Just when economic indicators showed unmistakable signs the Maltese economy was set to continue moving ahead after slipping out of the recession with flying colours, an uprising in Libya has once again presented new challenges to the economy. As the government bathes in the glow of the praise showered on Malta for the efficient manner it handled its part in the evacuation of people wanting to flee the North African country, it is becoming all too clear it could well become harder for the government to reach the targets it has set for this year.
Prime Minister Lawrence Gonzi appears to have sized up the situation already. He has warned social partners in the Malta Council for Economic and Social Development the situation in Libya could have a serious impact on the economy. It was, therefore, time for the government and the social partners to see how best they could ease the impact. It is important to map out any possible measures that can help firms directly hit by the crisis to keep afloat until they solve their problems.
The oil price rise and, now, the natural disaster in Japan, have brought about new uncertainties in addition to those already existing over the financial situation of a number of countries. As Malta grapples with new problems, it would also have to keep to other commitments. As it happens, a new competitiveness pact, just agreed upon in Brussels, indicates paths countries in the eurozone are expected to follow to boost competitiveness, employment, public finances and financial stability. Not all of the proposals made go down well with Malta and, for that matter, with other eurozone member countries.
According to reports from Brussels, for instance, Malta, with the help of Ireland and other small member states, has so far managed to fend off attempts by Germany and France to introduce a forced harmonisation of corporate tax across the European Union. Malta is also against the abolition of the wage indexation mechanism, arguing it has served the country well as it helped keep industrial stability. However, the argument has been shot down by international agencies, the Central Bank and the Malta Employers’ Association many times. Interestingly though, the Chamber of Commerce, Enterprise and Industry is proposing the cost-of-living wage adjustment be indexed to productivity and to inflation.
Perhaps what needs to be established first is the real impact the mechanism has had so far on the well-being of firms in the various sectors of the economy. Has such an exercise been carried out already? If it has, what does it show? Have there been firms that had to relocate overseas because they could not keep up with the impact of the annual wage adjustment, as worked out under COLA, on their unit costs?
According to a national reform programme, labour productivity has shown only a moderate growth over the past 10 years and a decline compared to the EU average. In 2000, labour productivity had almost reached the EU average but by 2009 this had dropped to about 88 per cent of the EU average. What has caused productivity to drop to this extent? Is the country regaining the ground lost over the period?
It is against this and other factors that the matter has to be studied. It would pay the unions, the employers and, ultimately, the workers if, through willingness from all sides, a way is found to tweak the existing mechanism to bring about an improvement in productivity.