Away from turbulence

With the country now officially in recession, it is vitally important that the government accelerates its efforts to steer the economy away from the increasing turbulence that is ahead of us. The economic statistics for the first quarter of 2009 are likely to show that the much desired turnaround is still a long way away.

The Central Bank of Malta (CBM) annual report for 2008 is predicting a GDP growth of between 0.5 and 1.1 per cent. I find this projection rather too optimistic when the same report rightly comments that external demand for our goods and services is expected to decrease during the current year, and yet GDP growth, even if modest, is anticipated as a result of domestic demand. One hopes this prediction is right, but one also fears it may prove unrealistic.

The persistence of a high inflation rate in Malta is indeed worrying when one considers that in the eurozone area inflation is well under control. Last year, the harmonised index of consumer price inflation rose to 4.7 per cent, when in 2007 this was just 0.7 per cent. The delay in passing the full benefit of the fall in oil prices to Maltese families makes the current economic crisis even more acute.

The dramatic decline in trade performance is another area of great concern. Figures for the first two months of 2009 are indeed worrying. The drop in exports is being experienced in most of our export-oriented manufacturing companies and this indicates that more turbulence in the manufacturing industry awaits us unless we take drastic action to help these companies cope with their increasing costs and fall in demand.

More work needs to be done to upgrade the skills of our workers employed in manufacturing. Equally important is the need to attract new investment to this important sector that can still provide employment for thousands of people. Malta Enterprise should emulate the success of the Malta Financial Services Authority by being more dynamic and focused in its promotion of the island as a high-tech manufacturing base.

Our tourism industry also needs a boost of new ideas and commitment from those who are leading it. Admittedly, at a time of serious recession in our foreign markets, a fall in demand is only to be expected. However, more needs to be done to prepare ourselves for the time when European economies start to recover.

More investment is needed to upgrade our tourism infrastructure to make our product more attractive in the eyes of potential visitors. This is one area where productive public investment can be encouraged without the fear of most of the money invested leaking abroad through increased importation.

The embellishment of our island is still a low priority on the government's agenda. This needs to be reversed. These embellishment projects need time to be completed so any delay will only make the matter even worse for us. It is not enough to pin our hopes on late bookings or political trouble as some of our competing countries like Greece, for instance, are doing.

Equally important is the need for a blitz in upgrading the skills of our workers engaged in the tourism industry. Education will always remain the critical success factor that will determine whether we can attract much-desired direct foreign investment. Improvement in educational achievement statistics on their own are not very convincing until it is proven that there is no window dressing in the effort to obtain these improvements.

The government needs to be honest with people. For too long it has projected a rosy picture of the Maltese economy in general and government finances in particular. Now the CBM report confirms what the Labour Party has been saying throughout the last 18 months - government GDP growth and public finance figures for 2008 were cooked. It gives us no pleasure in saying 'we told you so'.

What is important for the PL is that concrete action is taken to address the weaknesses in our economy. We reiterate the need to reduce government-induced costs on industry, the promulgation of more generalised assistance schemes for manufacturing and tourism, and a more honest attitude in reporting the realities we are facing. Let us by all means be optimistic about the future. But let us never deceive people by telling them half-truths and blatant lies about the economy.

Mr Mangion is Labour Party Shadow Minister for Finance.

cmangion@keyworld.net