Pakistan fails to address its security challenges and business risks - slipping competitiveness ranking to 133.
Institutions and innovation increasingly important for competitiveness
Excellent innovation and strong institutional environments are increasingly influencing economies’ competitiveness, according to The Global Competitiveness Report 2013-2014.
“Innovation becomes even more critical in terms of an economy’s ability to foster future prosperity,” said Klaus Schwab, Founder and Executive Chairman of the World Economic Forum. “I predict that the traditional distinction between countries being ‘developed’ or ‘less developed’ will gradually disappear and we will instead refer to them much more in terms of being ‘innovation rich’ vs. ‘innovation poor’ countries. It is therefore vital that leaders from business, government and civil society work collaboratively to create education systems and enable environments which foster innovation.”
Amir Jahangir, Chief Executive Officer of Mishal Pakistan, a partner institute of the WEF, in his findings said that “Pakistan needs to focus on competitiveness or the economy can slide into a dangerous downward spiral. The road to economic recovery will be difficult if Pakistan fails to address its security challenges and business risks.”
Pakistan has slipped down to 133 rank among 148 countries on the Global Competitiveness Index of the World Economic Forum, announced in the Global Competitiveness Report 2013-14. Pakistan was ranked at 124 in 2012-13 and 118 in 2011-12.
The gradual slipping of Pakistan’s rank shows weakening of its institutions and capacity of the economy to create space for innovation. The areas of public and private partnerships for cooperation for improving competitiveness are also diminishing as well. This indicates increasing mistrust between the public and the private sector due to increase corruption and policy instability issues.
The report has included the views of more than 14000 business leaders globally to measure the competitiveness of 148 countries. More than 200 business leaders in Pakistan, identified corruption as the most problematic factor for doing business, followed by policy instability, access to financing, inadequate supply of infrastructure, inefficient government bureaucracy and high inflation as some of the areas identified in the GCR.
Pakistan has lost on almost all indicators of the Global Competitiveness Index (GCI); an in-depth analysis on each pillar has been discussed below:
1st Pillar: Institutions
The Global Competitiveness Report 2013-14 shows that, Pakistan has shown poor performance on governments’ use of diversion of public funds from 76 in 2012 to 103 in 2013. It further states that the wastefulness in government spending has also increased and the rankings have dropped from 96 last year’s to 116 this year. Similarly the burden of government regulation has also deteriorated from 62 to 82 in 2012 and 2013 respectively. The efficiency of legal framework in challenging regulations, which means, how easy is it for private businesses to challenge government actions and/or regulations through the legal system has fallen 11 points since last year and ranks at 108 this year. This depicts a SRO culture has been prevalent in the country for economic decision making instead of legislations through legal frameworks.
The businesses in Pakistan has also shown reluctance in improving the efficacy of corporate boards by fallen to 123 in 2013 from 111 in 2012. However the regulator on the securities market has shown improvements in terms of and protection of minority shareholders’ interest from 83 in 2012 to 73 this year. Pakistan has maintained its competitiveness advantage in the region by securing the rank at 31 this year.
The biggest impact on the pillar of institutions has been due to law and order and Pakistan’s fight in the war on terror, where Pakistan ranks among the least 10 in the world; business cost of terrorism 144, business cost of crime and violence 138 and organized crime 141 among 148 countries globally. Pakistan has shown improvements on judicial independence, improving from 57 to 55.
2nd Pillar: Infrastructure
The overall infrastructure in the country has deteriorated from last year, where Pakistan stands at 119 as compared to 105 last year among 148 countries. Quality of air transport (88) lost 10 points this year, however the scheduled available airline seat kilometers per week originating in country is where Pakistan has a competitiveness advantage securing 46 out of 148 countries, this depicts the governments policy to open airspace to airlines however poor performance at the part of the Civil Aviation Authority in Pakistan.
3rd Pillar: Macroeconomic Environment
Government’s budget balance % of GDP has fallen to an alarming 138 place as compared to 125 last year; similarly the gross national savings has also dropped to 125 from 107 in 2013 and 2012 respectively.
4th Pillar: Health and Primary Education
Although Pakistan has lost five points on the Health and Primary Education pillar from 117 in 2012 to 128 in 2013, the country has been successful in improving its ranking on business impact of tuberculosis 120 to 114, business impact of HIV/AIDS 106 to 97 and HIV prevalence as percentage of population 12 to 11 in 2012 to 2013 respectively.
