GCR Malaysia

CONTENTS

Introduction

2

WEF’s WE F’s Asses Assessment sment of Malaysia’s Competitiveness Competitiveness P erformance erformance

3

Measuring Competitiveness Competitiveness

4

Highlights

6

Malaysia’s Malaysia’s Competitiveness Competitiveness Strengt trengths hs and Areas for Improvem Improvement ent

6

Malaysia Malaysia and Top 10 Countries ountries

8

Com Competit petitiven iveness ess P erform erformance ance in the Asia P acific and ASEA AS EAN N

10

Malaysia’s Malaysia’s P erformance erformance in the Global Competitiveness Competitiveness Index 2012-2013 2012-2013

12

Instit Institutional utional S trengt trengths hs

13

Improving the Infrastructure Infrastructure of a Nation Nation

14

 The  The Macro acroec econ onom omic Pictu Picture

15

Keeping Keeping Healthcare and P rimary rimary Education ducation in Perspective

16

A Better Workforce through hrough Higher E ducation and Training

17

Sustaining Goods Market Efficiency Efficiency

18

Equality quality for the Labour Labour Market

19

F inancially Effective ffective

20

Adopting a Technological Technological Culture ulture

21

Going Going for Markets Globally

22

Bringing Sophistication to Business Business

23

Empowering mpowering Innovation

24

Evolution in Malaysia's Competitive Competitiveness ness P erformance erformance

26

Competit ompetitiveness iveness E nhancement nhancement Initiatives Initiatives

27

The Path Path to Progress

28

 Ap pen di ces 1. Global Global Competitiveness Competitiveness Index 2012-2013 2012-2013 Rankings and 2011-2012 2011-2012 Comparisons

29

2. The Global Compet Competitiveness itiveness Index 2012-2013 2012-2013 Rankings for Asia P acific acific and and ASE AN Countries Countries 3. List List of Countries/E ountries/Economies conomies at E ach Stage of Development Development

33 34

4. Characteristics Characteristics of Top Ten Most Competitive ompetitive Economies in GCR 2012-2013 2012-2013

5. Comp Competitiv etitiveness eness P erformance erformance of Selected Asian Asian Countries ountries

35 37

1

PERFORMANCE

OF

MALAYSIA

IN

THE

GLOBAL

COMPETITIVENESS REPORT 2012-2013 INTRODUCTION WEF has moved Malaysia up the stage of development to be in the transition stage towards innovation-driven stage from efficienc y-driven stage. stage.

1.

The Global Competitiveness Report 2012-2013 (GCR 2012-

2013) by the World Economic Forum (WEF) based in Geneva, Switzerland covers 144 countries (GCR 2011-2012: 142 countries).

In the Report which was released to the public on 5 th September 2012, Malaysia ranked at 25 th position (2011-2012: ranked 21st) is among

the top 20% of the most competitive economies globally. 2.

Malaysia has also been upgraded to the transition stage of 

development from Efficiency-Driven Stage towards InnovationDriven Stage of Development.  This  This upgrade ade was accor ccord ded as

Malaysia’s GDP GDP per capit capita had increased increased to US US$9,700 $9,700 from from US$8 US $8,423 ,423 previously. At this new stage of development, new weightage is placed on the computation of Malaysia’s competitiveness index; with more weight put on Innovation and Sophistication factors, to prepare the country to move towards being innovation-driven.

2

PERFORMANCE

OF

MALAYSIA

IN

THE

GLOBAL

COMPETITIVENESS REPORT 2012-2013 INTRODUCTION WEF has moved Malaysia up the stage of development to be in the transition stage towards innovation-driven stage from efficienc y-driven stage. stage.

1.

The Global Competitiveness Report 2012-2013 (GCR 2012-

2013) by the World Economic Forum (WEF) based in Geneva, Switzerland covers 144 countries (GCR 2011-2012: 142 countries).

In the Report which was released to the public on 5 th September 2012, Malaysia ranked at 25 th position (2011-2012: ranked 21st) is among

the top 20% of the most competitive economies globally. 2.

Malaysia has also been upgraded to the transition stage of 

development from Efficiency-Driven Stage towards InnovationDriven Stage of Development.  This  This upgrade ade was accor ccord ded as

Malaysia’s GDP GDP per capit capita had increased increased to US US$9,700 $9,700 from from US$8 US $8,423 ,423 previously. At this new stage of development, new weightage is placed on the computation of Malaysia’s competitiveness index; with more weight put on Innovation and Sophistication factors, to prepare the country to move towards being innovation-driven.

2

Table1: Table1: Subind ex Weights Weights and Income Thresho Thresho lds fo r Stages Stages of  Development Stages of Development Transition from stage 2 to stage 3

Stage 3: Innovationdriven

Stage 1: F actor Driven

 Transit  Trans itio ion n fr fro om stage 1 to stage 2

Stage 2: Efficiency-driven

17,000

Weight for basic requirements subindex

60%

40-60%

40%

20-40%

20% 20%

Weight for efficiency enhancers subindex

35%

35-50%

50%

50%

50% 50%

Weight for innovation and sophistication factors subindex

5%

5-10%

10%

10-30%

30% 30%

GDP GDP per capita (US $) thresholds*

WEF’s WEF’s Assess ment of Malaysia’s Malaysia’s Competiti veness Performanc Performanc e

3.

Malaysia Malaysia maintains its its score of 5.1 but drops drops four places as

other countries move ahead. The most notable advantage is found in Malaysia’s efficient and competitive market for goods and services and its remarkably supportive financial sector, as well as its bus iness-frie iness-friendly ndly institutional framework. In a region where

many economies suffer from the lack of transparency and the presence of red tape, Malaysia stands out as particularly successful at tackling those two issues. Yet, despite the progress

achieved, much remains to be done to put the country on a more solid growth path. 4.

Its low level of technological readiness at 51 st position, is

surprising, especially given its achievements in other areas of 

innovation and business sophistication and the country’s focus on promoting the use of ICT. Lack of progress in this area will signific antly undermine Malaysia Malaysia’s ’s efforts to become a knowledge-

based economy by the end of the decade. 3

Measurin Measurin g Competitiveness

5.

The R eport eport uses 30 percent statistical data (32 criteria) and

70 percent survey data (79 criteria) from the Executive Opinion Survey .

The

report

examines

factors

enabling

national

economies to achieve sustained sustained economic grow th and long term term prosperity through its 12 pillars pillars of c ompetitiveness ompetitiveness involvi ng 111 111 indicators . The pillars are:            

6.

Institutions Infrastructure Macroeconomic Environment Health & Primary Education Higher Education & Training Goods Market Efficiency Labour Market Efficiency fficiency Financial Market Development Technological Readiness Market Size Busine Business ss Sophisticat ophistication ion Innovation Although the pillars are aggregated into a single index,

measures are reported for the 12 pillars separately because such details provide a sense of the specific areas in which a particular country needs to improve. Th improve.  The e GCI ta takes th the stag stages es of of de develop elopm ment ent into account by attributing higher relative weights to those pillars that are more relevant for an economy given its particular stage of  development. That is, although all 12 pillars matter to a certain extent for all countries, the relative importance of each one depends on a country’s particular stage of development.

4

7.

To implement this concept, the pillars are organised into three

subindexes, each critical to a particular stage of development. The basic requirements subindex groups those pillars most critical for countries in the factor-driven stage. The efficiency enhancers subindex includes those pillars critical for countries in the efficiencydriven stage and the innovation and sophistication factors subindex includes the pillars critical to countries in the innovation-driven stage.  The three subindexes are shown in Figure 1. Figure 1: The Global Competiti veness Index Framework

5

HIGHLIGHTS MALAYSIA’ S COMPETITIVENESS BASED ON GLOBAL COMPETITIVENESS REPORT 2012-2013

Malaysia’s

Competitiveness

Strengths

and

Areas

for 

Improvement

8.

