strictly embargoed for release at 11.00 central european time (09.00 gmt) on wednesday 31 october 2007
Country Profile Highlights
• The United States is assessed this year as the world’s most competitive economy. The country is endowed with a winning combination of highly sophisticated and innovative companies operating in very efficient factor markets. This is buttressed by an excellent university system and strong collaboration between the educational and business sectors in research and development. These characteristics, combined with the scale opportunities afforded by the sheer size of its domestic economy, come together to make the United States arguably the country with the most productive and innovative potential in the world. However, a number of weaknesses in more basic areas, particularly related to macroeconomic imbalances and some aspects of the institutional environment, continue to pose a risk to the country’s overall competitiveness potential. These areas require attention from the government to ensure that the country maintains its competitive edge in the future.
• Switzerland remains among the best performers in the Global Competitiveness Index, at second position overall. The country is characterized by an excellent capacity for innovation and a very sophisticated business culture, ranked first overall in this area. Similar to the United States, Switzerland is endowed with top-notch scientific research institutions and high spending on research and development particularly impressive given the country’s small size. Strong collaboration between the academic and business sectors ensures that much of its basic research is translated into useful products and processes on the market, buttressed by strong intellectual property protection. Innovation is reflected in the high rate of patenting in the country, for which Switzerland ranks sixth worldwide on a per capita basis.
• The Nordic countries continue to hold privileged positions in the rankings. Denmark ranks third, with Sweden and Finland following closely at fourth and sixth places, respectively. In a number of areas the Nordics outperform the United States and Switzerland. For example, they receive among the best marks worldwide for their macroeconomic environments, as they have been running budget surpluses and have very low levels of public indebtedness. Finland and Denmark have the most efficient institutions in the world (ranked first and second, respectively), followed very closely by Sweden, ranked sixth in this area. Finland, Denmark and Sweden also occupy the top three positions in the higher education and training pillar, with Finland ranked first in this indicator for several years in a row.
• Germany and the United Kingdom retain their places among the most competitive economies in the world, ranked fifth and ninth, respectively. Both countries receive excellent scores for the quality of their infrastructure (particularly Germany, ranked number one). In the context of the large market size available to both countries, another common strength is the efficiency of their goods and financial markets, with the United Kingdom receiving a particularly outstanding evaluation in the latter (second). On the other hand, the United Kingdom’s flexible labour market (10th) stands in contrast to Germany’s (115th) where the determination of wages and the cost of firing have strongly hindered job creation. Both countries are also well assessed in the more complex innovation and business sophistication indicators, with Germany in particular ranking first out of 131 economies in the sophistication of its business sector.
• France ranks 18th in this year’s Global Competitiveness Index. The country’s status among the top 20 most competitive economies in the world rests on a number of features that contribute to its excellent business environment. The country’s infrastructure is among the best in the world (ranked second), with outstanding transport links, energy infrastructure and communications. The high degree of sophistication of its business culture (10th in the business sophistication pillar) and its leadership in the area of technological innovation (17th in the innovation pillar) are important attributes that have helped boost the France’s growth potential. On the other hand, a number of weaknesses are hindering the country from unleashing all of its competitive potential. France’s labour market ranks a low 129th third to last out of all countries for its lack of flexibility, and 114th for red tape. Another area of concern is the macroeconomic environment, with the government budget deficit and the related public sector debt ratio still remaining high.
• Estonia (ranked 27th) continues to be, by a significant margin, the most competitive economy among the 12 countries that joined the European Union (EU) in 2004. The efficiency of Estonia’s government institutions (22nd), the excellent management of public finances and its aggressiveness in adopting new technologies (19th) outshine the performance of many of the “old-time” members of the EU. This is in contrast to Poland (ranked 51st) with poor marks for its institutional environment and low public trust in politicians, against the backdrop of weak and deteriorating public finances.
• Italy ranks 46th with strengths in some areas balanced by weaknesses in others. Italy is relatively well assessed in more complex areas measured by the Global Competitiveness Index, particularly the sophistication of the businesses environment. However, the country’s overall competitiveness performance is held back by some structural weaknesses in the economy. Among the most problematic areas are weak public finances and extremely high levels of public indebtedness (ranked 118th in this indicator), the inefficient use of public resources, a weak institutional environment (ranked 71st), with low levels of accountability and transparency, and a perceived lack of independence within the judicial system, all of which increase business costs and undermine investor confidence.
