GCR Malaysia

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CONTENTS CONTENTS

Introduction 2

WE

WEF’s F’s AsAssessessment sment of of Malaysia’s Malaysia’s CompetCompetitiveness itiveness PPerformerformance ance 33 Measuring

Measuring CompetCompetitiveness itiveness 44

Highlights

Highlights 66

Malaysi

Malaysia’s a’s CompetCompetitiveness itiveness SStrtrengtengths hs and and Areas Areas for for ImprImprovemovement ent 66 Malaysi

Malaysia a and and Top Top 10 10 CCountountries ries 88

Co

Commpetpetititiveniveness ess PPerferformormance ance in in tthe he Asia Asia PPacific acific and and ASASEAEAN N 1010 Malaysi

Malaysia’s a’s PPerformerformance ance in in tthe he Global Global CompetCompetitiveness itiveness Index Index 20122012-2013 -2013 1212 Ins

Instittitutional utional SStrtrengtengths hs 1313

Improving

Improving the the InfInfrastructure rastructure of of a a NaNation tion 1414 Th

The e MMacacroroececononomomic ic PictPictuurre e 1515

Ke

Keeping eping Healthcare Healthcare and and PPrimrimary ary EEducatducation ion in in PPerspective erspective 1616 A

A Better Better Workforce Workforce tthroughrough h Higher Higher EEducation ducation and and Training Training 1717 S

Sustaining ustaining Goods Goods Market Market EfficEfficiency iency 1818 E

Equaliquality ty for for the the LaLabour bour Market Market 1919

F

Financially inancially EEffectivffective e 2020

Adopting

Adopting a a TecTechnological hnological CCultulture ure 2121

Go

Going ing for for Markets Markets Globally Globally 2222

Bringing

Bringing SSophistication ophistication to to BusinBusiness ess 2323

E

Empowmpowering ering Innovation Innovation 2424

E

Evolution volution in in Malaysia's Malaysia's CompetCompetitiveitiveness ness PPerformerformance ance 2626 C

Comompetitpetitiveness iveness EEnhancemnhancement ent InitiativInitiatives es 2727

The

The PaPath th to to Progress Progress 2828

Ap

Ap penpen didi cesces

1.

1. GlGlobal Competobal Competitiveness Index itiveness Index 20122012-2013 -2013 RRankings ankings and and 20112011-2012-2012

Comparisons 29

2.

2. The Global CompetThe Global Competitiveness itiveness Index Index 2012012-2013 2-2013 RRankings ankings forfor Asia

Asia PPacifacific ic anand d ASEASEAN AN CountCountries ries 3333

3.

3. LiList st of of CCountountries/Eries/Economies conomies at at EEach ach Stage Stage of of DevelopmDevelopment ent 3434 4.

4. CharacteristicCharacteristics s of of Top Ten Top Ten Most Most CCompompetitive etitive EEconomiesconomies in

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PERFORMANCE OF MALAYSIA IN THE GLOBAL

COMPETITIVENESS REPORT 2012-2013 COMPETITIVENESS REPORT 2012-2013

INTRODUCTION INTRODUCTION

WEF has moved Malaysia up the stage of development to be in WEF has moved Malaysia up the stage of development to be in the transition stage towards innovation-driven stage from the transition stage towards innovation-driven stage from efficienc

efficienc y-driven stagey-driven stage..

1. The

1. The Global Competitiveness Report 2012-2013 (GCR 2012-Global Competitiveness Report 2013 (GCR 2012-2013)

2013) by theby the World Economic Forum (WEF)World Economic Forum (WEF) based inbased in GenevaGeneva,,

Switzerland

Switzerland coverscovers 144144 countries (GCR 2011-2012: 142 countries).countries (GCR 2011-2012: 142 countries). In the Report which was released to the public on 5

In the Report which was released to the public on 5tthhSeptember 2012,September 2012,

Malaysia ranked at 25

Malaysia ranked at 25thth positionposition (2011-2012: ranked 21(2011-2012: ranked 21stst) is among) is among the top 20% of the most competitive economies globally.

the top 20% of the most competitive economies globally.

2. Malaysia

2. Malaysia has also been upgraded to the transition stage of has also been upgraded to the transition stage of development from Efficiency-Driven Stage towards development from Efficiency-Driven Stage towards Innovation-Driven Stage of Development.

Driven Stage of Development. Thi This s uuppggrradade e wwas as aaccccororddeed d aass Malaysia’s G

Malaysia’s GDP DP per capiper capitta had a had incrincreased to Ueased to USS$9,7$9,700 fr00 from USom US$8$8,423,423 previously. At this new stage of development, new weightage is previously. At this new stage of development, new weightage is placed on the computation of Malaysia’s competitiveness index; with placed on the computation of Malaysia’s competitiveness index; with more weight put on Innovation and Sophistication factors, to prepare more weight put on Innovation and Sophistication factors, to prepare the country to move towards being innovation-driven.

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PERFORMANCE OF MALAYSIA IN THE GLOBAL

COMPETITIVENESS REPORT 2012-2013 COMPETITIVENESS REPORT 2012-2013

INTRODUCTION INTRODUCTION

WEF has moved Malaysia up the stage of development to be in WEF has moved Malaysia up the stage of development to be in the transition stage towards innovation-driven stage from the transition stage towards innovation-driven stage from efficienc

efficienc y-driven stagey-driven stage..

1. The

1. The Global Competitiveness Report 2012-2013 (GCR 2012-Global Competitiveness Report 2013 (GCR 2012-2013)

2013) by theby the World Economic Forum (WEF)World Economic Forum (WEF) based inbased in GenevaGeneva,,

Switzerland

Switzerland coverscovers 144144 countries (GCR 2011-2012: 142 countries).countries (GCR 2011-2012: 142 countries). In the Report which was released to the public on 5

In the Report which was released to the public on 5tthhSeptember 2012,September 2012,

Malaysia ranked at 25

Malaysia ranked at 25thth positionposition (2011-2012: ranked 21(2011-2012: ranked 21stst) is among) is among the top 20% of the most competitive economies globally.

the top 20% of the most competitive economies globally.

2. Malaysia

2. Malaysia has also been upgraded to the transition stage of has also been upgraded to the transition stage of development from Efficiency-Driven Stage towards development from Efficiency-Driven Stage towards Innovation-Driven Stage of Development.

Driven Stage of Development. Thi This s uuppggrradade e wwas as aaccccororddeed d aass Malaysia’s G

Malaysia’s GDP DP per capiper capitta had a had incrincreased to Ueased to USS$9,7$9,700 fr00 from USom US$8$8,423,423 previously. At this new stage of development, new weightage is previously. At this new stage of development, new weightage is placed on the computation of Malaysia’s competitiveness index; with placed on the computation of Malaysia’s competitiveness index; with more weight put on Innovation and Sophistication factors, to prepare more weight put on Innovation and Sophistication factors, to prepare the country to move towards being innovation-driven.

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Table1

Table1: Subind: Subind ex Wex Weights eights and Income Threand Income Threshosho lds folds fo r Stager Stages of s of Development Development Stages of Development Stages of Development Stage 1: Stage 1: F

Factor actor DrivenDriven

Tra Transnsititioion n frfroomm stage 1 to stage 2 stage 1 to stage 2 Stage 2: Stage 2: Efficiency-driven Efficiency-driven Transition from Transition from stage 2 to stage stage 2 to stage 3 3 Stage 3: Stage 3: Innovation-driven driven GD

GDP P per per capita capita (US(US $) $) thresholds* thresholds* <<2,000 2,000 2,000-2,992,000-2,999 9 3,000-8,3,000-8,999999 9,000-17,0009,000-17,000 >17,000>17,000 Weight for basic requirements

Weight for basic requirements subindex

subindex 60% 60% 40-60% 40-60% 40%40% 20-40%20-40% 2020%% Weight for efficiency enhancers

Weight for efficiency enhancers subindex

subindex 35% 35% 35-50% 35-50% 50%50% 50%50% 5050%%

Weight for innovation and Weight for innovation and sophistication factors sophistication factors subindex subindex 5% 5% 5-10% 5-10% 10%10% 10-30%10-30% 3030%% WE

WEF’s AssessF’s Assess ment of Malament of Malaysia’s Competitiysia’s Competiti veness Peveness Performancrformanc ee

3.