Malaysia has been elevated from the Efficiency stage of 

development to the transition stage towards Innovation-driven stage of  development. ranked

25th

Malaysia maintains its index score of 5.1 and is among

144

countries.

Four countries, Korea,

Luxembourg, New Zealand and United Arab Emirates had overtaken Malaysia this year. However, Malaysia remains among the top 20 per cent of the most competitive countries globally and continues to be ahead of Israel (26th), Ireland (27th), Brunei Darussalam (28th) and People’s

Republic

of

China

(29th).

The

most

notable

competitiveness strengths are found in Malaysia’s efficient and competitive market for goods and services, ranked 11 th ; its supportive financial sector, ranked 6 th and Government services for improved busi ness performance ranked 4 th . Among the criteria

that are ranked in the top 10 are: i.

Legal rights index (degree of legal protection of borrowers and lenders’ rights), ranked 1st (GCR 2011-2012:1st);

ii.

Pay and productivity, ranked 3r (GCR 2011-2012:4t );

iii.

Government services for improved business performance, (New Indicator) ranked 4th;

iv.

3 more criteria namely Strength of investor protection;

6

Agricultural policy costs and Government procurement of  advanced technology products maintain their 4th rank; v.

Extent of staff raining, ranked 7t (GCR 2011-2012: 9t );

vi.

2 criteria namely Burden of Government regulation and ease of access to loans maintain their 8th rank;

vii.

Financing through local equity market, ranked 9 (GCR 2011-2012: 10th);

viii. Business impact of rules on FDIs, ranked 10t (GCR 20112012: 12th); and ix.

Efficiency of legal framework in challenging regulations, ranked 10th (GCR 2011-2012: 14th).

9.

Among the factors that had adversely affected Malaysia’s

competitiveness are in the areas of Government Budget Balance and Debt; Health, Crime and Techno log ical Readin ess. Indicators

that are ranked 60 and above are: i.

Women in labour force, ranked 119t (GCR 2011-2012: 114th);

ii.

Government budget balance, % of GDP, ranked 110t (GCR 2011-2012: 96th);

iii.

Redundancy costs, weeks of salary, ranked 108t (GCR 2011-2012: 104th);

iv.

Secondary education enrollmen ra e, gross %, ranked 103r (GCR 2011-2012: 101th);

v.

General Government debt, % GDP, ranked 100t (GCR 2011-2012: 98th) ;

vi.

Malaria cases per 100,000 population, ranked 97t (GCR 2011-2012: 89th);

7

vii.

Tuberculosis cases per 100,000 population, ranked 86t (GCR 2011-2012: 85th);

viii.

HIV prevalence, % of adult population, ranked 87t (GCR 2011-2012: 88th);

ix.

International internet bandwidth, ranked 83r (GCR 20112012: 60th);

x.

Trade tariffs, % duty, ranked 76t (GCR 2011-2012: 78t );

xi.

Perception on business costs of crime and violence, ranked 69th (GCR 2011-2012: 63rd);

xii.

Broadband internet subscription

per 100 population,

ranked 68th (GCR 2011-2012: 62nd); xiii. Mobile broadband subscriptions per 100 population, ranked 64th; xiv. Tertiary education enrollment, gross %, ranked 61st (GCR 2011-2012: 66th); and xv.

Perception on organised crime, ranked 60t (GCR 20112012: 54th).

Continuous efforts will be undertaken to address these areas to ensure a smooth progression towards an innovation-driven, high income economy. Malaysi a and Top Ten Coun tries

10.

The top ten countries are Switzerland, Singapore, Finland,

Sweden, Netherlands, Germany, United States, United Kingdom, Hong Kong SAR, and Japan as shown in Table 2. The dominant

source of competitive advantage is the ability of these countries particularly Switzerland, Singapore, Finland and Sweden to produce 8

innovative products and services at the global technology frontier using the most advanced methods. They are also characterised by a high share of services in the economy and are quite resilient to external shocks. Table 2: The Global Competiti veness Index 2012-2013 Top 30 Count ries

Country / Economy

Switzerland Singapore Finland Sweden Netherlands Germany United States United Kingdom Hong Kong SAR  J apan Qatar Denmark  Taiwan, China Canada Norway Austria Belgium Saudi Arabia Korea, Rep. Australia France Luxembourg New Zealand United Arab Emirates Malaysia Israel Ireland Brunei Darussalam People’s Republic of  China Iceland

GCI 2012-2013

GCI 2011–2012

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Score 5.72 5.67 5.55 5.53 5.50 5.48 5.47 5.45 5.41 5.40 5.38 5.29 5.28 5.27 5.27 5.22 5.21 5.19 5.12 5.12 5.11 5.09 5.09 5.07 5.06 5.02 4.91 4.87

Rank 1 2 4 3 7 6 5 10 11 9 14 8 13 12 16 19 15 17 24 20 18 23 25 27 21 22 29 28

Score 5.74 5.63 5.47 5.61 5.41 5.41 5.43 5.39 5.36 5.40 5.24 5.40 5.26 5.33 5.18 5.14 5.20 5.17 5.02 5.11 5.14 5.03 4.93 4.89 5.08 5.07 4.77 4.78

29

4.83

26

4.90

30

4.74

30

4.75 9

Competitiveness Performance in the Asia Pacifi c and ASEAN

11.  Am on g 22 Asia Paci fi c co untri es, Malay sia is ranked at 8 th position and continues to be ahead of Brunei Darussalam (9th),

People’s Republic of China (10th), Thailand (11th), Indonesia (12th), India (13th), Philippines (14th) and Sri Lanka (15th). 12.

It was reported in the WEF news release that "The

competitiveness landscape for developing Asia is much contrasted, with the region’s countries spanning almost the entire ranking of 144 economies and displaying very different trends. Despite losing four  places, Malaysia (25 th ) remains the highest-placed Developing  Asian economy . The Philippines (65 th) is up 10 places and Cambodia (85th) improves by 13. On the other hand, Vietnam drops 10 ranks to 75th, and Bangladesh (118 th) and Pakistan (124 th), fall even further  behind. In the last two years, the competitiveness dynamic in developing Asia seems to have tapered off after years of strong performance."

13.

In the  ASEAN regio n, Malaysia main tains its positi on at 2 nd

after Singapore but is ahead of Brunei Darussalam (3 rd), Thailand (4th), Indonesia (5th), Philippines (6th), Vietnam (7th), and Cambodia (8th) as shown in Figure 2.

10

Figu re 2: Competi tiveness Performance of Asia Pacif ic and ASEAN

Competitiveness Performance Competitiveness of Asia Pacific Countries

18 Mongolia 10 China 5 Korea, Rep. 22 Kyrgyz Republic 3 Japan 20 Pakistan 21 Nepal 13 India 19 Bangladesh 4 Taiwan, China 2 Hong Kong 17 Cambodia 14 Philippines 15 Sri Lanka 11 Thailand 16 Vietnam 8 MALAYSIA 9 Brunei Darussalam 1Singapore

ASEAN Si ng ap ore

1

Malaysia 2 Brunei Thai land In do nes ia Philippines Vietnam Cam bo di a

3 4 5 6 7 8

12 Indonesia •

8th most competitive in

 Asia-Pacific region •

2nd most competitive in

 ASEAN

6 Australia

after Singapore.

7 New Zealand

11

Malaysia’s Performance in the Global Competitiveness Index 2012-2013

14.

