Buoyed by another positive credit rating, Malta still has to keep its feet firmly on the ground, David Curmi, president of the Chamber of Commerce, Enterprise and Industry tells Kurt Sansone.

Although the latest credit rating agency report by Fitch has painted a generally positive picture, the Chamber has opted for caution. Why?

The Chamber expressed satisfaction at Fitch’s ‘A’ Rating coupled with a stable outlook for Malta.

The agency has once again acknowledged the country’s relative economic resilience despite Europe’s fluid situation. However, this does not give reason for complacency especially in the light of other recently-published reports.

Firstly, Fitch itself acknowledges that Malta’s rate of economic expansion was generally attributable to domestic demand. In itself this is a note of caution because domestic demand on its own cannot sustain long-term growth.

Lasting economic growth needs to be driven by export-led activity and this requires the country to be competitive. It is also worth noting that the Pre-Budget document recently published by the Finance Ministry states that in the first half of 2014, Malta’s main productive sectors, namely financial services, manufacturing and agriculture, all recorded negative gross value added contributions to the economy.

The Chamber believes caution is paramount, especially as the government is preparing the country’s 2015 Budget

Industrial production figures for July 2014 also record a significant drop when reviewed over a one-month or 12-month basis. The Chamber also notes the World Economic Forum Competitiveness Rankings in which Malta slipped six places. Malta scored weakly in terms of ease of doing business, innovation, labour market efficiency and certain aspects of infrastructure including roads and electricity supply, according to this report.

In light of all this, the Chamber believes caution is paramount, especially as the government is preparing the country’s 2015 Budget.

What can be done to help those sectors, particularly manufacturing, that are doing badly?

Manufacturing is facing ever-increasing challenges. The country is gradually losing cost-competitiveness and is not effectively addressing issues such as energy rates, productivity, labour market conditions, transport costs and investment incentives. The present and future of manufacturing is not looking bright.

Public sector employment has increased over the past year. The Finance Ministry argues that part of the increase is a spike as a result of the temporary nationalisation of public transport and insists government employment has retained the same level as last year when taken as a percentage of the labour force. Is the Chamber satisfied with these explanations?

We understand the importance of ensuring enough resources to fulfil the roles for which the public sector is responsible. However, all this must be balanced against the impact on public finances and in turn, the effect on national competitiveness through the added tax burden generated.

In our Economic Vision for Malta 2014-2020, we strongly propose that the government should carry out a manpower survey and gap analysis so as to take stock of the skills available in the public service. This will enable it to deploy its present and future resources more efficiently and effectively while assisting in recruitment decisions.

Employment with the government should only take place to enhance the productive capabilities of the department or entity concerned. In any other unjustified circumstance, employment with the public sector must be discouraged.

What are the most important measures you would expect in the Budget to enhance competitiveness and boost growth?

Energy plays a crucial role in this department. Malta’s energy costs remain grossly uncompetitive when compared to the EU. The government’s proposed reductions are not enough to at least equal the average rate available in the EU28 which, while low by domestic standards, is still uncompetitive when compared to an average rate in the US.

The Chamber also believes that the Cost of Living Adjustment (COLA) mechanism requires a revision to serve the economy better in all scenarios. Besides the change in the formula, the Chamber insists on the urgent need for a clear definition of the term ‘exceptional circumstances’, which is already contemplated in the law.

Education and training also play a paramount role in the competitiveness of the country. Low labour market participation and the skills challenge have to also be tackled. A campaign needs to be undertaken to restore pride and professionalism in a host of jobs and careers that are nowadays being frowned upon by Maltese workers. The education system needs to create a generation of young people who are in love with what they do. This can only be achieved through proper career guidance, apprenticeship and internship schemes.

If offered the right conditions, employers and students can benefit from internship schemes that benefit both sides, especially since a bond can be created between the student and the workplace very early in the student’s life.

When people love their job, they will be at work instead of finding excuses to remain home.

Better regulation and reduction in administrative burdens will also contribute to the country’s competitiveness. The vast majority of Maltese companies are micro-firms which are disproportionately affected by overregulation and bureaucracy. The Chamber is propo­sing a new national competitiveness watchdog to ensure the economy is not hampered by new measures, regulations and taxes that negatively affect competitiveness.

An extensive process of legislative simplification is to be undertaken and where the need arises amend or repeal unnecessary laws.

Investment in port infrastructure and competitive rates for related operators’ services need to be secured. In addition to inadequate shipping services and high shipping costs, domestic port charges are also very high, making the cost of getting shipments from port to factory disproportionately high.

This being the second serious conflict in the span of a few years, certain foreign companies may consider relocating completely to Malta, leaving only the extremely necessary parts of their operation behind in Libya

The government says it wants to cut welfare dependency and encourage people to work. How confident are you that these words will translate into action?

Malta’s overall labour participation rate remains relatively low when compared to EU figures. This means the economy is not firing on all cylinders because certain productive resources remain idle. Work is a duty and a right. Consequently, people should not be given a choice as to whether they would like to work or otherwise. People who do not work automatically become a financial burden on those who do and this creates social injustice as well as economic imbalances. The Chamber is in favour of “making work pay” initiatives as long as these are affordable and do not distort the labour market.

The situation in Libya has caused problems for Maltese operators there. What is the extent of the damage and has the situation created opportunities for others?

We are following the unfolding of the unfortunate developments in Libya closely. In July the Chamber reconstituted its Libya Action Committee to monitor the developments and business interests of the region and make recommendations accordingly.

The way the situation is unfolding, for the second time in less than four years, has affected our members because a sudden halt to normality took place, bringing about an abrupt suspension of business.

Companies have had to suspend their operations haphazardly with very serious repercussions. Payments into companies have stopped, but commitments to suppliers in third countries still hold. This is leading to great strain on the companies that want to deliver, but in many cases cannot.

If the situation persists, tougher decisions may need to be taken. Companies are keen to hold on to their valuable human resources as they will certainly be required once business resumes after the conflict.

The unfolding of the situation is tricky at best, and we remain hopeful that a political long-term solution is found for the benefit of Libya and the welfare of its people.

Malta and Maltese businesses, as they have done in the past, will surely step in when the time is right, to support the Libyan people in the rebuilding process. With important infrastructural needs still missing, Malta could also step in as a support hub for the country. Missing an air link, a constant maritime link between Malta and Libya may come in handy for businesses. This being the second serious conflict in the span of a few years, certain foreign companies may consider relocating completely to Malta, leaving only the extremely necessary parts of their operation behind in Libya.