Singapore ranks third-most competitive economy in the world

The World Economic Forum (WEF) yesterday released The Global Competitiveness Report 2009-2010 in which it ranks countries across the world on how competitive they are, with Switzerland, the US and Singapore taking the top three spots. The report was released ahead of an annual WEF meeting being held in Dalian.

In a dramatic change, the US lost the pole position after several years to Switzerland. The WEF attributed the drop to the weakening in US financial markets and concerns regarding the country's macroeconomic stability. Switzerland has remained stable, while the US has weakened across a number of areas. Switzerland's financial markets have also weakened, reflecting difficulties in the national banking sector, said the WEF, but the destabilisation was "muted compared with many other countries".

"Given that the financial crisis originated in large part in the US it is hardly surprising that there has been a weakening of the assessment of its financial market sophistication," said the WEF of the fact that the US is now ranked second. Specifically, the assessment of auditing and reporting standards in the US fell significantly, which the WEF termed as "not unexpected in the context of recent turmoil and scandals within the financial sector in particular".

Singapore ranked third, up two notches from last year, making it the highest-ranked country in Asia. And Singapore's institutions were ranked best in the world. "At a time when confidence in governments in many countries has diminished [Singapore's institutions] are assessed even more strongly than in past years," said the WEF. Singapore was also rated the best among all countries in terms of the efficiency of its goods and labour markets and second for its financial market sophistication. Singapore's world-class infrastructure ranked fourth worldwide and its competitiveness was further bolstered by a strong focus on education.

The perception of Japan's competitiveness also improved marginally, with the country advancing to eighth place from ninth last year. Japan ranked high on business sophistication and innovation and its rate of patenting per capita at 263 per million inhabitants, is second only to the US. However, Japan lags on macroeconomic weaknesses, dragged down by its high budget deficits that have led to high public debt levels.

Among other Asian economies, Hong Kong's ranking was unchanged at 11. Hong Kong tops on financial market sophistication and the WEF commented that "even though the crisis hit the country hard, Hong Kong remains one of the world's major financial centres".  Hong Kong also ranked high on infrastructure, where it was second only to Germany, and on efficiency of government.

Taiwan gained five places to 12, largely on account of a capacity to innovate, supported by an improved perception of the country's institutions, infrastructure and education.

Korea fell six places to 19 with a low ranking on labour market flexibility, discontent about hiring and firing, and the quality of relations between employers and workers. Korea's financial markets, a mediocre level of trust in politicians, opacity of policymaking and red tape are other areas of concern.

China and India both gained one rank, with China moving to 29 and India to 49. China ranked high on business environment, capacity to innovate and an enviable fiscal situation, but the WEF commented that financial market sophistication, technological readiness and higher education still have room for improvement. The WEF also noted that 42% of India's one billion people live on less than $1.25 per day (in purchasing power parity terms), which is more than twice the equivalent figure in China and this has created a wide gap between rural India and its urban hubs. India ranked well on financial markets and its banking sector but very poorly on health and primary education, macroeconomic stability and infrastructure.

Pakistan was ranked the lowest among major Asian economies at number 101. "The threat of terrorism bears heavily on the business community," said the report. Other Asian economies ranked below 100 were Bangladesh (106), Cambodia (110), Mongolia (117) and Nepal (125). Burundi is the lowest ranked country in the world with regard to competitiveness at 133, just ahead of Zimbabwe at 132.

"Amid the present crisis, it is critical that policymakers not lose sight of long-term competitiveness fundamentals amid short-term urgencies," said Xavier Sala-i-Martin, professor of economics at Columbia University and co-author of the report. "A competitiveness-supporting economic environment can help national economies to weather business cycle downturns and ensure that the mechanisms enabling solid economic performance going into the future are in place."

The rankings are based on both publicly available data and a survey, which this year polled 13,000 business leaders across 133 economies, according to the WEF. Competitiveness is gauged primarily on 12 factors: institutions; infrastructure; macroeconomic stability; health and primary education; higher education and training; goods market efficiency; labour market efficiency; financial market sophistication; technological readiness; market size; business sophistication; and innovation.