'No real implications', economists say on competitiveness ranking drop

Malaysia’s seven-spot fall in the 2024 International Institute for Management Development (IMD) World Competitiveness Ranking holds no real implications for the nation, said economists.

They were of the view that investors will look beyond a mere index when deciding if Malaysia is a suitable investment destination.

Research and innovation provost at Malaysia University of Science and Technology Geoffrey Williams told Malaysiakini that the annual private survey holds little significance as there is always variation from year to year.

“No one really cares, in terms of business and investment.

“It’s a publicity indicator like university rankings or league tables in football. There is no underlying substance to it,” Williams said.

Sharing similar sentiments were economists Mohd Afzanizam Abdul Rashid and Carmelo Ferlito.

Credit rating matters more to investors

Afzanizam, who is also Bank Muamalat Malaysia Bhd chief economist, said investors will instead pay close attention to credit analysts’ opinions from credit rating agencies such as Moody’s, Standard and Poor’s (S&P) and Fitch.

“Their assessment will dictate the allocation for foreign investors to invest in a particular country, as it is based on the credit rating.

“At the moment, the government’s rating stands at A3 (Moody’s), A- (S&P) and BBB+ (Fitch).

“Also, assessments by the equity analysts and strategists are equally important as they will dictate the buy or sell or hold rating for the particular listed companies in a country,” he opined.

Echoing Williams, Ferlito pointed out that indices are based on choices from researchers and must, therefore, be taken cautiously.

“While investors may look at the (global competitiveness) ranking when choosing an investment destination... they will look more deeply at the conditions of labour, ease of doing business, financial and banking procedures,” the chief executive officer of the think tank Center for Market Education said.

Malaysia dropped to the 34th spot from the 27th position last year in this year’s IMD ranking, which is a comprehensive annual report and worldwide reference point on the competitiveness of countries.

Malaysia also slid by four places to the 10th spot of 14 countries in the Asia-Pacific region, ranking lower than Indonesia and Thailand for the first time.

Perikatan Nasional chairperson Muhyiddin Yassin slammed Prime Minister Anwar Ibrahim over the matter, saying Malaysia’s poor performance is a great blow and should serve as a clarion call for the premier to quit being a “master spinner”.

Investment, Trade and Industry Minister Tengku Zafrul Abdul Aziz has since pinned the drop in competitiveness ranking on the weakness of the ringgit last year.

Elaborating on the matter, Zafrul said the ringgit’s weakness in 2023 had various implications, including the valuation of investments, productivity, and efficiency, which is closely related to the currency’s value, consequently reflecting concerns about economic stability.

Anwar was also reported as saying Putrajaya will work harder and more efficiently to improve Malaysia’s ranking.

The finance minister was quoted by Free Malaysia Today as saying that the main problem was the government’s failure to implement targeted subsidies, but noted that the matter “has since been corrected”.

On the weakened ringgit, the premier said the ringgit had also strengthened in the first quarter of 2024.

In unveiling the Madani economic framework in July 2023, Anwar set seven key performance indicators (KPIs) to be achieved within 10 years.

One of these targets was for Malaysia to be ranked among the top 12 in the global competitiveness index.

Govt should forget rankings

However, the economic experts concurred that the government would be wise to stop drawing attention to such rankings and abandon them in totality.

“Stop making them (the rankings) seem more important than they are. They are mostly uninformative from the economic perspective,” Williams said.

“The government is well on the road for economic reform with new fiscal frameworks, the Central Database Hub (Padu) for targeted subsidies and the rationalisation of subsidy is already underway.”

What matters, Afzanizam said, is that the government remains steadfast in the execution of fiscal reforms and focuses on producing results.

Ferlito urged Anwar’s administration to be courageous in building a pro-market reform agenda which includes the liberalisation of the labour market, fair taxation for foreign-owned companies and improving the banking framework.

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