B Explanatory
memorandum by Ms Coleiro Preca, rapporteur
1 Introduction:
aims and scope of the report
1. The Council of Europe comprises 47 member states
which differ significantly in terms of size, development capacity
and the policy challenges they are confronted with. In discussing
economic and social policy issues, much attention tends to focus
on large economies whilst the particular characteristics, development
problems and vulnerabilities of small national economies often get
overlooked. However, as the Council of Europe seeks “to achieve
a greater unity between its members for the purpose of safeguarding
and realising the ideals and principles which are their common heritage
and facilitating their economic and social progress”,
Note it is necessary to explore how the
development potential – and capacity – of the smaller states could
be best exploited through smart policy choices at national and European
levels.
2. It is difficult today to make a clear-cut distinction between
small and medium-sized national economies, as “smallness” is a relative
concept. Most analysts use population size as a key measurement
to this end,
Note although other indicators
such as territory size and gross domestic product (GDP) can also
be taken into account. Moreover, location and in particular the
insularity of some small economies are important additional factors
to consider.
3. Since the onset of the economic crisis, small economies have
been faced with serious difficulties diametrically opposed to their
size and some small economies (Iceland, Latvia and Moldova) needed
the International Monetary Fund's (IMF) emergency assistance. There
is no single factor that has caused these difficulties, as each
country is unique and has its own specific economic features. However,
it is possible to identify a number of problems common to all. We
shall therefore endeavour to highlight policy options that could
assist fully fledged and harmonious development of small economies.
In so doing, we shall also look at the role international organisations
can play in ensuring a level playing field and greater solidarity
between small and big actors on the global economic scene.
4. The rapporteur wishes to thank several experts from the University
of Malta,
Note notably
Dr Rose Marie Azzopardi, Professor Lino Briguglio (Director of the
Islands and Small States Institute) and Dr Gordon Cordina, who contributed
to the discussion on small national economies during the meeting
of the Committee on Economic Affairs and Development in Malta on
28 May 2010.
2 Definition
of smallness and some general characteristics of small economies
2.1 How small is small?
5. For the purposes of this report, we shall subdivide
small Council of Europe member states (21 out of 47) into two categories:
small states, namely those with a population of less than 4.5 million
(Albania, Armenia, Bosnia and Herzegovina, Croatia, Georgia, Ireland,
Latvia, Lithuania, Moldova, Slovenia, and “the former Yugoslav Republic
of Macedonia”) and microstates, those with a population of less
than 1.5 million (Andorra, Cyprus, Estonia, Iceland, Liechtenstein,
Luxembourg, Malta, Monaco, Montenegro and San Marino). Croatia and
Georgia are the biggest of the small states thus defined, with populations
of about 4.5 million, and Monaco is the smallest, with a population
of slightly above 33 000.
6. Small size also means small domestic markets. In terms of
economic indicators, small economies’ GDP per capita varies from
US$1 630 in Moldova (the smallest in Europe) to US$108 831 in Luxembourg
Note (the highest
in Europe) and their share in world GDP ranges from around 0.014%
(Malta and Moldova) to 0.54% (Luxembourg).
Note
7. As a consequence of their economic openness, most small economies
were particularly exposed to the global financial and economic crisis,
leading to:
- large economic
contraction (–18% in GDP for 2009 in Latvia, –14.2% in Armenia,
–7.5% in Ireland);
- widening budget deficits (reaching respectively 14.6%
and 17.7% in 2009 and 2010 in Ireland, and from 7.9% in Latvia to
2.5% in Moldova and in “the former Yugoslav Republic of Macedonia”
in 2010);
- growing public debt, unemployment (as high as 43% in Bosnia
and Herzegovina, 32% in “the former Yugoslav Republic of Macedonia”,
17% in Lithuania, 14% in Ireland, according to the latest available data)
and the volume of non-performing loans (about 19% in Latvia and
Lithuania, 17% in “the former Yugoslav Republic of Macedonia” and
Moldova, and 12.5% in Georgia).
8. However, the economic rebound has been equally notable, especially
in central and eastern European small economies where positive growth
rates were registered in 2010 (except for Croatia). On average,
their growth rates are projected to be around 3% in 2011 (notably
5% in Georgia and 4.5% in Armenia and Moldova) according to the
estimates of the European Bank for Reconstruction and Development
(EBRD).
