WEF Competitiveness Report confirms logic: Can’t fire them, won’t hire them

Investors, politicians and public servants all around the world put great store in the World Economic Forum’s annual Global Competitiveness report. The 2016 edition, released today, provides heartening news for South Africa which nudges a couple places higher to 47th of 138, its best rating in five years. The country’s stellar performance in the financial services and shareholder governance sectors continued, but these pockets of excellence contrast starkly with shocking results in health and education. I caught up with Roberto Crotti, the the WEF’s economic expert on Africa, who acted as an interpretive guide to this critically important information. His conclusion: South Africa’s biggest problem remains overly rigid labour legislation where it continues to prop up the global table. Which aligns with what any rational soul will tell you – if you aren’t allowed to fire them, you’re sure going to think hard before hiring them. As a result, business owners will always opt to invest in a machine before hiring a human being. A tragedy for the nation with the highest level of unemployment of any major economy on earth. – Alec Hogg

Joining us from Geneva is WEF economist Roberto Crotti……Switzerland is No. 1 on the Global Competitive Table for the 8th year in a row. Has anyone done this before?

We’ve been producing the Global Competitiveness Report and Index with methodology since 2005 and this is the longest tenure of a country at No. 1 since the production of the index.

Are Singapore (2nd) and the USA (3rd) closing the gap?

At the very top – the top ten – there are very small progresses, although the countries are quite stable and the gaps don’t seem to be closing much. They have been more or less at the same level for a number of years. Especially in the last five years after the Global Financial Crisis.

Germany, Sweden and the UK improved in 2016…a rider being the UK results were taken before Brexit…

The information we used were collected before the Brexit bolt and we don’t think they will catch what happened over the summer. We’re improvement we see in these rankings are relative – in terms of competitiveness performance, they’re quite stable.

Are you expecting that Brexit will have an impact on the UK’s ranking next year?

It is very hard to predict how this will play out. There are certainly a number of channels through which that can happen. One is through worrisome regulation. There other one is the effect on trade and investment that includes some factors of production such as good market efficiency, global market efficiency, and financial market developments and also to some extent technology and innovation. However, at this stage it’s really hard to tell and predict how this will all play out.

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Well, the biggest mover (and there’s no surprise in this) the new Modi government which replaced the socialists in India) continue to surge up the charts and is now up 16 places, to 39th in the latest survey and doesn’t show any sign of stopping.

Yes. India is really the bright spark in the area of competitiveness improvements and this is done mainly on the back of reforms, especially in terms of investment and market efficiency. We’ve seen this trend going on for a number of years. We did not expect this much of an increase but certainly, India is on its way up.

A slight disappointment for those who are watching reforms around the world, would be Argentina, which is also undergoing reforms. They’re sitting at 104…

We already see a little progress but certainly, it’s just the beginning of the path. It’s probably too early to give an assessment of the new government in Argentina.

Read also: Polar opposites: Where Malaysia wins, Africa fails. Knowledge economy.

138 economies – how do you go about putting the rankings together?

The Global Competitiveness Index has been put together with the same methodology over the past ten years. We looked at the 12 drivers of competitiveness and we computed the score by combining some statistics that we collect from international organisations such as IMF and World Bank, and take into account the opinions of the business leaders in each country.

Why is it important for the WEF to be doing this Competitiveness Report? 

We see that competitiveness as closely linked with productivity and as economic theory teaches us, we know productivity is key to driving prosperity and affording the wellbeing of people. The ranking of countries to this level of detail is trying to provide the drivers of prosperity. Hopefully, we’ll give a base for discussion in the country about what to do to improve the reforms and competitiveness environment in each country.

What about those countries where they know what the problem is but there isn’t a political will to actually address it? 

The Global Competitiveness Report really helps to set up the scene and to bring all these numbers together to benchmark progress. Therefore, we hope that it can be used as a platform for all the actors in the economy in looking at how and what worked, to then take the next steps to improve their economy.

From a South African perspective generally speaking, it was a better year for South Africa, moving up to 47th.

That’s right. We see South Africa as more or less stable in terms of competitiveness performance but we have seen that in the structure of the index, South Africa improved on some dimensions There is a little improvement on education as well as significant improvement in terms of market efficiency, especially in terms of openness and also some progress on the labour market, which we know is an Achilles’ heel of the South African economy.

Read also: Interactive Global IT report – SA jumps 10 spots, sits behind Mauritius

But 47th out of 138 is still not really where a competitive economy wants to be. The sore thumbs that are sticking out for South Africa remain pretty much the same.

Yes. We see there’s still improvement to be made in terms of the health situation and the labour market. The infrastructure should also be updated. We see also from one of the key messages that came out from the report this year, innovation is really becoming more important for all countries. It’s not enough to just improve the more basic drivers of competitiveness such as infrastructure, health and education but we also see the relevance of innovation and technology is becoming more important for emerging economies as well.

What emerging economies are getting that one right? 

We are looking at innovation from a different perspective. Certainly, there is a comparison of education and skills which refer not only to the amount of education enrolment rates, but also to the quality of education that is relevant for the economies. For example, learning ICT skills and also learning how to think creatively. In addition, there are some aspects that relate more closely to the scientific and innovation capacity, but there are also some aspects which are more soft, such as the ability to collaborate on innovation, to have an environment that will facilitate the transfer of ideas and technologies and these are really becoming critically important for economies worldwide.

And innovation of course, is always driven by the private sector.  Back to South Africa where you did make a point in your report the trust by business leaders in politicians fell again in this year and that South Africa ranks really poorly in this regard…..