3. MalaMalaysia ysia mmaintains aintains itits score s score of of 5.1 5.1 but but dropdrops s four four places asplaces as other countries move ahead. The

other countries move ahead. The most notable advantage is foundmost notable advantage is found in Malaysia’s efficient and competitive market for goods and in Malaysia’s efficient and competitive market for goods and services and its remarkably supportive financial sector, as well services and its remarkably supportive financial sector, as well as its bus

as its bus ineiness-friess-friendly ndly institutional framework.institutional framework. In a region whereIn a region where many economies suffer from the

many economies suffer from the lack of transparency and thelack of transparency and the presence of red tape, Malaysia stands out as particularly presence of red tape, Malaysia stands out as particularly successful at tackling those two issues.

successful at tackling those two issues. Yet, despite the progressYet, despite the progress achieved, much remains to be done to put the country on a more solid achieved, much remains to be done to put the country on a more solid growth path.

growth path.

4

4.. Its low level of technological readiness at 51Its low level of technological readiness at 51stst position, isposition, is surprising,

surprising, especially given its achievements in other areas of especially given its achievements in other areas of innovation and business sophistication and the country’s focus on innovation and business sophistication and the country’s focus on promoting the use of ICT.

promoting the use of ICT. Lack of progress in this area willLack of progress in this area will signific

signific aantly ntly undermine Maundermine Malaysialaysia’s ’s eeffortsfforts to become a knowledge-to become a knowledge-based economy by the end of the decade.

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Me

Measurinasurin g Competitivenessg Competitiveness

5.

5. The The RRepeport ort usesuses 30 percent statistical data30 percent statistical data ((32 criteria32 criteria) and) and

70 percent survey data

70 percent survey data ((79 criteria79 criteria) from the) from the Executive OpinionExecutive Opinion Survey

Survey. The. The report examines factors enabling nationalreport examines factors enabling national economies to achieve susta

economies to achieve sustained economic growined economic grow th and long th and long tetermrm prosperity

prosperity through itsthrough its 12 pilla12 pillars rs of cof c ompetitiveompetitiveness involviness involvi ng ng 111111 indicators

indicators. The pillars are:. The pillars are:



 InstitutionsInstitutions 

 InfrastructureInfrastructure 

 Macroeconomic EnvironmentMacroeconomic Environment 

 Health & Primary EducationHealth & Primary Education 

 Higher Education & TrainingHigher Education & Training 

 Goods Market EfficiencyGoods Market Efficiency 

 LLabour Market abour Market EEfficifficiencyency 

 Financial Market DevelopmentFinancial Market Development 

 Technological ReadinessTechnological Readiness 

 Market SizeMarket Size 

 BusBusineiness ss SSophiophisticatsticationion 

 InnovationInnovation

6.

6. AAlthough lthough the the pillars are pillars are aggregated aggregated into into a a ssingle ingle index,index, measures are reported for the 12 pillars separately because such measures are reported for the 12 pillars separately because such details provide a sense of the specific areas in which a particular details provide a sense of the specific areas in which a particular country needs to improve.

country needs to improve. Th The GCI te GCI taakkees ts thhe ste stagages oes of df deevvelelopopmmenentt into account by attributing higher relative weights to those pillars that into account by attributing higher relative weights to those pillars that are more relevant for an economy given its particular stage of are more relevant for an economy given its particular stage of development. That is, although all 12 pillars matter to a certain extent development. That is, although all 12 pillars matter to a certain extent for all countries, the relative importance of each one depends on a for all countries, the relative importance of each one depends on a country’s particular stage of development.

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7. To implement this concept, the pillars are organised into three subindexes, each critical to a particular stage of development. The basic requirements subindex groups those pillars most critical for countries in the factor-driven stage. The efficiency enhancers subindex includes those pillars critical for countries in the efficiency-driven stage and the innovation and sophistication factors subindex includes the pillars critical to countries in the innovation-driven stage. The three subindexes are shown in Figure 1.

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HIGHLIGHTS

Malaysia’s Competitiveness Strengths and Areas for Improvement

8. Malaysia has been elevated from the Efficiency stage of development to the transition stage towards Innovation-driven stage of development. Malaysia maintains its index score of 5.1 and is ranked 25th among 144 countries. Four countries, Korea, Luxembourg, New Zealand and United Arab Emirates had overtaken Malaysia this year. However, Malaysia remains among the top 20 per cent of the most competitive countries globally and continues to be ahead of Israel (26th), Ireland (27th), Brunei Darussalam (28th) and

People’s Republic of China (29th). The most notable

competitiveness strengths are found in Malaysia’s efficient and competitive market for goods and services, ranked 11th; its supportive financial sector, ranked 6th and Government services for improved busi ness performance ranked 4th. Among the criteria that are ranked in the top 10 are:

i. Legal rights index (degree of legal protection of borrowers and lenders’ rights), ranked 1st(GCR 2011-2012:1st);

ii. Pay and productivity, ranked 3r (GCR 2011-2012:4t );

iii. Government services for improved business performance, (New Indicator) ranked 4th;

iv. 3 more criteria namely Strength of investor protection;

MALAYSIA’ S COMPETITIVENESS BASED ON GLOBAL COMPETITIVENESS REPORT

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Agricultural policy costs and Government procurement of advanced technology products maintain their 4thrank;

v. Extent of staff raining, ranked 7t (GCR 2011-2012: 9t );

vi. 2 criteria namely Burden of Government regulation and ease of access to loans maintain their 8thrank;

vii. Financing through local equity market, ranked 9 (GCR 2011-2012: 10th);

viii. Business impact of rules on FDIs, ranked 10t (GCR 2011-2012: 12th); and

ix. Efficiency of legal framework in challenging regulations, ranked 10th(GCR 2011-2012: 14th).

9. Among the factors that had adversely affected Malaysia’s competitiveness are in the areas of Government Budget Balance and Debt; Health, Crime and Techno log ical Readin ess. Indicators that are ranked 60 and above are:

i. Women in labour force, ranked 119t (GCR 2011-2012:

114th);

ii. Government budget balance, % of GDP, ranked 110t (GCR

2011-2012: 96th);

iii. Redundancy costs, weeks of salary, ranked 108t (GCR 2011-2012: 104th);

iv. Secondary education enrollmen ra e, gross %, ranked 103r (GCR 2011-2012: 101th);

v. General Government debt, % GDP, ranked 100t (GCR

2011-2012: 98th) ;

vi. Malaria cases per 100,000 population, ranked 97t (GCR 2011-2012: 89th);

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vii. Tuberculosis cases per 100,000 population, ranked 86t (GCR 2011-2012: 85th);

viii. HIV prevalence, % of adult population, ranked 87t (GCR 2011-2012: 88th);

ix. International internet bandwidth, ranked 83r (GCR 2011-2012: 60th);

x. Trade tariffs, % duty, ranked 76t (GCR 2011-2012: 78t ); xi. Perception on business costs of crime and violence, ranked

69th(GCR 2011-2012: 63rd);

xii. Broadband internet subscription per 100 population, ranked 68th(GCR 2011-2012: 62nd);

xiii. Mobile broadband subscriptions per 100 population, ranked 64th;

xiv. Tertiary education enrollment, gross %, ranked 61st (GCR 2011-2012: 66th); and

xv. Perception on organised crime, ranked 60t (GCR 2011-2012: 54th).

