Developing a competitive knowledge-based economy

Finance and Economic Affairs Minister John Dalli addresses Friday’s Federation of Industry’s conference: ‘Europe – Most Competitive economy by 2010? How will Malta benefit from this process?’ In his wide-ranging speech, Dalli extols the advantages of a knowledge based economy, he urges that we need to be committed to work together to introduce the necessary changes in order to secure a better future, and addresses a wide range of issues including the tremendous costs associated with using Malta’s ports

First of all I would like to commend the Malta Federation of Industry for having delved into a detailed study of Malta’s competitive position with regard to EU member states. It is indeed very encouraging that some of our social partners are getting beyond superficial grumbling but are drawing up recommendations which are based on a tangible effort to move forward.
A knowledge based economy is one in which the production, distribution and use of knowledge is the main driver of growth, wealth creation and employment across industries. In a globalised world were product value chains are scattered around the globe in order to maximise production efficiency a company can only gain a competitive advantage over competitors through innovation either of the product itself or of the production, distribution and marketing process. Thus knowledge must be continuously developed in order to bring about these innovations.
Increased standards of living have to be sustained with increased productivity or wealth generating processes and thus a country’s wealth need to be sustained by continuously working to attain the development of innovations locally as well as the production of innovative products in the local market. However the attraction of such products and processes necessarily entails that Government has to weave a competitive backing environment which is capable of dealing with the demands of a knowledge driven economy.
The country has reached a stage in its development were we need to reassess present practices in order to ensure that the advantages and challenges of a knowledge driven economy, EU membership and globalisation are fully exploited. We cannot remain locked each in our little blockaded little corner, jealous of all advantages that we perceive we have accumulated over the years.
We need to be committed to work together to introduce the necessary changes in order to secure a better future. Because to reach the goals we are talking about, we have to shift resources from their present transfer flow to a flow of investment.
The Federation of Industry calls in its study for the need to halt growth in unit labour and non-wage costs through the determination of a National Incomes policy in consultation with other social partners. I am all for the establishment of a negotiated Incomes Policy. We had put up a milestone some ten years ago. We should have built on this but unfortunately this attempt was derailed through union pressure and soft negotiators in the private sector.
The point of departure is that wage increases should not outpace productivity increases.
I reiterate that the time is ripe for an assessment of the experience with the current incomes policy regime with a view to ensure that it reflects modern realities following appropriate consultations with all interested parties.
We are also committed towards unleashing our companies from the burden of exchange rate uncertainty and transaction costs with our major trading partners through the adoption of the Euro. Submissions under the Pre-accession Economic Programme indicate the path towards moving closer to the Maastricht criteria of inflation, Government deficit and debt to GDP. We believe that these are achievable goals that we shall attain, however, moving at a pace which does not sacrifice the overall well-being of the domestic economy.
The reaping of the true value of all resources must be secured. A case in point is land which is one of Malta’s scarcest resources. A greater focus is needed on the monitoring and administration of public industrial land use in order to achieve greater value for the use of this resource.
It is interesting that the study compiled by the Federation of Industry indicates electricity prices which compare well to the EU average. The main complaint by industry still mainly concerns power cuts. We are committed to minimise as much as possible power cuts through further investing in generation and distribution equipment.
Malta has invested heavily over the years to develop excellent air and sea links and a modern telecommunication infrastructure. The liberalisation of the telecommunications sector has already brought with it tangible benefits to users of mobile telephony. Regulation in this sector will hopefully bring about also more competitive prices in mobile fixed and telephony.
Various initiatives have been taken and are being taken to decrease the burden caused by excess workers in the public service and public corporations caused by ill-advised political decisions, inertia in public sector management and unwarranted union interference in management prerogatives. We believe that we cannot afford any longer to have persons earning a living but not giving their fair share of work. Thus we need to make a genuine effort to encourage these workers to embark on alternative productive employment and embrace a new work ethic.
We are also committed towards decreasing the burden of bureaucracy on the local businesses and are aiming at creating a public service which is more business friendly. The investment in e-Government was an important step towards developing more efficient Government services and also for the regulation and proliferation of electronic commerce.
The establishment of Malta Enterprise is another step to improve the efficiency of the public sector in dealing with businesses’ needs. Malta Enterprise will be a lean organisation that provides a one stop shop for all business requirements whether to improve the innovative capability, to find overseas markets or to expand their productive activities. ME will be following modern business support practices.
Malta’s incentive structure for businesses is such that it aims to target high value added activities to be located in Malta. Industry is encouraged to take full advantage of the competitive incentives package we have negotiated with the EU. In this context one must note that special incentives are laid down under the Business Promotion Act for businesses engaged in research. In addition business benefits from income tax exemption on profits which are reinvested in the company.
We have also tried to help the finance of innovative businesses through the setting up of the Kordin Business Incubation Centre. The Kordin Business Incubation Centre provides physical space and technology infrastructure in a convenient, yet low cost location. It is encouraging to note that up to now there are 18 clients at the Kordin Business Incubation Centre who are taking advantage of this opportunity to embark on an innovative business. Initiatives by the Malta Council of Science and Technology continue to support the trust towards innovation in Malta. We will continue to invest public funds in this area as it is viewed to be critical for the future of this country.
The FOI study indicates the low proportion of science and technology graduates and persons with tertiary education. We cannot truly reap the advantages of a knowledge based economy unless our labour force is adequately prepared to take full advantage of the opportunities that this presents. We are unfortunately still suffering from wrong past policy decisions. It is only since 1987 that University and other post-secondary institutions have opened up to a larger number of students. However the rapid increase in University students from a few hundreds in the late eighties to almost 9,000 students is an encouraging sign that the situation is improving. We will continue to work to further increase the uptake of further training by all our labour force.
The access to EU programmes will further enhance the research and educational opportunities available to our companies. The set up of Malta Enterprise should also facilitate in further enhancing the synergy between industry and our educational institutions. Up to the setting up of Malta Enterprise, the collaboration between industry and the academic world was very piecemeal and uncoordinated. The partnership between businesses and educational institutions through Malta Enterprise should result in mutual benefit.
Another factor which is impinging seriously on Malta’s competitivity is the situation of the local ports. It is of concern that it costs in Malta about three times what it costs in Antwerp to handle goods from ship to port gate. Malta’s dependence on trade means that the majority of the goods that we purchase or sell abroad are negatively affected by such charges. A solution on this issue, with the full commitment of partners must be achieved for the benefit of our economy.
Over the past years by working together we have managed to achieve important results. Looking into the future there are real opportunities for businesses to reap within a European context. Indeed we do not intend to sit on our laurels and know that there is still much to be done to continue to improve Malta’s competitivity through further training of our labour force, increased encouragement of innovation and the further mitigation of our inefficiencies in our business environment.