20 - 26 June , 2001

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Unemployment, credit-crunches and foreign competition

ECONOMIC SERVICES MINISTER, JOSEF BONNICI, TALKS TO KURT SANSONE ABOUT THE UNEMPLOYMENT CONTROVERSY AND THE CHALLENGES MALTESE INDUSTRY FACES IN VIEW OF EU MEMBERSHIP.

What is your reaction to the unemployment results of the Labour Force Survey, which were different from those published by the Employment and Training Corporation?
The LFS results were worked out using different parameters than those adopted by the ETC, so it is understandable that the unemployment results are different. This is the first time that an LFS has been carried out in Malta and the results are similar to trends found abroad. In the UK the difference between the registered unemployed and the LFS results is 2%, which is similar to what we obtained. It is important to note that the LFS found that the number of registered unemployed is equivalent to the ETC figures. Furthermore, the LFS results showed a decline in unemployment from May to December. This is a positive aspect.

What do you think of the Labour Party’s criticism of the results?
It is unjustified because you cannot compare the LFS results with the ETC results. They are not comparing like with like.

Retail outlets are feeling the impact of a credit crunch. What is behind this problem?
Most local businesses are built on a minimum capital base, which makes them susceptible to bank loans and subsequently bank interest. This makes them very fragile.

Nonetheless, increased competition has resulted in having too many outlets chasing too few pockets, therefore the business scenario for operators has changed, resulting in lower profit margins. For a number of years now, business has been hit by longer credit terms, and this is causing a problem.

However, one must not neglect shifting consumer expenditure. Just look at the mobile phone sector. Over the last two years it has boomed. Consumers shift their expenditure, so businesses in some sectors may feel that they are losing customers, while others may be gaining them. It is a question of identifying consumption patterns and planning for them.

What about the reduction of disposable income because of increased taxation?
The fiscal measures we are adopting are raising revenue through increased efficiency. The rise in National Insurance contributions, the change in Income Tax brackets and the tax on fringe benefits may have had a negative effect on disposable income.

However, we must not forget that a lot of state services, such as health and education, are free. The government must make sure that these services are run efficiently and in a sustainable way.

People are feeling the pinch, but they are not seeing government doing its part to reduce its expenditure. What are your comments?

I tend to disagree, because if you look at the number of workers in various public corporations there has been a constant natural decline in the workforce. Malta Shipbuilding, the Drydocks, the Water Services Corporation, have all seen a decrease in their workforce over the last 10 years. The government is seeking to better utilise its human resources and we will shortly embark on public-private partnerships.

Is Malta facing a recession?
We might be facing a slowdown but certainly not a recession. Jobs are still being created, unemployment is going down, as the Labour Force Survey showed and growth is on the increase.

This year a number of industries such as Baxter, Methode, Carlo Gavazzi and others are expanding. They will not only be upgrading their current production lines, but, more importantly, they will be diversifying, thereby increasing value added to the economy. Furthermore, we expect to witness an additional 200 to 300 jobs being created in the jeans sector.

The opening of new firms in the high technology sector such as FAL in Mosta and Lasercom are positive developments. The scenario is not all doom and gloom as some would have us believe.

What about the local manufacturing firms?
The removal of levies in some sectors has increased competition, but there are positive developments. Take a look at the detergent manufacturers; they have been diversifying their products and we have also seen a drop in prices.

But will they be able to compete with other European manufacturers if Malta joins the EU?
The problem is that most Maltese industries have operated behind protective barriers for far too long. This creates inefficiencies and gives the consumer an unfair deal. The EU market must be looked at as an opportunity.

What is the government doing to soften the impact of membership on the manufacturing industry?
IPSE is the main instrument created by government to help these industries. The institute has spoken to most companies hit by levy removals or reductions and it has introduced programmes to help these companies restructure. The programmes vary according to the nature of the industry and they tackle issues such as diversifying production, better management, marketing techniques and other issues related to restructuring.

We recently had the furniture manufacturers getting together to form a Trade Group with the help of IPSE. They will co-operate among themselves to penetrate foreign markets, improve design and possibly import raw materials.

During the press conference to launch the furniture Trade Group, I noticed that the involved parties were quite upbeat in the face of foreign competition. What is your reaction to this?
This is only a recent development because we previously had a lot of doomsayers predicting disaster. The Ghima movement was founded to put forward the complaints of Maltese manufacturers and their outlook was very negative.
People in manufacturing have to learn to be outward looking. Malta has a limited market and the EU can offer an immense opportunity for Maltese manufacturers to export their products.

When will the last levies be removed?
The last levies on industrial products will be removed by the end of 2003, however no target date has yet been set for the removal of levies in the agri-food sector.

What are the major stumbling blocks that industry might face with EU membership?
I hold a lot of meetings with people in the sector and, frankly speaking, the difficulties they raise are minimal. We could have more problems outside the EU.
A particular example is the long-haul transport sector. At present, a Maltese trucker can transport goods from Malta to Germany, but because we are not EU members the trucker cannot stop in Italy to pick up goods on the way.
I believe that workers look upon the EU as an opportunity rather then a threat.

What about the Labour Party’s option of a free trade agreement with the EU instead of membership?
The EU has already made it clear that we cannot have an industrial free trade agreement. We will have to have a free trade agreement that covers all sectors. This still means that Maltese industry will have to restructure and upgrade its standards to EU levels.
It is true that membership obliges us to upgrade our production facilities, but this benefits both consumers and the companies.



The Business Times, Network House, Vjal ir-Rihan San Gwann SGN 07
Tel: (356) 382741-3, 382745-6 | Fax: (356) 385075 | e-mail: editorial@networkpublications.com.mt