It is true that election fever is slowly gripping the minds of our business leaders. As can be expected, those who have enjoyed the gravy train are fearful of any political change that may jeopardise their privileged position. Many consultants and party acolytes are eyeing alternative opportunities if and when political change does occur, but one cannot really blame them as a few enjoy riding high in the pecking order. Others are panicking and like rats are contemplating leaving a ship which is perceived to be sinking (the incumbent party is 10 per cent down in polls from Labour). Still, life goes on and as always one has to look to the future with conviction.
The sovereign debt crisis in the eurozone has rattled various economists and many are wondering if, after the November election in America, the euro currency will be brought to its knees. Yes, for Malta the smallest member in the EU one cannot but pray for a rally in a number of sluggish economies and hope that the Merkel plan will succeed to rein in the slack prevalent in the economic performance of laggards such as Italy, France, Greece, Ireland and Cyprus. It is all a question of regaining confidence, and to achieve this one reads in Merkel’s plan that profligate countries should taste the redeeming experience of various austerity measures. No pain no gain is a simple yet effective formula that unfortunately is not working in Greece. The one and only Holy Grail is the improvement in national competitiveness, which in turn will result in better jobs and stronger economies.
Who can dispute that the most formidable challenge facing the Maltese economy as we move out of recession is our ability to sharpen our competitiveness that is so crucial to viable job creation. Textbook definitions of “Competitiveness” show it is a catchall concept. It is a panacea. Realistically one cannot afford not to fine tune core competencies that are critical to an economy in achieving a higher competitive advantage. The starting point for analysing core competencies is recognising that fierce competition is as much a race for competence mastery as it is for market position and power. So ideally, the goal is to focus attention on competencies that really result in a competitive advantage and count our pennies.
Just heed the words of the Governor of the Central Bank, who repeatedly insists on the importance of living within our means. This is all grand talk at a time of sluggish growth, with the NSO reporting a mere 0.9 per cent growth in 2nd quarter. Although there is relief that we have turned the corner when compared to a contraction in the previous two quarters, one has to be cautious of fuzzy accuracy in the surveys. To quote the Chamber of Commerce – out of recession but not out of the woods.
With heavy pressure on the finance minister to roll out the lolly weeks before the budget, one can be excused for sympathising with his reluctance to reduce income tax for managers (this was a much hyped pre-election promise five years ago). Yet reducing tax revenue when our deficit touched over €300 million this year is not recommended given our solemn promise to Brussels to end up with a balanced budget. So the wise solution is to start tackling our wage inflation in general and tighten controls on other operating costs, particularly energy. One of the handicaps threatening our future export growth prospects is our geographical isolation, as we have to import and re-export all basic materials. Another aspect is the fight against unnecessary bureaucracy, which has grown exponentially ever since we joined the EU, as Brussels is itself a giant bureaucratic machine churning out tons of new regulations. But wait for it − the magic elixir was the promulgation last July of the Small Business Act. This was a milestone event that introduced practical measures to help start-ups and medium sized companies (employing under 250) develop. The finance minister is exhorting all entrepreneurs to make use of a one-stop-shop service by surfing a new website operated by Malta Enterprise (the latter housed close to a geriatric hospital). Still, politicians tend to be careful not to ruffle the feathers of those business warlords who are using their position of dominance in the party hierarchy or other hangers-on who still believe that nepotism and a regulation vacuum can guarantee the oligarchy sustained by the old-boys club (well patronised by political mandarins).
As regards competitiveness in manufacturing, we find that it is very dependent on the government’s ability to reduce its own imposed costs. The popular cliché is that ministers keep on using the return-on-capital formula to refinance the €700 million Enemalta foreign debt when pricing the tariffs of water and electricity on each rise in the international price of oil. The reality of course is that this is a paradox since the government does not factor in a similar provision when issuing bonds to fund its national deficits. This dichotomy is hurting investor confidence and adds to the pain of Maltese taxpayers having to foot the bill of debt servicing which now exceeds that of education.
It would be better for us to stop and ask ourselves what constitutes competitiveness. One can define it as a quality usually equated with solving macroeconomic issues (such as changes in interest rates, inflation or taxes), or microeconomic issues (such as low quality of entrepreneurship and excessive bureaucratic regulations on business). Both macro and micro issues need to be effectively tackled in the best way possible. To respond effectively to the exigencies of a global market, Malta needs to develop a range of export capabilities in the areas of technology, education, marketing, management, human resources and finance, and continuously upgrade them over time. However, nurturing competitiveness − particularly for export markets − also has to involve both governments and trade support institutions in a cohesive partnership. Only this way can a coherent competitiveness strategy, tailor-made to national circumstances be devised. This has a major influence in the creation of business competitiveness in a globalised environment. More than ever, powerful factors exist that are driving globalisation, such as falling trade barriers; fast-paced technological advances; declining communications and transport costs; international migration; and highly mobile investment. In a recession firms face many demands that push them to improve their value chain. At this stage one can say that adding “Value “is the ability to meet or exceed the needs of customers, and do so efficiently. Firms have to deliver value to their customers by way of services or products and countries have to deliver value as business locations.
In textbooks about competitiveness, authors tell us that a close and active business-government partnership is the linchpin of a well-managed national competitiveness strategy. Is this happening in Malta? Not to a great extent, with the notable exceptions being tourism and the E-gaming sector. In the manufacturing sector the medicine needs to be better dispensed considering that our trading partners in EU are taking lower orders since they also face higher unemployment and national deficits. So is there a magic formula in sight? The answer is that we must break the divisive approach, which pontificates that business only focuses on increasing profits, while government quietly formulates and implements a strategy on how to win votes. But it is not all doom and gloom. The good news is that the latest World Economic Forum has ranked Malta 47th in its Competitiveness Report on the Global Competitiveness Index. This means four places up on previous rankings. The finance minister proudly announced that Malta is the third country among the 27 EU member states to have gained most in its rankings. Noting the massive investment in infrastructure we cannot ignore the EU funds to upgrade roads, completion of a new aviation park, starting construction of a biotechnology park, a hospital extension, restoration of the Valletta bastions and sprucing up its palaces. This effort on its own has improved our ranking by 10 places to 35th position. The financial services sector has also picked up momentum, particularly banks as these continue to report double digit increases in pre-tax profits. All this is reflected in sustained pressure exerted by the Chamber of Commerce on the government to address a number of competitiveness issues and pending reforms that are hindering business.
To conclude, both political parties are under extreme tension as an election looms (like the sword of Damocles) and is not easy for them to remain focused on economic issues. But elections come and go and it is wise to concentrate on growth, as we know that success depends on how competitive our economy is. Hopefully, this article will succeed to partially lift the veil covering the myth of Competitiveness.
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The writer is a partner
in PKF an audit and
business advisory firm.