The Global Competitiveness Report 2001

Implications for Sri Lanka

By James Kenworthy

Each year the World Economic Forum and Harvard University's Centre for International Development publishes a fascinating document called the Global Competitiveness Report. This report represents an effort to measure the relative international competitiveness of participating countries. The report allows its reader to gain an estimate of the likely success of these countries in developing their economies through increased international trade.

This year Sri Lanka will be included for the first time among the sixty or so nations rated for "competitiveness" in the forthcoming Global Competitiveness Report 2001. What does this mean for Sri Lanka? Above all it reflects growing international recognition that Sri Lanka has, indeed, arrived on the global economic scene and has to be taken seriously.

What is the GCR?

And what is "competitiveness"? The GCR defines national "competitiveness" as the "set of institutions and economic policies supportive of high rates of economic growth in the medium term". But it can also be understood as the measure of the results of the interaction of all the factors, domestic and international, that go into determining how productively capital will be allocated and return on investment realised within a country, and how successfully that country could compete in global markets in terms of increased exports.

The GCR is an effort to measure the relative international competitiveness of participating countries - how does Sri Lanka compare to this or that country, or all of them - so as to enable a reasonable estimate of the likely success of such countries in realising economic growth and development through increased exports. Last year, the GCR rated 59 nations, including 25 "developed", 26 "developing" and eight so-called "transitional economies'.

It is imperative that high manufacturing standards are maintained in the apparel industry in Sri Lanka to increase competitiveness in the global market. (Library photo)

Last year, the USAID-funded Competitiveness Initiative project supported a trial-run exercise employing WEF/Harvard's GCR statistical data gathering and survey methodologies to produce a prototype GCR 2000 incorporating Sri Lankan statistical and survey data. The prototype was produced here in Sri Lanka by the Institute for Policy Studies (IPS) in cooperation with the market survey firm ORG-MARG SMART (OMS). Building upon this trial-run experience, WEF/Harvard and the IPS and OMS worked together this year to produce the information necessary to include Sri Lanka in the forthcoming GCR 2001.

How does the GCR measure a country's "competitiveness"?

The GCR then aggregates and scores the sub-factor survey results into ten basic "factor" groups. These include: (1) government/fiscal policy; (2) institutions; (3) infrastructure; (4) human resources/labour-management relations; (5) technology; (6) finance; (7) openness; (8) domestic competition; (9) company operations/strategies; and (10) environmental policy.

Before last year, the single bottom-line measure of relative national "competitiveness" was the GCR's "Competitiveness Rankings". However, the GCR 2000 initiated two bottom-line aggregate measures of "competitiveness", the "Current Competitiveness Index" and the "Growth Competitiveness Index". Each index incorporates a different mix of "factor" and "sub-factor" scores.

The Current index reflects factors that underlie current national productivity and economic performance (as measured by GDP per capita). It combines "factor" scores utilised to rate for each country (a) the "Company Operational Strategy" and (b) the country's "Microeconomic Business Environment".

The former measures the sophistication with which a nation's firms compete and involves scoring of knowledge, technology, physical capital and managerial skills as reflected in companies' operating practices and business strategies. The latter measures the current quality of the nation's business environment as determined from scoring of infrastructure, skills, technology stocks, rules and regulations and the institutional structures within which each nation's firms operate.

The Growth Index evaluates the factors that contribute to future growth of an economy (as measured by the rate of change of GDP per capita). It does this by scoring variables that, separately or in combination, can contribute to increased innovation and productivity, and, thereby, higher rates of return on investment, new jobs, and ultimately economic growth and development.

This second of the two bottom-line indexes may be the more important of the two because it points toward Sri Lanka's economic future. That's because it's one thing to know or understand the things that shape Sri Lanka's current situation, but it is even more important to develop insights into the factors that act, or could or should act, to shape its future competitiveness, domestic and international.

To develop the Growth index, the ten "factor" scores are used to develop three higher-level measures, the (1) Economic Creativity Index, (2) the Finance Index and (3) the International Index.

The Economic Creativity Index, in turn, reflects two-third-level index inputs, the "Technology Index" and the "Start-Up Index. The Technology Index measures the combined inputs of domestic innovation within a country, plus the level of technology transferred to it from other countries, either through foreign direct investment or licensing of technology. The "Start-Up" Index measures the ease of establishing a new business in terms of regulatory time and costs.

The Finance Index measures the efficiency of the nation's financial system, in particular, the availability of capital and rates of savings and investment. And the International Index measures the degree of a nation's economic integration with the rest of the world (through trade, investment, and other "flows").

