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 At the request of the European Commission, Malta – along with other EU member states – is in the process of preparing a 10-year national reform programme (NRP) to plan ahead with a view to improving economic conditions. Among other things, the programme is particularly intended to improve the labour market.
The Finance Ministry has invited the comments of the public on a draft it has prepared. According to the ministry, one major task is increase the number of women in the workforce but, of course, there are other economic challenges and each member state has to come up with its own national strategy for achieving the EU’s collective goals. This article looks at suggestions as to how the obstacles to growth can be reduced and the objectives can be achieved. One vital statistic that is very relevant to us is the low number of workers. Typically, an average of 75 per cent of the population of EU member states aged between 20 and 64 is in work, but in Malta this figure is only 59 per cent. So when we say that officially six per cent of the work force is unemployed, we are understating the true figure because there is scope for more jobs, once we register the higher EU benchmark of 75 per cent.
Out there, in cosy kitchens and cosseted sitting rooms, there must be a pool of qualified female workers (including nearly 50 per cent of the graduate population) who have willingly stopped participating in the labour pool. These drop-outs amount to a couple of thousand and over the years represent a cost of idle capital running into millions spent on free state education. So, what can be done to ease the path of women trying to re-enter the labour mainstream? Poor participation levels may be attributed to a lack of childcare provision, poor re-training policies and a lack of retirement arrangements for older staff. It may also reflect a relatively low wage dispersion among different skill and education levels that discourages high educational achievement.
Moving on, the NRP deals with other areas such as improving our focus on energy, education, social inclusion and research and development. Politicians remind us that, as a result of their initiatives, our standard of living has improved and is now close to the level enjoyed by richer members. It is definitely the aim of the EU to remove people from the risk of poverty – which, it has to be said, is no mean task, considering that there are an estimated 20 million such people.
For us, this means more equality through better social assistance to those who deserve such welfare handouts. Naturally, the cost of unemployment benefits – which act as a short-term safety net against poverty – will fall as more sustainable jobs and re-training schemes are provided. Re-training is also closely related to job mobility and, as such, more investment by the ETC is expected in technical colleges and similar institutions. Party apologists remind us that the increasing number of graduates entering tertiary institutions is a sign that openings for such qualified persons are flourishing. The figures are encouraging, but more needs to be done.
The proof of the pudding is in the eating and in the NRP we must make every effort to see that the standard of education is high and matches the needs of industry. It is worth mentioning that the EU target in education is to slash school drop-outs to below 10 per cent, but ours is more than three times this figure. An equally important test for our Education Ministry is to attract a higher ratio of younger people into tertiary education. Our average at the moment is only 21 per cent – a figure that needs to be substantially improved if we are to meet the much higher average of 40 per cent achieved in the EU. Another area that needs addressing is the current level of absenteeism in state-financed education. So the immediate answer to improving our standards in education, employment, energy and other sectors is to embark on serious reforms to reach higher targets for 2020. Such intentions are freely available in many political manifestos written over the years, where politicians promise many things to everyone. One example of this is the pensions’ reform.
One aspect is the raising of the retirement age, which has now been discussed for over a decade and has still only been partially resolved. Other stalled reforms relate to the weeding-out of red tape, improving the roads and expensive duplication in the public sector. Yes, not all reforms see the light of the day, and in the short term party apologists ask us to thank heaven for small mercies. We console ourselves that workers in other member states are experiencing tougher austerity measures. We are conscious of the fact that there has been no downsizing in the public service sector, as is the case in the UK.
In Malta, we have seen how the economy shrank for the first time in the last quarter of 2010, raising concerns about the ability of the economy to avoid a fiscal squeeze. The collapse in construction and poor retail sales contributed to this unexpected contraction. In the UK, the problem of social inequality is greater than here and is exacerbated by a fall in GDP and the imposition of a higher VAT rate. It is a sad fact that, contrary to our increase of 3.7 per cent in GDP, Britain experienced a fall of 0.5 per cent in the last quarter of 2010, following a 0.7 per cent expansion in the third quarter. Naturally, such statistics do not augur well for job creation in the UK and it seems so obvious that current spending cuts and tax hikes may in the short term further reduce the chances of a fast recovery.
