In recent months Malta has taken significant steps to formulate a strategy that seeks to enhance Malta’s competitive edge. As an EU member state Malta has been able to benefit from the support and guidance that the EU can provide through the Lisbon Agenda framework. The Lisbon Agenda has been designed to assist member states that are carrying out the necessary political and economic reforms to cope more effectively with the continuous changes in the market place.
Strengthening one’s competitive edge has become the main strategic objective of all countries in today’s world. Malta is of course no exception. The Lisbon Agenda is at the forefront of all EU member states’ efforts to enhance competitiveness within a regional block dimension. As a small state located in the heart of the Euro-Mediterranean region, the successful implementation of such a strategy will have important implications for the economic performance of our country.
We are all aware of the momentous changes which the process of globalisation has brought about over the past two decades. Due to technological advances and the liberalisation of cross-border business transactions, exports and foreign direct investment have expanded at rates which are two to three times larger than that of GDP growth at the global level. If one looks at the prosperous nations in today’s international system – Singapore, Taiwan, South Korea, Japan – they are characterised by a small land mass, limited resources, and well-educated hardworking people who all have the ambition to participate in the global economy.
Quite often, having an abundance of resources has slowed down a country’s development, because bureaucrats think that they can solve a country’s economic woes by spending more money. In the interlinked global economy that has evolved, the key success factor shifts from resources to the marketplace, in which one has to participate if one is to prosper. Wealth is therefore created by people and not resources or technology on their own. The responsibility of companies is to enhance value in their products by harnessing the skills of their workers.
The goal of every country should be to integrate itself into the international economic process where the majority of transnational interaction takes place. The interdependent economy at the start of the 21st century is primarily made up of the United States, Europe and Japan and also includes aggressive economies of Taiwan, Hong Kong and Singapore. China and India have also started playing a larger role in the international political economy and, for instance, have over a period of 25 years, seen their share in global output triple to almost 20 per cent, mainly at the expense of economies that are not integrated and which are outside of regional blocks.
Naturally, every government’s concern remains employment. In the past one of the key reasons for policy-makers to shun liberalisation and maintain protectionist measures against foreign products and capital, was job security. The number one concern in EU member countries seeking to implement economic reforms as part of the Lisbon Agenda is job security. This is also the case in Malta.
Statistics have shown that contrary to a loss of jobs, the opening of markets has witnessed a surge in the creation of new jobs. This is especially the case in the service sector, which is occupying an ever larger percentage of the economy. The service sector currently occupies more than 70 per cent of the work force in the US, 60 per cent in Japan and 50 per cent in Taiwan.
It is however also true that the EU block as a whole can go much further to participate fully in the expansion of global output. In an ever more competitive global climate it is essential to ensure that EU growth and competitiveness be maintained vis-à-vis other global actors especially the United States.
When formulated in March 2000, The Lisbon Agenda aimed at making “the EU the most competitive, dynamic and knowledge-driven economy in the world by 2010, capable of creating and sustaining more and better jobs”. Half-way through the strategy, it was clear that the targets set needed to be refocused.
The recent mid-term review in the form of the Kok report has recommended that the wide-spanning objectives originally aimed for; be narrowed down in focus to cater for macroeconomic stability, microeconomic reform and employment creation. The EU subsequently released a list of 24 guidelines to assist member states in their reform process.
This new approach will be based on a three-year governance cycle that will commence late this year and will be renewed in 2008. Action is taking place at both community and member state level. A community-level Lisbon Action Plan has been prepared at a central level, while member states have been asked to prepare a National Reform Programme (NRP). This programme should be a blueprint for the country’s direction over the forthcoming three-year period up to 2008.
In recent years Malta has enhanced its comparative advantages in a number of areas including an increased computer literate population, an efficient and integrated financial services sector, low unemployment, and effective social inclusion. On the other hand, a comparative analysis with the EU25 member states reveals that there are areas in which Malta still needs to improve its performance. This overriding goal of improving the quality of life of all citizens is in fact being tackled in the government’s NRP programme of activity.
Malta has chosen five strategic themes, which were approved by the EU, to form the pillars of its NRP. These themes are:
• sustainability of public finances;
• competitiveness;
• employment;
• education and training; and
• environment.
The Cabinet Committee on Competitiveness has been tasked with the aim of promoting Malta’s economic development and has been given the responsibility to provide a focused and cohesive coordination of all processes leading to the Lisbon Strategy including the drawing up of the NRP.
In formulating the NRP due diligence was given to various factors among which: (i) EU guidelines and related documentation (ii) the Pre-Budget Document; line Ministry strategic plans, previous government strategic studies and reports; and (iii) social partner documentation. A public consultation process for the NRP was launched on 5 July 2005 with a conference entitled Taking the Lisbon Strategy Forward and meetings were held with line ministries and public sector organisations.
The National Reform Programme for Malta is thus the result of a comprehensive and constructive consultative process that has taken place among all the main players in this sector. The NRP includes measures that Malta intends to adopt during the period 2005-2008 and on which its competitive scorecard will be in due course be based. Following approval by Cabinet, the National Reform Programme 2005-2008 will be submitted to the European Commission and it will also be tabled in Parliament.
It is the government’s intention to ensure that during the three-year period 2005-2008 the NRP’s strategic objectives will be met so that Malta becomes more competitive and is thus in a position to register growth of productivity and thus in employment. Such a plan of action will also ensure that Malta’s political and economic objectives are aligned with those of our counterparts within the EU.
This does not imply that the government’s agenda during this period will be solely limited to these measures, but that the initiatives identified in the NRP are the priority areas of action.
The government intends to draw up an implementation plan that will be coordinated in a holistic manner, through a specifically appointed implementation team, in order to ensure an effective and timely implementation of the measures included in the NRP.
The focus of the government on the application of the Lisbon Agenda in Malta, as now envisaged in the National Reform Programme, is strongly conditioned by the special economic characteristics of Malta as a small island state. These conditions include limited resources; an inherent exposure to shocks outside the country’s control; a pronounced openness to international trade; limited competition possibilities in domestic markets; high per unit costs of infrastructural facilities; and a highly polarised political and social debate to mention but a few of the main ones.
The government’s approach towards enhancing competitiveness focuses significantly on macroeconomic stability, enhancing human resources and focusing on key areas of economic growth and development, which are all conducive to overcome the difficulties and exploit the potential benefits associated with economic activity in a small island state.
In order to be successful it is essential that all social partners contribute to this reform process, including civil society. The role played by social and civil dialogue in promoting competitiveness is essential.
As an integral part of the government’s overall strategy, the Competitiveness and Communications Ministry has set the stage to start implementing a reform process that will ensure that Malta’s competitive edge is strengthened in the years to come. This is the challenge that we have before us – a challenge I have no doubt we will be able to surpass and thus guarantee a future of prosperity for all.
Censu Galea is Competitiveness and Communications Minister