news about Focus ?C Manufacturing Industry ?C Part 11: ??Malta Cannot Afford An Economy Without A Manufacturing

Focus ?C Manufacturing Industry ?C Part 11: ??Malta Cannot Afford An Economy Without A Manufacturing

The manufacturing industry is not facing a crisis but rather a state of rapid transition, according to Malta Employers?? Association director-general Joseph Farrugia.

The industry in Malta is being restructured to move out of activities in which the country cannot remain competitive into ones with a higher value added and in which the country can be a better destination to attract foreign direct investment.

Domestic and global forces that necessitate change and adaptation are affecting the manufacturing industry. Clearly some sectors, such as textiles and clothing, are facing a crisis because they are relatively labour-intensive industries with a low value added content. It is a fact that there has been a worrying decline in the value of manufacturing exports, partly due to the fact that one company accounts for a sizeable part of the national manufacturing output, accompanied by a fall in prices which was not compensated for by increased volumes in 2005.

What can be done to revive manufacturing in Malta?

The survival of manufacturing depends on action being taken at enterprise and national level. At enterprise level, companies need to focus more on innovation and the creative marketing of their products. This often has to be accompanied by training and the introduction of flexible working practices to cater for changing skills requirements and possibly shorter product runs.

Catering for short product runs can be a niche by which many flexible companies can survive, even in sectors in which Malta is no longer competitive. It is very likely that new manufacturing companies will be medium sized, employing around 50 people per unit. Malta also needs to address the issue of competitiveness. For example, pegging wage increases to inflation, rather than productivity is a practice that MEA has long warned against, since increased labour costs might drive many companies out of the market. However, competitiveness does not depend on labour costs alone. It is hoped that one day port reforms, for example, will be finalised and implemented, and that these reforms will truly be of benefit to manufacturing in terms of significant reductions in transport costs ?C which, to date, is one of the elements that is contributing to a deterioration in competitiveness.

Foreign investors also have to be guaranteed short start-up timeframes and that adequate facilities, with the necessary infrastructure, will be provided in the shortest time possible. These are areas in which other countries also have a competitive edge over Malta. The labour force has to be upgraded through the retraining of redundant employees to channel them into new manufacturing sectors and also through educational reform that reflects and anticipates the requirements of industry. This should minimise the negative impact of frictional unemployment and lead to a smooth transition from declining sectors to ones that offer better employment prospects, such as pharmaceuticals and electronics.

Is the government doing enough in this respect?

The government should press forward with any reforms necessary to improve competitiveness. The investment in education should be effective in generating a qualified and productive labour force. Efforts to market Malta as a viable destination for foreign direct investment need to be boosted.

The government should make every effort to keep operating costs for manufacturing companies as low as possible. For example, the government should have come up with a better assessment of the impact of the price hikes of the water, electricity, and fuel bills before the increases were announced. The rebate given has negatively affected numerous small and medium-sized companies. Companies that have invested in power correcting factor equipment could be entitled to preferential rebates, for example.

There is also a need for stronger enforcement of existing legislation with respect to fiscal issues, labelling and the quality of imported products. If such enforcement is carried out more diligently, local manufacturers would compete on an equal playing field and therefore have a greater change of survival. The government should also allocate funds to help the manufacturing sector promote its products both in the local market and, more importantly, in export markets.

The government should also provide more financial assistance so that manufacturing companies can invest in new technology to be in a position to compete in an open market. Such assistance should be tied to a structured plan and a set of targets agreed upon by both parties and financing should be in the form of grants and subsidised interest on the loans given by banks.

What is the MEA doing in this respect?

The MEA has constantly been lobbying and generating proposals to keep the manufacturing industry active in Malta. Although the specialisation of the association is employment and social policy issues, it has always made positive contributions in any debate to promote the interests of the manufacturing industry. What is the outlook for the future? Malta cannot afford an economy without a manufacturing industry. It is required for the sake of having a diversified economy, because of the jobs that it generates, foreign currency income and because it is less volatile than many services, such as tourism. The economy cannot survive on services alone, and every effort must be made to ensure the survival, and expansion, of the manufacturing industry. Provided that the country has a clear strategic vision to be sufficiently proactive in attracting foreign investors, and also encouraging initiatives from the local business community, there is no reason why the manufacturing industry should not survive.

Focus ?C Manufacturing Industry ?C Part 11: Government must ??focus more on implementation and results?? ?C FOI

Federation of Industry director-general Wilfred Kenely said that Malta??s manufacturing industry was undergoing one of its most difficult periods.

The sector??s contribution to GDP has declined from around 24 per cent in 2000 to around 20 per cent last year and it will probably be even lower this year. During the same period the sector lost some market share and its workforce declined, due to an increasingly global competitive environment. In the short and medium term, the fate of the sector depends on how well it manages to balance its strengths and weaknesses. One priority is to enhance the sector??s productivity growth that is somewhat constrained by insufficient innovative activity, low new technology penetration and skill gaps in a number of worker categories. But definitely the federation cannot say that the sector is facing a crisis. It embraces a number of strengths and opportunities and, in combination with the country s overall potential, the sector can overcome the current problems. So what can be done to revive manufacturing in Malta? The federation emphasises the need to formulate a clear industrial policy, which places the manufacturing sector at the centre of the country??s industrial development. This will only be possible through an extensive consultation process with all the social partners and with the full recognition of existing Community rules. It is interesting to note that the European Commission recently published a communication entitled Towards a more integrated approach for industrial policy which emphasises the vital role that the manufacturing sector plays in the economy. The FOI will be taking the lead in promoting this European vision and integrating it in the national debate. Ultimately, the effectiveness of industrial policy should not be measured against formulating priorities at national level. Indeed, the starting point for policy action would be preferable at company level in a way that defines and reflects the specific characteristics of Malta??s enterprise sector.

What is the FOI doing in this respect?

The federation is following these issues very closely. In fact, it has already given its reaction to the impact that the increase in utility bills and the measures in the 2006 Budget will have on local industry. Indeed, there was a wide coverage by the media on this matter and it intends to follow up the issue further and very closely. With regard to the focus on attracting more pharmaceutical investment, the FOI Pharmaceutical Manufacturing Sector Group has also studied the educational needs of these sectors and managed to establish a Postgraduate Diploma in Applied Chemistry. This was done in collaboration with Malta Enterprise, the Chemistry Department within the Faculty of Science at the University of Malta and the backing of the Education, Youth and Employment Minister and the Investment, Industry and IT Minister. Unfortunately, the federation is aware that the course did not start at the beginning of this academic year, as planned, due to lack of funds. In parallel, the FOI is giving similar attention to the issue of port reform, which is expected to feature high on the agenda over the coming weeks. During the past few months, the federation has also presented a number of reports to government. These include the 2005 Lisbon Agenda Report, the FOI Recommendations to the 2006 Budget, Reactions to the National Reform Programme and the FOI Reactions to the 2006-2010 Pre-Budget Document.

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