With the eurozone likely to go into recession next year, Joanna Ripard asked Malta’s business leaders for proposals on the measures the government and stakeholders should take to ensure economic growth and job creation in 2012. Most are braced for a tough year ahead.
Mark Watkinson – chief executive officer, HSBC Bank Malta plc
The Maltese economy has performed relatively well and showed great resilience since the global troubles began in late 2008. In spite of the difficult market conditions, Malta has managed a relatively smooth passage through the troubled waters of the global recession and registered above-average EU and eurozone GDP growth in 2010 and 2011.
This commendable result has been achieved while maintaining relatively stable employment levels, modest inflation, a reducing budget deficit, and continued investment in education, capital projects and health and social benefits. Most importantly, Malta has had no housing crisis, no banking crisis and no sovereign bond crisis.
The outlook for 2012 is also positive with GDP growth expected to be in the region of two per cent as affirmed by international rating agency Fitch. To sustain this positive economic trend, Malta will have to ensure a healthy level of domestic demand, and continue growth in value-added sectors where it has a competitive advantage, such as aviation engineering, pharmaceuticals and financial services.
It will have to continue to attract FDI and ensure tourism figures remain high as this “export” is an important source of external income.
Malta will also have to be on the constant lookout and adopt a proactive stance to take advantage of any opportunities which may arise from all that is happening around us.
Achieving sustainable public finances is a prerequisite to a more stable economic and financial environment and this necessitates further fiscal consolidation. Malta also has to address structural issues that are hindering the economy’s international competitiveness and adopt more productivity-enhancing measures.
In the current challenging environment characterised by a softening in global demand – no doubt the result of some painful austerity measures – a low interest rate environment, and ongoing volatility in equity and bond markets, not to mention the political upheaval in North Africa and other countries and tragic natural disasters, this is not going to be an easy task.
Malta has a small open economy, is a trading nation at heart, and forms part of the euro single currency.
Given today’s global economic inter-connectivity, these traits make it more susceptible to external shocks from the euro market and the broader global economy. Clearly, the problematic eurozone economies pose serious risks of contagion and the overall stability of the single currency has to be monitored closely.
At HSBC in Malta, while not being complacent and fully aware of the complex and challenging times in which we live, we are cautiously optimistic of Malta’s future economic prospects and growth as an international financial services centre.
We have the backing of one of the world’s largest financial services organisations, are well-capitalised, and have a strong liquidity position, making us ideally placed to support the local economy and its future growth.
Vince Farrugia – director general, Malta Chamber of SMEs (GRTU), Malta Employers representative at EESC
When the global economic and financial recession first hit Malta in 2009, the island was saved from greater economic damage as a result of a combination of many factors.
In the pre-recession period when the world economy was awash with speculative money which was pouring into Ireland, Greece, Portugal and Spain, Malta had in force monetary and legislative firewalls that prevented this money from reaching us.
In the property market, the only speculative monies that moved in under an amnesty were the substantial funds owned by Maltese who previously evaded tax and foreign exchange controls. We managed relatively well with our own local funds and ensured that while we were not subjected to exceptional international pressure we could also manoeuvre out of the recession relatively unscathed.
Our size and control on our macroeconomic imbalances both internal and external protects us from the uncontrolled reactions of the global money market.
The government has been steering away from the pressures of the international money market, with various incentives towards new forms of investments based on the knowledge economy. The incentives package brought forth the quicker emergence of an economy based on transhipment, light knowledge-based manufacturing, tourism all-year-round based on niche markets, specialised service enterprises like e-gaming and professional back office and enterprise support quality services, financial services and quality conventions and conferences, as well as international trading and logistics, warehousing and logistics.
The entrepreneurs depending on local private and public sector consumption and the derived demand of the enterprises with an international clientele are increasingly being supported, together with exporters of goods and services with assistance programmes in favour of renovation, restructuring and resizing.
This strategy should be intensified now that there is another recession threat. We need to concentrate more on the restructuring of enterprises to encourage further innovation. We need to manage and control our banks better.
Access to finance remains businesses’ major hurdle as they seek to grow and restructure. The loan guarantee schemes for which GRTU has worked so hard are essential. But banks remain loaded with excess liquidity as savings levels remain high and a large chunk of this liquidity is moving abroad rapidly to the detriment of Maltese entrepreneurship.
We can, as a result of our size, identify the problems faced by exporters, tourism operators and others, and indicate effective remedies that can be implemented fast enough to continue to improve our competitiveness, and keep our international macroeconomic imbalances in check. We can also manage our national budget tightly enough to ensure that our balanced budget EU-directed strategy is achieved even earlier than planned.
The last thing the government should do next year is to panic and submit to negativism and austerity measures. Politicians will do the country honour if they stop the ugly infighting that destabilises the local economy and causes strain and fear among consumers. Consumer confidence is important and stakeholders have enough fora in which to present arguments and solutions to actual – and not perceived – problems.
Our economy is as resilient as we can make it.
Malta Chamber for Commerce, Enterprise and Industry
The outlook for the eurozone is by no means encouraging and this does not augur well for Malta, given the openness of our economy. Yes, our economy is vulnerable to the fate of our trading partners; however, it is also dynamic.
If we are competitive enough, we will grow. If we grow, we solve our economic challenges- Malta Chamber
There is no doubt that Malta felt the effects of the 2009 recession, particularly in terms of its traditional economic sectors. But generally, our country managed to ride that storm relatively well.
Malta must once again show its dynamism in facing the latest challenge. As we did then, we must use our small size to our advantage. The government and stakeholders must be proactive and work together to safeguard jobs and competitiveness. We need to intervene early where support is necessary to ensure we are in a position to safeguard investment and employment.
