A ten-year decline in the openness of economies at all stages of development poses a risk to countries’ ability to grow and innovate, according to The Global Competitiveness Report 2016-2017, published today.
The report is an annual assessment of the factors driving productivity and prosperity in 138 countries. Monetary stimulus measures such as quantitative easing are not enough to sustain growth and must be accompanied by competitiveness reforms.
“Declining openness in the global economy is harming competitiveness and making it harder for leaders to drive sustainable, inclusive growth,” said Klaus Schwab, Founder and Executive Chairman, World Economic Forum.
While basic drivers of competitiveness such as infrastructure, health, education and well-functioning markets will always be important, data in the GCI (Global Competitiveness Index) suggests that a nation’s performance in terms of technological readiness, business sophistication and innovation is now as important in driving competitiveness and growth. As Xavier Sala-i-Martin, Professor of Economics at Columbia University said: “To me, the interest in economic growth comes from the fact that it is potentially so important for improving human welfare. The Global Competitiveness Report helps us understand the drivers of growth and this edition comes at a time of stalling productivity, the main determinant of future growth.”
Faced with impending Brexit and geopolitical crises spilling over into the region, Europe finds itself in critical condition in many respects.
Nevertheless, the region—which includes the EU28, Iceland, Norway, Switzerland, the Balkans, and Turkey—still performs above the global average in terms of competitiveness (4.72 average score in Europe versus an average score of 4.11 among the rest of the world) This is driven by the performance of a group of regional champions, notably Switzerland, which leads the global rankings for the eighth consecutive year. The top 12 includes seven more European countries: the Netherlands (4th), Germany (5th), Sweden (6th), the United Kingdom (7th), Finland (10th), Norway (11th), and Denmark (12th).
While European economies continue to dominate the top ten, there remains no end in sight for the region’s persisting north-south divide. Spain improves by one point climbing to 32, however Italy drops back one place to 44 and Greece reverses 5 places to 86. France, the Eurozone’s second largest economy, climbs one place to 21. For all economies in Europe, maintaining and improving prosperity levels will depend heavily on their ability to harness innovation and the talents of their workforces.
Although the top European countries are pushing the frontier in almost all areas, there is wide dispersion in regional performance on several pillars.
The largest gap is in the macroeconomic environment pillar, a reflection of the fact that the region has been recovering unevenly from the global financial crisis. Europe’s median performance is weakest across the innovation indicators: the region’s countries are clearly divided, with a significant gap between the innovation assessment for Northern and Western European countries versus Central, Eastern, and Southern European ones.
Accelerating innovation efforts will be crucial to maintain current levels of prosperity, and Europe can expect high returns from focusing its resources on nurturing its talent. The United Kingdom is currently still the most attractive EU destination for talent, yet the Brexit vote has created significant uncertainty over the conditions under which workers from EU countries will be able to participate in the UK economy in the future. Moreover, university applications from the European Union could potentially drop amid uncertainty over prospective students’ status and subsequent access to the UK job market. Other European destinations also seem to be losing appeal. Indeed, some of the largest score drops for France compared to last year were registered for the “attract and retain talent” indicators.
With unemployment - and youth unemployment, in particular - still high across the region, Europe is leaving some of its citizens behind.
Yet good practice examples in this area exist on the continent, with countries such as Switzerland and Denmark striking a balance between high labor market flexibility and. Many European countries will have a lot of catching up on labor market efficiency to do over the coming years; note that the level of inclusion achieved by reforms will depend heavily on the details of implementation.
How does Bulgaria perform?
As a part of the report, a survey was conducted for which respondents were asked to select the five most problematic factors for doing business in their country. Issues such as inefficient government bureaucracy, government instability and policy instability have gone down the ranking of most problematic factors for doing business. These long-term effects of political instability that were in the top five identified obstacles last year are still of high importance today, but have given way to more pressing problems such as corruption and workforce deficiencies. The most problematic factor identified for doing business in Bulgaria is corruption, which could be identified as a growing problem as last year it was ranked the second most important obstacle for doing business in our country. This year, corruption is shortly followed by “inadequately educated workforce”.
