Australia has remained in the top 25 most competitive nations among 63 economies

07 Jun 2017

Tags

  • Edmund Tang
  • Australian Economy
  • International Investment

Australia now ranks as the 21st most competitive economy in the world, according to the 2017 World Competitiveness Yearbook (WCY)[1] released by the Swiss-based Institute for Management Development (IMD). The latest ranking is four places lower than 2016’s survey. The 2017 outcome reflects a decline in Australia’s global competitiveness rankings in three out of four major factors - economic performance (down one place to 25), government efficiency (from 14 to 18) and business efficiency (from 17 to 27). Australia’s global ranking in infrastructure has remained unchanged at 18th.

In IMD’s category of countries with a population greater than 20 million (see table below), Australia ranks seventh among 29 surveyed countries (down from fifth position in 2016). Within this group, Australia is rated as the third most competitive economy after Taiwan and China in the Asian region. As such, Australia’s world competitiveness strength is ranked well above many major other regional economies, including Malaysia (24th globally), Japan (26th), Thailand (27th), South Korea (29th), Philippines (41st), Indonesia (42nd) and India (45th).

Details of the latest IMD WCY assessment on Australia include:

  • From a list of 15 indicators, respondents of the Executive Opinion Survey in the 2017 survey were asked to choose five that they perceived as the major attractiveness factors of their economy. Australia scored particularly well in the areas of effective legal environment, skilled workforce, high educational level, quality of corporate governance and reliable infrastructure. In contrast, we were ranked less well in terms of a competitive tax regime, cost competitiveness, competence of government, strong R&D culture and effective labour relations.
  • Among the four major factors, economic performance declined one place to 25th in 2017 from 24th in 2016. Key influences pulling down this ranking included export concentration by partner (58th), trade to GDP ratio (56th), and direct investment flows abroad (57th). In contrast, we received strong marks in foreign direct investment stocks and flows in US$ terms, and gross fixed capital formation, each ranked 11th globally. Australia was also viewed as the 14th most resilient economy in the survey, reflecting our record for the longest period of recession-free growth for a developed country.
  • In terms of government efficiency, Australia slipped four notches to 18th from 14th last year. According to IMD, the corporate tax rate on profit and the effective personal income tax rate were the areas where Australia had the poorest rankings at 50th and 44th respectively. Other areas where Australia was also ranked unfavourably included the federal budgetary position and Government decisions (40th for both). However, we gained strong marks for business start-up days (4th), tariff barriers (5th), star-up procedures (5th), protectionism (10th), country credit rating (11th) and rule of law (11th), partly offsetting the country’s other weaknesses in this category.
  • Business efficiency is the lowest ranking area in which Australia was assessed this year, falling by ten positions to 27th in 2017. Major drops in rankings were registered in apprenticeships (falling 28 positions to 51st), employee training (17 to 43rd), workforce productivity (15 to 48th) and entrepreneurship (8 to 59th). However, some of the bright spots for Australia’s reported business efficiency were foreign highly-skilled personnel (8th globally), investment risk (11th), regulatory (banking laws) compliance (11th), corporate debt (13rd) and stock markets (14th).
  • The competitiveness ranking of Australia’s Infrastructure held relatively stable at the 18th position, thanks to our Government’s on-going commitments to the nation’s infrastructure investment. However, some criteria in this sector were perceived as uncompetitive, such as energy infrastructure (56th), communications technology (54th) and connectivity (49th). In contrast, investment in telecommunications (% of GDP) was one of our strengths, ranking eighth in 2015 globally (the latest hard data available), showing that some of our weaknesses will improve in coming years as spending in this area remains strong.

The IMD analysis represents a useful supplement to our own work analysing Australia’s relative attractiveness as an investment destination, making the survey results an indicator that we track each year. The measure is not without its drawbacks and limitations, however. For example, IMD does not explicitly describe the extent to which the survey data (soft and hard) have changed and evolved over time, and it is difficult to be certain over the extent to which the sample of the local experts used is fully representative of Australia’s overall business community. Other limitations of the survey include the fact that the number of surveyed economies has increased since its first publication in 1989, which means that the absolute ranking of each economy might not be comparable over the longer period of time; similarly, the number of criteria covered in each year’s survey has also changed over time; and there is a time lag of at least one to two years in most of the hard data assessed in the report.

One particularly important feature is the role played by soft (that is, survey) data provided by international executives. It’s possible that some of these results may be inconsistent when measured across countries, and are reflecting perceptions as much as reality. In this context, it’s notable that in this latest IMD assessment, global competitiveness rankings based on Australia’s hard data alone were generally found to be more impressive than those based on soft (surveyed) data. For example, there were about 20 hard data out of 155 where Australia placed in the top ten, while there were only three categories out of 118 based on soft data in which Australia was rated in the top ten competitiveness league.

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[1]   The WCY is an annual report published by the Swiss-based IMD on the competitiveness of economies and has been published since 1989. The 2017 report benchmarks the performance of 63 countries based on more than 340 criteria measuring different facets of competitiveness in 2017. Two-thirds are based on statistical indicators and one third is based on a survey of more than 6250 international executives conducted in February/March this year. The Committee for Economic Development of Australia (CEDA) is the Australian partner for the yearbook.