5th Pillar Higher Education and Training
Pakistan showed improvements on the tertiary education enrolment indicator, where it moved to 121 this year from 125 in the last year. While the quality of Math and Science education dropped to an alarming 104 in 2013 from 88 in 2012, the extent of staff training has gone from bad to worst this year by securing the rank of 128.
6th Pillar: Good Market Efficiency
On goods market efficiency pillar, the extent of market dominance has lost 12 points from 65 to 77, the effectiveness of the anti-monopoly policy has decreased from 75 to 85 and the effect of taxation on incentives to investment from 72 to 82 in this year.
The buyer sophistication has also declined from 78 to 88 in 2013, indicating a more price conscious business environment instead of quality, thus creating more space for imports from other countries for large consumptions.
The intensity of local competition has improved ranking from 85 to 79 this year, in addition to improving prevalence of trade barriers from 114 from 92 this year. However the country was successful to improve the extent of rules and regulations to encourage or discourage foreign direct investments, thus improving the business impact of rules on FDI and securing the 75 rank this year as compared to 96 last year.
7th Pillar: Labor Market Efficiency
Labor Market Efficiency pillar has shown insights into the human resource face of the economy, the cooperation in labor-employer relations have worsened in the last one year from 90 to 105, similarly, the hiring and firing practices have slipped down from 21 to 35 this year, although keeping a competitiveness advantage in the region. The pay and productivity indicator has also fallen from 73 in 2012 to 86 in 2013. Pakistan is also among the worst countries to include women in its workforce, ranked at 144 among the 148 countries.
8th Pillar: Financial Market Development
Both the financial market regulators have shown great improvements, while the incumbent regulator of the securities market, the Securities and Exchange Commission of Pakistan has shown significant improvements this year, improving seven points and securing the rank of 48 on the regulations of securities exchanges from 55 last year; the State Bank of Pakistan has also shown solid improvements in the soundness of the banking sector in the country. Improving to 71 this year to 85 in the last year. However this gain has not able to improve the constantly declining the state of venture capital in Pakistan, slipping down to 77.
9th Pillar: Technological Readiness
Pakistan has shown significance gains on the technical readiness pillar, with the availability of latest technologies (79), firm-level technology absorption (81). Improvements in the international Internet bandwidth has been a catalyst for businesses to move towards a more knowledge-based economy, with ranks gaining from 108 last year to 101 this year. While the mobile broadband subscriptions per 100 population has fallen from 121 to 126.
10th Pillar: Market Size
Pakistan is maintaining its regional competitiveness advantage on the domestic market size index at 27
11th Pillar: Business Sophistication
The businesses have shown restrain on delegation of authority, shown corporate insecurity from large investors to professional managements, especially in the family owned businesses, the rank fell from 94 in 2012 to 122 in 2013.
12th Pillar: Innovation
Pakistan has shown improvements on capacity for innovation by improving 11 points and securing regional competitiveness advantage at 49. While the quality of scientific research institutions 75 and company spending on research and development 75 have been on the loss. The university-industry collaboration for research and development has been declined from 81 to 98, making industry depend on replicating instead of creating new products and services.
The report’s Global Competitiveness Index (GCI) places Switzerland at the top of the ranking for the fifth year running. Singapore and Finland remain in second and third positions respectively. Germany moves up two places (4th) and the United States reverses a four-year downward trend, climbing two places to fifth. Hong Kong SAR (7th) and Japan (9th) also close the gap on the most competitive economies, while Sweden (6th), the Netherlands (8th) and the United Kingdom (10th) fall.
The United States continues to be a world leader in bringing innovative products and services to market. Its rise in the ranking is down to a perceived improvement in the country’s financial market as well as greater confidence in its public institutions. However, serious concerns persist over its macroeconomic stability, which ranks 117 out of 148 economies.
Among the Asian economies, Indonesia jumps to 38th, making it the most improved of the G20 economies since 2006, while Korea (25th) falls by six places. Behind Singapore, Hong Kong SAR, Japan and Taiwan (China) (12th) all remain in the top 20. Developing Asian nations display very mixed performances and trends: Malaysia places 24th while countries such as Nepal (117th), Pakistan (133rd) and Timor-Leste (138th) are near the bottom of the ranking. Bhutan (109th), Lao PDR (81st) and Myanmar (139th) join the index for the first time.
Xavier Sala-i-Martin, Professor of Economics, Columbia University, USA, said: “The report highlights a shift in the narrative of the global economy from one year ago, when fire-fighting still characterized much of global and regional economic policy. This has now given way to an increasing urgency for leaders to make wide-ranging structural reforms to their economies.