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Industry’s role in a balanced economy

The manufacturing industry’s role within a balanced economy is being recommended at a European level to encourage a renewed contribution towards employment, and in view of the important economic linkages it enables through sub-contracting and related activities, like services.

It is wrong to assume that all manufacturing is, or will be, moving to Asia and other low-cost regions
- Matthias Fauser

The EU is embarking on a rebalancing process which is giving due importance to the so-called ‘real’ economy. A few weeks ago, the European Commission issued a communication on the mid-term review of its industrial policy which considered the prolonged impact of the economic crisis after 2010 and the deteriorating global economic outlook. The commission deli-vered the very important message that Europe needs its real eco-nomy now more than ever to underpin its economic recovery. “Europe needs to reverse the declining role of industry in Europe for the 21st century. This is the only way to deliver sustainable growth, create high-value jobs and solve the societal challenges that we face,” it said.

Similar focus is also required at local level to ensure that the basic fundamentals for a competitive industry are in place.

The manufacturing sector has had to endure the mistaken assumption that a shrinking industrial base is part of an inevitable evolution for deve-loped economies towards services and high-tech industries. But these trends are not sustainable for an advanced economy.

Besides, a drop in the contribution of manufacturing to employment is not necessarily a sign of modern and efficient economies. It is also wrong to assume that all manufacturing is, or will be, moving to Asia and other low-cost regions. One needs only look towards countries like Germany and the UK which took active steps to inject new life into manufacturing through technology and innovation support structures. A desire to ‘rebalance’ certain economies besides financial services is one of the factors which have spurred a revival of demand for industrial policies, with active government intervention cited in the US, Britain, France, Germany, Japan and South Korea.

Through a diversified portfolio which includes foods, beverages, textiles, pharmaceuticals, rubbers, plastics, transport equipment, electrical and electronic components, industry in Malta is contributing to around 13 per cent of the country’s output while directly providing over 20,000 jobs. This means 18 per cent of the total private sector jobs directly, and many other jobs indirectly through its supply chain.

Additionally, the list of services related to the production process and manufactured products is endless, and growing. It includes research, development and product design in the early phases; design and branding involved in the marketing and advertising of finished products; and wholesale and retail activities at the end of the value chain. Digging deeper in specific stages, a whole list of associated activities is uncovered, such as logistics services including freight forwarding, warehousing, transportation and distribution; other services related to packaging, quality control, labelling, testing, supply chain management, waste treatment and disposal, equipment repair and mainten-ance, engineering design and consultancy, and scientific testing and analysis.

Manufacturing remains a top contributor to the economy, despite a gradual decline which may be the result of considering other priorities in recent years. But in 2010 manufacturing was overtaken by wholesale and retail as the highest employing sector. This has rather significant implications for our economy, particularly in terms of our balance of payments.

Malta has traditionally prided itself with having the right attributes as an investment location for manufacturing. Such attributes include geographical positioning, low labour cost and a stable political and social environment. However global industry is alive and we have to take note of the forces which shape this competitive environment. In a reality characterised by recessionary pressures and austerity measures, additional advantages which increase the competitive edge are sought, such as cost-effectiveness, proximity to customers, links to vibrant production networks, availability of technology, and an affordable, flexible and skilled human capacity-base.

Manufacturing must keep abreast with the constant advancements in science, electronics and logistics techno-logies, and the fast developments in product design, marketing and distribution.

Experiences in different countries show that neglecting the manufacturing industry results in upsetting a healthy economic balance by increasing reliance on other more volatile sectors, therefore structurally impairing the economy by hampering its ability to recover from challenging situations.

It is evident that different parts of the world are stepping up to a harsh competition by advancing their manufacturing superiority. Malta needs to enhance its attractiveness to industry to avoid a relocation of important sectors out of the country, which would have devastating effects on the Maltese economy and local living standards.

To ensure the country’s resilience, Malta needs a balanced economic planning which avoids any single sector domin-ating the national economy. By balancing the economy, Malta will be better positioned to narrow the trade deficit, increase exports, create employment opportunities for different groups of the working population, and be better protected against future economic downturns. The re-emerging awareness of the importance of manufacturing in Europe is an important signal. There is no doubt that the real economy will continue to define the future. Our challenge is to enhance Malta as a prime location for manufacturing ventures to prosper.

The future can be secured by working together towards a coherent national plan that places at its core a well diversified economic portfolio, and gives due focus to a vibrant manufacturing industry.

Mr Fauser is the chairman of the Chamber of Commerce, Enterprise and Industry’s Manufacturing Economic Group.

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