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Global competitiveness and Sri Lanka

December 31, 2015


The Global Competitiveness Report compiled by the
World Economic Forum is an annual analysis of economies around the
globe, paying attention on key factors and their inter-relations of each
country's economic growth and present &future prosperity. This analytical
report has been in production for the past 35 years. Sri Lanka stands at
the 68th rank out of 140 economies in 2015-16 index. In 2014-15 Sri
Lanka was in 73rd position, out of 144 economies.
The Global Competitiveness Index is calculated on a 12 pillar
concept which defines institutions, policies, and factors that
determine the level of productivity of a country. Pillars 1, 2, 3
and 4 consisting of Institutions, Infrastructure, Macroeconomic
Environment and Health and Primary Education are considered
as Basic requirements of an economy which take approx. 40%
weightage of overall 12 pillars. 5th to 10th pillars which cover
Higher Education and Training, Labor Market Efficiency, Financial Market
Development, Technological Readiness and Market Size are recognized as
the Efficiency enhancers of an economy which take 50% of the pillar
weightage. 11th and 12 pillars are taken as Innovation and Sophistication
Factors of an economy which contribute 10% to the economy.
On overall basis when 12 pillars are taken for consideration, Sri Lanka
Stands at the 68th position whilst India is on 55, Pakistan 126, Bangladesh
107, Vietnam 56, Myanmar 131 and Thailand 32.
First pillar: Institutions

It is noted that public and private institutions are playing a vital role in the
behavior and the efficiency of the economy. Good governance in these
sectors are considered of utmostimportance.
Sri Lanka stands at 67th under basic requirements out of 140 economies.
Property rights & intellectual property protection, Diversion of public funds,
Public trust in politicians, Irregular payments and bribes, Judicial
independence, Favoritism in decisions of Government officials,
Wastefulness of Government spending, Burden of Government regulations,
Efficiency of legal framework in settling disputes, Efficiency of legal
framework, Transparency of Government policymaking, Business costs of
terrorism, Business costs of crime and violence, Organized crime,
Reliability of police services, Ethical behavior of firms, Strength of auditing
and reporting standards, Efficacy of corporate boards, Protection of
minority shareholders' interests andStrength of investor protection are
evaluated
Second pillar: Infrastructure
Widespread and efficient infrastructure is important for guaranteeing the
real functioning of the economy. Transport system consisting of better
quality roads, railroads, ports and airports would enable the business
community to send their products to the market in timely manner and
enable the movement of labor force to their jobs without wasting time and
energy. Further, the continuous supply of quality electricity will ensure
continuous functioning of factories and work places will have a greater
impact on the economic growth of a country. Finally, a solid and extensive
telecommunications network allows for a rapid and free flow of
information, which increases overall economic efficiency by helping to
ensure that businesses can communicate and decisions are made by
economic factors taking into account all available relevant information.
Sri Lanka stands at the 64th position on the Infrastructure Pillar which
covers Quality of overall infrastructure, Quality of roads, railroads and Port
infrastructure, Quality of air transport infrastructure ,Available airline
facilities, Electricity supply, Mobile telephone subscription, Fixed-telephone
lines/100 etc.
Third pillar: macroeconomic

environment
Under the global competitiveness, macroeconomic environment considered
to be the third pillar. Macroeconomic environment is vital for businesses to
function properly. It is understood that macroeconomic stability alone
cannot increase the productivity of a country. But the macroeconomic
disorder damages economy in a big way, as we recently experienced in
Europe. A Government finds it difficult to provide services efficiently when
it has to make high-interest payments on its past debts. Unbearable fiscal
deficits, limits the Government's ability to react to business cycles. It
would be difficult for private sector to operate efficiently when inflation
rates are out of hand. In other words,an economy to grow sustainably
macro environment has to be stable.
On macroeconomic environment Sri Lanka stands at the 115th position
which comprises of Government budget balance as a % GDP, Gross
National Savings, Inflation as Annual Change Percentage, General
Government Debt as a percentage of GDP and Country Credit Rating.
Fourth pillar: health and
primary education
Health and primary education also plays a key role in the context of
competitiveness and the productivity of a country. These two factors
decide quality of the workforce. If the workforce is not healthy and not
properly educated, theycould be less productive. Workers with poor health
have higher probability to get absent and low level of education may cause
problems in production processes which will be costlier for businesses
which have a greater impact on efficiency and productivity.
Therefore, investing in health services is considered to be a serious
requirement. Additionally investing in primary or basic education will make
the workforce much more knowledgeable and in turn will affect the
productivity of a nation.
In Health and primary education Sri Lanka has reached the 43rd position
which comprises of Malaria density and business impact, Tuberculosis