2.2 General characteristics
of small economies
9. Although there is a general lack of consensus on
whether country size matters for development, many experts argue
that small economies are inherently different. The main reasons
for this are that small countries have a very modest resource base,
are highly dependent on external trade and resources, and are thus
more exposed to exogenous shocks. Furthermore, small countries are
generally not able to benefit from economies of scale and are unable
to fully diversify their activities. Their economies are highly
dependent on foreign investment but their size limits their negotiating
power. Additional constraints are their limited access to funding from
international markets and their vulnerability to capital flight,
volatility of remittances (particularly important for Albania, Armenia,
Bosnia and Herzegovina, Georgia, “the former Yugoslav Republic of
Macedonia” and Moldova), “brain drain” and environmental changes
(notably in the insular states such as Cyprus, Iceland, Ireland
and Malta), as well as migration-related challenges.
10. Frequently, small national economies have a well-developed
and dynamic tertiary sector, mainly centred on tourism (Croatia,
Cyprus, Malta) or financial services (Estonia, Ireland, Luxembourg).
The economic crisis has led to a slowing down of these sectors,
either because of a drop in the number of tourists or as a result
of financial and banking market contagion. Still, a highly performing
banking sector in Luxembourg makes this country one of the world
leaders in economic prosperity measured in GDP per capita. Moreover,
trade with other countries is vital for small economies and constitutes
a significant part of overall economic activity.
11. Close relationships with the European Union are essential
– either through the European Economic Area arrangements (Iceland
and Liechtenstein), the Central European Free Trade Agreement (Bosnia
and Herzegovina, Croatia, Moldova, Montenegro and “the former Yugoslav
Republic of Macedonia”), association agreements (Bosnia and Herzegovina)
and accession negotiations (Croatia, Iceland, Montenegro and “the former
Yugoslav Republic of Macedonia”; Albania has applied for membership)
– or membership (Cyprus, Estonia, Ireland, Latvia, Lithuania, Luxembourg,
Malta and Slovenia), in particular of the eurozone (Cyprus, Estonia,
Ireland, Luxembourg, Malta and Slovenia). Andorra, Monaco and San
Marino have special arrangements with the European Union on the
use of the euro as their currency.
12. As small players not only on the global but also on the European
scene, small and microstates generally cannot afford substantial
expenditure to guarantee their security and to protect their interests
in the face of external threats. Co-operation on a regional basis
helps to overcome most of these shortcomings.
2.2.1 Economic crisis
and the diversification of the economy
13. Faced with the current economic crisis, a number
of European countries have had to turn to the International Monetary
Fund and the European Union for financial assistance over the years
2009 to 2011, a move that seemed inconceivable only five years ago.
Several eurozone economies (Greece, Ireland, Portugal) have been
particularly affected and other countries with small economies,
such as Iceland, Latvia, Moldova and more recently Bosnia and Herzegovina,
needed emergency EU/IMF loans to get through the crisis, whilst Armenia
and Georgia are under active IMF-supported programmes. It is therefore
necessary to take a closer look at these difficulties.
14. Those small economies which managed to diversify more their
national economy have withstood the economic crisis better than
those which relied on just a few main economic sectors. Several
countries have invested in sectors with a high added value, such
as pharmaceuticals, electronics, new technologies or communications.
Some of these sectors have been less affected by the crisis and
have been able to endure the economic difficulties to varying degrees.
15. Conversely, countries such as Latvia and Armenia, the economies
of which are less diversified, have suffered severely from the economic
crisis, with their GDP shrinking (by respectively 18% and 14.2%)
and their fiscal deficit soaring (respectively at 9% and 7.5% of
GDP). In Armenia, the economy is dependent on a very limited number
of sectors, all of which have been affected by the crisis (construction,
mining, remittances). In these countries, as in some larger ones,
the structural and institutional weaknesses, deficient regulatory frameworks
and governance problems are seen as major obstacles to the diversification
of the economy.
16. The industrial sector has suffered a similar fate. On a steady
downward curve compared with the tertiary sector, industry is nonetheless
still a key sector in certain countries, such as Lithuania (30%)
and Armenia (36%) amongst others. The difficulties inherent in restructuring
the industrial sector, fluctuations in external demand and the collapse
of certain sectors have multiplied the effects of the crisis. For
example, Lithuania, which has been successful in transforming its
industry towards electronics, biotechnologies and chemicals, but has
indulged in a credit boom, has been severely affected by the crisis.
Overall, the Baltic states (Estonia, Latvia and Lithuania) experienced
the most significant overheating before the crisis and the biggest
growth improvement in 2010, as well as industrial recovery in early
2011.
