Brazil drops three places in the 2014 IMD World Competitiveness Ranking

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1 Brazil drops three places in the 2014 IMD World Competitiveness Ranking The United States tops the list of the most-competitive countries again, ahead of Switzerland and Singapore For the fourth consecutive year, Brazil has lost ground in international competitiveness. IMD, the International Institute for Management Development, has published its 2014 World Competitiveness Yearbook. Brazil dropped three places to No. 54 in the 60-country list from its 2013 ranking. Brazil now is ahead of only Slovenia, Bulgaria, Greece, Argentina, Croatia and Venezuela. Since 1989, the World Competitiveness Yearbook has been the most-renowned and far-reaching guide on global market competitiveness. Its publishers analyze domestic and international data on each of the 60 countries and administer a broad opinion survey to 4,000 executives. Fundação Dom Cabral coordinates and implements the survey and data collection in Brazil. According to the 2014 yearbook, the United States, Switzerland and Singapore top the list of the world s most-competitive economies. The United States remains in first place, reflecting the strength of its economy, its superior employment figures, and its high performance in technology and infrastructure. The 2014 World Competitiveness Yearbook s 10-most-competive countries Country 2014 Position 2013 Position Move United States Switzerland Singapore Hong Kong

2 Sweden Germany Canada United Arab Emirates Denmark Norway The 2014 World Competitiveness Yearbook s 10-least-competitve countries Country 2014 Position 2013 Position Move Colombia South Africa Jordan Brazil Slovenia Bulgaria Greece Argentina Croatia Venezuela The overall competitiveness story for 2014 is one of continued success in the United States, partial recovery in Europe and struggles for some large emerging markets, says professor Arturo Bris, director of the IMD World Competitiveness Center. Most large emerging markets dropped in the ranking because of slow economic growth based on low foreign investments as well as because of inadequate infrastructure. China (No. 23) also fell in the ranking, partly from concerns about its business environment, while India (No. 44) and Brazil (No. 54) suffer from loss of productivity. Turkey (No. 40), Mexico (No. 41), the Philippines (No. 42) and Peru (No. 50) have also fallen in the ranking. 2

3 Brazil: 16 places lost in four years In 2010, Brazil ranked No. 38. A year later, it fell to No. 44, and, in 2012, it was down to No. 46. Brazil dropped five places in 2013, to No. 51. In 2014, Brazil dropped an additional three places, to be ranked 54 th. The index that enables researchers to rank countries is created from a comparative analysis of more than 300 variables, benchmarked against the most-competitive country in the report. In 2014, Brazil amassed 46,778 points (53,222 points less than the United States). In 2013, Brazil had 52,996 points. These figures show that Brazil s drop in competitiveness this year is an absolute one, not a relative one. The gap between Brazil and the leading country has been growing as time passes, says FDC professor Carlos Arruda, who oversees the collection and analysis of the ranking s data in Brazil. Brazil in the World Competiveness Yearbook History of Brazil's positions in the ranking Year Index 46,778 53,222 56,524 61,043 56,531 56,865 Position The methodology applied to measure results uses two groups of indicators that are divided into four competitive pillars: economic performance, government efficiency, business efficiency and Infrastructure. Economic performance refers to the year before the report is published in this case, Indicators stemming from a survey of each country s executives enable the report to identify how businesspeople perceive competitiveness. As a result, the report better reflects the 2014 business environment. 3

4 Brazil s economic performance The pillar indicates that Brazil s competitiveness is affected by a significant increase in prices (54th place) and by the country s low participation in international trade (59th place). Weaker economic performance stems from a drop in exports to traditional markets such as Argentina, the European Union and the United States and from the rise in imported industrial products, mainly from China and other Asian countries, Arruda says. This year, Brazil ranks last for the International Trade to GDP ratio: percent compared to percent (the average for the countries assessed). Brazil ranks next to last for the Product Exports to GDP ratio: percent compared to percent (the average for the countries assessed). The size of the Brazilian economy, among the largest in the world, remains a favorable factor. The size of the domestic economy (seventh place for the Family Consumption indicator), foreign direct-investment attraction (seventh place) and employment (sixth place) are extremely positive areas for Brazil. But they no longer can support the growth of the world s seventh-largest GDP by themselves Δ ECONOMIC PERFORMANCE Domestic Economy International Trade = international Investment Employment 6 6 = Prices Government efficiency The pillar analyzes the Brazilian institutional and regulatory environment, and, historically, has been the most critical point as regards the country s competitiveness. Brazil has ranked among the bottom-five countries in this factor since Since the government shows no signs of simplifying its labor laws and regulatory system, Brazil remains one of the least business friendly countries in the world. The country s high direct and indirect tax burden and its short- and longterm interest rates discourage company investments in production and growth. High points are the government s incentives to companies (third place), reflecting actions from BNDES (the 4

