Global competitiveness and Sri Lanka

The Global Competitiveness Report compiled by the World Economic Forum is an annual analysis of economies around the globe, paying attention to key factors and their inter-relations with each country’s economic growth and present and future prosperity. This analytical report has been in production for the past 35 years. Sri Lanka stands at the 68th rank out of 140 economies in the 2015-16 index. In 2014-15, Sri Lanka was in 73rd position, out of 144 economies.

The Global competitiveness index is calculated on a 12-pillar concept which defines institutions, policies, and factors that determine the level of productivity of a country. Pillars one, two, three and four, consisting of institutions, infrastructure, macroeconomic environment and health and primary education, are considered basic requirements of an economy which take approximately 40% weightage of the overall 12 pillars. The fifth to tenth pillars, which cover higher education and training, labour market efficiency, financial market development, technological readiness and market size are recognised as the efficiency enhancers of an economy which takes 50% of the pillar weightage.  Eleventh and twelfth pillars are taken as innovation and sophistication factors of an economy which contribute 10% to the economy.

On an overall basis, when 12 pillars are taken into consideration, Sri Lanka stands at the 68th position whilst India is on 55, Pakistan 126, Bangladesh 107, Vietnam 56, Myanmar 131 and Thailand 32.

First pillar: Institutions

It is noted that public and private institutions are playing a vital role in the behaviour and the efficiency of the economy. Good governance in these sectors is considered to be of utmost importance.

Sri Lanka stands at 67th under basic requirements out of 140 economies. Property rights and intellectual property protection, diversion of public funds, public trust in politicians, irregular payments and bribes, judicial independence, favouritism in decisions of Government officials, wastefulness of Government spending, burden of Government regulations, efficiency of legal framework in settling disputes, efficiency of legal framework, transparency of Government policymaking, business costs of terrorism, business costs of crime and violence, organised crime, reliability of police services, ethical behaviour of firms, strength of auditing and reporting standards, efficacy of corporate boards, protection of minority shareholders’ interests and strength of investor protection are evaluated.

Second pillar: Infrastructure

Widespread and efficient infrastructure is important for guaranteeing the real functioning of the economy. A transport system consisting of better quality roads, railroads, ports and airports would enable the business community to send their products to the market in a timely manner and enable the movement of the labour force to their jobs without wasting time and energy. Further, the continuous supply of quality electricity will ensure continuous functioning of factories and work places will have a greater impact on the economic growth of a country. Finally, a solid and extensive telecommunications network allows for a rapid and free flow of information, which increases overall economic efficiency by helping to ensure that businesses can communicate and decisions are made by economic factors taking into account all available relevant information.

Sri Lanka stands at the 64th position on the infrastructure pillar which covers quality of overall infrastructure, quality of roads, railroads and port infrastructure, quality of air transport infrastructure, available airline facilities, electricity supply, mobile telephone subscription, fixed-telephone lines/100 etc.

Third pillar: Macroeconomic environment

Under the global competitiveness, macroeconomic environment is considered to be the third pillar.  Macroeconomic environment is vital for businesses to function properly. It is understood that macroeconomic stability alone cannot increase the productivity of a country. But the macroeconomic disorder damages the economy in a big way, as we recently experienced in Europe. A government finds it difficult to provide services efficiently when it has to make high-interest payments on its past debts. Unbearable fiscal deficits, limits the government’s ability to react to business cycles. It would be difficult for the private sector to operate efficiently when inflation rates are out of hand. In other words, for an economy to grow sustainably, the macro environment has to be stable.

On macroeconomic environment, Sri Lanka stands at the 115th position which comprises of Government budget balance as a percentage of GDP, Gross National Savings, inflation as annual change percentage, General Government Debt as a percentage of GDP and Country Credit Rating.

Fourth pillar: Health and primary education

Health and primary education also plays a key role in the context of competitiveness and the productivity of a country. These two factors decide quality of the workforce. If the workforce is not healthy and not properly educated, they could be less productive. Workers with poor health have higher probability to get absent and low level of education may cause problems in the production processes which will be costlier for businesses which have a greater impact on efficiency and productivity.

Therefore, investing in health services is considered to be a serious requirement. Additionally, investing in primary or basic education will make the workforce much more knowledgeable and in turn will affect the productivity of a nation.

In health and primary education, Sri Lanka has reached the 43rd position which comprises of malaria density and business impact, tuberculosis cases and business impact of tuberculosis, HIV prevalence and business impact of HIV/AIDS, infant mortality and life expectancy, quality of primary education etc.

Fifth pillar: Higher education and training

When a nation is moving up in a value chain, expecting to go beyond simple production processes,   education and training will play a crucial role. Today, the globalised economy needs countries to build pools of  well-educated workers who are able to perform multifaceted tasks and find their feet in the changing environment and the evolving needs of  production systems. This pillar evaluates secondary and tertiary enrolment rates as well as the quality of education and the extent of training provided to staff with the view of constant upgrading of workers’ skills. These aspects are neglected in many economies in the world.

