The adequacy of support services for industry

Economic Services Minister Josef Bonnici wraps up last Friday’s Federation of Industries seminar ‘Support Service to Industry – is it Adequate?’ Prof. Bonnici reacts to the seminar’s findings and delivers an insight into the future of such services

First of all I would like to thank you for inviting me to make this brief intervention at the end of your seminar. I would also like to express my appreciation for surveys such as the one that you have carried out and which has been the subject of your discussion. Perceptions might not always reflect reality as accurately as one would expect, but they certainly cannot and should not be discounted. Your survey has helped us to gauge better the perception, amongst industrialists, of the effectiveness of the business environment in Malta. It is a perception that we want to understand and where this perception is negative, we want to take remedial action; not merely to address the symptoms but to identify and correct the underlying causes.

In any test or survey, there is always a tendency to accept readily all positive indications but to challenge any negative scores. Such a reaction is only natural and is pretty much universal. Hence, you will not be surprised to hear that I was very pleased that the Malta International Airport, Maltacom, the Banks, Maltapost, Malta Maritime Authority, VAT Department, Inland Revenue Department, Malta Police and Malta Freeport all scored highly. Of course, such a score does not signify that there is no more room for improvement or that one can be complacent. Far from it, more work is required by these entities so that they can continue to improve their operation to provide an even better service to the business community.

When it comes to the three business promotion organisations, that is MDC, METCO and IPSE, the survey has highlighted quite significant differences in perceptions. MDC has faired quite poorly whereas METCO and IPSE have both registered high scores. A closer analysis of the survey shows that export oriented companies that are foreign owned gave a higher rating to the MDC than those companies that export a smaller share of their total sales and are locally owned. On the other hand those companies that are export oriented and foreign owned gave a lower rating to IPSE than those which export a small part of their sales and are locally oriented.

In reality, this dichotomy is not surprising since it reflects the way in which industry has long been structured in Malta and which only recently has started to change, and change it must.

Traditionally, the export oriented firms were usually foreign owned and were catered for by the MDC which administered export linked incentives. On the other hand, locally owned firms usually did not export but only catered for the local market. As a result of trade liberalisation, these firms have now started considering exporting their products but clearly need assistance in this endeavour. Support to these entities has therefore been provided primarily by IPSE and METCO rather than by the MDC.

This situation is now, however, rapidly changing. Under the BPA, that has replaced the IDA, the system of incentives is no longer linked to exports but, rather, it reflects sectors with high value added. Hence more and more locally owned companies will qualify for incentives. The removal of levies and the growing trend towards globalisation in the world economy has placed the word restructuring on the agenda of most companies. As part of the same process, more and more firms are being prompted to look beyond the local market. Export promotion has become of wider interest.

All these observed trends imply that more and more companies will need to seek the support of all of the three business promotion organisations and they will have to do this at the same time. It is clear that there is already a crucial need to integrate better the operation of MDC, METCO and IPSE. It should also be equally clear that we must go beyond the simple aggregation of what exists today. Hence, the decision to establish Malta Enterprise.

We have given considerable thought to the matter and we have been working very hard to identify the best way forward. There is a clear need for a new entity that will provide a one-stop shop that will help to avoid unnecessary resource duplication and provide a better service to the business community. This is one of the reasons for the creation of Malta Enterprise that will take over the functions and operations currently carried out by the MDC, METCO and IPSE. We are confident that the new organisation will, not only, carry out these functions in a more integrated and hence more effective manner but that it will also be able to take-on other functions. Such as the ability to identify and help develop strategic niche areas in which Malta based business can flourish.

The objective is a dynamic organisation that will display a ‘can do’ approach which will not succumb to beaurocracy. It is expected that the new organisation will have started taking shape by early next year.

Another entity, which scored on the low side, was Enemalta. Power cuts have a very negative impact on many businesses especially those working on shift or those that incorporate processes (such as injection moulding) where there is considerable time lost in restarting production if a stoppage does take place.

There can be no debate on the need to make every effort to minimise power cuts. However, when discussing this subject, one must realistically remember that Malta suffers from the drawbacks of having a small and isolated electricity system. Malta is not connected to the European electricity grid. This means that, if there is any problem in the local electricity supply, there is no alternative source that can be tapped until the local supply has been re-established. Isolation makes excess capacity necessary in electricity generation, to avoid technical faults that would immediately result in power cuts. However, even this precaution is no substitute to being part of a wider grid.

