Competitiveness: The key to growth

The Malta Chamber of Commerce, Enterprise and Industry has mixed views about the European Commission’s assessment on what may hinder future economic growth in Malta. The Commission recently published these opinions in a paper entitled Macro Structural Bottlenecks To Growth In EU Member States.

Since the last Budget, the Malta Chamber has insisted on a review of the COLA mechanism with a focus on ascertaining Malta’s competitiveness while retaining COLA as an instrument to compensate workers for loss of disposable income due to inflation. The current mechanism is basic and inflexible but it can and must be refined to ensure that it does not exert a detrimental, counter-cyclical effect on the economy.

COLA must be calculated according to sectoral GDP figures to ensure that COLA paid in all sectors would be linked to the productivity in that particular sector. Like this, COLA would be (a) linked to productivity and (b) in line with what that particular sector can afford. In this way, for instance, manufacturing would not be expected to pay for the productivity gains registered in other faster growing sectors such as financial services. Besides, mitigating factors must be introduced to alleviate the cost of COLA on competitiveness.

The issue of pension reform has returned to the national agenda, coinciding with the comments of the European Commission on public finances and “age-related expenditure”. This is also bound to impact on labour costs and therefore on competitiveness.

Next January, employers shall experience a double effect on their wage bills. The first refers to COLA. The second refers to the maximum pensionable income ceiling on which employers and employees pay their contribution. This is to start increasing in 2011 as further parametric changes, announced in 2006, kick-in.

The urgency and gravity of the matter are clear. The Malta Chamber is prepared to approach these consultations with an open view. Nevertheless, business needs to be in a position to plan well ahead for any further parametric changes or indeed more drastic measures. The authorities need to allow adequate time to the private sector to adjust to such changes. Besides, it needs to be ensured that the changes should be implemented gradually so as to avoid undesirable shocks. In the light of the country’s immediate economic and competitive realities, a holistic approach to the problem must be adopted to include all elements related to social services including non-contributory social benefits and health care and which might inflate labour costs.

The European Commission suggested better utilisation of labour resources referring to a trend of early exit from the labour market and the need to enhance female participation in the workforce.

Creating mechanisms for awareness and enhancing the integration of women in the economy is critical. For this reason, recent EU proposals are deemed counter-productive, if not contradictory. The latest proposals are not only detrimental to business competitiveness but also to women’s career paths, possibly resulting in wider wage-differentials. The Malta Chamber is in favour of family friendly measures. It is committed to promoting them across the private sector as long as their introduction is voluntary and at a pace which is appropriate to the prevailing circumstances of individual companies.

Besides ensuring that all resources at the country’s disposal are contributing to the labour market, Malta must perform a skills-gap analysis for sustaining the economy in the foreseeable future.

This must be followed by a concerted effort to aggressively fill the gaps identified with home-grown skills or through a prudent immigration policy.

In this manner, Malta would adopt a demand-led immigration policy focused on skills.

This, in turn, promises to sustain a certain trend of economic expansion required to match local income levels with the EU averages. The above measures will also serve to alleviate the sustainability issue raised by the EU with respect to pensions and age-related expenditure.

But skills availability is only one of the pre-requisites to attract continuous new investment to buttress economic growth and address employment and public finance issues. The main pre-requisite is competitiveness. Unless the country can prove it is both reliable and competitive it cannot attract the necessary investment to ascertain a lucrative future. In this regard it is concerning to note that Malta has been generally following a downward trend in terms of the World Economic Forum’s Global Competitiveness Report.

The weaknesses in the business environment are also of concern especially in relation to investment attraction. Promises of better regulation remain just that - as the business community faces unreasonable public-sector authorities on a daily basis. Besides, the Malta Chamber has often reported the general feeling among members is that business suffers from both over- and under-regulation.

The Commission is right to say that free market forces are not operating in Malta. But this is due to blatant infringement of the law and lack of effective enforcement mechanisms. In fact, there is cut-throat competition caused by over-trading in certain sectors like fast-moving-consumer-goods. Certainly, the number of importers and the number of products available locally is not commensurate to our market size. Consequently, local supermarkets carry in excess of 20,000 “stock-keeping-units” which is generally double the amount in Europe.

To add insult to injury, competition tends to be illicit because law-abiding companies must compete with operators who totally disregard their legal obligations including fiscal, environmental and consumer safety.

To compound the issue even further, legitimate companies often continue to be penalised for their compliance because they are identified for selective bureaucratic inspections.

The Malta Chamber looks forward to more detailed information about the plans to upgrade the new Competition Authority and how it will ascertain fair trade among all operators.

The bottlenecks identified by the Commission are real and must be acted upon effectively. Generally, the Malta Chamber recommends that individual policy issues be tackled in a more holistic manner with a special focus on competitiveness. In its view, national competitiveness is the main pre-requisite to secure the country’s economic and social development.

It must be ensured that the country’s productive capabilities are enhanced through competitiveness-enhancing measures leading to increasing our labour force and its productivity as well as our economy’s capabilities to absorb the needed added resources.

The author is the president of the Chamber of Commerce, Industry and Enterprise.