Providing a catalyst for change
Economic Services Minister Josef Bonnici speaks to
DAVID LINDSAY on a wide range of subjects including EU memberships
impact on trade and industry, the recently launched National Industrial
Policy, the setting up of Malta Enterprise, the impact of the removal
of levies and the effect of the Iraq conflict on Maltas industry
What aspects of the economy are at the forefront of governments
From an economic viewpoint one of the most crucial aspects is certainly
investment. There is a good deal of investment taking place at the moment,
partly as a result of the Business Promotion Act.
In addition to the two companies that were inaugurated last week
Arrow Pharm and electric vehicle manufacturers Innovative Transport
Systems Malta Ltd - there are also a number of other projects in the
pipeline and many expansions taking place.
Dowty, for example, is carrying out a large expansion project involving
some 16 factories at Hal Far. Baxter is also building a new factory,
while STMicroelectronics is also looking at developing their local operations
What we are looking at is the issue of investment and how it would be
negatively affected if Malta remains out of the European Union. There
is no doubt that the reaction from investors to such a development would
be negative, especially from those in the manufacturing sector.
Is this derived from information from companies present in Malta and
those considering investing in the country?
Yes. In fact the electric car concern launched last week was actually
waiting for the referendum result to announce their investment.
The way in which many companies are structured today means that their
input originates from so many places that the conditions under which
one operates as an EU member are much easier to operate in than if one
So if youre building a car, as in this example, and you need to
receive some parts from the EU and others from outside the EU, its
a definite disadvantage to not be an EU member.
Apart from this crucial aspect, there is, of course, the question of
security in terms of forming part of a bigger block with known rules
and known conditions, which together create a known environment for
The large amount of bilateral agreements the EU has signed with countries
outside the trade block is another crucial aspect.
For example, we have been trying to negotiate free trade agreements
with other Mediterranean countries and it is only now that we are close
to accession that these countries are really becoming interested in
establishing such agreements.
The reason is not difficult to see. If you take a country like Malta
with close to 400,000 people and a country with millions such as Egypt,
Algeria or Tunisia, our market is so small to these countries that their
priority lies in the bigger markets that can have an impact on their
Each country has limited resources with which to negotiate. If one were
to negotiate with a country where the impact on ones exporters
would be insignificant because its a very small market then the
natural tendency would be to look elsewhere, to locate in larger markets
where the impact would be much more significant.
This is a constraint that we face due to our size and the agreements
the EU has signed with other countries have provided us with an excellent
opportunity to penetrate, with greater clout, these markets that could
be extremely important for us.
So as far as industry is concerned, there is little doubt that membership
is the more desirable option from the other path suggested for the country?
If one looks at the manufacturing sector there is no doubt that the
superiority of being an EU member is clear and could be so critical
for our future development. This is evident in terms of the upgrading
of our industry, in being able to attract new investment and in retaining
the investment we have attracted.
A lot of investment has adopted a wait and see attitude. This is because
as an EU member Maltas attractiveness is higher, while as a non-EU
member it could very well be that such investors would be reluctant
to invest as quite much or that they might go elsewhere.
The National Industrial Policy was recently launched. What general aspects
does the document deal with and how is it expected to provide a boost
to the sector?
The National Industrial Policy has a number of aspects to it. The first
is to lay down the kind of strategic direction that the Maltese economy
is expected to follow and that which we would like it to follow.
When one looks at our economy, one finds that there are the three main
sectors of manufacturing, tourism and a whole group of other services.
Manufacturing will, by and large, continue to grow and tourism should
also continue to grow. But realistically speaking we have to look at
the other services sector to provide new opportunities such
as further developing Malta into a regional centre for companies and
A good example here is the aviation sector. With Lufthansa Technik locating
in Malta and currently servicing aircraft from a Spanish airline, we
are seeing in a very short time the diversification of the market from
what it started from just the Lufthansa and Air Malta fleets.
This, to my mind, is very significant. What we need to do if this country
is to continue improving its standard of living and creating more opportunities
is to look closely at this other services sector.
There is also the EU link in this respect since there is a much higher
likelihood of being successful in the other services sector as an EU
member in terms of attracting companies to base their regional office
in Malta and co-ordinate their activities from Malta. This doesnt
involve only manufacturing but also includes marketing, distribution
and the organisation of work.