• Turkey (53rd) benefits from its large market, which is characterized by relatively sophisticated business operations (41st) and a comparatively efficient allocation of goods in the economy (43rd). These characteristics point to the economy’s preparedness to evolve to a more advanced stage of development. However, some more basic issues must still be tackled, such as upgrading the quality of infrastructure (especially ports and electricity supply), improving the human resources base through better primary education and better healthcare, and tackling the burgeoning inefficiencies in the labour market.
• Russia ranks 58th this year. Despite the country’s large market size and improving macroeconomic management, Russia places below other large European countries, mainly attributable to weaknesses in its institutional environment and business standards. Of major concern is perceived lack of government efficiency, lack of independence of the judiciary in meting out justice, and more general concerns about government favouritism in its dealings with the private sector. Further, the environment for the protection of property rights is extremely poor and worsening. Private institutions also get poor marks, with corporate ethics in the country placing Russia 120th overall in this indicator.
• Within Latin America and the Caribbean, Chile ranks 26th, assessed as the most competitive economy in the region and one of the top performers globally. Macroeconomic stability (ranked 12th) has been instrumental in freeing up resources that have been invested in areas such as upgrading infrastructure, improving the educational system and implementing poverty reduction programmes. In parallel, the liberalization process, carried out within the context of a stable and predictable regulatory framework, has resulted in well-functioning factor markets. Most notable are labour and financial markets, ranked 14th and 26th, respectively, out of 131 countries. Chile boasts one of the most developed and sophisticated financial markets. However, a weakness holding back the country’s overall competitiveness performance is its relatively poor educational standards. Chile ranks 95th and 42nd, respectively, for primary education and higher education and training, with the quality of the educational system receiving poor marks across the board.
• Covered for the first time this year by the Global Competitiveness Report, Puerto Rico is the highest ranked new entrant, and the second highest ranked economy in the region at 36th. Puerto Rico’s satisfactory performance rests on efficient goods, labour and financial markets, and especially on a high level of business sophistication and innovative potential.
• Mexico ranks 52nd, well ahead of Brazil, the other regional economic giant. The important progress realized in macroeconomic stability (now assessed as 35th out of 131 countries) and the country’s large market size (13th in the world) contribute to the country’s overall competitiveness. At the same time, public governance, security levels and the educational system still require efforts to attain world-class levels. In addition, further liberalization of factor markets, especially the labour market, is necessary to better allocate resources to their most productive use.
• Brazil ranks 72nd. The country has made notable improvements in recent years towards sounder public finances, with reduced levels of public indebtedness. Brazil has a number of important competitive advantages, such as the large size of the domestic market, its relative prowess in absorbing and adapting technology from abroad and leveraging ICT and, especially, its degree of business sophistication and capacity to generate endogenous innovation. However, the country’s competitiveness continues to lag behind the most dynamic markets in the world. In particular, notwithstanding debt reduction, the overall debt level remains high by international standards, contributing to a low national savings rate and high interest rates. The result is a low 126th position in the macroeconomic stability pillar. Also notable is the negative assessment of public institutions (112th) which is related to a lack of trust in the political class. In addition, a lack of physical security in the country imposes significant costs to doing business in the country.
• Argentina, a country of vast potential and endowed with rich physical and human resources, ranks a disappointing 85th this year. With regard to macroeconomic stability, public indebtedness remains extremely high by international standards, despite external debt restructuring, and inflation also has recently picked up. Argentina also continues to be poorly assessed with respect to its regulatory framework, as the business community has serious concerns about the transparency of public institutions, governance practices, the respect for the rule of law, red tape and a set of norms regulating the government’s relations with the private sector. In this vein, the Global Competitiveness Index highlights important deficiencies in the way the overregulated goods, labour and financial markets (ranked 115th, 129th and 114th, respectively) function and allocate resources,.
• Venezuela has fallen to 98th place in the rankings, linked to a deterioration in most areas assessed by the Global Competitiveness Index. Most strikingly, at a time when most oil exporters are seeing an improvement in their macroeconomic environments due to windfall oil profits, some aspects of the macroeconomic environment have actually been worsening in Venezuela. In particular, the government has increased spending so significantly as to run up rising budget deficits, and monetary management has resulted in an inflation rate so high, placing the country at 128th overall. Further, concerns for the respect of the rule of law and for the even-handedness of the government, already highlighted in previous years by the business community, have been aggravated this year. Venezuela ranks last out of all countries with regard to its property rights environment, prevalence of undue influence in decision-making, government inefficiency and public ethics. It is notable that the sharp increase in public spending in the health and education sectors, with the goal of redistributing wealth to the poor, does not seem to be bearing fruit. The indicators relating to health and primary education, as well as higher education, not only did not show any improvement but, on the contrary, have worsened over the past year.
