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AMMAN (JT) — Finland remains the most competitive economy in the world and tops the rankings for the third consecutive year in The Global Competitiveness Report 2005-2006, according to a report by the World Economic Forum (WEF) issued in Geneva.
The United States is in second position, followed by Sweden, Denmark, Taiwan and Singapore respectively.
The rankings are drawn from a combination of hard data, publicly available for each of the economies studied, and the results of the Executive Opinion Survey, a comprehensive evaluation conducted by the WEF, together with its network of partner institutes (leading research institutes and business organisations) in the countries covered by the report.
This year nearly 11,000 business leaders were polled in a record 117 economies worldwide.
The survey questionnaire is designed to capture a broad range of factors affecting an economy's business environment that are key determinants of sustained economic growth. Particular attention is placed on elements of the macroeconomic environment, the quality of public institutions which underpin the development process, and the level of technological readiness and innovation.
"The Nordic countries share a number of characteristics that make them extremely competitive, such as very healthy macroeconomic environments and public institutions that are highly transparent and efficient, with general agreement within society on the spending priorities to be met in the government budget,"said Augusto Lopez-Claros, chief economist and director of the WEF's Global Competitiveness Programme.
"While the business communities in the Nordic countries point to high tax rates as a potential problem area, there is no evidence that these are adversely affecting the ability of these countries to compete effectively in world markets, or to provide to their respective populations some of the highest standards of living in the world," he added.
Lopez-Claros went on to say that "indeed, the high levels of government tax revenue have delivered world-class educational establishments, an extensive safety net, and a highly motivated and skilled labour force."
The Nordic countries continue to hold prominent positions in the rankings among the top 10 most competitive economies this year with Finland (1), Sweden (3), Denmark (4), Iceland (7) and Norway (9) all in privileged places.
The stellar performance of these countries demonstrates the great diversity within Europe, with some countries doing very well by any measure, while others struggle behind. The Nordics are also challenging the conventional wisdom that high taxes and large safety nets undermine competitiveness, suggesting that what is important is how well government revenues are spent, rather than the overall tax burden per se.
Elsewhere in Europe, the most notable developments are the improvement in the relative position of Ireland, which has moved up four places to 26 in the overall rankings; the improvement of Poland, which has moved up 9 places to 51st place in the rankings; the continuing excellent performance of Estonia, ranked 20th for the second year in a row, and which is by a significant margin the most competitive economy among the 10 countries that joined the European Union last year; and the significant decline of Greece (ranked 46, compared to 37 last year), which now has joined Italy (ranked 47) as the two lowest-ranking countries among the EU-25, bar Poland.
Greece's worsening performance in 2004 is linked to a significant weakening in the quality of its overall macroeconomic environment, driven by a ballooning budget deficit (partly linked to the Olympics) and increasing pessimism on the part of the business community about the short-term economic outlook.
Leading within Asia are Taiwan and Singapore, ranked 5th and 6th respectively, some places ahead of the next Asian country covered by the Growth Competitiveness Index (GCI), Japan, ranked 12th.
The distance between these top-ranked economies and Japan has increased since last year, reflecting Japan's relatively poor macroeconomic performance, particularly as regards management of the public finances. In this respect, reforms of the postal system are likely to be of particular relevance.
Taiwan and Singapore are economies that, through sustained good policies over the past few decades, have lifted their citizens from poverty, joining the ranks of the most prosperous and competitive economies in the world.
Compared with the other tigers, Hong Kong is ranked much lower at 28th place, having dropped seven places since last year. This is attributable to a tangible deterioration in the quality of the institutional environment. Hong Kong saw a weakening in perceived judicial independence, the protection of property rights, and in government favouritism in policy-making. Hong Kong's ranks on irregular payments (corruption) have also fallen well below its previously excellent performance.
Australia, in 10th place, has moved up four places since last year, with improvements across many of the institutional and technology indicators measured by the index. The country has world-class public institutions, sound public finances and very low levels of corruption in the economy.
And Australia's companies are measured as being very innovative, while harnessing new information and communications technologies extremely well.
China and India 49th and 50th respectively, now rank much more closely to one another than in previous years. While China dropped three ranks, India moved up five places.
China had a slightly deteriorating score with regard to the country's macroeconomic environment, while India's improved position is due to a somewhat higher rank in the area of technology.
Both China and India have had an excellent growth performance in recent years. However, both countries continue to suffer from institutional weaknesses which, unless addressed, are likely to slow down their ascension to the top tier of the most competitive economies in the world.
As in previous years, Chile, ranked 23rd, leads the way in Latin America by a wide margin. The gap with respect to the next best performer in the region has widened from 26 places in 2004 to 31 places in 2005, a characteristic not seen in any other region of the world.
Chile continues to benefit from a combination of remarkably competent macroeconomic management and public institutions, which have achieved EU levels of transparency and efficiency: only 8 of the 25 EU members have stronger performances in the area of public institutions.
Mexico has fallen seven places since last year to 55th, ceding its second spot in the regional ranking to Uruguay, while Brazil fell eight places to 65th position. Both Mexico and Brazil suffered major plunges in those indicators that capture the quality of their public institutions, including factors such as judicial independence and favouritism of government officials in policy-making and procurement decisions.
In the meantime, Venezuela, which had a ranking of 62 in 2001, continues its precipitous decline to the bottom of the rankings, falling another four places to 89th position overall this year. Widespread mismanagement has led to strong deterioration in all areas measured by the index: The macroeconomic environment has become highly unstable, the quality of public institutions has been eroded and there has also been a measured decline across a broad range of technology indicators.
Within the Middle East and North Africa (MENA) region, the small Gulf states perform quite well in the overall GCI rankings. The United Arab Emirates (UAE) and Qatar are ranked 18th and 19th respectively. Terms-of-trade gains have boosted growth rates and reinforced already high levels of confidence in the business community, resulting from ongoing institutional modernisation and improvements in macroeconomic management.
While most of the countries of the sub-Saharan African region are less competitive, the region does have a number of relative success stories. This includes South Africa (42nd), Botswana (48th), Mauritius (52nd) and Ghana (59th), the latter's competitiveness performance being even more notable, having improved by nine places since 2004. Tanzania has also seen a significant improvement over the past year, moving up 11 places in the overall rankings.
On the other hand, Namibia, a relatively good performer overall, lost 11 places over the past year, as, predictably, did Madagascar and Zimbabwe, losing 11 and 10 places respectively.
Zimbabwe is a particularly sad case, whose quick descent to the bottom of the world's competitiveness rankings reflects the continued deterioration of the institutional climate, including the disappearance of property rights, the corruption of the rule of law, and the implications these and other factors have had for macroeconomic management. The country has the world's worst ranking (117) for the quality of its macroeconomic environment.
The WEF continues to expand geographic coverage of The Global Competitiveness Report, currently featuring a total of 117 economies, of which the new entrants this year include Albania, Armenia, Azerbaijan, Benin, Cambodia, Cameroon, East Timor, Guyana, Kazakhstan, Kuwait, Kyrgyz Republic, Moldova, Mongolia, Qatar and Tajikistan, making this report the most comprehensive of its type.
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