It is encouraging to read that the US economy seems to be on the road to a slow but steady revival, as private-sector productivity has soared – even in traditional industries such as steel and car manufacturing. Companies have achieved this because they have the freedom to manage – to experiment, to expand successful innovations and close down bad ones, and to promote talented people.
In Malta the new Labour government has promised in its election manifesto to cut bureaucracy, fight red tape and streamline the services offered by the public sector, notwithstanding the inevitable opposition from the unions which have, in the past, fought tooth and nail to maintain the status quo.
Another plus is the announcement by Economy Minister Chris Cardona to launch an international call for expressions of interest in developing a maritime hub at the derelict former Malta Shipbuilding site in Marsa. It is anticipated that the hub will include yacht marina facilities and a wide range of services including the modification, conversion and maintenance of yachts and super yachts and other small-to-medium vessels and support services in respect of ship management for insurance, maritime legal services and facilities for encouraging research into maritime development.
All this is another way of boosting GDP and generating new job opportunities, but for such initiatives to succeed, the island must first reach a higher level of competitiveness. Politicians have been waxing lyrical about the golden path to achieve better results but really and truly the journey is long and the rewards elusive. Globalisation has sharpened competition.
As a general observation, it can be said that, due to the effect of globalisation, organisations in all areas must compete in order to deliver value. Many ask what Malta can do to rise from its comparatively low standing in the global competitiveness index. There is a lot that can be done at both company and state level and there is certainly no magic solution for reducing the hard work needed to improve operational efficiency and our comparatively low standing in the World Forum Index.
We have to ask ourselves what constitutes competitiveness and for this purpose it can be defined as a quality usually equated with solving macroeconomic issues, such as changes in interest rates, inflation or taxes, or microeconomic issues, such as a low standard of entrepreneurship and excessive bureaucratic regulations for business. Both macro and micro issues need to be tackled in the most effective way possible.
To respond effectively to the exigencies of the global market, our industry needs to develop a range of export capabilities in the areas of technology, marketing, management, human resources and finance, and continuously upgrade them over time. However, building business competitiveness – particularly for export markets – also has to involve both government and trade support institutions in a major way. Only this way can a coherent competitiveness strategy, tailor-made for national circumstances, be developed.
More than ever, there are powerful factors that are driving globalisation such as falling trade barriers, fast-paced technological advances, declining communications and transport costs, international migration and highly mobile investment. Businesses are facing many demands urging them to improve their value chain. “Adding value” can be defined as the ability to meet or exceed the needs of customers, and do so efficiently and economically.
Companies have to deliver value to their customers by way of services or products, and countries have to deliver value as business locations. Textbooks on competitiveness tell us that a close and active business-government partnership is the linchpin of a well-managed national competitiveness strategy. Traditionally, it works like this: business focuses on increasing profits, while government formulates and implements strategy. However, accessing new resources and markets, while mitigating the risks of intensive competition, calls for a new kind of relationship between business and government. Previously, the PN government had issued a White Paper on boosting productivity and cutting unnecessary bureaucracy in the public service while promising to introduce digital methods to the consumer to facilitate easy access to services. But as can be expected – as the largest employer on the island and due to traditional political constraints – it can be harder to restructure government than restructure a business. So why is there all this fuss to become efficient? The answer is due to the EU imposition of the Excessive Deficit Mechanism programme: even small gains in productivity can bring big savings.
In the coming months, once the new administration has found its feet, it faces a battle fuelled by criticism from the Opposition to improve Malta’s productivity – carrying out tangible reforms within the public sector to deliver better services not necessarily by reducing human resources but by judicious redeployment.
Before the last election, it is was an open secret that the incumbent government had settled a much delayed public employees collective agreement awarding salary increases and more family-friendly concessions based on negotiations with the major trade unions that represent public sector employees. This begs the question: has the agreement set higher key productivity indicators to match the increased salaries? The answer from the unions is that it is good to concentrate on measures that improve the GDP, reduce the nation’s deficit and boost productivity to ensure growth and prosperity, but the government should also tackle pressing social aspects, even when the unemployment rate is a respectable 6.5 per cent – the fourth lowest in the EU after Austria, Holland and Luxembourg. The unions say with one voice that the government should continue incentivising its workforce to encourage better performance.
Unions are in favour of the concept of the “living wage” and expect the new administration to increase the minimum wage across the board, including part-time workers and those employed on a pro-rata contract basis. This was claimed following the battle cry by political parties before the last election that the country’s finances are on a solid keel so by inference, Malta was on the way to recovery after the global recession triggered in the US by the demise of Lehman Brothers .The unions argue that if there has been some sort of recovery underway, it has not made itself felt as yet in the pockets of its members. It was very much a case of the political leaders giving one story, and the workers giving another.
On another delicate subject of pensions, while the unions acknowledged that it is good to discuss the sustainability of future pensions, at the same time the government must ensure that present pensions are improved and address the anomalies that exist in the current system. Corrective measures are also imperative to the educational system to implement new measures to address – or at least reduce – the number of early school-leavers while the number of students who pursue post-secondary studies also needs to be increased, as well as measures taken (including changes in legislation) to eliminate absenteeism in local schools once and for all.
A blow to competitiveness was also suffered due to an unfortunate consequence of the fiscal slippage in 2012 reported in the budget from the previous PN administration, which had planned a 2.7 per cent annual deficit but which in the end soared to over 3 per cent due to generous pre-election promises. Realistically, this has to be rectified over the next two years.
The new administration faces a crucial choice: push ahead, reform and create new jobs in the long term or give in and save costs by cutting services and raising more taxes. Naturally, following recommendations from the EU Commission to rein in expenditure, the electorate is holding its breath to see if the promised 25 per cent reduction in electricity charges, promised to start in March 2015 through the construction and commissioning of a new gas-fired electricity generating station combined with a submerged cable link with Sicily, will deliver the goods on time. This will be a Herculean task, given the bureaucratic hurdles of tendering, evaluating and final commissioning of the gas turbines, which have to pass the filters of environmental studies, yet it seems the Labour administration is resolved to bite the bullet.
Once successful, this will not only boost competitive rates for the manufacturing and tourism sectors but will also proportionately reduce the cost of living, which is currently being pushed up by high water and electricity rates. The fall in charges will have a positive impact on the computation of the COLA allowance for 2015 which, everything being equal, one hopes will reflect the efficiency resulting in modern power generation and reduce the risk of a wage/price spiral that will have a negative effect on the country’s competitiveness.
To summarise, the starting point for analysing our level of competitiveness 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 affect our competitive advantage. It is hoped that this article has managed to 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.