Israel ranks first in the world for its attitude toward entrepreneurial risk and for the growth of innovative companies, and second, after the US, in venture capital availability, according to the latest Global Competitiveness Report published by the World Economic Forum (WEF) on Wednesday.

The so-called Startup Nation’s R&D expenditure as a percentage of GDP is also the highest in the world, and the nation is third, out of 140 countries ranked, in the number of companies that embrace disruptive ideas.

The country’s weakest points in the new report were the incidents of terrorism, putting it at 117 out of 140; the ease of hiring foreign labor, at 125; and imports as a percentage of GDP, in which Israel was ranked 109 globally, the report showed.

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For its latest Global Competitiveness Report, the WEF used a new methodology to assess how global economies are faring and are forecast to fare in a world that is going digital and undergoing what has been called the Fourth Industrial Revolution.

Overall, Israel ranked 20th out of the 140 countries listed in the latest competitiveness report. In the 2017 report, using old methodology, Israel was ranked 16th globally, but when applying the new methodology to last year’s data, then Israel’s ranking is unchanged, at 20, a spokesman for the WEF explained.

“The changing nature of economic competitiveness in a world that is becoming increasingly transformed by new, digital technologies is creating a new set of challenges for governments and businesses, which collectively run the risk of having a negative impact on future growth and productivity,” the authors of the report wrote, according to an emailed statement.

“Many of the factors that will have the greatest impact in driving competitiveness in the future have never been the focus of major policy decisions in the past. These include idea generation, entrepreneurial culture, openness, and agility,” the report said.

The new methodology maps the competitiveness landscape of 140 economies through 98 indicators organized into 12 pillars. For each indicator, using a scale from 0 to 100, it indicates how close an economy is to the ideal state or “frontier” of competitiveness.

US gets best overall performance

When combining these factors, the United States achieved the best overall performance with a score of 85.6, ahead of Singapore and Germany. The average score for the world was 60, 40 points away from the frontier. Israel’s overall score was 76.6, 23.4 points away from the frontier, and 16.6 points above the global average.

Israel led the Middle East and North Africa ranking, and “the country has grown to become one of the world’s innovation hubs thanks to a very strong innovation ecosystem (10th best in the world),” the report said.

“Israel spends the most of any country in the index on R&D, 4.3% of GDP, and is where entrepreneurial failure is most accepted and innovative companies grow the fastest,” the report said.

The nation “can also rely on an extremely educated workforce, with an average of 13 years of schooling (8th globally) and where people acquire the appropriate skills that employers are looking for (2nd globally),” according to the report.

Its pool of talent “is well integrated into the job market thanks to the low level of taxes on labor (5.9% of companies’ profits), near-equal participation of women (6th globally) and reliance on professional management (19th).”

“A well-developed financial sector (22nd), with the second-best availability of venture capital in the world, also supports a flourishing and innovative private sector,” the report said.

However, the dynamism of domestic markets could be hindered by the presence of large business groups, the report said. Indeed, Israel ranked 51st globally in terms of dominance of a few large companies. Even so, “competition within the service sector, particularly in professional services, remains vibrant,” with Israel ranked 31st out of the 140 nations studied.

There is room for improvement for everyone

“One unifying theme among the world’s most competitive economies is that they all possess considerable room for improvement. For example, while the report’s Global Competitiveness Index finds that Singapore is the most ‘future-ready’ economy, it trails Sweden when it comes to having a digitally skilled workforce. Switzerland, meanwhile, has the most effective labor for reskilling and retraining policies and US companies are the fastest when it comes to embracing change,” the statement said.

One of the report’s most concerning findings “is the relative weakness across the board when it comes to mastering the innovation process, from idea generation to product commercialization,” the statement said. Here, 103 countries scored lower than 50 in this area of the index, which is topped by Germany, followed by the United States and Switzerland.

The report finds “that attitude towards entrepreneurial risk is the most positive in Israel” while it tends to be negative in several East Asian economies.

Canada has the most diverse workforce and Denmark’s corporate culture is the least hierarchical, both of which “are critical factors for driving innovation.”

“Embracing the Fourth Industrial Revolution has become a defining factor for competitiveness,” said Klaus Schwab, founder and executive chairman, World Economic Forum, in the report. “I foresee a new global divide between countries who understand innovative transformations and those that don’t. Only those economies that recognize the importance of the Fourth Industrial Revolution will be able to expand opportunities for their people.”

Openness and competitiveness is important

At a time of escalating trade tensions and a backlash against globalization, the report also emphasizes the importance of openness for competitiveness. Indeed, those economies performing well in indicators that denote openness, such as low tariff and non-tariff barriers, ease of hiring foreign labor and collaboration in patent application, among others, “also tend to perform well in terms of innovation and market efficiency. This data suggests that global economic health would be positively impacted by a return to greater openness and integration.”

Even so, the authors say, “it is critical” for global governments to set out policies to help improve the conditions of those countries and populations that are adversely affected by globalization.

Good governance, infrastructure, education remain important

Even as governments should focus on technology to help them find “leapfrogging opportunities” especially for low- and middle-income countries, they should not lose sight of the importance of good governance, strong infrastructure and the development of skills.

“A strong performance in one area cannot make up for a weak performance in another,” the statement said.

“In this light one worrying factor thrown up by this year’s Index is the fact that, for 117 of the 140 economies surveyed, quality of institutions remains a drag on overall competitiveness,” the statement said.

Israel ranked 26 out of the 140 countries in the quality of its institutions, with a score of 66.3 out of a 100. Within this section, it ranked 59 out of 140 for the burden of government regulation, 70 out of 140 for freedom of press, 90 for budget transparency and 14th for judiciary independence. It ranked 29 out of 140 for incidences of corruption, while its e-participation ranking was 42.

For business dynamism, however, Israel ranked fifth overall, with the US coming first. For its innovation capability the Startup Nation came 16th, with the list topped by Germany. Within the business dynamism pillar, however, the country got low marks for the cost of starting a business — ranking 50 out of 140 — and for the days needed to start a business, 74.

The country ranked 10th for the number of patent applications per million population, and 35th for the quality of its research institutions.

The new Global Competitiveness index integrates established aspects of the economy with new and emerging measures that drive productivity and growth. It emphasizes the role of human capital, innovation, resilience and agility as not only drivers but also defining features of economic success in the digital era.