Thursday, September 9, 2010

Nepal's declining competitiveness

The World Economic Forum has published The Global Competitiveness Index 2010-2011. This year Switzerland is the most competitive nation. Among 139 countries, Nepal ranks 130th in terms of competitiveness with a score of 3.34 (7 being the highest; Switzerland has a score of 5.63). Last year, Nepal ranked 125th, which means that the economy's competitiveness declined by five positions. Look at the South Asian countries, India ranks 51th (two positions down from last year); Bangladesh ranks 107th (one position down); Pakistan ranks 123th (twenty-two positions down); and Sri Lanka ranks 62nd (17 positions up).

The Nordic countries continue to be well positioned in the ranking, with Sweden, Finland (7th) and Denmark (9th) among the top 10, and with Norway at 14th. Sweden overtakes the US and Singapore this year to be placed 2nd overall. The United Kingdom, after falling in the rankings over recent years, moves back up by one place to 12th position. The United States falls two places to fourth position, overtaken by Sweden (2nd) and Singapore (3rd), after already ceding the top place to Switzerland last year. In addition to the macroeconomic imbalances that have been building up over time, there has been a weakening of the United States’ public and private institutions, as well as lingering concerns about the state of its financial markets.

The People’s Republic of China (27th) continues to lead the way among large developing economies, improving by two more places this year, and solidifying its place among the top 30. Among the three other BRIC economies, Brazil (58th), India (51st) and Russia (63rd) remain stable. Several Asian economies perform strongly, with Japan (6th) and Hong Kong SAR (11th) also in the top 20. In Latin America, Chile (30th) is the highest ranked country, followed by Panama (53rd) Costa Rica (56th) and Brazil.

Several countries from the Middle East and North Africa region occupy the upper half of the rankings, led by Qatar (17th), Saudi Arabia (21st), Israel (24th), United Arab Emirates (25th), Tunisia (32nd), Kuwait (35th) and Bahrain (37th), with most Gulf States continuing their upward trend of recent years.

In sub-Saharan Africa, South Africa (54th) and Mauritius (55th) feature in the top half of the rankings, followed by second-tier best regional performers Namibia (74th), Botswana (76th) and Rwanda (80th).

The Global Competitiveness Report’s competitiveness ranking is based on the Global Competitiveness Index (GCI), developed for the World Economic Forum by Sala-i-Martin and introduced in 2004. The GCI is based on 12 pillars of competitiveness, providing a comprehensive picture of the competitiveness landscape in countries around the world at all stages of development. The pillars are: 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.


Here is how Nepal fared in the twelve pillars of GCI:

>>Pillars: rank (score) -- my comment

Basic requirements: 125 (3.5)

  • Institutions: 130 (3.0) -- as expected!
  • Infrastructure: 139 (1.8) -- ninth worst/most non-competitive infrastructure in the world!
  • Macroeconomic environment: 89 (4.4)-- not bad!
  • Health and primary education: 109 (4.8)-- as expected!

Efficiency enhancers: 131 (3.1)

  • Higher education and training: 131 (2.6)-- serious shortage of skilled manpower
  • Goods market efficiency: 131 (2.6)
  • Labor market efficiency: 126 (3.6)-- militant trade unions and youth wings still rule the industrial sector!
  • Financial market development: 106 (3.6)-- it is growing but very recklessly; too much concentration in real estate and construction sectors
  • Technological readiness: 134 (2.5)-- virtually, no technology ready to be deployed for productivity gains!
  • Market size: 100 (2.9)-- market size is not bad; purchasing power is pretty high due to high remittance inflows

Innovation and sophistication factors: 133 (2.7)

  • Business sophistication: 132 (3.0)-- can't expect business sophistication in the Nepalese market!
  • Innovation: 137 (2.3)-- lack of quality manpower!


Though Nepal is still a factor-driven economy, a typical feature among developing countries, its macroeconomic management and health and primary education standards are higher than its peers.

Government instability/coups, corruption, and policy instability are identified as the three most problematic factors for doing business in Nepal. These are followed by inefficient government bureaucracy, inadequate supply of infrastructure, restrictive labor regulations, and poor work ethic in national labor force. Interestingly, tax regulations and tax rates are the least problematic factors for doing business in Nepal. It means that the biggest constraint is political.

For last year’s report, see this blog post.