Malaysia’s performance in the 12 pillars is as shown in Table 3. Table 3: Malaysia’s Perfo rmance in the 12 Pillars

THE GLOB AL COMPETITIVENESS REPORT Ranked 25th /144 (GCR 2011-2012: 21st /142) Basic Requirements Effic iency Enhancers Innovation Factors th rd Ranked 27 Ranked 23 Ranked 23rd (GCR 2011-12:25th) (GCR 2011-12:20th) (GCR 2011-12:22nd) Pillar 1 Pillar 5 Pillar 11 Institutions Higher Education & Business th Training Sophistication Ranked 29 th th (GCR 2011-12:30 ) Ranked 39 Ranked 20th (GCR 2011-12:38th) (GCR 2011-12:20th) Pillar 2 Pillar 6 Pillar 12 Infrastructure Goods Market Innovation nd Efficiency Ranked 32 Ranked 25th (GCR 2011-12:26th) Ranked 11th (GCR 2011-12:24th) (GCR 2011-12:15th) Pillar 3 Pillar 7 Macroeconomic Labor Market Environment Efficiency th Ranked 35 Ranked 24th (GCR 2011-12:29th) (GCR 2011-12:20th) Pillar 4 Pillar 8 Health & Primary Financial Market Education Development rd Ranked 33 Ranked 6th (GCR 2011-12:33rd) (GCR 2011-12: 3rd) Pillar 9 Technological Readiness Ranked 51st (GCR 2011-12:44th) Pillar 10 Market Size Ranked 28th (GCR 2011-12:29th) 























12

Institutional Strengths Institutions  The institutional environment is determined by the legal and administrative framework within which individuals, firms, and governments interact to generate wealth.

15.

Malaysia is ranked 29th (GCR 2011-2012: 30th) in the

Institutions pillar  with notable individual contributory factors from

Government services for improved business performance, Burden of  government regulation, P ublic trust in politicians and Strength of  investor protection. Malaysia’s initiatives in facilitating businesses through modernising business licensing where the Special Taskforce to Facilitate Business (PEMUDAH) works with ministries and agencies have resulted in better procedural reforms. PEMUDAH will continue to undertake initiatives to improve the business environment.

These

include business process re-engineering in various licensing processes and procedures; implementation of web-based e-payment facilities for online payments nationwide; and fine tuning the one-stop centre approval processes for building plans. 16.

The continuous wide ranging measures in achieving better

procedural reforms also include a wider adoption of transparent measures such as the Corporate Integrity Pledge (CIP) with an incentive driven scheme for consistent adherence to these measures. With the introduction of the Corporate Governance Blueprint in 2011, Malaysia continues to rank highly as one of the leading nations in investor protection (4 th ) and upholding minority shareholder  interests (15th ). The blueprint has also gone hand in hand with the

CIP to provide a better efficacy of c orp orate boards (14 th ).

13

Among the criteria that have contributed to Institutions include: 

Government services for improved business performance at 4th position;



Strength of investor protection at 4th position;



Burden of government regulation at 8th position; and



Perception on Efficiency of legal framework in challenging regulations at 10th position.

Among the areas for improvement under the Institutions include perception on: 

Business costs of crime and violence, ranked 69th;



Organised crime, ranked 60th; and



Business costs of terrorism, ranked 58th.

Improvi ng the Infr astruct ure of a Nation Infrastructure Extensive and efficient infrastructure is critical for ensuring the effective functioning of the economy, as it is an important factor in determining the location of economic activity and the kinds of  activities or sectors that can develop in a particular instance.

17.

Malaysia is ranked at 32nd in the Infrastructure pillar  (GCR

2011-2012:26th). Under this pillar, Quality of railroad infrastructure (17th); mobile telephone subscriptions (33rd) and Quality of electric supply (35th) have improved their rankings as compared to previous year. The GCR pointed out that Malaysia needs to step up efforts to improve the quality of overall infrastructure. The Government is addressing this specifically in terms of improving quality of transport infrastructure that includes incorporating the various modes; rail, buses and taxis and improved integration within and between them. Rural roads had been constructed and restored, feeder bus systems 14

have been revamped and upgraded; KTM Komuter and LRT frequencies and capacities had been increased and there are ongoing and planned expansions of the LRT and monorail systems.

The

Government has also commenced the integrated MRT station and rail infrastructure project which is envisaged to radically improve and transform

urban

public

transportation

system

and

enhance

connectivity. Among the areas for improvement required for Infrastructure are: 

Fixed telephone lines/100 population, ranked 85th; and



Quality of electricity supply, ranked 35th.

The Macro economic Pict ure Macroeconomic environment  The stability of the macroeconomic environment is important for business and, therefore, is important for the overall competitiveness of a country.

18.

The Macroeconomic Environment pillar  is ranked at 35th

position (GCR 2011-2012: 29th). The Gross national savings as a percentage of GDP ranked at 17th position to mark a climb of 6 places due to several investment initiatives that continue to promote Malaysi a as the preferred destination for technology

and

knowledge-based

investments industries.

in hig h

This

is

in

collaboration with efforts to promote domestic direct investments to ensure a sustainable economic outlook for Malaysia.  The

areas

that

need

addressing

under

Macroeconomic

Environment: 

Government budget balance, % GDP ranked 110th; and



General Government debt, % GDP ranked 100th. 15

Keeping Healthcare and Primary Edu cation i n Perspective Health and primary education A healthy workforce is vital to a country’s competitiveness and productivity while lack of basic education can become a constraint on business development, with firms finding it difficult to move up the value chain.

19.

Malaysia maintained its rank in the Healthcare and Primary

Education pillar  at 33rd. However the Budget 2012 for Malaysia has

recently allocated a substantial amount towards the education sector with a development allocation of RM1.9 bill ion fo r all national type schools aside from the removal of school fees for primary and

secondary education. The Natio nal Strategic Plan on HIV and AIDS is also currently being implemented and will see some traction by the following year. As for efforts to combat Malaria, Malaysia is currently on track towards the Millennium Development Goal of complete

elimination by 2020. Among the areas that require improvement in Health and Primary Education include: 

Business impact of malaria ranked 99th;



Malaria cases/100,000 population ranked 97th;



Business impact of HIV/AIDS ranked 91st;



HIV prevalence, % adult population ranked 87th;



Business impact of tuberculosis ranked 86th; and



Tuberculosis cases/100,000 population ranked 86th.

16

 A B etter Workfo rc e thro ug h Higher Educ ati on and Training Higher education and training Quality higher education and training is particularly crucial for economies that want to move up the value chain beyond simple production processes and products.

20.

Malaysia stood at 39th position in the Higher Education and

Training pillar  (GCR 2011-2012: 38th). Among the criteria that

showcase positive growth are: 

Extent of staff training at 7th position;



Quality of the educational system at 14th position;



Availability of research and training services at 17th position; and



Quality of math and science education at 20th position.

 The criteria that require improvement in Higher Education and Training are: 

Secondary education enrollment, gross % ranked 103rd; and



Tertiary education enrollment, gross % ranked 61st.

21.

Initiatives to reform the education system as a whole, include an

Education Blueprint

which is scheduled to be released by

September 2012. The formation of a National Education Advisory Council as a think tank for education, the Education Review Panel and the National Education Review Dialogue to consolidate feedback from the public would all contribute towards further strengthening the education system and consequently in our rankings. We can also expect to see improvements in our rankings as measures are taken to improve the quality of data provided to international bodies such as UNE SCO, from which WEF draws statistics for the GCR.

17

Sustaining Goods Market Effici ency 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.

22.

Malaysia improved to 11th position in the Goods Market

Efficiency pillar  (GCR 2011-2012: 15th). From the Malaysian

Corporate Identity Number (MyCoID) system that helps new businesses integrate with the various agencies such as LHDN, SOCSO, EPF and HRDF to the standardised license formats of the Business Licensing Electronic Support System (BLESS), the measures have helped dramatically reduce the start up time of  registering and running a new business in Malaysia. The extent of  market dominance is also kept in check with the enforcement of the Competition Act 2010 which seeks to prevent any gaming and price

fixing that would result in a blatant monopoly of the market or supply. 23.

