Malta Employers Association: ‘Malta needs stability of a long-term strategy’

The Maltese economy stands on steady ground as it prepares to enter 2024, with thoughtful diversification rendering it resilient to most of the challenges thrown its way. However, these solid foundations may not be enough to keep the country afloat through the storm brewing ahead, if it doesn’t have the guiding light of a strategic plan to which businesses can anchor their investments, says the Malta Employers Association (MEA).

In comments made to BusinessNow.mt, MEA director general Joseph Farrugia argues that “existing and emerging challenges need to be addressed through short- and long-term policies to ensure that the economy continues to grow, and through such growth, improve the wellbeing of its citizens.”

Among the threats identified by the employers’ union are imported and domestically generated inflation, a skills shortage, waste of human resources, degradation of the natural and cultural environment, tax harmonisation across the EU, and waning national competitiveness.

Some of these are more easily addressed than others, but Maltese authorities must do what they can to provide economic stakeholders with “a long-term strategy that establishes a sense of direction for economic transformation and growth, and thus offer a guideline for businesses to follow and plan accordingly.”

Nonetheless, the MEA acknowledges that “an element of firefighting is always necessary to handle unexpected events, as was certainly evident during the COVID-19 crisis.”

Asked to single out particular developments that are most likely to have a significant impact on Malta, Mr Farrugia brings up the transition from Air Malta to the new national airline: “It is essential that the transition goes smoothly, and that the new airline is managed in an efficient manner by not repeating the mistakes of the past.”

He feels certain that “in spite of the challenges of diseconomies of scale which are an inherent weakness of small airlines, the airline can be sustainable and profitable if managed without political interference.”

Touching on what is likely the most pertinent fear at the forefront of every business owner’s concerns for 2024 – inflation – the MEA director general notes that the price issue would become particularly concerning if it remains higher than the European average – as it has been for a number of months now.

Relatedly, “the record COLA for 2024 may impact some businesses negatively and will lead to a mix of a fall in profitability and further price increases,” he warns.

In what may prove to be a conundrum for the public and private sectors alike, the key measure preventing inflation from ballooning even higher in Malta is substantial subsidy on grain, fuel, and most importantly energy, with some five per cent of the entire Government budget going to maintain a price freeze set at pre-pandemic levels.

“Government expenditure has to be curtailed to reduce the deficit and control public debt,” says Mr Farrugia. “Although still less than the 60 per cent limit established by the Stability and Growth Pact, a persistent deficit in excess of three per cent per annum may push Malta in the excessive deficit procedure.”

Whether an adequate resolution can be found to keep inflation at manageable levels without putting too large a strain on public finances will be one of the main themes on 2024, though much can be done through a “rationalisation” of human resources employed with the Government or through agencies providing services for the Governnment.

This has been a common refrain for the MEA, which has slammed programmes like the Community Work Scheme for hoovering up employees, putting further pressure on a tight labour market, and thereby increasing labour costs.

Meanwhile, the impact of the Emissions Trading Scheme’s extension to the maritime sector could weaken Malta’s attractiveness as a transhipment hub, via the Freeport, and put further upward pressure on the prices of goods imported by sea, from consumer goods to intermediate products used in other industries, like manufacturing.

“Malta was caught with its pants down on this matter and it is essential that ongoing negotiations manage to bring about the necessary amendments to the directive that will enable the Freeport to remain competitive with North African ports,” says Mr Farrugia.

Finally, the issue of demographics needs to be considered seriously, concludes the MEA director general, pointing to a low birth rate that has seen the native Maltese workforce actually decrease over the last years.

“The medium- and long-term socioeconomic impact of this demographic trend needs to be studied and adequately planned for,” he says. “This cannot be swept under the rug.”