While several pundits have spent most of the past year commenting on the difficult task Malta is experiencing as it goes through a process of economic restructuring and reform as if this were a result of EU membership, the truth is rather different. Malta is going through an economic re-birth because it is in Malta’s interest to do so and not because someone is dictating that this should be taking place.

As Malta approaches its first year of EU membership it is already clear that becoming more competitive has become the country’s main strategic goal. Malta is seeking to become more competitive. In reality there is no alternative to such a strategy if economic growth and prosperity are to be sustained in future. A simple look at the neighbouring countries clearly demonstrates this fact.

To the north of Malta the EU has been advancing at great strides in its effort to prepare for the challenges of the 21st century. This includes strengthening the functioning of its common currency, the Euro, and further advancing e-Europe, deregulation, fiscal stability and company mergers, in an effort to strengthen high economic growth. As a consequence the technology and prosperity gap between the EU and countries along the southern shore of the Mediterranean has continued to widen. EU enlargement has created the largest internal market in the world, a market of more than 400 million consumers. A larger internal market of which Malta is now a part is already resulting in increased competition, which generates a wider diversity of products and prices to the consumers.

To the south, the differences in economic restructuring between the front-runners such as Cyprus, Malta, Israel as well as Turkey and the other countries has also been growing. Cyprus and Malta are rapidly upgrading their economic infrastructure with the help of EU technical and financial support. Turkey has completed its customs union with the EU after a 30-year transition period and has now been given the green light to commence accession negotiations in October 2005. It will therefore likely accelerate its economic and political reforms as part of its preparations to join the EU some time after 2010. Israel has also strengthened its links with Europe in the past decade and is likely to seek a further upgrade in relations through a comprehensive neighbourhood agreement.

The Euro-Mediterranean Arab partner countries that have concluded association agreements with the EU, namely Tunisia, Morocco, Algeria, Palestine, Jordan, Egypt, Lebanon and Syria are also likely to move ahead of the other countries in terms of economic and, though more slowly, political reforms in the years to come.

To the east, EU accession countries have economically outpaced those in the Mediterranean. Countries in central and eastern Europe have made a remarkable transition towards democracy and a market economy. They have been much more successful in attracting foreign direct investment and they have substantially increased the standard of living of their people than Mediterranean countries. Their trade with the EU has been growing at a much faster rate than that of the Mediterranean states.

In a nutshell, the road to EU membership has offered much higher dividends when it comes to integrating into the global economy than the road that EU partnership has. As a member of the EU, Malta has already started to raise awareness of the economic challenges that our southern neighbours are confronting. By becoming more competitive at home Malta will also be in a favourable position to attract the attention of international business towards the economic opportunities that exist in the Mediterranean.

At present Mediterranean countries continue to attract less than two per cent of international investment. A major hindrance to attracting larger amounts of investment is that the Mediterranean market is partitioned in a multitude of small markets. For example, the entire north African market only corresponds to the size of the internal Portuguese market. Moreover, internal transaction costs remain very high. The cost for shipping a container from Tunisia to Marseilles is higher than the cost for the same container between Marseilles and Asia.

With so many barriers, it is not surprising that intra-regional Mediterranean trade remains slow. South-south co-operation is dormant with intra-regional trade in north Africa representing five per cent of their total trade. Statistics concerning intra-regional trade in the Middle East is slightly more favourable at about seven per cent.

A process of sub-regionalisation in the Mediterranean area will help it become more competitive. This exercise must result in the opening of sub-regional markets and the creation of sub-regional free trade areas. Trade liberalisation within the Euro-Mediterranean Process has so far been taking place on a north-south basis. It is essential that the EU and its Mediterranean partners now focus their attention to opening transnational co-operation at a south-south level.

As a consistently active member of the Euro-Mediterranean Partnership and also the Five plus Five Western Mediterranean Forum – a sub regional grouping of five southern European states, Italy, Spain, France, Portugal and Malta and five north African states, Morocco, Mauritania, Algeria, Tunisia, and Libya, (Malta currently holds the presidency of the Five plus Five) – Malta is already seeking to enhance efforts aimed at intensifying south-south political and economic relations.

