The micro approach

Government has taken the decision to address the situations of individual companies feeling the negative impact of the deep international economic recession. In one form or another, these companies are being supported in order to safeguard their investment in Malta and more importantly to safeguard jobs.

The arrangements made with the individual companies are confidential; and so should they be. Our interest in such companies, once we had welcomed them here with open arms (and some have been here for decades), should be to keep them here, because the whole economy benefits from them being here.

The approach taken by government is very much a micro approach to the challenge that our economy is facing and not a macro approach. This is seen to be different from the approach taken by other countries and the pertinent question is whether such a micro approach is the appropriate one or not.

As riders on to this question, one may also ask whether such an approach is fair or not in that it is being very selective; or whether as a country we can afford to provide support to such companies; or whether such support is economically wasteful or not; or whether such support should remain confidential.

Let us start with the confidentiality issue. Making public the details of such support may satisfy the curiosity of some and make others envious. However, adapting the old saying, it is worth noting that satisfying such curiosity may eventually lead to the death of the investment. This does not mean that government should not be accountable for such expenditure; in any case this expenditure will be reported in the government's financial report. It means rather that we need to examine thoroughly what is in the public interest today. I believe that it is in the public interest today not to make public details in relation to such government support, because it will jeopardise jobs, investment and the trust that our country has enjoyed in the field of foreign direct investment.

In assessing whether a micro approach being adopted by government is appropriate or not, one needs to take into account the impact that the international economic recession has had so far on our economy and the structure of our economy. It has always been recognised and continues to be recognised that our country requires investment in activities that are not dependent on the local market; in other words export oriented. If government support is being given to prop up businesses that produce for the local market, there is really very little value added from such support.

We will reap maximum benefit from such support if it is focused on those business activities that are export oriented and generate most jobs, especially for those people that become most vulnerable in time of a recession.

Moreover, we should also recognise that companies have not been affected by the international recession in the same way. Thus one cannot use the blanket approach that has been used in other countries, such as bailing out the whole of the automotive sector or pumping in billions in the construction sector, as otherwise there is the risk of using up scarce resources where they are not really needed.

Should government provide support in the selective manner it is doing it today? Is this fair? My answer in this respect is an unqualified yes. And there are reasons for it to be so.

There are various instances where government has sought to support specific sectors to enable growth in the economy. One example is the market development support provided to low-cost airlines. Another example is the fiscal incentives provided to operators in specific activities. Moreover, certain sectors in the economy have been advantaged as a result of specific government policies. For example the construction sector and certain services have benefited greatly from government's drive to grow the financial services sector.

In any case, one should also keep in mind that government has launched a number of support initiatives that cut across all sectors in the economy. I am specifically referring to the Training Aid Framework and the Employment Aid Scheme, both administered by the Employment and Training Corporation, the funds provided to the tourism sector to support innovation and the support provided by Malta Enterprise for a range of initiatives. Therefore, it would be quite odd if we have a business claiming that it could not benefit from any form of support provided by government.

Can the country afford the type of support that government is giving to specific firms or is this support economically wasteful? In determining whether the country can afford to pay for this support, one needs to keep in mind that by supporting large export-oriented enterprises, the government is also indirectly supporting a range of other businesses that sell to these enterprises.Creating new employment and safeguarding productive jobs should always be one of our top economic priorities.