Participant are seen at the Congress Center during the World Economic Forum annual meeting on Jan. 21, 2014 in Davos. (AFP Photo/Fabrice Coffrini)

WEF: Indonesia Drops to 37 in Global Competitiveness Index

BY :SHOEB KAGDA

SEPTEMBER 30, 2015

Jakarta. Since the 2008 global financial crisis, the world economy has undergone fundamental change. Today, it is marked by the new normal of lower economic growth, lower productivity growth and higher employment.

Although overall prospects remain positive, growth is expected to remain below the levels recorded in previous decades in most developed economies and in many emerging economies, according to the latest Global Competitiveness Index released by the World Economic Forum on Wednesday. 

“Growth prospects could still be derailed by the uncertainty fueled by a slowdown in emerging markets, geopolitical tensions and conflicts around the world, as well as by the unfolding humanitarian crisis,” the report said.

But it added that “at the same time, some positive developments – such as the rapid diffusion of information and communication technologies (ICT) giving rise to new business models are revolutionizing industries – bear great promise for a future wave of innovations that could drive longer-term growth.”

Rather than adjusting to this new normal, countries must step up their efforts to re-accelerate economic growth, the report said.

“There is evidence that, in addition to lower capital accumulation that results from reduced investments, productivity over the past decade has been stagnating and even declining, which could have contributed to the current situation.”

A failure to embrace long-term structural reforms that boost productivity and free up entrepreneurial talent is harming the global economy’s ability to improve living standards, solve persistently high unemployment and generate adequate resilience for future economic downturns, according to "The Global Competitiveness Report 2015-2016."

The report is an annual assessment of the factors driving productivity and prosperity in 140 countries.

Switzerland, Singapore and the United States retained the top three spots in the rankings with Germany and the Netherlands rounding up the top 5 most competitive economies.

Among emerging and developing Asian economies, Malaysia scored the highest at number 18 while Indonesia dropped three places to 37 from 34 in 2014-15.

This year’s edition found a correlation between highly competitive countries and those that have either withstood the global economic crisis or made a swift recovery from it. The failure, particularly by emerging markets, to improve competitiveness since the 2008 recession suggests future shocks to the global economy could have deep and protracted consequences.

The report’s Global Competitiveness Index (GCI) also found a close link between competitiveness and an economy’s ability to nurture, attract, leverage and support talent. The top-ranking countries all fared well in this regard. But in many countries, too few people have access to high-quality education and training, and labor markets are not flexible enough.

The end of the commodity super cycle has strongly affected Latin America and the Caribbean and is already having repercussions on growth in the region.

“Greater resilience against future economic shocks will require further reform and investment in infrastructure, skills and innovation,” the report noted.

“The fourth industrial revolution is facilitating the rise of completely new industries and economic models and the rapid decline of others. To remain competitive in this new economic landscape will require greater emphasis than ever before on key drivers of productivity, such as talent and innovation," said Klaus Schwab, founder and executive chairman of the WEF. 

“The new normal of slow productivity growth poses a grave threat to the global economy and seriously impacts the world’s ability to tackle key challenges such as unemployment and income inequality. The best way to address this is for leaders to prioritize reform and investment in areas such as innovation and labor markets; this will free up entrepreneurial talent and allow human capital to flourish,” said Xavier Sala-i-Martin, professor of economics at Columbia University. 

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