In higher education and training, Sri Lanka stands at the 66th position globally, which evaluates secondary education enrolment, tertiary education enrolment, quality of the education system, quality of math and science education, quality of management schools, internet access in schools, availability of specialised training services, extent of staff training  etc.

Sixth pillar:  Goods market efficiency

It is vital for countries to have efficient goods markets that are well positioned to produce the correct blend of products and services required by the economy whilst having healthy supply and demand conditions. The healthy market situation will ensure efficiency and productivity of businesses to be kept high whereby growth of the economy is ensured.

In goods market efficiency, our country has reached 51 which evaluates numbers of procedures and numbers of days to start a business, agricultural policy costs, prevalence of non-tariff barriers, trade tariffs as a percentage of duty, prevalence of foreign ownership, business impact of rules on FDI, burden of customs procedures, imports as a percentage of GDP, degree of customer orientation and buyer sophistication.

Seventh pillar: Labour market efficiency

The efficiency and flexibility of the labour market are critical for an economy. The workers should be allocated to jobs in a very effective manner and they should be provided with attractive incentives where the labour force may contribute to the growth of the economy positively. The gender equity in the business environment and flexible regulations will attract skilled workers with greater talents to an economy.

In labour market efficiency, Sri Lanka stands as low as 130 which covers co-operation in labour-employer relations, flexibility of wage determination, hiring and firing practices, redundancy costs, effect of taxation on incentives to work, pay and productivity, reliance on professional management, country capacity to retain talent, country capacity to attract talent and women in labour force ratio to men.

Eighth pillar: Financial market development

The financial sector is of utmost importance for the development process of a country. The wealth of the nation is comprehended through the financial sector of the country and has the ability to attract foreign entrepreneurs and investments. Therefore, availability of capital through sophisticated financial markets is playing a key role in the economy. In a sound financial market, a well-established banking sector which is trustworthy, a well-regulated securities exchange system and venture capital business with appropriate regulations protecting investors, are considered as vital aspects.

Under this pillar, Sri Lanka has reached 51 which covers availability and affordability of financial services, financing through local equity market, ease of access to loans, venture capital availability, soundness of banks, regulation of securities exchanges, legal rights etc.

Ninth pillar: Technological readiness

This pillar evaluates the availability of technology for industries which is a crucial fact in reaching higher levels of productivity. The ability of industries to use information and communication technology very effectively in their processes may increase the efficiency and innovation, and thereby will reach competitiveness which is much needed by a business. The developing economies have the ability to attract advanced technologies through FDIs.

In technological readiness, Sri Lanka is at the 93rd position, technological readiness, availability of latest technologies, firm-level technology absorption, FDI and technology transfer, individuals using internet, fixed-broadband internet subscriptions,  international internet bandwidth and mobile-broadband subscription are included in the pillar.

Tenth pillar: Market size

The size of the market plays a substantial role in the increase of productivity of business. Large markets will offer better opportunities to the firms mainly due to economies of scale. Conventionally, the market sizes were decided by the geographical borders, but lately many small economies started exploring offshore opportunities whereby exports became a crucial factor in an economy.

As far as market size is concerned, Sri Lanka is ranked 61. It includes domestic market size, foreign market size, percentage of GDP in private public partnership value, exports as a percentage of GDP etc.

Eleventh pillar: Business sophistication

The quality of a country’s overall business network and quality of individual companies’ operations and strategies are measured under this pillar. These aspects are required in going beyond basic business achievements and to reach extensive productivity goals. In this scenario, business ventures will explore and create more sophisticated business opportunities by going beyond standard boundaries. The increased business sophistication will encourage more firms entering the market.

In business sophistication, Sri Lanka stands at the 44 position which evaluates local supplier quantity and quality, state of cluster development, nature of competitive advantage, value chain breadth, control of international distribution, production process sophistication, extent of marketing, willingness to delegate authority etc.

Twelfth pillar: Innovation

The ability of firms to adopt the latest technology and reach innovation is measured in this pillar. Companies will come up with cutting edge products with the use of technology and will form a competitive advantage by value addition. R&D will play a key role in this aspect and both public sector and private sector are required to contribute to this facet immensely.

In this pillar Sri Lanka has reached 43. Capacity for innovation, quality of scientific research institutions, company spending on R&D, university-industry collaboration in R&D, government procurement of advanced tech products, availability of scientists and engineers, number of patent applications are covered under this pillar.

It is noteworthy that interrelations of these 12 pillars are vital for a sustainable economic balance and weakness of one pillar will tend to deteriorate the economic growth on an overall basis.

Direct Reference -The Global Competitiveness Report 2015–2016

 

(The writer is the Secretary General/CEO of the National Chamber of Commerce of Sri Lanka.)