assessing iceland’s competitiveness amidst the global...

Assessing Iceland’s competitiveness

amidst the global economic crisisFindings from the Global Competitiveness Index

2009-2010

Irene MiaDirector, Senior Economist

Ciara BrowneAssociate Director

Global Competitiveness Network, World Economic Forum

Reykjavik , September 25th, 2009

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Outline

The World Economic Forum, The Global Competitiveness

Network and The Global Competitiveness Report (GCR)

series.

The Global Competitiveness Index (GCI) and our data

sources.

The GCI rankings for 2009-2010 with a focus on

Iceland’s performance and selected comparators.

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The World Economic Forum

The World Economic Forum is an independent international

organization committed to improving the state of the world by

engaging leaders in partnerships to shape the global, regional

and industry agendas.

Established in 1971, the Forum has its headquarters in Geneva,

Switzerland, with offices in New York and Beijing.

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The World Economic ForumMember Communities

Strategic Partners

Industry Partners

Forum Members

Global Growth Companies

Technology Pioneers

Thought Leaders (religion,

culture, science)

Media Leaders

Women Leaders

Young Global Leaders

Social Entrepreneurs

Governments and

International Organisations

Civil Society

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The World Economic Forum – ActivitiesGlobal and Regional Summits in 2009

January World Economic Forum Annual Meeting 2009

April World Economic Forum on Latin America, Brazil

May World Economic Forum on the Middle East, Jordan

June World Economic Forum on Africa, South Africa

World Economic East Asia, Korea

September Annual Meeting of the New Champions 2009, Dalian, China

November India Economic Summit, India

Summit on the Global Agenda, Dubai, UAE

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The World Economic Forum

Initiatives

Beyond its Summit activities, the World Economic Forum runs a number of initiatives including:

The Global Health Initiative

The Global Education Initiative

Energy Poverty Action

Climate Change

The Water Initiative

Financing for Development

The Global Risk Network

Scenario Planning

The Global Competitiveness Network

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The Global Competitiveness Network

Flagship product: The Global Competitiveness Report:

launched in 1979 covering 16 countries; it has since expanded

its coverage to 133 countries.

Editor: Professor Klaus Schwab.

Goal: to provide a benchmarking tool for policymakers and

business leaders.

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The Global Competitiveness Report 2009-2010Geographical coverage

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The Global Competitiveness NetworkThematic coverage

Regional, topical and industry report series:

The Travel and Tourism Competitiveness Report

The Global Information Technology Report

The Global Enabling Trade Report

The Lisbon Review

The Mexico Competitiveness Report 2009

The Brazil Competitiveness Report 2009

The Africa Competitiveness Report 2009

The Global Gender Gap Report

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The Global Competitiveness IndexData sources

Use of hard data (publicly available information from

sources such as the International Monetary Fund, the

World Bank, UNESCO, United Nations, etc.).

And survey data (from the Executive Opinion Survey),

which records the perspectives of business leaders

around the world; survey data is indispensable,

particularly for variables where no reliable hard data

sources exist.

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The Global Competitiveness IndexData sources: The Executive Opinion Survey

The Executive Opinion Survey is structured around

eleven major issue areas, each of significant relevance

to the current state of an economy’s business

environment,

Survey respondents are asked a total of 144 questions

based on their own experiences of operating a business

in the country in which they are based.

The Survey is translated into over 20 languages and is

available online.

In 2009, over 13,000 business leaders from 133

countries responded to the Survey.

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The Global Competitiveness IndexData sources: The Executive Opinion Survey

The Executive Opinion Survey is conducted on a yearly

basis between January and May by our network of

Partner Institutes.

The Partner Institutes follow sampling guidelines;

carefully selecting sample respondents in each country

to reflect the structure of a country’s GDP.

Our partner institute in Iceland is Innovation Center

Iceland.

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The Global Competitiveness ReportWhat are we trying to measure?

Source: International Monetary Fund, World Economic Outlook, September 2008

Gross domestic product based on purchasing-power-parity per capita, 1980-2008

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Iceland Denmark Italy

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Competitiveness is defined as the set of factors,

policies and institutions that determine the level of

productivity of a country.

Productivity is the main driver of investment in an

economy. Investment, in turn, determines the rate of

growth of the economy.