Central to the value of private-sector dialogue and collaboration

in making red tape a thing of the past is the establishment of statelevel PEMUDAH in all states to address specifically state and local level issues. Such a move is both timely and expedient as

businesses engage with local authorities in all their operations and  Taskforces at the state level can play a more active role in providing inputs and implementing initiatives undertaken by PEMUDAH at the federal level.  The criteria that contributed to Goods Market Efficienc y include: 

Agricultural policy costs at 4th position;



Business impact of rules on FDI at 10th position; 18



Perception on the extent and effect of taxation to work or invest at 14th position;



Degree of customer orientation at 16th position;



No. of days to start a business at 16th position;



Buyer sophistication at 17th position;



Extent of market dominance at 19th position; and



No. of procedures to start a business at 20th position.

Among the areas for improvement required for Goods Market Efficiency are: 

Trade tariffs, % duty ranked 76th; and



Prevalence of foreign ownership ranked 53rd.

Equality for t he Labour Market Labour 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.

24.

Malaysia is ranked 24th position in the Labour Market

Efficiency pillar  (GCR 2011-2012: 20th). Strong ground breaking

initiatives such as mandatory minimum wages and a proposed high wage scheme for high productivity jobs are being implemented to continue to attract and retain talent within Malaysia. In 2011, Talent Corporation had successfully attracted 680 Malaysians to return and

work in the country under the Returning Expert Programme. In the first 4 months of 2012, 400 Malaysian experts were approved, reflecting the higher confidence among these professionals that transformation is happening in Malaysia. Among the criteria with a strong impact on 19

this pillar include pay and productivity at 3rd position and cooperation in labour-employer relations at 15th position. Among the criteria for improvement required for Labour Market Efficiency are: 

Redundancy costs, weeks of salary ranked 108th; and



Women in labour force ranked 119th.

Financially Effective Financial market development  The recent economic crisis has highlighted the central role of a sound and well-functioning financial sector for economic activities.

25.

Malaysia is ranked at a commendable 6th position in the

Financial Market Development p illar  (GCR 2011-2012: 3rd). Despite

the drop in rank, the financial market in Malaysia continues to grow. With the Financial Sector Blueprint which was implemented early this year , 9 key areas of improvement have been identified such as

the development of a deep and dynamic financial market; and intermediation for a high value-added and high income economy.  The criteria that had contributed to the performance of  Financial Market Development are: 

Legal rights index at 1st position;



Ease of access to loans at 8th position;



Financing through local equity market at 9th position;



Affordability of financial services at 11th position;



Venture capital availability at 11th position; and



Regulation of securities exchanges at 20th position. 20

 Adop ting a Techn ol og ic al Culture 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 (ICT) in daily activities and production processes for increased efficiency and enabling innovation for com etitiveness.

26.

Malaysia being ranked at 51st position in the Technological

Readiness pillar  (GCR 2011-2012: 44th) does not augur well for

Malaysia’s competitiveness. Despite a 81% national broadband penetration rate in populated areas, internet availability in rural areas need to be further improved. Initiatives are ongoing to ensure that the digital divide is narrowed. Lowering the cost of broadband for rural areas and increasing coverage via the use of WiFi should further push the adoption and broadband penetration rate. It is encouraging that FDI and technology transfer is ranked at 16 th position among the 144 countries in the report. 27.

While Malaysia’s ICT infrastructure improved to 33rd position

from 40th last year, and Government procurement of advanced technology products is maintained at 4th, the low level of technological readiness (where Malaysia is ranked 51st), is what WEF finds “surprising”. Clearly, there is a discrepancy between perception and statistical data on technological readiness that does not reflect the actual situation in Malaysia. Towards this end, the government will ensure that consolidated and comprehensive data and information is provided to international data sources such as International  Telecommunications Union (ITU) and World Intellectual Property Organisation (WIPO). We can also expect greater broadband 21

penetration with the launch and implementation of the “1Malaysia Affordable Broadband Package” effective from 16th September 2012, in Pahang, Kelantan, Terengganu, Sabah and Sarawak. Among the areas for improvement required for Technological Readiness are: 

International Internet bandwidth, kb/s per user, ranked 83 rd;



Broadband Internet subscriptions/100 population ranked 68th; and



Mobile broadband subscriptions/100 population ranked 64th.

Going for Markets Globally Market s ize  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 can to a certain extent substitute for domestic markets, especially for small countries.

28.

Malaysia ranked 28th position in the Market Size pillar  (GCR

2011-2012: 29th). The domestic market size index has recorded positive growth with room for further improvement due to continued incentives towards exports of goods and services . Malaysia’s

exports as a percentage of GDP is ranked among the top ten contributions and this along with our foreign market size index at 20th position paints Malaysia in a positive light for more foreign investments to tap into the potential of the Malaysian market.

22

Bringin g Sophistication to Business Business sophistication  There is no doubt that sophisticated business practices are conducive to higher efficiency in the production of goods and services. 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.

29.

Malaysia maintains its position at 20th in the Business

Sophistication pillar  (GCR 2011-2012: 20th). The initiative to support

local innovative products by the government when it comes to procurement has helped to spur a need for innovation in many businesses as a form of securing business. This in turn has further elevated the need for businesses within the industry to network and further their own R&D initiatives. The combined results have helped secure Malaysia’s current position with additional plans to further incentivies R&D initiatives for the private sector.  The criteria that had impacted on Business Sophistication include: 

Control of international distribution at 12th position;



State of cluster development at 13th position; and



Willingness to delegate authority at 14th position.

23

Empowering Innovation Innovation Innovation can emerge from new technological and nontechnological knowledge. Non-technological innovations are closely related to the know-how, skills, and working conditions that are embedded in organizations. In the long run, standards of living can be largely enhanced by technological innovation and technological breakthroughs.

30.

Malaysia is ranked at 25th position in the Innovation pillar  (GCR

2011-2012: 24th). Malaysia has a high capacity for innovation and is ranked 17th in that respect. The introduction of the Science Act and Science and Technology Human Capital Roadmap launched in

early 2012 is expected to elevate Malaysia’s capacity for innovation higher by providing a conducive ecosystem for science and technology in Malaysia. The rate of application and commercialisation of new patents would be the key indicator in the coming years of the continued effectiveness of the initiative. 31.

Malaysia has placed innovation at the center of development

and reform agenda to propel us for the future, to become a highincome economy by 2020. As Malaysia moves into the "transition towards innovation" phase, it is important that we focus on technological as well as non-technological innovation. The GCR clearly indicates that it is imperative for Malaysia to focus on innovation. In this context, various initiatives have been undertaken including the National Innovation Strategy to drive the national innovation agenda. supportive

This forms the framework vital for shaping a

eco-system

for

innovation;

creating

innovation

opportunities, emplacing innovation enablers and funding, which will lead to a vibrant innovation eco-system. It is recognised that Malaysia 24

needs to create new economic wealth through entrepreneurship as well as fresh and innovative ideas. In this context, the “Genovasi” (Innovation Generation) and the i-Think programmes

were

established to train innovation ambassadors as well as equip Malaysia’s next generation of innovators to think critically and be adaptable in preparation for the future. They will eventually take the lead in spurring progress through innovation solutions for the nation, thus contributing to a better quality of life. Among the criteria that had a positive impact on Innovation include: 

Government procurement of advanced technological products at 4th position;



Companies spending on R&D at 16th position;



Capacity for innovation at 17th position; and



University-industry collaboration in R&D at 18th position.

