NEWS | Wednesday, 10 September 2008

Taking the economy as far as possible

Welcome speech by the President of The Malta Chamber of Commerce and Enterprise, Tancred Tabone at a Business Breakfast Meeting with Minister of Finance, the Economy and Investment, Tonio Fenech – The Exchange, Wednesday 3 September 2008

In my brief address I shall be touching on all three aspects which tie in with the 2009 Budget and the National Reform Programme for the finance minister and ministry are responsible. Our Chamber shall be submitting its views on these important consultation documents in due course.

2009 Budget
In the run up to next year’s budget, what better time to talk about the country’s finances? We are aware of the possibility that the fiscal targets will be revised. In an ideal world, this would best be avoided to ensure a stable macro-economic environment with a reasonable level of tax. Nevertheless, we are also fully aware of the reasons leading to this possibility - fuel prices. I shall come to these later.
Our Chamber has studied the Pre-Budget Document. We are in the process of formulating our views and today’s meeting will ensure that our paper is based on the pulse and sentiment of our members. Our Chamber agrees with the sustainable development approach declared in the pre-budget document. We believe that the country must achieve the economic growth it deserves and short-term goals must not be achieved at the detriment of future progress. This is why we support Government policy that fiscal targets should not be achieved at all costs; especially if this is achieved at the expense of inflicting undue shocks to the economy.

Wage/Productivity considerations
Wages represent a very important element for all companies. They are also an important deciding factor for foreign investors when considering Malta as their base. On a general level, wages in Malta have increased at a much faster pace than productivity. This does not happen in more developed countries where compensation and productivity increase at the same pace.
This situation has created an unsustainable gap which was also mentioned by the IMF following a recent visit to our islands. Faster growth in wage and price levels relative to the remainder of the monetary union could lead to an erosion of competitiveness and the relocation of companies to wherever investment is more profitable. This could result in slower economic growth and higher unemployment which could be an expensive price to pay for short-term agreement on wage negotiations.

Energy policy
These considerations become very important in the face of the current fuel price shocks and increase in energy surcharge. In the interest of competitiveness in the private sector, it is crucial that the effect of energy prices on local firms is not accentuated by undue pressures for wage compensation which are not commensurate to productivity gains. A mechanism for the COLA is in place and needs to be adhered to. Otherwise, it is impossible for the private sector to plan ahead.
Besides, more awareness on short-term energy conservation measures is needed. These must be followed by investment in our individual companies in more energy-efficient operating methods to contain unit costs of production. Private business might also be encouraged to invest in alternative energy technologies but for this to materialise there must be the necessary adjustments to the ‘feed-in’ tariff to render similar investments more feasible.
Besides, the Chamber recommends that the country invests in the most cost-effective alternative to secure energy security. A submarine cable link to the European energy grid via Sicily should be pursued with urgency not merely to secure less expensive energy, but to enable Malta to achieve a much higher level of energy security and potential diversification of energy sources.

Ensuring fair trade
Over the past years, the Chamber has made strong representations on serious difficulties being faced by bona fide traders in a variety of sectors. Other private organisations are now reiterating this stand.
This morning, I appeal for an urgent co-ordination of resources to step up on market surveillance to eradicate abuse. Effective market surveillance is truly a means towards ensuring consumer protection, fiscal justice and a fair business environment. It is the only way to ensure that investment and jobs sectors are no longer unfairly compromised.
It is unacceptable that so-called traders are allowed to by-pass regulations and compete with law abiding traders with goods that do not conform to administrative procedures, standards and taxes. Being members of the EU does not mean a free-for-all scenario; and we still need to abide by the rules of the European Union itself to safeguard health, safety, statistical, environmental and fiscal considerations.
It is Government’s responsibility to act as a supporter of businesses and individuals who go about with their duties in full compliance of the law. We can no longer rely on reactive measures and the personal initiative of a handful of people within your Ministry. The setting up of a dedicated authority to perform effective, structured and organised market surveillance is now long overdue. We expect market surveillance to clamp down on the abusers and surely NOT to offer additional inconvenience to the law abiding trader. We must stop rolling out the red-carpet for illicit traders and hampering the law-abiding trader with red-tape.
Minister, you know that our stand is not for protection against competition from abroad. Our country has excelled in trading ever since the Phoenician times. We are not afraid of competition. We can fight it as long as it is legitimate.

Waste Packaging & Eco-Contribution Refunds
One aspect that is making illicit trade more attractive is Eco-Contribution. Local “producers” pay Eco-Contribution on a number of products and this does not absolve them from their obligations under the Waste Packaging Directive . This means that a company must pay Eco-Contribution on top of the compliance cost of a waste packaging scheme.
You are aware that the Chamber had been actively engaged in the setting up of a collective scheme with other private sector bodies. But plans to this effect had to be abandoned due to unacceptable stances taken by one of our partners. Our Chamber had no choice but to pull out when it became apparent that due to such disagreement the scheme could not guarantee what it had set out to deliver in the first place: – compliance at the least possible cost. The Chamber has now entered into a non-exclusive agreement with an authorised recovery scheme.
This agreement is also aimed at finding an urgent solution to the issue of refunds and exemptions from Eco-Contribution which are long overdue. Once a registered scheme has duly fulfilled its collection and recycling obligations, Government is not entitled to hold back on the refunds of eco-contribution to companies participating in the scheme.
Besides, once the deliverables of the scheme are met, there is no reason to justify direct government subsidies to any sector in the waste collection and recycling chain. The Chamber expects this sector to be liberalised as soon as government intervention is removed. Only through proper liberalisation can operators – old and new – be assured of a free and fair level-playing field.

Internationalisation
In the first pre-budget document, Government set out a strategy to create a “dynamic, high value added economy founded on competence, skills and excellence”. On this vision, our Chamber established an Internationalisation Committee and employed an expert on a full-time basis to drive more members into developing and applying their competences, skills and business model overseas. We are striving to establish new Centres of Excellence for Malta.
Our Internationalisation Team is discussing a proposal to develop – together with Malta Enterprise – a support setup for the Internationalisation of the Franchise Sector and to establish a Centre of Excellence in this field. The aim of promoting excellence in franchising is to supply know-how, management, branding and design and not merely to open shops abroad.
Over the years, local entrepreneurs have accumulated considerable expertise. They may have established their own brand or franchise or obtained the rights from foreign principals to expand beyond Maltese shores. This expertise has a value that can be exploited and “exported” to the benefit of the entrepreneur and the nation at large.
Honourable Minister, I assure you we are driven by a common goal – that of taking our economy as far as possible. It is good to consult because Government gives the direction and legislates; but ultimately it is the initiative of the business community that thrusts us along the path towards economic prosperity.