As a result, they are finding our country no longer profitable to operate in, especially when compared to locations in Eastern Europe, North Africa and Asia. For them, as the recent painful examples of plant closures have shown, Malta fails to offer the right combination of productivity, skills, innovative ability and cost to justify their investment. There are other early warning signals. The economy’s 0.2% average real growth rate over the past two years is the lowest of all the acceding countries. It is also low compared to that of the existing EU member States. The experience of those two years may well have been exceptional, but it nevertheless serves to remind us that the economy needs to grow consistently much faster if Malta is to catch up with average EU per capita income levels within a reasonable period of time. I strongly believe that the factors making for high costs and weak growth rates should be addressed as a priority. As I have observed on other occasions, strategies to improve competitiveness in a globalising world can be devised. Other countries have shown the way. What is needed is the political will and the effective collaboration of all the parties concerned. Population Ageing Perhaps there exists no clearer example to illustrate the kind of challenge the country faces than the issue of population ageing. The impact of a rapidly ageing population in the context of a generous welfare system is inevitably a dramatic rise in spending on pensions and health care.
Globalisation and Increased International Competition Such considerations lead us to another major challenge, that of globalisation and increased international competition. Malta is particularly susceptible because it has a very open economy. Developments in the international market place are indeed likely to become even more relevant because the process of globalisation continues unabated. Facilitated by the progressive dismantling of trade barriers, this process has been characterised by a rapid growth in factor mobility and crossborder investment, and has given rise to harsh competition based on innovation, dynamism, improved  2  BIS Review 50/2003  quality and low cost. It has also become easier for new entrants to gain access to global markets, including the countries of Central and Eastern Europe, many of which are now our competitors. Globalisation has, therefore, brought more uncertainty because there will be winners and losers. Although the process probably involves more than simply a zero-sum game, it is also true that countries which adapt to the new competitive conditions more rapidly will grow at the expense of those which are slower to react. This is a crucial consideration for Malta, which is a very small player in the global market place, and therefore a price taker, but which depends heavily on exports to maintain the living standards of its people. While there are many enterprises in Malta which are rising effectively to this challenge, the cost pressures associated with the macroeconomic imbalances and the inefficient practices described earlier are proving to be too much of a burden for some others.