Two of Maltas foremost economists have a plan
- getting the country back on its feet. But is that too much to ask
from Maltese savoir-faire and the gruelling politics of our ministries
and social partners? MATTHEW VELLA meets Prof Lino Briguglio
and Gordon Cordina.
Competitiveness could be a dirty word. Take-overs, lucrative
mergers, slashed prices, devaluated currency and opportunism. For todays
Malta, competitiveness is the next tidal wave after EU accession.
And Prof Lino Briguglio and Gordon Cordina have stepped out to address
the question of competitiveness. The two academics have broken with
tradition to come from out from behind the university desks and put
their minds at the countrys service.
Their national conference, organised in collaboration with the Commonwealth
Institute and the Foreign and Finance Ministries, edges out on a national
strategy aimed at treating the problems facing the economy as a whole.
The countrys financial state is in ailing condition. Briguglio
and Cordina have outlined decade-long rants on government inefficiency,
investment attraction, welfare, and state expenditure. And they also
proposed solutions. The question is, how much will spill over from their
conference onto the decision-makers:
"Malta depends on exports, and we shall be the most export-dependant
country in Europe, so you have to be competitive," starts Prof
Cordina says theres no other road: "We spent ten years on
import-substitution which did not work and another ten on fiscal expansion.
The only road we are seeing is integration in the global economy, and
that was the real question for EU membership, to have access to a greater
Briguglio and Cordina are taking the EU debate a step further. Now that
Malta is practically in, the country has to look to achieve that competitive
edge in terms of supply.
"We have a lot of pockets of exports," Briguglio says. "For
example, we depend a lot on printing material export. We produce currency
notes for a lot of countries, and we are also very competitive in the
fields of plastics and electronics.
"So out of every Lm100 we sell, 50 per cent are purchased by residents
and the other half by non-residents, including tourists, and therefore
these are exports."
However, Cordina reminds, for every Lm50 sold to non-residents, the
island imports Lm60, "and that is where the real problem for the
Maltese Islands lies. We cannot continue year in, year out with this
deficit until all our reserves are cleaned out. We have had capital
inflows such as privatisation, FDI, and re-investment finance this deficit
but this is unsustainable. This is usually the beginning of the road
towards a financial crisis. We have to be more competitive in order
to resolve this balance of payments problem."
This is why we have to adhere to the single European currency, the economists
"We import and export a lot from and to Europe. If we have exchange
rate volatility, that will contribute to further risks for business
- impeding business or increasing costs when hedging against that risk,"
"A concrete advantage is that when we shall adhere to the euro,
we will see our interest rates decrease by half to one percentage point.
Since the Maltese lira is a small currency, we always have to offer
an interest rate premium. That premium can end once we enter the eurozone
to the benefit of our countrys producers.
"When the euro was created Maltese tourism suffered two blows.
One of them was that Spain, Portugal and Greece no longer had exchange
rate instability. The second was that their interest rates decreased
greatly compared to Maltas. So many of our hoteliers changed their
operative currency to the euro, but they were also risking that if the
euro appreciates their repayments would increase, which is what is happening
In their report, Briguglio and Cordina have outlined Maltas disadvantages:
additional transport costs as an island; a tight labour market with
relatively low unemployment, leading to poaching of jobs the fact that
our limited space makes cement factories and refineries makes them no-go
Briguglio - "The attraction we can offer is innovation and efficiency."
Cordina - "And so we cannot keep on saying that Malta attracts
FDI. We have to be choosy. We need small outfits, because our labour
force cannot service large factories, and we are already out-priced
by Tunisia and Eastern Europe.
"These industries have to bring great capital commitment, and bring
technology, skills, and be able to pay the wages Maltese workers expect.
They have to be value-added industries. Malta has to market well for
Brigulgio "If you have an output that pays 80 per cent in
wages, that industry might as well go to Tunisia. But if you have an
industry based on 50 per cent capital and profits and 50 per cent wages,
we can compete in that way. High capital content can permit higher salaries."
Cordina "Lets also keep in mind the best fish we have
is the one we have already caught. Re-invested earnings from those companies
which have settled here have created most jobs in Malta. We have to
nurture these companies, as has happened with those industries which
started out with a couple of workers and multiplied its workforce over
Amongst the "ten golden rules" for the achievement of competitiveness,
the two economists have mentioned the need for a stable and resilient
macroeconomic environment. The recently-published government finance
figures have revealed a worrying economic scenario, and action has to
be taken sooner than later.
"Government is conscious of this situation and knows it will be
punished if it does not mend the situation. Government will have an
uphill struggle because of uncontrollable expenditure which cannot be
reduced, namely public sector wages and welfare, and these contribute
greatly to the deficit. Solutions have to be found. It will have to
control its deficit in any case since we have to join the euro,"
Briguglio says (the eurozones Growth and Stability Pact limits
adherent countries budget deficits to three per cent of their
GDP Commission President Romano Prodi has called it a "stupid
pact" in the past).
"The fiscal deficit rule may carry with it certain social costs,
but the right decision-makers can carry out this exercise without great
social costs. Certain disincentives in our labour market can be removed,
for example generous unemployment benefits which could encourage workers
to draft legal work."
Cordina "The costs of not controlling the deficit now are
greater than if we never join the EU, because if we want to enjoy the
full benefits of membership we have to join the euro, and through that
control our fiscal deficit.
"But in any case we had to control our fiscal deficit. If government
is absorbing Lm6 out of every Lm100 we produce, whilst in other countries
governments absorb Lm3, those extra Lm3 are a burden on our production
costs. We have to reduce our fiscal deficit through reduced expenditure,
not through increased taxation.
"We have had great response from social partners, constituted bodies
and ministries. We are expecting that government will see the need to
finance a new committee within the Malta Council for Science and Technology
the Competitive and Technical Committee. We would like to insist
we are not in competition or trying to reinvent the wheel. But this
committee can provide ongoing reports and monitoring for the sake of
business and the economy. We want to see competitiveness on the top
of the national agenda."
Benchmarking will also have to be one of the countrys starting
points. Briguglio stresses the need to have countries records
pushing us further into the efficiency stream, and teaching us how to
do things better. Likewise the need for plans on cost overruns, time
overruns, project descriptions and the control of wastage in the public
sector. Briguglio says that in the run-up to accession, the public sector
rose to the occasion, a sure sign that efficiency is not a misnomer
in Maltas bureaucracy:
"You have 2,000 heroes pushing the country ahead", Cordina
says, "in all levels, mainly middle-management. They are motivated
and working to make the system better
and hoping to see it work