• Ecuador (103rd), Bolivia (105th), Nicaragua (111th), Suriname (113th) and Paraguay (121st) continue to round out the bottom of the rankings for the region. These countries share similarities in terms of poor infrastructure, lack of strong institutions and a predictable regulatory framework, overregulated markets and poor educational standards. Efforts will need to be made across all fronts to increase the competitiveness of these countries.
• Within Asia and the Pacific, the highest ranked country is Singapore, at seventh place. Singapore draws its greatest competitive advantages from the efficiency of its goods, labour and financial markets where in each pillar it ranks among the top three in the world. The country also gets excellent marks for the strength of its public and private institutions (ranked first for the public trust of politicians, burden of government regulation, efficiency of government spending and transparency of government policy-making). Singapore also has world-class infrastructure: its port and air transport infrastructure both rank first among 131 economies. On the other hand, Singapore’s competitiveness is hindered by its mixed performance in the macroeconomic stability pillar due relatively to high interest rates and government debt.
• Japan, at eighth place, enjoys a major competitive edge in innovation, ranking second in the world in the availability of scientists and engineers as well as the number of utility patents, and third in both company spending on R&D and the capacity for innovation. The country’s overall competitive performance, however, is dragged down by its macroeconomic environment, where it ranks 120th in government debt (close to 190% of GDP in 2006), the consequence of repeatedly high government budget deficits over the years. Financial markets remain fragile, with Japan ranking 84th on the soundness of its banks.
• Korea, at 11th place, derives its strong position from its macroeconomic stability, excellent higher education and training system, strong technological readiness and high levels of business sophistication and innovative potential. The country’s overall ranking, however, suffers from weaknesses with regard to the health of the workforce, as well as some lingering concerns about financial markets (particularly the soundness of its banks).
• Hong Kong SAR is very competitive at 12th place, with particular strengths in its factor markets, infrastructure and macroeconomic stability. Hong Kong’s financial market is among the most sophisticated in the world with excellent investor protection, little restriction on capital flows and the ability to raise capital quite easily on the local equity market. The labour market is extremely efficient with significant flexibility in wage determination and a strong relationship between pay and productivity. Hong Kong’s transport infrastructure rates among the best in the world, particularly in air transport and ports. With regard to macroeconomic stability, the country boasts a healthy budget surplus, low inflation and one of the lowest levels of government debt in the world (placing the country second in this indicator). On the other hand, Hong Kong could improve its competitive performance by increasing enrolment rates at all levels of the educational ladder; it is presently ranked 63rd in both primary and secondary enrolment and 61st in tertiary enrolment.
• Taiwan, China, ranks 14th this year. The economy draws its greatest competitive strengths from education and innovation, in line with the government’s development strategy in recent decades. On education, Taiwan has among the highest enrolment rates in the world, ranking 3rd and 5th in primary and tertiary enrolment rates, respectively. The economy also gets excellent marks for the quality of its educational system, particularly in math and science. This has buttressed the country’s innovation potential, as demonstrated by the extremely high patenting per capita.
• Thailand, at 28th place, derives certain competitive strengths from its large market size and selected labour market efficiency indicators, such as healthy cooperation in labour-employer relations. But the country suffers weaknesses in health and primary education, with poor health indicators linked to high rates of malaria, tuberculosis and HIV/AIDS; in education, it ranks a low 87th in primary enrolment and receives a mediocre assessment of the quality of its primary education. Another source of competitive disadvantage is the financial markets pillar, where the country gets poor marks for restrictions on capital flows and the soundness of its banking sector.
• China ranks 34th. The country draws its key competitive advantage from its significant domestic and foreign market size (ranked second and first, respectively) allowing the country’s companies to benefit from significant economies of scale. Macroeconomic stability is another source of strength, with manageable government debt, high national savings and low inflation, although the government has started to run budget deficits. China’s competitive performance reveals, however, the need to address weaknesses particularly in three areas: financial markets, higher education and training, and the quality of public and private institutions. China ranks 118th in financial market sophistication, with poor ratings in the soundness of its banks, legal rights, restriction on capital flows, regulation of securities exchanges and ease of access to loans. The country must also do more to boost the attainment of higher education: it ranked 91st and 80th in terms of secondary and tertiary enrolment rates, respectively. Public and private institutions are also notable sources of weaknesses: on public institutions, the country receives poor assessments for the transparency of government policy-making, the diversion of public funds and lack of judicial independence; while on private institutions, corporate boards receive poor ratings for efficacy, protection of minority shareholders’ interests, insufficient auditing and reporting standards, and lack of ethical behaviour in firms.