Note
17. A squeeze on small and medium-sized enterprises (SMEs) and
the recreation of oligopolies, observed since 2009, are not encouraging
signs for the diversification of European economies; quite the opposite.
There has been a rise in mergers and acquisitions in the banking
and in the air transport sectors. Such mergers pose a real threat
to competition, benefiting certain small national economies which
previously had an economic advantage in sectors where a variety
of economic players existed side by side.
18. The rapporteur is convinced that maintaining and enhancing
diversification of the economy is a fundamental factor for the long-term
economic success and competitiveness of small national economies.
This diversification should be encouraged by economic initiatives,
such as loan facilities for small and medium-sized and innovative
enterprises working in sectors with a high added value representing
the economic attractiveness of many small states. In parallel, continued
efforts are needed to pursue structural reforms towards removing
economic imbalances and fiscal rigidities.
2.2.2 Importance of the
financial sector
19. The banking sector was the first victim of the financial
crisis. Several national banks had to be rescued by the public authorities,
which in some cases opted for nationalisation. National economies
whose financial sectors were either very large or extremely exposed
to toxic assets have been the hardest hit by the financial crisis.
This is what happened to Latvia, Luxembourg, Ireland and especially
Iceland, whose economy, hit head-on by the economic crisis in October
2008, collapsed. The excessive risk-taking led certain banks to
the brink of bankruptcy.
20. The shakiness of the banking sector compounded the collapse
of the real estate market bubbles as a result of problems encountered
in obtaining finance to buy property. It should be noted that the
high level of dependence on the financial sector of the economy
and the large proportion of the financial market contaminated by
toxic assets led to financial meltdown in these small national economies
and to recession. The most telling example is that of Ireland, the
former “Celtic Tiger”, which is today experiencing serious difficulties.
21. Nevertheless, it should be noted that these small national
economies, whose economic activity is very much geared to banking
services, will almost certainly have to deal with new challenges
brought about by the financial crisis. Over-concentration of the
financial sector inevitably leads to the emergence of systemic banks which
render small national economies more vulnerable to credit bottlenecks
and crunches.
22. Similarly, the disproportionate size of a domestic banking
sector in relation to the rest of the economy not only gives the
banks a huge role and responsibility for the financing of national
enterprises but may also be a big source of concern due to risky
external operations. Thus, for instance, Cypriot banks own assets
of more than seven times the national GDP and are largely exposed
to Greek sovereign debt, which puts an enormous pressure on the
entire country’s economic health and its credit rating.
Note
23. It is necessary not only to put banking establishments on
a sound footing, but also to protect consumers and savers hit by
the financial crisis and the sometimes irresponsible behaviour of
certain banking institutions. Governments need to strengthen the
supervisory powers of the regulatory authorities to ensure sustained financial
and macroeconomic stability, adequate consumer protection, improved
risk management and balanced credit growth. Along with this supervision
there must be genuine political oversight via parliaments representing
the people.
3 Inbuilt constraints,
challenges and opportunities for development
24. As noted above, there is no systematic tendency for
small or micro-economies to underperform. Indeed, some small countries
manage to do better than others by exploiting niche sectors and
transforming constraints into opportunities.
25. A small-scale domestic market, high fixed costs and limited
economies of scale somewhat reduce competitiveness in a global context.
This is certainly a major challenge for attracting long-term foreign investment
and avoiding capital flight. Besides, global financial markets tend
to see small states as more risky than larger states, which translates
into higher cost of borrowing and more difficult access to external
financing. Optimising the investment environment for both domestic
and foreign players is therefore paramount. Moreover, small domestic
markets tend to be characterised by a greater presence of natural
monopolies, notably in utilities where relatively large overhead
costs do not permit more than one entity to viably supply. As there
is a real risk of pricing distortions and market abuse, competition/regulatory
authorities and public oversight bodies need to be particularly
vigilant.
26. Although greater reliance on imports of strategic materials
and goods, such as energy resources and food products, can be seen
as constraints, they can also be viewed as compelling reasons to
invest in the development of trade capacity, logistical networks,
transport interconnections, renewable energy sources and selected
agricultural activity. The smallness in this context rimes with
greater flexibility and adaptability to the new, growing or changing
demand on international markets whilst also enabling to secure sustainable
supplies for domestic needs.
