Global Competitiveness Report:

SL low in labour market efficiency

by Bandula Dissanayake

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 systems.

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 staff training.

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 sophistication.

Seventh pillar: Labour market efficiency

The efficiency and flexibility of the labour market are critical for an economy.

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 authority.

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