What we observed with this specific indicator is the perception of the business leaders on some aspects of institutional quality. This is not the only aspect that we take into account. We also take into account the level of institutional independence e.g. where South Africa is improving the efficiency of the labour framework and the transparency of government policy-making. We take into account all these factors and if we look at the quality of  institutions from a broader perspective, we see that the situation has not changed dramatically over the past couple of years.

Read also: US toppled as World’s most competitive economy. SA Africa’s only nominee.

The Big 5 that South Africa has to work on: inefficient government bureaucracy, restrictive labour practises, inadequately educated workforce, political instability, and corruption. By highlighting it this way, do you think you’ll bring more focus to it?

Yes, that’s the hope. We hope that ranking and also providing the perspective of the business leaders in the country would provide an incentive to really make progress on these issues, especially those that come out high, both in terms of ranking and those that are most often side-lined by politicians.

The issue of corruption is one that I think, bedevils many countries around the world. What does the World Economic Forum recommend to those governments who are now looking at these numbers and seeing that their corruption figures are going the wrong way? 

Of course, that’s a very complex question and I think it requires action from all sides of society. In terms of specific policies on how to address corruption; the Global Competitive Index is not really the right place to discuss details of what the corruption policy should be. However, we know that this has a big impact on competitiveness – not only to the institution but to a number of other channels because there’s the impact on infrastructure and macroeconomic stability etcetera. Therefore, the recommendation is really to act together…bring together all the actors in the country and try to find a way to break away from situations where corruption is endemic.

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Only six African countries (of the continent’s 54) made it into the Top 100. The best of those is Mauritius at 45 and South Africa at 47. Rwanda did better at 52. Botswana, Namibia, and Kenya… What is bedevilling the continent as a whole, if you have a look at the competitiveness statistics?

We’ve seen two things that are going on in the continent. We are, of course, concerned about what happened to economic growth slowing down, and that certainly has to do with the performance of other economies outside the African continent, which are the main partners of the countries that are slowing down. Of course, what’s going on with commodity prices, which are affecting African economies in two ways – one is through the stability of the macroeconomic environment; and the other one of course, is on the size of the market. On the other hand, we’re very hopeful because we see that many African economies are putting in place large efforts to improve the business environment in terms of market efficiency, openness, lots of effort on education and ICT. If you look at the timeous trend, we really see that health as a more basic drivers of competitiveness has improved dramatically in the continent.

Yet, they do not seem to have reached the level that allows Africa to achieve the level of productivity that would really lead them to employ more people and also to become stronger in terms of growth going forward, and more resilient to shocks.

From a broader perspective, are the numbers or the trends showing that the good are getting better/more competitive or is that gap closing?

We’re seeing that there are some large differences within the African economies. There are those who are really closing the gap. I can mention a couple that are closing the gap very slowly is Ethiopia as is Botswana. On the other hand, there are countries, which are not closing these gaps. Those countries that are really trying to embrace technology and ICT are moving forward and also, those countries that are relatively more inclined to be open are making strides. Instead, other countries are having more difficulties to improve on competitiveness in general and some dimensions in particular.

So openness and ICT being two big drivers there… Just to look back at South Africa, we have three areas where the country’s No. 1 in the world or comes out on top – auditing and accounting statements, protection of minority investors, and the ability to finance through equity markets. Then you have No. 2 positions on soundness of banks and financial services, and the No. 3 position is the regulation of the stock exchange and the efficacy of boards. That’s all First World type standards, or First World pockets that are in a generally Third World economy. Are you surprised that a country like this is able to rank so highly in those very sophisticated areas, given the sea it’s sailing on?

We’ve seen countries at different stages of development perform well on a number of dimensions that most observers would think only comes at an advanced stage of development. However, what we noticed is that to make a country really competitive, you need to have all the pieces in place. To rank No. 1 in one specific dimension without having the other factors also well-placed, doesn’t really bring the country to grow and reach the prosperity where we see. I in fact, when we look at the top countries in ranking, they tend to rank quite high on all the dimensions.

You mentioned earlier that the African countries that are doing better, are those who are more open. Generally speaking, openness is highlighted as a problem in the world – something that is declining.

Yes, indeed. We are observing certain declining openness. From our perspective, it’s defined as having fewer restrictions to trade and investment and is certainly threatening growth and prosperity, going forward. Especially through the channel of innovation, because the openness brings about ideas from other places/technologies and also, more efficiency.

To have a look at the BRICS themselves, China’s ranking best of them at 28, India surging up to 39, Russia’s at 43, South Africa at 47, and Brazil going backwards to 81… As a grouping, are they becoming more competitive from a global perspective?

Well, we see large differences in the patterns of growth and competitiveness of these economies. It’s becoming harder to bring them together, look at them, and see a homogeneous group. We have China, which has performed very well but lately, has slowed down a little bit. South Africa has remained quite stable. Brazil definitely went backwards. Russia has also more or less remained stable with some issues.

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And India of course, shooting up the charts. India’s providing an example what can be done if the reforms are tackled properly.

There are many things that countries can do. We see for example in India, they’re definitely improving the good market efficiency, the labour market efficiency, technology readiness and also, the overall stability from a policy and macroeconomic point of view. That’s really important to be able to jump-start the economy and as we’ve seen, also be able to gain innovation. To learn much more about technology and innovation. At the dawn of this Fourth Industrial Revolution it is really going to be key going forward.

Roberto Crotti is an economist who covers Africa for the World Economic Forum.

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