NZ competitiveness restricted by innovation performance
7 September 2011
New Zealand competitiveness restricted by innovation performance
New Zealand’s Global Competitiveness Index score has remained stable since last year but the country has slipped two places to 25th of 142 countries, overtaken by Israel and Malaysia.
New Zealand’s overall performance is limited by innovation and business sophistication, the most important drivers of economic performance in advanced economies. The New Zealand Institute Director Dr Rick Boven says, “Government has increased efforts and investment in innovation but we cannot yet see evidence of improvement. Other countries are doing more. New Zealand needs to lift performance more or our competitive position will continue to slide”.
The Global Competitiveness Report is produced annually by the World Economic Forum. Switzerland ranked 1st for the third year in a row, followed by Singapore which overtook Sweden to claim second position.
The United States declined for a third year to 5th place as macroeconomic vulnerabilities continue to build and some aspects of the institutional environment have raised concern among business leaders. Canada (12th) slipped out of the top ten, replaced by the United Kingdom. Australia ranked 20th a drop of four places since last year. China improved by one place to 26th, continuing to lead the way for large developing economies. Among the four other BRICS economies, South Africa (50th) and Brazil (53rd) move upwards while India (56th) and Russia (66th) experienced small declines.
The World Economic Forum Founder and Executive Chairman, Klaus Schwab says that while most advanced economies are experiencing a sluggish recovery from the economic crisis, much of the developing world is seeing relatively strong growth.
The Global Competitiveness Index is made up of 111 indicators categorised into twelve pillars of competitiveness in three sub-indices: Basic requirements, Efficiency enhancers, and Innovation and sophistication factors.
New Zealand continues to do well in Basic requirements and Efficiency enhancers, ranking 17th (14th last year) and 18th (same as last year) respectively. Strongest performance is in strength of investor protection (1st), diversion of public funds (1st), number of procedures to start a business (1st), quality of primary education (7th), and quality of math and science education (7th).
But the good overall rankings for these two sub-indices mask weak performance in some indicators. The infrastructure ranking remains low at 34th (37th last year) particularly in quality of electricity supply, mobile telephone subscriptions, rail and road. New Zealand’s hiring and firing practices (86th) and impact of FDI rules on business (56th) are also areas of relative disadvantage.
Rank in the macroeconomic environment pillar dropped from 20th to 48th as the Government budget balance as percent of GDP dropped from 13th to 112th place. Gross national savings as percent of GDP is also relatively weak, ranked 86th.
New Zealand ranks 1st for annual percentage change in inflation. Dr Boven says, “New Zealand continues to focus on inflation as the primary goal of macroeconomic policy. Some other countries appear to be managing more strategically, using quantitative easing (printing money) to stimulate their economies, limit fiscal deficits, lower exchange rates to increase competitiveness and reduce the value of their real debt.”
Performance in Innovation and sophistication factors (ranked 28th the same as last year) continues to bring New Zealand’s overall ranking down, and remains the greatest challenge and opportunity for New Zealand. Areas that continue to constrain overall competitiveness include government procurement of advanced technology products (71st), availability of scientists and engineers (69th), state of cluster development (60th) and value chain breadth of exporting companies (59th). The New Zealand Institute’s research shows that shortages of specialised talent and capital availability are constraining innovation performance too.
Dr Boven says, “Despite the efforts of many in New Zealand’s innovation ecosystem much more effort and investment will be required to improve competitiveness and lift prosperity. The countries that are improving competitiveness have well-formulated strategies and much more investment. To illustrate, there is still nowhere in New Zealand offering full-time world class professional training in international marketing and sales to lift the success of our many hundreds of internationalising businesses. Complacency must be replaced by urgency or we will continue to fall behind.”
A presentation summarising New Zealand’s competitiveness is available at www.nzinstitute.org
The full report is available from http://www.weforum.org/gcr