A paradoxical bonanza
Figuring the IMF report (2)
Tourism is obviously a major element in the services sector and still of major importance to the changing Maltese economy. Its upturn after years of stress is a boon. The current services driver, however, is not tourism. It is made up of two other sub-sectors. One is the financial sector.
A fortnight ago much was made of the aggregate of 43,000 financial companies registered in Malta. No one bothered to observe that some 15,000 of those entities are dormant. Even so, the remaining total of 28,000 registered and active financial companies is no mean figure.
The number continues to grow weekly, nudging Malta towards a very respectable position in the international financial sector. These companies generate good revenue for the public authorities. In terms of jobs, the main banks aside, they are measured by the score.
Most of the new financial companies do not provide employment, other than for law and accountancy firms, and for a clutch of directors. May the sector remain on its upward-curving flight path, but place it in context to determine its impact on the macro economy.
The other sub-sector which is burgeoning has to do with gambling. Employment per euro of investment is higher than in the financial sector. It constitutes good additions, not droves. These sectors are not - so far - affected by loss of competitiveness. They depend on other conditions for their location, such as comparative taxation, where Malta has a good edge, and legal constraints elsewhere.
The comparative advantages are being exploited very well by the promoters and financial practitioners. With care, the success in those sectors has quite longer to run. The impact on the macro economy, however, is limited, even as gross betting receipts tend to raise the risk of distorting the balance of payments on goods and services, among other things.
There is another particular aspect that can be surmised from the IMF consultation analysis. It has to do with earnings. These are rising considerably, and in some areas they do so faster than those of our competitors. Hence the loss in competitiveness.
Even here, however, segmentation is required. Real incomes are not rising uniformly across the sub sectors. They never do. Nowadays they do so less than ever. The overall increase masks important differences. The real wages of the traditional parts of the manufacturing and services sectors are barely keeping up such as to yield employees a real increase in their standard of living, or in savings out of disposable income. There, too, a paradox exists, as the shortage of cleaners and other lower skilled workers suggests, in part explaining the emergence of groups of immigrant workers in the sectors as evidence.
There is a much sharper shortage elsewhere. It is very difficult nowadays to hire accountants and accounts clerks. They are being snapped up by the accountancy and audit firms, and by the new segments of the financial sector. The same goes for qualified IT personnel.
What is happening, in fact, is something an IMF economist leading a consultation mission in the 1970s warned me about, as head of the Central Bank at the time.
I recall we used to worry a lot about imported inflation. The higher cost of imports was feeding into the economy directly, through consumption, and indirectly, through cost of living increases to compensate for the higher cost of consumables.
The IMF expert who led the consultation mission at that time, a German economist, agreed that we were right to worry in regard to imported inflation. But, he said, inflation could also be coming in via the export side: Successful manufacturing firms were paying above-average wages. Today it sounds simple but that economist made us realise that strong performances by new industrial companies was raising demand for and pay to human resources.
That is definitely happening now in parts of the services sector, through demand by foreign investors and by back-office providers. One should not weep over this paradoxical bonanza. But neither should one ignore its significance and implication to forward looking policies. Particularly in the education sector, which has to supply enough of the coming human resources requirements if the paradox is not to grow further.
(concluded)
A fortnight ago much was made of the aggregate of 43,000 financial companies registered in Malta. No one bothered to observe that some 15,000 of those entities are dormant. Even so, the remaining total of 28,000 registered and active financial companies is no mean figure.
The number continues to grow weekly, nudging Malta towards a very respectable position in the international financial sector. These companies generate good revenue for the public authorities. In terms of jobs, the main banks aside, they are measured by the score.
Most of the new financial companies do not provide employment, other than for law and accountancy firms, and for a clutch of directors. May the sector remain on its upward-curving flight path, but place it in context to determine its impact on the macro economy.
The other sub-sector which is burgeoning has to do with gambling. Employment per euro of investment is higher than in the financial sector. It constitutes good additions, not droves. These sectors are not - so far - affected by loss of competitiveness. They depend on other conditions for their location, such as comparative taxation, where Malta has a good edge, and legal constraints elsewhere.
The comparative advantages are being exploited very well by the promoters and financial practitioners. With care, the success in those sectors has quite longer to run. The impact on the macro economy, however, is limited, even as gross betting receipts tend to raise the risk of distorting the balance of payments on goods and services, among other things.
There is another particular aspect that can be surmised from the IMF consultation analysis. It has to do with earnings. These are rising considerably, and in some areas they do so faster than those of our competitors. Hence the loss in competitiveness.
Even here, however, segmentation is required. Real incomes are not rising uniformly across the sub sectors. They never do. Nowadays they do so less than ever. The overall increase masks important differences. The real wages of the traditional parts of the manufacturing and services sectors are barely keeping up such as to yield employees a real increase in their standard of living, or in savings out of disposable income. There, too, a paradox exists, as the shortage of cleaners and other lower skilled workers suggests, in part explaining the emergence of groups of immigrant workers in the sectors as evidence.
There is a much sharper shortage elsewhere. It is very difficult nowadays to hire accountants and accounts clerks. They are being snapped up by the accountancy and audit firms, and by the new segments of the financial sector. The same goes for qualified IT personnel.
What is happening, in fact, is something an IMF economist leading a consultation mission in the 1970s warned me about, as head of the Central Bank at the time.
I recall we used to worry a lot about imported inflation. The higher cost of imports was feeding into the economy directly, through consumption, and indirectly, through cost of living increases to compensate for the higher cost of consumables.
The IMF expert who led the consultation mission at that time, a German economist, agreed that we were right to worry in regard to imported inflation. But, he said, inflation could also be coming in via the export side: Successful manufacturing firms were paying above-average wages. Today it sounds simple but that economist made us realise that strong performances by new industrial companies was raising demand for and pay to human resources.
That is definitely happening now in parts of the services sector, through demand by foreign investors and by back-office providers. One should not weep over this paradoxical bonanza. But neither should one ignore its significance and implication to forward looking policies. Particularly in the education sector, which has to supply enough of the coming human resources requirements if the paradox is not to grow further.
(concluded)