This week, I was given the opportunity to participate in the launching of the 2021 National Productivity Report, published by the National Productivity Board, which falls under the aegis of the Malta Council for Economic and Social Development. The subject of productivity is essential for Malta, especially in terms of our labour productivity, as this has a direct impact on the competitiveness of businesses operating here, be they for foreign markets or the local market.
This year’s report, which is the third in the series, emphasised greatly the importance of digital transformation as a way of increasing productivity and competitiveness. The report dives deeply into the productivity of the various sectors and highlights the star sectors, the rising stars, the sectors that are a cause of concern and the sectors that need to be kept under watch.
The star sectors include professional services, the ICT sector, finance and insurance, and the transport and storage sector. The sectors that need to be kept under watch are gambling and betting, and accommodation and food services. The sectors that are giving rise for concern are manufacturing, construction and real estate, wholesale and retail, and agriculture and fisheries. The report also concludes that there are no rising stars.
The report also concludes that there are no rising stars
One indicator of the economy’s labour productivity is the real unit labour cost, keeping in mind that in our country, employees’ compensation has been increasing consistently for decades and we have not had negative inflation for the last 40 years or so. An increase in such a metric is a sign of decreasing productivity, while a reduction in the real unit labour cost is a sign of enhanced productivity.
Data published by the EU shows that there was a marginal decrease in real unit labour cost between 2001 and 2016. In 2017, we had a decrease of 1.7 per cent. This was followed by an increase in 2018 and 2019, thereby signifying a decrease in productivity. 2020 was COVID year, and so the decrease in productivity is perfectly understandable. Productivity is now expected to pick up in 2022 and 2023.
The emphasis made this year on digital transformation is of utmost importance. I feel Malta is at a crossroads in this area. There are a number of companies that have started undergoing a digital transformation process, investing significant sums of money. E-government services are on the increase. There are a number of companies operating in the ICT sector that are competing successfully in the international market, such as RS2, Altaro (now part of Hornetsecurity Group) and Loqus, just to mention three.
As such, many operators in the economy are not staying still, but this leads to two questions. First, is there a real process of digital transformation with a change in work processes and system? Or is there just an automation of process that were previously done manually, thereby perpetuating the inefficiencies of the past? Transformation requires a willingness to embrace change and the ability to think critically.
This brings me to the second question. Are we running the risk of creating a chasm in our economy between those that have successfully run a digital transformation process and those that are lagging behind with digitisation? Would this lead to businesses being edged out of the market?
The policy to increase the economy’s productivity through digital transformation needs to be two-pronged. Businesses need to continue being incentivised and assisted to embrace digitisation. Moreover, the time has come to assess in an objective manner whether Malta, as a whole, should go through a digital transformation process and not just individual businesses and individual people.