We say that a more competitive economy is one that

is likely to grow faster over the medium to long run.

We try to shed light on “the factors, policies and

institutions” that determine the sharply different

growth experiences of 134 economies worldwide.

The Global Competitiveness ReportWhat do we mean by competitiveness?

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The Global Competitiveness IndexThe 12 pillars of competitiveness

Key for

efficiency-driven

economies

Key for

factor-driven

economies

1. Institutions

2. Infrastructure

3. Macroeconomic stability

4. Health and primary education

5. Higher education and training

6. Goods market efficiency

7. Labor market efficiency

8. Financial market sophistication

9. Technological Readiness

10. Market size

11. Business sophistication

12. Innovation

Key for

innovation-driven

economies

BASIC REQUIREMENTS

EFFICIENCY ENHANCERS

INNOVATION & SOPHISTICATION FACTORS

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The process of economic development evolves in three

stages captured by the model:

a. "Factor-driven stage"

Firms compete in prices, taking advantage of cheap

factors.

b. "Efficiency-driven stage"

Efficient production practices to increase productivity.

c. "Innovation-driven stage"

Economies need to produce innovative products using

sophisticated production methods (incorporating and

taking full advantage of ICT, among other things.)

The Global Competitiveness IndexStages of development

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* Based on GDP per capita and resource intensity

Transition from

1 to 2 Stage 2

Transition from

2 to 3

Bangladesh Malawi Algeria Albania Bahrain Australia Luxembourg

Benin Mali Azerbaijan Argentina Barbados Austria Malta

Bolivia Mauritania Botswana Armenia Chile Belgium Netherlands

Burkina Faso Mongolia Brunei Darussalam Bosnia and Herzegovina Croatia Canada New Zealand

Burundi Mozambique Egypt Brazil Hungary Cyprus Norway

Cambodia Nepal Georgia Bulgaria Latvia Czech Republic Portugal

Cameroon Nicaragua Guatemala China Lithuania Denmark Puerto Rico

Chad Nigeria Indonesia Colombia Mexico Estonia Singapore

Côte d'Ivoire Pakistan Jamaica Costa Rica Oman Finland Slovak Republic

Ethiopia Philippines Kazakhstan Dominican Republic Poland France Slovenia

Gambia, The Senegal Kuwait Ecuador Romania Germany Spain

Ghana Sri Lanka Libya El Salvador Russian Federation Greece Sweden

Guyana Tajikistan Morocco Jordan Turkey Hong Kong SAR Switzerland

Honduras Tanzania Paraguay Macedonia, FYR Uruguay Iceland Taiwan, China

India Timor-Leste Qatar Malaysia Ireland Trinidad and Tobago

Kenya Uganda Saudi Arabia Mauritius Israel UAE

Kyrgyz Republic Vietnam Syria Montenegro Italy United Kingdom

Lesotho Zambia Venezuela Namibia Japan United States

Madagascar Zimbabwe Panama Korea, Rep.

Peru

Serbia

South Africa

Suriname

Thailand

Tunisia

Ukraine

Stage 1 Stage 3

The Global Competitiveness Index Economies by stage of development*

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The Global Competitiveness Index Weights

Weights of the three main groups of pillars at each stage

of development

Factor-driven

stage

Efficiency-

driven stage

Innovation-driven

stage

Basic requirements 60% 40% 20%

Efficiency enhancers 35% 50% 50%

Innovation and

sophistication factors 5% 10% 30%

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The Global Competitiveness IndexBasic requirements

Examples of variables

Property rights

Diversion of public funds

Wastefulness of government spending

Organized crime

Strength of auditing and accounting

standards

Overall infrastructure quality

Telephone lines

Government surplus/deficit

Inflation

Life expectancy

Primary enrolment rates

1. Institutions

A. Basic requirements

2. Infrastructure

3. Macroeconomy

4. Health & primary education

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The Global Competitiveness IndexEfficiency enhancers


Secondary and tertiary enrolment rates

Quality of the educational system

Extent of staff training

Extent and effect of taxation

Prevalence of trade barriers

Exports

Hiring and firing practices

Pay and productivity

Financial market sophistication

Soundness of banks

FDI and technology transfer

Internet users

1. Higher education & training

A. Efficiency Enhancers

2. Goods market efficiency

3. Labour market efficiency

4. Financial market sophistication

5. Technological readiness

6. Market size

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The Global Competitiveness IndexInnovation & sophistication factors


