Stabilization or Stagnation?
Judging by the WEF’s global competitiveness ranking, the progress in which Kazakhstan was demonstrating in the past three years, there has now been a clear slowdown. In 2014, the country once again ranks 50th, while our neighbors in the region continue to improve their position. This means that the government needs to urgently look for new sources of growth of national competitiveness. With this, the introduction of new technologies and innovative products and services Kazakhstan can offer will play a key role in the struggle for regional markets.
In 2014, the number of countries covered in the Global Competitiveness Report of the World Economic Forum (WEF Global Competitiveness Report 2014–2015) has reduced from 148 to 144. Tajikistan was again included in the rankings; at the same time, Brunei, Ecuador, Bosnia and Herzegovina, Liberia and Benin are no more in the rankings list.
For the first time in the last few years, the top three countries in the rankings have changed. Among them with Switzerland at the top and Singapore in 2nd place, 3rd place is the United States, who has climbed two positions up, surpassing Finland and Germany (see Table. 1). Japan showed a similar trend, moving 3 positions up from 9th place to 6th; it is followed by Hong Kong, the Netherlands and the United Kingdom, and at the bottom of the top 10 most competitive countries is Sweden. According to the WEF experts, all these winners of the "Olympus" have gained their success due to many years of experience in development and use of talents and investing in innovation. These "smart" investments were made possible thanks to a harmonized approach to the cooperation between the public and private sectors.
Among the European countries, substantial progress in improving the performance and efficiency of their markets was demonstrated by Portugal (+15 to 36th) and Greece (+10 to 81st), which some time ago were affected the most as a result of the global economic recession. However, France (23rd), Spain (35th) and Italy (49th) seems to have been much less involved in structural reforms, so still remaining at the same positions.
The majority of emerging economies continue to face serious difficulties in increasing their competitiveness. So, the countries which positions in the rankings weakened last year are Saudi Arabia (-4 to 24th), Turkey (-1 to 45th), South African Republic (-3 to 56th), Brazil (-1 to 57th), Mexico (-6 to 61st), and India (-11 to 71st). However, China (+1 to 28th) and Russia (+11 to 64th) showed the positive trend.
The Asian competitiveness “landscape” looks quite heterogeneous. Malaysia (+4 to 20th), Thailand (+6 to 31st), Indonesia (+4 to 34th), Philippines (+7 to 52nd) and Vietnam (+2 to 68th) achieved remarkable results, while South Asian countries (except for India) are in the lower half of the WEF rankings.
Among the Middle East countries, the UAE have the highest position this year, reaching very close the top 10 countries of the rankings (+7 to 12th). On the lower positions are Qatar (-3 to 16th), Israel (27th), and Kuwait (-4 to 40th); the latter has lost a few positions. Along with that, geopolitical instability in North Africa has led to the situation that the most competitive economy on this part of the continent – Morocco – ranks only 72nd. According to WEF experts, the key factor to improving the situation in the region is the implementation of structural reforms, the improvement of the business environment, and the strengthening of innovative capacity so allowing the private sector to create new jobs.
In Latin America, Chile (+1 to 33rd) still remains the most competitive economy. Despite the sustainable economic growth achieved in the previous years, the number of countries in that region continues demonstrating low productivity growth, which has led to a general stagnation of competitiveness. Relatively stable economies are Panama (-8 to 48th), Costa Rica (+3 to 51st), and Peru (-4 to 61st). Their progress in the rankings will depend on their success in attracting foreign investment for improvement of infrastructure, development of human capital and innovation.
As for the post-Soviet countries, most of them for the third year in a row are steadily improving their positions in the global rankings table. In particular, Estonia is up from 32nd to 29th place, Azerbaijan from 39th to 38th, Lithuania from 48th to 41st, Latvia from 52nd to 42nd, Georgia from 72nd to 69th, Ukraine from 84th to 76th, Moldova from 89th to 82nd, and Kyrgyzstan from 121st to 108th place. Tajikistan which is now again in the rankings list is on the 91st place that is much higher performance than two years ago (100th). Only Armenia showed a downward trend, fell from 79th to 85th place.
Speaking of Kazakhstan, in the present report for 2014-2015, we are again on the 50th line, confirming our status as a member of the “club” of fifty most competitive economies in the world. Our closest neighbors in the rankings list at this time are Italy (49th) and Costa Rica (54th).
