Global Competitiveness Report:
SL low in labour market efficiency
The Global Competitiveness Report compiled by the World Economic
Forum as an annual analysis of economies around the globe, has paid
attention to key factors and their inter-relations of each country's
economic growth and present and future prosperity.
This analytical report has been in production for the past 35 years.
Sri Lanka stands at 68 of 140 economies in the 2015-16 index. In
2014-15, Sri Lanka was in the 73rd position, out of 144 economies.
The Global Competitiveness Index is calculated on a 12-pillar concept
which defines institutions, policies, and factors that determine the
level of productivity of a country.
Pillars one, two, three and four consisting of institutions,
infrastructure, macro-economic environment and health and primary
education are considered the basic needs of an economy and take approx.
40% weightage of the overall 12 pillars.
The fifth to 10th pillars which cover higher education and training,
labour market efficiency, financial market development, technological
readiness and market size are recognized as the efficiency enhancers of
an economy, take 50% of the pillar weightage.
The 11th and 12 pillars are innovation and sophistication factors of
an economy which contribute 10% to the economy.
On an overall basis when the 12 pillars are taken into consideration,
Sri Lanka stands at the 68th position while India is on 55, Pakistan
126, Bangladesh 107, Vietnam 56, Myanmar 131and Thailand 32.
First pillar: Institutions
Public and private institutions play a vital role in the behaviour
and the efficiency of the economy. Good governance in these sectors are
considered of utmost importance.
Sri Lanka stands at 67th under basic requirements out of 140
economies. Property rights and intellectual property protection,
Diversion of public funds, Public trust in politicians, Irregular
payments and bribes, Judicial independence, Favouritism in decisions of
Government officials, Wastefulness of Government spending, Burden of
Government regulations, Efficiency of legal framework in settling
disputes, Efficiency of legal framework, Transparency of Government
policy making, Business costs of terrorism, Business costs of crime and
violence, Organized crime, Reliability of police services, Ethical
behaviour of firms, Strength of auditing and reporting standards,
Efficacy of corporate boards, Protection of minority shareholders'
interests and Strength of investor protection are evaluated.
Second pillar: Infrastructure
Widespread and efficient infrastructure is important to guarantee the
real functioning of the economy. A transport system with better quality
roads, railroads, ports and airports would enable the business community
to send its products to the market in time and enable the movement of
labour to their places of work without wasting time and energy.
The continuous supply of quality electricity will ensure continuous
functioning of factories and work places will have a greater impact on
economic growth. Finally, a solid and extensive telecommunications
network allows for a rapid and free flow of information, which increases
overall economic efficiency by helping to ensure that businesses can
communicate and decisions are made by economic factors taking into
account all available information.
Sri Lanka stands at the 64th position on the Infrastructure Pillar
which covers Quality of overall infrastructure, Quality of roads,
railroads and Port infrastructure, Quality of air transport
infrastructure, Available airline facilities, Electricity supply, Mobile
telephone subscription, and Fixed-telephone lines.
Third pillar: Macroeconomic environment
Under the global competitiveness index, the macroeconomic environment
is the third pillar. A good macroeconomic environment is vital for
businesses to function properly. It is understood that macroeconomic
stability alone cannot increase productivity. But macroeconomic disorder
damages the economy in a big way, as we recently experienced in Europe.
A Government cannot provide services efficiently when it has to make
high-interest payments on its past debts. Unbearable fiscal deficits,
limits the Government's ability to react to business cycles. It would be
difficult for the private sector to operate efficiently when inflation
rates are out of hand. In other words, the macro environment has to be
stable for an economy to grow sustainably.
On macroeconomic environment Sri Lanka stands at the 115th position
which comprises the Government, the Budget balance as a % of GDP, Gross
National Savings, Inflation as Annual Change Percentage, General
Government Debt as a percentage of GDP and Country Credit Rating.
Fourth pillar: Health and primary education
Health and primary education also play a key role in the context of
competitiveness and productivity. These two factors decide the quality
of the workforce. If the workforce is not healthy and not properly
educated, they could be less productive.
Workers with poor health have higher probability of being absent
often and a low level of education may cause problems in production
which will be costlier for businesses which have a greater impact on
efficiency and productivity.
Therefore, investing in health services is considered to be a serious
need. Investing in primary or basic education will make the workforce
more knowledgeable and will boost productivity.
In Health and primary education, Sri Lanka has reached the 43rd
position which comprises Malaria density and business impact,
Tuberculosis cases and business impact of tuberculosis, HIV prevalence
and business impact of HIV/AIDS, Infant mortality and life expectancy,
and Quality of primary education.
Fifth pillar: Higher education and training
When a nation is moving up in a value chain expecting to go beyond
simple production processes, education and training will play a crucial
role. Today, the globalized economy needs countries to build pools of
well-educated workers to perform multifaceted tasks and find their feet
in the changing environment and the evolving needs of production
This pillar evaluates secondary and tertiary enrolment rates and the
quality of education and the extent of training provided to staff to
constantly upgrade workers' skills. These aspects are neglected in many
economies in the world.