Continuous efforts will be undertaken to address these areas to ensure a smooth progression towards an innovation-driven, high income economy.

Malaysi a and Top Ten Coun tries

10. The top ten countries are Switzerland, Singapore, Finland, Sweden, Netherlands, Germany, United States, United Kingdom, Hong Kong SAR, and Japan as shown in Table 2. The dominant source of competitive advantage is the ability of these countries

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innovative products and services at the global technology frontier using the most advanced methods. They are also characterised by a high share of services in the economy and are quite resilient to external shocks.

Table 2: The Global Competiti veness Index 2012-2013 Top 30 Count ries

Country / Economy GCI 2012-2013 GCI 2011–2012

Rank Score Rank Score

Switzerland 1 5.72 1 5.74 Singapore 2 5.67 2 5.63 Finland 3 5.55 4 5.47 Sweden 4 5.53 3 5.61 Netherlands 5 5.50 7 5.41 Germany 6 5.48 6 5.41 United States 7 5.47 5 5.43 United Kingdom 8 5.45 10 5.39

Hong Kong SAR 9 5.41 11 5.36

J apan 10 5.40 9 5.40 Qatar 11 5.38 14 5.24 Denmark 12 5.29 8 5.40 Taiwan, China 13 5.28 13 5.26 Canada 14 5.27 12 5.33 Norway 15 5.27 16 5.18 Austria 16 5.22 19 5.14 Belgium 17 5.21 15 5.20 Saudi Arabia 18 5.19 17 5.17 Korea, Rep. 19 5.12 24 5.02 Australia 20 5.12 20 5.11 France 21 5.11 18 5.14 Luxembourg 22 5.09 23 5.03 New Zealand 23 5.09 25 4.93

United Arab Emirates 24 5.07 27 4.89

Malaysia 25 5.06 21 5.08

Israel 26 5.02 22 5.07

Ireland 27 4.91 29 4.77

Brunei Darussalam 28 4.87 28 4.78

People’s Republic of

China 29 4.83 26 4.90

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Competitiveness Performance in the Asia Pacifi c and ASEAN

11. Am on g 22 Asia Paci fi c co untri es, Malay sia is ranked at 8th position and continues to be ahead of Brunei Darussalam (9th), People’s Republic of China (10th), Thailand (11th), Indonesia (12th), India (13th), Philippines (14th) and Sri Lanka (15th).

12. It was reported in the WEF news release that "The competitiveness landscape for developing Asia is much contrasted, with the region’s countries spanning almost the entire ranking of 144 economies and displaying very different trends. Despite losing four

places, Malaysia (25th) remains the highest-placed Developing

Asian economy . The Philippines (65th) is up 10 places and Cambodia

(85th) improves by 13. On the other hand, Vietnam drops 10 ranks to

75th, and Bangladesh (118th) and Pakistan (124th), fall even further behind. In the last two years, the competitiveness dynamic in developing Asia seems to have tapered off after years of strong performance."

13. In the ASEAN regio n, Malaysia main tains its positi on at 2nd

after Singapore but is ahead of Brunei Darussalam (3rd), Thailand (4th), Indonesia (5th), Philippines (6th), Vietnam (7th), and Cambodia (8th) as shown in Figure 2.

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1Singapore 3Japan Hong Kong 2 4Taiwan, China 6Australia 8MALAYSIA 5Korea, Rep. Singapore 1 Malaysia 2 Brunei 3 Thai land 4 Indonesia 5 Philippines 6 Vietnam 7 Cam bo di a 8 7New Zealand

ASEAN

Competitiveness of Asia Pacific Countries

10China 9Brunei Darussalam 11Thailand 12Indonesia 15 Sri Lanka 13India 16Vietnam 14Philippines 18Mongolia 17Cambodia 19Bangladesh 20Pakistan 21Nepal 22Kyrgyz Republic • 8thmost competitive in Asia-Pacific region • 2ndmost competitive in

ASEAN after Singapore.

C

ompetitiveness Performance

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Malaysia’s Performance in the Global Competitiveness Index 2012-2013

14. Malaysia’s performance in the 12 pillars is as shown in Table 3.

Table 3: Malaysia’s Perfo rmance in the 12 Pillars

THE GLOB AL COMPETITIVENESS REPORT

Ranked 25th/144 (GCR 2011-2012: 21st/142)

Basic Requirements

Ranked 27th

(GCR 2011-12:25th)

Effic iency Enhancers

Ranked 23rd (GCR 2011-12:20th) Innovation Factors Ranked 23rd (GCR 2011-12:22nd)  Pillar 1 Institutions Ranked 29th (GCR 2011-12:30th)  Pillar 5

Higher Education & Training Ranked 39th (GCR 2011-12:38th)  Pillar 11 Business Sophistication Ranked 20th (GCR 2011-12:20th)  Pillar 2 Infrastructure Ranked 32nd (GCR 2011-12:26th)  Pillar 6 Goods Market Efficiency Ranked 11th (GCR 2011-12:15th)  Pillar 12 Innovation Ranked 25th (GCR 2011-12:24th)  Pillar 3 Macroeconomic Environment Ranked 35th (GCR 2011-12:29th)  Pillar 7 Labor Market Efficiency Ranked 24th (GCR 2011-12:20th)  Pillar 4

Health & Primary Education Ranked 33rd (GCR 2011-12:33rd)  Pillar 8 Financial Market Development Ranked 6th (GCR 2011-12: 3rd)  Pillar 9 Technological Readiness Ranked 51st (GCR 2011-12:44th)  Pillar 10 Market Size Ranked 28th (GCR 2011-12:29th)

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Institutional Strengths

15. Malaysia is ranked 29th (GCR 2011-2012: 30th) in the

Institutions pillar with notable individual contributory factors from Government services for improved business performance, Burden of government regulation, P ublic trust in politicians and Strength of investor protection. Malaysia’s initiatives in facilitating businesses through modernising business licensing where the Special Taskforce to Facilitate Business (PEMUDAH) works with ministries and agencies have resulted in better procedural reforms. PEMUDAH will continue to undertake initiatives to improve the business environment. These include business process re-engineering in various licensing processes and procedures; implementation of web-based e-payment facilities for online payments nationwide; and fine tuning the one-stop centre approval processes for building plans.

16. The continuous wide ranging measures in achieving better procedural reforms also include a wider adoption of transparent measures such as the Corporate Integrity Pledge (CIP) with an incentive driven scheme for consistent adherence to these measures. With the introduction of the Corporate Governance Blueprint in 2011,

Malaysia continues to rank highly as one of the leading nations in investor protection (4th) and upholding minority shareholder interests (15th). The blueprint has also gone hand in hand with the CIP to provide a better efficacy of c orp orate boards (14th).

Institutions

The institutional environment is determined by the legal and administrative framework within which individuals, firms, and governments interact to generate wealth.

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Among the criteria that have contributed to Institutions include:

 Government services for improved business performance at 4th

position;

 Strength of investor protection at 4th position;

 Burden of government regulation at 8thposition; and

 Perception on Efficiency of legal framework in challenging

regulations at 10thposition.

Among the areas for improvement under the Institutions include perception on:

 Business costs of crime and violence, ranked 69th;  Organised crime, ranked 60th; and

 Business costs of terrorism, ranked 58th.

Improvi ng the Infr astruct ure of a Nation

17. Malaysia is ranked at 32nd in the Infrastructure pillar (GCR 2011-2012:26th). Under this pillar, Quality of railroad infrastructure (17th); mobile telephone subscriptions (33rd) and Quality of electric supply (35th) have improved their rankings as compared to previous year. The GCR pointed out that Malaysia needs to step up efforts to improve the quality of overall infrastructure. The Government is addressing this specifically in terms of improving quality of transport infrastructure that includes incorporating the various modes; rail, buses and taxis and improved integration within and between them.