27. The smaller the economy, the greater the opportunities for
small and medium-sized businesses to provide specialised services
and customised goods – against the odds of the globalisation which
is spreading uniform standards and products. With adequate domestic
regulation and export support, SMEs can reap the benefits of the
European Union’s internal market. Furthermore, membership and rules
of the World Trade Organization (WTO),
Note as
well as information technologies and electronic commerce, provide
small countries with extended opportunities for international trade.
However, the diversification and competitiveness of small economies
on the global scene is and will remain a key challenge for development.
28. In confronting the challenges and opportunities of globalisation,
small states often lack the institutional capacity to participate
fully in international finance and trade negotiations whose outcomes
can strongly affect their economies. To overcome, at least partly,
this handicap, small states need to continuously monitor policies and
approaches that work or not for them and share that experience.
Another important way to tackle limited capacity is to enhance their
regional co-operation as far as possible and seek more support from
the multilateral development institutions for such co-operation,
in particular among smaller states. A regional co-operation approach
would also help the pooling of resources and capacities, including
in the private sector. Multilateral institutions can also help improve
policies for utilities regulation and competition in response to country-specific
needs and political realities.
29. In a domestic context, government size and public administration
costs are relatively higher in small states as compared to large
states. Quality of governance is therefore particularly important.
Its success could be measured by the ability to provide good public
infrastructure, efficient public services and an adequate regulatory
framework. As sufficient interconnections for energy, communication
and transport sectors are essential for both the population and
business sector, small states should be encouraged to continuously
invest in these areas. Moreover, because the state is a key domestic
investor, in many small countries there is a strong case for it
to subsidise or provide strong public support to the development
of vital infrastructure and the most promising economic sectors,
not least in order to underpin long-term growth, decent living conditions
and a rational approach to the environment.
30. Volatile economic growth, investor perceptions, limited institutional
capacity, extreme climatic events and in some cases insularity often
expose small economies to exogenous shocks over which they have
little or no control, making small countries highly vulnerable.
Risk mitigation should therefore be a central part of development
strategies – mainly through capacity building, diversification,
innovation and regional co-operation (for instance risk-pooling
arrangements) – in the public and private sectors. In addition,
it is essential to avoid internally generated instability and policy
mistakes which can have longer lasting and more pervasive effects
than they would in larger states. These factors help to increase
resilience to shocks.
31. Yet perhaps the most acute question in small economies is
posed by “brain drain”. Attracting and preserving a qualified labour
force requires the public authorities to ensure a high level of
education, employment, social cohesion, public services and, more
generally, living standards. These public policy areas should be
considered as priorities for development and good governance, which
in turn help build a sustainable livelihood and a solid economic
platform for small but open society.
32. Given the variety of factors in play and the individual characteristics
of countries, small states need to assess their strengths and weaknesses
in the context of globalisation and, if necessary, to proceed to
a strategic global repositioning of their economies. They need to
create enabling environments and provide adequate public policy
support (such as through training, education and regulatory frameworks)
to encourage new activities, many of which are likely to be in the
service sectors. Some states might further need to seek external
support and advice to achieve repositioning or structural adjustments.
4 A closer look at
selected countries
33. Cyprus and Malta have small territories and populations
– by our criteria they are microstates. Cyprus has a surface area
of 9 300 km2 and is home to 753 000 people, while Malta has a surface
area of 316 km2 and a population of 408 333 people. Despite their
small size and limited natural resources, Cyprus and Malta have
achieved remarkable economic growth (leading to eurozone membership)
and excellent social indicators by ensuring macroeconomic stability,
export-orientation, openness to foreign investment and gradual liberalisation,
exploiting international market niches (especially as popular tourism
destinations and highly dynamic financial centres), encouraging
entrepreneurship and emphasising education, as well as provision
of wide-ranging social services.
34. Lately, however, activities of the pivotal tourism and financial
sectors have come under severe pressure from the global economic
crisis. Moreover, in the case of Cyprus, an internal political discord
over the austerity programme and an explosion at the country’s largest
power plant in the summer of 2011 are likely to negatively affect
medium-term economic prospects.
35. Ireland is a relatively bigger economy among the small states
with a population of 4.4 million, which has earned its reputation
as a “Celtic Tiger” as a result of particularly buoyant growth in
the 1990s. Economic dynamism and policy choices (notably low corporate
taxes and incentives for investment in high added value sectors)
have allowed for spectacular diversification in manufacturing and
gains in the quality of life but also resulted in an overheating
of the economy during the second half of the last decade. The latter
led to a property bubble, banking and sovereign debt crises, a recession,
a steep rise in unemployment, repeated credit downgrading and ultimately
an emergency assistance programme by the European Union and the
IMF. A major problem for the country was a high concentration of
international financial services providers (akin to the situation
in Luxembourg and, up to a point, Cyprus and Malta), inadequate
risk assessment and in the end too generous a guarantee extended
by the Irish Government to the nationally-owned banks. Whilst the
aviation sector worldwide was going through one of the hardest crises
in its history, the Irish low-cost carrier Ryanair hit record figures
in passenger numbers and profits in 2011.
