RP competitiveness up but at Asia’s bottom

The Philippines improved in the yearly World Competitiveness ranking of the Swiss institution IMD to 39th of 58 countries from last year’s 43rd but remained as a doormat in the Asia Pacific region as all of its neighbors also climbed in the ranking.

Based on the ranking, the most competitive country in the world is Singapore followed by Hong Kong both close neighbors of the country.

In Asia, the Philippines was dead last at 13th below Indonesia and India.

The ranking stated that the biggest challenges that remain for the country this year is the application of the rule of law and the restoration of faith in public institutions, ensuring food and energy security, planning for natural disasters and climate change, provision of entrepreneurial opportunities, jobs, skills training and education in the countryside, and addressing migration into cities and configuring of urban areas appropriately.

The IMD report stated that the country attained improvements in 14 economic criteria, including management of public finances, divestment of state from business, direct investment flows and bureaucracy’s support for business.

It suffered declines on the government budget, real gross domestic product (GDP) growth, tax management, bribery and corruption, tourism receipts, energy infrastructure, export of goods, customs’ authorities’ facilitating efficient transit of goods, energy infrastructure and trade to GDP ratio.

The report said for the first time in decades, Singapore and Hong Kong have topped the US in IMD’s World Competitiveness Yearbook rankings.

“They are so close, however, that it would be better to define them as the leading “trio.” The US has weathered the risks of the financial and economic crisis, thanks to the sheer size of its economy, a strong leadership in business and an unmatched supremacy in technology. Singapore and Hong Kong have displayed great resilience through the crisis — despite suffering high levels of volatility in their economic performance — and they are now taking full advantage of strong expansion in the surrounding Asian region,” it said.

In the first 10 places, Australia (5), Taiwan (8) and Malaysia (10) also benefited from strong demand in Asia, as well as the implementation of efficient policies.

The three nations rank very well in government efficiency. Switzerland (4) maintains an excellent position characterized by strong economic fundamentals (very low deficit, debt, inflation and unemployment) and a well-defended position on export markets. Sweden (6) and Norway (9) shine for the Nordic model, although Denmark (13) surprisingly loses ground, in particular due to the pessimistic mood expressed in the survey. Special attention should be paid to the good performance of Canada (7), which relies on sound banking regulations and extensive commodity resources.

Not surprisingly, Germany (16) leads the larger “traditional” economies such as the UK (22), France (24), Japan (27) and Italy (40). Despite a significant budget deficit and growing debt, Germany’s performance is driven by strong trade (second largest exporter of manufactured goods), excellent infrastructure and a sound financial reputation. Obviously the UK is undergoing the uncertainties of the post-election period but also faces the dual challenges of the crisis’ huge financial cost as well as the de-industrialization of its economy. France continues to suffer from the weight of its government sector although business efficiency is improving. Japan emerges with great difficulty from the crisis, also dealing with deflationary problems while Italy compensates the negative effects of the crisis with good investment performance.

It was also to be expected that China (18) would lead the other BRIC nations, followed by India (31), Brazil (38) and Russia (51). Whereas China and India did not undergo a recession (like Indonesia and Poland), Brazil and Russia suffered from the drop in commodities prices. With the economic upturn, the future is much brighter for these nations due to a combination of high domestic demand, infrastructure projects and investments. The risk of inflation and real estate bubbles may force the central banks to cool down these economies. China was the fastest growing nation in 2009 (8.7 percent) and continues this trend with 11.9 percent in Q1 of 2010.

The credit-worthiness storm that affects Southern Europe acts as a drag on the performance of Spain (36) and Portugal (37), although for Greece (46), the consequences of the recently approved austerity measures were not factored into the results. It is unfortunately to be expected that these three nations, which all have significant budget deficits, growing debt and weak trade performance, will suffer from further recession this year. Ireland (21) entered the real estate and the financial crisis earlier and has already implemented a recovery plan. Traditionally it has a strong export performance. However its “reasonable” debt level at 64 percent will quickly deteriorate with a 14.3 percent budget deficit.