Infrastructure

Extensive and efficient infrastructure is critical for ensuring the effective functioning of the economy, as it is an important factor in determining the location of economic activity and the kinds of activities or sectors that can develop in a particular instance.

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have been revamped and upgraded; KTM Komuter and LRT frequencies and capacities had been increased and there are ongoing and planned expansions of the LRT and monorail systems. The Government has also commenced the integrated MRT station and rail infrastructure project which is envisaged to radically improve and transform urban public transportation system and enhance connectivity.

Among the areas for improvement required for Infrastructure are:

 Fixed telephone lines/100 population, ranked 85th; and  Quality of electricity supply, ranked 35th.

The Macro economic Pict ure

18. The Macroeconomic Environment pillar is ranked at 35th position (GCR 2011-2012: 29th). The Gross national savings as a percentage of GDP ranked at 17th position to mark a climb of 6 places due to several investment initiatives that continue to promote

Malaysi a as the preferred destination for investments in hig h technology and knowledge-based industries. This is in collaboration with efforts to promote domestic direct investments to ensure a sustainable economic outlook for Malaysia.

The areas that need addressing under Macroeconomic

Environment:

 Government budget balance, % GDP ranked 110th; and

 General Government debt, % GDP ranked 100th.

Macroeconomic environment

The stability of the macroeconomic environment is important for business and, therefore, is important for the overall competitiveness of a country.

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Keeping Healthcare and Primary Edu cation i n Perspective

19. Malaysia maintained its rank in the Healthcare and Primary Education pillar at 33rd.However the Budget 2012 for Malaysia has recently allocated a substantial amount towards the education sector with adevelopment allocation of RM1.9 bill ion fo r all national type schools aside from the removal of school fees for primary and secondary education. The Natio nal Strategic Plan on HIV and AIDS

is also currently being implemented and will see some traction by the following year. As for efforts to combat Malaria, Malaysia is currently

on track towards the Millennium Development Goal of complete elimination by 2020.

Among the areas that require improvement in Health and Primary Education include:

 Business impact of malaria ranked 99th;

 Malaria cases/100,000 population ranked 97th;  Business impact of HIV/AIDS ranked 91st;

 HIV prevalence, % adult population ranked 87th;  Business impact of tuberculosis ranked 86th; and  Tuberculosis cases/100,000 population ranked 86th.

Health and primary education

A healthy workforce is vital to a country’s competitiveness and productivity while lack of basic education can become a constraint on business development, with firms finding it difficult to move up the value chain.

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A B etter Workfo rc e thro ug h Higher Educ ati on and Training

20. Malaysia stood at 39th position in the Higher Education and Training pillar (GCR 2011-2012: 38th). Among the criteria that showcase positive growth are:

 Extent of staff training at 7th position;

 Quality of the educational system at 14thposition;

 Availability of research and training services at 17thposition; and  Quality of math and science education at 20thposition.

The criteria that require improvement in Higher Education and Training are:

 Secondary education enrollment, gross % ranked 103rd; and  Tertiary education enrollment, gross % ranked 61st.

21. Initiatives to reform the education system as a whole, include an

Education Blueprint which is scheduled to be released by September 2012. The formation of a National Education Advisory Council as a think tank for education, the Education Review Panel and the National Education Review Dialogue to consolidate feedback from the public would all contribute towards further strengthening the education system and consequently in our rankings. We can also expect to see improvements in our rankings as measures are taken to improve the quality of data provided to international bodies such as UNE SCO, from which WEF draws statistics for the GCR.

Higher education and training

Quality higher education and training is particularly crucial for economies that want to move up the value chain beyond simple production processes and products.

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Sustaining Goods Market Effici ency

22. Malaysia improved to 11th position in the Goods Market Efficiency pillar (GCR 2011-2012: 15th). From the Malaysian Corporate Identity Number (MyCoID) system that helps new businesses integrate with the various agencies such as LHDN, SOCSO, EPF and HRDF to the standardised license formats of the Business Licensing Electronic Support System (BLESS), the measures have helped dramatically reduce the start up time of registering and running a new business in Malaysia. The extent of market dominance is also kept in check with the enforcement of the Competition Act 2010 which seeks to prevent any gaming and price fixing that would result in a blatant monopoly of the market or supply.

23. Central to the value of private-sector dialogue and collaboration in making red tape a thing of the past is the establishment of state-level PEMUDAH in all states to address specifically state and local level issues. Such a move is both timely and expedient as businesses engage with local authorities in all their operations and Taskforces at the state level can play a more active role in providing inputs and implementing initiatives undertaken by PEMUDAH at the federal level.

The criteria that contributed toGoods Market Efficienc y include:

 Agricultural policy costs at 4thposition;

Goods market efficiency

Countries with efficient goods markets are well positioned to produce the right mix of products and services given their particular supply-and-demand.

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 Perception on the extent and effect of taxation to work or invest

at 14thposition;

 Degree of customer orientation at 16thposition;  No. of days to start a business at 16thposition;  Buyer sophistication at 17th position;

 Extent of market dominance at 19th position; and  No. of procedures to start a business at 20thposition.

Among the areas for improvement required for Goods Market

Efficiency are:

 Trade tariffs, % duty ranked 76th; and

 Prevalence of foreign ownership ranked 53rd.

Equality for t he Labour Market

24. Malaysia is ranked 24th position in the Labour Market Efficiency pillar (GCR 2011-2012: 20th). Strong ground breaking initiatives such as mandatory minimum wages and a proposed high wage scheme for high productivity jobs are being implemented to continue to attract and retain talent within Malaysia. In 2011, Talent Corporation had successfully attracted 680 Malaysians to return and work in the country under the Returning Expert Programme. In the first 4 months of 2012, 400 Malaysian experts were approved, reflecting the higher confidence among these professionals that transformation is happening in Malaysia. Among the criteria with a strong impact on

Labour market efficiency

The efficiency and flexibility of the labor market are critical for ensuring that workers are allocated to their most effective use in the economy and provided with incentives to give their best effort in their jobs.

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this pillar include pay and productivity at 3rd position and cooperation in labour-employer relations at 15thposition.

Among the criteria for improvement required for Labour Market Efficiency are:

 Redundancy costs, weeks of salary ranked 108th; and  Women in labour force ranked 119th.

Financially Effective

25. Malaysia is ranked at a commendable 6th position in the

Financial Market Development p illar (GCR 2011-2012: 3rd). Despite the drop in rank, the financial market in Malaysia continues to grow.

With the Financial Sector Blueprint which was implemented early

this year , 9 key areas of improvement have been identified such as the development of a deep and dynamic financial market; and intermediation for a high value-added and high income economy.

The criteria that had contributed to the performance of Financial Market Development are:

 Legal rights index at 1stposition;

 Ease of access to loans at 8thposition;

 Financing through local equity market at 9th position;  Affordability of financial services at 11th position;  Venture capital availability at 11thposition; and

Financial market development

The recent economic crisis has highlighted the central role of a sound and well-functioning financial sector for economic activities.

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Adop ting a Techn ol og ic al Culture

26. Malaysia being ranked at 51st position in the Technological Readiness pillar (GCR 2011-2012: 44th) does not augur well for Malaysia’s competitiveness. Despite a 81% national broadband penetration rate in populated areas, internet availability in rural areas need to be further improved. Initiatives are ongoing to ensure that the digital divide is narrowed. Lowering the cost of broadband for rural areas and increasing coverage via the use of WiFi should further push the adoption and broadband penetration rate. It is encouraging that FDI and technology transfer is ranked at 16th position among the 144 countries in the report.