• Like China, India, at 48th place, also derives substantial advantage from its market size, where it ranks third in domestic market size and fourth in foreign market size. But, unlike China, it also gains competitive advantage from the sophistication of its businesses (ranked 26th) and its innovative potential (ranked 28th). The country is well assessed for the state of its business clusters and the availability of local suppliers, as well as its reliance on professional management rather than friends and relatives. In innovation, India ranks an impressive fourth in the availability of scientists and engineers and 22nd in the quality of its scientific research institutions. However, a lack of macroeconomic stability is a competitive weakness, with a government deficit that places the country 125th (such deficits over time have led to the build-up of large government debt) and inflation in excess of 6% at a time when inflation has been much reduced around the world. Other weaknesses relate to the country’s human resources base. India has poor health indicators and enrolment rates in the educational system remain low, with primary education also receiving poor marks for quality. In addition, labour markets are overregulated, and thus do not ensure optimal allocation of talent in the economy.
• Mongolia at 101st, Bangladesh at 107th, Cambodia at 110th, Nepal at 114th and Timor-Leste at 127th are the weakest competitive performers in the region. Although the specifics vary, these countries must improve in all areas measured by the Global Competitiveness Index to boost their competitive standing most urgently by bettering health and educational standards, upgrading infrastructure and technology, and creating market-friendly business environments.
• In the Middle East and North Africa as in other oil-exporting countries in the region, the macroeconomic environment in Kuwait, ranked 30th, has markedly improved in the past few years. The country is presently assessed as second to none out of all countries with respect to macroeconomic stability, reflecting a large budget surplus, low debt and growing national savings. Kuwait also boasts efficient financial infrastructure with easy access to a wide range of financial services, including loans, equity markets and venture capital. The country’s labour markets also get good marks for efficiency, most particularly related to the flexibility of the system which facilitates job creation. On the other hand, there is room for improvement in education. Although above levels found in many countries in the region, the primary enrolment rate of 86.5% places Kuwait 98th out of 131 countries.
• Qatar ranks 31st. Like Kuwait and the other oil-producing countries in the region, Qatar’s macroeconomic stability has benefited from the increased production and export price of oil and gas, although inflation remains one area of concern as it has reached very high levels (11.8% in 2006). Qatar also shows a relatively good track record in education. It has reached almost universal primary and secondary enrolment, placing the country 40th and 25th in these indicators, respectively. Yet, for the country to move ahead, a higher turnout of university graduates will be necessary. Its tertiary enrolment rate of 19% places the country 79th among 131 countries in this category.
• Saudi Arabia enters the Global Competitiveness Index for the first time this year at a respectable 35th place. As is the case of the other oil exporters, macroeconomic stability is the country’s main competitive strength, with a healthy fiscal environment, relatively low interest rates and inflation that has been kept under control. The country’s access to a relatively large domestic and foreign market is also a competitive advantage, allowing Saudi businesses to benefit from economies of scale. This is complemented by some elements of business sophistication in the region, with relatively advanced production processes and strong control over international distribution chains. However, improving the human resources base requires attention so the country can move to more advanced stages of development. Saudi Arabia ranks a low 69th on the health subpillar, with weak showings in many health indicators. With regard to education, the country’s primary enrolment rate of 78% is so low as to place it 112th out of 131 countries; increasing secondary and tertiary education also requires attention to prepare the country for more sophisticated production methods and increase its innovative potential. This should be buttressed by efforts to unleash the potential of Saudi Arabia’s markets, which are presently characterized by a number of inefficiencies, particularly in the labour and financial markets, ranked 66th and 76th, respectively.
• The United Arab Emirates retains its place as one of the most competitive economies in the region, at 37th. The macroeconomic environment remains one of its strengths (ranked 39th overall) although rising inflation (10% in 2006, up from 6% in 2005) is of increasing concern. Other areas of strength include the very modern transport infrastructure and well-functioning public and private institutions. Labour markets have been judged flexible and efficient by the business community, especially concerning the expatriate labour force.
