Bad scorecards for ASEAN nations in the World Competitiveness Rankings

Photo: Gunawan Kartapranata/CC BY-SA 3.0

The IMD’s 2018 World Competitiveness Rankings are out. They may provide a reality check for some ASEAN nations.

By Joelyn Chan

The International Institute for Management Development (IMD) has once again conducted its annual ranking. 2018 marks the 30th edition of the World Competitiveness Ranking. The Switzerland-based business school ranked 63 economies according to its four measures: economic performance, government efficiency, business efficiency and infrastructure. The ASEAN nations surveyed were Singapore, Malaysia, Thailand, Indonesia and the Philippines.

Singapore maintained its third position. Malaysia is the only ASEAN country that improved. It rose by two spots. Indonesia, Thailand and the Philippines dropped one, three and nine places respectively.

(Source: International Institute for Management Development)

Singapore ranks 3rd, falling behind Hong Kong and the US

The US climbed from fourth to first place, while Hong Kong dropped from first to second position. Amidst the changes, Singapore remained in third place. The city-state commonly sees Hong Kong as a regional rival, with similar economic conditions and policies. Hong Kong maintained its lead over Singapore. It has a stronger government and more efficient business practices.

According to IMD, Singapore “continues to be weakened by the high levels of private debt in the economy”. It also added that higher prices, particularly in the real estate sector, reduce Singaporeans quality of life and its ability to attract global talent.

Singapore has scored well for government efficiency. To rival Hong Kong, Singapore needs to improve its business efficiency. Business Efficiency is measured using statistical data and perception-based indicators. These perception-based indicators consider the respondents’ attitudes and values. Thus, if the government rolls out populist measures, it may be able to sway public opinions. This would be one way of moving up the rankings next year.

Malaysia moves two notches up

A strong rebound in economic performance helped Malaysia secure 22nd place. It performed impressively in international trade. However, it was unable to regain its 2016 ranking of 19th position.

The introduction of the Goods and Services Tax (GST) hampered efficiency in startup registration. But now, with Mahathir’s abolishment of the GST, we should see Malaysia climb in next year’s rankings.

Thailand falls three places

The IMD report reflects Thailand’s increasing budget deficit and exchange rate instability. Since 1999, the Thai government has run a budget deficit. The only two exceptions were in 2005 and 2006.

Long-term unemployment and youth unemployment plague the country. The government has been slow to adapt. Government efficiency is a real problem. It hinders the country’s attempts to accelerate reforms. Thailand needs to address these structural issues quickly, or it risks falling further down the rankings.

Indonesia slips one spot to 43rd place

Indonesia saw a marginal drop in its competitiveness this year. The leading causes are external pressures arising from trade and fluctuating exchange rates. Despite its size, Indonesia is still susceptible to external influences. A trade agreement between the United States and China increased demand for the US dollar and weakened the rupiah. With lower cost exports from China, Indonesia’s export volume will also fall.

Corruption also threatens to derail Indonesia’s economic progress. The government has not made sufficient progress in tackling corruption. Indonesia ranks poorly on the Transparency International’s Corruption Perceptions Index. Out of 180 countries, it ranks 96th.

The Philippines ranks 50th out of 63 countries

Out of all the Asia Pacific countries surveyed, Philippines had the greatest fall from grace. It fell nine places – from 41st to 50th place. Its poor economic performance is behind the loss of competitiveness. It faces a decline in tourism due to terror threats, leading to decreased public revenue.

After the 2018 World Competitiveness Rankings were released, the nation had mixed reactions. The Philippine government attacked the IMD’s reliability. According to the Filipino Department of Finance, the report lacks the backing of actual data. The finance team’s chief economist, Beltran, countered the report.  He cited positive unemployment statistics. In a phone interview with CNN, Socioeconomic Planning Secretary also disregarded IMD’s results. Ernesto Pernia described it as “largely a misobservation”.

Conversely, the presidential team acknowledged the findings in a press statement. This may be a more appropriate reaction. The unimpressive results could serve as a timely wakeup call for the nation. Compared to its ASEAN peers, the Philippines did not perform well in the Global Competitiveness Index either. The annual ranking by World Economic Forum showed that the Philippines lags behind Brunei and Vietnam.

The paradox of rankings

IMD generated its rankings after surveying 6,371 respondents from the ranked nations. It used 258 indicators, as well as statistical data from global and local data sources.  For countries which have a large population, the sample pool may be insufficient. For instance, the Philippines has over 103 million people. Can a four-digit sample size adequately reflect a nation’s strengths and weaknesses? It is also questionable for the US to score 100%. A country can always improve its existing state.

As with all reports and rankings, the choice of indicators is debatable. Many indicators cannot capture rapidly changing economic realities. The rankings can, and will, only be reflective of the nations’ past progress.

That being said, the rankings should be a wakeup call to some nations. ASEAN countries cannot afford to rest on their laurels. They should always look to boost their competitiveness.