In every discussion about the path Malta must follow to achieve reasonable and sustainable economic growth, the factor underlying it all is invariably competitiveness. Malta has to export goods and services in sufficient volumes to pay for its dependency on imports. To do that it has to be able to compete in the targeted export markets.
Otherwise the balance of payments on the current account will deteriorate, with very negative effects. Competitiveness depends on costs and productivity. The extent to which producers and suppliers can control them is limited. The cost of imported inputs, for instance, is determined through international interplay.
Our producers are price-takers and cannot influence it. They can strive to buy as efficiently as can be, but that is all.
The cost of energy is another input beyond the control of economic agents. They can do their utmost to economise on energy use, including by investing energy savers like photovoltaic panels, and using efficient fuel where possible.
Otherwise the tariffs for energy are set by Enemalta. In large part they represent the international price of crude oil and its derivatives, all beyond the influence of the purchasing agent. But then Enemalta’s costs do not reflect only the cost of the fuel it uses. Efficient buying and efficient electricity generation also come into the tariff structure.
It is not only at the political level that controversy prevails over efficiency levels not achieved by Enemalta. Business people too take up the point in worried tones, bringing into play also the servicing charges burdening the corporation because of the massive debt it carries.
Producers and suppliers have no influence on the impact of the statutory cost-of-living increase on their labour costs. That is set automatically, according to a formula reflecting the 12-month moving average of the Retail Price Index up to September each year. Employers continue to press for a review of the system, to bring productivity into consideration.
That is the subject of ongoing discussion but continues to be stoutly resisted by the trade unions. The government is also hugely wary about revisiting the cost-of-living arrangement, claiming that it has served the economy well. Those employers who, on top of having to give the statutory increase, are also faced with additional claims under prevailing collective agreements continue to state that the system is unsustainable. But there it is.
Compensating efficiency gains have to come from investment in equipment incorporating the latest technological innovation, and from improvements in work practices and management techniques. Such gains will play a crucial role in maintaining and, economic agents and planners hope, improving competitiveness (assuming the exchange rate as a neutral factor) in 2012.
Business people preparing early budget forecasts for the coming year tell me they are facing very substantial increase in costs. Raw and semi-processed materials are set to rise. Energy costs too. And the statutory cost-of-living increase will certainly be a considerable multiple of the low increase thrown up by the formula for this year.
The inflation rate resulting from the Retail Price Index series is moving along an inexorable upward trend. Since August of 2010 the 12-month moving average has increased in every single month. It stood at 0.75 per cent in August, and steadily went up to 2.41 in June of this year, more than tripling in the process. As observed above, it is this rate that will be the basis of the statutory cost-of-living increased worked out on its movement up to September.
One might argue that inflation is on the increase practically everywhere, including in our market countries and supplier economies. True, but the point is that our rate is rising faster. If the incremental increase is not compensated for by a higher rate of productivity in Malta, competitiveness – that word again – will suffer. The question is what is to be done?
At the micro level producers and suppliers feel they are already doing their utmost. But they will have to challenge themselves, review all their cost inputs and do their damndest to squeeze out more efficiency gains to try to avoid raising prices. On the other hand, given that they cannot influence the cost of international inputs, unless the exchange rate of imports from outside the eurozone area move in their favour, they will be looking in two domestic directions, to try to get more from them.
They will look to their labour force, probably welcome the fact where it is unionised. In the private sector the unions pass the test of reasonableness well. They are aware of the implications of rising costs and the watch that must be kept on competitiveness. They contribute to try to increase it, rather than impeding change.
It is significant that one rarely comes across actual or even threatened industrial action in the private sector.
Employers will also be looking to the governing authorities, demanding that they do more, much more, to control and reduce government induced costs. That has been promised more than once in past Budget speeches. Most of the promises have yet to be redeemed.