An opinion piece by Lawrence Zammit entitled ‘Where is the profit?’ (July 15) sought to portray the building sector as an economically inconsequential part of the Maltese economy which restricts the contribution being generated in the industry to the confinements of private profits.
Naturally, people are very much entitled to articulate their personal opinions, however, it is also the responsibility of the writer to ensure that the statistics supporting such assertions are robust and accurate.
Unfortunately, basic numerical errors and the selective omission of standard industry indicators provided readers with a mischaracterisation of the industry that would be considered a disservice if gone unchallenged.
The numerical errors present in the article will be elaborated first. The most immediate mistake is that GDP for the year 2021 is off the mark. In fact, the real figure should be €14,684,769,000 according to NSO’s latest press release published on May 30, which is €1 billion more than the figure presented in the article.
In turn, this means that the analysis concerning trends in employee compensation is also erroneous. The actual figure for total employee compensation as a share of GDP is 45 per cent, and not 48 per cent as depicted in the article.
Turning our attention to sectorial contribution to the economy, we note that the real sector’s share of gross value added (GVA) is not portrayed entirely fairly. The real estate sector did not actually fall from 6.2 per cent to 6.1 per cent since 2017, rather it very marginally moved from 6.15 per cent to 6.11 per cent, which can arguably be described as remaining stable as opposed to 'shrunk'.
Considering industry multipliers for Malta’s economic sectors further reveals the extent to which the building sector contributes to the Maltese economy
Beyond this, and perhaps even more concerning, is the fact that the author’s analysis chooses to adopt a very narrow view of the contribution made by the building industry and real estate sector. These industries do not operate in isolation, but rather rely on other crucial activities that support their operations.
A more realistic assessment would be to include other sectors like architectural and engineering activities, civil engineering and quarrying, all of which closely orbit the core construction sector. It is estimated that the wider building industry contributes to almost 15 per cent of GVA.
Considering industry multipliers for Malta’s economic sectors further reveals the extent to which the building sector contributes to the Maltese economy. The Type II output multiplier, which captures direct, indirect, and induced impact generated from quarrying and construction, amounts to 2.29, meaning for every €1 spent in this sector, €2.29 worth of output is generated in the economy.
This ranks near the top of industry multipliers estimated for selected industries, as published in the Central Bank of Malta’s second quarterly review of 2021. The same document also reveals that for every full-time equivalent (FTE) created in this sector, a total of 18 FTEs is created across the wider economy – dismissing claims that the building sector has a minimal contribution to the economy.
The final issue concerns the author’s estimations regarding the make-up of the GVA of each sector. While it is true that employee compensation makes up 1.8 percentage points (from 4.4 percentage points) of the construction’s sector GVA, the rest is not actually taken up by “profits”. Consumption of fixed capital (or depreciation) takes up 0.44 percentage points, while net operating surplus make up the remaining 2.15 percentage points of the 4.4 per cent total GVA contribution.
The case is the same with real estate. While 0.3 percentage points make up compensation of employees of the real estate’s GVA 6.1 per cent contribution, depreciation of fixed assets takes up 1.48 percentage points, with the remaining 4.33 percentage points going to net operating surplus.
It should be noted that in the real estate sector, employees make up a very small share of the industry, as most agents in the industry operate on a self-employed basis – a key fact that would have been worth mentioning in the original article.
Finally, it is also worth remarking that almost 82 per cent of the Maltese population are homeowners, according to Eurostat. This means that the value being generated in the sector is being enjoyed by the many and not the few.
Michael Stivala is president of the Malta Developers Association.