To be competitive, Malta must go to the EU and level out the playing field | Norman Aquilina

Not surprisingly, the recently published National Productivity Report 2021 concluded that our manufacturing sector is losing ground compared to other European countries, highlighting reduced competitiveness and slower productivity gains.

Indeed, Malta-based manufacturing has seen its share of the economy decline over the years. Nonetheless, it still remains an important contributing sector, accounting for 8% of GDP and around 11% of employment.

Given the growing competitive pressures, is the manufacturing sector’s competitiveness at stake?

From the outset, it must be understood that competitiveness requires broad consideration, with an extended line of measure which is not just about costs, but also about capabilities, amongst other considerations. The issues relating to our competitiveness are undoubtedly multi-faceted, yet the perennial hurdles of operating from an island economy needs particular attention as it continues to compromise our competitiveness.

But how can we best bridge this gap in our competitiveness?

Competitiveness, and even more so export competitiveness, depends on a cost-efficient supply chain, given our dependency on sea and air transport. Nonetheless, it is only too evident that operating from a remote location like Malta, which has neither a sizeable home market nor availability of essential raw and packaging materials, gives rise to structurally high logistical costs.

Operating from an island economy also conditions how manufacturers handle their procurement and inventory management, sometimes being compelled to move away from desired just-in-time inventory levels to necessary just-in-case stock piling with all its additional storage and financial implications.

Our open, insular and peripheral economy means we are overly exposed and rendered vulnerable to external factors. While these considerations have been ever present, one needs to recognize that the prevailing supply chain disruption and spiralling shipping costs have further exposed and elevated our critical dependence on the need of being logistically competitive.

Of relevance here is the outcome of a recent survey carried out by the Chamber in which over 70% of respondents feel that the EU is not conscious enough of the logistical challenges Malta faces as a small peripheral island state. But is this a shortcoming from the EU’s part or maybe an indication that we have not really made our voice heard in Brussels on this merit? Irrespective of the reply, what is certain is that we need to make a stronger and more convincing case.

Within the complexity of reaching our objective, we need to strategically review and tactfully undertake concrete action both at a local and EU level.

Locally, we need to more convincingly place competitiveness on our national agenda. With a view to securing our future competitiveness, it is critically important for us to ongoing-ly focus on building on our economy’s competitive attributes, whilst doing away with, or at least mitigating, any hurdles which in one way or other dent our competitiveness.

When considering our logistical costs, one cannot fail to also give due consideration to the significant costs being incurred within our ports along with the related local charges. Years back there was an attempt to deal with what was then termed ‘port reform’, however this remained inconclusive. Seemingly oblivious to today’s competitive realities, we can no longer treat our ports and related practices as untouchable.

But beyond this, what should one expect from the EU, given Malta’s specific plight of being physically disconnected from mainland Europe along with the resultant absence of a level playing field?

Due to the diversity of islands within the EU, there is no common European definition, let alone strategy. Nonetheless, there needs to be a more concerted and determined drive from our end to convince the EU to take particular account of islands when adopting EU policy, giving tangible recognition to issues of remoteness of island member states and not just regions or island regions forming part of the EU.

Of particular interest within this context are the EU’s recently revised regional aid guidelines, which came into effect in January of this year. These guidelines, which are up for review in 2023, set the framework “under which member states can grant state aid to companies to support the economic development of disadvantaged areas in the EU, while ensuring a level playing field between member states”. These guidelines make possible “increased aid intensities” for “outer most regions”, “border areas” and “disadvantaged areas”. They also refer to “targeted changes in light of the European green deal and the EU’s industrial and digital strategies”.

It is nonetheless unclear as to how these revised regional aid guidelines will impact Malta, if at all. More so, given Malta specific information on the state aid decision on the regional aid maps for the period 2022-2027 is yet to be published. It is also unclear what negotiating stance Malta adopted during the European Commission’s evaluation and claimed “extensive consultation” prior to the EU agreeing on these revised guidelines.

It is fundamental that the EU recognizes that this is not a matter of privilege but a matter of necessity. We need to level out the playing field within the European single market. Until then, whereas other manufacturers based within mainland Europe run the 100 metres sprint, we will continue to be compelled to run the 100 metres hurdles.

We need to firmly elevate competitiveness as a priority on our national agenda. If we truly want a vibrant and sustainably competitive manufacturing sector, and if the EU truly believes in the need to ensure a level playing field amongst member states, given our remoteness, our physical disconnection from mainland Europe, there is no other option for the EU other than giving tangible recognition to this reality.

Norman Aquilina is Member of The Malta Chamber Board of Management and Group Chief Executive Farsons Group.