Sunday, 3 October 2010

The Road to Singapore

The Malta Independent on Sunday - 03.10.2010

The road to Singapore

The Global Completive Index for 2010 – 2011 (GCI) released by the World Economic Forum received superficial coverage in the local media with main emphasis on the fact that Malta has gained two places up the ranks from 52nd place n the last two reports to the 50th spot in the latest report.

The Index is by its own nature merely indicative and sources information which is not necessarily perfectly comparable across all countries.

So whilst superficially moving two places up the ladder is positive, in substance it is neither here nor there.

Deeper analysis provides valuable information of where we stand in comparison to reliable benchmark countries, what our strengths and our weaknesses are, and consequently draw some conclusions of what we have to do to get better.

Take for example the table of where we stand in the GCI index among the 27 EU nation states. We rank in the 21st spot.

 Some countries that joined the EU with us in 2004 stand ahead us. Estonia, Czech Republic, Poland and Cyprus stand in range between the 12th and the 15th spot, Slovenia and Lithuania somewhat behind them but ahead of us.   Hungary, Slovak Republic, Romania, Latvia and Bulgaria rank behind us.
Of the 15 countries that joined the EU before us only Greece ranks behind us and in fact it ranks right at the bottom in the 27th spot, for reasons which have been making negative financial headlines all throughout this year.

What factors are conditioning our ranking?   I propose to analyse by benchmarking with small countries that are in a similar stage of development, particularly Slovenia, Cyprus and Singapore. 111 evaluation criteria used have been clustered into 3 groupings, namely, Basic Requirements (applicable to all economies) Efficiency Enhancers (applicable also to developing economies) and Innovation and Sophistication factors applicable to advanced economies.

Here is how we rank against benchmarks

Country Overall Basic Requirements Efficiency Enhancers Innovation and Sophistication factors Singapore        3   2   1 10
Cyprus           40 29 36 36
Slovenia         45 34 46 35
Malta              50 40 47 46.      
Figures reflect ranking in Competitive Index out of 139 countries

To see where our strengths and weakness are I took the 10 criteria where we perform best and the 10 where we perform worst and compared them to the same benchmark countries.

10 criteria where Malta performs best         :

                                                         Malta Slovenia Cyprus Singapore

Incidence of Organized Crime              8         42         40           4
Auditing Standards                                8        48         18            4
Protections of minority shareholders   10      119         21            7  
Fixed telephone lines                              2       15         17          28
Interest rate spread                                10       52         49          63
Intensity of local competition                 9       43         18          28
Trade tariffs                                            4         4           4            2
Business impactof rules on FDI             7      116         33           1
Financing through local equity market   9        84         65          5
Soundness of banks                               10      110         31          9
Figures reflect ranking in Competitive Index out of 139 countries

One should note that our financial infrastructure provides 5 of the 10 winning criteria.
Our high ranking in fixed line telephony is of doubtful value as many countries skipped legacy communication technology and rank behind in fixed line telephony but ahead in more important mobile and digital communication.

Of particular interest are the criteria where we perform worst.

10 criteria where Malta performs worst

                                                            Malta      Slovenia     Cyprus    Singapore
Burden of government regulation         96             52              23               1
Quality of roads                                   113             42              23               1
Available airline seat kms                     92            121              61             17
Quality of electricity supply                  89              32              31               9
National savings rate                           133              54            127               6
Government debt                                 111              61            100           130
Flexibility of wage determination          86           117               97              3
Female participation in labour force     119             31              58            86
Domestic market size                            128             80            104            49
Tertiary education enrolment rate           72              4                55           30

Figures reflect ranking in Competitive Index out of 139 countries

Some of these we would readily agree to, in particular the quality of our roads and of the electricity supply.

Hopefully we are doing something about it.

Others things are inherent weaknesses we can do pretty little about like the size of the domestic market and availability of airline seat kilometres.

Our poor rating in the national saving rate must be inaccurate as de facto this is one of our strengths, and it seems that some erroneous data was picked up which is condemning us without fault.

Even the low ranking in government debt is surprising given that our financing did not suffer an explosive growth as a result of the financial crisis and ensuing recession.

Same applies for the reported lack of flexibility in wage determination.

I think this is more applicable to the public sector than the overall economy. In these three criteria I think we probably rank better than reported and in fact the World Economic Forum admits using indirect sources of information for these criteria.

However there are other criteria we should be doing something about or we are simply not doing enough.

Government bureaucracy (note were Singapore ranks here – right at the top), female participation in the labour market, and tertiary education enrolment are real weaknesses which are prejudicing our competitiveness.

Add these to our mid table ranking in criteria related to public sector governance (favouritism in decisions of government officials, transparency of government policy making , corruption)and little effort is needed to conclude where we have to improve to seriously improve our ranking and become serious contenders for FDI’s based on credentials of efficiency and innovation.

The good thing is that improvement in these areas requires strong will rather than strong Euros and improvement does not involve negative influence on government funding and fiscal position.

On the contrary, any money invested to improve where it matters will produce multiples in economic growth and resultant government revenues.

If we really want to we can set out on the road to Singapore.

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