For the third year in a row, the Foundation for Effective Governance (FEG) and the World Economic Forum (WEF) have been studying the competitiveness of Ukraine and its regions. The results of the study for 2009-2010 presented in Kyiv on 30 June appeared to be nothing near so optimistic.

In The Global Competitiveness Report 2009-2010 Ukraine ranked 82nd out of 133 economies, stepping down 10 places as compared to the last year ranking. Following a relative stability in the rankings in 2006-2008 (69th, 73rd and 72nd place, respectfully), Ukraine’s position has significantly deteriorated and the country is now placed among the economies it outperformed earlier. The close neighbours of Ukraine in the competitiveness ranking 2009-2010 are Gambia and Algeria.

Frankly speaking, a number of other developing countries have also failed to resist the crisis effects. Another nine countries experienced a drop by 10 or more places in 2009: Botswana, Ghana, Latvia, Mali, Mongolia, Russia, Syria, the Philippines and Croatia. Latvia and Russia decreased their performance by 14 and 12 positions, respectively.

Ukraine experienced the worst drop in three pillars: the macroeconomic stability (a 15 point drop), financial market sophistication (a 21 point drop) and Innovation (a 15 point drop).

In general, the country deteriorated its positions in the areas where it had the lowest competitiveness before: in macroeconomic stability and financial market sophistication it ranks 106th among 133 countries.

When overcoming the crisis the country more than ever needs effective public policy and this, in its turn, requires a high quality of institutions. Even though the ranking of institutions in Ukraine dropped by only five points as compared to the last year, there are still reasons for concern. Out of 12 pillars the most problematic area of Ukraine is the institutions (in this pillar Ukraine ranks 120th, next to Nicaragua and Mongolia). According to the business representatives, the major decline occurred in government efficiency, particularly resulting from wastefulness of government spending and burden of government regulation on business.

At the same time, Ukraine improved its position just in three pillars: the country was ranked 49th on labour market efficiency (5 places up), 29th on market size (2 places up) and 78th on infrastructure (1 place up).

It’s an interesting fact that the labor-market efficiency showed an improvement, thanks to the country’s increasing flexibility of wage determination (a climb from 61st to 52nd place in the global ranking). Indeed, in 2009 Ukraine saw a very sharp fall in real wages, amounting to 9%. At the same time, the ranking points to the deterioration of relations between the employers and employees, a fact that can most likely due to by the wage cuts and lay-offs that took place during the crisis.

Results of the executive opinion survey contributed much to deterioration in Ukraine’s ranking. As the global study showed, business owners everywhere were considerably more pessimistic during the crisis than the representatives of academia. The economic collapse and unconvincing response of the government meant that Ukrainian businessmen had valid reasons for pessimism.

Even during the worst months of the crisis Ukrainian business managers still had to deal with more familiar problems. They ranked as their greatest difficulties unstable government policy and inadequate access to financing: these were selected by 16.5% and 13.5% of respondents respectively. Year after year, business executives mark the inadequacies of government policy as their biggest problem. Therefore, the low efficiency of institutions results not from the global crisis alone, but also reflects the fundamental problems in the country.

Unlike the previous years, this time FEG calculated the competitiveness index for 20 Ukrainian administrative units. These regions account for 90% of the national GDP. Next year we plan to cover all 27 regions in the country.

As in the previous years, Kyiv tops the competitiveness ranking with 4.21 points. Placing 59th in the international ranking, the city stands close to Hungary and Panama. The Dnipropetrovsk oblast closely follows Kyiv with a score of 4.12. The Zakarpattya oblast and the Lviv oblast follow, placing in the 67th and the 69th positions globally, at the same level as Uruguay and Romania, while Crimea and Donetsk place in the 72nd and the 73rd positions, between Kazakhstan and Latvia. The Kharkiv oblast scored 4.04 points and occupies the 76th position (between Columbia and Egypt), placing last among this leading group of oblasts.

The second group of oblasts contains those with competitiveness indexes that are equal to or slightly lower than the average of the twenty oblasts (3.97).

The six oblasts with the lowest scores comprise the third group; Volyn, Rivne and Ivan-Frankivsk all placed within the 102-104th positions in the GCI, next to Argentina and Honduras). Sumy, Zhytomyr and Vinnytsya scored lowest on the regional competitiveness index, with Vinnytsya placing 111th position globally between Senegal and Serbia (see table).

Despite of all differences between Ukraine’s regions, their strengths and weaknesses are quite similar. Firstly, it relates to such pillars of competitiveness as health and primary education, institutions and business sophistication. Infrastructure and labour market efficiency show a relatively big dispersion of values.

And now is the main questions – what do you do with these conclusions? After a comprehensive assessment of the economic situation, the index developers are known not to give countries (or regions) any practical guidelines ever. It does not mean, however, that the results shown in the global competitiveness index cannot be applied to promote economic reforms. In Egypt, for example, the Egyptian Competitiveness Council is using the Global Competitiveness Index to raise public awareness of the importance of reforms. In other countries, such as Croatia, the methodology has entered the government’s toolbox to formulate economic policy recommendations. Kazakhstan and Saudi Arabia have utilized the wide public outreach of the report to mobilize public support behind ambitious reform agendas, which would have not been feasible otherwise. We wish the present research could be applied in reforms in Ukraine on central and local levels.

Profile

To assess the competitiveness of Ukraine and its region, the Foundation used the methodology employed for the Global Competitiveness Index (GCI). The GCI is based on twelve pillars that take into account a complex nature of competitiveness: public and private institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication, and innovation.

The GCI uses both publicly available statistics and results of the executive opinion survey. Therefore, the index largely reflects the opinion of investment decision makers.

Full versions are available on FEG’s website: www.feg.org.ua