Riding on a tiger carries with it dangers

A recent survey shows eurozone inflation has unexpectedly contracted last month due to a pick-up in manufacturing and services sectors. Accelerating cost increases forced British consumers to tighten their belts. Why is this relevant for us?

Just consider that the UK is a major trading partner for Malta and one country with traditionally yielding high tourist arrivals.  More grim news, as the Bank of England predicted the UK economy would ease a painful recession that will last until late 2024. This is a sober thought since a good percentage of tourists still originate from the UK and this slowdown will eat into their spending power. In fact, up to the May, the average spend per tourists declined by 4.3% compared to pre-Covid. Sun and sea arrivals now spend a mere €120 daily (84% live in rented apartments) while even cruise liners seafarers spend higher on day visits.

On inflation, a vast majority of business leaders are forced to raise prices of products and services in the year ahead to offset their costs, according to the Vistage CEO Confidence Index 2022 issued in collaboration with the Malta Chamber. The report showed higher costs for raw materials and inputs reported by 65 per cent of the respondents while 78 per cent reported increased prices from vendors.

On the employment scene, most employers particularly in the hospitality, professional services, retail and light manufacturing sectors are facing a labour shortage. Silvio Schembri, minister for the economy and industry, claims the furlough scheme launched by him during the pandemic saved 50% of the non-state working population (100,000 workers). So, it stands to reason to ask: why is it that having beaten Covid, we are facing such an acute shortage when 100,000 jobs were saved? Where have the workers gone?

Particularly among the lower skilled cohort, they seem to have been riding on a tiger only to end up eaten by it (as the story goes).

The truth is that Malta faces a skills mismatch. In this context, how much do economic operators and the education system appreciate that a number of jobs which we have today will become redundant in the early future as digitalization and AI takes over? Is it a sign of the times that last “O” level maths exam results featured only 20% of students who passed? The endless diatribe about reforming the education system comes up every year and it is our “elephant in the room”.

For decades we heard proponents of our free education system remind us that to perform certain knowledge-based jobs, one does not necessarily require a degree but structured apprenticeships. The unions suggest that to solve this worker shortage there has to be some improvement in wages to encourage job mobility. The public sector, either directly or indirectly through contracted services, has absorbed a significant number of persons (now employing around 24% of registered workers). The entire state employee cohort still work half days during four summer months - when the economy bursts into action.

This has had a crowding-out effect of the private sector. Some employers are hoarding labour in that they are hanging on to their people, even though they cannot justify it financially, because of the fear they would not find employees should they need extra workers. Even offices of lawyers, engineers, medical clinics and auditors are facing shortages and are having to start employing third country nationals or even poach staff in an attempt to maintain headcount.

Others are improving salary perks to retain quality staff. In the hospitality sector most serving staff are foreigners (the majority are students employed for the summer months) while meal delivery services are exclusively manned by Indian, Pakistani, Somali, or Bangladesh drivers.  Most drivers are not given employee rights, and must give up to 50 per cent of their income from deliveries to the agencies that employ them, whilst the latter consistently lower the delivery time.

Workers often make less than the minimum wage, earning just €3.60 every hour, as they are paid €3.60 per parcel delivery. Moviment Graffitti called the conduct of such employment agencies “tantamount to modern slavery”, with “workers drained by a system where they must do enough deliveries to reach the targets set by the agencies, whilst getting increasingly meagre pay for every delivery.”

Another hot tomato is the transfer last year of circa 600 Air Malta surplus employees to other government jobs with the same salary conditions. Finance Minister Clyde Caruana has admitted that staff employed by the national airline will be added onto the taxpayer’s payroll at an additional cost of some €15 million a year. In fact, 577 employees applied for the generous Voluntary Employment Transfer Scheme (VETS), announced by the government in January, as part of the latest restructuring exercise at the bankrupt national airline.

In this transfer, transferred employees earn more than equivalent government scales because their basic pay was pegged to what they earned at Air Malta, including overtime and allowances. Obviously, a generous early retirement scheme has not attracted the attention of the rest of selected employees and one hopes that by the end of the year, a quick solution is found to quell unrest in the troubled airline.

One prays that Brussels gives permission for another tranche of state aid to Air Malta (so far this has been refused) while Air Malta is haemorrhaging millions of euros in losses every month.

Inflation has touched freight costs and prices of imported construction materials (particularly steel and cement) have seen construction prices quadruple. This is fuelling house prices where a modest three-bedroom (145 square metres) apartment in a partly finished state now fetches over €320,000 in towns and villages (no garages added). With a ten percent deposit and burdened by a 90% mortgage young couples will spend their lifetime paying the bank.

Hence the story concludes that unstructured economies are riding on the back of a tiger... they need to change, climb down or face the music.