Malta’s first steps towards economic development in the late 1960s were marked by the promotion of investment in manufacturing industries, as well as the promotion of tourism. Over half a century later, the local economy is characterised by a shrinking manufacturing sector and growth in the services industries especially those relating to financial services and electronic gaming.
Many argue that it is time to encourage new investment in manufacturing in order to diversify our economic activities. But there are others who ask whether encouraging new manufacturing investment is indeed viable, or just a nostalgic attempt to turn the clock back.
The CEO of Playmobil, Mathias Fauser, expressed a concern with Joseph Muscat that “not enough young people are studying technical subjects to join the manufacturing sector”. The Prime Minister too believes in the future of manufacturing, “just like financial services and gaming. There is a career in manufacturing”. So is this wishful thinking, or are we missing an opportunity to revitalise the sector?
Manufacturing has undergone a complete transformation thanks to the onset of globalisation – a transformation that was as extensive as that brought about by the Industrial Revolution. Globalisation brought enormous changes to economies. But it also “dramatically changed the nature of competition between emerging and developed nations as well as between companies”.
Globalisation is now entering a new era. The dominant factors that brought about the “disaggregation of the supply chains” of manufacturing in recent decades will be replaced by new factors that will determine which countries will be successful in having a vibrant manufacturing sector. Low-cost labour is unlikely to remain a dominant factor.
In 2012 the World Economic Forum published a report entitled The Future of Manufacturing. This identified various factors that will determine the future of manufacturing in developed as well as emerging economies.
One sobering conclusion of this report is that “talented human capital will be the most critical resource differentiating the prosperity of countries and companies”. Despite the high unemployment rate in many developed economies, companies continue to struggle to fill manufacturing jobs with the right talent.
The existing skills gap can only be bridged if a country “develops and retains the highest skilled talent – from scientists, researchers and engineers to technicians and skilled production workers. In the race to future prosperity, nothing will matter more than talent”.
As rightly pointed out by the Playmobil CEO, an affordable source of energy is also a critical success factor for manufacturing industries. The World Economic Forum Report reinforces this argument when it says: “Affordable clean energy strategies and effective energy policies will be top priorities for manufacturers and policymakers, and serve as important differentiators of highly competitive countries and companies.” Malta seems to be moving in the right direction on this issue.
The Government too has an important role to play if manufacturing is to become once again a leading economic activity in Malta. With competition for direct foreign investment increasing, and with the prosperity of nations hanging in the balance , “policymakers will be actively looking for the right combination of trade, tax, labour, energy, education, science, technology and industrial policy leavers to generate the best possible future for their citizens”.
This is indeed a tall order that, however, is achievable if we take the long-term view on manufacturing.