Competitiveness in a Global Economy

Since 2004, The World Economic Forum (WEF), a Switzerland-based NGO with strong ties to the business community, has published the Global Competitiveness Report  (GCR) which ranks countries on the basis of their ability to compete in the world economy.  The report (Link) gives us a snapshot of where countries stand relative to their peers on a wide variety of measures, and long-term comparisons provide a good indication of which countries are taking the steps to improve their ability to compete and prosper.

The methodology of the GCR incorporates a wide variety of factors, but the focus is squarely on the quality of institutions and other “soft” elements, rather than on the quantity of capital and labor. The rankings purport to show which countries provide the best business environment to unleash the animal spirits of  entrepreneurship and innovation.This may be a particularly useful approach in this day and age when increasingly growth seems to be driven by innovation and the other intangible forces that impact “total factor productivity.”  Importantly, the report shies away from passing judgement on the pros-and-cons of  democratic versus more authoritarian regimes, beyond what the immediate implications might be for business and development.

The CGR ranks each one of 144 countries according to 12 “pillars” of competitiveness:

  1. Institutions
  2. Appropriate infrastructure
  3. Information and communication technology adoption
  4. Macroeconomic stability
  5. Health
  6. Education and skills
  7. Efficient goods markets
  8. Efficient labor markets
  9. Efficient financial markets
  10. Market size
  11. Business dynamism
  12. Innovation capability

 

Each one of these pillars is explored in detail.  The following chart shows the latest WEF, Global Competitiveness Rankings, with emerging markets highlighted in bold black and frontier markets in red.

The first quartile are mainly “Western” democracies, with Japan, Taiwan and Korea representing Asia. Two, non-democratic, authoritarian and dirigiste regimes –Singapore and UAE –also make this list.

The second quartile includes the remainder of the Western democracies (except for Greece), most of eastern Europe and the remaining Middle-East authoritarian states. This quartile of semi-competitive countries also includes China, Indonesia, Malaysia and Thailand in Asia and Chile and Mexico in Latin America. These countries range across the political spectrum, from highly authoritarian to fully democratic. China is very close to reaching elite status, and sees itself on the same path as Singapore.

The third quartile are countries with serious competitive issues this includes many core emerging markets such as Colombia, South Africa, Turkey, India and Brazil. This group’s political inclinations also range from dictatorships (Vietnam) to full democracies (Brazil).

The last quartile shown here (not including another 44 countries at the bottom of the rankings) are all severely impaired from a competitive aspect. This includes Argentina, Egypt and Pakistan in emerging markets and Bangladesh and Nigeria in frontier markets.

The next chart below shows the evolution of rankings over the past 10 years.  The left side of the chart shows countries with improved or no change in ranking, while the right side shows countries with declining rankings. EM economies with either significant improvements or declines are highlighted in bold.

 

Non-competitive countries with declining rankings are those highlighted in the bottom of the right-hand side of the chart. These countries should be considered problematic for investors, and it is therefore no coincidence that these countries suffer from low investment and capital flight. This includes major economies and population centers that are of major concern to emerging markets investors – Brazil, India, South Africa, Nigeria, Egypt and Pakistan.

Trade Wars

  • The great decoupling (Oxford Energy)
  • KKR sees opportunity in China decoupling (KKR)
  • Banning technology will backfire on the U.S. (FT)

India Watch

China Watch:

  • Expected returns in China (UBS)
  • China-Russia: cooperation in Central Asia  (AsanForum)

China Technology

Brazil Watch

EM Investor Watch

  • The open secret of development (project syndicate)
  • IMF, Global Financial Stability Report (IMF)
  • Russia, the cheapest market in the world (seeking alpha)
  • Global Competitiveness report 2019 (WEF)
  • Naspers strategy to create value (FT)

Tech Watch

  • Risks and opportunities in the battery supply chain (squarespace)
  • Investing in Asian Innovation (Oppenheimer)
  • Trends in battery prices (BNEF)

Investing

  • Larry Hite on trend following (marketwatch)
  • Ten years of performance is still just noise (Swedroe)
  • Joe Greenblatt on value investing (wsj)
  • The correlation between stocks and bonds (Axioma)
  • A taxonomy of moats (reaction wheel)
  • An investment thesis for the next decade (Gavekal)