5 Brazilian Development Bank) to drive economic progress, and foreign currency reserves (sixth place). Conversely, subfactors related to legislation, public finance, fiscal policy and institutional framework rank low and are issues that inhibit development Δ GOVERNMENT EFFICIENCY = Public Finance Fiscal Policy Institutional Framework Business Legislation = Societal Framework Business efficiency This pillar analyzes the efficiency of Brazilian companies. Negative results for the pillar in 2014 are the main reason for Brazil s significant drop in the overall ranking. Following a pattern that began in 2011, when all its productivity indicators showed Brazil was not ready to sustain longterm productive growth, the country dropped to No. 59 on the productivity subfactor ranking in Only Venezuela ranked below Brazil. From 2013 to 2014, Brazil did not improve in any of the 11 variables that comprise the subfactor. On the Total Productivity variable, adjusted to the purchasing power parity (PPP), Brazil was No. 53, with a negative growth of percent when compared to Unlike previous years, when the other subfactors related to business activity supported competitive conditions, in 2014 all the subfactors and most of the related variables show a decrease in competitiveness and optimism. The competitive despondency that has come over Brazil has already been observed by this report in other countries, such as Argentina, South Africa and Turkey. After a years-long decline in economic performance and government efficiency, these countries lost their capacity to act proactively, which led to a vicious cycle of business pessimism and an overall loss of competitiveness, Arruda says. 5

6 Δ Business Efficiency Productivity and Efficiency Labor Market Finance Management Practices Attitudes and Values Infrastructure The factor includes basic infrastructure indicators (roads, ports, airports and energy), technology (telephony and the Internet), science (research and development), all levels of education, health and the environment. Critical indicators, mainly basic, technological and educational infrastructures, characterize the results achieved in The country finds itself near the bottom of practically all of the indicator rankings that reflect the quality of its labor and its technical and basic education. Indicators such as the PISA test, which assesses the reading, mathematics and science proficiency of 15 year olds (49th place); foreign language tests like TOEFL (46th place); and the high-school registration indicator, since only a little more than 80 percent of school-age young people are registered at schools. All of these indicators highlight the outdated and inefficient conditions of education in Brazil. The country also was ranked No. 59 for the health infrastructure indicator, which shows how Brazil is lacking in this field. Not surprisingly, the report reinforces what is known about the quality of Brazil s basic infrastructure. The availability of future energy resources (54th place) comes in last in the quality of road and logistics infrastructure, indicating the business community s concerns about the management of Brazilian cities as local platforms for the development of business competitiveness and activities (58th place for Quality of City Management). It is important to stress that the country still invests a significant percentage of its GDP in education and health, which shows a desire to improve these two factors. Nevertheless, in light of the country s negative results in these pillars, the question is whether or not spending is being done efficiently and up to what point these actions are being properly directed, says Arruda. If Brazil is ranked 27th among the countries that invest the most in health care, then why is it ranked 59th in this field s infrastructure? 6

7 Δ Infrastructure Basic Technological = Scientific Health and Environment Education The most-attractive factors in the Brazilian economy Every year, approximately 1,000 executives who work in the country are surveyed for the report. They answer a long questionnaire that assesses Brazil s competitive conditions on a dayto-day basis. The objective is to get their perceptions on the country s economic, regulatory, environmental, social and educational sectors. From a list of 15 indicators, executives choose the five they consider the most attractive in the Brazilian economy. The Dynamism of the Economy and Open and Positive Attitudes are strengths. On the other hand, Government Competency and Tax Regulation are weaknesses. Executives also are concerned about the Brazilian Infrastructure, Level of Schooling, and Research and Development Culture, factors that align with the negative results found in the Government Efficiency and Infrastructure pillars on the overall ranking. The Dynamism of the Economy 75.2% Open and Positive Attitudes 68.3% A Friendly Business Environment 49.5% Access to Financing 48.5% Corporate Governance Quality 40.6% Political Stability and Predictability 39.6% Qualified Workforce 25.7% Effective Labor Relations 23.8% Legal Effectiveness 13.9% Cost Competitiveness 12.9% Strong R&D Culture 5.0% High Level of Schooling 4.0% Appropriate Infrastructure 2.0% Competitive Tax Regulation 1.0% Government Competency 1.0% 7