36. Similarly to Ireland, the three Baltic states – Estonia, Latvia
and Lithuania – were until recently applauded for their success
in restructuring national economies on the path to the European
Union. Having overcome the spillover effects of the Russian crisis
of August 1998, these small economies pursued a reorientation of
their trade towards western European and global markets and indulged
in a bank-driven consumption and construction boom. The global credit
crunch was a hard test for the fundamentals of the three countries,
whose economies shrank at double-digit pace in 2008 and 2009. To
recover from the recession, these countries opted to restore macroeconomic
balance and competitiveness through a painful internal devaluation
(with drastic cuts in spending in the public sector), a rise in
taxation levels and increased borrowing (for budgetary support).
37. The picture for the three Baltic states is mixed: despite
the hardship, Estonia succeeded in keeping sovereign debt low, excelling
in e-governance, accumulating budgetary reserves during “good times”,
and joining the eurozone (in January 2011) and the OECD (in 2010);
Latvia remains under financial perfusion and tight supervision by
the IMF and the European Union, but its economic growth has bounced
back; and Lithuania is grappling with structural adjustments to
sustain a socio-economic balance and efforts to improve its air connections
with other capitals of Europe (following the bankruptcy of a flag
carrier in early 2009). The three are experiencing export-led but
jobless recovery and some industrial expansion; the three are seeing
a further shrinking of their population due to economic emigration
and low birth rates. Their economic credibility is solid but prospects
remain uncertain – unless there is a serious rethinking of social
policies, a stronger push to diversify energy supplies and the industrial
base, and a greater attention to regional development.
38. The tiny state of San Marino, with a population of around
30 000 on a territory of 61 km2, is completely surrounded by Italy.
Its economic prosperity – much higher than the neighbouring region
of Italy – greatly relies on banks, insurance industry, tourism
and the activity of the public sector, as well as on about 6 000
people commuting from Italy to San Marino to work. Needless to say
its relationship with Italy, its geographical neighbour and main
commercial partner, is vital. However, in recent years, this relationship
has deteriorated and the economy is in crisis because of a dispute
with Italy, which views San Marino as a tax haven even though it
has been taken off the OECD's “grey list” of states not conforming
to rules against tax fraud.
Note Moreover, Italy is still stalling
ratification of a bilateral agreement on the avoidance of double
taxation (signed in 2002). The rapporteur hopes that a mutually
satisfactory solution will soon be found.
39. Among the small Balkan states after the break-up of the former
Yugoslavia (Bosnia and Herzegovina, Croatia, Montenegro, Slovenia
and “the former Yugoslav Republic of Macedonia”), the development
paths and track records have varied significantly. All of these
states took advantage of the tourism sector but have reaped disparate
results due to the state of local infrastructure and services. Slovenia
is clearly a regional leader and a very active trading hub. Its
cautious consensus-based approach to economic management and reform
paid off and paved the way to a rapid accession to the European
Union and subsequently the eurozone. Croatia is the next best performer
firmly on track to join the European Union. A greater regional convergence
and co-operation, determined action against organised crime, continued
improvements in business climate, taxation mechanisms and transport
links, as well as efforts to boost employment and skills (especially
for youth), would no doubt boost and help attract more much-needed
foreign investment to all of these countries.
5 Policy recommendations
and concluding remarks
40. Although smallness is a relative concept, there are
strong reasons to consider a combination of cross-section factors
that call for policy makers’ attention. Clearly, a conjunction of
small domestic markets, limited diversification of local production
and exports, high dependence on foreign markets, insufficient local resources,
weaknesses in public and private sector capacity, difficulties in
managing transborder capital flows and attracting investment, as
well as susceptibility to natural disasters, all lead to higher
economic vulnerability of small states. As we have seen from this
report, the profiles of small Council of Europe member states differ considerably.
Hence an approach seeking standard solutions would not do justice
to the many individual problems and uniqueness of small states,
nor would it recognise that some of the problems faced by small states
are also relevant to other countries. Your rapporteur therefore
prefers to offer some general policy recommendations aimed at stimulating
the public debate on the issue both in small countries and among
their international partners – states and organisations.
