Malta – Uphill all the way

The publication of the Gross Domestic Product figures for the second quarter of 2010 by the National Statistics Officer coincided with Malta’s celebrations of its 46th year of independence. The juxtaposition was coincidental, but it served to remind us of two related things.

The first is that the recession is definitely over, as various economists observed, but there are aspects of Malta’s economic structure that are by no means in good shape. The second, reflecting the general structure of the GDP, is how much the economy has changed since constitutional independence came about on September 21, 1964.

At the time the British services establishments in Malta were being rundown. They had already been reduced from the high level of earlier times which made the Maltese economy heavily dependent on their expenditure.

The peril and unsustainability of that dependence had been recognised by the governments of the 1950s, which was why the Labour government of 19955-58 brought in renowned expatriate economists to help it introduce economic planning. A final plan was not published during the life of that government, but a plan was to appear a few years later.

The objective was to start restructuring the economy towards manufacturing, ship repairing and tourism. Hesitant steps had begun by the time independence arrived. They were out of synch with the punishing pace by the British government in carrying out its run down plans. The result was massive unemployment and emigration, which robbed Malta of many of its best resources.

In time, particularly in the late 1960s (tourism) and middle 1970s (manufacturing), the planning objectives began to be met. Malta was restructured on a manufacturing and tourism base, shored up by ship repairing. The constant in the equation remained a large domestic public sector, plus a substantial importing, wholesaling and retailing community.

By 1979 the dependence in British military expenditure had ended completely. From the whims of respective British governments fed by their Mediterranean defence considerations, Malta became exposed to the vagaries of international competition.

Against the fears of those who had opposed independence and were terrified by the prospect of the closure of the UK base here, Malta not only managed to survive, but prospered. Underlying the constant political bickering was a basic fact – the Maltese people, for all their shortcomings, had it in them to make their way in the modern world, even though without dependency on other spending here by any military power such as had taken place for the previous 400 years. That ability was to be put to further tests. The restructuring of the economy away from the input of foreign military spending was soon put to the test of inevitable change which comes with time. One major example of that challenge was the rise and fall of the textile industry. It had been a principal sector identified for exploitation in the early development plans.

It became the backbone of the manufacturing sector, largely through cmt (cut, make and trim) activities. In time that changed and the industry took up full factored production responsibility. The years brought further change through irrepressible competition first from the countries of the northern Mediterranean littoral and then from the economies of the Far East. Soon enough the industry was all but decimated.

A degree of manufacturing remained but the days when medium-to-large (by our standards) factories were set up ended. Core manufacturing stayed here, although in some major cases reduced, as exemplified by STMicrolelectronics. But it declined, such that the figures for the June quarter show that manufacturing now contributes some 16 per cent to gross value added – and that is when energy is also taken into account.

Those figures, in fact, demonstrate the most recent restructuring of the Maltese economy. In the early planning years much emphasis was placed on the services sector, mostly tourism. That sub-sector is still very important though, as the seasoned economist Karm Farrugia does not tire of pointing out, not by as much as often flung about. But the leading identified sector today is that represented by financial, renting and business activities, which contributed 26 per cent to the gross domestic product of the June quarter.

That contribution is probably disproportionate to the number of jobs the sector accounts for, since remuneration in the financial sector, etc is much higher than it is in tourism. Even so it is significant that taking together hotels and restaurants, the wholesale and retail trades, transport and communications the proportion of GDP produced by these combined sectors stands at 22 per cent.

The faster growth in the financial services sector has evident significance to other parts of the economy and general society. Education, in particular, has to be in tune with these developments and there has to be ongoing forwarded planning to ensure that anticipated requirements for specialised human resources will be met.

Malta has come a long way since 1964 and independence. The journey continues. It will never stop. As poet Christina Rosetti put it, the road winds uphill all the way. We have done well. We have to be more than ever on our toes to do as well and better. Restructuring can never stop.