Local supplier quality and quantity

Extent of marketing

Nature of competitive advantage

Quality of scientific research institutions

Company spending on R&D

Availability of scientist and engineers

Utility patents

1. Business sophistication

A. Innovation &

Sophistication Factors

2. Innovation

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9The Global Competitiveness Rankings 2009-2010Top 20 and selected economies (ranks out of 133, score from 1 to 7)

2009 2009 2008 2009 2009 2008

rank Economy score rank rank Economy score rank

1 Switzerland 5.60 2 22 Qatar 4.95 26

2 United States 5.59 1 26 Iceland 4.80 20

3 Singapore 5.55 5 29 China 4.74 30

4 Sweden 5.51 4 30 Chile 4.70 28

5 Denmark 5.46 3 31 Czech Republic 4.67 33

6 Finland 5.43 6 33 Spain 4.59 29

7 Germany 5.37 7 36 Thailand 4.56 34

8 Japan 5.37 9 40 Tunisia 4.50 36

9 Canada 5.33 10 45 South Africa 4.34 45

10 Netherlands 5.32 8 49 India 4.30 50

11 Hong Kong SAR 5.22 11 54 Indonesia 4.26 55

12 Taiwan, China 5.20 17 56 Brazil 4.23 64

13 United Kingdom 5.19 12 60 Mexico 4.19 60

14 Norway 5.17 15 61 Turkey 4.16 63

15 Australia 5.15 18 63 Russian Federation 4.15 51

16 France 5.13 16 70 Egypt 4.04 81

17 Austria 5.13 14 82 Ukraine 3.95 72

18 Belgium 5.09 19 99 Nigeria 3.65 94

19 Korea, Rep. 5.00 13 113 Venezuela 3.48 105

20 New Zealand 4.98 24 132 Zimbabwe 2.77 133

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9The Global Competitiveness Ranking 2009-2010Iceland: Overall assessment and focus area(ranks out of 133, score from 1 to 7)

Rank Score2009-2010 (out of 133 economies) 26 4.82008-2009 (out of 134 economies) 20 5.0

Basic Requirements 24 5.41st pillar: Institutions 13 5.62nd pillar: Infrastructure 11 5.93rd pillar: Macroeconomic stability 119 3.64th pillar: Health & primary education 2 6.5

Efficiency Enhancers 30 4.65th pillar: Higher education & training 4 5.66th pillar: Goods market efficiency 31 4.77th pillar: Labour market efficiency 6 5.48th pillar: Financial market sophistication 85 4.09th pillar: Technological readiness 14 5.610th pillar: Market size 120 2.5

Innovation Factors 19 4.711th pillar: Business sophistication 23 4.912th pillar: Innovation 16 4.5

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The Global Competitiveness Ranking Iceland - comparison by pillar: 2007 and 2009

1

2

3

4

5

6

7

Institutions

Infrastructure

Macroeconomic stability

Health and primary education

Higher education and training

Goods market efficiency

Labor market efficiency


Technological readiness

Market size

Business sophistication

Innovation

2007 2009

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9The Global Competitiveness Ranking 2009-2010Iceland: Competitive advantages(ranks out of 133, score from 1 to 7)

rank score rank score

1st pillar: Institutions 13 5.58 5th pillar: Higher education and training 4 5.65

Diversion of public funds 12 5.81 A. Quantity of education 7 6.01

4. Government inefficiency 11 4.98 Secondary enrollment 10 110.56

Burden of government regulation 5 4.68 Education expenditure 6 7.22

Efficiency of legal framework in challenging regulations 13 4.97 B. Quality of education 4 5.83

Transparency of government policymaking 10 5.58 Quality of the educational system 3 5.97

Business costs of terrorism 2 6.79 Quality of management schools 10 5.56

Business costs of crime and violence 6 6.47 Internet access in schools 1 6.64

Organized crime 2 6.81

Reliability of police services 5 6.36 6th pillar: Goods market efficiency 31 4.72

