Much has been said and written on the growth that our economy is experiencing, as evidenced by the growth in the gross domestic product, growth in exports, growth in investment, growth in employment, increased diversification in economic activities and the reining in of the fiscal deficit to sustainable levels.
However, the underlying feature in all this is the element of value added. The Economic Survey published by the Economic Strategy Division of the Ministry of Finance defines gross value added "as the value generated by any unit engaged in a production activity and is obtained as the excess output over intermediate consumption".
In possibly simpler terms, value added is what we are left with after we have subtracted inputs that have been used in the production of any good or service. In an economy with no natural resources such as ours, this is represented by the wages and salaries component and the surplus generated by enterprises. For example, in an exporting company, to compute the value added, one would need to subtract things such as the cost of raw materials, the fuel used and such things. The significance of this statistic lies in the fact that value added represents what the country has really generated in terms of economic wealth - the value that we have added to our economy.
So how big is the value-added factor in our economy? In the first half of 2007, gross value added at basic prices stood at just under €2.2 billion. This represented a 6.7 per cent increase over the corresponding period in 2006. Gross value added per capita in manufacturing in real terms (that is after accounting for inflation) stood at just under €28,000 for the whole of 2006, reflecting an increase of 14.5 per cent over the level it was in 2003.
An annual increase in gross value added in manufacturing per capita in real terms of over 4.5 per cent is in fact even greater than the annual increase in real gross domestic product that we have experienced during this same period. This is evidenced by the increase in the productivity index, which experienced a rise of over 15.1 per cent between 2003 and 2006. This is a statistic that is given little resonance, but shows very clearly the healthy performance of the Maltese economy during this period and the continued healthy performance throughout last year and at the start of this year.
It is also worth assessing which sectors of the economy contribute most to the total gross value added. The two largest sectors are by far real estate, renting and business activities and manufacturing. The former contributes 16.5 per cent while the latter contributes 16.3 per cent to total gross value added. They are then followed by four other sectors of intermediate size. These are wholesale and retail trade (12.2 per cent), transport, storage and communication (9.5 per cent), community, social and personal service activities (8.2 per cent), and public administration and defence (6.8 per cent).
It is important to note that tourism does not feature as tourism's contribution to the economy is across a number of sectors, including transport, manufacturing, and wholesale and retail. Two other points need to be made. First, the relatively wide spread of total gross value added across a number of sectors indicates the strength of the Maltese economy and its ability to be resilient in times of adversity. Second, the fastest growing sector is financial intermediation. Its contribution to total gross value added increased from four per cent in 2004 to five per cent in 2006, while gross value added of this sector increased by 40.7 per cent.
From a qualitative perspective, it needs to be stressed that the Maltese economy needs to move up the value-added ladder if it is to continue thriving. Higher value added means higher wages. However, higher value added can only be achieved if the jobs that are done in Malta require more skill. It is this virtuous cycle that we need to strengthen; and education is the key fundamental element that underpins this cycle.