The latter is an issue that employers and businesses had already identified and have been signaling for some time now. What is necessary to address this issue is cooperation between educational institutions, especially higher education ones and employers to work on improvements for students to graduate better prepared to effectively enter the workforce and to fill the gaps between the skills and knowledge of graduates and the needs of the economy and businesses and therefore to make it easier for employers to find the right people for the positions that require highly-qualified employees.
Apart from corruption and inadequately educated workforce, there has been an increase in those concerned about poor work ethic in national labor force, inadequate supply of infrastructure, and tax rates.
Some slight improvements since last year can be observed in the infrastructure pillar which focuses on the quality of overall infrastructure and the quality of various transport facilities infrastructure. The rise from number 72 in the world ranking to number 70 has taken place most likely due to the intensive investment in road infrastructure by the current government. The goods market efficiency has also improved its ranking and has risen to number 57 from number 61 in 2015. Access to financing was the top issue for interviewees last year, while today it is not considered as problematic as it was, which indicates the growth of opportunities for financing such as business angels, start-up accelerators, and venture capital funds. Bulgaria has also made some improvements in the sphere of business sophistication and business innovation rising to number 79 and number 65 from the place of number 98 and 94 accordingly. However, in comparison with the rest of Europe and North America, Bulgaria is still far behind from those best performing in terms of innovation. Despite the fact that we do have the technological readiness, Bulgarians experience difficulty to transform this readiness into actual results such as innovations, cluster development, improvement of the spending and quality of research and development.
There are two pillars that have worsened for Bulgaria in the past year
Macroeconomic environment with the indicator including government budget balance, gross national savings, inflation, government debt and country credit rating, and health and primary education. Possible reasons for the decline include the national debt which has doubled compared to its 2011 level when it was 12.8 billion levs while today it has grown up to 23.4 billion. The health and primary education pillar which includes quality of primary education, business impact of diseases, infant mortality, and life expectancy has likely worsened due to the controversial and stalled reforms in both fields. In comparison with the rest of the EU countries, the rates of infant mortality in Bulgaria are much higher, along with comparatively shorter life expectancy of Bulgarians. In addition, and as one of the potential reasons for this, a recently published UN report reveals the fact that Bulgaria ranks second in the world in deaths due to bad air quality, while Sofia is the most polluted European capital. Bulgaria performs worst in terms of its capacity to retain talent, with its capacity to attract talent shortly following – indicators that further highlight the brain drain and brain gain problem of Eastern European countries, and Bulgaria in particular. Organized crime continues to be a key obstacle for investments along with questionable intellectual property rights and managers’ lack of willingness to delegate authority.
In conclusion
The report shows that Bulgaria has the potential to grow and develop – it has the technological readiness, infrastructure is gradually improving, options for financing are growing, but more efforts should be invested in translating this potential into actual improvements in terms of economic growth and development, competitiveness and innovation as a driver of long-term prosperity. Having in mind that investment is crucial for our economy, it is absolutely necessary that attention should be paid to the key problematic factors for doing business in Bulgaria as this data could be a useful instrument for policy-recommendation for actions to be taken by the relevant institutions. The data highlights the need for a swift introduction of actions to ensure dialogue between the government on the one hand and civil society and businesses on the other. While the EU does host some of the most competitive economies globally, closing the competitive gap between Europe’s least and most competitive economies remains crucial. From a Bulgarian perspective, we should work to move towards a knowledge-driven economy with a focus on institutions, talent, and the innovation ecosystem.
Prioritised support for businesses based on innovative and digital technologies is the way forward for the development of a competitive economy and welfare for citizens. EDIT.BG is an initiative that works in support of this.
