Manufacturing generates wealth and employment through a series of complex supply chains and associated economic activities, and investment in equipment and people.
Malta has become one of the most expensive countries for energy provision to industry- Matthias Fauser
This creates a positive spill-over which generates economic growth and higher standard of living. However, some serious challenges threaten to undermine this dynamic industry, including international competition affecting our external demand, loss of investment and employment opportunities to other regions which are gaining relative attractiveness, undue or imperfect regulation, shortage in specific skills and rising costs which are largely attributable to significant hikes in energy tariffs.
Manufacturing in Malta operates within a context of inherent difficulties which continental Europe does not face. Our location and geographical size, with a low endowment of natural resources, means that manufacturing is largely a function of imports and exports – local operators are at the mercy of international prices. This is due to Malta’s small size which restricts the ability to exploit economies of scale. The country’s openness also means that foreign direct investment is crucial. Given the premise that no one owes Malta a living, investors expect an attitude of encouragement and co-operation from the Government, its agencies and institutions.
Cost and productivity supersede all other factors in determining commercial viability and market success, and attracting investment. The Malta Chamber has incessantly called for policymaking to be practised with a holistic consideration of the impact on business activity. There is scope for extensive communication and consultation with industry in this respect.
On their own, increases in costs elements may seem minor. However, industry easily finds itself carrying a disproportionate burden which builds gradually. The manufacturing sectors’ capacity to absorb costs is not to be taken for granted, as the aggregated effect has a deep impact on profitability and competitiveness.
Sensitivity and adequate communication with the business community is required, and this is, in principle, recognised by all sides. For instance, the Better Regulation Unit was set up by the Government to work with line ministries, departments and entities towards having regulatory impact assessment methodologies in place as a basis for regulatory instruments. However, the results, if any, need to be better communicated.
After the resolution of a long-standing issue over industrial rents and the service charge, the Manufacturing Economic Group looks forward to further collaboration with the authorities. Its representatives had already been actively involved in discussions with Malta Enterprise to define an Industrial Policy for the Manufacturing sector, providing comprehensive feedback. In this process, the Economic Group called for focus on basic prerequisites which determine Malta’s attractiveness.
In the light of continued global economic uncertainty, if Malta runs out of motives for investors to locate here, any other initiative will prove futile unless these fundamentals are in place. These basic conditions will also safeguard the competitiveness of current and local manufacturers, and facilitate new local start-ups. The fundamentals listed by the Economic Group were a skilled and competitively compensated labour force, provision of adequate factory space at competitive rates, stable provision of energy at competitive rates, efficient and reliable internal and external transport links at competitive rates, incentives for investment, low levels of bureaucracy and adequate support to access the EU single market and beyond.
Energy provision is one of the most urgent concerns now for industry, due to the significant impact that increasing electricity tariffs have had on the cost structures of manufacturing companies. Since 2007, increasing tariffs have resulted in intensifying burdens on Maltese business when the world entered an economic crisis. To absorb the brunt at the peak of the economic slowdown and loss of external demand, manufacturing companies in Malta endured cuts to their profitability, while collaborating with The Malta Chamber and the Government to retain their workforce.
However, the considerable increase in electricity cost over the last few years has further chipped away at cash flow and profitability. Eurostat statistics show Malta has effectively become one of the most expensive countries in terms of energy provision to industry. This urgent situation needs to be addressed. If the country wants a sustainable manufacturing sector, the appropriate and affordable energy solutions need to be found.
Manufacturing in Malta is alive and kicking. Due to a fast expansion of services sectors in our economy in recent years, its relative contribution has declined. However, this does not translate into a decline in absolute terms. The sector has been holding up against a severe economic downturn to remain one of the largest contributors of employment and value-added generation in this country. The positive resolution of the rents and service charge is an encouraging signal for The Malta Chamber which indicates the willingness of authorities to tackle and resolve the important issues which form the fabric of our competitiveness. We look forward to finding the solutions which can secure the future for manufacturing in Malta.
Matthias Fauser is chairman of the Manufacturers and Other Industries Economic Group of The Malta Chamber of Commerce, Enterprise and Industry.