Mostly positive CIS/CEE picture emerges in WEF's competitiveness study

By bne IntelliNews September 4, 2014

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Stalled reforms and developmental differences are the biggest obstacles to sustainable global growth, according to the World Economic Forum's (WEF) latest study of the world's most competitive economies, with some of the world's largest emerging markets continuing to face difficulties in improving competitiveness.

The Geneva-based WEF's annual survey is a ranking of the competitiveness of individual countries – the so-called Global Competitiveness Index. The GCI score for a particular country is based on data in 12 categories that together provide a comprehensive picture of competitiveness. These 12 factors include infrastructure, health and education, an efficient labour market, and technological development..

The highest ranked country in the 2014-2015 report was Switzerland for the sixth year running, followed by Singapore, the US, Finland and Germany.

China rose one position to 28th and remains the highest ranked BRICS economy, while Russia improved by three positions since last year to 64th place. Other BRICS performed worse, with Turkey (45th), South Africa (56th), Brazil (57th) and India (71st) all falling in the rankings.

The WEF says that Russia's macroeconomic environment has continued to improve – up from 44th two years ago to 19th this year – because of low government debt and a government budget that has maintained a surplus. Other strengths, it cites, include its high level of education enrolment, fairly good infrastructure and large domestic market.

"On the other hand, the country continues to receive a poor assessment of its public institutions (118th) and shows a lack of innovation capacity (78th). Russia suffers from inefficiencies in the goods (126th), labor (72nd), and financial (121st) markets. The weak level of competition (135th) – caused by inefficient anti-monopoly policies (116th) and high restrictions on trade and foreign ownership as well as a lack of trust in the financial system (132nd) – contributes to this inefficient allocation of Russia’s vast resources, hampering higher levels of productivity in the economy," it says. "Moreover, as the country moves toward a more advanced stage of economic development, its lack of business sophistication (107th) and low rates of technological adoption (127th) will become increasingly important challenges for its sustained progress."

The Central European states mostly improved their standings in the 2014-2015 survey. Estonia came out top again, moving up from 32nd to 29th. "The country has an excellent educational system and highly efficient and well-developed goods and financial markets, as well as a strong commitment to advancing technological readiness," it says.

Estonia's Baltics neighbours were just behind (improving to 41st and 42nd respectively). Poland was at 43rd, up from 42nd; Hungary improved to 60th from 63rd; while Slovakia rounded out the Central Europe region at 75th, up from 78th.

The Czech Republic, however, fell seven places from 37th to 46th. "Concerns remain about the quality of the country’s public institutions, with public trust in politicians ranked an extremely low 146th, ahead of only Argentina and Lebanon globally. The macroeconomic environment has worsened slightly with rising deficits and debt, although (at 55th) it remains more stable than in much of the rest of Europe," it says. "The country’s competitiveness would be further enhanced by improvements to the educational system and by injecting greater flexibility into the labor market."

Turkey is the best performer in the Southeast Europe region by a margin of almost 20 places, at 45th place on the index – down one place since last year. However, the report notes that Turkey – along with other large emerging market economies such as Brazil, India, Mexico and Nigeria – continued “to face difficulties in improving competitiveness.”

The WEF performance overview of Turkey shows that the country’s score is boosted by both the large size of the market (Turkey has a population of 76.5m and GDP of $827.2bn) and provision of healthcare and education. Turkey also scored well on the macroeconomic environment, in particular control of inflation and the government debt/GDP ratio.

Aside from Turkey, all countries from the Southeast Europe region are around the middle of the list, below Commonwealth of Independent States (CIS) countries such as Azerbaijan, Kazakhstan and Russia. This unimpressive performance confirms the WEF’s statement that in Europe, “While the divide between a highly competitive North and a lagging South and East persists, a new outlook on the European competitiveness divide between countries implementing reforms and those that are not can now also be observed.”

Countries from the region range from Bulgaria, up three places to 54th place, down to Albania which dropped two places to 95th, though Bosnia-Herzegovina and Kosovo were not included in the report. However, there were some bright spots. Romania leapt 17 places to 69th place , with its score raised by a good performance in the macroeconomic environment and health and primary education categories, though dragged down by the poor state of its infrastructure. Macedonia (up from 73rd to 63rd place) and Serbia (up from 101st to 94th) also made significant advances.

Azerbaijan topped the Global Competitive Index 2014-2105 in the CIS region, rising one place from the previous report to occupy 38th, followed by Kazakhstan, the largest economy in Central Asia and the Caucasus, at 50th. Kazakhstan's overall rating did not change.

The region's least corrupt country, Georgia, moved up three places to 69, while next-door Armenia fell six notches to 85. Kyrgyzstan moved up from 121st place out of 148 countries to 108th out of 144 countries. Tajikistan, the poorest country in the CIS which wasn't included in the previous report, occupied 91st this year.

The most isolated countries in the former Soviet Union, Uzbekistan and Turkmenistan, were not included in the index, probably due to difficulties with data collection.

Kyrgyzstan and Armenia aspire to join the Russia-led Eurasian Economic Union (EEU) by the end of this year or next year. The two countries may see their competitiveness go down as they will have to reconcile their WTO commitments with EEU regulations.


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