• Egypt ranks at 77th place. Egypt’s main strengths can be found in market efficiency and in the economy’s significant market size, which allows for economies of scale. In goods market efficiency, the country benefits from the short time required to start a business and taxation that is not perceived to be distortional. There are also some strengths in the country’s labour markets, such as flexibility in wage determination, although the market is clearly fraught with some challenges, such as stringent hiring and firing laws and a lack of cooperation in relations between labour and employers. The macroeconomic environment is very poorly assessed (ranked a low 124th overall) with large budget deficits over the years that have led the country to build up debt of over 100% of GDP. Higher education and training is another area of weakness enrolment rates at all levels could be improved; the educational system gets poor marks for quality and insufficient on-the-job training provided by Egyptian businesses.
• Within sub-Saharan Africa, South Africa, ranks 44th overall. The country receives strong marks for its property rights, corporate ethics and goods, as well as financial market efficiency, business sophistication and innovation. South Africa’s scientific research institutions are assessed on a par with Hong Kong’s, and the country has a higher rate of patenting than a number of European countries. These combined strengths explain South Africa’s position at the top of the regional ranking. However, South Africa does face a number of obstacles to competitiveness. For example, the country ranks 78th in labour market flexibility, and its innovative potential could be at risk with a university enrolment rate of only 15%, placing the country 90th overall. Finally, lack of security remains an obstacle to doing business in South Africa. The business costs of crime and violence (126th) and the unreliability of police services for protection from crime (104th) are highlighted as particular concerns. These areas need to be tackled to improve the country’s competitiveness outlook.
• Mauritius is the second most competitive economy in the region, ranked 60th overall. The country is characterized by strong public institutions, with well-protected property rights, reasonable levels of judicial independence and a security situation that is very good by regional standards (33rd worldwide). The country’s infrastructure is quite well developed, especially for the region. Financial markets in Mauritius also get good marks for their sophistication. However, to prepare for the next stage of development, education must be improved. Mauritius has a low university enrolment rate, and the educational system does not get good marks for quality. Beyond the educational weaknesses, labour markets are characterized by stringent hiring and firing laws, wages that are not flexibly determined and little perceived relation between productivity and pay. Finally, Mauritius must improve the stability of its macroeconomic environment, with a government budget deficit that places the country 120th out of 131 countries, as well as relatively high inflation.
• Despite its drop in this year’s rankings, Botswana continues to be relatively successful by regional standards, ranking 76th the third best performance in sub-Saharan Africa. Among the country’s strengths are its reliable and legitimate institutions, with excellent ratings for efficient government spending, public trust of politicians and judicial independence. Botswana has one of the lowest levels of corruption in Africa. The country’s main competitiveness weaknesses relate to the human resources base. Educational attainment rates at all levels of the educational ladder remain low by international standards, and the quality of the educational system receives mediocre marks an area clearly requiring attention. But the biggest obstacle facing Botswana in its efforts to improve its competitiveness is the health situation in the country. Botswana has the second highest HIV prevalence rate of all countries covered, as well as a very high incidence of other diseases, which leads to one of the lowest life expectancies in the world.
• Nigeria, Africa’s most populous country, ranks 95th this year. The country’s greatest area of strength relates to its macroeconomic environment (ranked 28th), with oil revenues contributing to large government budget surpluses and a high national savings rate. In addition, inflation, although still high by international standards, has been reduced over recent years. Nigeria also benefits from a relatively large market, allowing for economies of scale. In addition, its financial markets are quite sophisticated by regional standards (ranked 56th), providing businesses with reasonable access to capital and providing satisfactory investor protection. However, Nigeria’s economy is characterized by weak and deteriorating institutions (ranked 103rd, down from 87th in 2006), including a serious security problem (123rd), poor infrastructure (119th), as well as deficiencies in basic health and education (124th). In addition, the country is not harnessing new technologies for productivity enhancements, as demonstrated by the very low levels of ICT penetration, notably the number of personal computers and broadband Internet subscribers (both ranked 114th). The rankings show that Nigeria is not taking advantage of its windfall oil revenues to upgrade the population’s access to basic healthcare and education and to improve its infrastructure. Movements in this direction are critical to set the basis for sustainable growth going forward.
Zimbabwe, a country that showed so much promise until just a few years ago, ranks among the least competitive economies in the Global Competitiveness Index, at 129th overall. The institutional environment ranks among the worst of all countries, with high levels of corruption, a lack of even-handedness of the government in its dealings with the public, government inefficiency and a complete absence of property rights (ranked 131st). After a number of years of mismanagement of public finances and monetary policy, Zimbabwe has sunk to the bottom of all countries covered with regard to macroeconomic stability, with large deficit spending, negligible national savings and raging hyperinflation, which is unparalleled anywhere else in the world today. Weaknesses abound across the other areas measured by the Index, with poor health indicators, low educational enrolment rates at all levels
