New life for manufacturing

From time to time, questions arise as to the future of manufacturing in Malta. We all know what a qualitative leap would entail but somehow we are not so sure what it takes to get there. Equally worrying is the fact that we seem unable (or unwilling) to come to terms with the forces at play. We keep playing politics even though the livelihood of thousands of our employees is at stake.

The challenges facing the Maltese economy are not due to the economic crisis and the cost of oil...- Joseph Vella Bonnici

A recent study commissioned by the Malta Council for Science and Technology, entitled a National Research Strategy For Manufacturing In Malta, finds that the competitiveness of the manufacturing industry is gradually eroding. This does not need to be so and with the right strategies and policymaking we can help put manufacturing on the right track. There was a time when the USA and the EU neglected the manufacturing sector and now they are regretting it.

It is unfortunate that there is little educated debate on such a vital sector for our economy.

The MCST strategy document inevitably suffers from the lack of a coherent strategy for the manufacturing sector. How can a research strategy make sense when it is built around the usual platitudes rather than serious strategic analysis? These sort of documents keep cropping up from time to time but they fail because there is no master strategy that gives them specific direction.

What has happened to Vision 2015? Why was this exercise (with all its shortcomings) never concluded?

The economic future of our country depends a lot on our ability to think and plan strategically within the frameworks set by the EU. This does not mean that it is sufficient for our policymakers and decision-makers to “cut and paste” from Europe’s own strategies. We need to constantly keep in mind that our realities, our strengths and weaknesses are different from those of larger member states. The economic restructuring that took place over the last decade did not lead to higher productivity or to improved real wages.

The MCST study points out that, according to the 2010 Innovation Union Scoreboard, Malta is the EU member state with the highest percentage (71 per cent) of medium and high-tech exports. How is it then that our manufacturing is losing its competitive edge?

In an economic analysis prepared last year for the Malta Institute of Management, Joseph Falzon found that local manufacturing is still the second best performing sector in terms of gross value added (after remote gaming). Prof. Falzon concludes that our economy is fast falling towards the bottom of the value added ladder within the EU.

The European Commission, in its R&D profile on Malta, while noting that some progress has been made, remarks that “Malta still scores very low and far from the EU average”. The Commission questions the capacity of the country to increase its overall R&D intensity and adds that Malta needs to specialise its R&D investments in niches to achieve critical mass.

Malta has identified health and biotechnology, energy and environmental technologies, ICT and value added manufacturing and services as potential niches. Is this choice backed by the necessary studies?

The EU Commission warns that Malta does not have a significant public research programme and that much of the R&D taking place is “traditionally concentrated around a cluster of large firms”.

Such considerations should set us thinking about the way that we are trying to build our R&D capacity and innovation in our country. Why is it that each of our manufacturing sectors seems to end up being dominated by a single, foreign-owned enterprise? (ST Microelectronics is the perfect example.) How come that a handful of long-established companies seem to have locked-in the manufacturing sector? What are the implications of this for the sustainability of manufacturing in our country?

R&D activities are important not for their own sake or because the EU says so. Developing Malta’s R&D capacity takes more than building industrial parks or offering attractive tax incentives. It is about developing a technological base through specialised human resources, venture capital and a network of supporting agencies and facilities.

Promoting R&D is not about creating a few well-paid jobs or a mere extension of our “production” orientation. R&D should be one of the main drivers of innovation that enables our enterprises to stop being “price-takers” and start influencing the prices that they command.

Productivity can be increased either by each employee generating more output or by an enterprise fetching higher prices for its output. In the words of Michael E. Porter, Malta has to stop trying to compete just on costs and to seek ways of being different. R&D should be an important source of differentiation.

The challenges facing the Maltese economy are not due to the economic crisis and the cost of oil (though these, of course, do not help). The MCST research strategy document states that in today’s world, economic “success is attributable primarily to the title, ownership and control of critical knowledge resources that ultimately lead to continuous innovation”.

Has Malta taken stock of the knowledge it possesses and how this is to be utilised to drive our economic development?

fms18@onvol.net