25

Evolution i n Malaysi a's Competiti veness Performance Figure 3: Evolution in Malaysia's Competitiveness Performance by Rank

Evolution in Malaysia's Rank

   s    s    e    n    e    v     i     t     i     t    e    p    m    o     C     l    a   x     b   e    o     l    d    n     G     I

   s    n    o     i     t    u     t     i     t    s    n     I    :    r    a     l     l     i    p     t    s     1

   e    r    u     t    c    u    r     t    s    a    r     f    n     I    :    r    a     l     l     i    p     d    n     2

   g    n     d     i    n    n     i    a   n    r   a    o    r     h    c     t    e     t    i     i     t     l     d    a   a     h    m    c    g     t    e     i    n    o   n    u    a     H     H    n    :    o   e    :    d    :    n    e    r    r    m    r    o    a   c    a   y    a     i     l    e   n     l     l     t     l    r     l     l     i    o   o     i    a     i    a    r    p   r    i    p    p   c    c    m     i     d   a   v     h     h   u    r     t    d    n     t   r     3     M     E     4   p     5   e

GCI Edition 2010-2011 (n=139) 2011-2012 (n=142) 2012-2013 (n=144)

    t    e     k    r    a    m    s     d    o    o     G    :    y    r   c    a     l    n     l     i    e     i    p    c     i     h     f     t    f     6   e

    t    e     k    r    a    m    r    o     b    a     L    :    y    r   c    a     l    n     l     i    e     i    p    c     i     h     f     t    f     7   e

    l    a    c     t     i    n    g     l    o    a   e     l     i    c   m    o    n   p    n    a    o     h     l    c    n     i    e    e     F   v     T    :    e    :    s    r    d    r   s    a    a     l    t     l    e     l     i    e     l     i    n     i     k    p    p     d    r     h   a     h   a     t     t   e     8   m     9   r

   e    z     i    s     t    e     k    r    a

   s    s    e    n     i    s    u   n     M     B   o    :    :    i    r    r    t    a    a    a   c     l     l     l     l    i     i     i    t    s    p    p     i     h     h     h     t     t   p     0     1   o     1     1   s

   n    o     i     t    a    v    o    n    n     I    :    r    a     l     l     i    p     h     t     2     1

Rank 26

42

30

41

34

49

27

35

7

40

29

25

24

21

30

26

29

33

38

15

20

3

44

29

20

24

25

29

32

35

33

39

11

24

6

51

28

20

25

6. 14

5. 90

5. 22

Best

5. 0 5

Average

4 .88

4. 53

4. 2 9

4 .10

Worst

Figure 3 indicates a steady trend of improvement since 2010-2011 with the only downtrend in the 9th Pillar for Technological Readiness. With the new stage of development (transition towards innovation) that Malaysia is placed in, Technological Readiness and Innovation factors are the engines which will propel Malaysia towards the innovation stage of development.

26

Competitiveness Enhancement Initiati ves



To further engage with WEF through the Technical Expert Service (TES) to develop competitiveness methodology with the aim of publishing Malaysia’s Competitiveness Report.



To strengthen Malaysia’s relation with WEF by striving to host the Annual WEF East Asia Forum in the near future (The 2013 Forum will be held in Myanmar).



The Inter Agency Planning Group (IAP G) on Competitiveness Data is identifying Malaysia’s data providers on technological readiness to ensure that a consolidated and comprehensive data and information on Technological Readiness and Innovation is provided to the international data agencies.



To engage WIPO, ITU and other international data agencies to ensure updated and reflective data is used in assessing Malaysia’s competitiveness performance.



To analyse each of the 111 indicators in the report to identify areas for improvement and to implement initiatives for a smooth progression

towards

an

innovation-driven,

high

income

economy. 

To continue an effective communication strategy that further clarifies and elaborates upon the recent achievements by the government

through

various

methods

to

the

business

community.

27

The Path to Progress

In the GCR 2012-2013, Malaysia’s most notable advantages are found in Malaysia’s efficient and competitive market for goods and services (11th) and its remarkably supportive financial sector (6th) as well as its business-friendly institutional framework. In a region where many economies suffer from the lack of transparency and the presence of red tape, Malaysia stands out as particularly successful at tackling those two issues. Despite the progress achieved, it is acknowledged that continuous efforts need to be implemented to put the country on a more solid growth path. Its slow level of technological readiness (51st) is surprising especially given its achievement in other areas of innovation and business sophistication and the country’s focus on promoting the use of ICT. Lack of progress in this area will significantly undermine Malaysia’s effort to become a knowledgebased economy by the end of the decade.

28

 Appendi x I Global Competiti veness Index 2012-2013 Ranki ngs and 2011-2012 Comparis ons

Country / Economy Switzerland Singapore Finland Sweden Netherlands Germany United States United Kingd om Hong Kong SAR Japan Qatar  Denmark Taiwan, Chin a Canada Norway  Aust ri a Belgium Saudi Arabia Korea, Rep.  Aust ral ia France Luxembourg New Zealand United Arab Emirates Malays ia Israel Ireland Brunei Darussalam People’s Republic of  China Iceland Puerto Rico Oman Chile Estonia Bahrain Spain Kuwait Thailand Czech Republ ic

GCI 2012-2013

GCI 2011–2012

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Score 5.72 5.67 5.55 5.53 5.50 5.48 5.47 5.45 5.41 5.40 5.38 5.29 5.28 5.27 5.27 5.22 5.21 5.19 5.12 5.12 5.11 5.09 5.09 5.07 5.06 5.02 4.91 4.87

Rank 1 2 4 3 7 6 5 10 11 9 14 8 13 12 16 19 15 17 24 20 18 23 25 27 21 22 29 28

Score 5.74 5.63 5.47 5.61 5.41 5.41 5.43 5.39 5.36 5.40 5.24 5.40 5.26 5.33 5.18 5.14 5.20 5.17 5.02 5.11 5.14 5.03 4.93 4.89 5.08 5.07 4.77 4.78

29

4.83

26

4.90

30 31 32 33 34 35 36 37 38 39

4.74 4.67 4.65 4.65 4.64 4.63 4.60 4.56 4.52 4.51

30 35 32 31 33 37 36 34 39 38

4.75 4.58 4.64 4.70 4.62 4.54 4.54 4.62 4.52 4.52 29

Country / Economy Panama Poland Italy Turkey Barbados Lithuania  Azerbaij an Malta Brazil Portugal Indonesia Kazakhstan South Africa Mexico Mauritius Latvia Slovenia Costa Rica Cyprus India Hungary Peru Bulgaria Rwanda Jordan Philippines Iran, Islamic Republi c Russian Federatio n Sri Lanka Colombia Morocco Slovak Republic Montenegro Ukraine Uruguay Vietnam Seychelles* Georgia Romania Botswana Macedonia, FYR Croatia  Armeni a Guatemala Trinid ad and Tobago

GCI 2012-2013 Rank 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84

Score 4.49 4.46 4.46 4.45 4.42 4.41 4.41 4.41 4.40 4.40 4.40 4.38 4.37 4.36 4.35 4.35 4.34 4.34 4.32 4.32 4.30 4.28 4.27 4.24 4.23 4.23 4.22 4.20 4.19 4.18 4.15 4.14 4.14 4.14 4.13 4.11 4.10 4.07 4.07 4.06 4.04 4.04 4.02 4.01 4.01

GCI 2011–2012 Rank 49 41 43 59 42 44 55 51 53 45 46 72 50 58 54 64 57 61 47 56 48 67 74 70 71 75 62 66 52 68 73 69 60 82 63 65 n/a 88 77 80 79 76 92 84 81

