The World Economic Forum (WEF) rated Israel in 20th place in its Global Competitiveness Report with a weighted rating of 76.7. Israel was also in 20th place in the preceding report. Bank Hapoalim chief economic advisor Prof. Leo Leiderman told "Globes" that Israel's rating was "disappointing," and called attention to Israel's strong and weak points cited in the report.
The bad news is that the relatively high marks that Israel received for its budget policy concerned only its policy as of the end of 2018, and do not take into account the projected budget deficit deviation in 2019 and political instability that is likely to culminate in a third round of Knesset elections within a year.
The WEF also organizes its annual meeting in Davos under founder and executive chairman Prof. Klaus Schwab. The 2019 report rates the competitiveness of 141 countries accounting for 99% of global GDP. The index weighs ratings in many areas for each country, including infrastructure, the regulatory burden, financial stability, business innovation, employees' skills, and life expectancy.
In comparison with similar indices, the WEF's index is broadly based, taking into account, institutional systems, policy, and other factors affecting productivity and competitiveness. "The agency is objective. Over the years, it has developed a sophisticated system for assembling a competitiveness index for the entire economy," Leiderman says.
Heading the competitiveness index were Singapore, the US, Hong Kong, the Netherlands, and Switzerland. As is usual in such international comparisons, Denmark, Norway, and Finland received high ratings. Israel received the highest rating among Middle Eastern and North African countries, not an unusual economic achievement for it.
The report's editors particularly stress Israel's status as a center of innovation and its investment of 4.3% of GDP in research and development, the highest proportion in the world. According to the report, Israel is where "entrepreneurial culture is the strongest, the acceptance for entrepreneurial failure the highest, where companies embrace change the most, and where innovative companies grow the fastest."
Despite all of the praise, Israel is rated only 15th worldwide in its innovation capability pillar. The report's authors also praise the flexibility of Israel's labor market and the ease of recruiting workers in the private sector, together with a high level of education, as measured in years of schooling. On the other hand, Israel received low marks for rate of technological adoption, leaving it well behind the OECD average.
Other areas that the report says require improvement are burdensome regulation (69th place worldwide), commitment to sustainability (81st place), and market efficiency (32nd place), which the report's authors believe suffers from "a relative lack of competition and barriers to entry."
"Globes": What is your opinion about Israel being in 20th place on the index, the same as last year?
Leiderman: "It is obviously a disappointment, but at the same time, it poses a challenge. There's a lot to do to improve the competitiveness of the Israeli economy in the coming years. On the one hand, Israel is rated very high in areas such as business initiative, investment in R&D, striving for innovation, availability of venture capital, and business dynamism.
"On the other hand, we are rated very low in burdensome regulation, long-term vision in government policy, effectiveness of the railway system, bureaucracy, and competitiveness in the domestic products market."
Were you surprised by Israel's rating in certain areas?
"I was surprised by two main findings. Israel is rated in first place in macroeconomic stability indices. This impressive result reflects fiscal and monetary discipline enforced here over the years, as reflected in sustained low inflation and a substantial reduction to 61% in the ratio of public debt to GDP. The report uses the figures from the end of 2018. In the current figures, it is clear that we would not be rated in first place, given the substantial deviation in this year's government deficit, compared with the target.
"The second surprise is the extent to which Israel actually has at least two economies: the technology industries and all of the rest, leaving us in only 45th place overall in the rate of technological adoption. The great paradox is linked to the question of whether we really are the startup nation."
What about the capital market and the banks?
"According to the indices, our financial markets are stable, and the banking system is rated in 13th place in soundness, with a fairly low rate of default on loans."
What does this report say about the global economy?
"The report stresses the global economy's vulnerability to negative shocks in the coming years, such as a recession or financial crisis, given the fact that in the decade since the 2008-2009 global financial crisis, little has been done in structural matters to strengthen the non-financial aspect of the economy. This refers, of course, to investments in physical and human capital, infrastructure, and other aspects that were neglected for many years. The entire burden of recovery following the crisis fell on the central banks, which cut interest rates drastically and injected $10 trillion in liquidity.
"According to the report's authors, in view of the prolonged stagnation in non-financial investments, the non-financial part of the global economy appears weaker at present than before the last crisis. Government deficits and the ratio of public debt to GDP have risen, and almost all of the available tools have been used up. The ability of policymakers to cope with the next crisis has therefore been greatly reduced."
In the bottom line, are you optimistic or pessimistic after reading the report?
"There is a great of work that has to be done here in order to improve the economy and bolster its competitiveness in a dynamic and challenging world."
Published by Globes, Israel business news - en.globes.co.il - on October 16, 2019
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