This is what other countries such as Luxembourg, Singapore and even
Hong Kong have done with success and the next phase of development has
to be in this direction. We have to position ourselves in such a way
that the maximum benefit is derived from our location.
At the same time we also have to exploit the fact that within a southern
European context, as an EU member we would be the country most fluent
in English, with a reasonably high level of education, with a very well
developed tourism sector and the amenities that go along with it. So
if you have a company locating here to manage its regional business,
it needs good schools, a good environment and an attractive place to
work from. Here we will see some of the strengths from different activities
reinforcing each other.
As such the Prosperity in Change document first of all sets the scene
for this type of development.
It then deals with the whole aspect of analysing the industries we have,
what the value added is, where the most investment is taking place and
which are the export oriented companies.
Finally there is the whole discussion of how to best promote these sectors
through the Business Promotion Act, through the work of the Economic
Services Ministry and through the setting up of Malta Enterprise.
Which brings me to my next question, how would you gauge the progress
of the setting up of Malta Enterprise?
The setting up of Malta Enterprise has progressed reasonably well. It
is never easy to set up a new organisation that will essentially absorb
the present organisations, which are still functioning and I insist
that they keep functioning effectively, and which involves a certain
movement of people from one organisation to another with a different
This is complex and we are being sensitive to the human resources employed
within the three organisations, many of which are very valuable. But
there are, of course, a certain amount of these resources that are less
productive and one has to see if these can be used better in this new
organisation or elsewhere.
However, its not a question of throwing people away, its
quite the opposite. Its a question of trying to maximise our resources.
Ive always said that the development of Malta Enterprise must
be seen in terms of what the nation requires, which is a very dynamic
organisation that runs after business and has a can do mentality.
This organisation must also seek partnerships with other like-minded
organisations such as Enterprise Ireland - a relationship we are currently
trying to enhance since Malta as a country can offer a number of services
For example, I held a meeting with the Irish Deputy Prime Minister a
few months ago and it was mentioned how a lot of indigenous Irish companies
were not exploiting the North African and Gulf region at all. Others
werent even exploiting the southern European market. This is one
distinct area in which we can provide a service.
At the same time the Irish agency can provide us with very good information
from the US market, for instance, and from other European markets that
tend to look at Ireland because its better known. Although the
economics of the situation are such that Malta at the moment is attractive
to certain types of operations in terms of costs and productivity in
the way that Ireland was some 15 or 20 years ago.
That means theres an opportunity there that, with a proper linkage
between the two organisations, can be greatly capitalised upon.
But comparatively speaking there is no reason why we cant be as
effective as Enterprise Ireland, with some 1,500 people, and this is
the whole scope behind Malta Enterprise. Malta needs an organisation
that can map future development and actually influence the development
of the country as a business enterprise and not necessarily only in
terms of exports or investment promotion in manufacturing, or the SME
development of indigenous companies. What we need is a business-oriented
How do you see local industry reacting to the removal of levies in their
respective sectors? Which sectors have found a solid footing and which
are still tweaking their operations?
Quite frankly there have been very few casualties. Many companies have
taken the opportunity to look around themselves and have upgraded, ventured
into new products and have explored new markets. At the end of the day
this is part of the dynamism that the country needs, which is why we
titled the National Industrial Policy Prosperity in Change
The Way Forward.
In terms of industrial levies I believe the results have been quite
good, while the sector dealing with agricultural products is of going
through the same levy reductions at the moment.
This sector stands to benefit from one thing that we didnt have
before, which is access to other markets for our food-related products.
Up to now we have had very limited access, if any at all. Sometimes
a window opens up through which certain types of products such as potatoes
can go through but as soon as a certain date goes by, up goes the tariff
and the product ceases to be competitive.
Other products, such as biscuits being exported to Germany, for example,
were held back because they had to absorb a 28 per cent tariff on its
exports. If such companies can break even in that situation, then what
could happen if that tariff were to be removed? In fact we are trying
to have that tariff removed even before accession so as to give them
enough time to establish a presence in their overseas markets.
Last week I visited a factory that produces bacon and ham products and
I was very impressed by the upgrading taking place. This company is
for the first time setting up a plant that is up EU standards so that
any importer from within the EU can inspect this plant and be satisfied
that all the conditions of an EU plant are met.
