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COMPTETITIVE ADVANTAGES
Abstracts from “The Arab World Competitiveness Report 2007:
Sustaining the Growth Momentum”
Published by the World Economic Forum, April 10, 2007
Analysis by Réhab El-Bakry
Last month, the World Economic Forum (WEF) issued its Arab World
Competitiveness Report, assessing the competitiveness of 13 Arab
countries in comparison to their counterparts around the world.
While the region has been experiencing an economic boom over the
past few years due to rising oil prices, the report assesses the
economies of these countries based on a variety of issues in relation
to sustainable economic growth and development.
“The high energy prices of the past few years have brought
the Arab world the highest growth rates in nearly three decades.
In the oil-exporting countries, the oil boom has gone hand in hand
with surging fiscal and external surpluses, shrinking public debts
and raising levels of foreign reserves. This windfall has been shared
by the non-oil exporting countries through investment flows, remittances
and trade.”
While these positive results have created financial surpluses and
maintained economic development throughout the region, the danger
lies in depending on oil prices as the basis for the region’s
economic boom. Oil prices are, by their nature, volatile and could
tumble as suddenly as they rise.
“As long as energy prices remain at their present levels,
it is safe to suggest that the Arab economies – especially
those endowed with substantial oil and gas reserves – could
sustain the ongoing prosperity for a while. But therein lies the
danger as well. […] More worrisome, what if the current prosperity
postpones the adoption of structural reforms needed to achieve international
competitiveness and sustain the current growth momentum? After all,
oil booms have traditionally provided breathing space for governments
and delayed the implementation of reform programs.”
The 13 countries included in the survey are: the United Arab Emirates
(UAE), Qatar, Kuwait, Bahrian, Tunisia, Oman, Jordan, Libya, Algeria,
Egypt, Morocco and Mauritania – with the UAE being the most
competitive and Mauritania coming in last. The results of the survey
are based on economic competitiveness categories developed by the
WEF for its annual Global Competitiveness Index (GCI) where countries
are placed into three different groups based on their level of development.
“Countries are categorized according to the following three
stages of development: the factor-driven stage, the efficiency-driven
stage and the innovation-driven stages. The factor-driven first
stage of development describes an economy that competes on natural
resources or the abundance of low-cost labor.”
According to the results, the UAE topped the list of the 13 Arab
countries included in the survey, as it was the highest ranking
of all Arab countries on the GCI’s innovation-driven stage.
The UAE’s strength is based on its adoption of serious economic
transformations over the past decade through liberalization and
diversification.
“Besides the macroeconomic environment, other areas of strength
include the very modern transportation infrastructure, and well-functioning
public and private institutions.”
However, for a country that is at the innovation-driven stage of
development, innovation is highly lacking. Both the public and private
sectors need to invest more in research and development (R&D)
for the economy to realize its potential. Thus far, the UAE has
based most of its growth on the adoption of technology developed
by other countries.
Qatar, Kuwait and Bahrain rank second, third and fourth respectively
in the Arab countries competitiveness report, all classified as
being at the innovation-driven stage of development. While their
macroeconomic indicators are strong, their weakness in other areas
of development keeps them from becoming more competitive internationally.
Much like the UAE, education enrollment, particularly at the secondary
and tertiary levels, are weak and the amount invested in R&D
needs to be increased.
“Qatar business will have to focus on innovation and increasing
business sophistication. […] Government is clearly protecting
property rights well and gives priority to procuring advanced technology
products. Yet business and research institutions lag behind. […
In Kuwait,] one particular aspect highlighted is the prevalence
of pervasive red tape that negatively affects business operations
and makes the entry of new companies difficult. […] Although
formal trade barriers are not identified as obstacles, foreign ownership
is considered the most restricted of the countries covered.”
Five countries included in the survey fall into the efficiency-driven
stage of development category: Tunisia, Oman, Jordan, Libya and
Algeria. Generally, countries falling into this category need to
improve their macroeconomic indicators such as inflation, international
debt and government spending.
“Countries in this phase need to focus on higher education
and training, market efficiency, and technological readiness to
enable businesses to employ labor more productively and pay higher
wages. At the same time, the basics – institutions, infrastructure,
macroeconomy and primary education – are equally important
for national competitiveness and should be maintained.”
