The United Nations Conference on Trade and Development has just published its World Investment Report for 2002. It is a report that seeks to provide information on the performance of most countries members of the United Nations with regard to their ability to attract foreign direct investment (FDI). It also analyses the links that exist between a country's export competitiveness and its ability to attract FDI. The report, for most of its parts, focuses on a 15-year period, 1985-2000, but also makes comparisons between years within this time frame, such as the comparison between 1988-1990 and 1998-2000.
The report should raise interest in this country, given the point made by a number of people that Malta is not capable of attracting foreign direct investment, at least as much as other countries, like Ireland and Singapore, or the other Asian tigers. One needs to highlight what is included as foreign direct investment, in that it is more than just greenfield investment or the expansion of existing firms, but includes the sale of existing companies through mergers and acquisitions and privatisation. In Malta this has happened as in other countries, and therefore, the data that emerges is one that is comparable, even if it is not the full information about the variables that make up the whole.
The question is how do we fare when compared to other countries. The UNCTAD report provides a performance index, comparing the three years 1988-1990 with the three years 1998-2000. This performance index is based on the country's share in world FDI flows to its share in the world gross domestic product. Thus there is a relationship between the size of the economy and the amount of foreign direct investment that a country manages to attract. In terms of past performance, Malta placed fifth for the years 1998-2000 from among 140 countries, while it had featured in the 28th place for the three years 1988-1990.
Malta is placed ahead of any other EU applicant but below a country like Ireland. Malta's performance was obviously aided by the sale of Mid-Med shares to HSBC but similar things must have happened in other countries as well, and therefore playing down this result would be yet another example of kicking ourselves in the foot for being successful. The UNCTAD report explains that the performance of a country in terms of its ability to attract foreign direct investment could be due to a number of factors, including, but not only, fiscal incentives, a well-managed economy, an efficient and low-cost business environment, availability of skilled labour and a favourable location for exporting to large markets.
Another index developed by UNCTAD is the FDI Potential Index. This index is a composite of a number of factors, including the rate of GDP growth, per capita GDP, share of exports in GDP, telephone lines per 1,000 inhabitants, commercial energy use per capita, share of tertiary students in the population, share of research and development expenditure in gross national income and country risk.
It needs to be emphasised that these are factors that have always been given a great deal of importance by the present government, while we have had instances in our past where certain people doubted the need of improving our telecommunications or electricity-generation infrastructure or expanding the student population at tertiary level. On this index, Malta featured in the 24th place for the three-year period 1998-2000, compared to the 34th place for the period 1988-1990. This, again, places us ahead of the other EU applicant countries. When one compares rankings on the two indices, Malta is placed among a group of nations described as front-runners, with high FDI performance and high FDI potential.
Should we therefore become complacent? Most certainly not, as there are four lessons that need to be learnt from this report. First, when we speak of foreign direct investment we would be wrong to think only of manufacturing investment even if that is the type of FDI that left most benefits in the past in this country. One of the reasons for the success of Ireland is not its thrust in manufacturing investment but its thrust in investment in international services. Up to now we do not have an institution that focuses on international services, other than financial services. This is changing and it cannot change soon enough.
Second, the UNCTAD report makes a strong link between foreign direct investment and exports of goods and services. In the past, there have been people in this country that criticised the government for giving too much attention to foreign investment at the cost of possibly not giving much attention to local investment. It is admitted that both are required for our economy to grow, but it is an equally known fact that companies with foreign investment have pushed our exports upwards, which should always be the main driver of our economy.
Third, the report also makes a link between a country's ability to attract foreign direct investment and the competitiveness of its exporting companies. The Malta Federation of Industry has made a claim that this country needs a National Competitiveness Council with as wide a participation as possible by the social partners to ensure that the competitiveness of our businesses is maintained. This has been the secret of success of a number of countries that attracted FDI, and as such we need such a council now.
The fourth lesson to be drawn from this report is the need to target foreign direct investment. There is so much competition for FDI today, and Malta's resources to make its voice heard are so limited when compared to the money pumped into promotion efforts by larger countries, that we cannot afford to dissipate these few resources through investment promotion that is not focused. It is possible to segment the market and target those niches that are best for our economy. This is being done but we need to get better at it.
The report itself covers a number of other areas and provides other bits of information that should encourage the National Office of Statistics to collate data that allows comparisons to be made. For example, we know how much we export, we know how much FDI we have, but we do not know how much of our exports are generated by firms with foreign investment.
It is positive to note that we fare well in this sector, but if we believe that we can do more (and I am sure we can do more), we also need to have more information to harness our resources better. We also need to continue working to make sure we have the appropriate environment that continues to attract FDI. Membership of the EU would help in this area as well, as has happened in Ireland.