In recent years, Malta’s economy has outperformed the economies of most of the other euro states and the outlook for the future is strongly positive.
It is quite extraordinary for a small, open economy to manage to achieve sustained high economic growth and historically low unemployment rates in spite of a relatively hostile economic environment and susceptibilities to external shocks. Malta’s GDP has steadily converged towards that of advanced economies of the EU.
In part, this economic success can be explained by the structural changes that have taken place and which deviated from past macro-economic actions. These fundamental changes in the Maltese economy are consequently having a positive effect on the optimisation of labour resources and the balance of payments.
Economic prosperity has resulted in budgetary surpluses since 2016 and a drastic fall in debt/GDP ratio projected to fall to 39 per cent in the next two years, almost half of what we experienced under Nationalist administrations.
The macroeconomic fundamentals narrate a very positive story. This does not mean that our economy is immune from formidable economic challenges. For me, one of the main challenges results from structural shifts in the economy, exacerbated by technological changes and competition, leading to skills mismatches.
Malta has thrived hard to diversify its economy and enhance its attractiveness to foreign direct investment (FDI).
Financial services, iGaming, maritime services, aviation, life sciences, high value-added manufacturing, tourism, health, education, technology, construction and creative industries spearheaded wealth and job creation.
Real growth rates in Malta averaged close to seven per cent in 2017 and a high of five per cent in 2019. According to the European Commission estimates for Malta, economic growth in 2020 and 2021 will be the highest in the EU at 4.2 per cent and 3.8 per cent respectively, reflecting a moderating temperament in private consumption and exports.
This impressive performance poses a complex challenge of not only maintaining but also enhancing Malta’s attractiveness to FDI and competitiveness. To ensure macroeconomic stability and to ascertain future growth, investment in public infrastructure, including transport, energy, environment and housing, has to keep up with developments in the economy.
Economic growth has been consistently accompanied by labour shortages
Malta’s economic growth was significantly influenced by the excellent performance of the labour market. Indeed, we witnessed a dramatic fall in unemployment, achieving a record low of 3.3 per cent in 2017. This is expected to remain stable and as low as 3.5 per cent in 2020 and 3.6 per cent in 2021 or just 0.1 per cent higher than that of Germany. Such a performance is underlined by policies that raise the labour participation rate, including importing talent in certain sectors.
New initiatives should be taken in this regard to incentivise Maltese nationals working abroad to return home to increase the pool of much-needed talent. Great strides have also been made to remove barriers to increase the married female participation rate in the labour force. Yet, in spite of our best efforts, Malta still has the highest working gender gap in the EU. This has to be mitigated with new and innovative incentives to mobilise greater female participation in the labour force.
Economic growth has been consistently accompanied by labour shortages. We need to address the skills gap if we want to remain successful. While for many years we have been accustomed to the traditional “demand-deficient” unemployment, the type of unemployment currently experienced in the Maltese economy is rather caused by dynamic changes in the labour market as a result of structural changes, demographic alterations, transition to a greener economy, artificial intelligence, automation and digitisation. This has resulted in a skills gap, a mismatch between job seekers and job vacancies.
The challenges arising from having a successful economy must be overcome. Long delays in filling vacancies generate interruptions in the production processes, costly training, a slowing of the adoption of new technologies and low wages for underqualified job seekers.
Skills shortages in Malta are particularly commonplace among high skilled jobs such as healthcare, teaching, finance and technology sectors. Recent skills gap surveys found that, for example, Malta-based gaming companies had a significant shortage in 2018.
Similarly, MFSA reported growing skills gaps in banks, insurance companies and investment services firms. The main reasons offered were a lack of experience and qualifications, and competition. A mix of measures are being adopted from in-house training, mentoring, placements and apprenticeships, to recruitment of foreign talent.
In this respect, our educational institutions have a crucial role to play. I will do my utmost to strengthen the links between academia and industry. This will augment the domestic labour market flexibility and smoothen the process of efficiently matching vacancies and job seekers. Vocational training is key to this process.
A lot has been done in recent years to strengthen the vocational path from compulsory education level and we must keep building on those positive reforms.
Mcast is also an important partner – it plays a pivotal role in partnering with industry and I will make sure that it keeps bolstering its adaptability and speed in meeting industry manpower needs. It is well placed to establish and enhance industry links to establish innovative programmes that are required by the labour market.
The enhancement of collaborative interactions with trade unions, businesses and educational institutions is essential to mitigating skill shortages.
Skills are a key determinant of attractiveness to FDI and a catalyst for job creation and economic growth.
Our responsibility is to ensure a long run positive growth trajectory. Sustained long-term economic growth requires first and foremost a flexible, adaptive and highly skilled workforce to meet the challenges of a dynamic business environment and a vibrant labour market.
We are committed to keep delivering economic success.
Owen Bonnici is the Minister for Education and Employment.