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 KAZAKHSTAN №3, 2015
 Competitiveness: Let’s Jump a Hurdle!

Competitiveness: Let’s Jump a Hurdle!

The results which Kazakhstan demonstrated in the last 5 years in IMD global competitiveness rankings can hardly be called other word rather than "stable stagnation". The next pullback to the 34th position indicates that we are stuck firmly in the middle of the ranking table from Lausanne. It seems so that without fundamental institutional reforms, we are unlikely to break out of this vicious circle.

For the third consecutive year, the world leader in the competitiveness rankings by the International Institute for Management Development (Lausanne) is the United States of America. According to Swiss experts, the main advantages of the USA are the economic stability, financial sector development, labor market efficiency and domination in innovation and infrastructure. The USA is followed by Hong Kong and Singapore in the list; the latter two have shifted Switzerland from its 2nd position to 4th. In the list of the top ten most competitive economies are also Canada, Luxembourg, Norway, Denmark, Sweden, and Germany.

In 2014 the condition of the countries which were the "weak links" in the Eurozone improved considerably: Portugal is up to the 36th position, Spain to 37th, Italy to 38th, and Greece to 50th. Perhaps, these are the most remarkable performance results in the current IMD rankings.

Asian countries demonstrate various trends: Taiwan grew up to 11th, South Korea to 25th, and the Philippines to 41st, while Malaysia is down to 14th, Japan to 27th, Thailand to 30th, and Indonesia to 42th under pressure from macroeconomic problems.

In general, according to IMD World Competitiveness Center Director, Professor Arturo Bris, last year was marked by the rise of geopolitical risks and the predominance of political decisions over economic factors. "We have seen that the competitiveness of many countries suffered as a result of the outbreak of currency wars by the central banks. In the Eastern Europe and South-East Asia, Latin America and the Middle East geopolitical issues were the major factors that affected the results of the rankings."

The armed conflict in the east of Ukraine and the increased volatility in the markets as a result of it led to a decrease in the competitiveness of the economies of Russia and Ukraine. As a consequence, the first of them demonstrated the worst performance results among the BRICS member countries, dropping 7 points to 45th, while the second dropped from 49th to 60th, the second to last position.

As for the other members countries of the BRICS, Brazil dropped from 54th to 56th, South Africa from 52nd to 53rd, India retained at the 44th position, and China, on the contrary, rose from 23rd to 22nd.

In general, emerging economies today continue to demonstrate a slowdown in economic growth and inflow of foreign investments against the backdrop of a weak infrastructure. For example, the newcomer of the rankings, Mongolia, faced a fall in FDI by 74% last year, and as a result was ranked 57th. At the bottom of the rankings table from Lausanne is Venezuela, the same result as in the last year. 

Plus 2, minus 2

In the current table of rankings Kazakhstan has not been able to retain last year's achievements and again fell back to 34th, the already familiar result from 2013. As a result, among the post-Soviet countries we have 3rd position in the rankings. Ahead of us is Lithuania which is up from 34th to 28th, and Estonia which somewhat weakened its competitiveness to 31st (–1). Latvia with its 41st (–8), the already mentioned Russia with its 45th (–7), and Ukraine with its 60th (–11) follow far behind Kazakhstan.

Despite a slight weakening of the position of Kazakhstan, it is still some higher than the positions of some serious competitors, such as Spain (37th), Mexico (39th), Turkey (40th) and Indonesia (42nd).

Speaking about the reasons of our drop, first of all, it was caused by a deterioration of the competitiveness on the two basic pillars. Thus, Kazakhstan dropped by 4 points to 31st in terms of economic performance and by one point to 21st in terms of government efficiency. Such a decrease was not even able to balance quite substantial improvements on the other two pillars: business efficiency (+3 to 33rd) and Infrastructure (+4 to 41st).

Considering the indicators, some of them showed the worst dynamics: the overall performance (–7 to 36th), employment (–4 to 23rd), the societal framework (–4 to 29th), the institutional framework (–4 to 39th), as well as public finances (–2 to 16th), and fiscal policy (–2 to 11th). Against this background, sharp improvements in terms of consumer prices (+12 to 27th), attitudes and values in business (+7 to 21th), and the productivity and efficiency of companies (+6 to 39th) are an achievement. A considerable improvement of our competitiveness was marked on the indicators that form the weakest of our pillars at the moment, Infrastructure. Only one of them is slightly down: education (–1 to 41st). But we are up in terms of the basic infrastructure (+6 to 31st), scientific infrastructure (+5 to 45th), and technological infrastructure (+1 to 31st), as well as health and environment (+4 to 52nd).

In general, the competitiveness of Kazakhstan today is estimated by IMD at 68.106% of that of the USA. In the list of the countries with a population of less than 20 million people, we dropped to the 21th position, and within our geographic bloc (Europe — Middle East — Africa) we are down 3 points to the 22nd position. Such low indicators in both of these segments Kazakhstan demonstrated last time in 2011.

The relief of the competitiveness of our country on 20 indicators is shown in Chart 1, while the list of our strengths and weaknesses you can found in the relevant graphic blocks.

Concerning the results of a survey of top management of domestic companies, on the basis of which the one-third of the criteria are formed that are taken into account in the IMD rankings, among the five most attractive factors of our competitiveness, they noted the dynamism of the economy (57.8% of respondents), political stability and predictability (52.9%), favorable tax regime (51%), favorable business conditions (47.1%), as well as access to finance (40.2%).

The issue of business efficiency

This year, experts from Lausanne have decided to draw attention to one common thing that is attributable to the most competitive economies. It was found that nine of the ten countries, which are in the top ten of the final rankings, are also included in the top ten in terms of business efficiency.

As the IMD explains, this pillar is focused on to what extent the conditions created in the country encourage businesses to run profitable, but at the same time innovative, reliable and sustainable business. It is assessed through a number of indicators related to productivity: labor market, finance, management practices, as well as attitudes and values which characterize the business environment.

"Put simply, the business efficiency requires greater productivity. Meanwhile, the competitiveness of countries correlates strongly with the ability of companies to generate profits for a long time," — said Professor Bris. In this regard, in his opinion, the growth of productivity, based on the principles of sustainable development, remains a major challenge and a fundamental problem for all the countries.

The results of the current rankings are also the confirmation of direct relationship between the overall competitiveness and business efficiency. For example, by improving its performance on this pillar by 10 points, Luxembourg is up in the overall ranking from 11th to 6th. As for Qatar, the restoration of their business performance (from 24th to 11th) was also accompanied by increased competitiveness (from 19th to 13th). An illustration of the reverse process can be an example of Germany where the drop on the given pillar from 9th to 16th last year resulted in a decrease in the overall competitiveness of the EU’s leading economy from the 6th to the 10th position.


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