This section presents an overview of the GCI results by region, identifies patterns, and puts them in context.17 Figure 8 compares the range of results between advanced economies and others in different regions between 2007 and 2008 (before the economic crisis) and the current edition of the Index. In most cases the gap is large, with sub-Saharan Africa continuing to be furthest behind despite improving on average. The figure also shows the diversity of performance within each region, with the Middle East and North Africa showing the largest disparities between best and worst performers.
Most advanced economies have recovered to their pre-crisis level of competitiveness. As in previous years, they fill all the top positions in the rankings. Yet some disparity remains, with some Eastern and Southern European countries occupying the lowest rankings in this group: most notable is Greece, which at 81st place is the least competitive economy of this group.
Access to finance is still the main drag on growth in most of these economies, with the United States representing a positive exception—it is now close to pre-crisis levels in terms of access to finance. At the other end of the spectrum, in the eurozone finance is much more difficult to access than it was eight years ago, underscoring one of the most important factors slowing down growth on the continent.
Analysis of other pillars provides a mixed picture. Almost a decade of economic instability and a double-dip recession have eroded trust in public institutions since 2007 in most advanced economies, especially in Southern Europe. At the same time, the quality of infrastructure improved in Southern Europe, with Italy showing the highest growth, especially in the railway sector, thanks to heavy investments and increased market competition. However, infrastructure quality deteriorated in the United States, Switzerland, and Northern Europe, with Germany and France displaced from top positions by Hong Kong SAR and Singapore. Firms in the eurozone responded to the sluggishness of recovery by doing the most to improve their level of innovation, with Southern European countries showing small signs of convergence with their northern counterparts.
There is further evidence of the emergence of a divide in Europe between reformist countries and the other countries. In France, Ireland, Italy, Portugal, and Spain, we observe significant improvement in the areas of market competition and labor market efficiency thanks to the reforms these countries have been implementing. By contrast, Cyprus and Greece have failed to improve in these pillars.
The analysis of the most problematic factors for doing business between 2007 and 2015 shows that the relative level of concern among firms around restrictive labor regulations has indeed progressively decreased in Southern Europe (Figure 9). In most countries, access to finance has replaced labor regulations as the most problematic factor for doing business in those countries (Box 3 presents a trend analysis of these factors).
Emerging and Developing Asia has been the world’s fastest-growing region since 2005 and looks set to retain this status in the medium term. The region now accounts for some 30 percent of global GDP, with China alone accounting for 16 percent.18 This dynamism is reflected in the GCI results. Since the beginning of the crisis, competitiveness trends have been mostly positive. However, regional averages conceal profound disparities across the region (Figure 10). China (28th) and most of the Southeast Asian countries are performing well, while South Asian countries and Mongolia (104th) continue to lag behind.
Behind Singapore (2nd), the five largest members of the Association of Southeast Asian Nations (ASEAN)— namely Malaysia (18th, up two), Thailand (32nd, down one), Indonesia (37th, down four), the Philippines (47, up five), and Vietnam (56th, up 12)—all rank in the top half of the overall GCI rankings. With the exception of Thailand, all five have improved their showing since 2007, most notably the Philippines, which has leapfrogged 17 places. Although ranked much lower, the three other ASEAN members—Lao PDR (83rd, up 10), Cambodia (90th, up five), and Myanmar (131st, up three)—all move up the ladder.
In contrast, no member of the South Asian Association for Regional Cooperation (SAARC) features in the top 50. India leads the way at 55th, followed by Sri Lanka (68th, up five). Nepal (100th, up two), Bhutan (105th, down two), Bangladesh (107th, up two), and Pakistan (126th, up three) all rank 100th or below. Although last year all SAARC countries except Bhutan posted small gains, since 2007 only Nepal has managed to progress significantly (14 places gained); Pakistan lost 34 places during that period and India, despite leapfrogging 16 places this year, still ranks seven notches lower than it did in 2007.
Despite the region’s dynamism, it faces many challenges. Most countries have a gaping infrastructure deficit because investment has not kept up with rapid growth. The uptake of technology, in particular of ICTs, is also very low across the region. For middle-income countries, innovation capacity remains limited, which poses a risk to their growth in the long run. For instance, the results of the Executive Opinion Survey reveal that the difficulty of innovating has become the biggest concern of the business community in China (see Box 4).
Three factors had an impact on the regional economy in Emerging Europe in 2014–2015: some Balkan countries were hit by floods, which reduced agriculture yields, capital formation, and industry capacity; the recession in Russia reduced exports, particularly of the Baltic countries; and changes in monetary policy from both the European Central Bank and the Swiss National Bank have had double-edged effects by increasing the costs of mortgages denominated in Swiss francs on one hand and reducing interests rates on the other. Despite these difficulties, however, the region’s growth is projected to remain steady, and only three countries fell in their GCI ranking.
The Baltic countries are generally doing better than those in Central and Southern Europe. Lithuania is the most competitive economy in the region (36th), only six positions behind Estonia.19 Poland (41st) and Turkey (51st) take the second and third position in the region. Only Albania (93rd), Serbia (94th), and Bosnia and Herzegovina (111th) are outside the top 80. Gaps are particularly wide on technological readiness, with the Baltics outperforming Southern Europe. Lithuania leads the region in technological and ICT adoption and innovation, with less promising trends in countries such as Albania, Turkey, and Bosnia and Herzegovina.
All countries need to continue implementing structural reforms to achieve higher levels of competitiveness. In particular, all would benefit from improving the flexibility of their labor markets (with the possible exception of Hungary), developing the financial sector, and reducing red tape, which is reported as one of the most problematic factors for doing business in the region.
