One of the conclusions reached at the 11th EMCS conference, "Beyond Surviving: Competing to Succeed", held at the Hilton Malta on December 11, is that Malta urgently requires a national strategy that outlines how the country intends to maintain and foster its competitive advantage on the international arena.
It was also highlighted that this exercise should be managed under the auspices of the National Council of Competitiveness that could be incorporated within the Malta Council for Economic and Social Development (MCESD).
The conference was addressed by Dr John C. Grech, chairman of EMCS Ltd., Dr Anh-Nga Tran-Nguyen, head of the Investment Issues Analysis Branch Division on Investment, Technology and Enterprise Development at UNCTAD, Michael Bonello, governor of the Central Bank, Tony Assender, vice-president and head of Rating Evaluation Service (Europe) at Standard & Poor's, Dott. Tonio Portughese, vice-president worldwide and director of Human Resource Development at STMicroelectronics, and Ali Bayar, president of the Global Economic Modelling Network (EcoMod).
In his introductory address, Dr Grech outlining the aim of the conference, saying that national competitiveness is high on EMCS's agenda. In conjunction with the Chamber of Commerce and Federation of Industry, EMCS submitted a proposal to the MCESD to assist in the development of a national strategy for competitiveness.
He added that the purpose of the exercise is to devise a structure and set a process by which Malta's competitive positioning on the international arena is monitored and updated by virtue of the involvement of the entire community.
He outlined the need to build an environment that is efficient and to benchmark our ability to deliver with the best performers using Malta's size as an advantage, rather than as a deterrent. On the other hand Malta can be as competitive as anybody and an element of trade-off can be achieved against its ability to minimise costs of production due to limitations of size. He added that not only can Malta be competitive but it can actually outcompete and excel in what it can deliver.
Dr Grech provided a practical and interesting example of how this could be achieved by looking into the medical/health field - where the availability of top class hospital network, a healthy environment, a hospitality industry that can accommodate wellness services and the manufacturing of hospital/medical and pharmaceutical products can all point to excellence in the medical/health sector that is further strengthened by a solid financial sector and well serviced by air links.
He reiterated the need to look into branding as a source of product differentiation and of perceived value. The argument that Malta is too small for such an exercise is incorrect. Malta needs to go for national branding that will also benefit Maltese companies that would share the exposure of such branding. Malta must be made to stand for clearly identifiable and deliverable features that represent value.
He concluded by saying that fear of liberalisation or EU membership, will lead us to being taken over or be marginalised is false. Only those who fail to imagine, who fail to create, who fail to innovate, who fail to act will be marginalised. Those who are willing to venture will have more opportunity to do so, but a great deal needs to be done.
Dr Tran-Nguyen highlighted that there is no direct relationship between competitiveness and the size of a country, presenting statistics compiled by UNCTAD which show that two of the top 10 export "winner economies" are small economies - Ireland and Singapore - which rank sixth and ninth respectively. The main factor behind this success is Foreign Direct Investment (FDI) - foreign affiliates account for high and rising shares in many countries that have seen increased export market share.
The countries that succeed to attract most FDI are those that have a clear vision of objectives and an understanding of the role it can play in the development process. Once it is the quality and not the quantity of FDI that is instrumental for success - emphasis must be placed on strengthening domestic capabilities (especially human resources).
Mr Bonello said that at this particular point in time, the need to be competitive is accentuated by the current phase of the economic cycle. Against a backdrop of feeble global demand growth, competition is becoming even more intense.
The challenge implied by this unfavourable external environment is compounded by the fact that whether or not Malta joins the EU our exports would still have to meet the standards set in the European Single Market.
At the same time, the scenario for Malta's exports is rapidly changing with the arrival of new competitors in central and eastern Europe. These countries, together with Cyprus and Turkey, are vying to secure access to the EU market through membership of the Union. Competing against these countries is not going to be easy. It is clear that Malta is past the stage where it can attempt to achieve higher levels of economic activity on the basis of low labour cost. The way forward must involve a greater focus on knowledge and innovation based investment.
Mr Bonello illustrated the preliminary results of a study, now in progress, which is being developed by the Central Bank, that is aimed at assessing Malta's competitive position through a micro-analysis of various factors that determine the country's performance relative to a set of standards.
Indeed, the exercise is based on the approach being used by IMD for the World Competitiveness Yearbook. The publication analyses and ranks nations' ability to provide an environment that sustains the competitiveness of enterprise on the basis of economic, political, social and cultural dimensions. Malta is currently not covered by the study and that is also why the Central Bank is undertaking this exercise.
Malta's competitiveness is analysed directly in terms of developments in its principal partner and competitor countries for international business. The salient aspects of this study are summarised as follows:
On the scale that puts economic performance at 100 in the EU, Malta's score is 83, whereas other candidate countries average 70. Thus, while Malta has much catching up to do to achieve EU competitiveness, it enjoys an advantage compared to other candidate countries. Indeed, Malta scores consistently higher than these countries in all aspects of economic performance, reflecting high per capita GDP, low inflation and low unemployment.
Malta's main weaknesses in terms of economic performance emanate from two sources. One is the small size of the country that prevents activities from being substantially diversified while enjoying economies of scale. The other is a weaker performance in the attraction of FDI relative to the EU average. Malta's score is 56, the lowest within the set of determinants of economic performance, despite offering an attractive incentive package.
As regards employment, while Malta and other EU candidate countries have roughly similar scores, Malta's score is sustained by a relatively low unemployment rate that offsets the effects of a relatively slower rate of employment generation.
