Croatia Remains at the Bottom in Competitiveness

The Institute for Management Development (IMD) from Lausanne, whose partner institute is the National Competitiveness Council, today published the latest results of the World Competitiveness Yearbook 2013, in which Croatia ranked 58th out of a total of 60 leading world economies.

 This year’s 25th edition of the competitiveness ranking also includes Latvia for the first time.

The IMD World Competitiveness Yearbook attracts particular interest from the business and political community each year as it provides current statistical and survey data on the most economically significant countries in the world, which is very important in light of the uneven recovery of certain countries from the global crisis. The IMD methodology is based on the analysis of 4 competitiveness factors, which are: economic results, public sector efficiency, business sector efficiency, and infrastructure, as well as 5 indices for each area.

-This year’s results again clearly indicate the need for urgent structural reforms that must encompass both the public and private sectors, with the aim of increasing the competitiveness of our country. The economic crisis we are going through and the IMD analysis in this area clearly indicate that small, export-oriented, and stable economies will recover more easily from the consequences of the current crisis. I see this as our opportunity to strengthen national competitiveness. We must focus more on improving business efficiency, as well as increasing flexibility and adaptability to changes, emphasizes Ivica Mudrinić, President of the National Competitiveness Council.

This year, the USA regained the top position in the IMD competitiveness ranking, primarily due to the recovery of the financial sector, technological innovations, and a large number of successful companies. China (21st) and Japan (24th) have also improved their competitiveness. In the case of Japan, the measures introduced by Prime Minister Shinzo Abe have had an initial positive effect on the economy.

In Europe, the most competitive countries are Switzerland (2nd), Sweden (4th), Norway (6th), and Germany (9th), whose successes rely on export-oriented production, strong small and medium-sized enterprises (SMEs), and fiscal discipline. As in previous years, economic growth in other European countries is heavily constrained by austerity measures that delay recovery.

Among the BRICS countries, China (21st) and Russia (42nd) have recorded an increase in competitiveness, while India (40th), Brazil (51st), and South Africa (53rd) have worsened their rankings. New economies are highly dependent on the global economic recovery, which is delayed.

Among the new EU member states, the Czech Republic continues a 4-year trend of slight deterioration but has maintained a relatively favorable position (35th). Poland is the best-ranked among comparable countries, at 33rd position, having been 58th on the list in 2006, just one place ahead of Croatia. Slovakia has maintained the 47th position, but this is still poor compared to the 30th position in 2008. Slovenia remains very low, at 52nd position, while Romania and Bulgaria continue on a downward trajectory.

It is worth noting that since Croatia was included in the IMD ranking, we only had a real improvement in position in 2008, when there were 6 countries behind Croatia (Indonesia, Argentina, Mexico, South Africa, Ukraine, and Venezuela). Unfortunately, in the last five years, this has been lost, and typically there are 2 countries behind Croatia. In addition to Venezuela, which holds the last position, Greece advanced 4 positions in 2013, while Argentina fell back the same amount, taking Greece’s place on the ranking list behind Croatia.

In addition to the overall position in the ranking, it is very important to observe the dynamics of the final competitiveness score. It is evident that our competitiveness score significantly improved during the period 2006-2009, while in the period 2010-2013 we have recorded fluctuations in the competitiveness score, meaning that Croatia is not closing the gap with the most competitive countries in the world.
As can be seen from Figure 3, Croatia’s competitiveness scores move almost identically to those of comparable countries, and in the last 3 years, the gap with the new EU member states has not decreased.

In the analysis of 20 competitiveness indices, significant changes are noticeable for:
– deterioration: prices (-18), productivity and efficiency (-9), and technological infrastructure (-8),
– improvement: public finances (+4).
The price index deteriorated primarily due to an increase in inflation from 2.3% to 3.4%. The productivity index worsened due to very poor survey responses regarding the productivity assessment of Croatian workers and companies. Technological infrastructure deteriorated due to poorer values of the internet speed indicator, as well as a decrease in investment in communication infrastructure. The improvement in public finances is a result of a reduction in the budget deficit from 4.5% of GDP to 3.3% of GDP.

At the indicator level, there are only a few distinctly favorable indicators that improve our overall competitiveness, which are, within the 4 basic pillars of competitiveness, the following indicators:
• Economic results
High revenues from tourism and service exports, cost of living index, and cumulative foreign investment.
• Public sector efficiency
Low tariff barriers and low corporate tax, short time to establish a company.
• Business sector efficiency
Relatively low wages, especially for management, and low unit labor costs in the manufacturing industry, relatively high number of working hours, and high female employment share.
• Infrastructure
Very good indicators of telecommunications infrastructure usage (mobile phone and broadband internet prices) and secondary education (ratio of teachers to students) and participation in secondary education.

There are too many weaknesses to list at the indicator level, so they can be briefly summarized:
– weak resilience to crises and diversification of production,
– low employment, structural unemployment, rigid labor market, aging population,
– state ownership of companies, bureaucracy, cost of capital, high social expenditures,
– weak entrepreneurship, adaptability, business management, motivation, and competence,
– low level of technology, innovation, knowledge transfer, higher education, and managerial education.

According to economists, the most attractive indicators are the following: qualified workforce, reliable infrastructure, high level of education, quality of corporate governance, accessibility to financing, strong research and development culture.