The latest report by World Economic Forum dubbed as “The Global Competitiveness Report 2015–2016” shows Iran’s Global Competitiveness Index has jumped nine places to rank 74th compared to the past year.
Iran’s rankings during 2012-14 were 66th, 82nd and 83rd respectively.
Switzerland, which was ranked the most competitive country for the seventh consecutive year, was praised by the WEF for its world-class research institutions and high spending on research and development. Singapore was ranked the second most competitive country, followed by the US and Germany.
The report defines competitiveness as the set of institutions, policies and factors that determine the level of productivity. This sets the level of prosperity that can be reached by an economy. The productivity level also determines the rates of return obtained by investments in an economy, which in turn are the fundamental drivers of growth rates. In other words, a more competitive economy is one that is likely to grow faster over time. This open-endedness is captured within the GCI by including a weighted average of many components, each measuring a different aspect of competitiveness.
This year’s Global Competitiveness Report provides an overview of the competitiveness performance of 140 economies and thus continues to be the most comprehensive assessment of its kind. The GCI combines 114 indicators that capture concepts that matter for productivity. These indicators are grouped into 12 pillars: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation.
Although the results of the 12 pillars of competitiveness are reported separately, it is important to keep in mind that they are not independent: They tend to reinforce each other, and a weakness in one area often has a negative impact in others.
What follows next is a short description of each pillar and Iran’s rankings in those pillars:
First Pillar: Institutions
The institutional environment of a country depends on the efficiency and behavior of both public and private stakeholders. The legal and administrative framework within which individuals, firms and governments interact determines the quality of the public institutions of a country and has a strong bearing on competitiveness and growth. Iran has ranked 94th in this sector. The first spot belongs to Finland.
Second Pillar: Infrastructure
Extensive and efficient infrastructure is critical for ensuring the effective functioning of the economy. Effective modes of transport—including high-quality roads, railroads, ports and air transport—enable entrepreneurs to get their goods and services to market in a secure and timely manner and facilitate the movement of workers to the most suitable jobs. Economies also depend on electricity supplies that are free from interruptions and shortages so that businesses and factories can work unimpeded. 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 actors taking into account all relevant information. Iran ranks 63rd in this regard while Hong Kong has occupied the first place. Iran has fared best in the indicator termed “fixed-telephone lines per 100 people” and worst in “quality of air transport infrastructure”, given the western sanctions of past which targeted the aviation industry.
Third Pillar: Macroeconomic Environment
The stability of macroeconomic environment is important for business and, therefore, is significant for the overall competitiveness of a country. This pillar includes indicators such as “government budget balance”, “gross national savings”, “general government debt”, “inflation” and “country credit rating”. Iran’s overall ranking in this pillar is 66th, where the first place goes to Norway. Iran’s performance in this sector is somewhat contradictory. Although the country had one of the best performances in the “general government debt” by ranking ninth, it has been placed 137th regarding “inflation”.
Fourth Pillar: Health and Primary Education
A healthy workforce is vital to a country’s competitiveness and productivity. Workers who are ill cannot function to their potential and will be less productive. Poor health leads to significant costs to business, as sick workers are often absent or operate at lower levels of efficiency. Investment in the provision of health services is thus critical for clear economic, as well as moral, considerations. In addition to health, this pillar takes into account the quantity and quality of the basic education received by the population, which is increasingly important in today’s economy. Basic education increases the efficiency of each individual worker. Iran’s best performance has been registered in this pillar by the overall ranking of 47th. The best country in this sector has been Finland.
Fifth Pillar: Higher Education & Training
Quality higher education and training are crucial for economies that want to move up the value chain beyond simple production processes and products. Iran has been ranked 69th in this regard while Singapore is placed first.
Sixth Pillar: Goods Market Efficiency
Countries with efficient goods markets are well positioned to produce the right mix of products and services given their particular supply-and-demand conditions, as well as to ensure that these goods can be most effectively traded in the economy. Healthy market competition, both domestic and foreign, is important in driving market efficiency, and thus business productivity, by ensuring that the most efficient firms, producing goods demanded by the market, are those that thrive. Market efficiency also depends on demand conditions such as customer orientation and buyer sophistication. The pillar includes indicators such as “trade tariffs”, “number of days to start a business” and “imports as a percentage of GDP”. Iran ranks 69th while Singapore has once again achieved the top rank in this regard. In terms of “effectiveness of anti-monopoly policy” indicator, Iran has fared best while in terms of trade tariffs it has performed worst.
Seventh Pillar: Labor Market Efficiency
The efficiency and flexibility of the labor market are critical for ensuring that workers are allocated to their most effective use in the economy and provided with incentives to give their best effort in their jobs. Labor markets must therefore have the flexibility to shift workers from one economic activity to another rapidly and at low cost, and to allow for wage fluctuations without much social disruption. Iran’s performance in this regard has been dismal, 138th among 140 countries. Only Argentina and Venezuela have fared worse than the Middle Eastern country. In terms of “women in labor force” and “prevalence of foreign ownership” Iran has occupied the 139 and 140 spots respectively.
Eighth Pillar: Financial Market Development
An efficient financial sector allocates the resources saved by a nation’s population, as well as those entering the economy from abroad, to the entrepreneurial or investment projects with the highest expected rates of return rather than to the politically connected. Business investment is critical to productivity. Therefore economies require sophisticated financial markets that can make capital available for private-sector investment from such sources as loans from a sound banking sector, well-regulated securities exchanges, venture capital, and other financial products. Here, Iran ranked 134th while New Zealand has come in first. One Indicator of this pillar is “ease of access to loans”. Iran has been placed 138th which translates into one of its worst performances. Iran’s ranking in terms of “financing through local equity market” has been the best in this sector i.e. 104th.
Ninth Pillar: Technological Readiness
The technological readiness pillar measures the agility with which an economy adopts existing technologies to enhance the productivity of its industries, with specific emphasis on its capacity to fully leverage information and communication technologies in daily activities and production processes for increased efficiency and enabling innovation for competitiveness. Iran has ranked 99th while Luxembourg has come in first.
10th Pillar: Market Size
The size of the market affects productivity since large markets allow firms to exploit economies of scale. Traditionally, the markets available to firms have been constrained by national borders. In the era of globalization, international markets have become a substitute for domestic markets, especially for small countries. Given Iran’s population and its relatively high GDP, the country has registered one of its best performances in this area by ranking 19th. The top rank has gone to China.
11th Pillar: Business Sophistication
Business sophistication concerns two elements that are intricately linked: the quality of a country’s overall business networks and the quality of individual firms’ operations and strategies. Iran has ranked 110th and the European country of Switzerland came in first in this sector.
12th Pillar: Innovation
The final pillar of competitiveness focuses on technological innovation. Innovation is particularly important for economies as they approach the frontiers of knowledge, and the possibility of generating more value by merely integrating and adapting exogenous technologies tends to disappear. In these economies, firms must design and develop cutting-edge products and processes to maintain a competitive edge and move toward even higher value-added activities. Iran is placed 90th and Switzerland has come in first again.