In higher education and training, Sri Lanka stands at the 66th
position which evaluates secondary education enrolment, Tertiary
education enrolment, Quality of the education system, Quality of maths
and science education, Quality of management schools, Internet access in
schools, Availability of specialized training services, and Extent of
Sixth pillar: Goods market efficiency
It is vital for countries to have efficient goods markets that are
well positioned to produce the correct blend of products and services
needed by the economy while having healthy supply and demand conditions.
The healthy market situation will ensure efficiency and productivity of
business to be kept high whereby growth of the economy is ensured.
In the goods market, the efficiency our country has reached 51 which
evaluates the Number of procedures and number of days to start a
business, Agricultural policy costs, Prevalence of non-tariff barriers,
Trade tariffs as a percentage of duty, Prevalence of foreign ownership,
Business impact of rules on FDI, Burden of Customs procedures, Imports
as a percentage of GDP, Degree of customer orientation and buyer
Seventh pillar: Labour market efficiency
The efficiency and flexibility of the labour market are critical for
The workers should be allocated jobs in an effective manner and they
should be provided attractive incentives where the labour force may
contribute positively to the growth of the economy. The gender equity in
the business environment and flexible regulations will attract skilled
workers with greater talent to an economy.
In Labour market efficiency, Sri Lanka stands as low as 130 which
covers Co-operation in labour-employer relations, Flexibility of wage
determination, Hiring and firing practices, Redundancy costs, Effect of
taxation on incentives to work, Pay and productivity, Reliance on
professional management, Country capacity to retain talent, Country
capacity to attract talent and the Ratio of women in the labour force.
Eighth pillar: Financial market development
The financial sector is of utmost importance for development. The
wealth of the nation is comprehended through the financial sector and
attracts foreign entrepreneurs and investments. Therefore, availability
of capital through sophisticated financial markets plays a key role in
the economy. In a sound financial market, a well established banking
sector which is trustworthy, a well regulated securities exchange
systems and venture capital business with appropriate regulations
protecting investors, are vital aspects.
Under this pillar Sri Lanka has reached 51 which covers Availability
and Affordability of financial services, Financing through local equity
market, Ease of access to loans, Venture capital availability, Soundness
of banks, Regulation of securities exchanges and Legal rights.
Ninth pillar: Technological readiness
This pillar evaluates the availability of technology for industries
which is a crucial fact in reaching higher levels of productivity. The
ability of industries to use information and communication technology
effectively may increase efficiency and innovation. The developing
economies attract advanced technology through FDIs.
In Technological readiness, Sri Lanka is at the 93rd position.
Technological readiness, Availability of latest technologies, Firm-level
technology absorption, FDI and technology transfer, Individuals using
Internet, Fixed-broadband Internet subscriptions, International Internet
bandwidth and Mobile-broadband subscription are included in the pillar.
Tenth pillar: Market size
The size of the market plays a substantial role in the increase of
productivity. Large markets will offer better opportunities to firms
mainly due to economies of scale. Conventionally, market sizes were
decided by geographical borders, but lately many small economies started
exploring offshore opportunities whereby exports became a crucial factor
in an economy.
As far as market size is concerned Sri Lanka is at the 61st position.
It includes Domestic market size, Foreign market size, % of GDP in
Private-Public Partnership value, and Exports as a percentage of GDP.
Eleventh pillar: Business sophistication
The quality of country's overall business network and quality of
individual companies' operations and strategies are measured under this
pillar. These aspects are needed in going beyond basic business
achievements and to reach extensive productivity goals.
In this scenario, business ventures will explore and create more
sophisticated business opportunities by going beyond standard
boundaries. Increased business sophistication will encourage more firms
to enter the market.
In Business sophistication, Sri Lanka stands at the 44th position
which evaluates local supplier quantity and quality, State of cluster
development, Nature of competitive advantage, Value chain breadth,
Control of international distribution, Production process
sophistication, Extent of marketing and Willingness to delegate
Twelfth pillar: Innovation
The ability of firms to adopt the latest technology and reach
innovation, is measured in this pillar. Companies will come up with
cutting edge products with the use of technology and will form a
competitive advantage by value addition. R&D will play a key role in
this aspect and the public and private sectors need to contribute to
this facet immensely.
In this pillar Sri Lanka has reached the 43rd position. Capacity for
innovation, Quality of scientific research institutions, Company
spending on R&D, University-industry collaboration in R&D, Government
procurement of advanced tech products, Availability of scientists and
engineers, number of patent applications are covered under this pillar.
It is noteworthy that interrelations of these 12 pillars are vital
for a sustainable economic balance and weakness of one pillar will
deteriorate the economic growth on an overall basis.
The writer is the Secretary General and CEO of the National Chamber
of Commerce of Sri Lanka.
Direct Reference - The Global Competitiveness Report 2015-2016