41. Small economies have little choice but to be open to international
trade. They need to be open to investment, exchanges and new ideas.
They must constantly adapt and transform their economies in order
to optimise living standards and the quality of life of their population,
make best use of limited local resources, and secure the benefits
of globalisation and the increasingly liberal global trading environment.
Clear signals about the direction of regulatory policies and national
priorities are necessary to guide – or reassure – entrepreneurs
and to attract new investment.
42. However, this openness comes at a price of greater vulnerability
to external factors and events beyond the control of small economies.
Although there is no sure recipe, ensuring sound macroeconomic fundamentals,
diversifying the national economy, enhancing institutional capacity,
building up competitiveness and improving human capital are the
most important drivers of long-term and sustainable development strategy.
Close regional ties, alliances with other small states and in particular
partnerships with multilateral development institutions and international
organisations (such as the European Union and the European Investment
Bank (EIB), the Council of Europe Development Bank (CEB), the EBRD,
the IMF, the World Bank and the WTO) are gateways to solidarity
at all times and especially in times of crisis.
43. Given the importance of the financial sector in general, and
recently the spillovers from the global financial crisis, on small
economies, thought should be given as to how well-regulated, transparent
and value-for-money financial services could be used to stimulate
or pave the way for other types of economic activity, gradually
drifting away from the excessive reliance of national well-being
on the financial sector. Because diversification normally occurs
as a consequence of development, fiscal incentives may be necessary
to secure a fair access of all economic players, especially small
entrepreneurs, to financial resources and to promote socially responsible
investment policies so that a sufficient share of corporate profits
are reinvested locally. Microcredit schemes could be particularly
relevant and should therefore be encouraged.
44. As appropriate, small states should not hesitate to reassess
their policies of privatisation and regulation for the sake of more
broadly shared economic well-being and more adequate participation
of the private sector in the implementation of national development
strategies. This is all the more important in the context of a need to
constantly enhance efficiency and competitiveness, especially given
the risk of market distortion due to the tendency towards monopolistic
market practice (private or public).
45. Your rapporteur, moreover, wishes to insist on the importance
of good governance to underpin development in small states. This
notably covers a synergy of functioning institutions, high-integrity professionals
and the rule of law which together enable the existence of national
justice systems, macroeconomic stability, sound tax administration
and public resources management, social services, entrepreneurial
activity, personal security, civil society participation, transparency
and accountability. We should also stress the need to get budget
deficits under control and seek to return to a balanced budget situation.
A national consensus on the efforts of good governance is thus paramount.
46. With growing public concern over the quality of life and the
sustainability of development, there is huge economic potential
in the environment sector, not least through the emphasis on green
and cultural tourism. In this context, the rapporteur wishes to
recall the highly pertinent recommendations contained in the Assembly’s report
on “Sustainable development and tourism: towards a quality growth”.
Note Small
states could lead the way in Europe by testing green development
options. A shift towards the green economy will require a whole
new strategy and dedicated investment in order to convert local
population and businesses to working, living and consuming differently.
47. Research on the opportunities that information technology
can bring to small countries suggests that e-commerce and e-governance
can provide a major impetus to their development, notably for those
countries with a well-educated workforce. Banking on the economy
of speed rather than the economy of scale, the use of high-end technology
yields efficiency, creates new jobs, makes information more accessible
(to both the general public and businesses) and, in a globalised
economic system, can help transform competitors into partners irrespective
of their size or location. In order to fully exploit new technologies
to boost national economies and welfare, adequate infrastructure,
and regulatory and oversight frameworks are essential. Public-private
collaboration and support of multilateral development banks could
prove highly relevant.
48. Particularly important for small states are good transport
and energy interconnections. Small European Union member states
could thus take advantage of action plans for the development of
transeuropean networks and the related financing schemes through
the EIB loans and EU funds, including the Structural Funds and the
Cohesion Fund. Other countries in the EU’s neighbourhood could seek
to develop their interconnections via the Eastern Partnership facilities.
49. To fully tap their development potential, small states need
to acknowledge the importance of human capital. A better educated,
healthier population is likely to be more entrepreneurial in raising
its income and welfare and exploiting new job opportunities, while
using efficiently the resources at its disposal and enabling the
country to build a basis for the development of a knowledge-oriented
economy. High priority should therefore be accorded to the provision
of affordable, accessible and efficient services for education,
training and health care.