Our proposals for the 2012 Budget included a number of concrete suggestions aimed at generating economic growth in specific sectors. We were pleased to note that some of these suggestions were included in the Budget speech, particularly those aimed at supporting SMEs and those aimed at encouraging research and development, and the internationalisation of business.
Our country must be well prepared for the coming months and the economic challenges that lie ahead.
The Malta Chamber is encouraged that the prime minister promptly accepted its public request for a discussion with all social partners about the outcome of the last EU summit where the majority of member states already accepted certain commitments. It is widely accepted that such commitments, though rigorous, are not enough. Therefore, as social partners, we must unite and work towards common positions with the aim of safeguarding our competitiveness and attractiveness to investors.
Our country needs to devise sound plans to meet further eventualities. These plans need to take into account the advice of the business community and other stakeholders, to ensure no proposed measures affect our island economy disproportionately. This continued dialogue is also necessary to enable proper planning, allowing us to remain one step ahead of competition at all times.
If we are competitive enough, we will grow. If we grow, we solve our economic challenges.
Joe Farrugia – director-general, Malta Employers’ Association
The Maltese economy is surrounded by economic turbulence from all directions, and all projections point towards a worsening of the economic climate both within the eurozone and also on the wider, global scale.
For 2012, the government has presented a budget with fiscal targets which aim at a further reduction of the deficit. These targets are ambitious and depend on the economy growing by a further two per cent in the coming 12 months. In a climate where many of our major trading partners are revising their growth projections downwards, it would be prudent for the government to prepare adequate contingencies in the eventuality that the Maltese economy does not expand as expected, and the resulting shortfalls in revenues will compromise its fiscal targets.
The past years have been plagued with global economic and political instability, and Malta had to navigate through the ravages of an international financial recession in 2008 which eventually also spread into the real economy, hitting our manufacturing and tourism sectors.
The Libyan crisis has also affected many businesses. In spite of these adverse conditions, the efforts at job retention have been successful, judging by the relatively low unemployment rates currently prevailing. Job retention, and more importantly, job creation depend heavily on competitiveness and social partners should be unified in their efforts to make Malta a safe haven to invest based on the stability of our financial services sector, stable industrial relations and an infrastructure that is business-friendly.
Political parties, unions and civil society have to accept, perhaps more than ever before, that people’s aspirations can only be realised if the country is productive and competitive. Many countries are coming to terms with the painful fact that the days of borrowing from future generations to keep the current one satisfied through a false sense of affluence are over, and Malta is no exception. We can only move forward through promoting a culture of hard work, ensuring a leaner and more efficient government, and fostering a sense of national pride and motivation which enables us to excel in areas where we have a competitive advantage.
This requires a national effort based on social and political consensus. 2012 is certainly not the time for division if we are to survive the impact of yet another economic recession which threatens all Maltese society.
Tony Zahra – president, Malta Hotels and Restaurants Association
Not all the 17 eurozone countries will be hit by a recession to the same extent. It is clear that those countries with a high deficit and a large national debt as a percentage of GDP are going to have to introduce spending cuts to rein in the deficit; others without these difficulties will not need to take the same drastic action.
Consequently, the government needs to direct and assist Maltese companies to target countries where the recession will be least felt to try to win a larger market share and make up for shortfalls that will result from the expected recession in the high-deficit, high-debt countries.
The authorities must also assist Maltese companies to market their services and products in non-euro countries, particularly the BRIC markets. Efforts need to be directed to growing markets which are not in recession.
Increasing accessibility by putting on more airline seats and increased marketing spend must be a priority.
Stakeholders should strive to be more efficient by using the same or ideally fewer resources. One does not necessary need to spend more. Rather it is possible to add more value with the same cost base.
The MHRA believes the government must support the construction industry by providing tax incentives on building renovations for houses that have not been used for some time.
It must support the tourism industry by not increasing induced costs throughout the year such as energy costs, and provide tax breaks to hotels and restaurants which upgrade their product. It must also speed up processes in the granting of EU funds and reduce the bureaucracy surrounding them. It could also incentivise companies which increase their workforce next year by granting tax breaks on part of the salaries.
Stakeholders also have major roles to play. The unions could offer more flexibility in their work: between departments and through flexible working hours within time frames without demanding increased compensation.
The banks could reduce interest rates in line with ECB latest reductions.
Air Malta should support the industry by creating worthwhile packages for travellers.
Tony Zarb – secretary-general, General Workers Union
2011 brought us face to face with diverse realities on local and European levels. This year has given us an inkling of what workers, pensioners and their families are likely to face in 2012 if the international economic situation does not improve.
If the eurozone heads south, the entire region will be affected – including Malta- GWU
It is already being said that despite all the EU’s efforts to save the euro, 2012 will turn out to be worse than 2011. Hopefully these predictions are wrong.
If, however, the wider eurozone area experiences another recession next year, the most appropriate measures have to be identified to mitigate the effects and to minimise the impact on families and pensioners.
It is important the government does not resort to the easiest conclusion and force the population to shoulder the burden.
It is essential – if employment is to be fostered – that existing jobs are safeguarded as new posts are created. The skills and qualifications of the Maltese – so highly praised by foreign investors – must continue to be marketed and promoted.
In the rush to create jobs, the government must take care – guarantee even – that new posts are not precarious, with miserable wages and conditions, but ones that provide for decent standards of living. Precarious jobs do not contribute to economic growth. They are detrimental to workers.
The government must also exercise prudence, not only out of necessity but by way of cushioning the effect of a recession should it materialise, given the negative outlook for the eurozone in 2012.
We should remember that if the eurozone heads south, so to speak, the entire region will be affected – including Malta.