India gains further ground in competitiveness stakes, says WEF

Posted on September 27, 2016

India, an investor darling since the election of prime minister Narendra Modi in 2014, has risen sharply up the World Economic Forum’s Global Competitiveness index for the second year running.

However, fellow Bric Brazil has continued its slide down the table with Latin America’s largest economy now having the lowest level of trust in its politicians of any of the 138 countries surveyed — behind Zimbabwe and Venezuela — in the wake of a sprawling corruption scandal.

Southeast Asian nations such as Malaysia, Thailand, Indonesia and the Philippines have also slipped in the past year, reversing some of the progress they have made over the past decade.

The findings come as the WEF warns that a decline in the openness of economies at all stages of development since it launched its annual competitiveness report in 2007 “poses a risk to countries’ ability to grow and innovate”.

The Swiss foundation pinned the blame on a rise in non-tariff trade barriers, “burdensome” customs procedures and restrictions on foreign direct investment and foreign ownership.

“Declining openness in the global economy is harming competitiveness and making it harder for leaders to drive sustainable, inclusive growth,” said Klaus Schwab, founder and executive chairman of the WEF.

Mr Schwab argued that monetary stimulus, in the form of measures such as quantitative easing, is not enough to reignite global growth if economies are not competitive, an increasingly important element of which involves creating
“an enabling environment for innovation”.

As in previous years, the upper echelons of the forum’s competitiveness league table are dominated by developed economies such as Switzerland, the US and the Netherlands, with Sweden and the UK both rising three places to sixth and seventh respectively.

However some smaller, high-income emerging markets also rank highly, with Hong Kong in ninth place (down two), Taiwan up one to 14th, the United Arab Emirates up one to 16th and Qatar in 18th, having fallen four places.

Among the larger EM economies, China remains in 28th. Improvements in higher education, innovation and business sophistication “bode well for the future while China transitions to a new normal, where growth will need to be increasingly driven by innovation” the WEF says.

But these improvements were countered by a worsening fiscal balance, with the budget deficit more than doubling between 2014 and 2015 to 2.7 per cent of gross domestic product, a rise in non-performing loans and high barriers to entry for foreign groups.

Global Competitiveness Index 2016-17 and 2015-16, selected countries

Rank 2016-17 Score 2016-17 Rank 2015-16 Score 2015-16
Switzerland  1 5.81 1 5.76
Singapore 2 5.72 2 5.68
US 3 5.7 3 5.61
Netherlands 4 5.57 4 5.53
Germany 5 5.57 4 5.53
Sweden 6 5.53 9 5.43
UK 7 5.49 10 5.43
Japan 8 5.48 6 5.47
Hong Kong 9 5.48 7 5.46
Finland 10 5.44 8 5.45
Taiwan 14 5.28 15 5.28
United Arab Emirates 16 5.26 17 5.24
Qatar 18 5.23 14 5.3
Malaysia 25 5.16 18 5.23
China 28 4.95 28 4.89
Thailand 34 4.64 32 4.64
India 39 4.52 55 4.31
Indonesia 41 4.52 37 4.52
Russia 43 4.51 45 4.44
Rwanda 52 4.41 58 4.29
Philippines 57 4.36 47 4.39
Jamaica 75 4.13 86 3.97
Albania 80 4.06 93 3.93
Brazil 81 4.06 75 4.08
Zambia 118 3.6 96 3.87
Nigeria 127 3.39 124 3.46
Source: WEF

China risks being caught by fast-rising India, which has climbed 16 places for the second straight year, taking it to 39th spot. India has improved in terms of goods market efficiency, business sophistication and innovation, while it now boasts the fastest economic growth of any G20 country (at least if the official data are to be believed).

In the past year, the country has also risen 16 places in the rankings for the quality of public institutions, 15 spots in terms of the transparency of its financial system and four places for its openness to foreign investors and international trade.

“Over the past two years there has been a Modi effect at play, which is continuing,” said Thierry Geiger, head of analytics and quantitative research at the WEF. “Modi has been a bit more pro-business. Inflation is lower and health and education are improving a little bit, but from a low base.”

However, Mr Geiger suggested that while India had definitely become a little more competitive, the magnitude of the country’s rise may be partly driven by “hype”, with business executives overestimating the extent of the reforms that Mr Modi is likely to oversee. Moreover, India sits in a section of the WEF’s rankings where relatively small underlying improvements can lead to a big jump in places.

However Brazil, ranked 48th as recently as 2012, continued its decline, sliding a further six places to 81st spot.

Mr Geiger said the country’s slump in competitiveness was “across the board”, with Brazil either declining or already very weak in each of the 12 pillars that feed into the overall rating. It is ranked 100th for innovation, 117th for labour market efficiency, 120th for the quality of its institutions, 126th for its macroeconomic environment and 128th for the efficiency of its goods market.

As well as ranking 138th and last in terms of public confidence in politicians, Brazil also comes rock bottom for the impact of taxation on incentives to invest.

“There is a big crisis of confidence. It’s really quite a bleak picture. It’s almost a high-income economy and it’s still lagging,” said Mr Geiger.

Much of Southeast Asia has also gone backwards in the past year, with Malaysia falling seven places to 25th, Thailand down two to 34th, Indonesia down four to 41st and the Philippines sliding 10 places to 57th.

In most cases, at least, this is just a partial unwinding of the progress made in the past decade, however, with 13 of the 15 countries in the East Asia and Pacific region having improved their rankings since 2007.

Having made progress in many of the more basic measures since 2007, Mr Geiger said the region now needed to make inroads in more complex areas such as improving business sophistication and innovation in order to break out of the middle-income trap.

“They have been going up [the rankings] quite remarkably over the past decade. Now there seems to be a little bit of a plateau,” he said. “There is a risk of complacency, a risk of losing competitive advantage [to South Asia and parts of sub-Saharan Africa] and not being able to keep up with China.”

Two of this year’s perhaps unexpected big risers are Jamaica and Albania. The latter has risen 13 places to 80th, having seen sharp improvements in the quality of its institutions, higher education and training, and development of its financial markets in recent years.

Jamaica has risen 11 spots to 75th, extending its rally from 97th place in 2012, as its institutions, infrastructure, macroeconomic backdrop and health and primary education systems have all shown steady improvement.

As is all too often the case, the lowest rungs of the competitiveness index are dominated by sub-Saharan Africa. Zambia is a particularly egregious example this year, falling 22 places to 118th off the back of deteriorating public finances and infrastructure, power shortages and political uncertainty, although part of the decline is also technical, with some data being restated.

However, the continent does have the odd success story, notably Rwanda, which has risen 14 places to an impressive 52nd in the past three years.

A favourite of western governments and aid organisations despite its aversion to democracy, the tiny east African nation with GDP per capita of just $769 is ranked second in the world in terms of the burden of government regulation, fourth for wastefulness of government spending, sixth for the reliability of its police, seventh for public trust in politicians and labour market efficiency, ninth for transparency of government policymaking and 13th for the overall quality of its institutions.

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