Relative to the EU average, Malta's score with respect to government efficiency is 82% - only marginally higher than that in other candidate countries. Malta fares poorly in terms of the state of its public finances. This is because although considerable progress has been achieved in the reduction of the fiscal deficit, the deficit and debt levels in other candidate countries are typically lower. The Maltese government in fact continues to absorb a relatively large proportion of the nation's resources.
Malta compares at a level comparable to the average of the EU and of other candidate countries in terms of the orientation of fiscal policy towards promoting competitiveness.
The score measuring adequacy of legislation for business is, at 73% of the EU average, lower than those for fiscal policy and institutional structure, but is nevertheless higher than that of the other candidate countries. The degree of government intervention in the economy in the form of subsidies and direct controls weakens Malta's score.
Government efficiency in relation to competitiveness considered have is the adequacy of the education sector. Malta scores a relatively low 61% of the EU average compared to 80% in other candidate countries. Although Malta has relatively high pupil-teacher and school enrolment ratios, it scores less well in terms of literacy and of the availability of engineering and business skills. There is also a gap in the knowledge transfer between educational institutions and industry, and this is hampering productive innovation.
Malta scores at 61% of the EU average compared to 72% in other candidate countries in terms of business efficiency. The assessment of business efficiency focuses on the entrepreneurship skills available in the country, the efficiency and effectiveness of the financial sector in sustaining business initiatives, as well as the skills, adaptability, attitudes and productivity of the labour force.
Mr Bonello concluded by saying that in today's global economy a competitive edge cannot be built on the basis of protectionist measures of low cost operations. Competitiveness is increasingly becoming a function of pervasive economic efficiency and of knowledge based activities. These factors carry the promise of a sustained expansion in the wealth generating capacity of an economy and can, therefore, enable a society to fulfil its economic, social and political aspirations.
Mr Assender explained that credit ratings are an assessment of an entity's willingness and ability to meet all financial obligations including unsecured trading obligations and that rated entities include countries, regional authorities and all forms of corporate entities. Some areas taken into consideration include political institutions and stability, economic and structure and growth prospects, fiscal and external flexibility.
He then gave an overview of the pros and cons reflecting Malta's rating. Political and economic stability, proximity to major markets, well educated workforce, cost competitiveness and higher value added manufacturing base together with a foreign currency rating of A as Malta's main strengths. On the other hand, the country's main weaknesses include the lack of natural resources, persistent fiscal imbalance and increasing debt burden.
From a rating point of view, EMU membership will be more important than EU membership for Malta, he concluded.
Professor Bayer reiterated that the source of rising prosperity and a nation's standard of living is determined by its effective use of human, capital and natural resources. The most competitive countries are those with the highest GDP per capita. There is no way to escape from stronger international competition and it will continue to increase in the EU and in the world.
From an EU perspective, competitiveness will continue to increase with EU enlargement and those who do not acquire or foster competitiveness will face unpleasant challenges. For those who get ready, enlargement is an unrivalled opportunity for development and growth as a result of economies of scale, larger markets and FDI.
Dott. Portughese outlined the areas that make STMicroelectronics (Malta) a success story. Indeed, he outlined what underpins the competitive edge of the ST operation in Malta. He referred to the workforce as being the main contributor as it is committed, trained, motivated, empowered and flexible.
These elements when put together assist the organisation to deal with complexity (operations aspects as lead counts, and short test times); to be creative and develop quality suggestions and alternative methods of operation; and be innovative so as to develop technological projects and intellectual property. In the final analysis these factors make Malta a centre of manufacturing excellence within the STMicroelectronics Group.
Indeed, the Malta operation is ranked as one of the best within the Group with a score of 94% resulting from an HR assessment undertaken in September.
Malta's main strengths, according to STMicroelectronics, are a good educational system, first-class engineering graduates, competent and skilled technicians, good command of English, sound work ethic, individual drive for self development and politically stable country.
On the other hand one of the major concerns is the rising labour and operational costs eroding Malta's competitiveness in the high-tech cut- throat market. Other factors include that of keeping pace with the latest technological and scientific knowledge at university and technical education levels.
Following the presentations, in the afternoon, Louis Farrugia, group chief executive at Simonds Farsons Cisk plc, Joe Zammit Tabona, president of the Federation of Industry, and Gejtu Vella, secretary-general at the Union Haddiema Maghqudin, joined the panel of speakers for an interactive discussion.
The highlights of this discussion led to the following conclusion regarding national competitiveness:
¤ other areas of the Maltese economy could be made world class just like the STMicroelectronics plant in Malta.
¤ a sense of realism is required both at a national level and at a corporate level.
¤ Malta needs to be branded - value is in the mind of the buyer thus building a brand for Malta will enhance its perceived value.
¤ rigidities in the local economy must be dismantled in order to take into consideration international competitive realities.
¤ the need to further reduce public debt.
¤ develop a national strategy for competitiveness that is overseen by the National Council for Competitiveness. The strategy must offer the country a clear vision of where it wants to go and how it can develop a competitive advantage that can sustain market pressures both now and in the future.
Dr Grech concluded by expressing his satisfaction at the outcome of the conference and urged all parties concerned to raise the discussion initiated at this conference to a national level. He added that this should be coupled by an elaborate and factual soul-searching exercise that aims towards developing a national competitive strategy as a basis towards improving the standard of living of the Maltese.