Score 4.35 4.46 4.43 4.28 4.44 4.41 4.31 4.33 4.32 4.40 4.38 4.18 4.34 4.29 4.31 4.24 4.30 4.27 4.36 4.30 4.36 4.21 4.16 4.19 4.19 4.08 4.26 4.21 4.33 4.20 4.16 4.19 4.27 4.00 4.25 4.24 n/a 3.95 4.08 4.05 4.05 4.08 3.89 4.00 4.00

30

Country / Economy Cambodia Ecuador  Moldova Bosnia and Herzegovina  Alban ia Honduras Lebanon Namibia Mongolia  Argent in a Serbia Greece Jamaica Gambia, The Gabon* Tajikistan El Salvador  Zambia Ghana Bolivia Dominican Republic Kenya Egypt Nicaragua Guyana  Alger ia Liberia* Cameroon Libya* Suriname Nigeria Paraguay Senegal Bangladesh Benin Tanzania Ethiopia Cape Verde Uganda Pakistan Nepal Venezuela Kyrgyz Republi c Mali

GCI 2012-2013

GCI 2011–2012

Rank 85 86 87

Score 4.01 3.94 3.94

Rank 97 101 93

Score 3.85 3.82 3.89

88

3.93

100

3.83

89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128

3.91 3.88 3.88 3.88 3.87 3.87 3.87 3.86 3.84 3.83 3.82 3.80 3.80 3.80 3.79 3.78 3.77 3.75 3.73 3.73 3.73 3.72 3.71 3.69 3.68 3.68 3.67 3.67 3.66 3.65 3.61 3.60 3.55 3.55 3.53 3.52 3.49 3.46 3.44 3.43

78 86 89 83 96 85 95 90 107 99 n/a 105 91 113 114 103 110 102 94 115 109 87 n/a 116 n/a 112 127 122 111 108 104 120 106 119 121 118 125 124 126 128

4.06 3.98 3.95 4.00 3.86 3.99 3.88 3.92 3.76 3.84 n/a 3.77 3.89 3.67 3.65 3.82 3.73 3.82 3.88 3.61 3.73 3.96 n/a 3.61 n/a 3.67 3.45 3.53 3.70 3.73 3.78 3.56 3.76 3.58 3.56 3.58 3.47 3.51 3.45 3.39 31

Country / Economy Malawi Madagascar  Côte d’Ivoire Zimbabwe Burk ina Faso Mauritania Swaziland Timor-Leste Lesotho Mozambique Chad Yemen Guinea* Haiti Sierra Leone* Burundi

GCI 2012-2013 Rank 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144

Score 3.38 3.38 3.36 3.34 3.34 3.32 3.28 3.27 3.19 3.17 3.05 2.97 2.90 2.90 2.82 2.78

GCI 2011–2012 Rank 117 130 129 132 136 137 134 131 135 133 142 138 n/a 142 n/a 140

Score 3.58 3.36 3.37 3.33 3.25 3.20 3.30 3.35 3.26 3.31 2.87 3.06 n/a 2.90 n/a 2.95

Note: *New entrants

32

 Append ix 2 The Global Competiti veness Index 2012–2013 Ranki ngs for Asia-Pacific Countries Country/Economy Singapore Hong Kong SAR Japan Taiwan, Chin a Korea, Rep.  Aust ral ia New Zealand Malaysia Brunei Darussalam People’s Republic of China Thailand Indonesia India Philippines Sri Lanka Vietnam Cambodia Mongolia Bangladesh Pakistan Nepal Kyrgyz Republi c

GCI 2012–2013 Rank Score 1 5.67 2 5.41 3 5.40 4 5.28 5 5.12 6 5.12 7 5.09 8 5.06 9 4.87 10 4.83 11 4.52 12 4.40 13 4.32 14 4.23 15 4.19 16 4.11 17 4.01 18 3.87 19 3.65 20 3.52 21 3.49 22 3.44

The Global Competiti veness Index 2012–2013 Ranki ngs for ASEAN Count ries Country /Econo my Singapore Malaysia Brunei Darussalam Thailand Indonesia Philippines Vietnam Cambodia

GCI 2012–2013 Rank Score 1 5.67 2 5.06 3 4.87 4 4.52 5 4.40 6 4.23 7 4.11 8 4.01

33

 Append ix 3 Li st of Cou ntries/ Economi es at Each Stage of Development Stage 1 (38 economies)

Transition fr om 1 to 2 (17 economies)

Bangladesh Benin

Algeria Azerbaijan

Burkina Faso

Bolivia

Burundi Cambodia

Botswana Brunei Darussalam

Cameroon

Egypt

Chad Côte d'Ivoire

Gabon* Honduras

Ethiopia

Iran, Islamic Rep.

Gambia, The Ghana Guinea* Haiti India Kenya Kyrgyz Republic Lesotho Liberia* Madagascar Malawi Mali Mauritania Moldova Mozambique Nepal Nicaragua Nigeria Pakistan Rwanda Senegal Sierra Leone*  Tajikistan

Kuwait Libya* Mongolia Philippines Qatar Saudi Arabia Sri Lanka Venezuela

 Tanzania

Stage 2 (33 economies)

Albania Armenia Bosnia and Herzegovina Bulgaria Cape Verde People’s Republic of China Colombia Costa Rica Dominican Republic Ecuador El Salvador Georgia Guatemala Guyana Indonesia J amaica J ordan Macedonia, FYR Mauritius Montenegro Morocco Namibia Panama Paraguay Peru R omania Serbia South Africa Suriname Swaziland Thailand Timor-Leste

Transition fr om 2 to 3 (21 economies)

Stage 3 (35 economies)

Argentina Bahrain

Australia Austria

Barbados

Belgium

Brazil Chile

Canada Cyprus

Croatia

Czech Republic

Estonia Hungary

Denmark Finland

Kazakhstan

France

Latvia Lebanon Lithuania Malaysia Mexico Oman Poland Russian Federation Seychelles* Trinidad and Tobago Turkey Uruguay

Germany Greece Hong Kong SAR Iceland Ireland Israel Italy J apan Korea, Rep. Luxembourg Malta Netherlands New Zealand Norway Portugal Puerto Rico Singapore Slovak Republic Slovenia Spain Sweden Switzerland Taiwan, China United Arab Emirates United Kingdom United States

Ukraine

Uganda Vietnam  Yemen Zambia Zimbabwe Note: *New entrants Income Threshold for Establishing Stages of Development Stage of Developm ent GDP per Capita (in US$) Stage 1: Factor Driven  Transition from stage 1 to stage 2 Stage 2: Efficiency Driven Transit ion fr om stage 2 to stage 3 Stage 3: Innovation Driven

17,000

34

 Append ix 4 Characteristics of Top Ten Most Competitive Econo mies in GCR 2012-2013 SWITZERLAND Year

2012

SINGAPORE 2011

Rank 1 1 st Switzerland retains its 1 place position again this year as a result of its continuing strong performance across the board. The country’s most notable strengths are related to innovation and labor market efficiency, where it tops the GCI rankings, as well as the sophistication of its business sector, which is ranked 2nd. Switzerland’s scientific research institutions are among the world’s best, and the strong collaboration between its academic and business sectors, combined with high company spending on R&D, ensures that much of  this research is translated into marketable products and processes reinforced by strong intellectual property protection. This robust innovative capacity is captured by its high rate of  patenting per capita, for which Switzerland ranks a remarkable 2nd worldwide. Productivity is further enhanced by a business sector that offers excellent onthe-job-training opportunities, both citizens and private companies that are proactive at adapting the latest technologies and labor markets that balance employee protection with the interests of employers. Moreover, public institutions in Switzerland are among the most effective and transparent in the world (5th). Governance structures ensure a level playing field, enhancing business confidence; these include an independent  judiciary, a strong rule of law, and a highly accountable public sector. Competitiveness is also buttressed by excellent infrastructure (5th), wellfunctioning goods markets (7th), and highly developed financial markets (9th). Finally, Switzerland’s macroeconomic environment is among the most stable in the world (8th) at a time when many neighboring economies continue to struggle in this area. While Switzerland demonstrates many competitive strengths, maintaining its innovative capacity will require boosting university enrollment rate, which continues to lag behind that of many other highinnovation countries, although this has been increasing in recent years.