Another undesirable factor that is slowing down growth in all member states is creeping inflation. The pressures on consumers from high inflation and weak wages growth, as well as weakness in some export markets, suggest that both the UK and Malta will have to factor in quick remedies to help combat social unrest. While defining our predictions and resolutions for NRP up to 2020, we cannot ignore the warning signs given at the World Economic Forum held this week in Davos, Switzerland. Renowned economist Nouriel Roubini predicted that economic growth is generally anaemic and below trend. His comments reveal how ineffective have been the reforms in certain member states where the public sector is concerned. Worse still, parts of the EU economic area is afflicted with low competitiveness and low growth. To make matters worst, in the short term the world is expecting higher food and energy costs. Global food costs monitored by the United Nations jumped 25 per cent last year, reaching a record in December, and crude oil traded in New York exceeded $90 a barrel.
Malta, which imports a high proportion of its basic foodstuffs such as cereals and animal feed, cannot escape such a hike in prices and may soon have to factor in some form of national subsidy to alleviate the pain felt by workers. Disgruntled workers are fed up with such inequalities. This social phenomenon comes as no surprise; we are seeing protests against high food prices (among other things) in Tunisia, Algeria and Egypt.
At this juncture, one could ask what all this has to do with suggestions regarding our NRP? The answer is that what we plan internally cannot be divorced from reality and the stark reality is the weak economic status of certain EU countries that trade with us. One of the most obvious dilemmas for us in the next decade is how to tackle the problem of social unrest linked to higher costs for energy, bread, milk and other staples due to imported inflation. Another concern is the rising cost of debt servicing and a lack of short term solutions as to how our budgets can be drafted to generate a healthy surplus. Economists preach that a surplus budget can only materialise once the economy improves and can only become visible if we collect higher fiscal revenues or by taking austerity measures. Improving fiscal returns means either higher taxes (a disincentive to work), a substantial reduction in tax evasion (not easy to achieve) or taxing consumption through higher VAT rates (which may fuel inflation). On the other hand, the NRP may try to project higher exports resulting from manufacturers assisted by Malta Enterprise out of ERDF-funded schemes. Such schemes encourage more R&D, competition, innovation, eco-innovation, ICT, and energy.
Why not try to attract more FDI by Finance Malta? Their low budget should be increased to help encourage a culture among practitioners to promote more business (such as hedge funds, higher value-added ICT industries and more international banks). Another suggestion for inclusion in the NRP is the relocation of labour away from the mass tourism industry (low added value) to higher added value in financial services and ICT. The MTA is allocated over €35 million to promote inward tourism but the financial services sector receives less than €1 million! Again, this policy calls for smart and tangible incentives to investors and a redrafting of out-dated fiscal laws so that, within the remit of the EU, we can attract a larger slice of FDI. It would be nice if we could catch up with Gibraltar, the Channel Islands and Luxembourg.
It is sad to reflect that, notwithstanding the massive investment in education, stipends and free books, our working population still suffer from a lack of quality education. There have been a number of areas in which Malta‘s compulsory education system is below EU standards. As said earlier, the NRP has to address not only the absolute number of graduates but the commercial and technological relevance of their courses. It is, however, difficult to gauge whether this is partly due to lack of discipline in schools or a low standard of teachers or the effectiveness of the national curriculum. At secondary school level, the NRP may well suggest tougher rules to reduce the level of absenteeism. Studies indicate that secondary school students have performed poorly in computer programming, mathematics and science and have achieved dismal results particularly in written and spoken English. The NRP should recommend that more importance be given to vocational education, while stressing the importance of international languages.
To conclude: in view of demographic changes expected in the next decade, it is not easy to come up with a perfect solution for improving job prospects in Malta, but I hope that this article has touched on a number of inter-related factors that need reviewing. The NRP should ideally help us come out of the recent economic crisis stronger and help to turn the island into a smart, sustainable and inclusive economy, achieving higher levels of employment, productivity and social cohesion.
by George M. Mangion
gmm@pkfmalta.com
www.pkfmalta.com
The writer is a partner in PKF Malta, an Audit and Business Advisory firm. |
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