Given the increase in demographic trends across the southern shores of the Mediterranean, it is estimated that this region will need to attract three billion dollars annually to maintain contemporary growth rates. Malta is a country which is already implementing policies to promote foreign direct investment to supplement its broad based manufacturing and service industries.

As a result, Malta has consistently registered higher growth, lower inflation and increased investment. The improvement in efficiency we are achieving as a result of the reform process we are conducting, is an experience which we will be able to export in the form of numerous services that our neighbours will require as they try to implement similar strategies in the decade ahead.

European Union membership has guaranteed Malta access to one of the world’s most prosperous economic blocks in the world. Implementation of the Lisbon Agenda is now crucial to ensure that Malta is able to maximise its competitive edge in a market of over 400 million consumers.

To the south our neighbours in the Maghreb are all seeking to participate more comprehensively in the EU economic and financial sectors through already negotiated partnership agreements and emerging neighbourhood action plans. Malta’s European and Mediterranean political and economic comparative advantages must be consistently developed so that we are able to play a direct role in such a strategy.

In the coming years, Malta’s overriding goal must be to increase its rate of productivity. While the government continues with its efforts to become more competitive, it is essential that the private sector also adapts to the ever changing international economic climate. A more transparent and more accountable society will result in a more efficient country.

The main objective of this exercise is to help everyone understand the reality of the economic situation that exists in our region of the world. As was the case for other new EU members, existing economic institutions will either have to find a special “niche” in which to survive as independent companies or merge with one of the emerging European networks. Whatever the outcome, privatisation and restructuring of the fragmented economic sector is an absolute “must” and the sooner rapid action takes place the better.

Industry has to focus totally on future export markets, on the manufacture of highly specialised components that can be easily shipped to Europe and the rest of the world. Several Maltese companies have already established links with major European companies that are facilitating the task of product development, financing and marketing. This is a process that will have to be strengthened in future.

Like other developing states in the post-Cold War international system, Malta is continuously taking stock of its strengths and is seeking to optimise its comparative advantages. Malta possesses a number of assets –language, modern legal and administrative systems, qualified labour force, air and sea links, an ever growing neighbourhood of Arab markets. These advantages need to be fully exploited and, where necessary, adapted to the new global economy of which Europe is an important region.

Malta’s future prosperity will more than ever depend on the dynamism of its business community. Free competition will be the watchword of the future. Being innovative, having a capability to develop new products and new markets as well as an ability to merge with other companies, to do research and even to invest overseas will be essential. Membership of the EU is already providing a more stable environment, more competition and more possibilities for co-operation across Europe. This policy framework is probably one of the most outstanding advantages that Malta has achieved in its first year of EU membership. Improving our competitiveness in such a framework will determine Malta’s geo-political and geo-economic destiny for decades to come.

As a member of the EU, Malta finds itself in a very strong group of 25 countries that are all seeking to improve and strengthen their economic track-record by implementing a systematic reform process, the so-called Lisbon Strategy that was launched in 2000. Interacting with our fellow EU members is already facilitating the difficult task of reform we are confronting as EU membership allows us to tap into technical and financial resources that the EU Commission is able to provide.

Given that Malta is geographically proximate to one of the world’s most dynamic zones of technological innovation, Europe, and is also at the centre of one of the world’s busiest sea routes, the Mediterranean, there is no reason why Malta should not be able to absorb technologies from abroad. This includes offering technology-based services in different sectors including tourism and financial services to offering state-of-the-art research and development facilities for multinational technology firms that are seeking to expand their business in the Euro-Mediterranean area.

In 2005 it is essential that Malta projects a clear and loud message to all its neighbours, both north and south, that we are serious about becoming more economically efficient. Becoming more competitive will allow all Maltese and Gozitans to enjoy a better and sustainable standard of living in the future. It will also enable Malta to influence positively Euro-Mediterranean regional relations. In fact, the competitive strategy that the government is seeking to implement will ensure that Malta becomes a Euro-Mediterranean economic powerhouse in the next decade.

Censu Galea is Competitiveness and Communications Minister

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