IMD World Competitiveness Ranking: Lithuania's economic development is gaining stability
Lithuania lost two positions in the IMD World Competitiveness Index, calculated by the Swiss Institute of International Management and dropped from 29th to 31th place. According to the four groups of criteria for the assessment of countries, Lithuania has significantly improved its position in the field of economic development but has declined in the areas of business efficiency, public sector efficiency and infrastructure assessment.
While ranking the countries, the IMD Institute assesses how the countries are able to use available resources and competencies to increase their prosperity. As last year, 63 countries were ranked this year but the number of evaluation criteria has increased from 235 to 255. Almost two thirds of the criteria – actual economic, financial, business environment data, the rest – a survey of business leaders. IMD’s partner in Lithuania is the entrepreneurship promotion agency “Enterprise Lithuania”, which provides statistical analysis and assists in the survey of Lithuanian business leaders.
This year, Lithuania ranks 31st among 63 countries. Lithuania has dropped by 2 positions compared to the rankings of the previous year, from 29th place to 31st. Lithuania’s overall result this year remains in the same range of ranking positions for the last 5 years, when Lithuania’s position fluctuated between 29th and 33rd place.
“Lithuania as a small economy has the ability to quickly reflect the real situation and is not as inert as other larger countries. Therefore, the results of this ranking quite accurately indicate the current competitive situation and the trends of our country are best reflected in the analysis of longer-term rating positions” says Vadimas Ivanovas, Head of Research and Analysis Division at “Enterprise Lithuania”.
According to him, when assessing the components of the overall result, the largest position losses were observed in the groups of Public Sector Efficiency and Infrastructure indicators. In these groups of indicators Lithuania lost 4th positions and respectively dropped from 29th to 33rd and from 30th to 34th place. In the group of business efficiency indicators, Lithuania lost only one position and dropped from 23rd to 24th place. Meanwhile, in the group of economic development indicators, it rose by 6 places from 39th to 33rd position.
Assessment of economic development in 2020 increased by as much as 6 positions (to 33 place) and over the past 5 years our economic rating has improved by 12 positions. This year’s growth was mainly driven by growing foreign direct investment, a positive foreign trade balance, growth in long-term investment and other factors, as well as a significant contribution to the overall economic improvement in 2019, both in terms of the growth of GDP and GDP per person. In 2019, the economic growth of the world and the EU region slowed down, therefore the growth of the Lithuanian economy, which was faster than in 2018, was assessed in a higher position” comments V. Ivanovas.
The efficiency of the Lithuanian public sector in the competitiveness ranking has dropped by 4 positions this year. “In 2020, overall evaluation in all areas of this set of criteria (public finances, tax policy, etc.) improved but the progress in other countries has been faster. The assessment of this factor is interesting because almost half of the criteria for this factor are the data of the survey of company managers and these criteria reflect the business opinion about the efficiency of the public sector in various sections. The results of the survey conducted in March this year have changed quite significantly in some areas over the years. On one hand, evaluation in the areas of bureaucracy, corruption, protectionism has improved, on the other hand, the assessment of the adaptability (adaptation) of government policy, transparency, regulation of the competitive environment, the impact of subsidies on competition, employment policies has deteriorated” says V. Ivanovas. According to him, the survey was conducted during the quarantine period, although company managers were asked to distance themselves from quarantine issues but it is difficult to say whether the restrictions imposed by COVID-19 did not affect the final result of the public sector assessment.
The assessment of business efficiency has remained virtually unchanged. “Lithuania has lost only one position. Accordingly, there were no major changes in the areas of this group of indicators. Assessments in the groups of labour market, financial market and approach to business development criteria deteriorated but the assessment of business productivity and management criteria improved. It is an interesting fact that for the second year in a row, according to the group of business management criteria, Lithuania is among the top 10 countries” notes V. Ivanovas. He points out that almost all the criteria in the business management group are from the survey of company managers, therefore Lithuania’s assessment may be related to more critical attitudes among company managers in other countries, overly optimistic self-assessment of Lithuanian company managers and colleagues, or indeed a higher level of governance in Lithuania compared to other countries.
The set of infrastructure criteria includes basic infrastructure (territories, roads, railway networks, population, resources, energy), technological infrastructure, as well as health and education infrastructure. “This year, Lithuania has lost 4th positions in this group of criteria. This was mainly due to deteriorating assessments of education and health systems. In this case, the overall assessment did not deteriorate but the increased efforts of other countries in developing education and health systems resulted in Lithuania losing 7 and 4 positions in these areas of the infrastructure criteria group. Also 3 positions were lost in the field of technological infrastructure” comments V. Ivanovas. According to him, the potential of Lithuanian science was assessed a little better this year than a year ago but Lithuania is still in the top 50 (42nd place), which is what raises concerns about the country’s long-term competitiveness potential.
According to analysts of “Enterprise Lithuania”, the main challenge of the Lithuanian economy remains a small share of high value-added production and services in the economic structure. This challenge requires a strong education system, research infrastructure and a regulatory environment conducive to business growth.
IMD’s Competitiveness Ranking has been compiled since 1989 and is being presented for the 32nd time this year. In this ranking, Lithuania has been evaluated and compared together with other countries of the world since 2007. More on IMD World Competitiveness Ranking 2020: https://bit.ly/3hwCIyL
The quarantine, that lasted for three months in Lithuania, not only has stimulated the business to reorient and to pay close attention to e-commerce, but has also changed consumer habits. A poll of Lithuanian population revealed that during the quarantine every fifth person bought more than usual online, and nearly a fifth of the respondents intends to continue buying more online. During this period, the scale of e-commerce in the Baltic States in general has increased by 80%, and consignment flows in Lithuania grew by 54%.
In the face of the pandemic, businesses and institutions in all countries began looking for solutions to contribute to faster management of COVID-19. Lithuania is not an exception: Lithuania exports and entrepreneurship agency “Enterprise Lithuania” promptly mobilized and took the initiative “Business against COVID-19”. This initiative aims to coordinate the Lithuanian businesses who can supply and manufacture personal protective equipment (PPE). The list of companies producing or providing PPE prepared by the agency includes more than 200 Lithuanian companies, of which as much as 30% are manufacturers capable of supplying their manufactured PPE.