George M. Mangion | Wednesday, 27 August 2008

Enter the second NRP

Recently, Finance Minister Tonio Fenech launched a public consultation process on the National Reform Programme (NRP) covering the years 2008/2010. This follows the previous NRP based for three years to 2008 previously introduced by Censu Galea, then Minister for Competitiveness and Communications. The first NRP was groomed to serve as a roadmap for plotting Malta‘s economic progress, particularly with regards to employment prospects, investment in knowledge and innovation, energy and a cleaner environment. This was 2005, when the main concern was that to marshal national debt exceeding 70 per cent of GDP. The reform document made a valiant face by listing five targets: sustainability of public finances, competitiveness, employment, education and training and the environment. So what is new this time around? One finds that the new emphasis is now on attaining fiscal consolidation. This, in simple terms, means that tax revenues and all other rich pickings will make up for the ever increasing government expenditure. The holy grail seems to be the balancing of the budget by 2010. An ambitious goal in itself but is this enough considering that albeit gradual the state debt levels are blaring for redemption? One cannot but be thankful for little mercies considering that throughout the past decades, successive governments did not manage a surplus in the annual budget and the prevalent deficit was somewhat part of our yoke. Moving on, another attempt will be made in the coming three years to solve the pension time bomb linked to a spiralling cost of evermore advanced health care development amidst an aging population. The cherry on the cake of the new NRP is the statement made by the Minister of Finance who declared a war on bureaucracy. It seems Fenech wants to bite the bullet and wrestle the mantle of state harnessed red tape. We all wish him well. In an article in Times of Malta he was quoted to state that the government intended to further toll back bureaucracy “so as to allow business to do business.” Certainly doing business in an unshackled way means more employment prospects. But how feasible is this plan? Can Malta benefit once it responds to this call for action to regenerate the job market? One expects that the NRP revisits priority areas such as the sustainability of public finances, employment, education and environment and is meant to foster a unilateral front between Government, the social partners and civil society. But will this lead again to a wholehearted attempt for a social pact? Realistically speaking, as a direct consequence to our oil hiked costs of production, growth has started to slow and house prices slide down. The antidote depends on a number of external factors such as the rate of expansion of neighbouring European countries that are our main export clients and the mitigation of the US slowdown. A further problem is the low participation rate of the female workforce. In this respect, the NRP proposed in its first version, various measures intended to boost the female employment rate by seven per cent, and reduce the early school leavers’ rate by 13 per cent within 2010. This has improved but not significantly.
Opening up the jobs market for more female participation is quite an ambitious task and it all looks very hunky dory on paper. Naturally the labour market has to afford better paid jobs for married females, coupled with flexi hours and improved child care centres. Only then will paper targets become achievable. Yet, in spite of this noble cause, there was no agreement reached by the social partners to sign a social pact. In their opinion employers lament that it is indeed unfortunate that after lengthy discussions with all stakeholders to reach a social pact, the unions backed out of the agreement. This failed attempt cannot act as an albatross round our necks and every effort must be applied to try again to reach consensus. Such a small business community cannot afford the luxury of fragmented labour factions each fighting for their own patch. This opinion of mine is not in the spirit of the Lisbon Agenda. This initiative seeks to mobilise investment in areas that will reinforce ongoing structural reforms, stimulate growth and create jobs. The Agenda was revised and made more flexible to accommodate difficulties faced by member states during the first five years. In its priorities document for 2005-2010, it is widely agreed that the main factor which is now being addressed by the revised Lisbon Agenda is the deep seated rigidities in labour laws combined with lack of competitiveness. Of course the champion in the field is the much hyped French President Sarkozy, who can be credited for having managed to trim the wings of militant unions and slowly paved the path for more liberalisation in the jobs market. With hindsight, we note how the Lisbon agenda was first tooted by the Commission in 2000. The document was destined to achieve a better working environment, which would in turn create better affluence, more sustainable jobs and social cohesion. Much like the vaunted alchemist stone in the middle ages. It showed a brave front by harkening momentum among members to prime their economic pumps with the aim for Europe to become, by 2010, the most dynamic and competitive knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion, along with respect for the environment. Certainly a tall order. The Strategy represented an innovative approach to development because economic objectives were not juxtaposed with social ones. Luckily for us, the second NRP plan comes not a moment too soon given that the Lisbon Agenda calls for a concerted effort by new Member States to regenerate the jobs market and trim bureaucracy. Regrettably we did not accomplish all targets when compared with other countries.
As can be expected, in spite of a number of drawbacks, party apologists wax lyrical about government’s success in solving the unemployment challenge, now dropped to under 6 per cent. But are politicians being too ambitious when we plan to reach the objective of raising the overall employment rate by three per cent by 2010? For this and other reasons sceptics retort that the objective to raise the gainfully employed by three per cent points by 2010 is a pipe dream conjured by backroom bureaucrats. This is of course unless one resorts to the perceptible scheme of absorbing more unemployed in the burgeoning bureaucracy. Some state that this target may prove to be highly illusive to put into action. For this reason, it is crucial for us to emulate the strategy formulated at the Lisbon Summit on achieving a higher jobs growth. In this respect our resolution in the NRP should wholly encompass the enrichment of workers’s education by investing in knowledge-workers, thereby boosting our potential for sustainable employment opportunities. Achieving employment growth depends on the ability to maintain and develop the competitiveness of manufacturing industry and in particular, the services sector. Industry’s interdependence with services cannot be ignored and the progressive outsourcing of business services has reduced the apparent scale of manufacturing industry. Continuing on a local aspect, it is encouraging to note that the submission of comments on Malta‘s second National Reform Plan this was given the green light by the Finance Minister.
To conclude, one may wish to quote the Prime Minister, who constantly reminds us that one had to keep in mind that the economy was susceptible to external factors, such as the skyrocketing oil prices which could as a result derail the NRP and force us to take remedial action to improve our competitiveness index. Even though following the 2005/2008 NRP we fared badly in the Euro Barometer survey we can still perk up ourselves. Other than this, we must take courage in our abilities as certainly attracting more foreign direct investment is also linked to our success in achieving gold in the Lisbon Olympics!

George Mangion
Partner at PKF – an audit and business advisory firm
[email protected]