Times of Malta in conjunction with Seed is serializing the economic report Agile. Perspectives on Malta’s economy post COVID-19. The report was authored by JP Fabri, Glenn Fenech, partner and senior consultant at Seed, and University academics Professor Vincent Cassar, Dr Stephanie Fabri and Dr Jonathan Spiteri. The full report can be read here.
There is no doubt that all economic sectors will be impacted by COVID-19 however with different intensity. We will be presenting an analysis of Malta’s main economic sectors with an analysis of the expected impact. The aim is not to try and predict or quantify the impact but to chart the impacts over a time horizon.
Agriculture and fisheries
The agriculture and fisheries sector represents just 0.9 per cent of the total Maltese economy and more often than not is overlooked in the statistical analysis of sectors. However, agriculture and fisheries continue to play an important function in our society, and it is exactly in situations like the one we face today that we appreciate each and every link in the supply chain of an economy, as well as the importance of food security to social and economic wellbeing.
Agriculture and fisheries remain a volatile and highly seasonal sector growing on average by one per cent annually, driven mainly by the increased fish farming activities rather than the agricultural sector. These developments contrast sharply to the significant population growth we experienced over these past ten years.
Similarly, employment levels in the sector have remained relatively flat during this period and largely mirror sectoral performance. In fact, the sector continues to be very much characterised by family run productions and part timers. In 2019, the sector employed 3,617 people of which 38 per cent were self-employed and 28 per cent were part-timers with farming being their primary job. An additional 1,682 part timers had another full time job elsewhere.
Immediate to short run
Although a declining local sector, COVID-19 has actually highlighted the strategic importance and relevance of local agriculture. The impact has been varied across producers due to shifts in demand and buyer groups. Certain produce which was highly demanded by restaurants and hotels such as strawberries and salads have been negatively impacted whilst a higher demand for potatoes has been recorded. In general, with people cooking more and changing shopping habits, the sector has experienced a positive impact, with increased demand for local produce. Due to social distancing, more people have in fact turned to the local vegetable hawker. However, other sectors have been negatively impacted, particularly fishermen who have been hard-hit by the restaurant closures.
Medium- to long-term
Lessons must be learnt from this crisis vis-à-vis the agricultural sector. As highlighted, the sector is of strategic importance and Government needs to ensure that it is given priority in policy making. Internal supply chains need to be addressed together with a strategic approach towards reducing dependence on food imports. In addition, support must be given towards digitising parts of the supply chain. Malta cannot afford to lose its food security and sovereignty and this is why a strategic vision for the whole sector needs to be designed and implemented.
Moving forward, it is important that farmers and fishermen are protected against such shocks in order to give them security should the sector be negatively impacted as this will support the long-term sustainability of the sector. The sector needs an improved governance structure which will allow farmers, herdsmen and fishermen to secure their jobs. The whole ecosystem needs support including water availability and quality. Our dependency on the sector has been highlighted and it would be irresponsible for this sector not to be given its due importance.
Manufacturing
As Malta’s transformation into a services-based economy continues, the manufacturing sector’s share of total output generated by the Maltese economy fell from 12.9 per cent in 2010 to 8.1 per cent last year. This said, manufacturing still grew by close to €200 million during this period and employs more than 23,000 employees. This sector has also been an important source of increased female participation over the past few years as more female workers joined the labour force. The sector continues to be an important source of foreign direct investment into Malta, increasing by around €185 million in 2018 to reach a total stock value of more than €1 billion during the same year.
The government continued to diversify the manufacturing industry primarily through higher value-added activities, however Malta’s insularity remains a challenge.
Immediate to short run
The industry is diverse, targeting a number of sectors and jurisdictions. Domestically focused manufacturing operations, especially catering for the food and beverage market, are expected to be impacted negatively due to lower demand from hotels and restaurants. On the other hand, Maltese manufacturing exporters are exposed to the economic conditions in external markets. The most immediate concern is the disruption in supply chains stemming from factory closures abroad.
Also, in view of the uncertainty, expansion plans and additional capital investments are being postponed so that firms will be able to maintain liquidity. Firms are also focused on retaining their employees due to the training they have invested in them. It appears that manufacturing concerns are more prepared to deal with crises following the 2008 global financial crisis and they have built-up their internal resilience and contingency plans.
Medium to long run
The manufacturing sector will largely be impacted by a general slowdown in the global economy. In addition, as consumer and business confidence are expected to worsen the longer it takes to resume normality, the ripple effects on demand for final goods as well as for investment plans will inevitably grow. Globally, a number of companies are shifting production lines to deal with required medical goods and this is going to affect global supply chains. In addition, the global recession that could result is also expected to reduce manufacturing activity across several sectors, many of whom are important consumers of Maltese re-exports. However, it being transitory, firms are looking at opportunities to retrain and reskill workers.