FIERCE business competition in the wake of globalisation has put competitiveness at a premium. According to the World Economic Forum, competitiveness is the set of institutions, policies and factors that determine the level of productivity.
The competitiveness of Pakistan’s economy is on the slide. In 2007-08, the country’s position on global competitiveness index (GCI) drawn up by the WEF was 92nd, which came significantly down to 118 (out of 142 countries) in 2011-2012.
The GCI measures the micro and macroeconomic foundations of an economy’s competitiveness. Its edifice rests on 12 pillars, namely institutions, infrastructure, macro economic stability, health and primary education, higher education and training, goods and labour market efficiency, financial market sophistication, technological readiness, market size, businesssophistication, and innovation. Let us see how Pakistan has fared on these 12 pillars during the last half a decade.
A country’s institutions, for the purpose of our discussion, comprise the legal and administrative framework within which the economic players—individuals, businesses and the government—interact. The institutions may hinder or promote growth and investment, may reward or penalise efficiency and may or may not apportion costs and benefits fairly.
Pakistan’s ranking with respect to institutions on the GCI index has been rather low. In 2007-08, the ranking was 81, which deteriorated to 85 in 2008-09, 89 in 2009-10 and 112 in 2010-11. In 2011-12, the ranking has slightly improved to 107.
The most obvious problem associated with our institutional framework is the high economic cost of terrorism on which Pakistan is placed at 141 out of 142 countries included in the Global Competitiveness Report. Other major problem areas are organised crime, lack of transparency in the public sector, inefficient dispute settlement mechanism and lack of adequate protection of property, including intellectual property rights.
On infrastructure, the ranking has consistently gone down: 72 in 2007-08, 85 in 2008-09, 89 in 2009-10, 110 in 2010-11 and 115 in 2011-12. The major issue is the electricity shortage. The overall quality of infrastructure also leaves much to be desired. Of the three modes of transport, the quality of air transport is worst.
A stable macroeconomic environment is vital for sustained growth and competitiveness. However, Pakistan has been in throes of macroeconomic instability during last few years forcing it to seek the IMF assistance. Not surprisingly, the country’s ranking on macroeconomic index has deteriorated from 101 in 2007-08 to 116 in 2008-09, 114 in 2009-10, 133 in 2010-11 and to 138 in 2011-12. The major causes are high inflation, fiscal deficit, massive public debit, low level savings and high interest rate spread.
Access to basic health and education shores up the productivity of labour and makes it easier for workers to adapt advanced production processes. Pakistan has had a low ranking on this indicator: 115 in 2007-08, 116 in 2008-09, 114 in 2009-10, 123 in 2010-11 and 121 in 2011-12. The relevant problem areas are low level 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 which 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, 123 in 2008-09, 118 in 2009-10, 123 in 2010-11 and 122 in 2011-12. The biggest impediment is low level of secondary and tertiary education enrollment followed by inadequate staff training, availability of research and training services, internet access in schools and 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: 82 in 2007-08, 100 in 2008-09, 83 in 2009-10, 91 in 2010-11 and 93 in 2011-12. The major problem areas are trade barriers, particularly high import tariffs, import-GDP ratio, high costs of agricultural policy and number of procedures to start a business.
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, 121 in 2008-09, 124 in 2009-10, 131 in 2010-11 and 136 in 2011-12.
Hence, over the years labour market has become more inefficient. The major issues are woman participation in labour force, redundancy costs and lack of worker mobility.
Savings and investment are a 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 comparatively fared well. The country was ranked 65th in 2007-08, 71st in 2008-09, 64th in 2009-10, 73rd in 2010-11 and 70th in 2011-12. Access to loans and venture capital availability are the areas where the country’sposition is quite high—41st and 45th respectively. However, the overall availability and affordability of financial services need a lot of improvement.
Technological readiness, the 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, 100 in 2008-09, 104 in 2009-10, 109 in 2010-11 and 115 in 2011-12. The major problems are lack of technology transfer through FDI, the internet usage, and availability of latest technologies.
Of all the GCI pillars, Pakistan’s ranking is highest in market size, which includes not only the domestic market but also the foreign market. Market size is important because it enables the firms to realise the economies of scale and thus cut down production cost. The country was ranked 28th in 2007-08, 29th in 2008-09, 30th in 2009-10, 31st in 2010-11 and 30th in 2011-12. In terms of domestic and foreign market size, the country is ranked at 27 and 59 respectively. This underlines the need for increasing the export market size.
Business sophistication, the 11th indicator, comprehends the quality of overall business network and the standard of firm level strategies and operations. An important relevant concept is cluster development, which shores up efficiencies and makes for innovation. Pakistan has occupied a middle position in terms of business sophistication: 79 in 2007-08, 87 in 2008-09, 81 in 2009-10, 79 in 2010-11 and 76 in 2011-12. The country is fairly ahead (48th) in terms of cluster development. The two biggest problems on this indicator are the unwillingness of the top business management to delegate their authority at junior level and the local supplier quality. The former has a lot to do with the country’s culture of power.
Finally, we come to innovation, which is important because in the long run standard of living can be raised only by inventing and exploiting new techniques. Innovation requires above all sufficient investment in research and development (R&D). On this GCI pillar also, Pakistan has occupied a middle position: 69 in 2007-08, 82 in 2008-09, 79 in 2009-10, and 75 in both 2010-11 and 2011-12. Interestingly, Pakistan has comparatively high place in terms of company spending on R&D (50th) and capacity for innovation (51st). However, the major problem areas are government’s procurement of advanced technological products, grant of utility patents and availability of scientists and engineers.
e-mail: hussainhzaidi@gmail.com