Competitiveness Report Digest Part I of II: Gulf Countries

Competitiveness Report Digest Part I of II: Gulf Countries

On the occasion of its meeting at the Dead Sea in May 2013, the World Economic Forum (WEF) collaborated with the European Bank for Reconstruction and Development to author the Arab World Competitiveness Report 2013. This post provides the first digest of that report’s central findings on the Gulf countries. On Saturday, GRI will bring the second part on North Africa and the Levant.

The report offers a zoomed-in view of the Arab states in the context of the WEF’s broader ranking of all countries according to its Global Competitiveness Index (CGI). According to the WEF, a country’s competitiveness is determined by “the set of institutions, policies, and factors that determine a country’s level of productivity.” The CGI assesses countries according to a metric using a weighted average of twelve key components: 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. It should be noted that a stable macroeconomic environment is commonly characterized by low and stable inflation, low long-term interest rates, low national debt relative to GDP, low deficits, and currency stability.

The Gulf Countries

The major finding of the report, reinforced by mainstream analysis, is that youth unemployment is the biggest issue facing the Arab world today. Population growth, combined with a relatively weak private sector and political instability make solving this problem difficult. While this central challenge characterizes the region as a whole, sub-regions of the Arab world feature more specific strengths and weaknesses. The Gulf countries, for their part, boast strong macroeconomic conditions but suffer from low levels of innovation along with weak health and education. What follows is an executive summary of the report’s findings on each of the Gulf countries (in order of their rankings). The analysis and findings below are entirely those of the Arab World Competitiveness Report 2013.

Qatar (ranked 11th globally)

As the most competitive Arab country, Qatar has taken steps to improve its education and focus on innovation, effectively addressing two of the biggest challenges facing its Gulf counterparts. It has invested heavily in health care, biomedicine, and green energy. With the World Cup on the horizon in 2020, $200 billion USD is invested in infrastructure projects, with a focus on transportation. A new Commercial Companies Law, along with other legislative measures, has recently improved the ease of doing business in the country.

Despite these moves, Qatar still received a low CGI score in terms of openness to foreign competition, highlighting a need to decrease impediments to international trade and investment. It would also do well to diversify its economy to increase its immunity to fluctuations in commodity prices.

Saudi Arabia (19th globally)

As the largest economy in the Middle East, Saudi Arabia is undertaking measures to promote further growth. A $450 billion infrastructure investment has underwritten the construction of a passenger and freight rail network, the creation of a regional power grid, and capacity-increasing improvements to the Jeddah Islamic Port. In addition, recent reforms have propelled Saudi Arabia from 67th to 22nd in the world on the World Bank’s Ease of Doing Business Index.

At the same time, health and education standards remain low. The lack of education and training will handicap the workforce moving forward. Inefficiencies in the labor market also need to be addressed to take best advantage of the country’s young workforce. Compared to other Gulf countries, Saudi Arabia does not make the best use of new technologies. The country’s recent focus on education, represented by the King Abdullah University of Science and Technology (KAUST), aims to address these issues.

United Arab Emirates (24th globally)

The United Arab Emirates offers a dependable business environment, including well-established road, sea, and air infrastructure along with strong institutions (e.g. trustworthy politicians and efficient government). Strong CGI rankings regarding efficiency of goods markets and macroeconomic stability are reflected in the country’s projected 3.14% GDP growth in 2013. A series of “clusters,” including Dubai Media City, Internet City, twofour54, and Masdar City offer appealing industry-specific hubs of activity.

Moving forward, the UAE will need to improve health care and education outcomes for its population. Specifically, it must achieve higher school attendance rates by its citizens. The country’s newfound focus on developing human capital, especially in the areas of science and technology, is designed to address these shortcomings.

Oman (32nd globally)

With budget surpluses, low government debt, and high public savings, Oman features a stable macroeconomic environment. A $1.5 billion project to enhance the port in Duqm, part of a special economic zone, attests to significant infrastructural investments that will fuel growth in numerous industries. Reforms made in recent years, including a measure to simplify the process for starting a business, have improved the commercial environment.

However, a weak educational system has contributed to underdeveloped human capital and an inefficient labor market. Meanwhile, low internet bandwidth presents challenges related to the use of internet and communications technology.

Kuwait (37th globally)

Offering physical security and protection of property rights, Kuwait is a reliable place to do business. Thanks to substantial oil resources, the country’s budget surpluses and low government debt provide macroeconomic stability. An updated companies law put on the books in 2012 and an anti-corruption law passed earlier this year signify an increasingly business-friendly environment.

In spite of these positive developments, foreign direct investment remains low because of historically stringent rules discouraging it. The education system, meanwhile, produces workers whose skill sets do not match the needs of businesses. Continued cronyism makes for inefficient use of talent. In the background, political tension creates uncertainty regarding policy and countrywide stability.

Bahrain (35th globally)

A wave of reforms in the last ten years have led to consistent growth in real output (5% annually between 2000 and 2012). The reforms have provided for the privatization of previously state-owned businesses, increased transparency, and created more favorable conditions for foreign direct investment. Bahrain has also taken steps to cultivate human capital through improvements to the education system and the labor market with the goal of matching workers’ skills to market needs.

Administrative barriers (e.g. tariffs and a drawn-out procedure for starting a business) remain as discouraging factors for entrepreneurs, potential trade partners, and investors. Devoting greater resources to improving technological readiness would serve Bahrain well by opening up opportunities for increased productivity.

Yemen (140th globally)

Yemen is an outlier among Gulf countries. While it has recently shown signs of modest economic recovery and has benefitted from the support of the Friends of Yemen group, its situation remains dire.

Weak institutions and poor infrastructure (characterized by corruption) hamstring economic growth, which is further sabotaged by an overreliance on oil. At the root level, poor education and health outcomes leave the population at a severe disadvantage. A lack of security and political stability prevent Yemen from addressing any of these issues in a meaningful way.

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