Strategy Optimization Consultancy

Raja Yousif Al-Zayani

Farid Karaymeh

7th Feb 2018

The latest Global Competitiveness Report for 2017/2018 issued by the World Economic Forum Davos showed a striking development regarding the improvement of Bahrain’s ranking in the global competitiveness ladder, as the Kingdom ranked 44th out of 137 countries covered by the report (4.54 points out of 7), four places ahead of its competitive performance in 2017 compared to the previous year (4.47 points out of 7 points).

The report defines competitiveness as the set of factors, institutions and policies that control the level of productivity, which in turn determines the extent of prosperity achieved by the economy in the long term.

In measuring competitiveness, the report was based on 12 axes that covered most of the essential aspects related to economic prosperity, namely: institutions, infrastructure, macroeconomic environment, health and Basic Education, Higher Education and training, commodity market efficiency, labor market flexibility, Money Market Development, Technological Readiness, Market Size, Business Development, and innovation. It should be noted that a number of sub-indicators fall under each axis, totaling 144 sub-indicators.

Checking the previous twelve axes, he notes a noticeable improvement in the kingdom’s ranking in the “technological readiness” axis, it ranked 31st in 2017, 6 places ahead of what it was in 2016, which is a significant development. Note that this axis includes 7 sub-indicators, namely: availability of the latest technologies, technology absorption at the corporate level, foreign direct investment and technology transfer, percentage of internet users from the population, fixed broadband internet subscriptions, kb/s/user bandwidth, mobile broadband internet subscriptions. It is noteworthy here that the Kingdom ranked second globally in the sub-index “percentage of internet users of the population”, and the first place globally in the index “percentage of mobile broadband internet subscriptions”.

In the “higher education and training” axis, which included 8 sub-indicators, the kingdom advanced 5 ranks from 44th place in 2016 to 39th place in 2017. It also ranked 24th according to the educational system quality index, 31st in the quality of mathematics and Science Education, 34th in the quality of school administration, 28th in the field of on-the-job staff training, and 36th in the availability of specialized training services locally.

In the axis of efficiency of “institutions”, which represents the legal and administrative frameworks through which individuals and companies deal with governments, it included 21 sub-indicators: Property rights, intellectual property protection, judicial independence, transfer of public funds, public trust in politicians, patronage in the decisions of government officials, illegal funds and bribes, efficiency of government spending, burden of government regulation, transparency of government policies, commercial costs of terrorism, commercial costs of acts of crime and violence, organized crime, reliability of Police Services, ethical behavior of companies, investor protection power, effectiveness of corporate boards of directors, efficiency of the legal framework in resolving disputes, efficiency of the legal framework in difficult systems Efficiency of the legal framework in challenging regulations, the power of auditing and Reporting Standards, Protecting the interests of minority shareholders.

The report shows an improvement in the kingdom’s ranking in this axis with a difference of two ranks over the past two years, it ranked 23rd globally in 2017 compared to 25th in 2016.

In the “macroeconomic environment” axis, which included the five indicators: The report data indicated that despite the kingdom’s progress by five ranks during the year 2017 ( ranked 113th in 2016 and 108th in 2017), the indicators of the fiscal deficit, public debt, and credit rating still pose a major challenge for policymakers, as the government budget’s dependence on oil as the main source of revenue and the sharp decline in global prices had negative repercussions on public finances, represented by the increase in the deficit as a percentage of GDP over the past three years, and the increase in public debt.

It is noteworthy in this field that the kingdom has embarked on many initiatives aimed at diversifying sources of income, which will make a positive development on the balance of public finances during the coming years, and to give it the ability to withstand the shocks of changes in oil prices in world markets, and improve its competitiveness.

Perhaps one of the most prominent bright aspects in the axis of the “macroeconomic environment” is to maintain the overall stability of prices, as the Kingdom came in first place globally according to the inflation index, which reached 2.8%, as mentioned in the report, which is one of the pillars of the monetary policy that the Central Bank of Bahrain has continued to adopt over the past many years.

As for the “infrastructure” level, which is another axis touched upon by the report, the Kingdom came in 33rd place with a total of 5.1 points( out of 7 points), the sub-indicators showed that the Kingdom ranked 25th in the field of “road quality”, 30th in the field of “port infrastructure quality”, 49th in the field of “air transport infrastructure quality”, 71st in terms of “available airline seats”, 31st according to the “Electricity Supply Quality” Index, as for “mobile phone subscriptions”, the Kingdom ranked in it ranked second globally, with the number of mobile phone subscribers ( per 100 of the population ) reaching 216.8 subscriptions, and also ranked 47th globally according to the lines index Landline phone.

