Latvia 41st in World Economic Forum’s Global Competitiveness Index

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In the World Economic Forum’s Global Competitiveness Index Latvia has climbed to 41st place, still remaining behind Lithuania and Estonia, according to the latest published study.

Lithuania and Estonia have also improved by one place each – Lithuania is the 39th most competitive country in the world, whereas Estonia is 31st.

Arnis Sauka, director of Stockholm School of Economics in Riga Centre for Sustainable Business, which represents the Global Competitiveness Index in Latvia, notes that this index is based on a comparison of the world’s countries based on 12 criteria groups or pillars.

Nevertheless, considering the focus on productivity, which is the main pillar for economic development, as well as changes in competitiveness that come with emerging digital technologies and globalisation processes, the World Economic Forum, after analysing competitiveness, has included a number of other pillars since 2018. Following the latest trends in research and changes in specifics of competition, the new methodology introduces changes to the way these pillars are measured, including business surveys and putting more emphasis on different statistical sources in measuring the competitiveness of different countries.

Results of the new Global Competitiveness Index show that Singapore is the most competitive country in the world. Other most notable countries include USA, Hong Kong, Netherlands, Switzerland, Japan, Germany, Sweden, United Kingdom and Denmark.
Among countries of Central and Eastern Europe, the biggest progress is noted for Estonia (31st) and Czech Republic (32nd). Slovenia remains 35th and Poland – 37th. Lithuania is 39th, between Malta and Taiwan. Latvia is 41st – one step above Slovakia and six steps above Hungary.

At the very end of the Global Competitiveness Index are Yemen and Republic of Chad, which are 140th and 141st respectively.
Similar to 2018, this year Latvia and 33 other countries of the world share first place in the index’s environment pillar’s Macroeconomic Stability. Both indexes of this pillar are highly valued: both inflation and state debt dynamic. Latvia holds 15th place in ICT adaptation pillar (11th place in 2018), which, among things views quantity of internet use, quality of internet connection and mobile phone use trends, notes SSE Riga Centre for Sustainable Business.

Institutions and infrastructure pull everything down

The centre also adds that Latvia’s results are generally poor in environment category’s pillars such as – institutions (47th place), which is still two spots better when compared to 2018, and infrastructure – 43rd place (47th in 2018).

«Other studies point to challenges in these competition aspects. This is why Latvian policy-makers should pay more attention to them,» adds Sauka.

More on this topic: Baltic states do slightly worse in Global Competitiveness Report

Latvia’s indexes are slightly better when it comes to freedom of the press (22nd) and incidence of corruption (39th).

As for the less highly evaluated indexes in the infrastructure pillar, Latvia is doing worse with quality of roads (95th), liner shipping connectivity index (94th), as well as airport connectivity index (82nd).

Human capital: shortage of skilled workers

In the human capital category Latvia has made progress in the skills pillar (22nd). Latvia’s most highly scored index under this pillar is the average years spent in school (studying) (9th place), as well as the ratio of children and teachers in elementary schools (18th), whereas the lowest score is found for the simplicity of finding skilled workers (100th). Vocational quality is rated 64th, the level of skills of graduates is rated 58th, and critical thinking during education process is rated 46th.

Latvia is only 83rd in human capital category’s health pillar. In the market category, Latvia’s most highly scored pillar is labour market’s efficiency (28th). Indexes like labour force tax rate (114th) and foreign labour force hires (113th) in Latvia are not as good as they are expected to be.
«Unfortunately, nothing has changed here when compared to the situation a year prior. Although, it should be said that no new problems seem to arise. These are the factors that affect Latvia’s competitiveness, which is why policy-makers should not postpone tackling these problems,» adds Sauka.

At the same time, the situation with hiring and lay-off practices has improved (52nd).

Latvia’s biggest accomplishment in the labour market efficiency pillar is stated to be flexibility with wage calculation (10th), women’s participation in the labour market (22nd) and respect of workers’ rights (26th).

In the innovations ecosystem category Latvia’s accomplishments are not particularly high, the centre notes, adding that the country holds 40th place in the business vitality index. As for innovations capacity pillar, Latvia is in 54th place. In the business vitality pillar, attitude towards business risks in Latvia is scored particularly low (90th), whereas insolvency regulation is scored relatively highly (26th). The same can be said for the period of time within which it is possible to start a business (27th).

In the innovations capacity pillar, indexes with the lowest score in Latvia include workforce diversification (102nd), scientific publications (79th), quality of research institutions (73rd), as well as investments from GDP in science and development (68th).

One strong field cannot compensate several weak ones

«It would be naive to hope for a better index in regards to economic productivity and ability to adapt to globalisation and digital trends without first improving indexes. This cannot be done without serious changes in science and higher education,» said Sauka.

He also notes – like other indexes, this one has certain flaws policy-makers should take into account when using them in implementation of political initiatives.

«One of them is that the index compares very different countries and factors believed to be bad in some country and appropriate in another. This means assessments are often relative. The index compensates this with greater emphasis on statistical data provided by organizations like the World Bank, International Monetary Fund, Work Trade Organization, etc. Experts of the World Economic Forum also provide recommendations to all of the world’s economies, including Latvia. A comprehensive approach is needed to improve competitiveness: being strong in one or several categories does not compensate weakness in others,» says Sauka.

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