Competitiveness has been slowly improving overall in the Commonwealth of Independent States (CIS) in recent years, sustained by a positive macroeconomic environment, especially in energy-exporting countries, and slight progress in goods market efficiency and education. Innovation capacity has also improved, but only slightly and from a low base. However, the strong overall performance is under threat from expectations of prolonged low commodity prices and regional knock-on effects of recent geopolitical developments. Russia (45th) still faces economic sanctions, while the situation in the eastern part of Ukraine (79th) remains tense. Recession in both countries will necessarily affect the region’s prospects.
The CIS region needs to diversify to become more competitive and resilient to commodity price and demand shocks, but it may be hampered by the reduced capacity of its financial sector to lend to non-oil sectors. Efforts to shield the economy from shocks in the short term should not derail structural progress toward longer-term competiveness. Countries must step up efforts to improve economic fundamentals such as the efficiency of the goods and labor markets, financial development, competition policy, governance, and enterprise restructuring.
Performance across countries is more homogenous than in other regions, with the best performer (Azerbaijan, 40th) losing one position this year, while the poorest performer (Kyrgyz Republic, 102nd) registers the fastest recent improvement in the region. The largest gaps between countries are in technology readiness and ICTs (where Moldova is leading the group) and infrastructure (led by Russia).
The deceleration experienced in Latin America and the Caribbean since 2012 continues in 2015, with the IMF projecting growth of below 1 percent—down from 1.3 percent in 2014 and 2.9 percent in 2013.20 Falling commodity prices add to the persisting challenge of low levels of trade, investment, and savings, and low productivity growth. As a result, the region has seen its performance on the GCI stagnate over the past five years. On a brighter note, some countries are likely to benefit from the US recovery, given their strong trade and investment links.
The region is heterogenous and the competitiveness divide among these countries remains wide. The top Latin American performer is Chile (35th), followed by Panama (50th) and Costa Rica (52nd). Mexico and Colombia are rapidly approaching the top three after improving four and five positions, respectively. Three Latin American countries experience dramatic declines this year: Bolivia, Brazil, and El Salvador. All three countries suffer from deteriorating institutions and low macroeconomic performance stability. At the bottom of the region are Venezuela (132nd) and Haiti (134th). Most countries from the region cluster toward the middle—that is, between 50th and 100th, with Argentina slightly outside this range at 106th.
To create sustainable long-term growth, the region must build resilience against external economic shocks. Infrastructure, skills, and innovation—areas in which the region performs relatively poorly—are among the fundamentals to be strengthened. Structural reforms and measures to improve the business environment and to foster innovation, coupled with a better-educated workforce—through more on-the-job training, for example—would increase resilience by diversifying the economy away from commodity price dependence and enable production with more value-added.21
There is a sense of urgency for the region to overcome its productivity challenges to enhance competitiveness, even in an environment of slower economic growth. The region needs not only to boost productivity but also to share the resulting prosperity, reducing and preserving social gains that might be at risk.
There are stark differences in competitiveness across the Middle East and North Africa region. Led by Qatar (14th), the United Arab Emirates (17th), Saudi Arabia (25th), and Bahrain (39th), many Gulf Cooperation Council (GCC) countries are already fairly competitive and can build on past progress to improve further. However, the Levant and North Africa lag significantly behind, the best performers being Jordan (64th) and Morocco (72nd).
Although most of its countries have made progress in improving competitiveness, the region is marked by fragility and vulnerability to shocks. Rising geopolitical security concerns made it impossible to cover Yemen, Syria, or Libya in this year’s Report. Spillovers from the Syrian war have affected security elsewhere in the Levant, while in North Africa, terrorist events in the Spring of 2015 undermined recent positive developments in Tunisia (92nd).
Despite the diversity of their economies, most of the region’s countries share the major—and daunting—challenge of creating sufficient employment opportunities for their youthful populations.
More jobs can be achieved only by creating the right conditions for the private sector to grow. The region is also home to some of the world’s biggest energy exporters; the recent drop in energy prices further demonstrates the need for economic diversification and developing a strong and vibrant private sector. The recent agreement with Iran on its nuclear program (73rd) may provide important growth opportunities if conditions for implementation are fulfilled.
Sub-Saharan Africa’s solid growth rates—more than 5 percent over the past 15 years—bear witness to the region’s impressive economic potential.22 However, Africa’s levels of productivity remain low. The recent fall in resource prices has affected many countries,23 and the normalization of US monetary policy may lead to increased investor scrutiny of emerging market risk, undermining growth prospects. Both these developments emphasize the region’s need to prioritize competitiveness-enhancing reforms.
The region’s most pressing challenges are weak institutions, poor infrastructure, and insufficient health and education sectors. Improving education and the enabling environment for employment will largely determine whether or not the region will be able to reap the unprecedented growth opportunities of its growing labor force—the number of sub-Saharan Africans reaching working age (15–64) will exceed that of the rest of the world by 24 The region’s comparatively efficient markets demonstrate its capacity for reform, as reflected in its rapidly improving goods market efficiency.25 However, reforms to improve institutions and bridge the infrastructure and human capital gaps will take time to produce results.
There are wide regional disparities in competitiveness. The top performers are Mauritius (46th), South Africa (49th, and reversing its four-year downward trend), Rwanda (58th), and Botswana (71st). However, 15 out of the bottom 20 economies are sub-Saharan African, with Guinea propping up the list in 140th. The other two countries hardest hit by Ebola—Liberia (129th) and Sierra Leone (137th)—also rank low. Côte d’Ivoire (91st) and Ethiopia (109th) are this year’s largest improvers: both have strengthened institutions, while Côte d’Ivoire has also improved its financial markets and domestic competition and Ethiopia has made progress in its goods and labor market as well as its business sophistication and innovation.