michael c bonello : overcoming the competitiveness challenge - malta ’ s economic imperative address by mr michael c bonello, governor of the central bank of malta, to the malta chamber of commerce national competitiveness conference, held in qawra, 5 october 2001. * * * that competitiveness is the key to survival is a maxim that applies as much to firms as to national economies. countries tend to be competitive when they pursue sound macroeconomic policies and a market - oriented growth strategy. indeed, it is difficult to imagine a firm, however efficient it might be, remaining competitive for long in a country which does not provide a congenial policy environment. the focus of my remarks will, therefore, be on how national competitiveness could best be promoted. for this purpose it is first necessary to enquire why it is that competitiveness has become such a vital issue and why we simply must not fail to overcome the challenge. the imperative derives from a combination of exogenous and endogenous factors, both structural and cyclical. perhaps the single most important structural factor is globalisation. advances in information technology and communications have greatly reduced the costs of doing business internationally. the removal of barriers to the free movement of goods and also of some services has been followed by a large increase in cross - border trade. firms are thus no longer guaranteed captive national markets. the process of global economic integration has been driven even faster by foreign direct investment ( fdi ). indeed, the volume of global fdi has almost quadrupled since 1980, a much faster progression than world trade, which barely doubled. for the fdi host countries this has meant not only an increase in output and employment, but often also a transfer of technology and know - how that has considerably strengthened their economies. in this respect, the experiences of ireland and portugal immediately spring to mind. thus, failing to compete in a globalized world is likely to result not merely in lower sales but, more importantly, also in less investment and, therefore, in weaker growth prospects. in sum, globalisation implies increased opportunities but also risks. the opportunities cannot be seized and the risks minimized, however, without an appropriate strategy. for this reason many countries are to - day actively engaged in improving their market positioning and their cost structures relative to their competitors in order to exploit opportunities for increasing their value added. some of the more interesting dynamics engendered by globalisation are taking place at the regional level. economic integration is proceeding rapidly

of view of the central bank of malta, it should also enable us to refine our analytical work, whose conclusions have since 2009 been published in our annual financial stability report and the mid - year update. the report contains insights into the main vulnerabilities of the domestic financial system and into any latent risks, whether in the system itself or in the external environment. it also assesses the robustness of the financial bis central bankers ’ speeches system and its resilience to particular stress events. by publishing its findings, the bank aims to foster a constructive dialogue among all stakeholders with the ultimate objective of strengthening the financial system. the quality of the bank ’ s assessments, however, depends on access to timely and reliable market intelligence. for, while the statutory data submitted regularly by reporting institutions is thoroughly analysed, this is insufficient to provide a holistic assessment of emerging risks. financial stability is a forward looking concept. risks, moreover, may materialise suddenly or with little warning. this is where market intelligence plays an important role. we, therefore, see the forum as an important complement to our early warning system, particularly since owing to the rapidly changing structure of the financial system and the idiosyncrasies of the maltese economy, it has proved difficult to construct a more formal early warning system model. the decision to create the forum for financial stability can also be interpreted as a way of institutionalising current arrangements by enabling a more structured dialogue. through this channel, the authorities will be able to convey their conclusions and concerns more directly, while market players might wish to offer their views on financial stability issues and their assessment of market developments. the bank chairs joint committees with the industry in other areas, such as statistics and financial markets, and the experience to date has been very positive. i am sure that discussions in the forum will be equally productive. the launch of the forum for financial stability is taking place at a time of radical change in the regulatory and supervisory environment, especially in a cross - border context, both at european and global levels. the feedback the central bank of malta and the mfsa hope to receive from the forum on reform - related issues should, therefore, also prove useful to these authorities in connection with their participation in the work of the european system of central banks, the european supervisory authorities ( esas ) and the european systemic risk board ( esrb ), as well as for the purposes of the technical advice given to government in the context of eu discussions on