KPMG has ranked the UAE as a leader on its recently launched variables for sustained growth (VSG) index. Developed to assess countries’ long-term economic performance prospects, the VSGI measures countries’ productivity potential to illustrate where governments should be focusing their efforts.
• KPMG’s inaugural ‘Variables for Sustained Growth’ (VSG) Index tracks some of the most important factors that support economic performance in 181 countries
• UAE ranks 24 in VSG Index Ranking for 2015, based on metrics including infrastructure development, education and strength of public institutions
• Findings reflect UAE’s drive to develop the education sector as a strategic pillar for economic growth and development
The index considers 21 areas which have been shown to have a significant impact on a country’s future economic growth and wealth, such as transport infrastructure; education; and the strength of public institutions. The UAE was the leading country in the MENA region and scored better than a number of developed economies, such as France.
Education has recently emerged as one of the most effective ways of boosting long term national growth, giving additional impetus to the UAE Government’s push to boost education services and systems across the seven emirates. Recently, the UAE cabinet discussed ways of improving education services in the UAE – highlighting this as one of the cornerstones of the government’s strategy.
Neeraj Dassani, a partner with KPMG, one of the region’s leading professional services companies, commented: “KPMG’s VSG Index highlights how improvements in transport infrastructure, education and public institutions can significantly impact current and future economic growth and wealth. The UAE has recognised that a key pillar of economic diversification is a strong, knowledge-based economy. The Government continues to invest heavily in innovative initiatives, such as declaring 2016 the ‘Year of Reading’ and dedicating increasing amounts of the federal budget to education.”
KPMG’s VSG Index features five pillars which capture developments in the major areas likely to influence productivity potential. These include:
• Macroeconomic stability – including measures of government deficit and debt
• Openness to adapting leading practice – including Foreign Direct Investment (FDI) and trade performance
• Infrastructure quality – in number of areas ranging from transport to technology and finance
• Human capital – including life expectancy and education
• Strength of public institutions – including regulatory quality, government transparency and effectiveness, business rights and judicial independence
The top performers in this year’s index are dominated by Western Europe, with Singapore, New Zealand, and Hong Kong the only non-European countries to make it to the top 10. The UK made it into the top 20, but lags behind the likes of Luxembourg, which came top, Ireland (ranked 10th) and Germany (ranked 12th).
Yael Selfin, Head of Macroeconomics at KPMG and one of the authors of the report, said: “The data shows how improvements in areas such as infrastructure and human capital can have a major impact on a country’s future economic growth and wealth.
“Comparative data we have compiled for 2015 shows emerging economies are improving their competitiveness, despite lower levels of wealth. Some developing economies show relatively high growth: Malaysia and Chile are good examples. Policy makers can learn both from their peer group but also from developing economies.”
KPMG research found that, of the five pillars, the strength of public institutions has the greatest influence on productivity potential, with government effectiveness particularly important. It is therefore not surprising that the majority of countries that form the top 10 in this category are also among the top overall performers in the index.
Dassani concluded: “Numerous factors are likely to influence productivity in each country, but, with growth at the top of everyone’s agenda, policy makers need to ensure they make investments which maximise a country’s economic growth potential.”
About the VSG Index
The VSG Index was originally developed in 2013 by members of the KPMG macroeconomics team in collaboration with external advisors. It covers 181 countries and tracks their performance across the productivity drivers since 1997.
The VSG Index comprises 21 series, which were selected based on academic studies and business survey results to assess countries’ productivity performance. The importance of each category in the index, as captured by the weights used for each series, was determined by econometric analysis, as well as by primary research.
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