27. While Malaysia’s ICT infrastructure improved to 33rd position from 40th last year, and Government procurement of advanced technology products is maintained at 4th, the low level of technological readiness (where Malaysia is ranked 51st), is what WEF finds “surprising”. Clearly, there is a discrepancy between perception and statistical data on technological readiness that does not reflect the actual situation in Malaysia. Towards this end, the government will ensure that consolidated and comprehensive data and information is provided to international data sources such as International Telecommunications Union (ITU) and World Intellectual Property

Organisation (WIPO). We can also expect greater broadband

Technological readiness

The technological readiness pillar measures the agility with which an economy adopts existing technologies to enhance the productivity of its industries, with specific emphasis on its capacity to fully leverage information and communication technologies (ICT) in daily activities and production processes for increased efficiency and enabling innovation for com etitiveness.

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penetration with the launch and implementation of the “1Malaysia Affordable Broadband Package” effective from 16th September 2012, in Pahang, Kelantan, Terengganu, Sabah and Sarawak.

Among the areas for improvement required for Technological

Readiness are:

 International Internet bandwidth, kb/s per user, ranked 83rd;  Broadband Internet subscriptions/100 population ranked 68th;

and

 Mobile broadband subscriptions/100 population ranked 64th.

Going for Markets Globally

28. Malaysia ranked 28th position in the Market Size pillar (GCR 2011-2012: 29th). The domestic market size index has recorded positive growth with room for further improvement due to continued incentives towards exports of goods and services. Malaysia’s exports as a percentage of GDP is ranked among the top ten contributions and this along with our foreign market size index at 20th position paints Malaysia in a positive light for more foreign investments to tap into the potential of the Malaysian market.

Market s ize

The size of the market affects productivity since large markets allow firms to exploit economies of scale. Traditionally, the markets available to firms have been constrained by national borders. In the era of globalization, international markets can to a certain extent substitute for domestic markets, especially for small countries.

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Bringin g Sophistication to Business

29. Malaysia maintains its position at 20th in the Business Sophistication pillar (GCR 2011-2012: 20th). The initiative to support local innovative products by the government when it comes to procurement has helped to spur a need for innovation in many businesses as a form of securing business. This in turn has further elevated the need for businesses within the industry to network and further their own R&D initiatives. The combined results have helped secure Malaysia’s current position with additional plans to further incentivies R&D initiatives for the private sector.

The criteria that had impacted onBusiness Sophistication include:

 Control of international distribution at 12thposition;  State of cluster development at 13thposition; and  Willingness to delegate authority at 14th position.

Business sophistication

There is no doubt that sophisticated business practices are conducive to higher efficiency in the production of goods and services. Business sophistication concerns two elements that are intricately linked: the quality of a country’s overall business networks and the quality of individual firms’ operations and strategies.

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Empowering Innovation

30. Malaysia is ranked at 25thposition in the Innovation pillar (GCR 2011-2012: 24th). Malaysia has a high capacity for innovation and is ranked 17th in that respect. The introduction of the Science Act and Science and Technology Human Capital Roadmap launched in early 2012 is expected to elevate Malaysia’s capacity for innovation higher by providing a conducive ecosystem for science and technology in Malaysia. The rate of application and commercialisation of new patents would be the key indicator in the coming years of the continued effectiveness of the initiative.

31. Malaysia has placed innovation at the center of development and reform agenda to propel us for the future, to become a high-income economy by 2020. As Malaysia moves into the "transition towards innovation" phase, it is important that we focus on technological as well as non-technological innovation. The GCR clearly indicates that it is imperative for Malaysia to focus on innovation. In this context, various initiatives have been undertaken including the National Innovation Strategy to drive the national innovation agenda. This forms the framework vital for shaping a

supportive eco-system for innovation; creating innovation

opportunities, emplacing innovation enablers and funding, which will

Innovation

Innovation can emerge from new technological and non-technological knowledge. Non-non-technological innovations are closely related to the know-how, skills, and working conditions that are embedded in organizations. In the long run, standards of living can be largely enhanced by technological innovation and technological breakthroughs.

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needs to create new economic wealth through entrepreneurship as well as fresh and innovative ideas. In this context, the “Genovasi” (Innovation Generation) and the i-Think programmes were established to train innovation ambassadors as well as equip Malaysia’s next generation of innovators to think critically and be adaptable in preparation for the future. They will eventually take the lead in spurring progress through innovation solutions for the nation, thus contributing to a better quality of life.

Among the criteria that had a positive impact on Innovation include:

 Government procurement of advanced technological products at

4thposition;

 Companies spending on R&D at 16thposition;  Capacity for innovation at 17thposition; and

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Evolution in Malaysia's Rank 1 s t p i l l a r : I n s t i t u t i o n s 2 n d p i l l a r : I n f r a s t r u c t u r e 3 r d p i l l a r : M a c r o e c o n o m i c E n v i r o n m e n t 4 t h p i l l a r : H e a l t h a n d p r i m a r y e d u c a t i o n 5 t h p i l l a r : H i g h e r e d u c a t i o n a n d t r a i n i n g 6 t h p i l l a r : G o o d s m a r k e t e f f i c i e n c y 7 t h p i l l a r : L a b o r m a r k e t e f f i c i e n c y 8 t h p i l l a r : F i n a n c i a l m a r k e t d e v e l o p m e n t 9 t h p i l l a r : T e c h n o l o g i c a l r e a d i n e s s 1 0 t h p i l l a r : M a r k e t s i z e 1 1 t h p i l l a r : B u s i n e s s s o p h i s t i c a t i o n 1 2 t h p i l l a r : I n n o v a t i o n GCI Edition 2010-2011 (n=139) 26 42 30 41 34 49 27 35 7 40 29 25 24 2011-2012 (n=142) 21 30 26 29 33 38 15 20 3 44 29 20 24 2012-2013 (n=144) 25 29 32 35 33 39 11 24 6 51 28 20 25 G l o b a l C o m p e t i t i v e n e s s I n d e x Rank

Evolution i n Malaysi a's Competiti veness Performance

Figure 3: Evolution in Malaysia's Competitiveness Performance by Rank

6. 14 5. 90 5. 22 5. 0 5 4 .88 4. 53 4. 2 9 4 .10

Figure 3 indicates a steady trend of improvement since 2010-2011 with the only downtrend in the 9th Pillar for Technological Readiness. With the new stage of development (transition towards innovation) that Malaysia is placed in, Technological Readiness and Innovation

factors are the engines which will propel Malaysia towards the innovation stage of development.

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Competitiveness Enhancement Initiati ves

 To further engage with WEF through the Technical Expert

Service (TES) to develop competitiveness methodology with the aim of publishing Malaysia’s Competitiveness Report.

 To strengthen Malaysia’s relation with WEF by striving to host

the Annual WEF East Asia Forum in the near future (The 2013 Forum will be held in Myanmar).

 The Inter Agency Planning Group (IAP G) on Competitiveness

Data is identifying Malaysia’s data providers on technological readiness to ensure that a consolidated and comprehensive data and information on Technological Readiness and Innovation is provided to the international data agencies.

 To engage WIPO, ITU and other international data agencies to

ensure updated and reflective data is used in assessing Malaysia’s competitiveness performance.

 To analyse each of the 111 indicators in the report to identify

areas for improvement and to implement initiatives for a smooth progression towards an innovation-driven, high income economy.

 To continue an effective communication strategy that further

clarifies and elaborates upon the recent achievements by the government through various methods to the business community.

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The Path to Progress

In the GCR 2012-2013, Malaysia’s most notable advantages are found in Malaysia’s efficient and competitive market for goods and services (11th) and its remarkably supportive financial sector (6th) as well as its business-friendly institutional framework. In a region where many economies suffer from the lack of transparency and the presence of red tape, Malaysia stands out as particularly successful at tackling those two issues. Despite the progress achieved, it is acknowledged that continuous efforts need to be implemented to put the country on a more solid growth path. Its slow level of technological readiness (51st) is surprising especially given its achievement in other areas of innovation and business sophistication and the country’s focus on promoting the use of ICT. Lack of progress in this area will significantly undermine Malaysia’s effort to become a knowledge-based economy by the end of the decade.

