Ten years on from the global financial crisis, the world economy remains locked in a cycle of low or flat productivity growth despite the injection of more than $10 trillion by central banks. The latest Global Competitiveness Report paints a gloomy picture, yet it also shows that those countries with a holistic approach to socio-economic challenges, look set to get ahead in the race to the frontier.
The World Economic Forum‘s (WEF) latest Global Competitiveness Report 2019 showed that Singapore has overtaken the United States to become the most competitive nation in the world. The US is losing ground in measures such as “healthy life expectancy” and preparedness for the future skills needed in the 21st century, the report says.
Some of this year’s better performers appear to be benefiting from the trade feud between China and the US, including Singapore and Vietnam. Led by Singapore, the East Asia and the Pacific
region is the most competitive in the world.
Covering 141 economies, the index measures national competitiveness—defined as the set of institutions, policies and factors that determine the level of productivity and long-term economic growth.
The report measures the strength of 103 key indicators, such as inflation, digital skills and trade tariffs, arranged into 12 pillars. Each indicator, or ‘pillar’ uses a scale from 0 to 100, to show how close an economy is to the ideal state or ‘frontier’ of competitiveness in that area. With a score of 84.8, Singapore is the world’s most competitive economy in 2019, overtaking the US, which falls to second place. Hong Kong SAR, Netherlands and Switzerland round up the top five.
“The world is at a social, environmental and economic tipping point. Subdued growth, rising inequalities and accelerating climate change provide the context for a backlash against capitalism, globalization, technology, and elites,” the WEF warned.
“There is gridlock in the international governance system and escalating trade and geopolitical tensions are fueling uncertainty. “This holds back investment and increases the risk of supply shocks: disruptions to global supply chains, sudden price spikes or interruptions in the availability of key resources,” it said.
Singapore has long been a thriving global financial center, and has built itself up despite limited land. After early years of turbulence and despite lacking natural resources and a hinterland, the nation developed rapidly as an Asian Tiger economy, based on external trade and its workforce.
The city-state is classified as an Alpha+ global city, indicating its influence on the global economy. Singapore is the only country in Asia with an AAA sovereign rating from all major rating agencies, and one of 11 worldwide. Singapore is a highly developed country and is ranked 9th on the UN Human Development Index, the highest in Asia for a sovereign state, with the 3rd highest GDP per capita in the world. It was ranked the most expensive city to live in from 2013 to 2019 by the Economist, and is identified as a tax haven.
Along with benefits from the ongoing US-China trade war, Singapore’s financial system and macroeconomic stability raised its rating.
Singapore ranked 2nd overall in the 2018 report. This year, the country ranks first in terms of infrastructure, health, labor market functioning, and financial system.
While Hong Kong was penalized in points for their lacking worker protection (scoring only 10 points, and ranking 116th in the category), Singapore ranked well, scoring 89 points, and ranking 18th for worker protection.
Singapore improves from an already high base on 10 of the 12 pillars, and its score on every pillar is between 4 and 19 points higher than the OECD average. The country ranks first on the Infrastructure pillar (95.4), where it also ranks first for road quality infrastructure, efficiency of seaport and airport services, and sea transport connectivity. It also tops the Health (100), Labor market (81.2) and Financial system pillars (+2.0 points, 91.3), and achieves a nearly perfect score for Macroeconomic stability (+7.1, 99.7, 38th).
Performance in terms of market efficiency (81.2, 2nd behind Hong Kong SAR) is driven by the fact that Singapore is the most open economy in the world. Singapore ranks 2nd (80.4) for the quality of public institutions, behind Finland, but its performance is undermined by limited checks and balances (65.9, 23rd)—Singapore notably ranks 124th on the Freedom of the Press Index—and lack of commitment to sustainability (63.5, 66th). Going forward, in order to become a global innovation hub, Singapore will need to promote entrepreneurship and further improve its skills base, albeit from a relatively high base (78.8, 19th).
Led by Mauritius (52nd), sub-Saharan Africa is overall the least competitive region, with 25 of the 34 economies assessed this year scoring below 50.
South Africa, the second most competitive in the region, improves to the 60th position, while Namibia (94th), Rwanda (100th), Uganda (115th) and Guinea (122nd) all improve significantly, the WEF showed. Among the other large economies in the region, Kenya (95th) and Nigeria (116th) also improve their performances, but lose some positions, overcome by faster climbers, the report said.
South Africa’s competitiveness has regained momentum after the recent political landscape shift and climbed seven places in 2019. The country is a regional financial hub (83.2, 19th), with well-developed equity, insurance and credit markets, all achieving a score of 100, the report said.
It has also developed one of the most advanced transport infrastructures in the region (45th) and is among the top countries in Africa for market size (35th). Beyond these established strengths, health conditions—though starting from a low base (118th)—are better, adding 3.3 years to the average healthy life expectancy since the last assessment. Institutional quality has also improved (55th) but unevenly, the report said.
Some aspects of this category have achieved ‘remarkable progress’, including restored balance of powers across different state’s entities (16th), enhanced administrative efficiency of the public sector (39th) and corporate governance (26th).
Other aspects however, continue to perform poorly: security (135th) remains one of the main restraints to South Africa’s competitiveness, while transparency (62nd) and government adaptability to change (100th) are also below par, the report said.
“Further, South Africa’s competitiveness is being held back by relatively low business dynamism (60th), which is inhibited by insolvency regulation and administrative burdens to start a business, and a persistently insufficient labor market flexibility (111th),” the WEF said.
The report showed that flexibility of wage determination is limited (134th) and hiring foreign labor is difficult (123rd). “South Africa’s sensitivity to exports of mineral resources is likely to hit the country’s economic outlook and will make reducing unemployment (projected above 27%) challenging. “Against this backdrop, structural reforms are needed tore-ignite the economy and offer better opportunities to a larger share of South African citizens.”
How to get to number 1
The index examines the relationship between competitiveness and the two other dimensions of sustainable development – social cohesiveness and environmental sustainability. It shows that there are no inherent trade-offs between competitiveness and sustainability, and between competitiveness and social cohesiveness. This suggests a “win-win” policy space, where a productive, low-carbon, inclusive economy is possible, and it is the only viable option going forward.
- Be an all-rounder: The report is a reminder to apply a holistic approach and to better balance short-term considerations against factors whose impact is felt beyond quarterly results and election cycles. For example, the results of the index show that labor and education policies have not been keeping up with the pace of innovation in most countries, including in some of the largest and most innovative economies.
- Integrate tech: Governments must better anticipate the unintended consequences of technological integration and implement complementary social policies that support populations through the Fourth Industrial Revolution. The report shows that several economies with strong innovation capability like South Korea, Japan and France, or increasing capability, like China, India and Brazil, must improve their talent base and the functioning of their labor markets.
- Education: Talent adaptability is critical. It pays to enable the workforce to contribute to the technology revolution and to be able to cope with its disruptions. Talent adaptability also requires a well-functioning labor market that protects workers, not jobs. Advanced economies such as South Korea, Italy, France and, to some extent, Japan need to develop their skills base and tackle rigidities in their labor markets.
To read the full report, click here.
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