Money talks, investment walks

Budget date is getting nearer and the talks between all social partners are intensifying. Management of public funds and the redistribution of same is ultimately the responsibility of the government. But besides the aspect of public finance consolidation, the forthcoming budget becomes even more important in terms of the awaited decisions regarding national competitiveness, which, in turn, is crucially influenced by flexibility in the labour market and workers' compensation for inflation.

It is imperative that the way forward, in terms of competitiveness, proceeds according to a blueprint agreed to by all social partners.

Active discussions have taken place within MCESD throughout the summer months as social partners sought to strike agreement on a document setting the general framework on the economic priorities of the country at this juncture. The economic climate, both locally and abroad, can at best be described as uncertain. Despite an expected economic contraction this year, Malta has weathered the storm slightly better than other countries but it must ensure that it will be able to keep up with the pace of recovery as and when this is registered in its major trading partners.

While we are designing our future policies, it must always be kept in mind that certain issues are closely inter-related. Besides, growth in the Maltese economy depends almost entirely on business generated from abroad and momentum in the local economy is generated by investment made in the private sector. That investment will be channelled elsewhere if the competitiveness conditions locally are less than opportune. These challenging times dictate that the country must be on top of the situation to ascertain jobs and continued prosperity.

Competitiveness is key. The Malta Chamber has been claiming so since its merger in January. The competitive situation in the international market has never been as tight and it will become tighter when the world, as a whole, emerges from this situation.

The Malta Chamber surveys its members regularly and knows for a fact that the country's competitiveness will receive no favours from the granting of full Cost Of Living Adjustment to all workers across the board again this year. That said, there will be no visible and immediate catastrophic effects but, going forward, COLA will certainly not encourage investors.

Nevertheless, the Chamber acknowledges that national competitiveness does not rest solely on COLA and that other measures can and must be taken to mitigate the effect.

Business certainly requires a wider adoption of flexicurity measures. Employers in Malta are constrained by a rigid definition of the working week requiring hours worked in each and every working week above the statutory 40 to be compensated as overtime. This unnecessarily increases costs for companies where it would be optimal to average working hours to reflect fluctuations in demand, particularly during the current volatile circumstances. It would therefore be most beneficial to introduce a system of averaging the calculation of the effective working week over an extended period of time. The concept has already been accepted and applied to attract and retain specific FDI cases but now needs to become the rule rather than the exception.

Besides, our businesses continue to grapple with certain inherent inefficiencies in the public sector - both in regulatory authorities and government departments. The majority of the latter are working on half-days making matters worse for those who need urgent replies or service during the afternoon. The government should seriously consider removing half days and other conditions which, today, make very little economic sense and continue to constrain the performance of private enterprise.

In line with the above, much can still be done to help reduce the operational costs for business. Utility bills continue to pose a significant threat on national competitiveness. The private sector is doing its utmost to render its operations as fuel efficient as possible given that fuel prices on the international markets are extremely volatile and Malta can only act as a price taker in this regard. Nevertheless, utilities in Malta are characterised by serious market imperfections; most notably the country relies almost exclusively on fossil fuels and the distribution of utilities is governed by an inefficient monopoly with a weak regulator. Users of water and electricity are therefore at the mercy of the provider and are price takers as much as the country is at the international level. There are very few options available to business except to purchase water and electricity from the designated supplier because there is little encouragement to opt for alternative sources of energy most notably through better feed-in tariffs.

Inefficiencies push up prices and this brings us back to the COLA issue. Due to the mechanism in place, inflation in Malta breeds further inflation and continues to erode competitiveness in the process.

It is hoped that the tripartite discussions are objective and productive. In these coming weeks, we must redesign those aspects of our economy that are not favourable to investors and, ultimately, to the worker. Loss of competitiveness endangers jobs. We must find a means of redeploying our resources more effectively to safeguard our jobs and create new ones of a better kind.

Ms Ellul is president of the Malta Chamber of Commerce, Enterprise and Industry.