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Appendi x I Global Competiti veness Index 2012-2013 Ranki ngs and

2011-2012 Comparis ons

Switzerland 1 5.72 1 5.74 Singapore 2 5.67 2 5.63 Finland 3 5.55 4 5.47 Sweden 4 5.53 3 5.61 Netherlands 5 5.50 7 5.41 Germany 6 5.48 6 5.41 United States 7 5.47 5 5.43 United Kingd om 8 5.45 10 5.39

Hong Kong SAR 9 5.41 11 5.36

Japan 10 5.40 9 5.40 Qatar 11 5.38 14 5.24 Denmark 12 5.29 8 5.40 Taiwan, Chin a 13 5.28 13 5.26 Canada 14 5.27 12 5.33 Norway 15 5.27 16 5.18 Aust ri a 16 5.22 19 5.14 Belgium 17 5.21 15 5.20 Saudi Arabia 18 5.19 17 5.17 Korea, Rep. 19 5.12 24 5.02 Aust ral ia 20 5.12 20 5.11 France 21 5.11 18 5.14 Luxembourg 22 5.09 23 5.03 New Zealand 23 5.09 25 4.93

United Arab Emirates 24 5.07 27 4.89

Malays ia 25 5.06 21 5.08

Israel 26 5.02 22 5.07

Ireland 27 4.91 29 4.77

Brunei Darussalam 28 4.87 28 4.78

People’s Republic of

China 29 4.83 26 4.90 Iceland 30 4.74 30 4.75 Puerto Rico 31 4.67 35 4.58 Oman 32 4.65 32 4.64 Chile 33 4.65 31 4.70 Estonia 34 4.64 33 4.62 Bahrain 35 4.63 37 4.54 Spain 36 4.60 36 4.54 Kuwait 37 4.56 34 4.62 Thailand 38 4.52 39 4.52 Czech Republ ic 39 4.51 38 4.52

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Panama 40 4.49 49 4.35 Poland 41 4.46 41 4.46 Italy 42 4.46 43 4.43 Turkey 43 4.45 59 4.28 Barbados 44 4.42 42 4.44 Lithuania 45 4.41 44 4.41 Azerbaij an 46 4.41 55 4.31 Malta 47 4.41 51 4.33 Brazil 48 4.40 53 4.32 Portugal 49 4.40 45 4.40 Indonesia 50 4.40 46 4.38 Kazakhstan 51 4.38 72 4.18 South Africa 52 4.37 50 4.34 Mexico 53 4.36 58 4.29 Mauritius 54 4.35 54 4.31 Latvia 55 4.35 64 4.24 Slovenia 56 4.34 57 4.30 Costa Rica 57 4.34 61 4.27 Cyprus 58 4.32 47 4.36 India 59 4.32 56 4.30 Hungary 60 4.30 48 4.36 Peru 61 4.28 67 4.21 Bulgaria 62 4.27 74 4.16 Rwanda 63 4.24 70 4.19 Jordan 64 4.23 71 4.19 Philippines 65 4.23 75 4.08

Iran, Islamic Republi c 66 4.22 62 4.26

Russian Federatio n 67 4.20 66 4.21 Sri Lanka 68 4.19 52 4.33 Colombia 69 4.18 68 4.20 Morocco 70 4.15 73 4.16 Slovak Republic 71 4.14 69 4.19 Montenegro 72 4.14 60 4.27 Ukraine 73 4.14 82 4.00 Uruguay 74 4.13 63 4.25 Vietnam 75 4.11 65 4.24

Seychelles* 76 4.10 n/a n/a

Georgia 77 4.07 88 3.95 Romania 78 4.07 77 4.08 Botswana 79 4.06 80 4.05 Macedonia, FYR 80 4.04 79 4.05 Croatia 81 4.04 76 4.08 Armeni a 82 4.02 92 3.89

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Cambodia 85 4.01 97 3.85 Ecuador 86 3.94 101 3.82 Moldova 87 3.94 93 3.89 Bosnia and Herzegovina 88 3.93 100 3.83 Alban ia 89 3.91 78 4.06 Honduras 90 3.88 86 3.98 Lebanon 91 3.88 89 3.95 Namibia 92 3.88 83 4.00 Mongolia 93 3.87 96 3.86 Argent in a 94 3.87 85 3.99 Serbia 95 3.87 95 3.88 Greece 96 3.86 90 3.92 Jamaica 97 3.84 107 3.76 Gambia, The 98 3.83 99 3.84

Gabon* 99 3.82 n/a n/a

Tajikistan 100 3.80 105 3.77 El Salvador 101 3.80 91 3.89 Zambia 102 3.80 113 3.67 Ghana 103 3.79 114 3.65 Bolivia 104 3.78 103 3.82 Dominican Republic 105 3.77 110 3.73 Kenya 106 3.75 102 3.82 Egypt 107 3.73 94 3.88 Nicaragua 108 3.73 115 3.61 Guyana 109 3.73 109 3.73 Alger ia 110 3.72 87 3.96

Liberia* 111 3.71 n/a n/a

Cameroon 112 3.69 116 3.61

Libya* 113 3.68 n/a n/a

Suriname 114 3.68 112 3.67 Nigeria 115 3.67 127 3.45 Paraguay 116 3.67 122 3.53 Senegal 117 3.66 111 3.70 Bangladesh 118 3.65 108 3.73 Benin 119 3.61 104 3.78 Tanzania 120 3.60 120 3.56 Ethiopia 121 3.55 106 3.76 Cape Verde 122 3.55 119 3.58 Uganda 123 3.53 121 3.56 Pakistan 124 3.52 118 3.58 Nepal 125 3.49 125 3.47 Venezuela 126 3.46 124 3.51 Kyrgyz Republi c 127 3.44 126 3.45 Mali 128 3.43 128 3.39

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Malawi 129 3.38 117 3.58

Madagascar 130 3.38 130 3.36

Côte d’Ivoire 131 3.36 129 3.37

Zimbabwe 132 3.34 132 3.33

Burk ina Faso 133 3.34 136 3.25

Mauritania 134 3.32 137 3.20 Swaziland 135 3.28 134 3.30 Timor-Leste 136 3.27 131 3.35 Lesotho 137 3.19 135 3.26 Mozambique 138 3.17 133 3.31 Chad 139 3.05 142 2.87 Yemen 140 2.97 138 3.06

Guinea* 141 2.90 n/a n/a

Haiti 142 2.90 142 2.90

Sierra Leone* 143 2.82 n/a n/a

Burundi 144 2.78 140 2.95

Note:

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Append ix 2 The Global Competiti veness Index 2012–2013 Ranki ngs

for Asia-Pacific Countries

The Global Competiti veness Index 2012–2013 Ranki ngs for ASEAN Count ries

Country/Economy GCI 2012–2013

Rank Score

Singapore 1 5.67

Hong Kong SAR 2 5.41

Japan 3 5.40 Taiwan, Chin a 4 5.28 Korea, Rep. 5 5.12 Aust ral ia 6 5.12 New Zealand 7 5.09 Malaysia 8 5.06 Brunei Darussalam 9 4.87

People’s Republic of China 10 4.83

Thailand 11 4.52 Indonesia 12 4.40 India 13 4.32 Philippines 14 4.23 Sri Lanka 15 4.19 Vietnam 16 4.11 Cambodia 17 4.01 Mongolia 18 3.87 Bangladesh 19 3.65 Pakistan 20 3.52 Nepal 21 3.49 Kyrgyz Republi c 22 3.44

