Major manufacturing plants are struggling to make the case for Malta with their group boards as rising costs dent competitiveness and drive investment away from the island, three companies have warned.
The rent for 2,500 square metres would have been higher than what the company was paying for 20,000 square metres
In an exclusive combined interview with The Times Business, the heads of Toly, Playmobil (Malta) and Trelleborg say the constant piling of “unrealistic” costs, a lack of specific focus on the manufacturing sector, and the authorities’ inflexibility is relegating Malta in the attractiveness table when boards take decisions on investment.
All three plants have a long-standing history of successful operations in Malta – Trelleborg was established in 1961, and Toly and Playmobil are each celebrating 40 years on the island. All said they are committed to the country but prohibitive rents for office space and shop floors, the proposed service charge, and escalating utility rates are stripping Malta’s business case of competitiveness.
“Here are three companies which wanted to expand and employ more people and those projects have not gone ahead,” Andy Gatesy, chairman and chief executive of beauty packaging supplier Toly, said. “Forty years ago, the main priority was job creation. Now the priority for the government seems to be how many costs it can pile on us. Why do we have to talk about a service charge now? This has not been an issue for 40 years. Our electricity, rent, transport, labour, and raw materials costs are going up. We need a sweetener. There could be a slow retreat, eventually.”
Mr Gatesy recalled the government’s crucial support in 2009 when orders slowed and the authorities acted quickly to protect jobs. Now an opportunity existed for all stakeholders to nurture the sector into a powerhouse for Malta. Manufacturers were aware of the challenges facing the government, but businesses had to seize opportunities for results to be reaped in two or three years. If business development and the identification of new customers stalled now, a “disaster” could be on the cards in the short-term.
Malta was the heart of Toly and the company recently sought to establish a showcase plant on the island. A basic agreement was reached with the government but the costs turned out to be prohibitive. Toly has expanded as it followed its customers across the world. This year the group will witness growth of more than 15 per cent but little will come out of Malta because of lack of competitivenes, Mr Gatesy said.
“Having won that business as a group, what can we do with the government to move that from our China, India and Korea plants and put it into Malta?” Mr Gatesy asked. “I would want Malta to grow the fastest. Today we pay less than €100,000 a year for all the facilities here in Bulebel but they are falling apart. If we build a new factory, we have to put new equipment in because transferring existing equipment would mean a slowdown in operations. The government pledged its support, but the new rent will rise to €1 million and our electricity bill has increased by €1 million. Now the government is talking about a service charge which is unrealistic. Our customers will direct business to our other plants where costs are lower.”
He emphasised the necessity for the authorities to give industry greater attention. Manufacturing, he pointed out, fell under the Finance Ministry and Malta Enterprise, both of which had broad portfolios which inevitably translated into lack of focus on industry.
Martin Hignett, managing director of Trelleborg, the safety-critical component supplier to the automotive industry, explained that the Malta plant could end up paying up to double what its 17 sister plants around the world pay for electricity when all the subsidies are eventually removed.
He stressed that a large part of the plant’s €45 million annual sales remained in Malta. Currently employing 200 people, the Ħal Far plant owes its permanence on the island to Sir George Dowty, the founder of the company eventually acquired by Trelleborg, who remained committed to the island in the 1970s oil crisis.
Mr Hignett said that in a previous recession, Trelleborg closed a plant in Sweden to reduce its exposure to that part of the world and moved additional operations to Malta. But when a decision was taken to build a new factory alongside the existing one, the rent for 2,500 square metres would have turned out to be higher than what the company was paying for 20,000 square metres. Operations moved back into Sweden and some were channelled into Poland.
“Every year, Trelleborg issues a grading table for the countries it operates in to make decisions,” Mr Hignett explained. “Malta has dropped down the table on electricity – electricity is five per cent of our cost of sales and that hit us very badly because the utility fees eat into the labour cost advantage.
“We do not want to be overly negative. We did go to the government and we are looking at funding schemes to help us save electricity to avoid the long paybacks on alternatives for now. We are working one-to-one with the authorities, so there are some positives.”
Toy maker Playmobil (Malta) managing director Helga Ellul pointed out that the electricity issue was not going to be solved quickly or easily. The feed-in tariffs on energy put back into the grid by green solutions were not encouraging and the paybacks on the investment – at up to eight years – were too long-drawn to be attractive to the group’s board.
Mrs Ellul stressed that the equipment Playmobil installed in the factories represented a much higher investment than what the government put forward in terms of bricks and mortar. Now the authorities were seeking to put a value on the land when the land had been specifically earmarked for the creation of jobs and no other purpose. It was the manufacturing players which had created the existing infrastructure, Mrs Ellul emphasised, and the authorities would do well to draw up a comprehensive cluster plan to enhance Malta’s offering to existing and new manufacturers. In this way, the start-ups seeking to supply the plants could be located in the same industrial park. All three manufacturers counted a host of small businesses in their local supply chain, all of which were prospering with the support of the plants. That knowledge transfer to SMEs should also be recognised, Mrs Ellul said.
“We need quick decision-making because we need to finalise business plans,” she added. “We are being taken for granted. It does not mean we will leave Malta, but we will not grow, and if we do not grow, we move backwards. Much of the new business which comes to Malta comes partly thanks to the testimonials of the longer established companies. New investors would rather listen to entrepreneurs and learn of their experience of the country.”
Mrs Ellul insisted that rather than the authorities imposing a service charge, the tenants should be allowed to run the industrial park through an association.
The Bulebel tenants association maintained the estate on a budget of €85,000 a year, but the proposed service charge could see the authorities collecting around €1 million. Additionally, it was unclear whether the service charge rate per square metre would be charged for built-up areas only or also on the plants’ car parks.
Toly deputy chief executive William Wait, who is also vice-president of the Malta Chamber of Commerce, Enterprise and Industry, said it was important to ask whether the factors which attracted these three major players to the country in the first place still existed. If Malta wanted to attract new investment, it had to identify ways to restore competitiveness. Charging exorbitant rates would not entice manufacturers to expand and create more jobs in Malta, he warned.
“None of us are political,” Mr Gatesy was keen to stress. “We do not care which government there is. We are all passionate about Malta – we are the best sales people to go out there to talk about the island and its benefits to attract new business. We would like to continue to do that. We are critical because we want Malta to be successful and our companies to be successful in Malta.
“We will criticise anybody who, in our opinion, hampers us in fostering the strengthening of our industries, to be competitive, to employ people, to put Malta as a showcase on the global map. Malta is Toly’s showcase. We are a Maltese group, taking our entrepreneurial spirit and planting it across the world with Maltese people. We can be the best in the world, but we need to work together. Size can work in our favour – we can be fast and agile, we can be stakeholders together.”