FINLAND

Year

2012

2011

Rank

2

2

Singapore retains its place at 2nd position as a result of an outstanding performance across the entire Index. The country features in the top 3 in seven of the 12 categories of the Index and appears in the top 10 of three others. Its public and private institutions are rated as the best in the world for the fifth year in a row. It st also ranks 1 for the efficiency of its goods and labor markets, and nd places 2 in terms of  financial market development. Singapore also has world-class infrastructure (2nd), with excellent roads, ports, and air transport facilities. In addition, the country’s competitiveness is reinforced by a strong focus on education, which has translated into a steady improvement in the higher education and nd training pillar (2 ) in recent years, thus providing individuals with the skills needed for a rapidly changing global economy.

SWEDEN

Year

2012

2011

Rank

3

4

Finland moves up one place since last year to reach 3rd position on the back of small improvements in a number of areas. Similar to other countries in the region, the country boasts well-functioning and highly transparent public nd institutions (2 ), topping several indicators included in this category. Its private institutions, rd ranked 3 overall, are also seen to be among the best run and most ethical in the world. Finland occupies the top position both in the health and primary education pillar as well as the higher education and training pillar, the result of a strong focus on education over recent decades. This has provided the workforce with the skills needed to adapt rapidly to a changing environment and has laid the groundwork for high levels of technological adoption and innovation. Finland is one of the most innovative countries in Europe, nd ranking 2 , behind only Switzerland, on the related pillar. Improving the country’s capacity to adopt the latest th technologies (ranked 25 ) could lead to important synergies that in turn could corroborate the country’s position as one of the world’s most innovative economies. Finland’s macroeconomic environment weakens slightly on the back of  rising inflation (above 3 percent), but fares comparatively well when contrasted with other euro-area economies.

NETHERLANDS

Year

2012

2011

Rank

4

3

Sweden, overtaken by Finland, falls one place to 4th position. Like Switzerland, the country has been placing significant emphasis on creating the conditions for innovation-led growth. The quality of its public institutions remains first-rate, with a very high degree of  efficiency, trust, and transparency. Private institutions also receive excellent marks, with firms that demonstrate excellent ethical behavior. Nevertheless, we registered a slight but consistent deterioration in the country’s institutional framework over the past three years. Additional strengths include goods and financial markets that are very efficient, although the labor market could be more flexible (ranking 92nd on the flexibility subpillar). Combined with a strong focus on education over the years and a high level of technological st readiness (1 ), Sweden has developed a very sophisticated business th culture (5 ) and is one of the world’s leading th innovators (4 ). Last but not least, the country boasts a stable macroeconomic environment (13th), with a balanced budget and manageable public debt levels. These characteristics come together to make Sweden one of the most productive and competitive economies in the world.

Year

2012

2011

Rank

5

7

 The Netherlands continues to progress in the rankings, moving th up to 5 place this year. The improvement reflects a continued strengthening of its innovative capacity as well as the heightened efficiency and stability of its financial markets. Overall, Dutch businesses are highly th sophisticated (4 ) and th innovative (9 ), and the country is rapidly and aggressively harnessing new technologies for productivity th improvements (9 ). Its excellent educational th system (ranked 5 for health and primary education and 6th for its higher education and training) and efficient markets—especially its goods market (6th)—are highly supportive of  business activity. And although the country has registered fiscal deficits in recent years (5.0 percent of GDP in 2011), its macroeconomic environment is more stable than that of a number of other advanced economies. Last but not least, the quality of its infrastructure is among the best in the world, reflecting excellent facilities for maritime, air, and railroad st transport, ranked 1 , th th 4 , and 9 , respectively.

35

Characteristics of Top Ten Most Competitive Econo mies in GCR 2012-2013 (cont’d) GERMANY Year

2012

UNITED STATES 2011

Rank 6 6 Germany maintains its th position at 6 place this year. The country is ranked rd an excellent 3 for the quality of its infrastructure, boasting in particular firstrate facilities across all modes of transport. The goods market is quite efficient, characterized by intense local competition th (8 ) and low market dominance by large nd companies (2 ). Germany’s business sector is very sophisticated, especially when it comes to production processes and distribution channels, and German companies are among the most innovative in the world, spending heavily on th R&D (4 ) and displaying a high capacity for innovation (3rd)—traits that are complemented by the country’s well-developed ability to absorb the latest technologies at the firm th level (16 ). These attributes allow Germany to benefit greatly from its significant th market size (5 ), which is based on both its large domestic market and its strong exports. On a less positive note and despite some efforts, Germany’s labor market remains rigid (119th for the labor market flexibility sub pillar), where a lack of flexibility in wage determination and the high cost of firing hinder job creation, particularly during business cycle downturns. In addition, improving the quality of the educational system—where the country continues to trail its top 10 peers at 28th place—could serve as an important basis for sustained innovation-led growth. In view of continued economic difficulties in the euro area, Germany’s performance in the macroeconomic pillar remains remarkably stable, with the country even registering a reduction in the fiscal deficit to –1 percent of GDP, but concerns about potential effects of the European sovereign debt crisis are reflected in the downgrading of the country’s credit rating.

Year

2012

2011

UNITED KINGD OM Year

2012

2011

Rank 7 5 Rank 8 10  The United States  The United Kingdom continues the decline that (8th) continues to make began a few years ago, up lost ground in the falling two more positions to rankings this year, th take 7 place this year. rising by two more Although many structural places and now features continue to make settling firmly back in its economy extremely productive, a number of  the top 10. The escalating and country improves its unaddressed weaknesses performance in several have lowered the US areas, benefitting from ranking in recent years. US clear strengths such companies are highly as the efficiency of its sophisticated and th innovative, supported by an labor market (5 ), in excellent university system sharp contrast to the that collaborates admirably rigidity of those of  with the business sector in many other European R&D. Combined with countries. The United flexible labor markets and Kingdom continues to the scale opportunities have sophisticated afforded by the sheer size of its domestic economy— (8th) and innovative th the largest in the world by (10 ) businesses that far—these qualities are highly adept at continue to make the harnessing the latest United States very technologies for competitive. On the other productivity hand, some weaknesses in improvements and particular areas have deepened since past operating in a very assessments. The business large market (it is community continues to be ranked 6th for market critical toward public and size). The financial st private institutions (41 ). In market also continues particular, its trust in its recovery, ranked politicians is not strong th th 13 , up from 20 last (54th), perhaps not surprising in light of recent year. All these political disputes that characteristics are threaten to push the important for spurring country back into recession productivity through automatic spending enhancements. On the cuts. Business leaders also other hand, the remain concerned about the government’s ability to country’s maintain arms-length macroeconomic relationships with the environment (110th, th private sector (59 ), and th down from 85 last consider that the year) represents the government spends its greatest drag on its resources relatively th competitiveness, with wastefully (76 ). A lack of  macroeconomic stability a fiscal deficit nearing continues to be the 9 percent in 2011, an country’s greatest area of  increase of 5 th weakness (111 , down percentage points in from 90th last year). On a public debt amounting more positive note, to 82.5 percent of GDP measures of financial in 2011 (127th) and a market development continue to indicate a comparatively low recovery, improving from national savings rate st th 31 two years ago to 16 (12.9 percent of GDP this year in that pillar, th in 2011, 113 ). thanks to the rapid intervention that forced the deleveraging of the banking system from its toxic assets following the financial crisis.

