Latvia lagging other Baltic states in competitiveness

In an annual study of competitiveness by the Swiss-based International Institute for Management Development (IMD), Latvia still lags behind the other two Baltic States, ranking 41st, between Indonesia in 40th and Kazakhstan in 42nd, Latvian Radio reported on July 4.

In the same ranking last year Latvia was in 40th position. The full results can be read online.

According to Oļegs Barānovs, senior analyst at the Ministry of Economics  (EM), the main reason for the lag is gross domestic product (GDP) per capita, and the difference between Latvia and the two neighboring countries has increased in this respect. He said that it it will take at least five to ten years to catch up.

The Annual Study of the World Competitiveness Centre of the Institute for Development of International Governance covers 63 countries around the world. The study, published since 1989, takes into account 260 criteria in the competitiveness assessment. These include macroeconomic indicators as well as responses to perceptions of corruption, the environment and living standards from over 6,000 respondents in the business environment. According to the Institute, Singapore retained the title of the most competitive country in the world.

Denmark ranked second this year, Switzerland comes third. The first ten of the most competitive countries also include the Netherlands, Hong Kong, Sweden, Norway, Canada, the United Arab Emirates and the United States. 

But what is to be understood by the word “competitiveness” and how important is it? Oļegs Barānovs told Latvian Radio that the word “competitiveness” does not have one specific definition and is a diverse concept.

“In a broad sense, it is the ability to create and expand the wealth of the state as well as the well-being of the population. And the indicators that show it are GDP per capita or productivity. These ratings show something, of course, but the problem is that there needs to be a very precise selection. The quality of the sample is very important in the surveys. In particular, whether the companies surveyed represent proportionally all major sectors and are adequately divided by size", Barānovs said.

Regarding Baltic States, Lithuania ranked 31st in the competitiveness index this year (down two places on last year), whereas Estonia is recognized as the 28th most competitive country in the world, improving by seven places compared to last year.

Latvia was first ranked in 2012 and has not been able to overtake Lithuania and Estonia since then. This year, our country ranked 41st, experiencing a one-down drop.

According to Barānovs, Latvia's position behind both neighboring countries is easily explained. In terms of GDP per capita, Latvia lags behind Estonia and Lithuania.

“The latest data shows a lag by 10 percentage points, which is quite a lot," said Barānovs.

He acknowledged that Latvia is far behind in investment, science infrastructure and business finance. The main indicator requiring a breakthrough to catch up to neighbors is GDP per capita, where the gap has grown in recent years.

“I think this is largely explained by the effects of the financial crisis. For us, the financial crisis was much deeper than for neighbors, and they were able to recover and grow a little faster. But these 10 percentage points is not a gap that we could never erase. We could do this right now, but it will not be in one or two years, but in ten or five years,” the analyst said.

 

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