Malta in the global competitiveness report

When recently Moody’s downgraded its sovereign debt from A1 to A2, the government was quick to point the finger at external forces. The Maltese people were told that it was all due to the potential threats arising from the euro crisis. Other government apologetics questioned Moody’s credentials in judging the government’s management of its finances and the economy.

… the report dispels… the myth that small states are inherently economically vulnerable…- Joseph Vella Bonnici

The World Economic Forum has now published its global competitiveness report for 2011-2012. Although it is not a perfect report, and has a number of methodological shortcomings, it is undoubtedly the best and most comprehensive benchmarking exercise available. The report presents a good X-ray of the state of an economy and can be freely downloaded from the internet.

The report incorporates over 100 indicators grouped into 12 “pillars of competitiveness”. For data, it relies on official statistics and an executive opinion survey, which it carries out on an annual basis. The WEF takes GDP per capita to classify the stage of development of a country. There are three stages plus two transitory phases.

In 2010, Malta had a GDP per capita of $19,746 and placed in stage 3; the top-tier category that groups the “innovation-driven economies” having a minimum GDP per capita of $17,000. Of the 35 countries in this group, Malta has the lowest competitiveness score (4.33).

Overall, Malta slips one place from the previous report and is now in the 51st position (out of 142 countries). This placing reveals the significant competitiveness challenge facing Malta because it befits an economy at the bottom of those in transition from stage 2 to stage 3. Indeed, the report confirms that, since 2000, Malta’s GDP per capita in real terms has been losing ground relative to that of the advanced economies. Furthermore, this trend is set to continue. Little wonder, Moody’s set a negative outlook.

A close look at our economy reveals highly contrasting levels of sophistication ranging from those that place Malta in the First World to those that place us in the Fourth World. Among the indicators that are a credit to our country we find the development of the financial market at 15th place (even though Malta has dropped four places since the 2010-2011 report). The soundness of our banks is ranked 12th in the world.

Other indicators which show the best side of Malta include the number of fixed telephone lines (4), low trade tariffs (4), business impact of rules on foreign direct investment (11), intensity of local competition (11), the quality of our port (16) and airport (19), broadband subscriptions (16) and technological readiness (26). Also, the WEF deems that the chances of our government defaulting on its debt (26) are not significant.

Malta does well also in terms of the general quality of the education system (18), registering satisfactory ranking in primary schooling (16) and internet access in schools (16). Regretfully, it falls behind in higher education and training (37) and in enrolment in tertiary education (72).

Life expectancy at 79.9 years (23) is another plus factor for Malta.

Malta’s performance starts getting really disappointing when it comes to business sophistication (42) and innovation (51). The efficacy of corporate boards (74) leaves much to be desired. Equally poor is our macroeconomic environment (51), due primarily to the government’s finances (74).

The country fares badly also in transparency of government policymaking (56) and “favouritism in decisions of government officials” (56). The report indicates that our country is overdependent on foreign ownership (64) and lacks a culture of customer orientation (69).

A further group of indicators are more appropriate for a Fourth World country. These include female participation in the labour force (125), government debt (115), burden of government regulation (106), quality of roads (105), flexibility of wage determination (103), gross national savings (100) and the quality of electricity supply (90).

In the survey carried out by the WEF, enterprises were given a list of 15 factors and asked to specify those five they deemed to be the most problematic for doing business in the country. Not surprisingly, Maltese enterprises indicate the inefficiency of government bureaucracy as being the most problematic. The other main hurdles are perceived to be an inadequate infrastructure, access to finance, inflation and tax rates.

The 2011-2012 competitiveness report is possibly even more worrying than the downgrading by Moody’s. It exposes some of the more serious fault lines that are limiting the ability of our country to generate wealth. The report is another condemnation of the way the government is managing the economy and its own finances.

It leaves the government with nowhere to hide. Malta’s basic requirements (40) are weak but our efficiency enhancers (47) and innovation and business sophistication factors (49) are just not conducive to a prosperous society.

By the way, the report dispels, once and for all, the myth that small states are inherently economically vulnerable or less competitive. The top four competitive places are held by Switzerland, Singapore, Sweden and Finland, which all consider themselves as being relatively small. They must be doing a lot of right things and Malta would do well to understand what lies behind their success. Malta desperately needs to start regaining the ground lost in the last decade. The 2011-2012 competitiveness report simply confirms what the Maltese people have been feeling all along.

fms18@onvol.net