HONG KONG SAR Year

2012

2011

Rank 9 11 As the second-placed Asian economy behind nd Singapore (2 ), Hong Kong SAR rises to 9th position while slightly improving its score. The territory’s consistently good performance is reflected in very good showing across most of  the areas covered by the GCI. As in previous years, Hong Kong tops the infrastructure pillar, reflecting the outstanding quality of its facilities across all modes of transportation and its telephony and electricity infrastructure. Moreover, the economy’s financial markets are second to none, revealing high efficiency and trustworthiness and stability of the banking sector. The dynamism and efficiency of Hong Kong’s goods market (2nd) and labor market (3rd) further contribute to the economy’s very good overall positioning. To maintain and enhance its competitiveness going forward, continued improvements in two important areas—higher education (22nd) and th innovation (26 ) — will be necessary. Although the quality of education in Hong Kong is good th (12 ), participation remains below levels found in other advanced economies (53rd). Improving educational outcomes will also help boost Hong Kong’s innovative capacity, which remains constrained by the limited availability of  scientists and engineers th (36 ), among other things.

JA PAN Year

2012

2011

Rank 10 9  J apan falls one place to rank 10th this year, with a performance similar to that of last year. The country continues to enjoy a major competitive edge in business sophistication and st innovation, ranking 1 th and 5 , respectively, in these two pillars. Company spending on R&D remains high (2nd) and J apan benefits from the availability of  many scientists and engineers buttressing a strong capacity for innovation. Indeed, in terms of innovation output, this pays off  with the fifth-highest number of patents per capita. Further, companies operate at the highest end of the value chain, producing high-value-added goods and services.  The country’s overall competitive performance, however, continues to be dragged down by severe macroeconomic weaknesses (124th), with the secondhighest budget deficit in this year’s sample (143th). Repeated over recent years, this has led to the highest public debt levels in the entire sample (nearly 230 percent of GDP in 2011). In addition, we observe a downward assessment of labor market efficiency (from th 13 two years ago to th 20 place this year), with the business sector perceiving the alignment between pay and productivity, hiring and firing practices, and brain drain less favorably than in previous years.

36 36

 Append ix 5 Competiti veness Performance of Selected Asian Count ries Country

Competitiveness Strengths and Areas for improvement

Taiwan, Chin a Rank: 13th Score: 5.28

Taiwan, China, maintains its 13th position for the third year in a row. Its competitiveness profile is essentially unchanged and consistently strong. Notable strengths include its highly efficient markets for goods, where the economy ranks 8th; its solid educational performance (9th); and its sophisticated business sector (13th), which is inclined to innovate (14th). Strengthening competitiveness will require continued improvements to the economy’s institutional framework as well as stabilising its macroeconomic environment, which would require fiscal consolidation to reduce the budget deficit.

Kor ea, Rep Rank: 9th Score: 5.12

Malaysia Rank: 25th Score: 5.06

Republic of Korea (19th) advances five positions and reenters the top 20. Despite this clear improvement, the assessment remains uneven across the 12 pillars of the Index. The country boasts outstanding infrastructure (9th) and a sound macroeconomic environment (10th), with a government budget surplus above 2 percent of GDP and low level of public indebtedness. Furthermore, primary education (11th) and higher education (17th) are universal and of high quality. These factors, combined with the country’s high degree of technological readiness (18th), partly explain the country’s remarkable capacity for innovation (16th). However, three concerns persist—namely, the quality of its institutions (62nd), its labor market efficiency (73rd), and its financial market development (71st), even though Korea posts improvements in all three areas. Malaysia maintains its score but drops four places as other economies move ahead. The most notable advantages are found in Malaysia’s efficient and competitive market for goods and services (11th) and its remarkably supportive financial sector (6th), as well as its business-friendly institutional framework. In a region where many economies suffer from the lack of transparency and the presence of red tape, Malaysia stands out as particularly successful at tackling those two issues. Yet, despite the progress achieved, much remains to be done to put the country on a more solid growth path. Its low level of technological readiness (51st) is surprising, especially given its achievements in other areas of  innovation and business sophistication and the country’s focus on promoting the use of ICT. Lack of progress in this area will significantly undermine Malaysia’s efforts to become a knowledge-based economy by the end of the decade.

37

Country

People’s Republi c of  China Rank: 29th Score: 4.83

Thailand Rank: 38th Score: 4.52

Competitiveness Strengths and Areas for improvement

 The People’s Republi c of China (29th) loses some ground in this year’s edition of the Report. After five years of  incremental but steady progression, it has now returned to its 2009 level. The country continues to lead the BRICS economies by a wide margin, 25 ahead of second-placed Brazil (48th) by almost 20 ranks. Although China’s decline is small, it’s overall score barely changes and it affects the rankings of every pillar of the GCI except market size. The deterioration is more pronounced in those areas that have become critical for China’s competitiveness: financial market development (54th, down 6), technological readiness (88th, down 11), and market efficiency (59th, down 14). China receives relatively high marks in health and basic education (35th) and enrollment figures for higher education are also on the rise, even though the quality of education-in particular the quality of management schools (68th) and the disconnect between educational content and business needs (57th) in the country remain important issues. Thailand (38th) halts the negative trend and improves by one place in this year’s GCI. Yet the competitiveness challenges the country is facing remain considerable. Political and policy instability, excessive red tape, pervasive corruption, security concerns, and uncertainty around property rights protection seriously undermine the quality of the institutional framework on which businesses rely heavily. The country loses an additional 10 places in this category to rank a low 77 th. Poor public health (71st) and basic education standards (89th), two other critical building blocks of competitiveness, require urgent attention. Turning to more sophisticated areas, which are just as important given Thailand’s stage of development, technological adoption is generally poor (84th). Less than a quarter of the population accesses the Internet on a regular basis, and only a small fraction has access to broadband.

38

Country

Indonesia Rank: 50th Score: 4.40

India Rank: 59th Score: 4.32

Competitiveness Strengths and Areas for improvement Indonesia drops four places in this year’s edition, but maintains its score and remains in the top 50 of the GCI. The country remains one of the best performers within the developing Asia region, behind Malaysia, the People’s Republic of China, and Thailand yet ahead of the Philippines, Vietnam, and all South Asian nations. The country’s performance varies considerably across the different pillars. Some of the biggest shortcomings are found in the “basic” areas of competitiveness. The institutional framework (72nd) is undermined by concerns about corruption and bribery, unethical behavior within the private sector, and the cost to business of crime and violence. And infrastructure remains largely underdeveloped (78th). Furthermore, the public health situation is a cause of even more concern (103rd). Because the country has entered the efficiency-driven stage of  development, its competitiveness increasingly depends on more complex elements, which should be addressed on a priority basis. India ranks 59th overall, down three places from last year.  The country’s supply of transport, ICT and energy infrastructure remains largely insufficient and ill-adapted to the needs of the economy (84th). Despite improvements across the board over the past few years, poor public health and education standards remain a prime cause of India’s low productivity. Indeed, public trust in politicians (106th) has been weakening for the past three years. Once ranked a satisfactory 37th in this dimension, India now ranks 70th. Meanwhile, the macroeconomic environment (99th) continues to be characterized by large and repeated public deficits and the highest debt-to-GDP ratio among the BRICS. Despite these considerable challenges, India does possess a number of strengths in the more advanced and complex drivers of  competitiveness. It can rely on a fairly well developed and sophisticated financial market (21st) that can channel financial resources to good use, and it boasts reasonably sophisticated (40th) and innovative (41st) businesses.

39