Decline in some key indexes fails to account for marked progress made elsewhere
By Dr. Sami Mahroum and Dr. Kai L. Chan, Special to Gulf News
With 2015 left behind and the new year ahead, it is a good time to pause and take stock of the UAE’s competitiveness as the country edges closer to 2021, and as the KPIs (key performance indicators) of the National Agenda loom closer.
The UAE has set many of its development goals based on measures of competitiveness, as reported by third-party international organisations. These include the Global Competitiveness Report (GCR), Global Innovation Index (GII), Human Development Report (HDR), and the World Happiness Report (WHR). The big headline in 2015 was the oil shock: Crude price fell by half. Although the UAE economy is well diversified (oil counts for less than a third of gross domestic product, or GDP), a steep drop in the price of the country’s primary export has not gone unnoticed. Government coffers continue to rely heavily on oil revenues and, subsequently, public investments in large infrastructure projects slow down.
The UAE is also impacted by low oil price indirectly, through the reduction in the inflows of investments and visitors from other oil-rich countries. Dubai, in particular, is a gateway to the Middle East and North Africa region (Mena) and much of the region’s petro-wealth flows through the emirate.
Many might have perceived 2015 as a less strong year in the nation’s competitiveness — not because of the drop in oil prices but also because of the drop of the UAE’s ranking across a number of related international indices. Having said that, a deeper look is necessary to truly understand the real performance and what were the actual results of the competitiveness KPIs for the UAE.
It is true that the headline figures for some reports tracked by the nation did decline but, as is often the case when dealing with technical reports, the prima facie “facts” may indeed be false.
The flagship report on national competitiveness is the Global Competitiveness Report (GCR). In 2014 the UAE ranked 12; in 2015 we fell to 17. In the Global Innovation Index (GII) — a report of high importance given the nation’s drive to become a knowledge-based economy — the UAE’s rank fell from 36 to 47.
Meanwhile, the Human Development Report — one of the most broad-based measure of development — reported that the UAE regressed from 40 to 41. Likewise, the UAE rank in the World Happiness Report (WHR) declined from 20 to 28 in the just-released 2016 edition.
Taken together, it might seem that the country’s competitiveness deteriorated in 2015. Indeed, many of the media reports took this prima facie (misinformed) angle.
But just looking at the high-level numbers, 2015 was actually a year where the UAE made a lot of progress; it improved in the Doing Business Report, Global Entrepreneurship Index, Global Information Technology Report and the Travel & Tourism Report. So although many of the flagship reports showed a (prima facie) decline, many of the specialised reports improved.
So is the news of a slippage in the UAE’s competitiveness in the flagship reports misleading? The answer lies in some nuances underneath the headline figures.
The UAE’s score on the GCR declined from 5.33 to 5.24, but a single indicator (out of 114) was responsible for the majority of the drop. In fact, the downward movement was a result of how the report deals with missing indicators. This is not a shortcoming of the report, per se, but rather all indices need to deal with how to treat missing variables. In the case of the GCR, an indicator which was not available in 2014, but which took on a reported value in 2015 spurred the decline. It is not as if the indicator value was much different between the two years, but rather its inclusion in the 2015 report drove the drop due to technical details of the index.
The GII garnered negative publicity owing to a rather steep eleven-rank drop in the report. Did the UAE’s innovation capabilities really regress so much? In fact, the majority of the indicators in the report actually improved.
What drove the ranking change was, once again, a technical detail of how the index treats missing indicators. Namely, two indicators that had unreported values in 2014 but then took on values in 2015 drove the 3.21 drop in the index score. In fact, if not for the missing indicators that assumed a value in the most recent report, the UAE’s GII score would have improved by over 2 points and the country’s rank would have remained unchanged.
The HDR was also largely reported with a negative slant, on news of a decline in our rank from 40 to 41. But the actual score of the HDR index improved from 0.827 to 0.835 (top score being 1.000). So conditions on the ground actually improved — it was just that our peers also improved.
Likewise, the drop in the WHR was a result of a change in how the underlying data is collected: The sample drawn by Gallup used for the report was augmented to include larger and different segments of the population. Actual happiness of the comparable group was stable.
In summary, 2015 was a year of continued progress for the UAE on a majority of competitiveness and human development indicators despite the methodological technicalities that created the misperception of a national regress. The real challenge, however, has been — and will continue to be in 2016 — the adjustment to a lower oil price.
Notwithstanding its short-term impact on economic growth, the ongoing adjustment also entails lower production factors that should help make the UAE a more competitive economy.
Dr. Sami Mahroum is the Director of the INSEAD Innovation & Policy Initiative (IIPI). Dr Kai L. Chan is a special adviser to the Federal Competitiveness and Statistics Authority (FCSA) and a Distinguished Fellow at INSEAD in Abu Dhabi.
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