On the slide

The competitiveness of Pakistan’s economy is on the slide. In 2007-08, the country`s position on the global competitiveness index (GCI) drawn up by the World Economic Forum was 92nd, which came significantly down to 118 (out of 142 countries) in 2011-2012. Next year, the ranking fell further to 124. In the latest GCI ranking (2013-14), Pakistan has slipped to 133 (out of 148 countries)! Among the countries reported, Pakistan’s ranking is the lowest in South Asia – well below India (60th), Sri Lanka (65th), Bhutan (109th), Bangladesh (110th), and Nepal (117th).

The WEF defines competitiveness as the set of institutions, policies and factors that determine the level of productivity of an economy or country. The level of productivity in turn is linked to the growth and overall prosperity of a country. The GCI ranking is based on 12 broad indicators covering a country’s political, regulatory, socio-economic, and technological environment.

We begin with the institutions. A country`s institutions comprise the legal and administrative framework within which the economic players – individuals, businesses and the government – interact. Institutions, in large measure, mean laws and declared policies. But they also include the government’s actual attitude towards economic and business affairs.

Institutions may hinder or promote growth and investment, may reward or penalise efficiency and may or may not apportion costs and benefits fairly. The institutions should not only be sound but also fair – that is, they ought to promote competition rather than create monopolies. In 2007-08, Pakistan’s ranking on institutions was 81, which in 2013-14 has slipped to 123. The most obvious problem associated with our institutional framework is the high economic cost of terrorism, on which Pakistan is placed at 144, followed by organised crime (141), business cost of crime and violence (138), reliability of police services (135), and favouritism in government decisions (130). However, Pakistan’s position is far better on investors’ protection, and judicial independence (55).

The second indicator is infrastructure, on which our ranking has gone down from 72 in 2007-08, to 121 in 2013-14. The major issue is power shortage that ranks at 135. The overall quality of infrastructure also leaves much to be desired. Of the three modes of transport, the quality of air transport is the worst. Not surprisingly, the government has decided to privatise the national air carrier.

A stable macroeconomic environment is vital for sustained growth and competitiveness. However, Pakistan has been in the throes of macroeconomic instability over the last several years forcing the government to seek IMF assistance twice in six years (2008 and now in 2013). Not surprisingly, the country`s ranking on the macroeconomic index has deteriorated from 101 in 2007-08 to 145 in 2013-14. The major causes are high inflation, fiscal deficit, a massive public debt, and low level of savings.

Access to basic health and education shores up the productivity of labour and makes it easier for workers to adapt advanced production processes. Pakistan’s ranking has slipped on this indicator as well: 115 in 2007-08 and 128 in 2013-14. The relevant problem areas are low levels of primary education enrolment, high infant mortality rate, low life expectancy and poor quality of primary education.

Investment in higher education and training, including on-job training, is important for an economy that wants to move up the value chain.

In case of Pakistan, higher education and training has been a neglected area borne out by the country`s rather low ranking on this indicator: 116 in 2007-08, and 129 at present. The biggest impediment is the low level of secondary and tertiary education enrolment followed by inadequate staff training, availability of research and training services, internet access in schools and overall quality of science education.

Goods market efficiency pertains to producing and selling the right product mix given the demand and supply conditions and ensuring that the most efficient firms thrive. This is another area in which the country has had a low ranking – 103 from 82 in 2007-08. The major problems are trade restrictions and lack of an effective competition regime resulting into monopolies and market dominance.

The next indicator is labour market efficiency. Workers need to be allocated to their most efficient use and the economy must attract talent rather than make for brain drain. On labour market efficiency, the score has been worse than that on goods market efficiency. The position was 113 in 2007-08, which has come down to 138 in 2013-14. The major issues are low level of women’s participation in the labour force, redundancy costs and worker-employer relations.

Savings and investment are key to economic growth. This underlines the importance of efficient and transparent financial institutions to channelise national savings into their most productive use. Financial market sophistication is one indicator where Pakistan has fared comparatively well. The country is ranked 67th at present compared to its position in 2007-08 (65th). Regulation of security exchanges is an area where the country`s position is quite high (44th). However, the overall availability and affordability of financial services need a lot of improvement.

Technological readiness, next on the GCI index, means the agility with which technologies are adopted to raise productivity. Access to information and communication technologies (ICT) are the main planks of technological readiness. Not surprisingly, technological readiness is an obstacle to Pakistan`s competitiveness as evident from the country`s low ranking on this index: 89 in 2007-08, and 118 in 2013-14. The major problems are lack of technology transfer through FDI, and lack of availability of the latest technologies.

Of all the GCI pillars, Pakistan`s ranking is highest in market size (30), which includes both the domestic and foreign markets. Market size is important because it enables firms to realise the economies of scale and thus cut back on production cost. In domestic and foreign market size, the country is ranked at 27 and 63 respectively. On export-to-GDP ratio, it is ranked at 144. This underlines the need to increase the export market size.

Business sophistication, the 11th indicator, includes the quality of overall business network and the standard of firm level strategies and operations. Pakistan has occupied a middle position in terms of business sophistication: 79 in 2007-08, and 85 in 2013-14. The two biggest problems on this indicator are the unwillingness of the top business management to delegate their authority and the local supplier quality. The former has a lot to do with the country`s culture of power.

The final indicator is innovation, which is important because in the long run the standard of living can be raised only by inventing and exploiting new techniques. Innovation requires sufficient investment in research and development (R&D). On this GCI pillar as well, Pakistan has occupied a middle position: 69 in 2007-08, and 77 in 2013-14.

Interestingly, Pakistan fares well in terms of capacity for innovation (49), and availability of scientists and engineers. However, the major problem areas are the government`s procurement of advanced technological products, grant of utility patents and university-industry collaboration.

The writer is a freelance contributor.Email: hussainhzaidi@gmail.com