Israel 15th in competitiveness

Israel jumped eight places in the World Economic Forum's Global Competitiveness Index (GCI) for 2006-07, to number 15 worldwide, thanks in part to its implementation of the Bachar Commission's reforms.

The report, which examines to what degree foreign investors consider various countries attractive, attributed "impressive developments" in Israel's financial markets to "the effects of groundbreaking capital market reforms, which, among other things, tackled the high degree of market concentration in the asset management industry." It termed Israel's markets "highly developed by regional and international standards."

Switzerland, Finland and Sweden took the honors for the most competitive economies, followed by Denmark, Singapore and the United States. Japan, Germany, The Netherlands and the United Kingdom filled out the top ten. The U.S., which previously held the number one spot, fell the farthest.

The report featured Israel in a separate country-specific box, lauding the country's progress in global competitiveness. It remarked that Israel, like Finland, Korea and Taiwan, is proof that education contributes to technological advancement. Indeed, Israel ranked 17th in the parameter of health and primary education and 20th in higher education and training. In contrast, the country only ranked 29th for state institutions, 24th for infrastructure and an anemic 50th in macroeconomics.

Israel ranked 14th in market efficiency and 17th in business sophistication. Its overall ranking was particularly boosted by its taking third place in technological readiness and seventh place in innovation.

Israel's most significant achievements related to technology, improved macroeconomic management, market efficiency and infrastructure. External factors, including the global economic recovery, a rise in global trade and the recovery of the hi-tech sector, also helped boost Israel's competitiveness.

But it was the market reforms that garnered the most praise. Augusto Lopez-Claros, chief economist and director of the Global Competitiveness Network, wrote in the report: "Israel has become a world technology powerhouse, and this is beginning to have a favorable demonstration effect on the rest of the economy, an excellent omen for the future." Lopez-Claros also remarked, "More importantly, Israel has benefited from the development of a culture of innovation."

Israel's economy has been growing since 2003, including 5.5% growth in gross domestic product in 2005. Prior to the war this summer, growth of over 5% growth was forecast for 2006.

The report praised Israel's government for fiscal discipline, though this may have also preceded the war. It cited tax reduction as one of the factors spurring growth, production and competitiveness.

Government expenditure as a proportion of GDP was 47.3% in 2005, somewhat higher than the OECD average of 41.8%, mainly due to defense outlays. However, a plan to reduce this to 34.4% of GDP by 2010 was noted positively in the report. Israel's tax rates are also relatively high, but the tax reforms enacted in 2005 helped move it up 17 places in this category.