Highs and Lows of our Competitiveness

This year’s survey makes for interesting analysis, not simply because South Africa has dropped two places in the rankings to 52 in the world, but for the fact that the country still remains the highest-ranking African country in the survey and third-placed amongst the BRICS economies (Brazil, Russia, India, China and South Africa). There is anticipation and interest for a much needed debate, stimulated by the report, amongst South Africa’s political and business decision-makers around our country’s strengths, weaknesses, comparative risks and opportunities within the BRICS and Next11 countries (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea and Vietnam).

As the global economy is still grappling with slow growth and weak recovery, emerging and developing countries are growing faster than advanced economies. Acknowledging that the BRICS countries represent an astonishing 43% of the world’s population, these markets will remain a major source of global economic growth. This situation provides South Africa with both unprecedented opportunities and significant challenges as it looks to capitalise on this global trend. The real challenge is to fully understand South Africa’s position in the context of the BRICS and NEXT11 markets and to maximise the country’s strengths, whilst addressing some significant weaknesses that could hold the country back if measures are not taken to radically improve performance in key areas such as health, education, and labour market efficiency.

When benchmarking South Africa against other BRICS nations, there is some positive news for the country. Its competitive strengths can be seen in financial market development where it ranks 1st amongst the BRICS nations and 3rd overall in global terms; business sophistication where it ranks 2nd amongst the BRICS nations and 38th overall; and goods and market efficiency where it ranks 1st amongst the BRICS nations and 32nd in the world. Other strengths included the Legal Rights Index, the Regulation of Securities Exchanges, the Efficacy of Corporate Boards, and the Strength of Auditing and Reporting Standards, where South Africa is placed 1st. Other strong performance areas included Availability of Financial Services (2nd place) and the area of Financing through Local Equity Markets (3rd place).

It is worth noting that the high level of confidence shown in South Africa’s financial market development comes at a time when global market confidence is slow to return. The country is undoubtedly benefitting from the size of its economy and from the quality and accountability of its private institutions where it achieves a 2nd place global ranking.

However, South Africa’s overall ranking was negatively impacted by its declining performance in critical areas for economic and social developmental growth. If South Africa is to improve its global competitiveness, it will need to significantly address a number of these key weaknesses. On health, South Africa was the worst performing of the BRICS nations and positioned 132nd out of 144 economies. Particular areas of concern remain the number of Tuberculosis cases recorded per 100,000 people in the country, where South Africa is positioned 143rd out of 144 countries. Other equally worrying statistics include the business impact of HIV/Aids where South Africa is positioned 135th, and the country’s HIV prevalence rate which positions it globally in 141st position.
In the Life Expectancy Years pillar, South Africa ranks 133rd in the world. These results remain a matter of great concern and will continue to affect the country’s future growth if effective solutions are not found and attitudes are not changed. Ensuring high standards for health and education of the country’s workforce is critical to South Africa’s current and future economic and social development.

Where South Africa’s performance decreased signficantly was in the country’s Macroeconomic Environment which saw a drop from 43rd place to 69th place overall. Although South Africa still remains the most competitive economy in sub-Saharan Africa, the country needs to address issues such as its Labour Market Efficiency where the impact of a dramatic drop from 97th place overall in the world to 113th place today is being clearly felt in the local economic environment. The country’s labour productivity reached a 46 year low in July this year with the report identifying restrictive labour regulations and poor work ethic as the most prohibitive factors for doing business in South Africa.

The country’s rigid hiring and firing practices ranked it 143rd out of 144 places in the world; its lack of flexibility in wage determination by companies ranked it 140th; and significant tensions in labour-employer relations ranked it 144th in the world. These statistics require vigorous debate and a new approach if South Africa is going to achieve a sustainable growth and development path going forward.

Another key area where South Africa can improve is in Quality of its Maths and Science Education, ranking at 143rd place out of 144 countries. The Quality of the Education System ranks 140th and 111th for Internet Access in Schools. If South Africa wishes to nurture a highly qualified workforce to meet the economic challenges of the future and to maximise the potential marketplace growth of the BRICS and NEXT11 nations, it has to rapidly address its failings in the education of its young people. Failure to do so will result in competitor countries taking advantage of South Africa’s weaknesses and boosting their own economies, ultimately at our cost.

The negative impact of our education sector failings can also be seen in South Africa’s ranking of 122nd place for the Availability of Scientists and Engineers. This does not bode well for the future of our scientific research institutions. They require a continual pool of well-educated young people with an excellent grounding in maths and science if they are to continue to benchmark themselves in the global scientific marketplace. A world ranking of 143rd out of 144 countries for the Quality of Maths and Science Education is not going to advance South Africa’s ambitions in this respect, without significant intervention.
In a positive response by Government, the National Development Plan, recently adopted by Cabinet, looks to address people development and job creation to foster economic growth and prosperity, with a target of creating 11 million more jobs by 2030 through higher investment, capacity building and greater labour absorption. This represents a positive new development in addressing education, training and labour issues moving forward.

Finally, the report highlights obstacles to doing business in South Africa due to the high costs of crime and violence, recording a position of 134th in the world rankings with organised crime ranking South Africa at 111th. Government institutions negatively impact on business growth and development – South Africa is ranked 110th in the world for incidences of Favouritism in Decision of Government Officials, and 123rd for the Burden of Government Regulation on business development.

On a positive note, if South Africa successfully addresses its challenges and continues to benchmark itself against its fellow BRICS members and the world in order to improve, it can hope for a better ranking in next year’s Global Competitiveness Report. South Africa remains open for business, but with an eye on making the changes needed to make it a genuinely global competitive player.

While there may be challenges for South Africa in this year’s WEF report, earlier this year South Africa improved with two positions in the 2012 IMD Global Competitiveness Yearbook. South Africa improved its overall standing from number 52 in 2011, to 50 in 2012. In this year’s IMD competitiveness report the country improved its ranking in government efficiency 29 (up from 32 in 2011); business efficiency 37 (up from 40 in 2011); and infrastructure 54 (up from 56 in 2011).

First published in the Sunday Independent, 16 September 2012.