How Malta’s productive sectors compare with EU member states

Following an economic analysis of the 15 productive sectors of the Maltese economy between 1995 and 2009, this study will make a comparative analysis of each with the corresponding sector in the EU27.

The first part of the paper analyses the real gross value added and its components (real compensation of employees and real operating surplus), with employment for each sector between 1995 and 2009.

Subsequently, real gross value added per full-time equivalent (the productivity ratio), employee compensation per full-time equivalent (FTE) and profits per worker were derived.

The paper confirms that some of the traditional economic sectors (manufacturing, wholesale and retail, hotels and restaurants, and transport and communication) that account for a substantial share of total employment (44.5 per cent) are undergoing difficult economic times. On the other hand, smaller sectors in terms of total employment (20.2 per cent), (financial intermediation, personal services and business activities) have been undergoing fast economic growth.

Between 1995 and 2009, the Maltese economy added 27,835 net full-time equivalent jobs, growing with an average annual growth rate of 1.3 per cent. During this 15-year period, the average real economic growth was 6.2 per cent per year between 1995 and 2000, and only 0.9 per cent per year between 2001 and 2009.

Due to this uneven growth, real gross value added per FTE increased by €4,618 or 26.7 per cent between 1995 and 2000, but witnessed no growth during the past decade. Consequently, real wages per FTE increased by 28.5 per cent from 1995 to 2001 (from €8,726 to €11,219), but registered no growth between 2001 and 2009.

Manufacturing lost 9,600 jobs (29.6 per cent) between 1995 and 2009. Real gross value added per FTE has been declining in wholesale and retail since 1999, in hotels and restaurants since 1999, and in transport and communication since 2001. This implied that, in the last decade, real wages per FTE have declined in hotels and restaurants and in transport and communication, while real profits per FTE have declined in wholesale and retail and in hotels and restaurants.

On the other hand, the number of FTE jobs in financial intermediation, business activities (including accountants, lawyers, real estate) and personal services (including i-gaming) almost doubled in 15 years, from 17,500 in 1995 to 34,250 in 2009. All three sectors witnessed explosive growth (especially since 2004) in their total real gross value added produced. Also these three sectors had the highest gross value added per FTE in 2009 among all the 15 productive sectors of the Maltese economy.

The second part of the study notes that between 2000 and 2007, the unit labour cost of several sectors of the Maltese economy increased more than other countries in the EU27. This implies that Malta is losing its labour international competiveness.

Between 2000 and 2007, the unit labour cost in manufacturing increased by 33 per cent compared to an increase of 14 per cent in EU27; hotels and restaurants increased by 36 per cent compared to an increase of 11 per cent in EU27; wholesale and retail increased by 44 per cent (EU27 14 per cent); transport and communication increased by 18 per cent (EU27 10 per cent); business activities increased by 75 per cent (EU27 24 per cent); financial intermediation increased by 77 per cent (EU27 just two per cent); while personal services decreased by 33 per cent (EU27 increase of 26 per cent) due to the large increase in real value added per worker witnessed in the i-gaming sector.

The second part of the paper continues by ranking the gross value added per worker for each sector for all EU27 member states in 2007. It also ranks the compensation per worker and operating surplus per worker for each sector in all EU27. The paper shows that the 27 states are segmented into three categories: the core most competitive and rich Continental Europe (with the highest gross value added and wages per hour worked), the peripheral Mediterranean member states (with the middle gross value added and wages per hour worked), and the least competitive Eastern European countries (with the smallest gross value added and wages per hour worked).

The paper shows that for many sectors of the economy, Malta ranks with the lowest among the six Mediterranean EU member countries in terms of productivity, worker compensation, and operating surplus per worker.

Among the six Mediterranean EU countries – Italy, Spain, Portugal, Malta, Cyprus and Greece – the Maltese economy ranked fifth overall in term of gross value added per hour worked in 2007.

Manufacturing ranked fourth, while business activities ranked fifth. All the other sectors (wholesale and retail, hotels and restaurants, financial intermediation, construction, transport and communication, education, health and social work, public administration, and electricity, gas and water) ranked sixth as well. Personal services ranked first (it ranked second in all EU27 countries) due to the high gross value added per hour of the E-gaming sector in Malta.

joseph.falzon@um.edu.mt

Prof. Falzon is head of the department of banking and finance at the University of Malta. This is a summary of a paper he presented at the Malta Institute of Management conference on May 5.