 10 positions, respectively (Chart 2). Tajikistan, ranked 105th, is praised for improvements in quality of institutions, infrastructure, and fiscal prudence. Albania’s upgrade is mainly down to reduced state regulation and improvements in market efficiency and business sophistication.
By contrast, Slovenia lost 12 positions, owing to lower scores for labour market efficiency and financial sector development. Large drops in rankings of Montenegro and Romania (by 11 and 10 positions, respectively) are mainly explained by worse macroeconomic outlook, although in Romania perceived deteriorations in the quality of institutions and markets efficiency also contributed to the downgrade.
Chart 2. CGI upgrades and downgrades in EBRD regions and SEMED
Political upheaval led to perceived lower competitiveness in Egypt and Tunisia, which lost 13 and 8 positions, respectively. Egypt, despite its large market size, is ranked 94th. It faces a major need for labour market reform and changes in the educational system. In Tunisia, ranked 40th, the perceived deterioration in the business environment and security situation is partly offset by solid educational outcomes, which remain significantly above the North African average in terms of quality and participation at the primary and secondary levels.
Among EBRD sub-regions, Central Europe and Baltic countries are in the lead, while Central Asia scored as the least competitive region (Chart 3). Interestingly, SEMED countries are deemed to be more competitive on average than the EBRD region, although if regions are compared using GDP-weighted averages, SEMED actually becomes less competitive than any EBRD sub-region, owing to Egypt’s poor score.
Chart 3. Average GCI scores across the EBRD regions and SEMED
Globally, the EBRD region lags behind North America and Europe, as well as Asia-Pacific and the Middle East but is ahead of Latin America (Chart 4, the ranking remains unchanged if GDP-weighted averages are used).
Chart 4. Average CGI scores across the world
The competitiveness scores are a useful benchmark, but as with any index, they need to be interpreted with caution. For instance, Saudi Arabia is ranked 17th, ahead of most EU countries, including France. Yet the Saudi model is unlikely to be viewed as a useful recipe for improving competitiveness in Europe or Central Asia.