1. Corporate ethics 9 6.24 Extent and effect of taxation 11 5.12

Ethical behavior of firms 9 6.24 Time required to start a business 6 5.00

Degree of customer orientation 12 5.59

2nd pillar: Infrastructure 11 5.85

Quality of overall infrastructure 8 6.31 7th pillar: Labor market efficiency 6 5.43

Quality of port infrastructure 8 6.23 Cooperation in labor-employer relations 7 5.69

Quality of air transport infrastructure 10 6.28 Hiring and firing practices 6 5.45

Quality of electricity supply 2 6.88 Extent and effect of taxation 11 5.12

Telephone lines 3 62.01 Female participation in labor force 11 0.94

4th pillar: Health and primary education 2 6.45 9th pillar: Technological readiness 14 5.57

Business impact of malaria 1 n/a Availability of latest technologies 1 6.77

Malaria incidence 1 0.00 Firm-level technology absorption 1 6.50

Business impact of tuberculosis 2 6.91 Laws relating to ICT 14 5.41

Tuberculosis incidence 1 4.00 Broadband Internet subscribers 6 32.91

Business impact of HIV/AIDS 12 6.45

Infant mortality 2 2.00 11th pillar: Business sophistication 23 4.85

Life expectancy 3 82.00 Control of international distribution 4 5.21

B. Primary education 4 5.95 Production process sophistication 14 5.61

Quality of primary education 6 5.83

Education expenditure 6 7.22 12th pillar: Innovation 16 4.55

Availability of scientists and engineers 8 5.39

Utility patents 12 85.81

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9The Global Competitiveness Ranking 2009-2010Iceland: Competitive disadvantages

(ranks out of 133, score from 1 to 7)

rank score rank score

1st pillar: Institutions 13 5.58 8th pillar: Financial market sophistication 85 3.99Strength of auditing and reporting standards 29 5.46 Financial market sophistication 65 4.26

Efficacy of corporate boards 31 5.01 Financing through local equity market 106 2.81

Protection of minority shareholders’ interests 54 4.64 Ease of access to loans 76 2.82

Venture capital availability 57 2.86

2nd pillar: Infrastructure 11 5.85 Restriction on capital flows 95 3.88

Quality of roads 33 5.07 Strength of investor protection 55 5.30

Available seat kilometers 82 65.80 Soundness of banks 130 3.65

Regulation of securities exchanges 49 4.66

3rd pillar: Macroeconomic stability 119 3.57 Legal rights index 36 7.00

Government budget balance 63 -1.17

National savings rate 102 13.22 9th pillar: Technological readiness 14 5.57Inflation 105 12.42 FDI and technology transfer 97 4.37

Interest rate spread 104 9.84 Mobile telephone subscriptions 44 108.85

Government debt 124 93.21

10th pillar: Market size 120 2.49

4th pillar: Health and primary education 2 6.45 Domestic market size index 119 2.17

HIV prevalence 54 0.20 GDP valued at PPP 119 12.66

Primary enrollment 31 97.37 Imports as a percentage of GDP 58 47.61

Exports as a percentage of GDP 67 44.71

6th pillar: Goods market efficiency 31 4.72 Foreign market size index 111 3.47

Intensity of local competition 57 5.06

Extent of market dominance 84 3.46 11th pillar: Business sophistication 23 4.85Effectiveness of anti-monopoly policy 23 4.90 A. Networks and supporting industries 38 4.72

Agricultural policy costs 104 3.48 Local supplier quantity 60 4.87

Prevalence of trade barriers 99 4.16 State of cluster development 48 3.82

Tariff barriers 51 0.04 Nature of competitive advantage 28 4.36

Prevalence of foreign ownership 126 3.55 Value chain breadth 31 4.30

Business impact of rules on FDI 119 3.87 Extent of marketing 27 5.20

Imports as a percentage of GDP 58 47.61

Buyer sophistication 27 4.23

7th pillar: Labor market efficiency 6 5.43Flexibility of wage determination 95 4.67

Rigidity of employment 58 31.00

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The Global Competitiveness Ranking 2009-2010Iceland vs. innovation-driven economies average

1

2

3

4

5

6

7

Institutions

Infrastructure








Market size


Innovation

Iceland Innovation-driven economies

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The Global Competitiveness Ranking 2009-2010Iceland vs. EU 15 average

