One of the effects of the coronavirus pandemic has been a disruption in supply chains. This has happened for two main reasons.
First, manufacturers had either stopped production or reduced it significantly because of a lack of employees who were on lockdown. Second, the transportation of goods got disrupted as ports closed down or containers got held up in ports where they were not needed.
What made it all worse has been the global dependence on China for manufactured goods. This reliance has grown as more and more production got shifted to China over the last three decades, thanks to lower costs and increasing technical capabilities.
As a result of these issues, we all have our own stories to tell about such supply disruptions; ranging from the arrival of some furniture in March when it was meant to be here by Christmas, to factories in Malta having had to reduce production because raw materials were not available, to having to wait for months for a new car. Production planners have coined a new phrase to replace “just in time”. They are now saying “just in case”!
During this time, many were hopeful that the supply chain problems that have affected the global economy would be resolved. In effect, they were not and with the Russian invasion of Ukraine, things have taken a turn for the worse.
We have a number of success stories
The pertinent question to ask is whether there is an opportunity for Malta in all this. Will there actually be a shift in production? Will the more developed countries seek to reduce their reliance on China for raw materials, spare parts and finished goods, and will their governments seek to incentivise a relocation of part of production facilities back to their countries?
Another factor to consider is that China’s cost base has been increasing, with the result that its competitive advantage is being eroded.
During the presidency of Donald Trump, the US had already imposed stiff import tariffs to achieve this objective. These tariffs were described as trade wars at the time; but now they may become necessary to safeguard supplies. The current president, Joe Biden, has stated that the US needs to invest more to make supply chains more secure and more resilient.
Global retailers, whose main consumer markets are in the West, are seeking to rely less on their Far Eastern suppliers, even though they are fully aware that the cost of manufacture may increase.
The EU had announced a €43 billion plan to reduce the member states’ dependence on computer chip makers located in the Far East. The plan brings together private and public investment, and allows for state aid for projects to get off the ground.
I have asked whether this situation represents an opportunity for Malta. I believe it most certainly does.
Malta has been an important investment location for manufacturing companies since the late 1950s. We have a number of success stories, and a number of companies are still operating in our country and are market leaders in their respective product area.
Malta is, therefore, well-suited and well-located to welcome companies that wish to set up manufacturing activities here.