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Competitiveness Improves But NZ Still Lags in Innovation

5 September 2012

Competitiveness Improves But New Zealand Still Lags in Innovation

New Zealand has ranked 23rd out of 144 economies, in the latest World Economic Forum’s (WEF) Global Competitiveness Index. That reversed a previous decline in ranking and the country’s overall score rose from 4.93 to 5.09.

Dr Oliver Hartwich, Executive Director of the New Zealand Initiative, says the lift in ranking and overall score on 111 indicators of performance is positive but the country’s performance remains weak compared other OECD countries and the 35 most innovation-driven economies around the world.

New Zealand lifted its ranking in 9 of the 12 pillars of competitiveness the WEF measured and is particularly strong in institutions, health and education, goods and labour market efficiency and financial market development. However macroeconomic factors, infrastructure and innovation are constraining overall performance.

“Both government and businesses need to address areas of under-performance such as clustering, innovation capacity, access to financing, hiring and firing practices, supply of scientists and engineers,” says Dr Hartwich.

“The government’s budget and debt management, New Zealand’s restrictive regime on foreign direct investment, and the regulation of product markets need to be the focus of improvement. We should also increase efforts to attract highly qualified migrants for sectors in which we experience skills shortages.”

In the WEF’s 33rd report, Switzerland topped the overall rankings for the fourth consecutive year. Singapore remains in second position and Finland in third position, overtaking Sweden (4th). These top countries are small, strong and stable with sophisticated innovation approaches.

The United States declined for a fourth consecutive year down to 7th position as macroeconomic vulnerabilities and some institutional factors continue to raise concern among business leaders, particularly low trust in politicians and a lack of government efficiency.

Denmark (12th) slipped out of the top ten, replaced by Hong Kong. Australia’s ranking was stable at 20th. Despite declining three places, China (29th) continues to be the most competitive of the large emerging BRICS economies. Of the others only Brazil (48th) moves up this year, with South Africa (52nd), India (59th) and Russia (67th) experience small declines in rankings.

The WEF founder and Executive Chairman, Klaus Schwab says, “Persisting divides in competitiveness across regions and within regions, particularly in Europe, are at the origin of the turbulence we are experiencing today, and this is jeopardising our future prosperity.” A competitiveness gap is widening between northern and western European countries compared to southern and eastern European countries. Gaps are also arising in other regions with South-east Asia performing better than South Asia, and marked differences between countries in the Southern Africa region. “Governments are urged to act decisively and adopt long-term measures to enhance competitiveness and return the world to a sustainable growth path,” says Professor Schwab.

Overall New Zealand ranked 23rd but its strongest performance is among efficiency enhancers at 14th (18th last year) and basic requirements at 19th (a slight decline from 17th last year). New Zealand ranks 1st among all 144 economies on institutional indicators such as diversion of public funds, irregular payments and bribes, judicial independence, favouritism in decisions of government officials, ethnical behaviour of firms and strength of investor protections. First placed rankings also apply to goods market efficiency indicators such as the number of procedures and the number of days required to start a business, agricultural policy costs and prevalence of trade barriers.

Rankings are weaker for the quality and supply of infrastructure and macroeconomic indicators such as government budget balance, % GDP (124th), gross national savings, % GDP (95th), general government debt, % GDP (62nd) and inflation change (58th).

Performance in innovation and sophistication factors ranked 27th (up one since last year). That remains the greatest challenge and opportunity for New Zealand. Areas that most constrain competitiveness include the state of cluster development (64th), government procurement of advanced technology products (57th), availability of scientists and engineers (55th) and value chain breadth of exporting companies (45th).

Over the past few years the WEF has been developing a sustainable competitiveness framework for comparing nations. An assessment of 79 countries was included in the 2012-13 report. The main finding is that there is no necessary trade-off between being competitive and being sustainable. When the additional 18 indicators were applied, New Zealand’s overall ranking improved between +5% to +15% for both environmental and social sustainability, performing better than Australia on the environmental pillar.

A presentation summarising New Zealand’s competitiveness is available at

The full Global Competitiveness Report 2012-13 is available at

Catherine Harland is a Research Fellow with The New Zealand Initiative

Additional background notes

The Global Competitiveness Report remains the most respected assessment of national competitiveness, providing a mirror image of a nation’s economic environment and its ability to achieve sustained levels of prosperity and growth.

The rankings are calculated from both publicly available international and national data and the Executive Opinion Survey, a comprehensive annual survey conducted by the World Economic Forum together with its network of Partner Institutes (leading research institutes and business organisations) in the countries covered by the Report. This year, a total of 14,059 surveys of business leaders in 144 economies were included. The survey is a one-of-a-kind tool for capturing timely and vital information that is not otherwise available on a global level. The data gathered provides a unique source of insight and a qualitative portrait of each nation’s economic and business environment. The Report includes comprehensive listings of the main strengths and weaknesses of countries, making it possible to identify key priorities for policy reform.

The Global Competitiveness Report’s competitiveness ranking is based on the Global Competitiveness Index (GCI), developed for the World Economic Forum by Sala-i-Martin in 2004 and adopted in 2005. The GCI is based on 12 pillars of competitiveness, providing a comprehensive picture of the competitiveness landscape in countries around the world at all stages of development. The pillars include: Institutions, Infrastructure, Macroeconomic environment, Health and primary education, Higher education and training, Goods market efficiency, Labour market efficiency, Financial market development, Technological readiness, Market size, Business sophistication, and Innovation.

The Report contains a detailed profile for each of the 144 economies featured in the study, providing a comprehensive summary of the overall position in the rankings as well as the most prominent competitive advantages and disadvantages of each country/economy based on the analysis used in computing the rankings. Also included is an extensive section of data tables with global rankings for 111 indicators.

The World Economic Forum is developing a framework to assess the sustainable competitiveness of nations by applying 9 indicators for environmental sustainability and 9 indicators for social sustainability. In 2012-13 79 countries with sufficient data available were assessed.

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