What do the GCR scores and rankings actually reflect?

But it should be recognised that, to the extent that the sub-factor scores are based each year on respondents' opinions and insights, they are very subjective and may change frequently. In this regard, business perceptions and attitudes are ephemeral and can change dramatically from season to season or even month to month. As a result, the bottom-line scores and rankings for a given country frequently also change noticeably from year to year.

Moreover, there is a score-ranking dynamic inherent in the methodology used that can also affect rankings from year to year. As an example, in comparing the score results of countries rated in both the 1998 and 1999 GCRs, we find that 34 of the countries rated in both years improved their scores while the scores of 15 went down. Yet, of the 34 countries whose scores improved in 1999 over 1998, the rankings of eight of them actually went down as other countries improved their scores even more. So it is unlikely the results can be predicted in advance of the release each year of the GCR.

The scores and rankings reflect survey respondents' impressions of reality. The perceptions of the private sector are important, as they can affect investment and production decisions. While concerns may be expressed from one sector or another of the overall economy about a particular score, no one single sub-factor or factor score determines where Sri Lanka fits in compared to the other countries in the overall rankings of either the Current or the Growth Indexes.

Who will find the GCR 2001 of use?

The private sector will certainly find it of use in terms of what it suggests with regard to: (a) domestic competitiveness, e.g., the efficiency of the economy, optimal allocation of capital, and opportunities for greater return on investment; (b) international competitiveness, e.g., the likelihood and distributive effects of increased exports, including enhanced economic growth and an improved standard of living; and (c) the attractiveness of Sri Lanka for new foreign investment, which brings with it new technology, improved management, and new jobs.

Finally, the GCR may be of interest to non-governmental organisations in terms of their concerns for labour issues, environmental sustainability, law reform, gender equality, public governance and corruption.

Outside of Sri Lanka, the GCR will be of interest primarily to nations in the South Asian region that are competitors to Sri Lanka for attracting foreign direct investment and increasing exports to global markets. The GCR provides these countries with useful "intelligence" on the capabilities of Sri Lanka viz-a-viz their own. The GCR will appear useful as well as to international and national agencies like the IMF, World Bank, Asia Development Bank, and USAID for purposes of planning their assistance activities here. 

What are the uses and implications of the GCR for Sri Lanka?

We must assume that most people in the private and public sectors are dedicated to the greater "good" of Sri Lanka, though perhaps from differing points of view, either from the standpoint of "economic growth" or "public order", or from the standpoint of "return on investment". Yet both are interested in and committed to the goal of "economic development". And both must know that "competitiveness" is essential to the realisation of that goal. This realisation and the consensus that results from it provide a bridge for dialogue between the sectors.

The real value of the GCR is that it gives Sri Lankans an occasion, a reason and a context for constructive private-public sector dialogue about what realities affecting Sri Lanka's competitiveness are reflected in the scores and rankings in the GCR, the problems they suggest and what to do about them. This can lead to the innovation of solutions that may resolve such problems to the mutual interests of all Sri Lankans.

News

Singer computers hit the rural trail

"We have 208 outlets across the island and we want to make use of this to promote computers in the village and outstation towns. We have some good hire purchase schemes where people in the village can make use of," said Jude Joseph, head of Singer's computer division and also manager, market research and communications.

Though not a new entrant to the market, Singer was little known as a computer and computer support systems vendor. Established in 1989, the Singer computer department has built up a large portfolio of internationally renowned brands, including IBM, HP and Epson. Singer Sri Lanka's computer division also assembles its own brand of computers using selected internationally renowned components. The company is the authorised IBM reseller in Sri Lanka.

Joseph, in a telephone interview, said the company's sales have averaged between 350 to 500 PCs per annum in the past 12 years. He said the company was planning to organise seminars and promotions on computers and IT in the outstations to increase IT knowledge amongst the people.

He agreed that there was a slowdown in computer sales in the past six months particularly since sales and tenders by the public sector have fallen sharply due to a lack of funds in the state sector. "That represents quite a chunk of sales."

Joseph said a lot of IT-related firms predominantly in PC sales were branching out into other connected fields like software development and the launching of IT schools – making use of government incentives – to boost revenues.

A Singer company statement said that although Singer's consumer strength is in the household, a large bulk of its customer base comprises of leading multinational companies. The easy access to a reliable vendor and excellent after sales service is what gives Singer Sri Lanka the edge in attracting the business community.

