What may shape our economy in future

Academics spend a great deal of time creating models of how a specific industry or a particular company could shape up in future in the light of a number of external and internal factors and forces.

In turn businesses also spend a great deal of time seeking to transform their vision into a meaningful strategy that would generate acceptable returns to the shareholders, while meeting or exceeding customer expectations and valuing their employees. This is absolutely necessary for any business if it wishes to thrive in the long term.

After all, I have always believed that we cannot talk of the competitiveness of a country, because that cannot be defined or measured, but we should speak of the competitiveness of businesses. It is businesses that create wealth and jobs, but it is a government's job to create a framework that enables businesses to create wealth and jobs and to have that wealth distributed equitably, such that private sector initiative and the incentive to generate wealth is not stifled while we achieve social cohesion. This is where the micro and macro economic aspects dovetail into each other and need to act in support of each other.

Both individual businesses and national economies need to face up to a number of external factors that could serve as either opportunities or threats. In respect of a national economy, there needs to be in place a set of policies and actions that seek to facilitate the growth of business, such as taxation policies, education policies, regulatory policies, fiscal prudence, environmental policies, etc.

Up to a certain extent this may not be so different to an individual business which, irrespective of how successful or not it is today, would always need to invest in its human resources, in innovation and creativity, in corporate governance, in marketing and in other areas to ensure its long term growth.

The question that is worth looking at is what factors could shape up our economy in the future.

This question needs to be asked not only because we are at the beginning of a new legislature, with no real big issues that we need to grapple with like we have had to in the past such as EU membership, the fiscal deficit and the adoption of the euro, but also because we need to ensure that our past successes need to be maintained into the future.

I have argued that our economic success did not occur by chance, but thanks to the appropriate economic policies.

Those polices have given us Sm@rtCity, a pharmaceutical industry, Lufthansa Technik, a thriving financial services sector, increased foreign investment, increasing employment, a reining in of the fiscal deficit, a higher economic growth rate.

However let us admit that we are talking of the past and not of the future. When the Sm@rtCity project was announced that was a statement about Malta's attractiveness as an investment location in the IT sector at that moment in time. The same can be said about any investment that has occurred.

Since economic policies are about the future and not about the past, we need to look forward. It is within this context that we need to view Vision 2015 laid out by government. It is also within this context that we need to view the cycle (some short and others long) that the international economy goes through and the developments that there may be in a number of areas. Our positive economic performance needs to be sustained well into the future, and it needs to be sustained not by yesterday's policies but by today's and tomorrow's policies that take account of today's and tomorrow's realities.

The International Monetary Fund is fairly certain that the growth in the gross domestic product in most of the advanced economies will be slowing down. The losses that financial institutions could suffer from defaults in loans could hit the one trillion dollars worldwide. The prices of oil and commodities, including food, do not seem to be easing in the foreseeable future.

Stock markets all over the world could take some further battering until the adjustment process in a number of industries is completed. Political uncertainty could do the rest of the damage.

This difficult scenario shall certainly shape our economy in future, because our economy ranks very high in terms of openness. The domestic economy, because of its very small size, can no longer play a significant role in creating further wealth. However, there are also other factors and forces to consider.

These include, among others, the emergence of other countries as important players in attracting foreign direct investment, like we had the emergence of the eastern European countries some twenty years ago and the replacement of products and services currently being produced here in Malta by substitutes, that could be produced elsewhere more efficiently and more effectively.

It is therefore paramount that we engage in a serious debate on what may shape our economy in future and what policies can be adopted, to counter the threats and exploit the opportunities.