Following our tradition, let us name the best performers in the rankings list. The undisputed leaders here are Algeria (+21 to 79th), Romania (+17 to 59th), Lesotho (+16 to 107th) and the already mentioned Portugal (+15 to 36th). At the same time, Libya (-18 to 126th), Oman (-13 to 46th), Seychelles (-12 to 92nd) and Laos (-12 to 93rd) demonstrated the apparent failure to improve their performance in the 2014–2015 rankings list.
Commenting on the overall results, the WEF report experts have concluded that the world economy have signs of coming back to its pre-recession level. Along with that, this is not the time to rest on laurels. Risks to the global economic outlooks remain a reality. Previous efforts that were based mainly on the principles of the monetary policy expansion, helped for some time to avoid a deep recession and lay the foundations for recovery in the near future. However, ensuring sustainable growth in the long run will depend not on the monetary policy principles, but the success in increasing economic systems performance. To achieve this, adequate investment and, most importantly, the implementation of structural reforms are needed. Today, these measures are not just important (as they always has been), but become urgent, if "we want to strengthen and speed up the recovery so as to create new opportunities and jobs for the majority of the population."
Zero in sum
Judging by the results, Kazakhstan demonstrates in the rankings table for competitiveness, it is clear that there has been a certain break in progress of our country over the last three years. Like last year, Kazakhstan was at the bottom line of the "Club 50". Although in the seven-point scale, our performance has slightly improved – from 4.41 to 4.42 points.
As can be seen from Table 2, of the three sub-indices that form the Global Competitiveness Index (GCI), on the basis of which the WEF ranks the countries, Kazakhstan was down in two sub-indices and up in one sub-index. Of the twelve pillars, the position of our country has improved on five pillars, worsened on another five, and stayed unchanged on two more pillars.
In detail, Kazakhstan lost 3 points in the Basic Requirements subindex, down from 51st to 48th. Two of the four pillars forming this sub-index played a key role there: Institutional Development (-2 to 57th) and Macroeconomic Environment (-4 to 27th). At the same time, our competitiveness in terms of Infrastructure remained at last year's level (62nd place), and in the field of Health and Primary Education we even played back one position (+1 to 96th).
Of all sub-indices, the weakest one for Kazakhstan is Innovation, where our country showed a slight roll back, fallen to 89th place. But after the last year's sharp rise by 17 point, the loss of 2 points is quite tolerable.
And yet, according to the WEF methodology, Efficiency Factors have the greatest weight in the measurement of competitiveness of our country at the moment. Exactly this subindex helped Kazakhstan to keep the overall result: an increase from 53rd to 48th position. True that at the pillars’ level only, and opposite trends were observed there. So, against the backdrop of the ongoing improvements in the Financial Market Development (+5 to 98th) and the Goods Market Efficiency (+2 to 54th), a major drop was on Higher Education and Training (-8 to 62nd), as well as Technological Readiness (-4 to 61st).
The overall picture of Kazakhstan’s competitiveness looks as follows. Of the 114 pillars that form the final index GCI, the position of Kazakhstan has improved on 62 pillars, worsened on 43 and remained unchanged on 7 pillars. Two more pillars related to the malaria cases and business impact of malaria in the ranking of Kazakhstan, were not taken into account at all, which is quite right, in our opinion.
The number of areas which Kazakhstan can consider its strengths has remained stable for the third year in a row (see Table 3). We are still among the 50 most competitive economies on 29 indicators. Another thing is that the list of these 29 indicators constantly changes for us. So, this year in the green zone are Business Ethics (+8 to 48th), Sovereign Credit Rating (+5 to 48th), the Impact of Taxation on the Willingness to Invest (+17 to 37th), Ease of Access to Loans (+18 to 43rd), Venture Capital Availability (+25 to 47th), as well as the Effect of Taxation on Incentives to Work (+13 to 43rd). However, the Impact of Crime on the Business Environment (-9 to 53rd), the Number of Procedures to Start a Business (-10 to 57th), as well as the Prevalence of Trade Barriers (-15 to 63rd) have moved in the red zone.
Trump cards of Kazakhstan in its competitive fight are the indicators that comprise the pillar Labor Market Efficiency; on the latter, we have raised highest, to the 15th place in the world. Our strengths are eight out of ten of its components. Kazakhstan can and should take advantage of them, because in the current conditions competitiveness takes into account not only the macro-economic factors, but also the quality of the workforce and its ability to innovate in practice. In addition, the position of our country in terms of public debt (+3 to 11th) and the balance of the state budget (+4 to 9th) have strengthened even more.