This is good for Maltese consumers, for the workers and for the company.
The point is why should we be satisfied with a limited type of product
when upgrades are possible to make?
This is what the change is all about and I believe that with the removal
of levies we will also be seeing a dramatic improvement in the quality
of the product, the end consumer price, the in the market that can be
reached and in the overall competitiveness of the product.
How do you counter the Oppositions claims that workers employment
stands at risk with EU membership?
The Opposition has actually been saying this since we started the liberalisation
process back in the late 1980s. Those jobs were not lost, in fact unemployment
was reduced rather than increased. This exact same argument was repeated
in 1999 when we began the levy reduction and removal process.
The point is that the loss the Opposition had anticipated over the last
four years never took place. So the same argument goes for membership.
Why should EU membership involve job losses? I would say that it would
involve job increases.
What the country needs is outward-oriented activity and to avoid getting
side-tracked into being content with doing something very limited with
very limited potential.
With the international price of oil on a rollercoaster due to the Iraq
crisis, how is Enemalta geared to buffer these fluctuations?
About three months ago, given that there was so much talk about war,
we adopted a type of insurance scheme whereby the price of oil at which
Enemalta buys most of its fuel was maintained and a premium was being
paid for that.
This was a very different structure to that which was practised before,
in which a price was agreed with companies that hedge funds and if the
price ended up less than agreed you would have to pay them the difference.
If the price that was agreed was indeed higher, then they would pay
you the difference. But there were no limits and the tricky part in
this kind of process was choosing the right price and it becomes similar
to playing a guessing game.
Instead what we did was we adopted a system in which there is a small
premium but which protects Enemalta if the price goes beyond a certain
level. This is not open ended in the sense that we know how much is
being paid. That can be factored in and it provides you with a type
of protection, especially if there are spikes in prices.
We had already adopted a system of averaging so that when Enemalta purchases
its oil it doesnt pay the going price on a particular day, but
instead pays an average over a certain period of time. Some averages
are calculated over three months, other over one month depending on
the source. This method provides a greater stability.
Apart from all this, there is also the fact that oil prices are listed
in the US dollar, which has declined by 10-15-20 per cent over the last
six months or so.
However, this doesnt mean that Enemalta has not been impacted,
it has but that impact has also been contained.
Do you foresee any problems for Air Malta as a result of this conflict?
First of all I must say that Air Malta also went into a scheme quite
some time ago that protects it from very high fuel prices. It had never
done it before so it was tried out. Once again it involves a scheme
through which a small premium is paid, you know where you stand and
it is not a question of rolling the dice.
But then the question becomes one of whether the company should, over
time, average out price fluctuation or whether it wants to protect itself
in case there is a very unusually situation, such as the war in Iraq.
Our experience is that very often when you have a major buyer of oil
such as Enemalta, the kind of averaging process it introduces adds a
lot of stability because its purchasing frequently and the price
is averaged in any case.
But with regard to Air Malta, of course, the biggest uncertainty is
whether tourists will be affected in terms of being afraid to fly. Luckily
Malta is considered to be a safe country, but there is still an element
that could lead some people to be disinclined to fly at this point in
We went through this in 1991, but 2001 was much worse because, in the
latter case, a lot of passengers were simply too afraid to fly, which
led to a snowball effect. US tourism collapsed in Europe. Tourism around
us such as in Turkey and Tunisia also declined and this led to a huge
fall in prices.
What other sectors of the economy would you expect to run into difficulties
if the conflict with Iraq is extended longer than estimated?
Remember that Malta exports almost 100 per cent of its GDP so demand
for most of our production comes from international markets.
As such, any economic instability in Singapore, the US, Japan or in
Europe affects us.
What happens on the international stock markets also affects us. If
there is a lot of wealth, investment and demand being created, we are
positively impacted, but if a lot wealth being destroyed, that also
impacts us in terms of lower demand and investment. Some of the products
are highly specialised but there are also many products manufactured
locally for the mass market, such the switches Methode produces for
the automobile sector. If US consumers are not buying as many cars,
not as many cars are being produced and we are effectively impacted.
Today the Maltese economy is so integrated with the rest of the world
that any fall in world economic activity will be felt very quickly here.