Last three decades have been dubbed as a golden era of globalization due to the unprecedented boom in flow of goods, ideas and people across national borders. As a result, global economy has become increasingly homogeneous and national economies more intertwined than ever before. This has given rise to an international market of goods and services where every country is competing against the others in a centralized world. This why it is important to remain competitive globally and a recent report sheds light on how far we are as a country on competitiveness ranking amongst world economies.
The World Economic Forum (WEF) released its Global Competitiveness Report (GCR) 2018 this week ranking countries according to several macroeconomic and microeconomic indicators. Pakistan was placed at 107th position out of 140 countries present on the index. This year’s ranking was one point worse than last year’s 106th position. The typical doom and gloom analysis would have sufficed here but let us use these columns for something better than cliched rhetoric of politician’s bashing. Instead, I will try to dissect WEF’s Global Competitive Index 4.0 (GCI) into its core indicators called pillars and interpret them in context of Pakistan’s economic outlook.
GCI is a comprehensive measurement that takes into account several key social and economic indicators to calculate overall condition of an economy. According to WEF’s own definition, “The Global Competitiveness Index measures the set of institutions, policies, and factors that set the sustainable current and medium-term levels of economic prosperity.” It assesses the ability of countries to provide high levels of prosperity to their citizens. This in turn depends on how productively a country uses available resources. The index contains four categorial dimensions and 12 pillars to quantify global competitiveness of any economy. These dimensions include enabling environment, Human capital, Markets and innovative ecosystem.
Enabling environment is the first group of indicators measured under GCI to underline the opportunities available to the people of working age in a country. Pakistan scored 46 out of maximum possible score of 100 in first pillar that is institutions. This is the basic requirement of economic stability and existence of strong economic institutions has been one of the long-term problems of our country. These include public and private institutions that facilitate economic cooperation and financial stability in any economy. Public institutions in Pakistan are particularly weak as is evident from chronic losses being incurred in state owned enterprises such as PIA, railways and Pakistan Steel Mills.
Next pillar is Infrastructure, and this is one of the only a few that Pakistan scored a comparatively better 59 and stood at 93rd position. This is primarily due to previous government’s almost obsessive interest in infrastructure development which in itself brings no harm. But as we’ll see in next indicators that it does not do any good for economy if infrastructure development is not complemented with equally robust human development. Compare it with the Information and communication Technology (ICT) adoption (pillar 3) where Pakistan scored its lowest 24, and it becomes clear that infrastructural priorities of previous government were misplaced as not enough focus was put on harnessing the global IT revolution for economic gains.
Macroeconomic stability (pillar 4) score though being quite high in the list at 70 still puts Pakistan at 103rd position mainly due to overall stabilization trend prevailing globally. This too does not seem to hold for us as recent months have seen increased fluctuations in macroeconomic indicators and the inflationary wave expected in the wake of stringent IMF bailout conditions and a devalued rupee. Good thing is that new government can quickly put things back on track using foreign reserve supplement from IMF to boost domestic growth though this will admittedly take years to achieve macroeconomic stability.
Having a competent workforce is detrimental to global competitiveness and pillars 5 and 6 of GCI deal with the state of human capital of a country. Pakistan scored 58 in health and 40 in skills. This demands an immediate acceleration in health and education uplift projects, but the government has decided to cut spending in these exact sectors. A recent world bank report on Human Capital Index placed Pakistan at 135 out of 157 countries. Ensuring mother and child health before and after birth along with proper nutrition and vaccination in early years of life along with overall development of health sector is a must.
Education too needs to be taken care of not only at early stages but at higher level too. Moreover, quality of education needs equal attention along with the quantity. Merely getting the children into school or college is not enough. Skill development should also be given equal importance at higher level. Current educational institutions are imparting only rudimentary professional skills that are not even applicable in the local market let alone at international level. World is changing rapidly, and we’ll have to train our workforce according to demands of knowledge economy in order to compete globally.
Efficient product (pillar 7) and labor (8) market lie at the heart of every economy. Having an efficient product market requires a vibrant consumer culture full of product choices and range of manufacturers. Pakistan being an agrarian country has its eyes set on mostly low value-added agricultural products and more cost-effective products are directly imported mainly from china. This has two-pronged impact on economy and market. Precious foreign exchange reserves are spent on importing finished goods plus this leads to a swollen trade deficit. Priority should be given to develop manufacturing industry not only to meet domestic demand but also import value added goods. This will take care of workforce problem too most of which is currently employed in labor intensive low productivity tasks. They must be trained and employed in developed fields.
Financial system of Pakistan (Pillar 9) is relatively developed as marked by a higher rating of 54 and ranking of 89 in this indicator. Growing popularity of mobile banking and microfinancing shows that Pakistan is ready to make the most of latest developments, but this sector is marred by a different set of problems mainly money laundering and terror financing regulations. Pakistan was added to Financial Action Task Force’s (FATF) grey list back in February and continued inaction may put it into black list. This will severely harm integration into international financial system and further damage global competitive ness. Pillar 10, Market size is the overall sum of all goods and services consumed in a country thus directly linked to other economic indicators.
Last two indicators, business dynamism and innovation capability deal with a country’s ability to produce diverse goods and values and adapt latest developments in a certain field. This not involves technological innovations as discussed in ICT adaption but overall developments in business and corporate culture. Pakistan was already a late comer to corporate scene and most businesses have stuck with archaic managerial systems and family owned business manufacturing a limited range of products sans a few aspiring individuals. What’s needed is a diverse business culture and equally robust ability to accommodate new business methods. This can be done by promoting entrepreneurial mindset as new ventures are almost always diverse and dynamic.
I’ll be the first to admit that this is a very brief and bird’s-eye view of a dozen indicators measuring a country’s global competitiveness and whole books have been written on each one of the pillars mentioned above. But this tells us that globalized economy is highly competitive and in order to benefit from our economic strengths such as huge market size and a young workforce, policy makers need to take into account all the relevant indicators and devise comprehensive policies. This is why reports and rankings like from WEF or World Bank should be taken seriously by the government as they tell us where we stand and how to move forward.