Oman Press Release on the Launch of The Global Competitiveness Report 2009-2010
Oman Moves Closer Towards an Innovation Driven Economy

Published yesterday, 8th September 2009, the World’s Economic Forum Report shows that Oman has developed significantly through 2008 to a place where improvements in competitiveness need to come more from increased innovation and business sophistication.

The World Economic Forum, highly reputed for its annual Davos Summits, wrote its 30th edition of The Global Competitiveness Report, ahead of the Annual Meeting of New Champions in Dalian, China, which starts on the 10th September. This meeting in Dalian, will bring together over 1,300 industry, government and thought leaders to debate and define the course needed to re-launch growth after the economic crisis.

Reviving economic growth remains the priority for policy-makers and business leaders in 2009. While government stimulus programmes are critical in the near term, entrepreneurship, innovation and technology will drive a transformational recovery for the long term.

Today’s difficult economic environment underscores the importance of not losing sight of long-term competitiveness fundamentals. These are about having in place the institutions, policies and factors, which drive the level of productivity in an economy, and in turn this determines the level of prosperity that the economy can reach.

Yesterday’s report captures these fundamentals in its Global Competitiveness Index, which measures 12 ‘Pillars of Competitiveness’. These pillars are grouped into 3 sub-indices which include first, Basic Requirements of Competitiveness - such as institutions, infrastructure, macroeconomic stability, health and primary education. Second come the Efficiency Enhancers such as higher education and training, goods and labour market efficiency, financial market sophistication, technological readiness and market size. Third are Innovation and Sophistication Factors.

The GCI is derived from secondary data on a number of economic variables and an Expert Opinion Survey that polled 12,614 Business Executives from the private sector in 133 countries. The International Research Foundation (IRF), a non-governmental, independent non-profit think-tank based in Muscat, is the local partner of the World Economic Forum, which administered the Expert Opinion Survey to168 private sector Chief Executives and senior managers from the Sultanate, 22% being Omani nationals and 78% Expatiates. This was the highest response from the GCC region this year. The online survey asked 139 questions, grouped according to the 12 ‘Pillars of Competitiveness’, with respondents using a 1 to 7 scale to answer the questions. The responses were compiled into an index score ranging from 1 to 7, with 7 representing the highest level of competitiveness.

Switzerland tops the overall ranking in 1st place out of the 133 countries. The United States falls one place to 2nd position, with weakening in its financial markets and macroeconomic stability. Singapore, Sweden and Denmark round out the top five. European economies continue to prevail in the top 10 with Finland, Germany and the Netherlands following suit. The United Kingdom, while remaining very competitive, has continued its fall from last year, moving down one more place this year to 13th, mainly attributable to continuing weakening of its financial markets. The People’s Republic of China continues to lead the way among large developing economies, improving by one place this year, solidifying its position among the top 30. Among the three other large BRIC economies, Brazil and India also improve, while Russia falls by 12 places. Several Asian economies perform strongly with Japan, Hong Kong SAR, Republic of Korea and Taiwan in the top 20.

A number of countries in the Middle East region are in the upper half of the rankings, led by Qatar (22nd), United Arab Emirates (23rd), Saudi Arabia (28th), Bahrain (38th), Kuwait (39th) and Oman (41st). Within the Middle East, the lowest rankings in competitiveness were held by Syria (94th) and Egypt (70th).

The Global Competitiveness Report argues that different economies will need to focus on improving different pillars of competitiveness depending on their stage of development. It presents three stages of development. First an economy is ‘Factor Driven’ competing on the price of its factor endowments. This is mostly unskilled labour and natural resources, associated with low levels of productivity and low wages. Enhancing competitiveness in such economies hinges on the Basic Requirements of Competitiveness. Then, as an economy develops, it becomes more ‘Efficiency Driven’, developing more efficient production processes and increasing product quality. Wage levels rise with development. Improvements in competitiveness are driven by strengthening the Efficiency Enhancers. Next, productivity is only increased if organisations are ‘Innovation Driven’, where competitiveness improvements are driven by innovation in both products and production processes.

