Iran's Ranking Drops in WEF's Global Competitiveness Index

EghtesadOnline: The World Economic Forum’s “Global Competitiveness Report 2019” shows Iran’s ranking has dropped by 10 places with a score of 53 out of 100 compared to last year's report.

News ID: ۷۴۸۶۹۷

13 October 2019

The country now ranks 99th out of a total of 141 countries surveyed. This year’s Global Competitiveness Report is the latest edition of the series launched in 1979, which provides an annual assessment of the drivers of productivity and long-term economic growth.

With a score of 84.8, Singapore was the world’s most competitive economy in 2019, overtaking the United States, which falls to second place, together with Hong Kong (third), Netherlands (fourth) and Switzerland (fifth) rounding up the top five.

Building on four decades of experience in benchmarking competitiveness, GCI maps the competitiveness landscape of 141 economies through 103 indicators organized into 12 themes. Each indicator, using a scale of 0 to 100, shows how close an economy is to the ideal state or “frontier” of competitiveness, Financial Tribune reported.

The average GCI score across the 141 economies studied is 60.7.

The 12 themes, which cover broad socioeconomic elements, are: institutions, infrastructure, ICT adoption, macroeconomic stability, health, skills, product market, labor market, the financial system, market size, business dynamism and innovation capability.

What follows is a short description of each theme and Iran’s rankings in each area:

Institutions

By establishing constraints, both legal (laws and enforcement mechanisms) and informal (norms of behaviors), institutions determine the context in which individuals organize themselves and their economic activity. Institutions impact productivity, mainly by providing incentives and reducing uncertainties.

Iran has ranked 120th in this sector, with a score of 42.5.

The country’s best performance was in “energy efficiency regulation” where it ranked 16th. Its worst performance was recorded for “shareholder governance”, which was 137th.

Infrastructure

Better-connected geographic areas have generally been more prosperous. Well-developed infrastructure lowers transportation and transaction costs, and facilitates the movement of goods and people and the transfer of information within a country and across borders. It also ensures access to power and water—both necessary conditions for modern economic activity.

Iran has ranked 80th in terms of infrastructure, with a score of 64.8 out of 100.

Its best performance (41st) was recorded for “liner shipping connectivity” and the worst was in the area of “efficiency of air transport services” (132nd).

ICT Adoption

Information and communication technologies reduce transaction costs and speed up information and idea exchange, improving efficiency and sparking innovation. As ICTs are general-purpose technologies increasingly embedded in the structure of the economy, they are becoming as necessary as power and transport infrastructure for all economies.

Iran’s stood at 84th place in this regard with a score of 50.8. The country has fared best (68th) in “the number of internet users” and worst (125th) in “fiber internet subscriptions”.

Macroeconomic Stability

Moderate and predictable inflation and sustainable public budgets reduce uncertainties; set returns expectations for investments and increase business confidence—all of which boost productivity.

Also, in an increasingly interconnected world where capital can move quickly, loss of confidence in macroeconomic stability can trigger capital flight, with destabilizing economic effects.

Iran’s overall ranking in terms of this theme is 134th with a score of 52.2. This theme includes two indicators, namely “inflation” and “debt dynamics”, in which Iran has ranked 135th and 64th, respectively.

Health

Healthier individuals have more physical and mental capabilities, are more productive and creative, and tend to invest more in education as life expectancy increases.

Healthier children develop into adults with stronger cognitive abilities.

Iran has been ranked 72nd with a score of 80.4 in this regard, which only features one indicator: “healthy life expectancy”.

The country has ranked 71st in “healthy life expectancy”.

Skills

Education embeds skills and competencies in the labor force. Highly educated populations are more productive because they possess greater collective ability to perform tasks and transfer know-how quickly, and create new knowledge and applications.

Iran has come in 92nd in terms of this theme with a score of 57.9. In terms of “school life expectancy” indicator, Iran has fared best (57th) while it performed worst (136th) in terms of “skill set of graduates”.

Product Market

This theme captures the extent to which a country provides an even playing field for companies to participate in its markets. It is measured in terms of extent of market power, openness to foreign firms and the degree of market distortions.

Competition supports productivity gains by incentivizing companies to innovate; update their products, services and organization; and supply the best possible products at the fairest price.

Iran’s performance in this regard has been dismal, 133rd, with a score of 41.6.

In terms of “trade tariffs” Iran has occupied the 141st spot, its worst ranking among the indicators of this theme. Iran’s best ranking in this theme went to “extent of market dominance” (61st).

Labor Market

Well-functioning labor markets foster productivity by matching workers with the most suitable jobs for their skill set and developing talent to reach their full potential.

By combining flexibility with protection of workers’ basic rights, well-functioning labor markets allow countries to be more resilient to shocks and reallocate production to emerging segments; incentivize workers to take risks; attract and retain talent; and motivate workers.

Here, Iran ranked 140th with a score of 41.3. One indicator of this theme is “ease of hiring foreign labor” where Iran has had its worst performances (139th).

Iran’s ranking in terms of “workers’ rights” has been better than other indicators in terms of this theme (93rd).

Financial System

A developed financial sector fosters productivity in mainly three ways: pooling savings into productive investments; improving the allocation of capital to the most promising investments through monitoring borrowers, reducing information asymmetries; and providing an efficient payment system.

At the same time, an appropriate regulation of financial institutions is needed to avoid financial crises that may cause long-lasting negative effects on investments and productivity.

Iran has been ranked 123rd with a score of 47.5 in this regard. The country has fared best in the subcategory of “domestic credit to private sector” (53rd) and worst in “banks’ regulatory capital ratio as a percentage of total risk-weighted assets (141st).

Market Size

Larger markets lift productivity through economies of scale: the unit cost of production tends to decrease with the amount of output produced.

Large markets also incentivize innovation.

As ideas are non-rival, more potential users mean greater potential returns on a new idea.

Large markets create positive externalities as accumulation of human capital and transmission of knowledge increase the returns to scale embedded in the creation of technology or knowledge.

Given Iran’s 83 million-strong population, the country has its best ranking in this area (21st) with a score of 74.1. This theme includes two indicators of “gross domestic product” and “imports of goods and services” in which the country ranks 18th and 138th, respectively.

Business Dynamism

An agile and dynamic private sector increases productivity by taking business risks, testing new ideas and creating innovative products and services.

In an environment characterized by frequent disruption and redefinition of businesses and sectors, successful economic systems are resilient to technological shocks and are able to constantly reinvent themselves.

Iran has been ranked 132nd with a score of 44.3. The country’s ranking was the best (32nd) for “cost of starting a business” indicator and worst (138th) in “attitudes towards entrepreneurial risk”.

Innovation Capability

This theme captures the quantity and quality of formal research and development; the extent to which a country’s environment encourages collaboration, connectivity, creativity, diversity and confrontation across different visions and angles; and the capacity to turn ideas into new goods and services.

Countries that can generate greater knowledge accumulation and that offer better collaborative or interdisciplinary opportunities tend to have more capacity to generate innovative ideas and new business models, which are widely considered the engines of economic growth.

Iran is placed 71st in this category with a score of 38. The country delivered its best performance in “research institutions prominence” where it ranked 15th and its worst in “multi-stakeholder collaboration” where it stood at 134th place.