Fragmented picture of Malta at EU accession conference

Prime Minister Lawrence Gonzi yesterday queried the theme chosen by the Malta Business Bureau for its conference on the first year since EU accession: Quo Vadis.

He said it was a provocative question, insinuating that Malta did not know where it was going.

"Far from lacking direction, I think we have a clear vision," he told the audience at the Westin Dragonara Resort.

However, the picture that emerged from speakers representing various sectors of the Maltese economy and civic society was a far more fragmented one.

The economic picture that emerged from the speech given by Central Bank governor Michael Bonello was one that called for pragmatic and politically painful adjustments.

Increasing global competition meant that the standard of living could not be taken as guaranteed, he said, adding that it was "possible and indeed desirable" to introduce the concept of co-payment by beneficiaries at the widest possible level without compromising the satisfaction of genuine needs.

He warned that the recent performance of the Maltese economy suggested it was not sufficiently well prepared to exploit the opportunities available upon accession so that the costs of adjustment were for the time being outweighing the positive effects.

Mr Bonello said it would be possible to absorb larger volumes of imports in the short-term, while penetrating export markets was a medium-term project. It is nevertheless imperative that the country manages to exploit new market openings because the current account deficit experienced in 2004 - of over 10 per cent of GDP - was not sustainable. Measures aimed at stimulating demand, through fiscal or monetary expansion, would only be effective in the short term and would only have limited impact. This was because such measures would not expand the supply capabilities, a prerequisite for sustained growth.

He went a step further: "In the current situation characterised by high fiscal and external deficits, moreover, the stimulation of aggregate demand would do more harm than good to the country's economic prospects.

"Living standards can only be raised on a sustained basis if we succeed in adding value to imported inputs and by providing services in a manner that is cost-effective in relation to our competitors."

One of the most analytical presentations came from the director general of the MBB in Brussels, Leonard Mizzi, who presented a comparison of some of the indicators year-on-year (see table).

The MBB is the office of the Malta Chamber of Commerce and Enterprise, the Malta Federation of Industry and the Malta Hotels and Restaurants Association. It has two offices - one in Malta and one in Brussels.

Dr Mizzi presented a paper in which he criticised the last budget as being a "timid attempt" to stimulate competitiveness and called for a radical overhaul in non-productive expenditure in favour of productive investment.

He said there could have been cuts in student stipends, among other things.

He agreed that fixed costs related to "sacred cows" like the shipyards, early retirement schemes and the Agriculture Support Scheme were difficult to reduce, adding it was not clear whether a real return on investment was ever possible.

"It is far from clear whether this money is being well spent or whether this is a cost which has to be necessarily borne in the short-term due to political reasons," he said.

"Malta Inc. needs to focus on value added activities only and cannot continue trying to solve the problems of all sectors, draining very limited resources," he concluded.

Foreign Minister Michael Frendo expressed great hope in the role that the soon to be launched Forum for Malta in Europe would play in filling up the vacuum left by the dismantling of the Malta-EU Steering Action Committee, a point which was also brought up by the general secretary of the Union Haddiema Maghqudin Gejtu Vella. The forum is expected to help to bring together the social partners and civic society, disseminating information on EU legislation, but Dr Mizzi commented that a more independent entity was needed, which would not only benchmark Malta's progress but also undertake forward strategy analysis.

The general secretary of the General Workers' Union, Tony Zarb, said the union embraces all EU regulations that strengthen and widen workers' rights and working conditions but expressed doubts about directives in the offing, especially the amendments planned to the working time directive.

This was also raised by George Schembri, the CEO of the Suncrest Hotel, who said it was an important issue for the leisure section as labour costs represented such a high percentage of turnover.

Many of the speakers outlined priorities and targets which have been well publicised in the past. These included the chairman of Malta Enterprise, Joe Zammit Tabona, who spoke about the need for value added sectors and for reduced bureaucracy, for example, and Bank of Valletta executive Charles Borg, who said that banks - and financial services - should be looking at niche markets.

The Malta Tourist Authority's executive chairman, Romwald Lungaro Mifsud, outlined the success new member states were having in attracting tourism while Malta had increased its arrivals by a scant 3.5 per cent last year. Tourists from the accession states have doubled over the past 10 years but still only account for 2.2 per cent of arrivals.

Peter Xuereb, the chairman of the university's European Documentation and Research Centre, tackled the impact of the European Constitution on business and said that a recent survey of Institute of Directors members in the UK showed that 86 per cent of businesses surveyed expected regulation to increase under the Constitution.

This ties in with the results of a survey conducted by the financial services firm Bibby last December which showed that 71 per cent of 300 small businesses surveyed said that keeping up with (government) red tape would be their biggest challenge in the coming year. The reality may be somewhat different: David Stephen of the European Movement claimed that in 2002 alone 833 regulations were actually removed by "Brussels".

There was also a panel discussion with representatives of four business sectors: food and beverage, ICT, furniture, and tourism.

Louis Farrugia, the group chief executive officer of Farsons, explained how the company had been preparing to cope with competition for some time, working to reduce costs and improve quality.

"If the products are now good enough to compete with imports, why should they not be good enough to export?" he asked, urging entrepreneurs to look overseas. He believes that Malta Enterprise should have relationship managers to help each sector look after their specific needs (he mentioned the high cost of water to the beverage industry) and pondered on the need for a parliamentary secretary for industry.

Martin Galea, managing director of Joinwell, outlined how his company had spent three years restructuring, taking difficult decisions which meant moving from standard production ranges to new areas like super yachts and quality bespoke furniture.

The ICT sector was different in that it had never been protected. Nevertheless, John Ambrogio, of Megabyte, said that in order to survive, the company had had to reduce prices and watch its profits shrink.

Mr Farrugia and Wilfred Kenely (Federation of Industry) both lamented that there were not enough technical people being trained to cope with the needs of industry. MEP Joe Muscat proposed public scholarships as an incentive to attract students to these fields. He proposed that social security contributions and corporate tax rates should be cut, while perhaps introducing a voluntary increase in social security contributions which could be linked to the pension level.

The conference was closed by the leader of the Opposition, Alfred Sant, and the Prime Minister. Until then politics - especially partisan politics - had not been mentioned.

Dr Sant said that the present disillusionment he encountered was the obvious result of the impossible dreams conjured up before accession.

Insisting that partnership would have provided a better deal, he said that far too much money and effort had been wasted on things like the hospital migration plan, which had been gathering dust for years.

"We need to concentrate on those areas that would best repay our efforts. All businesses operate within such perspectives, after all. It was good while it lasted. Reality has caught up with us although some still prefer not to wake up," he said.

Dr Gonzi also reflected on Labour's proposed partnership, wondering where Malta would have been had it continued down that path. He assured the business community that the government's decisions on the euro were cautious, serious and well-studied.

"There is no way that Malta could have been accepted into ERM II unless it had the right credentials."