A recent survey shows eurozone inflation has unexpectedly contracted last year due to a pick-up in the manufacturing and services sectors. Why is this relevant for us, particularly regarding the next tourist season? This is poignant since Malta is expecting a record arrival of tourists this year. The MTA are expecting another historic year, with records showing three million visitors last year. The fly in the ointment is the low per capita spend compared to pre-Covid days after discounting for inflation. Can you imagine sun and sea arrivals now spend a mere €129 daily (84% live in rented apartments), while on a positive note cruise liner seafarers spend higher on single day visits.
Talking on the subject of inflation, a vast majority of local business leaders are forced to raise prices of products and services in the year ahead to offset their burgeoning costs. An additional tax was introduced this year by the EU that concerns ships transporting merchandise to Malta to compensate for cost of emissions in the Mediterranean Sea. A recent report showed that higher costs for raw materials and inputs was reported by 65% of the respondents while 78% reported increased prices from vendors. Again, the €12.81 per week Cola payment certainly needs to be recouped by retailers through higher prices. On the employment scene, most employers, particularly in the hospitality, professional services, retail and light manufacturing sectors are facing a labour shortage. Re-visiting the Covid period, one recalls the Minister for the Economy and Industry Silvio Schembri, had claimed that the furlough scheme, launched by him during the pandemic, saved a good slice of the non-state working population (100,000 workers). So, it stands to reason to ask - after Covid was dethroned how are we still facing an acute worker shortage? Where have the workers gone?
In the meantime, close to 75,000 third country nationals, that were recruited via temping agencies, diligently drive our buses, clean streets, help in catering kitchens, hotels and hospitals and serve in most retail outlets at a comparatively cheaper rate than that paid to locals. Particularly, they seem not to complain that after paying substantial sums to find a job, their high cost of renting and living in Malta leaves them little surplus to send back to relatives at home. Is it not an exaggeration to state that in their quest to improve living conditions and be accommodating migrants, they have been riding on a tiger only to end up being eaten by it, as the story goes. Perhaps most will not benefit from the recent Cola weekly top-up, since they are non-unionised, so expect more hardship for them during this year.
On a similar theme, what is the reason for this HR dilemma currently facing employers? One explanation is that the GDP rate of expansion is high and has generated more vacancies in a country with full employment. Where do we source trained labour? Again, the bloated public sector harbours thousands of able workers who can theoretically be released (as applied to AirMalta surplus staff). Perhaps, this scheme will improve the problem of a skills' mismatch. In this context, how much do economic operators and the education system appreciate that several jobs which we have today will become redundant in the early future as digitalisation and AI takes over? Is it a sign of the times how the education system failed the nation. Enough to lament that last "O" level maths exam results featured only 20% of students who passed. The endless diatribe about reforming the education system comes up every year and it is our "elephant in the room".
Unions suggest that to solve this worker shortage there must be some improvement in wages to encourage higher job mobility. The public sector, either directly or indirectly through contracted services, has absorbed a significant number of persons (now employing around 19% of registered workers). The entire state employee cohort still work half days in long summer months - paradoxically when the economy bursts into action. This has had a crowding-out effect of the private sector, which cannot afford such perks. Some employers are hoarding labour in that they are hanging on to their people, even though they cannot justify it financially, because of the fear they would not find employees should business blossom. Even offices of lawyers, engineers, medical clinics and auditors are facing shortages and are employing third country nationals or even poach staff in an attempt to maintain headcount. Others are improving salary perks to retain quality staff.
In the hospitality sector, most serving staff are foreigners (the majority are students employed for the summer months) while meal delivery services are exclusively manned by Indian, Pakistani, Somali or Bangladesh migrants. Such workers are prescient to accidents, dangerously driving motor scooters through congested roads to deliver meals. They frantically follow GPS instructions on mobiles to deliver meals in the shortest time possible to elk a fee to earn a living. Drivers often make less than the minimum wage, as they are paid €3.60 for each food parcel delivery. Moviment Graffitti called the conduct of such employment agencies "tantamount to modern slavery", with "workers drained by a system where they must do enough deliveries to reach the targets set by the agencies, while getting increasingly meagre pay for every delivery. Moving on, we reflect on the tragic state of AirMalta finances which has been refused a second capital injection by the Commission, while its management is monthly haemorrhaging millions of euros in losses.
To comment on another subject, let us reflect how inflation and gentrification has seen construction prices quadruple in the past decade. This is fuelling house prices, where a modest three-bedroom (145 sq.m.) apartment, in a partly finished state, is fetching over €320,000 in towns and villages (no garages added). With a 10% deposit and yoked by a 90% mortgage, young couples will spend their lifetime paying the bank.
Finally, positive resolutions that we made for the new year may help us solve some if not all the problems highlighted above. Essentially, let us brace ourselves with blessings such as having been honoured to be one of the fastest growing economies in the EU.
George M. Mangion is a senior partner at PKF Malta
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