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New Zealand’s world competitiveness improves

New Zealand’s world competitiveness improves

New Zealand has improved its international rating two places to 16th on the just released world competitiveness scoreboard. And the gap between New Zealand and Australia has shortened dramatically, with Australia slipping from 4th to 9th place on the 60-country survey.

The United States topped the poll again this year, with Hong Kong improving from 6th to 2nd place and Singapore slipping from 2nd to 3rd. Bottom of the list are Venezuela (60), Indonesia (59) and Argentina at 58.

New Zealand registered significant improvements in economic performance and government efficiency, which helped bump up the country’s overall rating. On criteria like ethical practices, a subsidy free economy and no price controls to hinder competition, New Zealand ranks number one. But when it comes to environmental laws hindering business competitiveness we are bottom of the class with a 60th place ranking.

The 2005 IMD World Competitiveness Yearbook ranks 60 countries on their ability to “create and maintain an environment that sustains the competitiveness of enterprise”. The New Zealand Institute of Management is IMD’s New Zealand partner in coordinating the local survey data which was obtained by an opinion survey of senior managers and statistics supplied by Statistics New Zealand, Treasury and the Reserve Bank.

The five challenges NZIM and IMD believe New Zealand must tackle in 2005 include the need to:
Enhance the corporate tax structure to attract foreign investment
Adopt policies to encourage more skilled migrants
Ensure the security of supply and affordability of energy and water
Increase investment and resolve bottlenecks in road and rail infrastructure
Encourage workplace productivity and improve management and business capability

When it comes to business efficiency, New Zealand ranks well in corporate citizenship – ethical practice, corporate board performance, high female participation and social responsibility, and a good image abroad.

We are, however, short of skills, subject to brain drain, we don't rank highly on productivity growth, and the competency of our senior managers is “low”.

Our overall economic performance ranking improved three places based on a buoyant domestic economy, high employment, direct investment and terms of trade index.

Government efficiency improved four places from 2004 – with a well-balanced budget, an independent public service that is relatively corruption free and has few protective practices.

On the downside, the survey suggests New Zealand’s investment incentives are unattractive to foreign buyers, the exchange rate lacks stability, the cost of capital deters business development and our management of public finances is expected to worsen.

There are infrastructure problems too. Environment laws and compliance hinder business competitiveness, cellphone networks are too expensive and the country’s energy infrastructure is inadequate. The maintenance and development of the country’s infrastructure (read transport systems) is also “not adequately planned and financed”.

2005 imbalance forecast
The past year has been characterised by global recovery, but the world competitiveness landscape for this year carries a higher degree of risk, according to the IMD’s Professor Stephane Garelli.

Garelli suggests in the 2005 Competitiveness Yearbook's executive summary that an "unusual level of risk accumulating on the horizon" may compromise the global economy's ability to handle a slowdown without slipping into recession.

Risk factors include economic and political tensions created by uneven growth rates, persistent US deficits, rising interest rates, inflation concerns and a growing gap between the performance of the global economy and a less buoyant domestic sector – particularly in Europe. So far this is not a problem in New Zealand.

In theory, lowering taxes increases incentives to invest or spend and so helps sustain economic competitiveness. But, says Garelli, the evidence for it is inconclusive and he describes the relationship between taxation and competitiveness as "a minefield".

There is, he says, no clear correlation between total tax pressure incurred in a country and its overall competitiveness or growth rate. Some countries happily blend high growth with high tax pressure (Finland, Norway, Sweden) while others achieve only low growth rates under low tax pressure regimes (Japan, Switzerland).

“Tax policy is no substitute for competitiveness," says Garelli. The "real engines" for the latter are science, technology, entrepreneurship, finance, logistics and education.

“Our improved showing this year is heartening,” said NZIM National Chief Executive David Chapman. “However, we have some serious issues to address. It is concerning to see that the competency of our senior management ranks down at 43. This should give encouragement to the Government’s current programme to help organisations like ours to lift management competency in New Zealand. We strongly believe that economic performance generally is directly related to the performance of individual managers, particularly managers at the top,” said Mr Chapman.

“And with so much emphasis on the case for a single economic market with Australia it is heartening to see that we are a little closer together on overall economic performance. But we need to lift our game even more and not rely on Australia slipping back.

“We are also concerned about the shortage of skilled labour, the outflow of our well-educated and skilled people and the perception that our senior managers lack international experience. We are making progress and that should be encouraged but we have an awful lot still to do, particularly on our infrastructure strategies and planning,” said Mr Chapman.


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