cases and business impact of tuberculosis, HIV prevalence and business


impact of HIV/AIDS, Infant mortality and life expectancy, Quality of
primary education etc.
Fifth pillar: higher education
and training
When a nation is moving up in a value chain expecting to go beyond
simple production processes, education and training will play a crucial role.
Today, the globalized economy needs countries to build pools of welleducated workers who are able to perform multifaceted tasks and find
their feetin the changing environment and the evolving needs of
production systems. This pillar evaluates secondary and tertiary enrollment
rates as well as the quality of education and the extent of training provided
to staff with the view of constant upgrading of workers' skills. These
aspects are neglected in many economies in the world.
In higher education and training, Sri Lanka stands at the 66th position
globally which evaluates on secondary education enrollment, Tertiary
education enrollment, Quality of the education system Quality of math and
science education, Quality of management schools,Internet access in
schools, Availability of specialized training services, Extent of staff training
etc.
Sixth pillar: goods market
efficiency
It is vital for countries to have efficient goods markets that are well
positioned to produce the correctblend of products and services required
by the economywhilst having healthy supply and demand conditions. The
healthy market situation will ensure efficiency and productivity of
businesses to be kept at high whereby growth of the economy is ensured.
In goods market efficiency our country has reached 51which evaluates
Number of procedures and number of days to start a business, Agricultural
policy costs, Prevalence of non-tariff barriers, Trade tariffs as a percentage
of duty, Prevalence of foreign ownership, Business impact of rules on FDI,

Burden of customs procedures, Imports as a percentage of GDP, Degree of


customer orientation and buyer sophistication.
Seventh pillar: Labor market
efficiency
The efficiency and flexibility of the labor market are critical for an
economy. The workers should be allocated to jobs in a very effective
manner and they should be provided with attractive incentives where the
labor force may contribute to the growth of the economy positively. The
gender equity in the business environment and flexible regulations will
attract skilled workers with greater talents to an economy.
In Labor market efficiency Sri Lanka stands as low as 130 which coversCooperation in labor-employer relations, Flexibility of wage determination,
Hiring and firing practices, Redundancy costs, Effect of taxation on
incentives to work, Pay and productivity, Reliance on professional
management, Country capacity to retain talent, Country capacity to attract
talent and Women in labor force ratio to men,
Eighth pillar: financial
market development
The financial sector is of utmost importance for the development process
of a country. The wealth of the nation is comprehended through the
financial sector of the country and has the ability to attract foreign
entrepreneurs and investments. Therefore, availability of capital through
sophisticated financial markets is playing a key role in the economy. In a
sound financial market, a well established banking sector which is
trustworthy,a well regulated securities exchange systems and venture
capital business with appropriate regulations protecting investors, are
considered as vital aspects.
Under this pillar Sri Lanka has reached 51 whichcovers Availability and
Affordability of financial services , Financing through local equity market,
Ease of access to loans, Venture capital availability, Soundness of banks,
Regulation of securities exchanges, Legal rights etc.

Ninth pillar: technological


readiness
This pillar evaluates the availability of technology for industries which is a
crucial fact inreaching higher levels of productivity. The ability of industries
to use information and communication technology very effectively in their
processes may increase the efficiency & innovation, and thereby will reach
competitiveness which is much needed by a business. The developing
economies has the ability to attractadvanced technologies through FDIs.
In Technological readiness Sri Lanka is at the 93rd position, Technological
readiness, Availability of latest technologies, Firm-level technology
absorption,FDI and technology transfer, Individuals using Internet, Fixedbroadband Internet subscriptions, International Internet bandwidth and
Mobile-broadband subscription are included in the pillar.
Tenth pillar: market size
The size of the market plays a substantial role in the increase of
productivity of business. Large markets will offer better opportunities to
the firms mainly due to economies of scale. Conventionally the market
sizes were decided by the geographical borders, but lately many small
economies started exploring offshore opportunities whereby exports
became a crucial factor in an economy.
As far as market size is concerned Sri Lanka is at the 61 position. It
includes Domestic market size, Foreign market size, % of GDP in Private
Public Partnership value, Exports as a percentage of GDP etc.
Eleventh pillar: business
sophistication
The quality of country's overall business network and quality of individual
companies' operations and strategies are measured under this pillar. These
aspects are required in going beyond basic business achievements and to

reach extensive productivity goals. In this scenario business ventures will


explore and create more sophisticated business opportunities by going
beyond standard boundaries. The increased business sophistication will
encourage more firms entering the market.
In Business sophistication Sri Lanka stands at the 44 positionwhich
evaluates local supplier quantity and quality, State of cluster development,
Nature of competitive advantage, Value chain breadth, Control of
international distribution,Production process sophistication, Extent of
marketing, Willingness to delegate authorityetc
Twelfth pillar: innovation
The ability of firms to adopt latest technology and reach innovation, is
measured in this pillar. Companies will come up with cutting edge products
with the use of technology and will form a competitive advantage by value
addition. R &D will play a key role in this aspect and both public sector and
private sector are required to contribute to this facet immensely
In this pillar Sri Lanka has reached 43. Capacity for innovation, Quality of
scientific research institutions, Company spending on R&D, Universityindustry collaboration in R&D, Government procurement of advanced tech
products, Availability of scientists and engineers, number of patent
applications are covered under this pillar.
It is noteworthy that interrelations of these 12 pillars are vital for a
sustainable economic balance and weakness of one pillar will tend to
deteriorate the economic growth on overall basis.
(The writer is the Secretary General / CEO of the National Chamber of
Commerce of Sri Lanka.)
Direct Reference -The Global Competitiveness Report 2015-2016)
Posted by Thavam