IMD World Competitiveness Yearbook 2014: Croatia continues to be among least competitive developed countries

ZAGREB, 22 May 2014. – The International Institute for Management Development (IMD) of Lausanne, of which the National Competitiveness Council is a partner institute, today published the latest results from the World Competitiveness Yearbook 2014. According to the report, Croatia occupies 59th place out of the 60 leading global economies. This year’s decline by one place puts Croatia among the worst countries in terms of its competitiveness among developed countries. The competitiveness rankings are based on more than 300 criteria, two-thirds of which are statistical indicators while one-third is based on opinion polling of businessmen.

Every year IMD’s World Competitiveness Yearbook awakens the special interest of the business and political communities because it provides current statistical and polling data on the most important economically countries in the world, which is very important in light of the unequal recovery of individual countries from the global crisis. IMD’s methodology is based on the analysis of four factors of competitiveness: economic performance, government efficiency, business efficiency and infrastructure, with five indexes for each factor.

“The analysis points to the need to implement priority reforms without delay or waiting for a better opportunity. Everyone who is obligated or able must initiate the processes that will improve our position in the competitiveness rankings and to create the conditions for stimulating investment and creating new jobs,” stated Ivica Mudrinić, President of the National Competitiveness Council.

The United States continues to be in first place, thanks to the resilience of its economy, increased employment, and its dominant role in technology and infrastructure. Switzerland (2nd), Singapore (3rd) and Hong Kong (4th) continued to improve, thanks to exports, business efficiency, and innovations. Japan (24th) also improved its competitiveness. In Japan’s case, a weak yen has increased its competitiveness and has had a positive effect on the economy.

The most competitive countries in Europe are Switzerland (2nd), Sweden (5th), Germany (6th) and Denmark (9th) as a result of a gradual economic recovery whose success has relied on export-oriented production, on a strong sector of small and medium enterprises (SMEs), and fiscal discipline.

Among the BRIC countries Russia (38th) and South Africa (52nd) recorded a growth in competitiveness. China (23rd) fell in the rankings, partly because of the business environment, which India (44th) and Brazil (54th) also fell because of an inefficient labor market and inefficient business management.

Of the new EU members, Romania (47th) recorded the greatest rise – eight places compared to last year. The Czech Republic (33rd), Slovakia (45th) and Bulgaria (56th) show a mild downward trend, while Poland (36th) and Slovenia (55th) fell in this year’s competitiveness rankings.

Figure 1: Competitiveness of Croatia and comparable countries according to IMD

Source: IMD World Competitiveness Yearbook 2014, May 2014.

With Croatia’s inclusion in the IMD rankings in 2008, we had a real improvement in our position only in 2008 and six countries (Indonesia, Argentina, Mexico, South Africa, Ukraine, and Venezuela) were ranked behind us. Unfortunately, in the last six years that advantage has been lost and only Venezuela, which is in last place, is now behind Croatia.

Figure 2: Competitiveness of Croatia according to IMD

Source: IMD World Competitiveness Yearbook 2014, May 2014

Besides the overall position in the rankings, it is very important to consider the dynamic of the final competitiveness grade. It is apparent that our competitiveness essentially improved in the period 2006-2009, but in the period 2010-2014 we have registered a continuous decline and Croatia is now lagging behind the most competitive countries in the world. While Croatia’s overall score for competitiveness compared to the most competitive countries in the world was 49.4% in 2011, that score has fallen to 38.9% in 2014.

As shown in Figure 3, Croatia’s competitiveness moved with a dynamic similar to the comparable countries, but in 2014 the gap to them has increased significantly, with the exception of Slovenia, which has a nearly identical dynamic for that indicator, but is still at a level that is higher by about eight percentage points.

Figure 3: Competitiveness of Croatia according to IMD – evaluation of competitiveness (leading country = 100)

Source: IMD World Competitiveness Yearbook 2014, May 2014.

The causes for the significant worsening of Croatia’s competitiveness grade in the 20 indices of competitiveness are concentrated in the indexes for public finance (a loss of 12 positions), prices (-5) and scientific infrastructure (-3). The greatest decline was recorded because of an increase of the budget deficit, government subsidies and interest rates, reduced foreign investment, and a decline in the number of patent registrations.

The indices that slightly cushioned Croatia’s fall were international trade (an improvement of six positions) and societal framework (+4). These were a consequence of a positive balance of foreign payments, an improvement in the technological complexity of exports, an improvement in the polling results for customs procedures, relations between employees and employers, and an awareness of the need for social reforms.

Figure 4: Factors of competitiveness of Croatia

 

  2014 2013 Change
ECONOMIC PERFORMANCE
Domestic Economy 60 59 -1
International Trade 38 44 +6
Foreign Investment 55 54 -1
Employment 58 57 -1
Prices 27 22 -5
GOVERNMENT EFFICIENCY
Public Finance 54 42 -12
Fiscal Policy 47 46 -1
Institutional Framework 56 56 0
Business Legislation 49 50 +1
Societal Framework 35 39 +4
BUSINESS EFFICIENCY
Productivity and Efficiency 48 49 +1
Labor Market 60 59 -1
Finance 54 53 -1
Management Practices 60 60 0
Attitudes and Values 60 60 0
INFRASTRUCTURE
Basic Infrastructure 50 49 -1
Technological Infrastructure 44 45 +1
Scientific Infrastructure 54 51 -3
Health and Environment 34 36 +2
Education 42 43 +1

Only a few of the indicators are visibly better, which improved our overall competitiveness. Within the four basic pillars of competitiveness those indicators include:

• Economic performance
Large revenues from tourism and export of services and cost of living index.
• Government efficiency
Low customs barriers and low taxes of profit, stable exchange rate, short time to found a company.
• Business efficiency
Relatively low salaries, especially for management, relatively high number of working hours, and a high proportion of women who are employed.
• Infrastructure
Very good indicators for investment in telecommunications infrastructure and the price for Internet, the teacher-student ratio, and participation in secondary education.

The weaknesses are too numerous to list fully, but as a brief summary they include:

 – weak resistance to the crisis, low economic growth, low employment;
 – bureaucracy, unadaptable policies of the government, poor legal and regulatory framework;
 – price of capital, taxes and contributions;
 – weak entrepreneurship, adaptability of enterprises, business management, and social responsibility;
 – low level of technology, innovativeness, transfer of knowledge, higher education, and management education.

In the opinion of businessmen the following factors were the most attractive: qualified labor force, reliable infrastructure, a high level of education, and cost competitiveness, while the worst evaluated were: capability of the government, the tax system, stability and predictability of policies, and effectiveness of the legal and overall business environment.

The Center for Competitiveness of IMD has been measuring the competitiveness of countries since 1989. The methodology has not changed considerably since 1997, so it is possible to monitor the competitiveness of countries over a long period of time.

The complete results of the analysis are available at: http://www.imd.ch/wcy

For additional information, please contact us by telephone at 01/ 4897 574 or by e-mail at konkurentnost@hup.hr.

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About the World Competitiveness Yearbook
Again this year, Croatia has been included in the World Competitiveness Yearbook published by the Institute for Management Development (IMD) of Lausanne. The World Competitiveness Yearbook has been published annually since 1989. It analyzes and ranks the ability of countries to create and sustain an environment that supports the competitiveness of companies. The National Competitiveness Council has been a partner institute of IMD since 2006. The polling results are published simultaneously in all countries included in the polling.