WEF competitiveness report points to focus areas

Business
Zimbabwe slipped from 124 to 125 in the latest 2015-16 World Economic Forum (WEF) Global Competitiveness ranking. It has been overtaken by Nigeria which has moved up three places to 124 of the 140 countries ranked.

Zimbabwe slipped from 124 to 125 in the latest 2015-16 World Economic Forum (WEF) Global Competitiveness ranking. It has been overtaken by Nigeria which has moved up three places to 124 of the 140 countries ranked. In terms of the ranking, Zimbabwe is behind African countries like Mauritius at 46, Rwanda (58), Botswana (71), Namibia (85), Tunisia (92), Zambia (96), Kenya (99), Ethiopia (109), Senegal (110), Lesotho (113), Uganda (115), and Tanzania (120). These rankings show wide regional disparities in competitiveness. However, 15 out of the bottom 20 economies are in the sub-Saharan Africa region, with Guinea bracing the last position.

Côte d’Ivoire at 91 (115 in 2014) and Ethiopia 109 (118 in 2014) are this year Africa’s most improved. Both countries have strengthened institutions. Côte d’Ivoire has also improved its financial markets and domestic competition, and Ethiopia has made progress in its goods and labour markets, as well as its business sophistication and innovation.

While the sub-Saharan Africa’s economic growth rate has been solid over the past 15 years, levels of productivity remain low. Most of the economies in the continent are still factor-driven. Factor-driven economies are countries that compete primarily on the use of unskilled labour and natural resources, with companies competing largely on the basis of price as they buy and sell basic products or commodities. The recent fall in commodity prices does not bode well for most of the African economies whose incomes are highly dependent on the commodity cycle. WEF notes that the region’s most obvious challenges include weak institutions, inadequate infrastructure, insufficient health and education sectors. 

Some countries that are showing an up-tick in their competitiveness could provide some lessons to learn from. Rwanda is one of the most compelling turnaround stories in Africa today. Two decades after the genocide that made international headlines, Rwanda is back in the news but as one of the most promising countries in Africa. And the WEF rankings are showing. It has been on an upward ranking trend over the past five years. It was ranked 62 last year and moved to 58 this year and improved in seven out of 12 pillars. It has improved in business sophistication, financial markets development on the back of improved regulation of securities exchanges, and the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders. The country is now benefitting from strong public and private institutions, and efficient markets. While there is such a significant improvement in its operating environment, Rwanda still needs to tackle infrastructure inefficiencies driven by deficiencies in electricity supply,  telephony, health and higher education.

“South Africa climbs seven places to reach 49th, reversing its four-year downward trend, thanks largely to increased uptake of ICTs — especially higher internet bandwidth — and improvements in innovation (up by five places to 38th), which establish the economy as the region’s most innovative”, notes the report. The downside risks South Africa faces include inefficient electricity supply (116th) and inflexible labour market (107th). The country also needs to deal with the health (128th) and the quality of education (120th), where higher secondary enrollment rates will not be enough to create the skills needed for a competitive economy.

India also had a dramatic reversal, pushing up 16 steps to 55 on the back of the election of Narendra Modi, “whose pro-business, pro-growth, and anti-corruption stance has improved the business community’s sentiment toward the government”.

The report notes that the recovery post the financial crisis has been “less robust, more uncertain, and taking longer”. In such an environment, the focus should be on competitiveness and improved productivity. Competitive nations tend to weather economic vagaries better and recover much better than uncompetitive countries. The WEF, however, warns that countries should not ignore the human factors as “high unemployment figures are weighing heavily on societies, risking not only prolonged lower demand, but also the de-skilling of a significant part of the labour force and growing discontent”. And that “leveraging talent is at the heart of a competitive and resilient economy and countries that identify, nurture, use, and reward talent are those that enjoy more robust growth and swifter recovery”.

From a definition point of view, WEF defines “competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country”. The level of productivity drives wealth creation and underpins investment rates of return in an economy. To drive its competitiveness, a country should focus on its institutional capacities (aspects like government and legal framework), investment in infrastructure, achieving macroeconomic stability, ensuring its citizenry has got access to quality healthcare and education, financial markets development, and technological readiness, among other competitiveness pillars. Business guru Michael Porter states that nations compete in offering the most productive environment for business and that the public and private sectors play different but interrelated roles in creating a productive economy.

WEF identifies the most problematic factors for doing business in Zimbabwe as access to finance, policy inconsistencies, restrictive labour regulations, inadequate infrastructure, and governmental bureaucracy. The bottom line is that it is crucial to address these structural challenges to ensure more sustainable and inclusive growth. Co-operative leadership among business, government and civil society is needed to re-establish sustainable growth and raise living standards in the country.

Nesbert Ruwo (CFA) and Jotham Makarudze (CFA) are investment professionals based in South Africa. They can be contacted on [email protected]