The results in the second year of Malta's participation in this survey make for some pretty grim reading as the country has dropped substantially in the ranks since it first participated in this survey last year.
In fact, Malta dropped 13 places to 32nd position in the Growth Competitiveness Index and registered a somewhat less dramatic drop in the Business Competitiveness Index of six places from 42nd to 48th position.
The press conference was addressed by Competitive Malta chairman Dr John C. Grech, Competitive Malta vice-chairman Wilfred Kenely and Adrian Said, chief co-ordinator, who also gave an overview of the results of the survey.
In his introduction, Dr Grech said that this survey has now become a yearly event in the business and economic calendar. Dr Grech also emphasised that this was an exercise which identified the causes of the shifts in our performance as an economy but was not a tool to remedy or adjust the economic performance of the country as a whole.
Mr Said then proceeded to give a detailed overview of the Global Competitiveness Report, which is in its 25th year of publication, that evaluates the potential for sustained economic growth of 104 economies and ranks them accordingly. The World Economic Forum (WEF) has expanded its geographic coverage of the report and new entrants now include Bahrain, Bosnia and Herzegovina, Cyprus, Georgia and the United Arab Emirates and it now accounts for 97.8 per cent of the world's GDP, Mr Said said. The report uses two complementary indexes which are the Growth Competitiveness Index and the Business Competitive Index. The former analyses the potential of a country to attain sustained economic growth over the medium and long term and is dependent on investment rates and other macroeconomic policies. The latter identifies the micro economic factors that underpin present high current productivity.
In the Global Competitiveness Ranking, Malta dropped from 19 to 32 as already mentioned, with Israel, Norway and Estonia improving their ranking. Malta's bad performance was due to a drop in the Macroeconomic Environment (from 29th to 47th), a drop in the Public Institutions Index (from 18th to 30th) and a slight drop in the Technology Index (from 17th to 21st). The main contributors to this slump were seen as being increased expectation of a recession, the low National Savings Rate, a high government deficit when other countries have succeeded in curbing or even running budget surpluses, low spending on research and development, low levels of university/industry research collaboration and extravagance of government spending.
On the positive side, Malta kept a competitive, albeit decreasing position due to the following high rankings. A stable inflation, a good interest rate spread and a Strong Country Credit rating, low levels of organised crime and judicial independence and, as regards technology, a high rate of government success at promoting ICT, high level of Internet access in schools, strong penetration of telephone and cellular phones, high levels of personal computer ownership, Internet users and a high rate of FDI technology transfer.
In the Business Competitiveness Ranking, Malta dropped to 48th from 42nd with the United States and Finland ranking first and second due to high sophistication and strong R&D. Malta's drop was due to a 10-point slide in the Sophistication of Company Operations and Strategy (57 from 47) and a five-point drop in the Quality of the National Business Environment (47 from 42). Malta's strong Value Chain Presence, Nature of Competitive Advantage, Production Process Sophistication and the Quality of education system contributed to stopping a more serious drop in the Sophistication Index. The factors that contributed to the drop were a low level of company spending on R&D, low reliance on professional management and a low capacity for innovation.
As regards the Quality of the National Business Environment, the following factors contributed to a stable position: Intensity of local competition, quality of the educational system and the low business cost of corruption. On the other hand, a very low prevalence of mergers and acquisitions, a low state of cluster development and the extremely low adherence to environment regulations contributed to the decline in rating. The downward shifts in the BCI for Malta show that the country's economic performance lags behind our European counterparts with our over reliance on price competitiveness also adding to this negative situation. Local companies also tend to be run by non professional managers, accentuating our lack of competitive advantage, Mr Said added. Further factors contributing to our eroding competitiveness are that Maltese industry is not supported by clusters, environmental regulations are not stringently applied which could in turn lead to the degradation of the environment and lack of competitiveness in Malta's tourism industry and potential FDI.
The report concludes that the most problematic factors for doing business in Malta are:
• Inefficient bureaucracy
• Inadequate infrastructure
• Restrictive labour regulations
• Access to financing
• Poor work ethic
• Inadequately educated workforce
• Tax rates
• Tax regulations
• Corruption
• Inflation
• Policy instability
• Government instability/coups
• Foreign Currency regulations
• Crime and theft
In his concluding remarks, Dr Grech said that this survey should serve as an indication on the current conditions for doing business in Malta, adding that uncertainty certainly affects economic conditions.
The Competitive Malta Foundation now numbers 22 members that include Maltacom, Toly Products, HSBC, VISET and a number of other institutions. Dr Grech said the foundation meets regularly with members of the government and the opposition, seeking their collaboration in order to ensure that the country's best interests are protected.
Asked by The Malta Independent on Sunday on the possible role of the foundation to influence policy making, Dr Grech said the foundation was not involved in lobbying but simply published information on Malta's competitive standing in the world.
He added that there will be a conference in early December on the subject and that this event should serve as an eye-opener for the business community.
Dr Grech also called for a moderate and common sense debate on these survey figures while reiterating the importance of adapting the local product to attract more FDI and increase economic growth.