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.
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