More to do as country’s competitiveness rises

More to do as country’s competitiveness rises

The Star Online - Business·2025-06-19 08:02

PETALING JAYA: Experts believe Malaysia should stay focused on its own economic reality in view of its position in the World Competitiveness Ranking (WCR) 2025, with the country having made an 11-place jump to 23rd overall on the latest list released on Tuesday.

The WCR 2025 is compiled by the International Institute for Management Development (IMD), and evaluated 69 countries based on 341 competitiveness criteria which are grouped into four main factors: economic performance, government efficiency, business efficiency and infrastructure.

Carmelo Ferlito, economist and chief executive at the Centre for Market Education think tank, expressed caution in passing absolute judgement of any country based solely on index positions alone, as he believes every index has its own limitations, coupled with the fact that the WCR 2025 covers only 69 countries.

He went on to acknowledge that Malaysia scored well on economic performance, driven by a strong showing in price dynamics, employment and international trade.

However, he pointed out that the picture becomes less rosy when looked at from the criterion of government efficiency, with Malaysian ranking only 46th in terms of business legislation, while the country’s 42nd-place performance in management practices is also mediocre.

“We can say Malaysia is a well-performing economy despite the current system of business regulations, although we do see strong results being recorded in terms of taxation (11th) and institutional framework (20th),” Ferlito told StarBiz.

The top three spots in the rankings are occupied by Switzerland in first place, Singapore, which dropped to second, and Hong Kong, which moved two spots up from fifth last year.

IMD has campuses in both Switzerland and Singapore.

Ferlito believes that the different components of the index showed that Malaysia could improve in terms of business regulations, productivity and management practices to continue catching up, as he also called for an adjustment in mindset.

“Businesses are the driving force of the national economy, if they thrive, everybody thrives. Policymaking therefore requires stepping into the shoes of business people and moving beyond words designed for the headlines, such as ‘inclusiveness’ and ‘sustainability’.

“This is because businesses are the driving force for a truly sustainable and inclusive economic growth,” he said.

Economist Geoffrey Williams, meanwhile, was forthright with his opinion, noting that there is a general consensus among economists that the WCR index is not too informative about real underlying competitiveness.

He suggested that the annual private survey does not carry real implications, as it varies from year to year and it has no impact in terms of business and investment.

He feels that Malaysia should instead focus on itself rather than paying considerable attention to surveys.

“For example, there is no chance of Malaysia boosting business competitiveness by investment in research and development. This type of investment takes generations to build with uncertain outcomes. Malaysia’s comparative advantage and competitiveness has been and will continue to be in commodities and copying innovation from other places,” he said.

Williams highlighted that Islamic finance, the halal industry and palm oil are three areas where Malaysia can innovate and gain large global markets, underlining the fact that these are not research and development-based industries.

Furthermore, he argued that the other competitiveness focused “challenges” have no relationship with the Malaysian economic reality, adding that the competitiveness indicators are affected by many short-term issues.

“The government elected at the very end of 2022 inherited a very volatile economy in 2023, which saw a pre-election boom followed by a post-election contraction. There was already built-in overspending which was difficult to manage in the interim budgets,” he said.

Williams emphasised that the government is well on the road to economic reform with new fiscal frameworks, with subsidy rationalisation already underway, adding that these targets are political issues and are for the long-term.

“Malaysia does not need to focus on competitiveness per se, it had 5.1% economic growth last year. The focus is on structural reforms to raise incomes and rationalising subsidies.

“Removal of subsidies and more liberalisation of markets will drive competitiveness on their own through private sector creativity, agility and innovation,” said Williams.

Explaining what the ranking would mean to the average Malaysian, an economist with a foreign research house said Malaysia’s economic improvement translates into a more stable environment with potential for job creation, particularly in export-driven industries such as semiconductors and tourism.

At the same time, controlled inflation, noted as a factor in the ranking, also helps maintain purchasing power, making daily necessities more affordable, she observed.

Malaysia’s improvement in government efficiency, she said, would mean faster and more transparent public services, such as quicker approvals for business permits or access to government programmes, which can indirectly improve quality of life.

“Reduced bureaucratic red tape also attracts foreign investment, potentially leading to more job opportunities in high-value sectors,” added the economist.

With Malaysia’s business efficiency criterion also improving from 40th to 32nd this year, this could mean better job prospects for the average Malaysian, especially in skilled sectors, and increased opportunities for local businesses to innovate and grow.

It is worth nothing that Malaysia is ahead of Britain, Thailand, South Korea and Japan in the WCR 2025, but ranks behind China, Taiwan, the United States and Australia.

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