SA back in top 50 of Global Competitiveness Index

FILE PICTURE: A child waving a South African flag. Pic: Alaister Russell.

FILE PICTURE: A child waving a South African flag. Pic: Alaister Russell.

Improvements in “technological readiness” helped South Africa reverse a four-year decline and leapfrog seven positions to land back into the top 50, at position 49, in the World Economic Forum’s Global Competitiveness Index (GCI) released on Wednesday.

The Global Competitiveness Index analyses the factors driving productivity and prosperity in 140 countries, representing 98.3 percent of world GDP. Much of South Africa’s progress up the ranks can be attributed to a 16-place jump in the indicator termed technological readiness, from position 66 to 50. This pillar measures “the agility with which an economy adopts existing technologies to enhance the productivity of its industries, with specific emphasis on its capacity to fully leverage information and communication technologies in daily activities and production processes for increased efficiency and enabling innovation for competitiveness”.

The WEF’s Global Competitiveness Report 2015–2016 showed that South Africa’s ranking for efficiency in the labour market also improved, from 113 to 107, although there are are still areas of concern, particularly in key sub-indicators including: co-operation in labour-employer relations, where South Africa came in stone last at position 140; hiring and firing practices, not much better at 138; flexibility of wage determination, 137; and linkage between pay and productivity, 127.

Defining competitiveness as the set of institutions, policies and factors that determine the level of productivity of a country, GCI scores are calculated using data covering 12 categories, the so-called pillars of competitiveness. They are: institutions, infrastructure, macro-economic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation.

South Africa declined in half of the index’s 12 pillars. The country’s institutions dropped two places, to 38, and the financial market, though still by far the most developed in Africa, dropped from position 7 to 12. Education remains problematic, especially in terms of the quality of maths and science education, where South Africa ranks at the very bottom of the 140 countries measured. Languishing near the back of the class for internet access in schools, at 119, also leaves a lot of room for improvement.

The report found that globally there are worrying signs that “the new normal” of suppressed economic and productivity growth and persistently high unemployment is damaging resilience and leaving the world vulnerable to another protracted slump. It warns: “A failure to embrace long-term structural reforms that boost productivity and free up entrepreneurial talent is harming the global economy’s ability to improve living standards, solve persistently high unemployment and generate adequate resilience for future economic downturns.”

Xavier Sala-i-Martin, professor of economics at Columbia University, said: “The new normal of slow productivity growth poses a grave threat to the global economy and seriously impacts the world’s ability to tackle key challenges such as unemployment and income inequality. “The best way to address this is for leaders to prioritise reform and investment in areas such as innovation and labour markets; this will free up entrepreneurial talent and allow human capital to flourish,” Sala-i-Martin added.

Klaus Schwab, founder and executive chairman of the World Economic Forum, said: “The fourth industrial revolution is facilitating the rise of completely new industries and economic models and the rapid decline of others. To remain competitive in this new economic landscape will require greater emphasis than ever before on key drivers of productivity, such as talent and innovation.”

Emerging markets are seen to represent the greatest cause for concern, with many of the larger markets seeing reverses this year, having failed to enact crucial institutional and market reforms during better times. Failure to boost competitiveness, in particular, was found to be compromising resilience to recession and other shocks. This year’s report found a correlation between highly competitive countries and those that have either withstood the global economic crisis or made a swift recovery from it. It also found a close link between competitiveness and an economy’s ability to nurture, attract, leverage and support talent. The top-ranking countries all fare well in this regard.

Switzerland was ranked number one in the GCI rankings for the seventh year running. The Global Competitiveness Report 2015–2016 said that strong performance in all 12 pillars of the index explains the country’s remarkable resilience throughout the crisis and subsequent shocks. Singapore holds on to second place and the United States remains in third.

Switzerland leads the innovation pillar, thanks to its world-class research institutions, high spending on research and development by companies, and strong co-operation between the academic world and the private sector. Many other factors contribute to Switzerland’s innovation ecosystem, including an excellent education system at all levels, a high level of business sophistication, the country’s capacity to nurture and attract talent, excellent infrastructure and connectivity and highly developed financial and labour markets.

