Global competitiveness: Is Australia lacking innovation and sophistication?

The World Economic Forum has just released its 2016-17 Global Competitiveness Index (GCI), ranking Australia 22 out of 138 economies, behind a top four of Switzerland, Singapore, the United States and the Netherlands.

The index is the result of surveys and questionnaires involving business leaders in participating countries, and assesses the competitiveness of economies across the world by combining three broad indices which respectively measure basic requirements, efficiency enhancers, and innovation and sophistication.

Australia’s scores on most indicators in 2016 were relatively similar to those from the previous year, but overall we dropped down one place in the rankings.

The chart below displays how Australia scored on each of the 12 pillars which contribute to the total score. Our best scores were for the broad indices of basic requirements and efficiency enhancers. In particular, we scored very highly on health and primary education, with 6.6 out of a possible 7, ranking us 10th in the world. We also did very well in higher education and training, and financial market development, ranking 9th and 6th respectively of the 138 total economics measured.
blog competitiveness graph

                                                                        Source: World Economic Forum

But the main area dragging down Australia’s overall ranking is innovation and sophistication, on which we scored just 4.6 out of 7 and ranked 27th in the world.

Of the individual measures contributing to this innovation and sophistication ranking, we scored particularly poorly on local supplier quantity and value chain breadth, while our lowest score of just 3.3 (out of 7) was for government procurement of advanced technology products.

The role of government in restricting Australia’s competitiveness was further reflected in survey responses asking what the most problematic factors for doing business in Australia currently are – respondents identified the top single factor  as restrictive labour regulations, followed by tax rates, inefficient government bureaucracy and tax regulations.

Overall Australia has performed fairly well in the latest Global Competitiveness Index, particularly in measures relating to health and education.

However, there are several areas for improvement, and where the Federal government could play a leading role.

David Rumbens is a Deloitte Access Economics partner and co-author of our Weekly Economic Briefing.