Changing nature of competitiveness

The US economy is the most competitive, followed by Singapore, Germany, Switzerland and Japan.
The World Economic Forum’s annual study on the global economy finds a competitiveness landscape radically altered by the impact of the Fourth Industrial Revolution.
Under the new framework for competitiveness, the US economy is the closest to the “competitiveness frontier”, followed by Singapore, Germany, Switzerland and Japan.
Digital technologies are transforming the nature of economic competitiveness.  This creates a new set of challenges for governments and businesses.  These challenges collectively run the risk of having a negative impact on future growth and productivity.
The 2018 report uses a new methodology to capture the dynamics of the global economy in the Fourth Industrial Revolution.

Weakness in innovation

Many of the factors that will have the greatest impact in driving competitiveness in the future have never been the focus of major policy decisions in the past. These include idea generation, entrepreneurial culture, openness, and agility.

One of the report’s most concerning findings is the relative weakness in mastering the innovation process, from idea generation to product commercialization.
Klaus Schwab, founder and executive chairman, World Economic Forum said embracing the Fourth Industrial Revolution is a defining factor for competitiveness.
“I foresee a new global divide between countries who understand innovative transformations and those that don’t. Only those economies that recognize the importance of the Fourth Industrial Revolution will be able to expand opportunities for their people.”

Inclusion must complement openness

At a time of escalating trade tensions and a backlash against globalization, the report also reveals the importance of openness for competitiveness.
For example, those economies performing in indicators that denote openness also tend to perform well in terms of innovation and market efficiency.  The indicators include low tariff and non-tariff barriers, ease of hiring foreign labour and collaboration in patent application among others
This data suggests that global economic health would be positively impacted by a return to greater openness and integration. However, it is critical that policies be put in place to improve conditions of those adversely affected by globalization within countries.
The report also presents a strong argument that redistributive policies, safety nets, investments in human capital, and progressive taxation aimed at addressing inequality do not need to compromise an economy’s levels of competitiveness.
With no inherent trade-off between competitiveness and inclusion, it is possible to be pro-growth and inclusive at the same time.

Need for broad-based approach to raise competitiveness

A key message from the report is the need for a broad-based approach to raising competitiveness.  This is where a strong performance in one area cannot make up for a weak performance in another.
This is especially true when it comes to innovation.  It is true that a strong focus on technology can provide leapfrogging opportunities for low and middle income countries.  However, governments must not lose sight of ‘old’ developmental issues.  These include governance, infrastructure and skills.
In this light one worrying factor is thrown up by this year’s Index.  It is that for 117 of the 140 economies surveyed, quality of institutions remains a drag on overall competitiveness.

Saadia Zahidi, member of the managing board and head of the Centre for the New Economy and Society said: “Competitiveness is neither a competition nor a zero-sum game.  All countries can become more prosperous.
“With opportunities for economic leapfrogging, diffusion of innovative ideas across borders and new forms of value creation, the Fourth Industrial Revolution can level the playing field for all economies.
“But technology is not a silver bullet on its own. Countries must invest in people and institutions to deliver on the promise of technology.”

Regional and country highlights

Singapore ranks second in the overall rankings (score of 83.5).  Openness is one of its defining features.  Moreover, it is what drives Singapore’s economic success. The country also leads the infrastructure pillar, with a nearly perfect score of 95.7.  This is due to its world-class transport infrastructure and connectivity.
Besides Singapore and Japan, Hong Kong SAR (7th, 82.3) is the third economy from East Asia and the Pacific region in the top ten.  This confirmed the widely held view that overall growth momentum in the region is set to last.
These three economies boast world-class physical and digital infrastructure and connectivity, macroeconomic stability, strong human capital, and well-developed financial systems.
Australia (14th, 78.9) and Korea (15th, 78.8) are among the top 20.
The biggest gap in this region lies in the development of an innovation ecosystem.  New Zealand ranks 20th on the Innovation Capability pillar, while the Republic of Korea ranks 8th.
Emerging markets such as Mongolia (99th , 52.7), Cambodia(110th, 50.2) and Lao PDR (112th, 49.3) are only half way to the frontier.  This makes them vulnerable to a sudden shock, such as a faster-than-expected rise in interest rates in advanced economies and escalating trade tensions.

China top among BRICS

Among BRICS, China is the most competitive, ranking 28 in the Global Competitiveness Index with a score of 72.6. It is followed by Russia which is ranked 43. These are the only two in the top 50.
Next is India, which ranks 58, up five places on 2017, with a score of 62.  It registers the largest gain of any country in the G20. India is followed by South Africa, which falls 5 places this year to 67. Last is Brazil, which slips 3 places to 72.
Competitiveness performance in the Middle East remains diverse.  Israel (20th, 76.6) and the United Arab Emirates (27th, 73.4) lead in the region. Saudi Arabia is in 39th position with a score of 67.5 out of 100.  To improve, they should focus on intra-region connectivity, in combination with improvements in ICT readiness and investment in human capital.  This would result in capacity to innovate, foster business dynamism and increase its competitiveness performance.

Download full report here.

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