Regional highlights: Eurasia
Eurasia’s competitiveness performance has been stable overall, although most economies in the region face challenges related to the fall in commodity prices (Figure 10), volatile exchange rates, recession in the Russian Federation and Ukraine, and the slowdown of the Chinese economy. These shocks have affected competitiveness in two major ways: all Eurasian economies except Georgia have seen the value of their exports fall, reducing their total market size; and falling tax and royalties revenues have increased government deficits and public debt.
On average, the region went into recession in 2015 and its growth is expected to remain negative for 2016. In many cases, currency devaluation and inflation—especially in economies dependent on commodity exports—have also contributed to a volatile economic environment. Financial sectors are under stress in at least half of Eurasian economies, with banks becoming less liquid and reducing firms’ access to finance—especially in Moldova (which has been affected by banking scandals), the Russian Federation, Tajikistan, and Ukraine.
Regional geopolitics continues to cause uncertainty, instability, and declining perceptions of security, as reflected in the institutions pillar of the GCI. Concerns include the Armenian–Azerbaijani clashes in Nagorno-Karabakh; the still-unresolved situation in Ukraine; and sanctions against the Russian Federation’s financial sector, which contributed to the increased stress on this sector regionally.
Nonetheless, the region has improved other factors of competitiveness, including technological readiness, education, and institutions. With mineral resources accounting for over 65 percent of the region’s exports, microeconomic fundamentals are necessary to lay the foundation for much-needed diversification of economic activity.11 Eurasian economies still need to accelerate progress to close the gaps with the most advanced economies in innovation capacity and technological readiness. Upgrading transport infrastructure remains another priority.
Regional competitiveness differences remain wide, with Azerbaijan (37th) and the Russian Federation (43rd) again the top performers. Despite headwinds from the drop in oil prices that impact their macroeconomic environment, both economies improve their performance slightly, mainly driven by better and more widespread education and reforms to improve the business environment and goods market efficiency. Some progress has been made in curbing corruption, which nevertheless remains a problematic factor for doing business in both countries.
The most improved Eurasian economies are Georgia (up seven places at 59th) and Tajikistan (up five at 77th).12 In both countries GDP is expected to grow by over 2.5 percent in 2016—below the average for the past decade, but more than other Eurasian countries. Tajikistan starts from a lower base and its positive performance this year is mainly driven by better ground transport and electricity infrastructure, less red tape to start a business, and slightly improved institutional environment.
Kazakhstan (53rd), Moldova (100th), and the Kyrgyz Republic (111th) decline in the rankings and register scores lower by 2 to 3 percent, dropping eight or more positions. Kazakhstan has lost ground almost exclusively as a result of the worsened situation of public finance, linked to the loss of oil export revenues. Despite not being oil exporters, Moldova and the Kyrgyz Republic have been severely hit by the recession in the Russian Federation and Ukraine, which has reduced their economic activity, increased inflation, and considerably worsened public finances.