It is today widely recognised that one of the motors that drive the Maltese economy is the services sector. It was not always the case in that not everyone had recognised the potential Malta had in this sector.
For such people the services sector was nothing more than the tourism sector and aspects related to activities such as commerce, finance, telecommunications, information technology, transport and professional services were seen to have potential only within our small economy.
The arguments brought against the development of the services sector were several. Fear was expressed that the development of the services sector would take away resources from the manufacturing sector, ignoring the fact that the labour participation rate in our economy was and still is low, especially among females. And the services sector is known to provide jobs mainly to females.
Another argument against was that the growth of the services sector could have meant the weakening of trade unions as persons working in the services sector are rarely unionised to the extent that they are in the manufacturing sector. It is as if maintaining strong trade unions is more important than the creation of wealth through new economic activities.
Today one rarely hears of such arguments and, 15 years on (that is since it became the government's stated strategy that this country should seek to develop the services sector), we probably take this sector for granted.
Some labour market indicators prove the importance of this sector to the economy. Employment in private market services increased from 39,000 to 52,000 between 1993 and 2003. The contribution of the private market services sector to the total gainfully-occupied population increased during this 10-year period from 29.6 per cent to 38.2 per cent.
The labour force survey shows that 68.2 per cent of all persons who are in a job are employed in the services sector, be it public or private, therefore also including the public service.
It is also important to highlight that the growth in employment has been across all the services sector, but it has been more pronounced in the non-traditional segments. Thus, whereas there has been growth in employment in the hotels and catering segment and in the financial and banking segment, there has been even more significant growth in other areas. In fact, future growth is also very likely to come mainly from these other areas that are currently undefined in the statistics published by the NSO.
With regard to the gross domestic product, the services sector has also registered an increased contribution over the years. In fact, between 1994 and 2003, the contribution to the gross domestic product of the segments that together comprise the services sector, excluding public administration and government-controlled enterprises, increased from 45.5 per cent to 48.6 per cent. However, this growth was not achieved at the expense of the manufacturing sector as this sector grew by 50 per cent over the same period and its relative contribution to the GDP decreased.
The cumulative year-on-year growth of the services sector between 1995 and 2003 was of 50 per cent, while the cumulative year-on-year growth of the gross domestic product during the same period amounted to just under 49 per cent. Equally important has been the role of the services sector in international trade.
It has always been an important positive net contributor to our balance of payments partially making up for the perennial shortfall that we have in our balance of merchandise trade. However, this importance has become even more marked over the last years.
Given these growth patterns and the increased importance that the services sector has in the Maltese economy, it becomes essential that we adopt a critical approach and seek to identify what may be inhibiting further its development. Just as manufacturing firms may lose their competitiveness so may firms operating in the services sector.
The threat is that even the services sector is becoming globalised just as the manufacturing sector did before it. So a loss of competitiveness by firms operating in Malta could mean not only a potential loss of export earnings, but also the shift of activities from this country to another country.
It is for this reason that the services sector cannot be taken for granted and it cannot be assumed that this sector does not need any support for it to thrive, like the primary sector and the manufacturing sector need. It is for this reason that we should not treat the services like a child very often treats his toy - play around with it until it breaks. When it breaks it will be too late for this country to do anything about it.