Tunisia, which ranks fifth, has stable macroeconomic indicators
and a good education system but has weak institutions and an underdeveloped
infrastructure and financial system. Oman, which ranked sixth on
the Arab Competitiveness Index, has strong macroeconomic indicators
as well as well-developed institutions, which contribute to a good
business environment. However, the country ranks poorly on the adoption
of technology and overall modern management techniques.
“[Ranked seventh, Jordan’s] strong performance is linked
to low levels of corruption, transparent and accountable public
institutions, and business-friendly regulations that are easy to
comply with. […] A drawback is the country’s exposure
to insecurity, reflecting the threat of terrorism and its proximity
to the Arab-Israeli conflict. […] Its macroeconomic environment
remains one of the most fragile in the world […] because of
its high budget deficit and public debt. Labor markets are overly
regulated with respect to hiring and firing.”
Libya, which has never been included in any of the international
competitiveness rankings before, lands eighth on the index. Previously
closed to the global economy, recent political shifts are pushing
the country towards higher participation in the world market. Working
to diversify its economy, Libya has one of the highest budgetary
surpluses in the region and among the lowest government debts worldwide.
However, its infrastructure is severely underdeveloped with much
work to be done to improve the quality of education. Ninth on the
competitiveness report is Algeria. With excellent macroeconomic
indicators, with public debt being reduced from 41 percent of GDP
in 2001 to 16 percent in 2006, the economy has much potential. However,
corruption remains a challenge and its labor market is highly inefficient
due to overregulation.
“The third group of counties […] are in the factor-driven
stage of development. […] Although attention in the first
stage of development should focus on the basic requirements, also
very important are higher education and training, market efficiency,
and technological readiness. The compositeness performance is hampered
in this group by low attainment of higher education and low levels
of market efficiency.”
Egypt, which ranks 10th in terms of competitiveness, has a mix
of both strengths and weaknesses. Private and public institutions
function well mostly due to a large number of technocrats. However,
high protectionism, coupled with a continued threat of terrorism,
doesn’t serve it well. Moreover, Egypt has one of the highest
budget deficits in the world due to imprudent public spending habits.
And while it has one of the most protected economies in the region,
competition is relatively high due to a large domestic market.
“Transport, energy, and communications infrastructure serves
the economy well, and good progress has been achieved on primary
education with near universal enrollment attained. Yet the quality
of education remains low and hardly meets the needs of a growing
and dynamic business sector.”
In 11th place, Morocco has several strengths, particularly prudent
government spending that is likely to make Egypt jealous. Infrastructure
is generally efficient with the exception of the telecommunications
sector. The country competes well in terms of readiness for the
use of technology, but its actual penetration is low. An enhanced
competitiveness program has been launched to undo a legacy of sheltered
economy. Its education system is one of its biggest advantages with
near universal enrollment and strong outcomes particularly in science,
math and management training.
“With a growing population and a difficult geopolitical environment,
[Syria ranking 12th…] is facing many challenges to improving
competitiveness. […] Infrastructure facilities for telecommunications,
energy, and transport are seen as working efficiently with the exception
of air- and seaports […] Syria displays inferior results on
macroeconomic indicators. Despite the current economic boom, the
country has a significant deficit and has accumulated considerable
public debt, amounting to almost 60 percent of GDP […] In
addition, weaknesses persist in market efficiency. High levels of
protectionism in goods markets and rigid hiring and firing practices
restrict competition in those markets and contribute to the high
level of unemployment.”
Coming in last, Mauritania ranks 13th, with the lowest income per
capita in the Arab world. While the recent discovery of offshore
petroleum fields might mean quicker development in the medium term,
the country is struggling for the time being. Having said that,
the country does have a few pluses including an independent judiciary,
fairly functioning public and private institutions, a flexible labor
force and a readiness for the adoption of technology. However, the
country is the world’s worst performing in terms of infrastructure
and macroeconomic stability. More investment in infrastructure is
required coupled with prudent government spending and improved debt
and fiscal management. Investment in primary education is also urgently
needed.
Details on this report can be found online at www.weforum.org
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