WEF Competitiveness Report: SA drops to 56, worst spot yet

wefGeneva, Switzerland, 3 September 2014 – Africa’s economies are enjoying mixed success in their attempts to become more competitive, according to The Global Competitiveness Report 2014-2015, launched today.

According to the report’s Global Competitiveness Index, only three sub-Saharan countries (Mauritius, 39th; South Africa, 56th; and Rwanda, 62nd) score in the top half of the world’s most competitive economies. Of these, Mauritius continues its strong upward trajectory of recent years, climbing six places. South Africa declines three places: it is now the third most competitive BRICS economy after China (28th) and the Russian Federation (53rd). Rwanda climbs four places.

Nigeria, the region’s largest economy, falls seven places to 127th. This is down to weakness in public finances (as a result of lower oil exports), continuing institutional frailty and deterioration in national security. The results are similarly mixed for other middle-income countries in the region. Lesotho (107th) and Cape Verde (114th) register the largest improvements, while Botswana (74th), Namibia (88th), Zambia (96th), Ghana (111th), Senegal (112th) and Swaziland (123rd) remain relatively stable. Among the oil-exporting economies, Gabon remains the highest-ranked economy (106th) followed by Cameroon (116th), Nigeria, Angola (140th) and Chad (143rd). Among Africa’s low-income economies, most improve their position; Ethiopia makes the biggest leap, rising nine places to 118th.

The report finds that despite years of bold monetary policy, global economic growth remains at risk, as several countries struggle to implement growth-boosting structural reforms. In its annual assessment of the factors driving countries’ productivity and prosperity, the report finds that the biggest obstacle to sustainable global growth is uneven implementation of structural reforms across different regions and levels of development. It also highlights talent and innovation as two areas in which leaders of both public and private sectors need to collaborate more effectively in order to achieve sustainable and inclusive economic development.

According to the report’s Global Competitiveness Index, the United States improves its competitiveness position for the second consecutive year, climbing two places to third, on the back of gains to its institutional framework and innovation scores. Elsewhere in the top five, Switzerland leads the ranking for the sixth consecutive year, Singapore remains second and Finland (4th) and Germany (5th) both drop one place. They are followed by Japan (6th), which climbs three places, and Hong Kong SAR (7th), which remains stable. Europe’s open, service-based economies follow, with the Netherlands (8th) also stable and the United Kingdom (9th) going up one place. Sweden (10th) rounds up the top 10 of the most competitive economies in the world.

In Europe, several countries that were severely hit by the economic crisis, such as Spain (35th), Portugal (36th) and Greece (81st), have made significant strides to improve the functioning of their markets and the allocation of productive resources. At the same time, some countries that continue to face major competitiveness challenges, such as France (23rd) and Italy (49th), appear to have not yet fully engaged in this process. 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 not doing so, can now also be observed.

Some of the world’s largest emerging market economies continue to face difficulties in improving competitiveness. Saudi Arabia (24th), Turkey (45th), Brazil (57th), Mexico (61st) and India (71st) all fall in the rankings. China (28th), on the contrary, goes up one position and remains the highest ranked BRICS economy.

In Asia, the competitiveness landscape remains starkly contrasted.The competitiveness dynamics in South-East Asia are remarkable. Behind Singapore (2nd), the region’s five largest countries (ASEAN-5) – Malaysia (20th), Thailand (31st), Indonesia (34th), the Philippines (52nd) and Vietnam (68th) – all progress in the rankings. Indeed, the Philippines is the most improved country overall since 2010. By comparison, South Asian nations lag behind, with only India featuring in the top half of the rankings.

To boost its economic resilience and keep the economic momentum of past years, Latin America finds its major economies still in need of implementing reforms and engaging in productive investments to improve infrastructure, skills and innovation. Chile (33rd) continues to lead the regional rankings ahead of Panama (48th) and Costa Rica (51st).

Affected by geopolitical instability, the Middle East and North Africa depicts a varied picture. The United Arab Emirates (12th) takes the lead and moves up seven places, ahead of Qatar (16th). Their strong performances contrast starkly with countries in North Africa, where the highest placed country is Morocco (72nd). Ensuring structural reforms, improving the business environment and strengthening the innovative capacity so as to enable the private sector to grow and create jobs, are of key importance to the region.

“The strained global geopolitical situation, the rise of income inequality and the potential tightening of the financial conditions could put the still-tentative recovery at risk and call for structural reforms to ensure more sustainable and inclusive growth,” said Klaus Schwab, founder and executive chairman of the World Economic Forum.

Xavier Sala-i-Martin, professor of economics at Columbia University in the US, added: “Recently we have seen an end to the decoupling between emerging economies and developed countries that characterised the years following the global downturn. Now we see a new kind of decoupling, between high and low growth economies within both emerging and developed worlds. Here, the distinguishing feature for economies that are able to grow rapidly is their ability to attain competitiveness through structural reform.”

SouthAfrica

South Africa continues its downward trend and falls to 56th place this year, third among the BRICS economies. South Africa does well on measures of the quality of its institutions (36th), including intellectual property protection (22nd), property rights (20th), the efficiency of its legal framework in challenging
and settling disputes (9th and 15th, respectively), and its top-notch accountability of private institutions (2nd).

Furthermore, South Africa’s financial market development remains impressive at 7th place,7 although our data point to more difficulties in all channels of obtaining finance this year. The country also has an efficient market for goods and services (32nd), and it does reasonably well in more complex areas such as business sophistication (31st) and innovation (43rd), benefitting from good scientific research institutions (34th) and strong collaboration between universities and the business sector in innovation (31st).

South Africa’s transport infrastructure (32nd) is good by regional standards, although its electricity supply does suffer disruptions (99th). But the country’s strong ties to advanced economies, notably the euro area, has made it more vulnerable to the economic slowdown of those economies.

These ties are likely to have contributed to the deterioration of fiscal indicators: its performance in the macroeconomic environment—having dropped sharply in the previous year—remains at 89th. Low scores for the diversion of public funds (96th), the perceived wastefulness of government spending (89th), and a more general lack of public trust in politicians (90th) remain worrisome, and security (95th) continues to be a major area of concern for doing business. Building a skilled labor force and creating sufficient employment also present considerable challenges.

The health of the workforce is ranked 132nd out of 144 economies—as a result of high rates of communicable diseases and poor health indicators more generally. Higher education and training remains insufficient (86th) and labor market efficiency (113th) is affected by extremely rigid hiring and firing practices (143rd), wage inflexibly (139th), and continuing significant tensions in labor-employer relations (144th). Raising education standards and making its labor market more efficient will thus be critical in view of the country’s high unemployment rate of over 20 percent, with its youth unemployment rate estimated at over 50 percent.

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