Even though the country’s economy as a whole is doing well and prospects remain good, the manufacturing industry is getting increasingly worried over the impact of rising costs. Although there are some contrasting assessments, industrial indicators over the past few weeks would appear to support its concern, as they have been clearly expressed by industry’s representative organisation. Yet, a new study, the Summer EY Eurozone Forecast, is projecting a sharp recovery in net exports. It will take some time before a clearer picture emerges.
When, in an interview with The Sunday Times of Malta, Finance Minister Edward Scicluna was asked for his reaction to a drop in industrial turnover in the first quarter, he said this was no cause for concern. Partly to blame, he said, was the performance of ST, the microelectronics company, pointing out that if the company were to be taken out of the equation, the rest of the sector would remain stable. The minister said he had been informed that ST’s dip was cyclical, meaning perhaps there was no reason to be unduly worried.
What would worry him, he remarked, was if the EU were growing and the demand for Maltese exports dropped. If this were to happen, he argued, the country would have competitive issues, “but this is not the case”. In fact, the EU’s economy is growing, though at a small rate, and the Chamber of Commerce, Industry and Enterprise has given lower order books as one of the problems faced by industry today.
In the chamber’s view, competitiveness, or the gradual loss of it, is very much an issue. In fact, industry is particularly worried by the stiff competition posed by countries that had experienced the brunt of the financial crisis but which are now emerging from the trouble leaner and fitter to move ahead. It seems the situation has been getting so bad that the chamber has been calling on the government to reduce the energy rate for the sector now, and not next year, as it originally planned. It also feels that a revision of the cost-of-living adjustment formula is urgently needed.
Energy Minister Konrad Mizzi must have disappointed industry no end when he completely ruled out any possibility of the government reducing energy tariffs for industry now as, he argued, the government would first have to cut the cost of power generation. But when the tariffs are reduced, he remarked, businesses would save €50 million.
Hopefully, therefore, the new power plant and the interconnector that will link the island to theEuropean energy grid will becommissioned in time for businesses to start benefiting from the promised reduction in the spring.
As to the cost-of-living wage adjustment mechanism, there does not seem to be much appetite on the part of the government and trade unions to tweak the cost of living adjustment (COLA), as they feel that it has worked well and helped ward off industrial trouble. This may be true, but the added cost to industry is further eroding its competitiveness. It is time to take a closer look at COLA.
Clearly, industry needs more than a listening ear from the government. It needs quicker action to help ease, or remove, bureaucratic obstacles that may affecting competitiveness. Most welcome, for instance, will be a revision of the rent and service charges for factories, a matter that had also been forcefully raised many months ago by a string of well-established firms.