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  |  07.10.2014

Emerging from the Global Competitiveness Ranks

The World Economic Forum (WEF) recently released its annual “Global Competitiveness Report”, which details the strengths and weakness of 144 countries in myriad factors including education, infrastructure, health and technology

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There aren’t many huge surprises in the developed markets, as most countries’ overall rankings were fairly stable from the prior year. There were, however, a few interesting shifts in the ranks among emerging markets: some making leaps forward, and others, regressing. Although we are bottom-up investors and make investment decisions on a stock-by-stock basis—regardless of rankings like this—it is interesting to examine the overall environment for doing business, and the potential sticking points a particular company in a particular country may be facing.


The WEF’s Global Competitiveness Report outlines “12 pillars” that are the core of its analysis (Source: World Economic Forum, “The Global Competitiveness Report,” 2013–2014):


• Institutions
• Infrastructure
• Macroeconomic Environment
• Health and Primary Education
• Higher Education and Training
• Goods Market Efficiency
• Labor Market Efficiency
• Financial Market Development
• Technological Readiness
• Market Size
• Business Sophistication
• Innovation

The report then drills down to examine data within each pillar, for example, within the “Institutions” pillar are measures including the burden of government regulation, business costs of crime and violence, protection of minority shareholders’ interests, and property rights. Within the “Goods Market Efficiency” pillar are prevalence of trade barriers, prevalence of foreign ownership, and number of days to start a business, to name a few. As investors, these are areas of particular interest to us. In many cases, what is perhaps more important than the actual barriers to doing business is how a particular business copes with them. For example, the reliability of power is a big problem in parts of Africa, so many companies will have their own power source—through a generator. Mobile phones help circumvent the need for physical infrastructure such as landlines or brick-and-mortar bank branches and retail stores, reaching consumers in far-flung locations in new ways.


Breaking Down the Competitiveness Rankings
The top of the WEF’s global competitiveness list was fairly stable among the developed country ranks. What is interesting from my perspective is the movement among emerging and even lesser-developed frontier market countries. Algeria, a frontier market, moved up 21 places to 79 from 100 last year. Generally speaking, we are excited about the prospects for frontier markets, particularly in Africa, and find the upward climb encouraging. The European frontier market of Romania moved up to 59 from 76 in 2013. The emerging markets of Indonesia, China and Russia also moved up in the global competitiveness ranks while on the flip side, Brazil, Turkey, South Africa and India all dropped in the rankings. Let’s take a look at a few of these countries making moves in 2014 in more detail.

 

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