Trends that are Shaping the World Competitiveness Landscape
Published: Sunday, August 2, 2009 8:00 am
By: Ramón L. Rivera, President &CEO
The just published 2009 World Competitiveness Report by the Institute of Management Development (IMD), located in Switzerland, provides one of the earliest global assessments of the competitiveness landscape that emerges from the economic crisis and how it affects nations and enterprises. For over two decades the IMD has conducted research in this field, ranking and analyzing the most competitive economies of the world. Let us take a look at the most important trends and issues that according will shape the competitiveness of nations in the near future:
- US budget deficit reaches abysmal proportions - The U.S. budget deficit in 2009 is expected to attain a staggering $1750bn. This represents a deterioration of some $2000bn in a period of ten (10) years.
- The recession is worldwide - The countries that are part of the Organization for Economic Cooperation and Development (OECD) expect a contraction of their economies by 4.3% in 2009. Such a deep recession also affects the emerging economies: the past decade of growth was not sufficient to create a large buffer of internal demand to compensate for the drop in exports.
- Global debt explodes - The US national debt now surpasses $11.2 trillion and increases by $3.7bn a day! Budget deficits in most advanced nations are going to exceed 5% of the GDP. In 2009, the borrowing requirements of the US will be $2500bn and $1000bn for Europe. Central Europe is said to have some $1300bn of debt towards foreign banks. Who is going to pay for this debt? For the first time, governments worry that some bond issues may not be subscribed.
- Unemployment becomes massive - 25 million people lose their jobs in the OECD region and the average jobless rate hits 10%. Globally, the International Labor Organization articulates a figure of 50 million additional unemployed.
- Interest rates are at a record low - While in the US rates approach zero, the rest of the world also experiences their lowest rates in decades. Deflation is feared, forcing central banks to introduce new policies such as quantitative easing.
- Deflation kicks in - With recession, the general level of prices falls below zero in some industries such as automobiles, consumer electronics, food, real estate, etc. In a deflationary environment, consumers delay their purchases in the hope of a better price later.
- High volatility of currencies - The currency markets experience considerable volatility. The dollar remains more unstable than the Euro. The latter, however, has been weakened by its exposure to the difficulties of Central European economies. Denmark, Sweden, the Baltic States and maybe Iceland consider joining the Euro. The Pound continues to decline.
- Protectionism on the rise - In industrial nations, public opinion and governments are increasingly sensitive to the loss of economic power to emerging nations and the destruction of jobs at home. Possible protectionist measures focus on "buy national" incentives, environmental protection, corporate governance, social protection and intellectual property.
- New regulations for world financial markets - A fundamental overhaul of the regulatory environment takes place with the objective of laying down new rules for the supervision of financial activities and to consolidate competences among various institutions. Globally, the Basel Committee on Banking Supervision and the Financial Stability Forum are responsible for defining new standards and practices. Implementation remains at a national level.
- Oil prices close to $75 - The recession has forced oil prices to retreat from $147 a barrel in July 2007 to $42 six month later. The objective of oil producing nations is to manage a return to an oil price of $75 a barrel. When the world economy recovers, prices will experience the same upward volatility as demand in emerging economies (especially China and India) will reach the consumption requirements of industrialized nations.
- Stimulus packages show their impact - Some $5000bn have been injected by governments in the world economy. They have also played their role as lenders of last resort, to avoid bankruptcies. Central banks flood the market with money. Confidence is restored, demand picks up again.
- Emerging powers stack up currency reserves - Emerging powers are accumulating foreign currency reserves at impressive rates: Number one is China with $2005bn, followed by Japan $1031bn, Russia $435bn, Taiwan $292bn, India $254bn, Brazil $208bn and Korea $201bn. As a consequence, money is not necessarily flowing back to the US or Europe, as in the past.
- Household savings on the rise - For the first time in decades, households are more cautious about their spending and re-connect to the notion of "saving for rainy days".
- Food commodities prices recover - Food commodities have seen their prices fall by 50% since the beginning of the recession. However, an emerging middle class is changing its eating habits and greater demand will push prices up again.
- Inflation is back - The excess in money supply as well as the recovery of the economy triggers an inflationary spiral. Revived consumption also boosts raw material and commodity prices. Central banks are slow to react since inflation is favorable in an environment of debt. This is the re-birth of the "controlled inflation" approach.
- The dollar loses its leading role - More than 60% of the world currency reserves are in dollars and 32% are in Euros (the pound and the yen remain negligible). However emerging economies increasingly worry about their dependency on the dollar and the policy of the Fed. Rather than switching to another currency, several governments investigate the possibility of turning to a basket of currencies for their reserves or even for pricing their exports (especially natural resources).
- Life sciences and environment attract massive investments - Life sciences, as the population becomes older (40,000 centenarians in Britain in 2030), and environmental technology, as the world becomes hotter (+ 0.6°C in 20 years), will attract massive investments. Innovation proliferates in these two areas of knowledge. Wellness (in addition to curing existing diseases) becomes a priority for ageing populations.
- Service and integration are key competitiveness factors - Service competitiveness (banking, financial transactions, customer relationships, brand management, etc.) remains one core of the competitiveness of Europe and the US. The ability to integrate and manage a global business model is another.
- Productivity is harmonized worldwide - Productivity is harmonized around world operations as companies become truly global and widely diffuse the same technology and processes throughout the markets where their assets are located.
- From cheap manpower to cheap brainpower - The world moves from a competitiveness model based on cheap manpower to one based on cheap brainpower. In total, India, China and Russia "produce" 14 million university students each year, as many as the US.
- China, India, Brazil and Russia as technological powers - China, India and Russia regain their age-old status as technological powers. Foreign companies no longer hesitate to transfer research centers to these countries that have a long tradition of excellence in science and innovation.
- Manufacturing jobs shrink - During the past decade, world production of manufactured goods has grown by some 50% while manufacturing jobs have declined by 10%. This trend is also evident in emerging industrial powers such as China. Higher productivity worldwide - in part due to the internationalization of technology and manufacturing processes - is the explanation.
- The technological divide disappears - The technological divide disappears because of the development of a worldwide communications infrastructure and the proliferation of cheap technological products for the poor.
- Absolute poverty regresses - The level of absolute poverty ($1 a day at 1996 prices) is being drastically reduced. It already decreased from 15.4% to 5.7% of the world population between 1970 and 2006. However, income inequalities among the world population increase. The richest become even richer. Social tensions do not disappear.
- Life expectancy increases, expenses also - Life expectancy increases dramatically to well over 85 years old in many industrialized nations. The burden on the health system becomes greater, also due to the early systematic screening of the population for illnesses.
- Climate change affects economic resources - Climate change forces the re-allocation of economic resources. Food and water become scarcer in some regions, while new crops become available in more northerly regions.
These trends have significant implications for Puerto Rico. Most of them impose additional challenges to our social and economic development policies. They make the case for an innovative and comprehensive multi-sectorial competitiveness strategy as the mean to move our economy out of recession and keep it in a sustainable path of growth and development in the way to the future. That is the challenge ahead of us.
Copyright 2009 QBS, Inc.