Fimbank

This World Economic Forum had recently released its annual Global Competitiveness Report, the most comprehensive assessment of national competitiveness worldwide, and which provides an insight into the competitive landscapes of 144 economies. The competitiveness ranking is based on 12 principal criteria comprising over 100 variables.

As a Swiss citizen living in Malta, it comes natural to me to check this global ranking to see how both Switzerland and Malta feature. Malta has been my home for the last twelve years. I think I know this country quite well by now, and from various perspectives, including the business one of course. My career continues to take me to several countries and across continents, and when I reflect on Malta’s competitiveness and how this can be improved for the benefit of its citizens, I often draw on my experiences abroad for comparisons. For the record, Switzerland has retained its crown as the world’s most competitive economy for the sixth consecutive year. Malta, on the other hand, now finds itself in 47th place, slipping down six positions in the ranking and back to where it stood at the time of the 2012–2013 report.

So what makes Switzerland so competitive? Switzerland owes its success to a combination of factors, including stable, transparent and effective institutions, sound and healthy public finances, an excellent infrastructure, a world-class education system, a flexible labour market, a high level of business sophistication, and last but not least the country’s exceptional capacity for innovation. Switzerland has managed to create an innovation hub which has resulted in the highest number of international patent applications per inhabitant in the world. The country has achieved a powerhouse status in this field because it considers innovation as the main source of long-term growth. The competitive index shows that Switzerland understands that talent drives innovation and makes good use of its greatest asset, its human capital. While other European economies are experiencing “brain drains”, the country ranks first for its capacity to attract and retain talent, and also ranks first for the quality of its education system and collaboration between employees and employers. While Switzerland demonstrates many competitive strengths, maintaining its innovative capacity requires university enrollment which is lagging behind that of other high-innovation countries, so there are no guarantees that Switzerland will be in pole position next year!

What about Malta? Although the islands’ situation is not as rosy, on a positive note these continue to rank as one of the world’s top financial jurisdictions, with significant improvement being achieved, and putting it in top ten in the world. Malta has also maintained the 13th ranking position in terms of the strength of auditing standards and reporting standards. As to key improvement areas, the report highlights bureaucracy and government inefficiency as being two of the major challenges facing those doing, or wishing to do, business in Malta. Significantly, however, the report also points to access to finance and the insufficient capacity to innovate, as major stumbling blocks.

Much has already been said about bureaucracy and the workings of government, so I would prefer to focus on the issue of innovation. As indicated by Switzerland’s success story, talent needs an innovation-friendly environment in which to grow. Public policy can contribute decisevely towards such an environment, especially where this is geared towards encouraging the development of innovative ideas and products which have a degree of potential that is both unique and sustainable. Innovation needs to be promoted and fostered particularly amongst SMEs, which are indeed the backbone of every economy including of course the Maltese one. Additional measures to improve access to finance, more innovation-friendly rules and regulations, and additional incentives for research and development, can give Maltese entrepreneurs that much-needed encouragement to turn their ideas into reality. Many have suggested that clustering could prove to be the right business model which could give local companies the necessary economies of scale to pool knowledge and develop joint research and innovation potential.

The fact that Malta continues to lag behind in terms of spending on research and innovation should not be ignored. The country needs to invest substantially more in science and technology as a means of developing a culture of local technological innovation. The issue of training – and retaining – researchers and highly-skilled people is another challenge which needs to be addressed.

Innovation is a keystone of long-term competitiveness. However, the development of innovative capacity can only come about through the consistent application of the correct strategies. Over the past decades, Malta has shown glimpses of its potential to become one of the world’s most successfull economies. To achieve this potential, Malta needs to invest in those who through their talent, skill, entrepreneurship and the development of intellectual property can bring the best out of this country. In his book “Innovation Nation”, John Kao puts it succinctly: “Innovation is the ability of individuals, companies and entire nations to continuously create their desired future” (Innovation Nation, 2007).

Innovation and Competitiveness - September 2014