Established in 1871 Singer Sri Lanka Ltd began as the distributor of the Singer sewing machine and has expanded to every type of household durable.

Banking with HSBC through the BoC

According to a Service Level Agreement (SLA), signed between the two banks on September 27, the BoC will credit these cheques, drafts or cash to the current account of HSBC at the relevant BoC Branch.

"This allows corporate customers with operations, distributions and/or agents island-wide the chance to expedite their collections via the BoC branch network, thereby improving their cash flow. The alliance between BoC and HSBC forms part of the Collections Management Solutions offered by HSBC's Global Payments and Cash Management," a HSBC press release said.

Mr. Nik Cherrill, CEO HSBC, Mr. Sarath Piyaratna, Deputy CEO, HSBC and Mr. Sarath de Silva, General Manager of BoC were the chief dignitaries present at the signing ceremony.

The BoC – HSBC SLA is essentially an alliance between the two banks to offer customers of HSBC a wider network of branches through which they can arrange for collections from buyers, agents or distributors. "The process is very simple," says HSBC's Manager Payments and Cash Management, Ms. Chamila Fernando. "All HSBC corporate customers need to do is contact their Relationship Manager or the Manager Payments and Cash Management at HSBC to utilise the SLA."

A spokesman for the Bank of Ceylon said, "It is our belief that the signing of this service level agreement is the beginning of a new era in the banking industry of the country." He added, "HSBC sought the services of our branch network/ delivery system to give their clients a better service. Although we are aggressively competing with each other for the domestic market share, we thought an agreement of this nature would yield far reaching benefits in the long run for all concerned."

National Development Bank launches its commercial banking unit

The new bank recently acquired the ABN Amro business in Colombo for Rs. 1.25 billion.

NDB was set up as a development bank in Sri Lanka as a long-term lender but with the passage of time it found that development banks were not competitive enough as commercial banks, which prompted the move to set up a commercial bank.

NDB Director General, Ranjith Fernando, told a press conference that at present NDB has a 5,800-corporate customer base all over the country. Most of them are medium and small-scale enterprises who would be encouraged to make use of the new commercial bank.

Chief Executive Officer, NDB Bank, Eran Wickrama-ratne said that NDB, having the largest customer base in the country, would be able to serve the people with a wide range of products.

NDB CEO quits after long spell at the helm

This reputed banker who served the NDB well for 22 years, including 13 years as Director/GM, is relinquishing duties with effect from December 31, 2001, NDB said in a statement.

Fernando's exit from the development-banking scene ends an era in which he and Maxi Prelis, Drector/General Manager at DFCC, took development banking to new heights in the 1980s and right through the 1990s. Prelis quit or retired from DFCC a couple of years ago, again after a long and distinguished career there.

The statement did not reveal Fernando's next step, whether he would continue in the banking arena or move elsewhere. 

The NDB CEO is a key organiser of the SriLanka First campaign by the business community to try and peacefully end the country's conflict. Nihal Welikala, who joined the NDB as the Deputy General Manager in 1999 after quitting Citibank Colombo as its CEO, will succeed Fernando.

ADB, Netherlands help for wildlife

Assistance is to be provided through a US$ 12 million loan and a grant of US $ 9 million from the ADB's special fund resources and US$ 4 million by the Netherlands under the Global Environment Facility (GEF) programme.

"The main objective of this project is to support efforts to conserve the country's valuable natural resources and preserve wildlife biodiversity for the well-being of the current and future generations," Project Director, Jayantha Jayawardena said.

He said this project will strengthen the technical capacity of the Department of Wildlife Conservation in seven protected areas such as the Bundala National Park, Uda Walawe, Peak Wilderness Sanctuary, Horton Plains, Wasgamuwa, Minneriya and the Ritigala Strict Natural Reserve.

ADB Residential Representative, John Cooney, said it is absolutely necessary to draft a national policy for the conservation of the rich biodiversity in Sri Lanka.

SLIM presents marketing show

A SLIM statement said the event showcases a wide range of products and services from interior furnishing or consultancy, desktop publishing to insurance.

The sponsors of Marketing Show 2001 are Bates Strategic Alliance, Rowland PR, 141 Integrated Communications, MTV-MBC Networks, Comet Cables, PBN Direct, CeyCom, Delifrance, Three Coins Beer, FCCISL, Style Magazine, Aaloka, Coca Cola, Ninehearts, Graphitec, Sign-Tech and .PanAudio.

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