South Africa dropped one place in the World Economic Forum's (WEF's) latest Global Competitiveness Index, ranking 53rd out of 148 countries surveyed while placing second in Africa, second among the BRICS economies, and third overall for financial market development.
Published on Wednesday, the annual Global Competitiveness Report was first released in 1979 and has since become a highly regarded measure of relative competitiveness among most of the world's nations.
Mauritius climbed nine places to 45th to rank as Africa's competitiveness leader for the first time, followed by South Africa (53rd, down by 1), Rwanda (66th, up by 3), Botswana (74th, up by 5), Morocco (77th, down by 7), Seychelles (80th, down by 4), Tunisia (83rd, first survey), Namibia (90th, up by 2), Zambia (93rd, up by 9), Kenya (96th, up by 10), and Algeria (100th, up by 10).
China, its ranking steady at 29th, continues to lead the BRICS group of influential emerging market economies, followed by South Africa at 53rd, Brazil (56th, down by 8) India (60th, down by 1) and Russia (64th, up by 3).
Switzerland tops the overall rankings for the fifth year running, followed once more by Singapore and Finland, with Germany moving up two places into fourth overall, and the United States reversing a four-year slide by climbing two places to fifth. Sweden, Hong Kong, the Netherlands, Japan and the United Kingdom complete the list of the top 10 most competitive economies.
Strength of institutions, financial markets
According to the report, South Africa does well on measures of the quality of its institutions (ranking 41st overall), including intellectual property protection (18th), property rights (20th), and the efficiency of its legal framework in challenging and settling disputes (13th and 12th, respectively).
South Africa's strong institutional framework is further supported by the high accountability of its private institutions, for which it ranks second in the world, and its financial market development, for which it ranks third.
The report also credits the country with an efficient market for goods and services (28th), and for doing "reasonably well" in more complex areas such as business sophistication (35th) and innovation (39th).
Euro woes affect SA's fiscal indicators
However, the report notes, South Africa's strong ties to advanced economies, particularly in the euro zone, made the country more vulnerable to their economic slowdown and probably contributed to the deterioration of the country's fiscal indicators, with its ranking in the macroeconomic environment dropping sharply from 69th to 95th.
"Low scores for the diversion of public funds (99th), the perceived wastefulness of government spending (79th), and a more general lack of public trust in politicians (98th) remain worrisome, and security continues to be a major area of concern for doing business (at 109th)."
Jobs, skills, health, education
Job creation and skills development also pose "considerable challenges" for South Africa, the report finds. The country ranks a lowly 133rd for the health of its workforce, due in large part to the country's high HIV/Aids prevalence, but also due to "poor health indicators more generally" - something the country's National Health Insurance planning takes squarely into account.
The report describes the country's labour market efficiency (116th) as "poor", ranking the country 147th for its hiring and firing practices, 144th for wage flexibility, and - not surprisingly, following a year of labour unrest in the mining industry - 148th for labour-employer relations.
However, South Africa's most serious challenge, the report finds - here echoing the country's National Development Plan (NDP) - lies in the "very poor" quality its educational system (146th).
"Raising educational standards and making the labour market more efficient will thus be critical in view of the country's high unemployment rate of over 20 percent, with the rate of youth unemployment estimated at close to 50 percent," the report states.
On sub-Saharan Africa more widely, the report notes the region's impressive growth rate of close to 5 percent in 2012 (with similar projections for the next two years), attributing this in large part to strong investment, favourable commodity prices, and prudent macroeconomics.
Despite this, the report finds, sub-Saharan Africa as a whole trails the rest of the world in competitiveness, "requiring efforts across many areas to place the region on a firmly sustainable growth and development path going forward".
In particular, the report singles out the region's "profound infrastructure deficit" - a factor long emphasised by South African President Jacob Zuma - as a major constraint on growth.
"In addition, sub-Saharan Africa overall continues to underperform significantly in providing health and basic education (only Mauritius and Seychelles rank in the upper half of the rankings)," the report states. "Higher education and training also need to be further developed."
According to the report, the region's poor performance across all basic competitiveness measures stands in stark contrast to its relatively strong market efficiency (South Africa, Mauritius and Kenya rank in the top 20 percent for financial market development).
Technological uptake also remains "weak" in the region, with only three economies (South Africa, Mauritius and Seychelles) featuring in the top half of the overall rankings for this measure.