Economists have long tried to understand what determines the wealth of nations, starting from Adam Smith’s focus on specialization and the division of labor to neoclassical economists’ emphasis on investment in physical capital and infrastructure.
More recently, emphasis has been given to other mechanisms such as education and training, technological progress, macro-economic stability etc. The Global Competitiveness Index (GCI) captures the latter dimension by providing a weighted average of many different components, grouped together into 12 pillars of competitiveness. This year’s Global Competitiveness Report is based both on secondary source of information and primary survey of over 13,000 business leaders polled in 133 economies.
In fact, the Geneva-based World Economic Forum (WEF), is doing its competitiveness analysis based on the GCI since 2005. The index captures both micro-economic and macro-economic foundations of national competitiveness. The index also helps each individual country to find out where their competitive strengths lies and what are their weak indicators. The competitive analysis is done because the competitiveness helps improve the level of productivity and more competitive economies tend to produce higher level of income for their citizens. The productivity level also determines the rates of return obtained by investments in an economy. In fact, the competitiveness is defined as the set of institutions, policies, and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the sustainable level of prosperity that can be earned by an economy.
The press release/ event organized by Tribhuvan University, Centre for Economic Development & Administration (CEDA) in Kathmandu and elsewhere in other surveyed countries on 8th September to disseminate the findings of the report revealed Switzerland overtaking the US for first place this year. Singapore is the highest ranked country in Asia, which moved up two places to be ranked 3rd in the world.
The Global Competitiveness Report 2009/10 has listed Nepal in the 125th position of the 133 countries covered by the survey. 12 pillars (1. Basic Requirements: institutions, infrastructure, macroeconomic stability, health and primary education; 2. Efficiency Enhancers: higher education and training, good market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size; 3. Innovation and sophistication factors: business sophistication, innovation) are covered by Global Competitiveness Index (GCI). The GCI has also classified the economy into three stages: the factor driven; efficiency driven; and innovation-driven.
This year, Nepal’s position is one up compared to last year. In 2007/2008 Nepal ranked 126th in 2007/08, of 134 countries surveyed. Institutional factors and infrastructure are working as the main hindrances for Nepal. The country’s position in
infrastructure is 131 out of 133 countries and its
position in institutions is 123rd. The country’s position in macro-economy
stability and health and primary education is better than other pillars.
The competitiveness analysis clearly reveals the need to take some remedial measures. As Nepal is in factor driven stage, the most important areas for improvement are institutional reforms and strengthening, and investment in infrastructure. In the institutional aspect, though some improvements have been made in peace after the peace accord, business people still feel fearful and hounded by insecurity. On the other hand, the ethical standard of the firms also needs to be improved and their corporate boards made more efficient. Also, there is urgent need of curbing the organized crime
and the politicians need to gain public confidence which is not seen to be good as per the report. Efforts are also necessary in terms of improved property right and intellectual property protection as well as improving the necessary legal frameworks.
In infrastructure, the number one requirement is improving the quality of electricity supply. Improving the quality of roads, port infrastructure, and air transport infrastructure are also required.
Improvement in infrastructure requires huge investment which may not be able to meet through domestic investment only. Therefore, emphasis should be given equally to foreign investment. Moreover, the government needs to reduce its regular expenditure. It is complained that the regular expenditure to GDP in the current fiscal 2008/09 is estimated to be 12.7%, whereas the total revenue to GDP itself is only 14.8% showing huge revenue earned spent in regular expenditure.
These are some positive efforts which will help Nepal to improve its competitiveness, but they are not enough. More needs to be done if Nepal wants to improve its position in global competitiveness in the year to come. Last, but not the least, Nepal can learn a lot from country experience of neighboring SA countries as well as from small size countries like Singapore.
Dr. Chitrakar is Professor at CEDA, and Country (Nepal) Coordinator of Glo-bal Competitiveness Report