Life Buoy of Macroeconomics
In 2011, Kazakhstan has managed to retain its 72nd position in the global competitiveness ranking by the World Economic Forum, having overcome a protracted series of annual falls. With this, the improved macroeconomic indicators of our country have leveled its deteriorated position in technological readiness and financial market development. On this background, the lag in innovations of our republic is becoming of a more and more alarming scale.
In 2011, the number of the countries covered by the WEF’s Global Competitiveness Report has increased by three participants, now totaling 142. Switzerland is at the top of ranking, as before. Then it follows Singapore, Sweden and Finland (Table 1). The U.S.A., whose competitiveness has been falling for the third consecutive year, slipped to the 5th position. Some institutional factors, such as low public trust in politicians and government inefficiency raise the anxiety of American businesses, in addition to the deteriorating macroeconomic indicators. Along with that, for the first time since the beginning of the recession, the U.S. banks and financial institutions are showing signs of improvement. Such developed nations as Germany, the Netherlands, Denmark, Japan, and the United Kingdom are also among the top ten, following the United States.
Rankings of one more world’s major economies – the economy of France – is 3 ranks down to 18th, while the economy of Greece, which become the Achilles heel for the EU, is 7 places down to 90th. However, according to the compilers of the report, the carrying out of reforms aimed at improving competitiveness can play a key role in overcoming such problems in Europe, as the need for fiscal consolidation and reduction in the unemployment rate.
In general, the studies show that over the past few years, on the background of stagnating competitiveness of the developed countries, the positions of many developing countries in the ranking considerably improved; these countries become new places of growth in the world economic activity. China is up one place to 26th, while South Africa and Brazil moved up to 50th and 53rd position, respectively. The remaining two member countries of BRICS – India and Russia – showed a negative trend. The first one moved down from 51st to 56th, while the second one from 63rd to 66th.
The greater part of the Middle East countries continue to steadily increase their competitiveness. Qatar (14th) and Saudi Arabia (17th) already rank among the top twenty countries in the list. They are followed by Israel (22nd), the UAE (27th), Kuwait (34th), and Bahrain (37th). Concerning Latin America, here the leading countries are Chile (31st), Panama (49th), Brazil and Mexico (58th).
Speaking of the greatest ups and downs in the 2011 rankings, among the obvious outsiders one can call Egypt (13 places down to 94th position), Slovenia (12 ranks down to 57th position), Montenegro (-11 to 60th), Romania (-10 to 77th), and Tunisia (-8 to 40th). On the contrary, Ethiopia (13 ranks up to 106th), Cambodia (+12 to 97th), and Philippines (+10 to 75th) most sharply rose in the global competitiveness ranking.
Regarding the post-Soviet states, the greater part of them has also managed to improve their position. They include Lithuania, which moved from 47th to 44th, Azerbaijan – from 57th to 55th, Latvia – from 70th to 64th, Ukraine – from 89th to 82nd, Georgia – from 93rd to 88th, Armenia – from 98th to 92nd, Moldova – from 94th to 93rd, and Tajikistan, the latter made a record leap, 11 places up to 105th position. Russia, on the contrary, moved 3 places down to 66th. Competitiveness of Kyrgyzstan has dropped from 121st to 126th. With this, Kazakhstan and Estonia have managed to retain their positions, 72nd and 33rd, respectively.
Commenting on the rankings results, theco-authorofthereport, ProfessorofEconomicsatColumbia University Xavier Sala-i-Martin told that despite the newly emerging concerns about the immediate prospects of the global economy, the policy-makers should not forget the long-run fundamentals of competitiveness. In his opinion, in order that recovery would be more sustainable, the emerging and developing economies should ensure that their growth is based on increased productivity. In its turn, the developed economies, many of which are now struggling with financial problems and "anemic" growth, should focus on measures to increase competitiveness in order to "create a new cycle of growth and ensure a firm economic recovery".
So, in 2011 we have retained our 72nd position in the Global Competitiveness Index (GCI), under which the WEF ranks the countries. Moreover, on the seven point scale we even went up by 0.1 score from 4.1 to 4.2.
As it is seen from Table 2, this was due to improvement of Kazakhstan's position in Basic requirements subindex, where Kazakhstan moved up from 69th to 62nd. Here, the continued reinstatement of position by the Macroeconomic environment aggregate indicator played a key role, where Kazakhstan has won back 8 more places rising to 18th. Along with that, we are three places down in the Institutions indicator, now ranking 94th and one place down in Infrastructure (82nd). With this, Kazakhstan’s ranking in Healthcare and primary education, which is also part of the said subindex under review, has remained unaltered (85th position).
Kazakhstan is five places down in the Efficiency enhancers subindex, having dropped from 71st to 76th, while two years ago it took the 69th position. Moreover, of the six aggregate indicators of this sub-index, Kazakhstan’s position on three of them has remained stable, while on the other three it went down. Financial market development (4 places down to 121st) and Technological Readiness (-5 to 87th) demonstrated the worst dynamics.
A continuing catastrophic decline in competitiveness of our economy in the Innovation subindex has dropped the country from 102nd to 114th position. Thus, over the last two years we have already lost 36 places in this pillar!
