The debate on the so-called "knowledge economy" held within the framework of the Social Affairs Committee of the House of Representatives has sparked an element of controversy because of what was said regarding the manufacturing sector. However, it is positive in itself that a committee of the House has got to the stage of discussing this subject and one must congratulate the chairman of the Social Affairs Committee for having brought this issue to the forefront.
To appreciate the extent to which we have moved forward on this subject, one needs to note that at the very beginning of my term as chairman of the Malta Development Corporation (way back in November 2000) we had commissioned a report on the subject (which was incidentally prepared by two Maltese persons and not by foreigners) to start obtaining a common understanding of the issues involved. That report was then followed up by the then minister responsible for industry, Josef Bonnici, during a series of meetings he organised with Maltese personalities living abroad and in the main working in the commercial, financial and manufacturing sectors.
The parallel drive made by the government to strengthen the ICT sector together with MDC's strategy, and now ME's strategy, to attract foreign direct investment in higher value added manufacturing put the issue of the "knowledge economy" firmly on the agenda. In reality, Malta has been slowly moving up the knowledge economy scale for several years now, probably more than we have ever realised and in a very unconscious way.
The efforts put in to strengthen the educational system, to open up new avenues for post-secondary education, to upgrade the telecommunications infrastructure, to allow the wages to find their own levels as dictated by market conditions while maintaining a strong social security net, to develop new market niches in tourism, to spark off an unprecedented development in the financial services sector, the ability of Malta to attract investment in the manufacture of components used in sophisticated equipment, have led to the creation of a knowledge economy, without calling it so.
This last point brings into closer focus the issue of manufacturing in the knowledge economy. That the Maltese manufacturing sector can no longer rely on cheap labour like it did in the 1960s, 1970s and first half of the 1980s is a fact known to all. In fact, although we have in Malta a number of manufacturing companies that have been operating here for the last 20, 30, or 40 years, we need to recognise that the manufacturing processes and the products manufactured have gone through a dramatic transformation process.
We can no longer attract investment in low to medium value added, high-volume manufacturing. We are as yet unable to attract investment in the very high value added, low-volume manufacturing because of our lack in research and development.
However, we have been able and are still able to attract investment in medium to high value added, medium to low volume manufacturing. This is proven by the size of the companies operating in the manufacturing sector today, where we have a number of companies employing in the middle to high hundreds, one employing over a thousand, and several others employing 100 to 200 employees.
Others still employ less than a hundred but thrive in the sector in which they operate. The thing they have in common is that they produce a product that can be produced cheaper than in a number of European countries and that cannot be produced in low-cost locations.
This does not mean that there is no role for the manufacturing sector in our economy. It only means that we need to make sure that our manufacturing sector continues to base its competitive advantage on issues related to the knowledge and skills of the employees.
The growth of pharmaceutical companies is a case in point. International companies have been capable to exploit the nature of our regulatory framework in this area (which incidentally is in line with EU regulations), while making use of a readily available pool of human resources with the appropriate skills.
Unfortunately, when we use high-flown terms like biotechnology, we do not think that Malta is capable of playing an important role in such areas.
However, a recent US study considers manufacturing activities like the ones we have in Malta in the pharmaceutical sector as biotechnology activities. This proves the point made by the Minister of Investments, Information Technology and Industry, when he claimed that we need to concentrate on creating new jobs in new economic areas and that we need to manage the change process our economy is going through.
We are managing to find a role for the manufacturing sector in the knowledge economy but we cannot stand still. The manufacturing sector that we have today is totally different to that of 20 years ago.
It needs to be stated that when the government decided to remove protection for local industry, there were several sceptics who predicted doomsday for the manufacturing sector. The end result has been totally different. This should lead us to expect that the manufacturing sector of tomorrow shall be totally different to the manufacturing sector as we know it today.
This requires us to take cognisance of current realities in the world economy, to have a great deal of foresight, and to invest heavily in the retraining of employees and in culture change.