Country /Econo my GCI 2012–2013

Rank Score Singapore 1 5.67 Malaysia 2 5.06 Brunei Darussalam 3 4.87 Thailand 4 4.52 Indonesia 5 4.40 Philippines 6 4.23 Vietnam 7 4.11 Cambodia 8 4.01

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Append ix 3 Li st of Cou ntries/ Economi es at Each Stage of Development

Stage 1 (38 economies) Transition fr om 1 to 2 (17 economies) Stage 2 (33 economies) Transition fr om 2 to 3 (21 economies) Stage 3 (35 economies)

Bangladesh Algeria Albania Argentina Australia

Benin Azerbaijan Armenia Bahrain Austria

Burkina Faso Bolivia Bosnia and

Herzegovina Barbados Belgium

Burundi Botswana Bulgaria Brazil Canada

Cambodia Brunei Darussalam Cape Verde Chile Cyprus

Cameroon Egypt People’s_{Republic of China} Croatia Czech Republic

Chad Gabon* Colombia Estonia Denmark

Côte d'Ivoire Honduras Costa Rica Hungary Finland Ethiopia Iran, Islamic Rep. Dominican

Republic Kazakhstan France

Gambia, The Kuwait Ecuador Latvia Germany

Ghana Libya* El Salvador Lebanon Greece

Guinea* Mongolia Georgia Lithuania Hong Kong SAR

Haiti Philippines Guatemala Malaysia Iceland

India Qatar Guyana Mexico Ireland

Kenya Saudi Arabia Indonesia Oman Israel

Kyrgyz Republic Sri Lanka J amaica Poland Italy Lesotho Venezuela J ordan Russian Federation J apan

Liberia* Macedonia, FYR Seychelles* Korea, Rep.

Madagascar Mauritius Trinidad and Tobago Luxembourg

Malawi Montenegro Turkey Malta

Mali Morocco Uruguay Netherlands

Mauritania Namibia New Zealand

Moldova Panama Norway

Mozambique Paraguay Portugal

Nepal Peru Puerto Rico

Nicaragua R omania Singapore

Nigeria Serbia Slovak Republic

Pakistan South Africa Slovenia

Rwanda Suriname Spain

Senegal Swaziland Sweden

Sierra Leone* Thailand Switzerland

Tajikistan Timor-Leste Taiwan, China

Tanzania Ukraine United Arab

Emirates

Uganda United Kingdom

Vietnam United States

Yemen Zambia Zimbabwe

Note: *New entrants

Income Threshold for Establishing Stages of Development

Stage of Developm ent GDP per Capita (in US$)

Stage 1: Factor Driven <2,000

Transition from stage 1 to stage 2 2,000 – 2,999 Stage 2: Efficiency Driven 3,000 – 8,999 Transit ion fr om stage 2 to stage 3 9,000 – 17,000

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Append ix 4 Characteristics of Top Ten Most Competitive Econo mies in GCR 2012-2013

SWITZERLAND SINGAPORE FINLAND SWEDEN NETHERLANDS

Year 2012 2011 Year 2012 2011 Year 2012 2011 Year 2012 2011 Year 2012 2011

Rank 1 1 Rank 2 2 Rank 3 4 Rank 4 3 Rank 5 7

Switzerland retains its 1st place position again this year as a result of its continuing strong performance across the board. The country’s most notable strengths are related to innovation and labor market efficiency, where it tops the GCI rankings, as well as the sophistication of its business sector, which is ranked 2nd_.

Switzerland’s scientific research institutions are among the world’s best, and the strong collaboration between its academic and business sectors, combined with high company spending on R&D, ensures that much of this research is translated into marketable products and processes reinforced by strong intellectual property protection. This robust innovative capacity is captured by its high rate of patenting per capita, for which Switzerland ranks a

remarkable 2ndworldwide. Productivity is further enhanced by a business sector that offers excellent on-the-job-training opportunities, both citizens and private companies that are proactive at adapting the latest technologies and labor markets that balance employee protection with the interests of employers. Moreover, public institutions in Switzerland are among the most effective and transparent in the world (5th_{). Governance}

structures ensure a level playing field, enhancing business confidence; these include an independent judiciary, a strong rule of law,

and a highly accountable public sector. Competitiveness is also buttressed by excellent infrastructure (5th), well-functioning goods markets (7th), and highly developed financial markets (9th). Finally, Switzerland’s macroeconomic environment is among the most stable in the world (8th) at a time when many neighboring economies continue to struggle in this area. While Switzerland demonstrates many competitive strengths, maintaining its innovative capacity will require boosting university enrollment rate, which continues to lag behind that of many other high-innovation countries, although this has been increasing in

Singapore retains its place at 2nd_{position as a}

result of an outstanding performance across the entire Index. The country features in the top 3 in seven of the 12 categories of the Index and appears in the top 10 of three others. Its public and private institutions are rated as the best in the world for the fifth year in a row. It also ranks 1stfor the efficiency of its goods and labor markets, and places 2ndin terms of financial market

development. Singapore also has world-class infrastructure (2nd_{), with}

excellent roads, ports, and air transport facilities. In addition, the country’s

competitiveness is reinforced by a strong focus on education, which has translated into a steady improvement in the higher education and training pillar (2nd) in recent years, thus providing individuals with the skills needed for a rapidly changing global economy.

Finland moves up one place since last year to reach 3rdposition on the back of small

improvements in a number of areas. Similar to other countries in the region, the country boasts well-functioning and highly transparent public institutions (2nd), topping several indicators included in this category. Its private institutions, ranked 3rdoverall, are also seen to be among the best run and most ethical in the world. Finland occupies the top position both in the health and primary education pillar as well as the higher education and training pillar, the result of a strong focus on education over recent decades. This has provided the

workforce with the skills needed to adapt rapidly to a changing environment and has laid the

groundwork for high levels of technological adoption and innovation. Finland is one of the most innovative countries in Europe, ranking 2nd, behind only Switzerland, on the related pillar. Improving the country’s capacity to adopt the latest

technologies (ranked 25th) could lead to important synergies that in turn could corroborate the country’s position as one of the world’s most innovative economies. Finland’s macroeconomic environment weakens slightly on the back of rising inflation (above 3 percent), but fares comparatively well when contrasted with other euro-area economies.

Sweden, overtaken by Finland, falls one place to 4thposition. Like Switzerland, the country has been placing significant emphasis on creating the conditions for innovation-led growth. The quality of its public institutions remains first-rate, with a very high degree of efficiency, trust, and transparency. Private institutions also receive excellent marks, with firms that demonstrate excellent ethical behavior. Nevertheless, we registered a slight but consistent deterioration in the country’s institutional framework over the past three years. Additional strengths include goods and financial markets that are very efficient, although the labor market could be more flexible (ranking 92ndon the flexibility subpillar). Combined with a strong focus on education over the years and a high level of technological readiness (1st), Sweden has developed a very sophisticated business culture (5th) and is one of the world’s leading innovators (4th). Last but not least, the country boasts a stable macroeconomic environment (13th), with a balanced budget and manageable public debt levels. These

characteristics come together to make Sweden one of the most productive and

competitive economies in the world.

