Israel stood firm in 20th place out of 141 economies in the World Economic Forum’s 2019-2020 Global Competitiveness Report published last week, retaining its spot from last year and once again securing the top rank for entrepreneurship and the embrace of disruptive ideas.
Israel also ranked first for categories such as macroeconomic stability – minimizing its national economy’s vulnerability to the impact of any external shocks – companies’ innovative growth, R&D expenditures, and multi-stakeholder collaboration.
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The Global Competitiveness Report, first published starting in 2004, ranks an economy’s competitiveness based on 12 pillars (categories) including innovation capability, business dynamism, market size, health, skills, macroeconomic stability, institutions, and infrastructure, and 103 indicators (subcategories).
The overall 2019-2020 index paints “a gloomy picture” a decade after the world financial crisis and a world economy “locked in a cycle of low or flat productivity growth despite the injection of more than $10 trillion by central banks.”
“Subdued growth, rising inequalities and accelerating climate change provide the context for a backlash against capitalism, globalization, technology, and elites. There is gridlock in the international governance system and escalating trade and geopolitical tensions are fuelling uncertainty,” reads the summary.
The authors said the report’s survey of 13,000 business executives highlights a “deep uncertainty and lower confidence.”
According to the index, the world’s most competitive economy in 2019 is Singapore, with a score of 84.8 out of 100. It overtook the US, which fell to second place with a score of 83.7. Hong Kong ranked third (83.1), jumping up four spots from last year’s report, the Netherlands came in fourth, moving up two spots with a score of 82.4, and Switzerland dropped one spot to round up the top five this year.
Israel received an overall score of 76.7.
According to the index, the average score for the 141 economies was 61 points. “This is almost 40 points short of the ‘frontier’ [100 points],” the authors wrote. “It is a global competitiveness gap that is particularly concerning, given the world economy faces the prospect of a downturn.
The survey asserts that “economies need to be holistic in their approach to competitiveness rather than focusing on a particular factor alone. A strong performance in one pillar cannot make up for a weak performance in another.”
Bank Hapoalim’s Chief Economic Advisor Prof. Leo Leiderman told Israeli financial daily Globes that Israel’s rating this year was a disappointment that “poses a challenge.”
“There’s a lot to do to improve the competitiveness of the Israeli economy in the coming years. On the one hand, Israel is rated very high in areas such as business initiative, investment in R&D, striving for innovation, availability of venture capital, and business dynamism. On the other hand, we are rated very low in burdensome regulation, long-term vision in government policy, [the] effectiveness of the railway system, bureaucracy, and competitiveness in the domestic products market.”
According to the WEF’s report, Israel is an innovation hub, ranking 15th on the Innovation capability pillar thanks to a well-developed ecosystem, and up from last year’s 16th place.
“Israel spends the most of any country on R&D (4.3 percent of GDP), and is where entrepreneurial culture is the strongest, the acceptance for entrepreneurial failure the highest, where companies embrace change the most, and where innovative companies grow the fastest,” the report reads.
Israel’s reputation as an innovation powerhouse is so well-earned that a report released earlier this year by Start-Up Nation Central (SNC) and PwC Israel (PricewaterhouseCoopers Advisory Ltd) showed that some 77 percent of multinationals surveyed said they set up shop in Israel “to tap into this openness as well as benefit from other factors such as Israel’s mindset of challenging known processes, decisions, and notions, and its positive approach to risk-taking and failure.” The data was collected from more than 90 multinationals and was based on interviews with 73 executives and innovation leaders from 22 countries.
In the WEF report, Israel ranked fourth for business dynamism, its second-highest-ranking under a category, which looks at entrepreneurial culture and the administrative requirements of running a business. Israel also received top marks for “attitudes toward entrepreneurial risk” and “growth of innovative companies,” which are all subcategories are business dynamism, and ranked first in the “companies embracing disruptive ideas” subcategory, up from the third spot last year.
In its biggest improvement from last year, Israel placed first in the “credit gap” indicator in the stability pillar under the financial system category. Last year, Israel was 86th in the same subcategory.
For the second year in a row, Israel came in first of 141 countries in R&D expenditure as a percentage of GDP under the innovation capability pillar. It also ranked first in the multi-stakeholder collaboration sub-pillar, up from third last year.
Israel ranked second in the venture capital availability subcategory and “ease of finding skilled employees” as it did last year, coming in only behind the United States in that sub-pillar. Both factors support a flourishing and innovative private sector, the WEF report stated.
The country can “rely on a highly-educated workforce, with an average of 13 years of schooling” (12th in ranking globally, down from nine last year), and a propensity for a population with digital skills (sixth spot).
But there is room for improvement. The rate of basic technological adoption for Israel (45th place with a score of 67.6) is well below the OECD average (73.0). Israel also suffers from persistent security concerns (42nd worldwide), burdensome regulation (69th) and low commitment to sustainability (81st).
Also, the market efficiency sub-category, where Israel ranked 32nd suffers from a relative lack of competition and barriers to entry, the report said.
Israel led the Middle East and North Africa region, with the highest overall score, followed by the United Arab Emirates (25th), Qatar (29th), and Saudi Arabia (36th).