With regard to the “labor market efficiency” axis, which included 10 sub-indicators, the Kingdom maintained its total points (4.6 points) obtained in the previous year 2016, despite the decline in its global competitiveness by two ranks, as it ranked 37th in 2017 compared to the 35th place in the previous year. Perhaps the most striking thing is what is stated in the evaluation of the kingdom according to the Bahraini women’s participation index (relative to men) in the labor force, as it ranked 120th globally, a low position that indicates a kind of doubt and ambiguity that requires more investigation and research from the relevant authorities in the kingdom. As for the remaining nine indicators falling under this axis, the Kingdom ranked differently among the countries of the world, as the index “the impact of taxes on incentives to work “(7th place) was the best, followed by the index of excess labor cost (16th place), the index of flexibility in determining wages (21st place), talent attraction (22nd place), employer-worker relations ( 23rd place), linking wages and productivity (24th place), hiring and firing practices (29th place), the ability to retain talent (31st place), then the professional management index (35th place).

“Health and basic education” is another axis of competitiveness, in which the kingdom has maintained its competitiveness over the past two years with a total of 6.2 points (out of 7 points), despite the decline in its global position by three ranks (from 34 in 2016 to 37 in 2017). Note that this axis included 8 sub-indicators related to the competitiveness of the health sector, including the life expectancy at birth index, in which the Kingdom ranked 48th (life expectancy 76.8 years), and two sub-indicators to measure the competitiveness of the basic education sector, namely: the quality of basic education (ranked 34 globally), and the rate of enrollment in basic education (ranked 57).

The report reveals that the kingdom has also maintained its 45th ranking over the past two years with a total of 3.6 points out of 7 points, and in details, the sub-index “government purchases of advanced technological products ” shows progress in the ranking of Bahrain (22nd place) compared to some other indicators such as: innovation capacity ( 67th place), the quality of scientific research institutions (73rd place), cooperation between universities and industry in the field of scientific research and development (45th place), patents (54th place).

The report also monitors the development of the “business environment ” and the progress of these businesses among companies operating in the kingdom, through several indicators, including: the position of companies in the value chain, the development of marketing operations, competitive advantage, the number of local resources, the quality of local resources, and the development of the production process. In this regard, he notes that the “business environment ” in Bahrain has improved, but slowly over the past two years, as the total points received increased from 4.4 points in 2016 to 4.5 points in 2017. Despite this slow improvement, compared to the rest of the world, the kingdom has lost 3 ranks, falling from 33rd place in 2016 to 36th place in 2017, as the rest of the countries are improving their business environment indicators at a faster pace, which contributed to the decline in the kingdom’s competitive position.

In the “capital market development” axis, the kingdom’s assessment has remained steady over the past two years, gaining a total of 4.3 points every year, and its ranking came 46th in 2017, declining 3 ranks from what it was during 2016, and the sub-index “stock market regulation – (bonds)”, which belongs to this axis, may lead the highest assessment compared to the rest of the other sub-indicators, where Bahrain received a rating of 5.5 points (23rd place globally), followed by the index “safety of the financial position of banks” with an assessment of 5.4 points ( 46th place the “costs of financial services” index with an assessment of 4.8 points (25th place globally), the “availability of financial services” index with an assessment of 5.1 points (24th place globally), and the “ease of Obtaining loans “with an assessment of 4.7 points (22nd place globally), the “financing through the local stock market” index with an assessment of 4 points (51st place globally), then the” risk capital availability index “with an assessment of 3.8 points ( 23rd place globally), and finally the” legal rights ” index came with an assessment of 1 point, and a declining position globally (127th place), which calls for a deeper analysis of the reasons that led to this.

As for the competitive axis “efficiency of the goods market”, which covers 16 aspects related to the set of trade policies, procedures, the general structure of the market and its impact on the efficiency of the goods and services market, the kingdom’s assessment has not changed over the past two years (it received a total of 5 points for each year), but it has fallen down the world ranking ladder by one rank (from 22 to 2016 to 23 in 2017). The details reveal that the Kingdom occupied advanced ranks according to the index of the impact of taxes on investment, where it won the second place globally, and the fourth place according to the index of the percentage of taxes from profits, and also occupied good positions according to the two indicators of the prevalence of foreign ownership, and the impact of trade rules on foreign direct investment, where it ranked in 18th place each. As for the “number of procedures to start a business” index, its position was modest, as it ranked 70th globally, as well as the number of days to start a business, where it ranked 57th globally, and the degree of local competition Index ranked 62nd globally.