Monday, September 27, 2010

Egypt slides 11 places in competitiveness index

26 September 2010 -- Daily News Egypt 2010

CAIRO: Egypt ranked number 81 in a global competitiveness index, dropping 11 places from last year.

Out of 139 countries included in the 2010-11 Global Competitive Index (GCI) report, issued by the World Economic Forum, Egypt -- the largest country in the Arab world-- came in 81st place, down from 70 in 2009-10.

Topping the list was Switzerland, which the report described as exemplifying "capacity for innovation and a very sophisticated business culture." Meanwhile the United States, marred by its protracted economic troubles, stumbled downward two spots, placing it fourth overall.

Chad bottomed out the list at 139th.

Without addressing the land-locked African nation specifically, the report stated that much, if not all, of sub-Saharan Africa "lags behind" the rest of the world in terms of competitiveness, a term which the report defines as "as the set of institutions, policies, and factors that determine the level of productivity of a country."

The GCI report breaks down its ranking into 12 different pillars, ranging from institutions, infrastructure, health and primary education to technological readiness, innovation and business sophistication.

Within this pillar structure, the report notes that Egypt's main competitive strengths are the "sheer size of the market," ranking it 26th, which allows businesses to "exploit economies of scale."

It rates its institutions 60th, providing it with "good governance."

Third, transport infrastructure is rated relatively high at 56th overall, ensuring that goods and services can be delivered and used efficiently.

Yet hurdles remain.

The report highlights that the market "continues to be over-regulated," which results in a weakened ability to properly allocate and employ human resources. This dilemma is all the more troubling as a significant segment of the young work force remains unemployed.

Underscoring the severity of this issue, the report places Egypt at 133rd in terms of its ability to efficiently exploit the talent of its work force, making it one of the "poorest performers in the GCI sample."

As well, the participation of women in the work force remains woefully low, landing Egypt a score of 130th, notwithstanding government efforts to check this problem.

Nonetheless, "some preliminary positive results" have been achieved in this area, the report says.

Pertaining to macro-economic issues, the government's debt has been reduced to 80 percent of GDP, and the budget deficit has remained stable, at 6.6 of GDP in 2009.

Inflation, meanwhile, has been rising, which averaged out to 6.6 percent in 2009, placing Egypt at number 135 out of 139.

In addition, the report notes that Egypt's banking system, "despite some improvements, continues to raise some concerns," placing it at 99th overall.

The GCI report, which places countries into three columns: factor-, efficiency- or innovation-driven, determined Egypt to be in a transition phase, putting it between both factor- and efficiency-driven stages of its economic development.

Indeed, the economy still relies somewhat on natural resources for rent, which is coupled with a partially unskilled work force, typical characteristics for factor-driven economies; while at the same time its production processes have become more efficient, as well as product quality and wages having increased, all of which are qualities present in efficiency-driven economies.

In such an efficiency-driven context, prices must remain stable otherwise the economy will lose its competitive edge in the international market. To this end, it must improve higher education, create a well-functioning labor market, have developed financial markets, and have a large domestic or foreign market, amongst others.

Globally speaking, the GCI report explains that in the context of the global economic malaise, emerging economies such as Egypt have, "for the most part, bounced back to healthy growth," while industrialized such as the United States and western Europe continue to struggle due to persistent "unemployment, weak demand, and spiraling debt."

It also notes that these same advanced economies are having manifest difficulties in establishing reforms in both the financial and labor markets, posing further obstacles to maintaining their level of competitiveness.

As such, the International Monetary Fund (IMF) predicts solid growth for emerging economies at 6.25 percent, in contrast to advanced economies, which will only manage to attain a modest 2.25 percent in 2010.

The findings of the GCI report have been lauded by the Joint Research Center of the European Commission (JRC), which is, according to the report, "widely recognized as holding the world's leading expertise on composite indicators."

The JRC describes the GCI report to be "a solid index."