At the turn of the millennium, Sweden was a big player in the global pharmaceutical market. On the other hand, Malta was not even on the radar.
Since then, Malta’s pharmaceutical sector has had an amazing development while that of Sweden has stagnated.
This is an illustrative example of how countries can climb the global value chain by focusing on competitive legislation and a business-friendly atmosphere. It is also indicative of Malta’s route towards becoming the new Singapore of Europe.
Some years ago, Angel Gurría, Secretary General of the OECD, said: “Knowledge is the main driver of today’s global economy.” This is very much the case for modern economic development. The most important form of capital is not physical but rather knowledge-capital, which exists in the form of knowledge and experience among people and as organised knowledge in firms.
Certainly, fields such as biotechnology, which are quite knowledge-intensive, evolve in regions with a strong concentration of knowledge capital.
I have conducted natural science research in the fields of biotechnology, polymer technology and physical chemistry – all related to pharmaceuticals – at Chalmers University and the Royal Institute of Technology in Sweden, Cambridge University in the UK and the University of California Santa Barbara in the US. These universities attract talent both from their respective countries and from abroad. Talent concentration allows the regions in which the universities are located to position themselves as attractive regions for pharmaceutical businesses to locate to. At the turn of the millennium, Malta had a limited pharmaceutical sector and hardly any knowledge in the field. Crucially, it also had a small population, meaning it was more difficult for specialised knowledge-intensive sectors to develop, since specialisation naturally is easier to achieve with a large population. Malta’s university, for example, simply lacks the size to truly specialise in biotechnology, medicine and other educations of importance for the pharmaceutical market.
In 2016, when Malta’s pharmaceutical exports boomed, the export level stood at €2,125 per citizen, much higher than Sweden’s, at €723 per citizen
Yet Malta has had an astonishing development of pharmaceutical exports. In 2000, the exports of the country – relative to its population – were only €51 per citizen. This was slightly below the EU-28 average of €56 per citizen and far below the Swedish exports of €434 per citizen. Half a generation later, the situation looks quite different. In 2015, Malta’s pharmaceutical exports amounted to €625 per citizen, more than twice as high as the EU-28 average of €302 and nearly as high of the Sweden’s €749 per citizen.
In 2016, when Malta’s pharmaceutical exports boomed, the export level stood at €2,125 per citizen, much higher than Sweden’s, at €723 per citizen. How was this accomplished?
A key reason is smart regulations and patents. Malta is not covered by patents for many pharmaceuticals that were patented before 2007, allowing its firms to position themselves on the market of generics before international competitors. The country has also strived to climb the ladder of the global value chain by encouraging higher education, an attractive business climate, smart regulation, and investments in physical and digital infrastructure.
On the other hand, Sweden has kept part of its knowledge advantage, yet its governments have not been able to encourage the pharmaceutical sector. Large pharmaceutical firms such as Astra Zeneca, an Anglo-Swedish firm, have made significant cuts in Sweden since their research and development has not produced sufficient results.
At the turn of the century, the country was all set to develop its already impressive lead in pharmaceuticals – an important and growing international field – yet a combination of lacking policies, high taxes and the misfortune of a few big companies instead led to a stagnation for this sector. In short, Sweden acted as a fat cat and fell behind, while Malta built upon an opportunity of patent rights to rapidly advance.
It will be interesting to see how the pharmaceutical sectors in these two countries will develop in the years to come. Sweden is still full of talent in medicine and biotech, with creative solutions for pharmaceuticals and related sectors such as medical instruments and bioinformatics. Since new patents are registered also in Malta, the current advantage of the generic sector will gradually fade. Yet the small island nation has a chance to become a knowledge-hub in pharmaceuticals, not least through the newly built and rapidly expanding science park.
Global competition in knowledge-intensive fields is strong, and many in Northern and Western Europe dismiss the ability of Southern European nations to catch up.
Malta has certainly proven itself to be an exception, not only in the more quoted example of online gaming, but also in the important pharmaceutical marketplace. It is critical for Malta to continue its journey into a global knowledge hub.
Businesses attracted by advantageous taxes and patent rules alone can suddenly leave Malta if they find better opportunities elsewhere, while businesses that are a part of a regional knowledge-cluster will be strongly bound to Malta and invest more in its development.
Nima Sanandaji is president of the Malta-based thinktank European Centre for Entrepreneurship and Policy Reform and a Doctor of Technology in polymer technology.