The Netherlands continues to progress in the rankings, moving up to 5thplace this year. The improvement reflects a continued strengthening of its innovative capacity as well as the heightened efficiency and stability of its financial markets. Overall, Dutch

businesses are highly sophisticated (4th_{) and}

innovative (9th), and the country is rapidly and aggressively harnessing new technologies for productivity improvements (9th). Its excellent educational system (ranked 5thfor health and primary education and 6thfor its higher education and training) and efficient markets—especially its goods market (6th)—are highly supportive of business activity. And although the country has registered fiscal deficits in recent years (5.0 percent of GDP in 2011), its

macroeconomic environment is more stable than that of a number of other advanced economies. Last but not least, the quality of its

infrastructure is among the best in the world, reflecting excellent facilities for maritime, air, and railroad transport, ranked 1st, 4th, and 9th,

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Characteristics of Top Ten Most Competitive Econo mies in GCR 2012-2013 (cont’d) GERMANY UNITED STATES UNITED KINGD OM HONG KONG SAR JA PAN Year 2012 2011 Year 2012 2011 Year 2012 2011 Year 2012 2011 Year 2012 2011 Rank 6 6 Rank 7 5 Rank 8 10 Rank 9 11 Rank 10 9 Germany maintains its

position at 6thplace this year. The country is ranked an excellent 3rdfor the quality of its infrastructure, boasting in particular first-rate facilities across all modes of transport. The goods market is quite efficient, characterized by intense local competition (8th) and low market dominance by large companies (2nd). Germany’s business sector is very sophisticated, especially when it comes to production processes and distribution channels, and German companies are among the most innovative in the world, spending heavily on R&D (4th) and displaying a high capacity for innovation (3rd)—traits that are complemented by the country’s well-developed ability to absorb the latest technologies at the firm level (16th_{). These attributes}

allow Germany to benefit greatly from its significant market size (5th), which is based on both its large domestic market and its strong exports. On a less positive note and despite some efforts, Germany’s labor market remains rigid (119thfor the labor market flexibility sub pillar), where a lack of flexibility in wage determination and the high cost of firing hinder job creation, particularly during business cycle downturns. In addition, improving the quality of the educational system—where the country continues to trail its top 10 peers at 28thplace—could serve as an important basis for sustained innovation-led growth. In view of continued economic difficulties in the euro area, Germany’s performance in the macroeconomic pillar remains remarkably stable, with the country even registering a reduction in the fiscal deficit to –1 percent of GDP, but concerns about potential effects of the European sovereign debt crisis are reflected in the downgrading

The United States continues the decline that began a few years ago, falling two more positions to take 7thplace this year. Although many structural features continue to make its economy extremely productive, a number of escalating and

unaddressed weaknesses have lowered the US ranking in recent years. US companies are highly sophisticated and

innovative, supported by an excellent university system that collaborates admirably with the business sector in R&D. Combined with flexible labor markets and the scale opportunities afforded by the sheer size of its domestic economy— the largest in the world by far—these qualities continue to make the United States very competitive. On the other hand, some weaknesses in particular areas have deepened since past assessments. The business community continues to be critical toward public and private institutions (41st). In particular, its trust in politicians is not strong (54th), perhaps not surprising in light of recent political disputes that threaten to push the country back into recession through automatic spending cuts. Business leaders also remain concerned about the government’s ability to maintain arms-length relationships with the private sector (59th), and consider that the government spends its resources relatively wastefully (76th). A lack of macroeconomic stability continues to be the country’s greatest area of weakness (111th, down from 90th_{last year). On a}

more positive note, measures of financial market development continue to indicate a recovery, improving from 31sttwo years ago to 16th this year in that pillar, thanks to the rapid

The United Kingdom (8th) continues to make up lost ground in the rankings this year, rising by two more places and now settling firmly back in the top 10. The country improves its performance in several areas, benefitting from clear strengths such as the efficiency of its labor market (5th), in sharp contrast to the rigidity of those of many other European countries. The United Kingdom continues to have sophisticated (8th) and innovative (10th) businesses that are highly adept at harnessing the latest technologies for productivity improvements and operating in a very large market (it is ranked 6th for market size). The financial market also continues its recovery, ranked 13th, up from 20thlast year. All these characteristics are important for spurring productivity

enhancements. On the other hand, the country’s macroeconomic environment (110th, down from 85thlast year) represents the greatest drag on its competitiveness, with a fiscal deficit nearing 9 percent in 2011, an increase of 5

percentage points in public debt amounting to 82.5 percent of GDP in 2011 (127th) and a comparatively low national savings rate (12.9 percent of GDP in 2011, 113th).

As the second-placed Asian economy behind Singapore (2nd), Hong Kong SAR rises to 9th position while slightly improving its score. The territory’s consistently good performance is reflected in very good showing across most of the areas covered by the GCI. As in previous years, Hong Kong tops the infrastructure pillar, reflecting the

outstanding quality of its facilities across all modes of transportation and its telephony and electricity infrastructure. Moreover, the

economy’s financial markets are second to none, revealing high efficiency and trustworthiness and stability of the banking sector. The dynamism and efficiency of Hong Kong’s goods market (2nd) and labor market (3rd) further contribute to the economy’s very good overall

positioning. To maintain and enhance its competitiveness going forward, continued improvements in two important areas—higher education (22nd) and innovation (26th) — will be necessary. Although the quality of education in Hong Kong is good (12th), participation remains below levels found in other advanced economies (53rd). Improving educational outcomes will also help boost Hong Kong’s innovative capacity, which remains constrained by the limited availability of scientists and engineers (36th), among other

J apan falls one place to rank 10ththis year, with a performance similar to that of last year. The country continues to enjoy a major competitive edge in business

sophistication and innovation, ranking 1st and 5th, respectively, in these two pillars. Company spending on R&D remains high (2nd) and J apan benefits from the availability of many scientists and engineers buttressing a strong capacity for innovation. Indeed, in terms of innovation output, this pays off with the fifth-highest number of patents per capita. Further, companies operate at the highest end of the value chain, producing high-value-added goods and services. The country’s overall

competitive performance, however, continues to be dragged down by severe macroeconomic weaknesses (124th), with the second-highest budget deficit in this year’s sample (143th). Repeated over recent years, this has led to the highest public debt levels in the entire sample (nearly 230 percent of GDP in 2011). In addition, we observe a downward assessment of labor market efficiency (from 13thtwo years ago to 20thplace this year), with the business sector perceiving the alignment between pay and productivity, hiring and firing practices, and brain drain less

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Append ix 5 Competiti veness Performance of Selected Asian Count ries

Country Competitiveness Strengths and Areas for improvement

Taiwan, Chin a Rank: 13th Score: 5.28

Taiwan, China,maintains its 13th position for the third year in a row. Its competitiveness profile is essentially unchanged and consistently strong. Notable strengths include its highly efficient markets for goods, where the economy ranks 8th; its solid educational performance (9th); and its sophisticated business sector (13th), which is inclined to innovate (14th). Strengthening competitiveness will require continued improvements to the economy’s institutional framework as well as stabilising its macroeconomic environment, which would require fiscal consolidation to reduce the budget deficit.

Kor ea, Rep Rank: 9th Score: 5.12

Republic of Korea (19th) advances five positions and re-enters the top 20. Despite this clear improvement, the assessment remains uneven across the 12 pillars of the Index. The country boasts outstanding infrastructure (9th) and a sound macroeconomic environment (10th), with a government budget surplus above 2 percent of GDP and low level of public indebtedness. Furthermore, primary education (11th) and higher education (17th) are universal and of high quality. These factors, combined with the country’s high degree of technological readiness (18th), partly explain the country’s remarkable capacity for innovation (16th). However, three concerns persist—namely, the quality of its institutions (62nd), its labor market efficiency (73rd), and its financial market development (71st), even though Korea posts improvements in all three areas.

Malaysia Rank: 25th Score: 5.06

Malaysia maintains its score but drops four places as other economies move ahead. The most notable advantages are found in Malaysia’s efficient and competitive market for goods and services (11th) and its remarkably supportive financial sector (6th), as well as its business-friendly institutional framework. In a region where many economies suffer from the lack of transparency and the presence of red tape, Malaysia stands out as particularly successful at tackling those two issues. Yet, despite the progress achieved, much remains to be done to put the country on a more solid growth path. Its low level of technological readiness (51st) is surprising, especially given its achievements in other areas of innovation and business sophistication and the country’s focus on promoting the use of ICT. Lack of progress in this area will significantly undermine Malaysia’s efforts to become a knowledge-based economy by the end of the decade.