Competitiveness strategies for
Finance Minister John Dalli speaks at a Commonwealth
seminar on Competitiveness Strategies for Small States held
last weekend in Malta
It is indeed a pleasure for me to address this forum on
competitiveness of small states. I would like to thank the Commonwealth
Secretariat for choosing a Maltese institute to offer these courses.
I would also like to commend the initiative taken by the Economics Department
at the University of Malta and the Islands and Small States Institute.
Competitiveness has become the linchpin of economic policy as tumbling
tariff barriers and e-commerce are opening all markets to competition.
This transforms domestic operators into global players as on the one
hand they have to keep their local turf but on the other hand they have
the freedom to venture into other markets which have up till now been
closed to them. Changing products to suit market needs, and changing
processes to improve quality and reduce costs is the way to keep competitiveness
of tradable goods on international markets, which is vital for a sustainable
Malta has come a long way from import substitution in the 1980s
to liberalisation. The smallness of our economy could not sustain import
substitution as the variety of resources required for all a nations
needs are unavailable in a small economy. In addition, an economic strategy
which basis increased economic growth on internal consumption is not
viable in small economies.
The only way in which small economies can sustain increased standards
of living is through increased international trade. Malta has recognised
this and decided to open up its markets in order to maximise gains from
trade. As from May 2004 companies located in Malta will have unlimited
access to the World largest market and other markets with which the
EU has special trade agreements.
The liberalisation process leads to restructuring of domestically oriented
firms. We have helped and are still helping these companies to improve
their marketing, production methods and human resources. We have also
put in place regulators for our telecommunications, postal, energy and
water sectors in order to separate this function from the service providers
themselves. We are still striving in order to mitigate inefficiencies
in all our economic sectors as inefficiency in any sector of the economy
is automatically reversed in other sectors thereby hindering their international
Maltas smallness is also coupled with its lack of natural resources.
Our only resource is our human capital. We are investing heavily in
the educational infrastructure through free education and support to
students embarking on these studies. However, the level of education
of our labour force is still below the European average.
In fact, while in the EU 21.8 per cent of the labour force has completed
tertiary education, in Malta only 8.8 per cent have this level of education.
As regards secondary level education while in the EU 42.9 per cent of
the labour force has this level of education in Malta only 9.5 per cent
have this level of education. While 8.5 per cent of those aged between
25 and 64 years in the EU are participating in education or training,
in Malta this figure stands at only 4.4 per cent.
Early school leavers between 18 and 24 constitute 18.8 per cent in the
EU while they constitute 53.2 per cent in Malta. These figures compel
us to further sustain our efforts to encourage not only youngsters but
also older persons to embark on further training.
Increased prosperity of a nation must be sustained not only by increased
training which allows employment in higher paying jobs but also increased
innovation. Malta is offering tax incentives for companies embarking
on research and development and investing in IT. We have also set up
the Kordin Business Incubation Centre and the Technology Venture Fund
in order to help in the setting up and financing of highly innovative
Through EU membership our companies will also be able to fully participate
in EU research initiatives. Unfortunately research by the National Statistics
Office indicates that most companies in Malta still consider innovation
as irrelevant for them. Again this compels us to increase effort to
enhance the research capability of our nation.
Our commitments to decrease the Governments administrative burden
on local enterprises will also help in further enhancing the competitiveness
of our economic base. We have decided to merge our industry support
structure so as to be better equipped to serve our industrial base.
Thus a company will have to interface with just one institution for
all its needs whether being research, international marketing or factory
space. This institution will help align support services as, for example,
education and financial institutions, with the needs of local enterprises.
The competitiveness of local enterprises will be further enhanced when
Malta joins the Euro zone. Since our major trading partner is the EU
adopting the Euro will mean eliminating all foreign currency transaction
costs as pricing will be more transparent since hedging costs due to
exchange rate volatility will disappear. Of, course the adoption of
the Euro will also mean that we will have to reach the Maastricht Criteria
on inflation, and Government deficit and borrowing. These are achievable
goals which we intend to pursue in order to allow our local operators
to be able to gain the advantages of a single currency.
As Maltas GDP is still 55 per cent of the EU average, during Maltas
EU membership negotiations an agreement was reached through which state
aid is given to local operators which is equivalent to the additional
handicaps which operators in a small island state like Malta have to
face. Our incentives are aimed at particularly high value added sectors
as our limited resources do not allow us to have a successful fully
diversified industrial base.
What I have mentioned up to now are Government lead initiatives. However,
our social partners have a very important role to play in order to drive
forward initiatives to increase competitiveness which requires national
consensus. Welfare state sustainability needs to be addressed. The excessive
transport costs at our ports also needs priority handling. Wage increases
must be tied effectively with productivity increases. Wage increases
must not result in cost increases. This is vital if really believe in
pursing policies to enhance the continued competitiveness of local operators.
These issues cannot be addressed by Government alone but all relevant
stakeholders must be involved in a collective effort for our national