The report discerns Oman to be in transition from an Efficiency Driven to an Innovation Driven stage, thanks to increases in GDP per capita over recent years and the reduction of the share of minerals in total exports of goods and services. Of the GCC nations, Oman has made the greatest gains in terms of stage of development, joining Bahrain at this transitional stage and following the UAE, which is classified as fully in the Innovation Driven stage. Kuwait, Saudi Arabia and Qatar are at the earlier stage of development transitioning from Factor Driven to Efficiency Driven.

Given its recently improved stage of development, the Sultanate needs to increase productivity more through improvements in the Efficiency Enhancers and Innovation and Sophistication Factors, such as higher education and training, goods and labour market efficiency, financial market sophistication, technological readiness, market size through exports, business sophistication and innovation; rather than through improvements in institutions, infrastructure, macroeconomic stability and health and primary education.

Yet, the report shows that the Sultanate’s relative strengths are in the Basic Requirements of Competitiveness. It scored 5.3 out of 7 on the index and ranked 25th in the world in its Basic Requirements for competitiveness. It ranked 7th in the world for its macroeconomic stability and the strength of its institutions. The one factor amongst the Basic Requirements where it scored poorly, according to the report, was health and primary education, it ranked 92nd in the world. This finding is at odds with the other reports, which show that in primary education, Oman is ranked on the top twenty in the world, based on UN secondary data.

When it comes to Efficiency Enhancers towards increased competitiveness, Oman scored 4.18 out of 7 and was ranked 53rd in the World, a weaker score than for the Basic Requirements. Here it scored relatively well in terms of its labour and goods market efficiency and financial market sophistication, but performed poorly in terms of market size (domestic and external) and higher education and training. In terms of Innovation and Sophistication Factors, the Sultanate scored an even lower 3.75 out of 7 and ranked 52nd in the World. Yet given the Sultanate’s improved stage of development, the Efficiency Enhancers and Innovation and Sophistication Factors are what will drive improvements in competitiveness more than the Basic requirements. The report shows this is where the Sultanate should focus its efforts at becoming more competitive in order to increase productivity.

According to the Global Competitiveness Index, the Sultanate overall index score declined this year by 2% compared to last year from 4.6 out of 7 to 4.5, moving from 38th ranked last year to 41st this year. Oman improved this year in 7 of the 12 ‘Pillars of Competitiveness’, the greatest improvements being made in infrastructure developments and greater technological readiness. Significant improvements were also made, according to the Index, in the strength of the nation’s institutions, labour market efficiency and expansion of the market size as the domestic economy grew and new export markets were found. Goods market efficiency and financial market sophistication were stable from year to year.

Oman saw declines this year in 5 of the 12 ‘Pillars of Competitiveness’. The greatest declines were felt, according to the Expert Opinion survey, in the Basic Requirement of health and primary education together with innovation. Significant declines were also seen in macroeconomic stability thanks to the high inflation during 2008, the uncertainty of the currency peg to the US Dollar and the subsequent financial crisis. Declines occurred in business sophistication and higher education and training. Higher education and training, business sophistication and innovation are 3 ‘Pillars of Competitiveness’ that the Sultanate needs to improve to see productivity in the economy increase.

Looking in greater detail, 18 of the 139 factors became competitive advantages for the Sultanate during this year, thanks to improvements. They include strengthening of property rights, the efficacy of corporate boards of directors, protection of minority shareholders’ rights, reduction of the business impact of malaria, a shortening of the time it takes to start a business, more flexibility of wage determination, improved hiring and firing practices, more financing through local equity, less restriction of capital flows, greater soundness of the banks, stronger regulation of the security exchanges and higher mobile phone subscription. These improvements all work to increase the productivity of resources in the economy of the Sultanate.

The full copy of the report is available on the World Economic Forum website
http://www.weforum.org/en/initiatives/gcp/index.htm