Iran Slips 1 Spot in WEF's Global Competitiveness Index

EghtesadOnline: The World Economic Forum’s “Global Competitiveness Report 2018-19”, published on Wednesday, shows Iran’s Global Competitiveness Index has dropped by one place compared to last year with a score of 54.9 out of 100.

News ID: ۷۸۴۲۳۷

21 October 2018

The country now ranks 89th out of 140 countries surveyed.

The United States topped the charts in this year’s WEF Global Competitiveness Report. The US previously earned top honors in 2008. Singapore came in second this year while Germany stood at third spot. Chad, meanwhile, was the bottom-dweller, at 140th spot.

WEF used a new methodology in its latest edition to include elements that determine productivity. Of the 98 indicators, 34 were retained from the previous methodology while 64 other indicators are new, including diversity, workers rights, re-skilling, and press freedom, resulting in new updated list for 2018, according to Financial Tribune.

Each indicator uses a scale from 0 to 100 to signify how close an economy is to the ideal state or “frontier” of competitiveness. Those indicators are then organized into 12 pillars, such as health, skills, financial system, infrastructure and institutions.

Although the results of the 12 pillars of competitiveness are reported separately, it is important to keep in mind that a strong performance in one pillar cannot make up for a weak performance in another.

For instance, investing in technology without investing in digital skills will not yield meaningful productivity gains. In order to increase competitiveness, no area can be neglected.

What follows is a short description of each pillar 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 through providing incentives and reducing uncertainties.

Iran has ranked 121st in this sector, with a score of 44.3. The country’s best performance pertained to “homicide rate” where it ranked 65th. Its worst performance was recorded for “shareholder governance” at 136th.

> Infrastructure

Better-connected geographic areas have generally been more prosperous. Well-developed infrastructure lowers transportation and transaction costs, facilitating 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 ranked 76th in terms of infrastructure, with a score of 65.4 out of 100. Its performed best (39th) in terms of “road connectivity index” and worst in the area of “efficiency of air transport services” (121st).

> 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 has come in 80th in this pillar with a score of 47.6. The country has fared best (67th) in “fixed-broadband Internet subscriptions” and worst (114th) 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 this pillar is 117th with a score of 66.9. This pillar includes two indicators, namely “inflation” and “debt dynamics” in which Iran has ranked 122nd and 87th, 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 84th with a score of 77.5 in this pillar, which only features one indicator: “healthy life expectancy”. The country has ranked 83rd in this respect.

> 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 knowledge quickly, creating new knowledge and applications.

Iran has come in 91st in this pillar with a score of 57. In terms of “school life expectancy” indicator, Iran has fared best (57th) while it performed worst (121st) in terms of “extent of staff training”.

> Product Market

This pillar 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, 134th, with a score of 42.

In terms of “trade tariffs”, Iran has occupied the 140th spot—its worst ranking among the indicators of this pillar. Iran’s best ranking in this pillar went to “efficiency of clearance process” indicator (71st).

> 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 the 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 136th with a score of 43.1. One indicator of this pillar is “female participation in Labor force” where Iran has had its worst performances (136th).

Iran’s ranking in terms of “active labor policies” has been better than other indicators in this pillar (88th).

> 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 by assessing borrowers, reducing information asymmetries; and providing an efficient payment system.

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

Iran has been ranked 98th with a score of 52.5 in this pillar. The country has fared best in the subcategory of “domestic credit to private sector” (57th) and worst in “soundness of banks” (131st).

> 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. More potential users mean greater potential returns on a new idea.

Moreover, 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 know-how.

Given Iran’s population and its relatively high GDP, the country has its best ranking in this area (19th). This pillar includes two indicators of “gross domestic product” and “imports” in which the country ranks 18th and 137th, 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 119th with a score of 50. The country’s ranking was the best (33rd) for “cost of starting a business” and worst (130th) for “willingness to delegate authority”.

> Innovation Capability

This pillar 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 and 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 65th in this category with a score of 37.6. The country delivered its best performance in “quality of research institutions” where it ranked 16th and its worst in “diversity of workforce” where it was placed 125th.