Gold Magazine February - March 2013, Issue 23 | Page 64

competitiveness

Providing more
vigorous cooperation
between the public
and private sphere
with less public
spending is an ongoing
challenge for Cyprus
Cyprus, Malta and Luxembourg:
A Comparative Analysis

While the 12 pillars of competitiveness
affect all economies, they do so in different
ways. For example, the best way for Kenya
to improve its competitiveness is not the best
way for Italy to do so. The reason behind
this differentiation is that the two countries
are at different stages of development. Spe-

cifically, the Global Competitiveness Index
assumes that economies at the first stage are
mainly factor-driven (based on natural resources and low skilled labour). The second
stage of development is the efficiency-driven
stage, when countries begin to develop more
efficient production processes and increase
product quality. Finally, as countries move
into the final development stage, namely
the innovation-driven stage, wages will have
risen by so much that countries are able to
sustain those wages and a high standard of
living. Companies must maintain their position at this stage by investing in innovation
and promoting sophisticated production
processes and business models. Cyprus,
Malta and Luxembourg belong to the third
and most advanced type of innovationdriven economies.
These three economies are ideal for comparison as they are all innovation-driven,
with a small market size and a small reliance
on heavy industry. Malta and Luxembourg

MOST PROBLEMATIC FACTORS FOR DOING BUSINESS
Comparison chart of five problematic areas of doing business
Source: Author

25

Cyprus
Luxembourg
Malta

20

15

10

5

0
inefficient gov/t
bureaucracy

inefficient
capacity
to innovate

access to
financing

62 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

restrictive labor
regulations

inflation

are also competitors with Cyprus in terms of
jurisdictional attractiveness and in securing
foreign investment. Analysing the findings of the Global Competitiveness Report
can, therefore, provide useful insights into
those areas which require restructuring and
improvement.
Overall, the Global Competitiveness
Index demonstrates that Luxembourg is well
ahead in all categories when compared to
Cyprus and Malta. The last two compete
equally in most categories, with Malta doing
slight better in most.
The table (left) depicts five areas which
have been identified as problematic for
doing business. The importance of this
information is that these factors have been
outlined by the Index’s Executive Opinion
Survey, which is carried out at the local level
in the form of questionnaires addressed to
the business community. The data gathered
provides a unique source of insight into each
nation’s economic and business environment. The most significant gap a mong the
three countries is in access to finance, with
Cypriot respondents considering difficulties
in securing funds as one of the most serious
and problematic factors for growth, posing
obstacles in the promotion of business.
Interestingly, the results of the Executive
Opinion Survey show that respondents do
not think Cyprus has insufficient capacity
to innovate while the findings of the Report
demonstrate the opposite.

Lows and Highs

In comparison to its Maltese and Luxembourg counterparts, Cyprus seems be at a
stalemate when it comes to development
of its financial market. Ranking 38th out
of all 144 economies assessed by the index,
Cyprus might appear to be doing rather
well when it comes to the development of
its financial market but not when directly
compared to Malta, which achieves an impressive 15th place and Luxembourg (12th).
The same can be noted when examining the
technological readiness factor, where Cyprus
is ranked 37th, left behind by Malta in 21st
place and Luxembourg in an impressive
2nd.
The lower ranking of Cyprus (58th as
opposed to 47th place last year) is the result
of a number of factors, one of which is the
lack of institutional efficiency. Cyprus ranks
very low in the efficacy of corporate boards
(a disappointing 139th place). Malta in 84th
place and Luxembourg (16th) do much
better in this aspect. Institutional delay
and the lack of public-private collaboration
can also be demonstrated when examining