The manufacturing sector in Malta has been in decline for several years and was a major cause of the shrinkage in the Gross Domestic Product at basic prices last year. It has been slowing down both in terms of its sectoral contribution to GDP, as well as in the number of employees it accounts for among the gainfully occupied population.

In an overview of labour market developments, the Economic Survey accompanying the Budget Speech last November commented that during the 12 months to June 2009 the labour force had increased by 6,302 (4.3 per cent) to 152,016. Overall private sector employment advanced by 21.3 per cent in the four years to June.

But within the sector, the direct production sector fell considerably. The survey noted that over the 48 months there were 4,074 fewer employees in manufacturing, a drop of 16.4 per cent to 20,756. Among the causal factors was the practical demise of textile output, which had been a major contributor to the sector but was knocked off the production map by much lower wages in the far east (one sixth of Malta's average) and less so (one-third) in North Africa.

While the manufacturing sector remained an important element generator of GDP at factor cost, there were significant changes within it. The drop in value added by some sub-sectors (including food, beverages and tobacco products - though there was a reversal in 2008) contrasted with higher value added elsewhere (like in publishing and printing, chemicals and chemical products).

It is in the nature of a dynamic economy that some sectors will grow while others are simultaneously contracting as a direct effect of changes in demand patterns and, perhaps more significantly, in competition terms. Malta's overall change has been from one relying heavily on direct production after the dismantling of the UK defence facilities in Malta, to one increasingly dependant on market services activities, in particular on financial services and tourism.

Notwithstanding such structural changes, the manufacturing sector remains very important to the present day, both in relation to the GDP as well as in providing essential jobs. Malta's job profile has been changing quite dramatically over recent years as a result of the restructuring going on in the economy. The educational profile of new entrants to the jobs market has also undergone substantial developments, with more students seeking a secondary and post-secondary education.

That said, there remains a constant need for outlets to absorb skilled, semi-skilled and unskilled workers, thousands of whom continue to seek employment, and will do so for many more years to come.

This is confirmed by the structure of those registering for a job, who have risen quite markedly over the past 15 months, even if to a far less marked degree than the worst performing EU economies, of which Portugal, Italy, Ireland, Greece and Spain are prime examples. The outline news of potential expansion among a number of manufacturing firms given by the Minister of Finance, therefore, is a welcome development. Tonio Fenech said over the weekend that a pharmaceutical company was among a number of factories that are planning to expand their business in Malta with new investment.

Speaking at a political occasion the minister was making the point that Malta had continued to attract foreign investment despite the global financial crisis. This has led to cautious international praise. Moody's Investors Service, said the minister, had praised Malta's economic resilience during the global crisis. (And) last month a Hedge Funds Review supplement had said Malta was gearing up to challenge the established hedge fund jurisdictions in Europe.

The minister's latter point confirms that Malta is hopeful of continuing to make headway in the services sector. That it can do so too in manufacturing is a boost for the reasons outlined above, plus others, such as a continued transfer of knowledge and other resources. Tonio Fenech understandably also mentioned German toymaker Playmobil, which plans to invest €11 million over the next two years to extend its plant by 5,000 square metres and employ a further 80 workers. Cosmetics packaging manufacturer Toly Products intends to attract new business to Malta.

Fuller details of the various investments referred to still have to emerge. But it is already known that part of this outcome will be due to the direct help given by the government to specific companies threatened by the effects of the global recession at its height.

Malta's drive to continue to diversify the economy with new direct investment cannot ease up, for change and competition do not slow down. To this end the promised critical review of the way Malta Enterprise operates, including its link with our embassies abroad, need to be speeded up. Focused changes in the education system are also important.

In this regard Mcast is widening its scope to try to bring about a better fit of vocational students with the forecast demand for labour expected from the forecast new investment in manufacturing.

A successful industrialisation restructuring and employment policy requires a convergence of various factors. An up-to-date education system is one of them. Retraining, by the Employment and Training Corporation and by companies, is another. Many more factors can be called up, including flexibility and output-performance-related compensation.

However much is being done, it cannot be enough. The challenge is consistent and growing. The response has to be regulated by it.