Iran’s Competitiveness Index Improves by 7 Notches

The latest report by World Economic Forum dubbed “The Global Competitiveness Report 2017–18” shows Iran’s Global Competitiveness Index has moved up by seven notches.

As a result, the country now ranks 69th out of 137 countries surveyed. Iran’s rankings in 2014, 2015 and 2016 were 83rd, 74th and 76th respectively.

Switzerland retained its top spot in the widely followed annual ranking of business competitiveness, while the US moves up to second overall, from third last year.

Yemen, torn by civil war and poverty, came last, although WEF does not include countries like Iraq and Syria, where normal business is impossible.

The Global Competitiveness Report continues to be the most comprehensive assessment of its kind. GCI combines 114 indicators that include concepts that matter for productivity and long-term prosperity.

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 on others.

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

> 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 85th in this sector, compared to its last year standing of 90th. The country’s best performance was in “efficiency of government spending” where it ranked 45th. Its worst performance was recorded for “strength of investor protection”, which was 126th.

> 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 ranked 57th in this regard, up from the previous 59th. Its best performance (22nd) was recorded for “fixed-telephone lines” and the worst was in the area of “quality of air transport infrastructure” (105th).

> 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”, “government debt”, “inflation” and “country credit rating”.

Iran’s best performance has been registered in this pillar by the overall ranking of 44th. The country's last year standing was at 72nd.

The country has fared best (7th) in “gross national savings” and worst (121st) in “inflation”.

> 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 overall ranking in this pillar is 50th compared to the previous 49th. Its best (1st) and worst performances (93th) were in “HIV prevalence” and “business impact of HIV/AIDS”, respectively.

> Higher Education & Training

Good 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 51st in this regard. Its 2016’s ranking was 60th.  The country fared best in “tertiary education enrollment rate” where it ranked 25th and worst in “extent of staff training” where it came 98th.

> 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 procedures to start a business” and “imports as a percentage of GDP”.

Iran ranks 100th compared to last year’s 111th. In terms of “effectiveness of anti-monopoly policy” indicator, Iran has fared best (50th) while it performed worst (137th) in terms of trade tariffs.

> 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, 130th. The country’s last year’s ranking was 134th.

In terms of “female participation in the labor force” Iran has occupied the 136th spot, its second worst ranking among all indicators. Iran’s best ranking in this pillar went to “hiring and firing practices” indicator (72nd).

> 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 128th compared to last year’s 131st. One indicator of this pillar is “regulation of security exchange” where Iran has had its worst performances (126th).

Iran’s ranking in terms of “venture capital availability” has been the best in this pillar (83rd).

> 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 been ranked 91st compared to its prior ranking of 97th. The country has fared best in the subcategory of “fixed-broadband Internet subscriptions” (66th) and worst in “firm-level technology absorption” (118th).

> 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 its best ranking in this area (19th), the same as last year.

> 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 been ranked 97th compared to last year’s 109th. The country’s ranking was the best (67th) for “local supplier quantity” indicator and worst (128th) in “willingness to delegate authority”.

> 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 66th in this category compared to last year’s 89th. The country delivered its best performance in “availability of scientists and engineers” where it ranked 39th and its worst in “university-industry collaboration in R&D” where it came 94th.