National Competitiveness – the way to prosperity

Last Friday the Malta Chamber of Commerce held a well-received seminar, National Competitiveness – The way to prosperity. Following are extracts from the opening address by Chamber President John E. Sullivan

Competitiveness has come to mean many things to many people. It is a broad concept which has been applied to describe the performance of three levels of economic aggregation - firms, sectors and industries, and countries. National competitiveness is a function of the competitiveness of the country's firms and sectors.

Our Chamber has followed this issue closely in the past and observed that Malta, as a nation, can do much more to enhance its competitiveness. We need to do our utmost in this regard if Malta is to be a worthy player in the rapid process of globalisation which nowadays characterises international trade in goods and services.

Our country is currently at a crucial stage in its EU accession negotiations. In the light of its aspirations to compete on a regional and international level, the Chamber must stress that competitiveness is a vital issue whether Malta joins the EU or not. This is an area where the two major political parties need to strike consensus. However, at this stage the Chamber is, and will be endeavouring to adopt a pro-active stance so that its members exploit the maximum benefits of the EU membership process. This becomes ever more important in the light of the global economic slowdown and the unfortunate events in recent weeks.

Over the past years, the Chamber has made several recommendations related to the enhancement of Malta's national competitiveness which, to my mind, have generally gone unheeded. The Chamber endeavoured to drive the point forward with the Authorities that the competitiveness of the local business community is hampered by a number of issues linked with the country’s macroeconomic stability, infrastructure, labour market, and regulatory reform amongst others.

The Chamber pronounces itself regularly on the country’s economic position. Even though progress has been registered, it is very concerned with the public finances situation because this can have numerous macroeconomic consequences. Implications on taxation, the interest rate, inflation, foreign reserves and currency stability, amongst others must not be overlooked because they affect, in turn, aggregate demand, consumption patterns and, ultimately, commercial activity as well as competitiveness.

The Chamber is aware that Government cannot be expected to solve the national debt problem on its own. A concerted effort is badly required between all social partners represented at Malta Council for Economic and Social Development (MCESD) to reach consensus on the reforms which are long overdue.

We are in that crucial period of the year in which the country prepares for the annual fiscal budget. As usual, the Chamber will make its annual submissions to the Minister of Finance. This year, our focus will be on macroeconomic stability with particular reference to the fiscal deficit and national debt. We will insist that no new taxes be introduced in the forthcoming budget because the private sector is in no position to absorb any further taxation. We will insist for a reduction in government expenditure especially in those areas which are notoriously liable to widespread wastage and abuse. Finally, we will also urge Government to continue to encourage a business friendly environment. The private sector must be assisted in creating the level of national wealth required not merely for the attainment of public finance targets but also to contribute towards the enhancement of national competitiveness.

With respect to infrastructure, which I referred to earlier on, it is fair to comment that the country has come a long way over the past decade or so which witnessed the building up of the country’s basic infrastructural needs, most of which are managed by independent statutory bodies. The Chamber is gratified to hear that some of these companies are in line for privatisation. Hence, it is assumed that they are presently in the process of enhancing their competitiveness with a view to provide better value to their new shareholders and clients in their prospective liberalised scenario.

Also in terms of infrastructure, whilst acknowledging that work on improving the local road network is currently under way, the Chamber must urge Government to ascertain that our roads are up to standard for the business community, the tourist and the population in general.

The situation in our ports is also very concerning. Local port charges constitute one of the most serious burdens which continues to undermine Malta's potential to step-up its competitiveness to a level which would do the country more justice when compared to other competing nations in this part of the world. These costs and uncompetitive practices associated with the clearing of merchandise from local ports need to be addressed with utmost urgency.

Another difficulty facing our national competitiveness is a misallocation of resources stemming from a relatively high government participation rate in the economy. The country’s most important resource is its human one. Malta's public sector is largely over-manned in many sectors and hence accounts for a vast proportion of our labour force who are working under "less than efficient conditions". Despite substantial wage increases and various public sector reforms since the late 1980s, we are of the opinion that certain sections of the public sector are not providing a quick, cost-efficient service to our members and the general public. I am not suggesting that excess labour in the public sector ought to be made redundant. This would create far larger economic problems for the country. What I am suggesting is that legal measures be introduced as soon as possible to enable the public sector to shift workers to more productive use. If released to more productive use in the private sector, where they are badly needed, the input of this section of the workforce would invariably enhance their contribution towards a further strengthening of Malta’s competitiveness. This can be achieved through public-private partnerships on which there must be agreement between the social partners so that these schemes can be finally encouraged and fostered in the country.

In terms of the labour market, one cannot but mention a shortage of specialised labour encountered by the private sector. Apart from labour mobility from the public sector, we feel that the country needs the education sector and the Employment and Training Corporation to channel more people into those sectors where the shortages are more acute. Here I refer specifically to basic trades, people in engineering and IT, for instance.

It is useless for our education system to continue churning out a steady flow of teachers, lawyers and accountants whilst industry continues to face a serious shortage of technical skills in various fields. To this end, I recently represented the Chamber in the "Graduate Potential Group" - a commendable initiative spearheaded by the University of Malta aimed at bringing the supply of university graduates closer to the demand of industry and commerce. It is through such initiatives that we can rectify the situation of skill mismatches in the local labour market and render our nation more competitive.

Linked to the labour market, I must also add that the wage bargaining process taking place in Malta over the past decade or two also impinged negatively on national competitiveness because increases in wage levels were not always commensurate with improvements in productivity. We, as social partners, must ensure that any future wage increases – in both the public and private sector – are strictly related to gains in efficiency.

In the short time available to me I would also make a brief reference to regulatory reform in the country characterised by the new structures being established for various sectors such as the Malta Communications Authority and the Malta Resources Authority. We augur that these new authorities will function efficiently, effectively and impartially gaining respect from industry and the country at large in a short period of time. I am sure that Mr. Mark Courtney, our second speaker today will enlighten us much further on this subject which, in my opinion, is tantamount to the achievement of national competitiveness.

The Chamber has gone on record suggesting the setting up of a Competitiveness Council to monitor and benchmark Malta's competitiveness with that of other countries as well as to provide recommendations as to how to enhance the country’s competitiveness position on an on-going basis. I reiterate this recommendation again this morning. A Competitiveness Council could be possibly set up within the remit of the MCESD. Otherwise, it could be set up by the Chamber together with other interested bodies who could mobilise expertise from within the business community to benchmark Malta's performance vis-à-vis EU member states and other candidate countries. A similar set-up has been running successfully in Portugal since 1994.

We are also told that the National Competitiveness Council in Ireland - which provides a vital input to the Irish Government policy on competitiveness - issues an annual report on how the Irish economy is faring vis-à-vis other countries across the world. Again, I leave it to our speakers to give us further insight on this point.

There are several other aspects and issues to be discussed, such as an enhanced role of social dialogue; research and innovation; skills availability; public/private partnerships; and infrastructural endowments amongst many others. I augur that all these points are tackled in some detail during this morning’s proceedings. The MCESD constitutes an ideal forum for the continuation of today’s debate and it is my hope that the constituted bodies represented on MCESD co-operate actively to this end to seek and formulate concrete, long-term solutions to Malta's deficiencies in the international competitiveness scenario.