The European Commission wants to build up manufacturing to 20 per cent of GDP, but here in Malta, the percentage is still dropping and is almost half the level it was pre-global crisis.
But does this percentage tell the whole story? The percentage is dropping because other activities are growing, which is hiding the absolute contribution from manufacturing, and the gross value added has fluctuated between 2004 and 2013.
The Business Observer asked stakeholders what they think about the future of manufacturing in Malta. Is there a long-term future for manufacturing in Malta? Is it realistic to aim for manufacturing to reach 20 per cent of GDP again, given the global and national realities? What would help us get there?
▶ Andy Gatesy
Toly Group
There is definitely a future for manufacturing here in Malta. But manufacturing has to be different from what it was 10 years ago. At Toly, we have embraced the future of manufacturing in various ways.
We moved all of our corporate functions to Malta over the past 5-10 years, so Toly Malta is no longer just a factory, but basically runs the whole group. These functions include: marketing; IT service; product design; concept design and innovation; logistics; sales support; finance etc.
We continue to automate our manufacturing processes. All automation is built locally in Malta and we take advantage of the local engineering skills.
We are focusing upon innovation not just in terms of consumer products, but also in terms of the new technologies that can give us a technological advantage over low-cost countries like China. For now, we cannot compete directly on labour cost, so we need to use technology as our competitive weapon.
However, the real issue when it comes to the long-term success of manufacturing in Malta is competitiveness. We must not forget that we are an island with no local suppliers nor local customers, so we need to import materials, convert them into finished products and then re-export. This is a real cost compared to other European competitors. We have now lost our Objective 1 status which reduces our ability to apply for state aid. We need to work with all the stakeholders to try and find ways to support local manufacturing companies to offset the disadvantages of manufacturing on an island and help us be more competitive.
On the other hand the advantage that we have here in Malta is the skilled English-speaking workforce: their attitude, loyalty, pride, creativity and passion for success.
▶ Chris Cardona
Minister for the Economy, Investment and Small Business
Manufacturing had, has and will clearly have an important central role in Malta’s long-term economic future. Definitely, for manufacturing to survive and gain in long-term competitiveness it has to remain dynamic in order to keep up with the fast developments that are taking place in this sector.
The way we look at manufacturing has also changed. We are now seeing manufacturing as including new activities such as aviation and its ancillary services, ICT, life sciences and industrial research and development.
It should be stressed that the manufacturing sector generates a number of positive externalities to other sectors such as transport and logistics, professional, scientific and technical activities. Thus, ensuring the long-term survival of manufacturing would also be beneficial to other economic sectors.
We are doing this by ensuring that the business environment is conducive to growth through, among others, targeted
investments and policy decisions to maintain competitiveness and reduce transaction costs for business.
Is it realistic to aim for manufacturing to reach 20 per cent of GDP again, given the global and national realities? Well, the reply is not that straightforward. What is unequivocal is that manufacturing has to retain a central and vibrant role.
Irrespective of the targets set by the Commission we will strive to maximise the sustainable growth of the manufacturing sector in Malta. The success of manufacturing cannot be hinged to one factor, but rather to one characteristic: dynamism. The government is committed to keep abreast with Malta’s level of competitiveness through systematic analysis of the business environment and to take timely action to address any issues.
The manufacturing sector needs to remain aware of the ever-evolving international trends to be able to identify new opportunities as well as to remain at the vanguard when it comes to adopting new technologies.
To attain the above, adequate human resources must be provided. We must seek to upskill continuously our present workforce and to invest even further in our education structures to meet the dynamic requests of industry. Moreover, the government is incentivising education institutes (public and private) in order to participate in this process of continuous skills enhancement.
▶ General Workers’ Union
Certainly, there is a future for manufacturing in Malta as it seems to be passing through a stable and somewhat consolidation phase, especially in the pharmaceutical sector.
However, while there have been very few job losses in the sector, there hasn’t been much appetite for investment and growth in the last few years.
In the past, manufacturing was one of the economic sectors that lacked a strategic plan with the result that problems and challenges were given a piecemeal approach and a management by crisis approach.
Malta performed relatively well during the financial crisis of 2008 but we created a home-grown problem when the utility tariffs increased dramatically without any consideration to the negative effects both on households and on industry, particularly the manufacturing sector which relies heavily on its competitive edge. It is now expected that the reduction in utility tariffs will increase competitiveness.
It is our strong view that in order to maintain competitiveness, businesses must plan ahead, target new niche markets and ensure that the costs compare favourably against our competitors’. It is also imperative that we invest in both capital and human resources, not only to increase productivity but also to adapt to the challenges that lie ahead.
The manufacturing sector in Malta needs to be continuously nurtured and supported by all stakeholders if it wants to develop and prosper in the coming years. To achieve this objective an industrial policy/plan needs to be put in place as part of a more comprehensive strategy for Malta.
▶ Malta Chamber of Commerce, Enterprise and Industry
The Malta Chamber regards manufacturing as a key pillar in a balanced economy for Malta for the years to come. Having a solid manufacturing base provides any country with better defenses against economic downturns - as witnessed during the global crisis.
The European target of a 20 per cent direct contribution of industry to GDP is commendable and one which the Chamber wholeheartedly supports, not least because we are convinced that manufacturing – unlike other emerging sectors – is a sure means to support the country in finding jobs for those currently on the unemployment register. Manufacturing is also a key contributor to investment, productivity, research and export potential in our economy.
The drop in share of manufacturing to GDP was due to other sectors developing and expanding at a faster rate but also because the country allowed the general conditions required for manufacture to gradually deteriorate.
The Chamber has taken the lead in outlining what is needed to halt this deterioration in an Industrial Policy document. This highlights 64 recommendations to secure competitiveness and the survival of manufacturing within the prevailing global scenario.
Among these recommendations are eight fundamentals needed to secure survival of manufacturing before focusing on future development.
The most urgent of these are:
• Investment support
• Efficient and competitive transportation links
• Skilled labour force at competitive wages
• Stable energy at competitive rates
• Smart regulation
The Malta Chamber is pleased to note that, from the meetings it held so far, the authorities have agreed to the general direction and recommendations outlined in our Industrial Policy. If the recommendations are taken on board and implemented, the Chamber is confident the country WILL recover competitiveness to secure a prime role for manufacturing in the coming years.
▶ KPMG
Manufacturing is a major source of innovation and technological progress, and a strategic contributor to economic growth. Manufacturing firms usually undertake a high degree of research and development that contribute to specialisation and accumulation of human capital.
In Malta, the structure of the manufacturing industry has shifted over time, particularly due to the fall of the textiles and clothing industry. This fall was compensated with an increase in the electrical and optical equipment production and in the production of chemical products, plastics and publishing.
Issues which may hinder the manufacturing industry from flourishing in Malta in the long term could include the following:
1) Transportation costs for the importation of their raw materials and exportation of their final product. Nevertheless, this disadvantage is less of an issue in the case of relatively lightweight products with a relatively high added value component;
2) The type of manufacturing that makes sense in Malta is determined by the economies of scale required to run a cost-efficient manufacturing operation. This presents an opportunity for us to compete in the small run market of certain industries (e.g. printing) where small runs would be uneconomic for the large plants in Europe, China and elsewhere;
3) Higher labour costs in relation to other countries which are more production-oriented, which include China, India, and Bangladesh. Again this is less important in the case of higher added value products and where market proximity advantages outweigh any labour cost disadvantages.
It is more realistic to aim for a halt in the decline of the manufacturing sector as a whole and for an increase in output by concentrating on those segments which can be viably located in Malta.