Singapore, second for the fifth year in a row, is one of the most consistent performers of all economies, being in the top 10 in nine of the 12 pillars. Singapore remains the best performer when it comes to the overall efficiency of markets, and ranks in the top three in goods, labour and financial market efficiency.

The United States retains third place with its major strengths including its unique combination of exceptional innovation capacity driven by collaboration betw;een firms and universities, the size of the market and high levels of sophistication of businesses. The report found that among the larger emerging markets, the trend was largely one of decline or stagnation. However, there are a few bright spots, including South Africa, and India, which ended five years of decline with an impressive 16-place jump to 55th.

Sub-Saharan Africa continued to grow at close to 5 percent, but competitiveness and productivity remained low. Mauritius remained the region’s most competitive economy, at 46 out of 140, followed by South Africa at 49, and Rwanda close behind at 58. Côte d’Ivoire, at 91, and Ethiopia, at 109, are this year’s largest improvers in the region overall.

Mauritius, though still holding on to its number one spot in the region, had fallen seven places with this year marking an end to a decade-long improvement. The island nation has Sub-Saharan Africa’s best infrastructure, at position 37 on the index; most healthy and educated workforce, on 63 and 52 respectively; and most efficient goods market, at 2l5.

Rwanda continues its five-year upward trend, improving in seven out of 12 pillars. It has improved in business sophistication, up by 15 places to 69, and financial markets, at 28. The country benefits from strong public and private institutions, efficient markets and comes in at a very impressive third position overall when it comes to female participation in the labour force.

Nigeria improves by three places, to 124, helped by an increase in market size (up by eight places to 25), lower government deficit and debt, and improvements in property rights as well as the efficiency of the legal framework and the accountability of the private sector.

After five years of decline, India is one of the bright spots in the developing world and a big improver in the Brics block of countries, jumping 16 ranks to number 55.

This is largely thanks to the momentum initiated by the election of Narendra Modi, whose pro-business, pro-growth and anti-corruption stance has improved the business community’s sentiment toward the government. The report noted that areas still deserving attention include technological readiness. India remains one of the least digitally connected countries in the world, at 120. Fewer than one in five Indians access the internet on a regular basis, and fewer than two in five are estimated to own even a basic cell phone.

The ‘B’ in Brics, Brazil continued its downward trend, dropping to 75, amid low prospects of growth and deteriorating terms of trade. The country’s most important competitiveness strength is market size, at 7, and it benefits from a relatively high level of technological readiness, 54, and sophisticated businesses, 56. However, it deteriorated in nine out of the 12 pillars, with the country’s weak macroeconomic performance, at 117, adding to downward pressure exerted by corruption scandals.

Of South Africa’s other Brics partners, China held steady at 28, although its lack of progress moving up the ranking shows the challenges it faces in transitioning its economy. Russia improved eight places to 45, although this is explained mostly by a major revision of purchasing power parity estimates by the IMF, which led to a 40 percent increase in Russia’s GDP when valued at PPP. At the same time, the country improved on some market efficiency aspects, such as the regulatory business environment and domestic competition, at 96.

Although the Global Competitiveness Report 2015–2016 found that overall global prospects remained positive, growth is expected to stay below levels recorded in previous decades in most developed economies and in many emerging markets, with additional risks being posed by geopolitical tensions and conflicts around the world, as well as by unfolding humanitarian crises.

At the same time, some positive developments – such as the rapid diffusion of information and communication technologies giving rise to new business models and revolutionising industries – bear great promise for a future wave of innovations that could drive longer-term growth.

The report also acknowledged the growing debate about the relationship between competitiveness and inclusiveness as growth and productivity are increasingly seen less as ultimate goals but rather as contributors to a larger goal of broad-based improvements in living standards.

“Developing and advanced economies alike are subscribing more and more to the notion of inclusive growth, and there is growing debate about the relationship between competitiveness and inclusiveness.”




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