As for the weaknesses of competitiveness of our country, their number, unfortunately, remained at the last year's level – 85. But the list of indicators on which our country is below the 100-th line has reduced again from 20 to 16. The most critical areas are presented in Table 4.
Our weakest performance in 2014 was in the Quality of Port Infrastructure, although this year it has improved dramatically compared to the previous year (+12 to 123rd), and a high dependence on imports (+1 to 123rd). By the way, the latter arouses the most concerns considering the fact that we seriously have lost our positions in terms of the volume of exports to foreign markets (-16 to 68th). Moreover, such indicators as the number of (-6 to 108th) and quality (+2 to 103rd) of local suppliers, Intensity of Local Competition (+9 to 111th), and Low Added Value of their products (109th) demonstrate a low level of development of processing industries.
Sudden deterioration of the following indicators was marked: informal payments and bribes (-15 to 80th), Inflation (-14 to 107th), the coverage of secondary education (13 to 42nd), transparency of decisions taken by the State (-11 to 40th), FDI and Technology Transfer (-14 to 107th), as well as the state order for high-tech products (-16 to 74th).
If we talk about the indicator on which the most decline was recorded, this is the costs of the policy in the field of agriculture (-17 to 57th), which is, in fact, not a surprise, given the huge amounts of subsidies and incentives in the state program "Agribusiness 2020."
In conclusion, following our tradition, let us present a comparison of Kazakhstan with one of our competitors in the rankings list. This year we decided to choose Russia. On the one hand, for the past two years, our northern neighbor has greatly enhanced its competitiveness, and at the moment it is almost "breathing" down our neck, and on the other hand, we have to fight with the said country for the common market within the framework of the Eurasian integration. Given the latter fact, it will be even more interesting to compare us with Belarus, but this third member of the Eurasian Economic Union is still ignored by most rankings of international research institutes.
So, Russia, the same as Kazakhstan, is included in the list of economies, which occupy an intermediate position between the second and third stages of economic development. This means that for the competitiveness of the two said economies, the factors of efficiency and, yet to a lesser extent, innovation, play a major role. At the same time, Russia overtakes us in terms of GDP per capita – $14,819 versus $12,843, as of the end of 2012. As a result, the contribution of the innovative capacity and competitiveness of businesses in the treasury of the overall rankings in Russia is higher than in Kazakhstan (24.5% vs. 12.3%).
Speaking of similar performance, today the two countries are quite comparable in terms of macroeconomic stability (Russia’s 31st against Kazakhstan’s 27th) and technological readiness (59th vs. 61st). With this, Russia clearly dominates by the market size (7th vs. 52nd), but the main essence of Kazakhstan's joining the Customs Union and the Common Economic Space is exactly in gaining access to these.
In its turn, Kazakhstan is far ahead of its neighbor on the quality of the institutions (97th versus 57th), the labor market efficiency (45th vs. 15th) and the goods market efficiency (99th vs. 54th) and, to a lesser extent, on the development of the financial market (110th vs. 98th). The other matter is that all of these indicators primarily characterize the domestic economy.
With this, the introduction of new technologies and the innovative products and services offered by Kazakhstan play a key role in the competition in foreign markets. This, in its turn, depends largely on the quality of human capital, education and science.
Kazakhstan still loses in these areas at the moment. The gap is minimal in areas such as innovation capacity (66th vs. 69th), costs of companies for R&D (62nd vs. 68th), and the availability of scientists and engineers (81st versus 74th). We are behind much more on vocational education (19th versus 62nd), the quality of scientific research institutions (56th versus 99th), the level of interaction between research institutes and industry (67th versus 88th), and the number of patents per 1 million population (41st vs. 70th). The intensity of domestic competition in Russia’s market is much higher than in Kazakhstan (74th vs. 111th). In such a situation it is not a surprise that the current performance of our country in the framework of the Customs Union is still quite far from desirable.
For those our readers who are not familiar with the WEF rankings methodology, we recommend to read our previous publications devoted to this topic in the archives of the Kazakhstan magazine (## 4’2006, 4’2007, 5/6’2008, 6’2009, 5/6’2010, 6’2011, 6’2012, 5’2013) on the website www.investkz.com.