Azerbaijan and 2012-2013 Global Competitiveness Report

Tue 11 September 2012 05:30 GMT | 10:30 Local Time

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Mahir Humbatov

By Mahir Humbatov.

According to the World Economic Forum’s 2012-2013 Global Competitiveness Report, Azerbaijan is one of the 50 most competitive economies in the world.

On 5th of September 2012, ‘Global Competitiveness Report 2012-2013’ of the World Economic Forum was publicly announced. According to the report, this year Azerbaijan rose from 55th place (last year) to 46th again leaving behind all post-Soviet countries.

WEF’s Global Competitiveness Report, which is the most influential ranking of a country’s economic competitiveness, is published since 1979. It is obvious that it affects a country`s image in the world among business, governments and financial leaders. It is an annually published material assessing the potential for increasing productivity and economic growth of countries around the world, written by a team of economists.

This year report’s ranking list is headed by Switzerland, followed by Singapore, Finland, Sweden and Netherlands. Singapore is heading all other Asian countries followed by Hong Kong (9th), Japan (10th), Taiwan (13th) and Korea (19th). Qatar is the leader of its region being at 11th position and followed by Saudi Arabia (18th) and UAE (24th). It is interesting that United States falls in every year’s report since 2008, when it was the 1st, and now is at 7th position. Considering the top 20 countries it will be clear that the Nordic countries continue doing well in the ranking.

Azerbaijan is even well ranked in comparison with some of the European Union member countries such as Portugal, Romania, Slovakia, Slovenia and other countries. Azerbaijan’s neighbouring countries Georgia is ranked 77th, Armenia 82nd, Turkey 43rd, Iran 66th and Russia 67th. Among post-Soviet countries the closest follower of Azerbaijan is Kazakhstan, which is ranked 51st. Others - Ukraine is 73rd, Moldova 87th, Tajikistan 100th and Kyrgyzstan 127th. Uzbekistan and Turkmenistan are not included into the report.

It should be noted that this year in total there are evaluated 144 countries, where in 2005-2006 when Azerbaijan firstly has been included into the report and ranked 60th there were 114 countries in the report and that shows an increasing competitiveness among the countries. Following first evaluation in 2005-2006 Azerbaijan further was ranked 62nd, 66th, 69th, 51st, 57th, 55th, and 46th in the next years.

It has to be mentioned that according to general indicators (subindexes) Azerbaijan rose this year for Basic Requirements from 59th to 56th, for Efficiency Enhancers from 77th to 67th, and for Innovation and Sophistication Factors from 67th to 57th. Here, it has to be reminded that Basic Requirements subindex includes in it institutions, infrastructure, macroeconomic environment and health and primary education; Efficiency Enhancers subindex covers higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness and market size; and Innovation and Sophistication Factors subindex comprises of business sophistication and innovation. The mentioned 12 areas of 3 subindexes are in fact considered as 12 pillars of the Global Competiveness Index.

The result that Azerbaijan has risen in the last report for 9 levels according to overall index is a sign of a goal-oriented socio-economic development and an increasing prestige of the country at the international level. However, it is obvious that to sustain long-term economic growth, the Azerbaijani Government should undertake certain steps towards improving the competitiveness of the economy. Considering the latest report it becomes clear that there still exist some areas which require far more attention to have more sustainable and competitive economy in Azerbaijan. These areas are shown generally in health and primary education, higher education and training, financial market development and business sophistication pillars.

Each of these pillars has its subareas that in fact need much care. In Health and primary education pillar Quality of primary education part is ranked 113th. In Higher education and training pillar Quality of educational system and Quality of management schools are shown 109th and 123rd. As an education and training carry very important role in increasing competitiveness the Azerbaijani Government has to work hard on these areas to have knowledgeable and intelligent young generation and to guarantee knowledge-based economy. According to the report, in Financial market development pillar Availability of financial services (119th), Affordability of financial services (70th), Soundness of banks (133rd) and Regulation of securities exchanges (101st) has to be developed considerably in Azerbaijan.

To raise the level of these areas in the ranking there should be established a banking and finance system based on ethics, morals and corporate social responsibility, which will result in the banks escaping uncertainty, having high level trust, decrease in high interest rates on loans and diversification of financial services and so on. As for ethics, morals and corporate social responsibility issues the above mentioned statement is proved with the ranking level in another pillar’s part also, which is Ethical behaviour of firms (part of the 1st pillar) part ranked 69th. Moreover, application of tight risk management procedures, stress testing activities, mergers and acquisitions, increase in minimum share capital requirements to be happened in the country could also assist level of Azerbaijani banks for the next year to be raised.

However, back to the Soundness of banks, it should be mentioned that the rank shown in the report, 133rd, seems questionable for Azerbaijani banks. It is because even though during the recent financial crisis considerable number of banks in different countries, ranked higher than Azerbaijan in regard with this part, either were bankrupt or were saved by their governments, but in Azerbaijan none of these had happened. That is why this rank is not fair enough and would be great to have basics for this assessment and rules that applied to get this result. Moreover, comparing the rank with the adequate ranks of other countries in the region (Armenia - Availability and affordability of financial services 76th and 48th, Soundness of banks 51st and Georgia - Availability and affordability of financial services 100th and 85th, soundness of banks 92nd) it deserves to state that there might be some misestimation in regard with this part.

Taking into account that particularly Armenia is in deep external debt recession, it is doubtful that soundness of banks in this country might be stronger than soundness of Azerbaijani banks. As to Business sophistication pillar, it comprises from parts such as local supplier quantity and quality, state of cluster development, extent of marketing and so on, where these areas also require much care to have proper business environment, to increase production and to achieve other beneficial results.

However, it deserves to state that according to a part of Macroeconomic environment pillar (3rd pillar) the country’s credit rating ranking has risen from 72nd to 70th position. Moreover, as it is mentioned in Institutions pillar’s (1st) transparency of government policymaking has been developed considerably during one year period, being ranked last year at 68th place and now at 49th. Besides, in the same pillar, efficiency of legal framework in settling disputes is ranked 76th, while last year it was 95th. Also there are several successful achievements in 7th pillar, Labour market efficiency, as cooperation in labour employer relations last year was ranked 47th, but this year became 37th; for brain drain part the country became 70th, being last year 78th.

Today, in our globalized world, all countries should improve their weaknesses identified in the latest report of the WEF to have a competitive market to be ranked at higher level for the next year. Only having a competitive market some of the world countries may benefit from the globalized world economic system and tensions with advantages over other countries. A country with competitive economy will surely have sustainable economic growth, favourable business environment, employed generation, and minimized poverty and so on.

In general, the 46th place is quite satisfactory for Azerbaijan and hopefully for the next year it will be ranked even at higher level positions. Obviously, the WEF competitiveness reports are one of the best ways to closely familiarize the world with all major achievements of Azerbaijan that it gained in a short period of time after its independence. 
Mahir Humbatov is Research Fellow in the Center for Strategic Studies under the President of the Republic of Azerbaijan.




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