Loses? When did it have it to begin with?

Pakistan loses competitive edge

ISLAMABAD: Pakistan’s country ranking has shown sharp deterioration in the Growth and Competitive Index (GCI), falling from 73 in 2003 to 91 in 2004, and public institutions got the worst 102nd position out of the rated 104 countries.

The Global Competitiveness Report of the World Economic Forum (WEF) finds Pakistan, Bolivia, the Dominican Republic, Peru, Philippines, Poland, Vietnam, Venezuela and Zimbabwe among the countries showing largest drop in their rankings during 2004.

Highly visible instances of official corruption, a crackdown on press freedoms and other civil liberties which contribute to capital outflows and harden the mood of the business community, political instability linked to domestic infighting in some cases leading to civil unrest, a weakening in the rule of law have, to a greater or lesser degree, been prominent in some of the above cases, are the reasons explained in the report for falling scores in the GCI 2004.

The WEF is more known due to its annual meetings at the Davos, where political and business leaders from around the world meet to discuss the emerging challenges. The Growth Competitiveness Index designed by the Forum is composed of three pillars, considered to be critical to economic growth: the quality of the macroeconomic environment, the state of a country’s public institutions, and, given the increasing importance of technology in the development process, a country’s technological readiness. On the quality of macroeconomic environment, Pakistan has comparatively scored better with 3.63, ranking 67, as compared to India’s 4.05, with 52nd place.

However, on the state of public sector institutions, Pakistan has got the worst 102nd position, out of 104 countries, with a score of 2.87, just better than Chad and Bangladesh, with Indian institutions at 53rd spot with 4.45 score, which is even better than China’s 4.39 and 56th position on the Public Institutions Index.

The Forum identifies the most critical factors in the development process. The role of corruption in delaying the development process, the central importance of women’s education for boosting per capita incomes, the interplay between political and civil rights and the willingness of the public to engage in economic activity, the role of a free press, and the type of safety net arrangements that governments put in place to enhance the ability of economic agents to participate in the life of the nation, are but some of the topics that have been at the centre of the agenda.

The Forum has also developed a vehicle, the Executive Opinion Survey (EOS), which annually conveys a wealth of information about the obstacles to growth in more than 100 countries, accounting for the lion’s share of global GNP. Through the Survey, business executives in these countries assess the importance of a broad range of factors central to creating a healthy business environment in support of successful and productive economic activity.

The tax and regulatory environment, labour market legislation, the overall macroeconomic environment, the prevalence of corruption and other irregular practices in the economy at large, the quality of the country’s infrastructure and education are but a few of the areas covered by the EOS.

The Competitiveness Rankings for 2004 gives Finland the top place for the third time during the last four years. The country is extremely well managed at the macroeconomic level, and scores very high in those measures which assess the quality of its public institutions. The United States is ranked second, with overall technological supremacy, and especially high scores for such indicators as companies’ spending on R&D, the creativity of its scientific community, personal computer and internet penetration rates.

The score of Finland is 5.95; United States 5.82; 5.48; Malaysia 4.88; China 4.29; India 4.07; Indonesia 3.72; Sri Lanka 3.57; Pakistan 3.17; and is the lowest at 2.50. India’s ranking also goes down to 55 from 56 due to higher budget deficit.

The Business Competitiveness Index (BCI), the second measurement of competitiveness prepared by the WEF, is a complement to the medium-term, macroeconomic approach of the Growth Competitiveness Index. It evaluates the underlying microeconomic conditions defining the current sustainable level of productivity in each of the countries covered.

The BCI evaluates two specific areas, critical to the business environment in each country: the sophistication of the operating practices and strategies of companies, and the quality of the microeconomic business environment in which a nation’s companies compete.

Pakistan was ranked at 73rd position on the BCI, as against 30th for India, and first place for the United States. The two interrelated sub-indexes: company operations and strategy, and the quality of the national business environment gives Pakistan 67 and 75 number, again very compared with India’ s 30, and 32.

The report observed that the swift pace of innovation in information and communications technology, and the concomitant fall in the costs of communication is leading to an acceleration in the pace of integration of the world economy. Innovations in transportation, which have reduced the cost of freight, mean that location is less of a factor than in the past, and businesses are now looking for the right combination of labour costs-coupled, ideally, with flexible labour markets-skills, infrastructure, and the support provided by a good macroeconomic and institutional environment to reduce production costs.

The role of multi-country alliances, the report says, in bringing together better combinations of capital, labour, skills and regulatory frameworks for particular projects is becoming more important. Countries with the nimbleness demanded for such cross-border arrangements are reaping the benefits of higher economic growth rates and improvements in living standards.

Countries which are not allocating sufficient resources to improve the quality of their educational systems or to address major public health concerns, or which are otherwise engulfed in internal conflicts and instability, are rapidly falling behind. The net effect of these trends is the growing complexity in the economic, social and political underpinnings of the environment faced by policymakers and business leaders everywhere.

This is not only putting enormous stress on the institutions that sustain and support the global economy, traditionally, governance and corruption challenges have been seen as especially daunting in poorer countries, with the richer ones viewed as good examples, with their relative law and order, and well developed institutions. The report shows a more complex reality, revealing more subtle, yet costly manifestations of mis-governance, afflicting not only poor, but rich countries as well.

The traditional definition of corruption as the commission of an illegal act, such as outright bribery, is here broadened to include new measures of "legal corruption," seen as the collusion of at least two parties, typically from the public and private sectors, and where the rules of the game, laws and institutions are used, via influence peddling and even capture, to benefit vested interests. Pakistan’s score on the Corruption Perception Index (CPI) of the Transparency International has also slipped down further in 2004 to 2.1 from 2.5 in 2003 and from 2.6 in 2002.