Positive signs

Developments at home and abroad augur well for economic growth this year and in the near future.

At home, the programme of dismantling import levies started some four years ago, will be over in a few months. Restrictions on imports provide protection that is self-defeating in the long run. Liberalisation can be counted on for a more productive employment of resources.

The benefits reach far beyond the consumers, who gain from cheaper imports and improvements in the quality of domestic products. Interim burdens of adjustment on both workers and capital have to be seen in the light of added productivity and higher pay that follow from a better use of resources.

In the region, the development of Malta as a hub for commercial and economic activity across the Mediterranean was set out in the 2001 White Paper on industrial policy, and more formally enunciated in the 2003 Industrial Policy Document.

The strategy gets added impetus from developments on the Libyan front. The most immediate is the easing of restrictions on United States citizens travelling to Libya. It is not an isolated event. There is also the recent emphasis in Libyan policy on economic reform.

The links between our two countries place Malta in an excellent position to contribute to the opportunities for growth that are likely to unfold in Libya. Malta has the opportunity to become a far bigger player in the economies of the region.

The foreign trade figures were just released for all of last year. Though some headlines may have reported a decline in exports during 2003, the facts are otherwise. Although re-exports were down during the year, these are relatively unimportant compared with locally produced exports, which have a truly large bearing on the domestic economy and on employment.

In fact, the 2002 re-export total included the substantial sum of Lm41.4 million for the re-export of aircraft.

Locally made exports increased from Lm797 million to Lm818 million, a rise of 2.5 per cent. These figures are uncorrected for price changes.

Previously published GDP statistics for the first three quarters showed a one per cent price decline across all exports, including services. This suggests that the just-mentioned 2.5 per cent rise understated a somewhat larger increase in the physical volume of merchandise exports.

The new numbers represent a welcome improvement on what happened in the two years before. Reflecting conditions in our export markets, domestic exports declined between 2000 and 2001, and then increased marginally in 2002.

The trade figures refer to merchandise exports and do not include the equally important export of services. Still, the moderate increase in merchandise exports in 2003, if sustained, speaks well for the economy's external performance in the face of continuing challenges in international markets.

The signs are equally positive on the import side. Industrial supplies, a leading indicator of industrial activity, were 4.4 per cent higher in 2003. Capital goods were up by 4.3 per cent. Similarly, consumer imports rose by 5.8 per cent.

Prices

The Friday before last, the electronic voice of the Labour Party headed its piece about the latest inflation statistics with the headline "NSO claims decrease in prices". The article simply regurgitated the details of the National Statistics Office announcement, but the writer added a prefatory sentence to the effect that: "Even though many people are grumbling about the rise in the cost of living, the Retail Prices Index went down by 0.18% to 102.20 in January."

The price dip between December and January was due mainly to a remarkable, 17.3 per cent decline in clothing and footwear prices, probably related to post-holiday sales. Apparently, the Opposition has yet to get used to the environment of intense competition that ensures that the benefits of liberalisation are passed on to the consumer.

Also, the writer of the Opposition's piece needs to be reminded that the procedures for measuring cost-of-living changes for the purposes of the Retail Price Index have been agreed to by the social partners and are adhered to rigorously.

We can do without jabs and sly remarks. It is not a matter of some "claim" by the NSO, but a scrupulously followed procedure that generates a precise measure.

Not content with trying to spread panic where no panic is called for, the Labour Party occasionally dips deeper in its bag of tricks. In the recent past, they developed the habit of fanning mistrust in the official statistics.

As the news gets better, they may pick that habit up again. They should know better. It was not under a Labour government that our statistical services made the giant strides of the last several years. It is because of the process of joining the European Union that our statistics are now reaching first world standards, and nothing of the sort was ever likely to happen under a Labour government.

The official inflation rate, relating the average price level in the past 12 months to the average of the previous 12 months, stands at 1.57 per cent. This rate is even below that of the Euro area, which stands at 2%.

The recent budgetary measures made a one-shot contribution, just as the final stage of levy removal on May 1 will have the opposite effect, although the resulting enhancement of competition will have longer lasting effects.

European Parliament

My participation in the European Parliament last week involved attending a plenary session in Brussels plus a seminar organised by the EPP on the publication a week earlier of the Cohesion Report. It was confirmed by Commissioner Michel Barnier himself, in response to a direct question that I put, that we will still be able to qualify for 80 per cent of the benefits granted to the most needy regions or countries.

The complication that arose is that with enlargement, our GDP per capita in the year 2000 has been estimated at 76 per cent of the EU average, which is therefore above the 75 per cent barrier established by EU legislation.

This is largely explained by the fall in the EU average income by 12.5 per cent, due to the population increasing by 20 per cent, but GDP by only five per cent as a result of enlargement. About 17 regions within the EU, covering 19 million people, are affected by this dip in average GDP per capita.

The report by the Commission argues that the standard of living of these regions, including Malta's, has not been affected by this change, and it would be unfair if such regions would have their access to the maximum aid, the so called Objective 1 aid, discontinued. So the proposal is that these affected regions within the EU which currently are getting this assistance, plus Malta, will still be able to get 80 per cent of the eligible benefits, sliding to 65 per cent by 2013.

This is something that I had been quite vociferous about and it is heartening that Malta is being treated on par to other regions within the present 15 member states.

The second element, which is of considerable interest to us, remains somewhat problematic. The Cohesion Report introduces a new concept, that of regions suffering from a geographical handicap, namely some mountainous regions, sparsely populated regions and islands.

It is envisaged that some current rules, such as on state aid, could be relaxed for these regions. I asked a direct question about the change in wording in this report, that now does not mention island regions but just islands, and whether this means that Malta and Cyprus would fall under this category.

Commissioner Barnier answered that this is against current EU regulations, as otherwise the UK and Ireland would have to be included as well.

I immediately retorted that the solution is to change the regulations rather than to admit a spurious differentiation between island regions and island states in the same Mediterranean. The Irish minister present for the seminar, Eamon O Cuiv, President-in-Office of the Council and Minister for Community Affairs and Rural Policy in Ireland, departed from his written presentation to express the view that my arguments were sound and that he fully sympathises with the case of Malta.

This is the state of play on this matter, although I have not exhausted all the options available since now parliament will debate the Cohesion Report and there are some creative options we can use, short of changing the regulations on the definition of islands, something that falls more under the realm of the Council of Ministers than the European Parliament.

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