1

2

3

4

5

6

7

Institutions

Infrastructure








Market size


Innovation

Iceland EU 15 average

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The Global Competitiveness Ranking 2009-2010Iceland vs. Switzerland

1

2

3

4

5

6

7

Institutions

Infrastructure








Market size


Innovation

Iceland Switzerland

Switzerland’s rank: 1

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The Global Competitiveness Ranking 2009-2010Iceland vs. Norway

1

2

3

4

5

6

7

Institutions

Infrastructure








Market size


Innovation

Iceland Norway

Norway’s rank: 14

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The Global Competitiveness Ranking 2009-2010Iceland vs. Denmark

1

2

3

4

5

6

7

Institutions

Infrastructure








Market size


Innovation

Iceland Denmark

Denmark’s rank: 5

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The Global Competitiveness Ranking 2009-2010Iceland vs. Estonia

1

2

3

4

5

6

7

Institutions

Infrastructure








Market size


Innovation

Iceland Estonia

Estonia’s rank: 35

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The Global Competitiveness Ranking 2009-2010The most problematic factors for doing business in Iceland

Source: EOS 2008, 2009. The question asked to the firm was: “Select among the above 14 constraints the

five most problematic factors for doing business in your country.”

29.0

26.0

18.5

8.5

6.2

5.5

1.5

1.3

1.1

1.1

0.8

0.6

0.0

0.0

0.0

0 5 10 15 20 25 30

Access to f inancing

Foreign currency regulations

Inf lation

Government instability/coups

Policy instability

Ineff icient government bureaucracy

Inadequately educated w orkforce

Restrictive labor regulations

Corruption

Tax regulations

Inadequate supply of infrastructure

Tax rates

Poor w ork ethic in national labor force

Crime and theft

Poor public health

Percent of responses

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The Global Competitiveness Report 2009-2010Expert Survey on impact of the crisis

In order to get a sense of the extent to which the global

recession is affecting the longer-term competitiveness of

countries, the Forum carried out a survey of selected

leading macro and business economists.

Respondents were asked to rate the degree to which

they believe the present global recession will have a

positive or negative impact, on a scale of 1 (negative) to

7 (positive) on selected countries, with 4 (the central

value) indicating that the recession will have no impact.

The 37 countries included were those ranked in the top

20 of last year’s GCI, and other relevant regional

economies.

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The average responses to the Survey are broadly in line with

the changes in the GCI rankings since last year, with some

exceptions. In particular, Brazil, perceived by the experts as

the country that will likely see its competitiveness most

favourably affected by the crisis, improved 8 places since last

year. All countries in the slightly positive or no impact groups

at the top of the figure either improve in rank (India, China,

Australia, Canada and Norway), or remain stable (Hong Kong).

The recession is expected to be particularly harmful for Iceland

and Spain’s competitiveness, the two countries receiving the

lowest average scores in the sample, both of which also go

down in the GCI ranking this year.

Yet, for a handful of countries, the GCI and the economists’

assessment diverges. This is particularly noticeable within the

“negative” category for Italy, Hungary, Argentina and Japan.

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Reasons for pessimism were related primarily to concerns about

excessive government intervention and lack of access to credit.

Specifically: enhanced government intervention combined with

blurred boundaries among institutions and rules; non-optimal

allocation of resources to education and transportation

infrastructure through stimulus packages; massive debts accrued

especially in the West likely prompting either sharp public sector

spending cuts or tax increases; the push for harsher financial

regulations that would further hinder allocation of credit and risk

new business investment.

Among the positive implications on longer-term competitiveness:

the possible redirection of export-led growth economies to domestic

demand and neutral exchange rates; increased awareness of the

need of investment in pro-growth areas; lagging institutions

brought into international compliance; a rethinking of the dollar’s

impact and of focusing just on the US markets for many exporters;

enhanced incentives to clean up non-competitive enterprises and all

sectors that had been kept alive during the boom period; and a

potential push to fix long overdue structural problems.

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THANK YOU FOR YOUR KIND ATTENTION

Visit our interactive website:

http://gcr.weforum.org/gcr/

The Global Competitiveness Report 2009-2010 is freely downloadable from our website at http://www.weforum.org/gcr

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