Nevertheless, due to the fact that Kazakhstan is among the group of states with the transition of economy from stage 1 to stage 2, the country’s position in Basic requirements, which has the most importance for competitiveness, made possible to completely level the decline not only in the Innovation and sophistication factors subindex, but in the Efficiency enhancers subindex as well.
On the other hand, by macroeconomic indicators, we are already in the top twenty in the ranking, and therefore the potential for further growth here is relatively limited. Moreover, our current macro-economic well-being directly depends on a favorable situation with world commodity prices; therefore, in the event of deterioration of it, that well-being can quickly come to naught.
Strengths and weaknesses
In all fairness it should be noted that the general dynamics of domestic competitiveness, compared to the last year, looks more optimistic. Of 111 indicators, forming the final GCI index, Kazakhstan’s position has improved on 40 of them and worsened on 62 others and remained unchanged on 7 indicators. One more indicator is new, and, therefore, it has no basis for comparison. Besides, this year no data on the average margin between the interest rates on deposits and loans has been provided.
The number of those areas which Kazakhstan could consider its advantages has also increased (Table 3). Today we are among the 50 most competitive economies by 25 indicators, while last year these were by only 17 such indicators. In particular, this year there were added the Wastefulness of government spending (+15 to 50th position), Fixed Telephone Lines (+8 to 46th) and Mobile telephone subscriptions (+28 to 38th), as well as Secondary education enrollment rate (+33 to 18th). True, if to compare the latter figure to our position by the Tertiary education enrollment rate (-8 to 59th), it is clear that the higher education in Kazakhstan is not becoming more affordable.
The greatest number of improvements can be noted in the indicators, characterizing the competitiveness of our country in terms of the Goods market efficiency. Thus, in comparison with the other countries who are forced to raise the budget deficit or impose new taxes, Kazakhstan is looking more attractive by the Total tax rate (+23 to 31st) and its Extent and effect of taxation (+33 to 41st). Joint work of business associations and the state in facilitating the conditions of running business also brought its fruit: The Number of procedures required to start a business, we climbed up to the 33rd position against 56th in the last year. However, the Time required to start a business in Kazakhstan is still much more than in many other countries (-3 to 74th position). Among our competitive advantages are now the relatively low agricultural policy costs (+13 to 49th).
The aggregate indicator Labor market efficiency (21st) continues to show a good base for raising competitiveness. Today, 6 of 9 indicators, comprising this aggregate indicator, can be referred to our advantages. Here the picture is darkened by still low confidence in Reliance on professional management (116th), and Brain drain tendency (-8 to 88th).
However, Kazakhstan remains having the most powerful positions in Government budget balance (+17 to 16th), Gross national savings (+19 to 12th), and General government debt (12th). Along with that, the fall in 2011 of the latter indicator by 5 places evidences that the need for direct government involvement in supporting the stability of the economy continues to grow.
Concerning our weaknesses, although their number has slightly decreased, in general, the list of the indicators by which we are below the 100th position has increased during one year alone from 35 to 44 items (for comparison, in 2009 this list comprised only 20 items).
The most critical indicators, in our view, are presented in Table 4. The weakest indicator of Kazakhstan’s competitiveness is the condition of the domestic banking system (Soundness of banks) – 131st position of 142 possible ones. Moreover, our domestic banks, burdened with non-performing loans, cannot provide adequate access to the borrowings for businesses (Ease of access to loans) (120th). So, on this background, Kazakhstan finally secured a place for its economy as commodity-based one (-17 to 129th). The progress of development of the processing industries vividly demonstrate such indicators, as the number of Local supplier quantity (-11 to 124th) and Degree of customer orientation (-8 to 117th). As a result, we observed a high level of dependence on imports (116th position).
Speaking of the indicators that showed the most decline, here we should mention Quality of the educational system – (-19 to 112th position), Favoritism in decisions of government officials – (-19 to 100th position), Intellectual property protection (-18 to 116th), as well as the ability of companies adopt new technologies (Firm-level technology absorption) (-18 to 113th).
Kazakhstan Vs Russia
In conclusion, I would like to draw the readers’ attention to two risk factors, which, in our opinion, are very closely connected with each other in the new conditions of operation of the domestic economy.
First of all, accession to the Customs Union delivered a crushing blow to Kazakhstan's competitiveness ranking by weight average customs tariff indicator (Trade tariffs, % duty). During one year alone, it has turned out from our advantage (50th in 2010) to the apparent drawback (102nd position), and here we, quite naturally, became comparable with Russia (109th position).
On the one hand, in exchange we got access to a huge Russian market with its 9th position against our 56th. On the other hand, this does not save the domestic businesses from the need to compete strongly in this market with the Russian companies themselves. It is clear that introduction of new technologies and high level of innovation of products and services offered by our suppliers will play a key role in this struggle. Here we do not look so comparable. Judge for yourself: By Capacity of innovations Kazakhstan ranks 101st (26 positions down) against Russia’s 38th position, by Quality of scientific research Institutions 121st rank (9 places down) against Russia’s 60th; by Company spending on R&D 107th (23 places down) vs. Russia’s 61st, by University-industry collaboration in R&D – 119th (8 places down) against 75th, by Availability of scientists and engineers – 106th (15 places down) vs. 72nd. It seems that if this gap continues to grow, the real role of Kazakhstan in the single economic space will be fixed quite clearly and for a long time.