In the meantime, we must strive to do our best in the light of our present constraints and we must also endeavour to improve our best. This is what Enemalta is doing and I must mention that, during these last years, Enemalta has invested significantly in new electricity generation capacity and an improved distribution network. Enemalta is also seeking to build a closer and better relationship with the industrial sector. A few months back I had myself chaired a meeting between Enemalta and a delegation from the FOI which has established a ‘direct line’ between representatives from the main industrial estates and Enemalta’s engineers. As a result of that meeting, Enemalta has also tabled a proposal for a lower price structure for heavy industrial users who invest in equipment that reduces the required power factor. This proposal has been endorsed by the FOI and is currently being assessed by the Malta Resources Authority.

The Customs Department is another entity that has a total score that is on the low side. Procedures at Customs are passing through a transition period. Certain measures, such as the harmonisation of HS codes, may have appeared as a burden in the short term but the benefits of these reforms will be reaped very soon and, as import licences and levies are being removed, procedures at customs will progressively become more streamlined. One must also mention that, once Malta becomes an EU member, procedures involving inward and outward trade with the other EU countries will be greatly simplified since Malta will be part of the single European market.

Another low scorer was the Water Services Corporation. The major criticism put forward as concerns this company concerns the quality of the water supplied in certain parts of Malta which is not considered as being good enough and certain companies have to further refine this water before being able to use it.

Water quality is one of several areas where the path towards EU membership has served as a catalyst to the analysis of present shortcomings and the identification of measures required for the desired upgrading. As a result, detailed plans are being drawn for the required investment.

It is expected that, before the date set for EU accession, the necessary infrastructural works to integrate the water network will be complete. This will make possible, in all localities in Malta, the blending of water extracted from the aquifer with the water produced from the reverse osmosis plants. As a result, it is expected that all water supplied to consumers will then conform to the EU parameter for nitrate content.

In addition, the Corporation is also planning for the design and construction of treatment (or polishing) plants intended to eliminate other chemicals such as sodium and chlorides. Therefore, as regards water services, although a huge investment is required to improve the quality of the water provided, plans for this to be undertaken are already well in hand.

The Market Surveillance Unit was also a low scorer in this survey. Or to be more exact; it is the market surveillance function that scored poorly since the unit itself is only of recent establishment and it is still at the stage where it is building its capacity. The Market Surveillance Unit is being assisted in this task through a twinning project with the UK Local Authorities Coordinators of Regulatory Services. This unit has a very important function to fulfil. We are confident that we have laid the proper foundations for it to be able to function as desired, as early as from next year.

A particularly worrying observation to emerge from the survey is that businesses are feeling that the educational system does not adequately address their requirements. One cannot overestimate the need for effective linkages between industry and the educational system. Government is very conscious of the need to develop the educational system in such a way that it provides the necessary support to industrial development. In fact, not only MCAST has been set up but an ‘industrialist’ has been appointed as its first Chairman, precisely so as to help facilitate the interaction between this new college and the business community.

Other reports have identified that, even at the University level, the interaction between academia and business is still quite weak. I know that the FOI is keenly aware of this situation and it has initiated a number of initiatives to develop further the desired interaction between industry and the educational system in our country.

Finally, the survey also showed that businesses are feeling that they are not being adequately consulted on issues that relate to their business. This is an issue that must be explored further since there are a number of channels already operating which provide scope for significant interaction.

At the more formal level, the MCESD provides an institutional platform for tripartite contacts where important developments affecting industry can be, and are, tabled for discussion. I have myself had the opportunity to address the MCESD on various occasions such as prior to the publication of the schedule for the removal of levies, before the publication of the Business Promotion Act and in the preparation of the Industrial Policy Document. At a more informal level, I have regular meetings with the constituted bodies as well as various contacts with individual industrialists. I can assure you that my door is always open to discuss any issue of relevance to industrial development.

I would like to end my intervention by congratulating, once again, the FOI for this survey that has provided us with valuable additional insights into the business community’s perceptions. You have given us a lot of food for thought but also a clear prompt for action which it is our declared intention to follow-up with the required attention and urgency.