In a recent insightful address at the European University Institute, Isabel Schnabel, a member of the European Central Bank’s Executive Board, highlighted a pressing issue that resonates across the euro area – technological innovation as a pivotal factor for economic competitiveness.
For Malta, a small island nation within this mosaic, the speech is not just a call to action but a blueprint for navigating the intricate landscape of economic challenges and opportunities in the era of digital transformation.
Malta’s economic journey has been one of remarkable transformation, from a focus on traditional industries to becoming a service-based economy. Yet, as Schnabel points out, the broader euro area has been lagging the United States and China in terms of integrating and capitalising on information and communication technologies (ICT), a gap that Malta must also heed.
The euro area’s technology gap, as outlined by Schnabel, stems from historical underinvestment in ICT and a fragmented digital market. For Malta, the implications are twofold. On one hand, there’s a challenge in bolstering the ICT sector, which is fundamental for enhancing productivity and competitiveness. Especially the need to truly see ICT as a general-purpose technology and to permeate its impact across firms and economic sectors.
On the other hand, there lies an opportunity in leading the charge for digital excellence by leveraging its strategic position and EU membership to attract technology investments.
Investing in technology infrastructure and fostering a robust R&D environment are essential for Malta to thrive. The nation can benefit from EU funds aimed at digital transformation, using these resources to build a resilient infrastructure that supports both local businesses and attracts international tech firms seeking a conducive environment for growth.
There are numerous support measures in place including grants to support businesses. However, we believe that it needs to be fully anchored as Malta’s economic and productivity backbone and enabler.
A key concern highlighted in the euro area’s narrative is the stagnant productivity growth, primarily due to the slow adoption of new technologies in business processes. Productivity is also a major concern for Malta’s economy as it remains one of the main challenges we face across numerous sectors but which, however, offers the opportunity to reap productivity gains if tackled properly. Malta can carve a niche for itself by adopting smart technologies in sectors such as tourism, healthcare and manufacturing.
Moreover, the development of a digital workforce through education and training programmes will ensure that Maltese workers are well-equipped to handle the demands of an increasingly automated and digital workplace. This not only enhances productivity but also makes the labour market more attractive to global tech enterprises looking for a skilled workforce.
Malta can carve a niche for itself by adopting smart technologies in sectors such as tourism, healthcare and manufacturing
To truly capitalise on the opportunities presented by technological advancements, Malta must also consider robust regulatory reforms that encourage innovation while protecting stakeholders. As Schnabel notes, the euro area needs to remove barriers to the free movement of goods, services and capital. Malta, too, should streamline its regulatory processes to support start-ups and tech companies, making it easier to set up, operate and scale businesses in technology sectors.
We need to truly look at regtech opportunities and exploit synergies between regulators to capitalise on the EU’s single and open data frameworks, which will serve as a blueprint for the sharing of information and of streamlining various processes.
Emphasising data protection and cybersecurity will further strengthen Malta’s appeal as a secure hub for digital businesses. This not only aligns with EU directives but also boosts investor confidence, crucial for a small economy aiming to continue carving out its niche.
Malta stands at a critical juncture, with the potential to transform its economic landscape through strategic emphasis on technology and innovation. The country’s vision should include becoming a leader in digital services within the EU, which not only addresses the immediate need for economic diversification but also sets a long-term path towards sustainable growth.
Partnerships with educational institutions and the private sector will be vital in achieving these goals. By fostering a culture of innovation and entrepreneurship, Malta can move beyond traditional economic models and embrace a future where technology drives growth and prosperity.
Schnabel’s discussion on the euro area’s technology gap serves as a reflective mirror for Malta – it highlights both vulnerabilities and vast possibilities. By embracing the technological imperative, Malta can not only address its own economic challenges but also position itself as a beacon of innovation and productivity in the Mediterranean and beyond.
In doing so, Malta will not just follow the path set by others but will carve out its own, ensuring a resilient and prosperous future.
Stephanie Fabri and JP Fabri are economists.