Investment and labour costs

The President of the Malta Employers' Association, Victor Scicluna, brought up a number of interesting points during the Association's annual general meeting last Monday. Mr Scicluna said that Malta was experiencing a drain of foreign direct investment which was going to countries in eastern Europe such as Bulgaria and Romania. The MEA President said that Malta was approaching the point where increases in the cost of labour and other direct and indirect production costs without a corresponding improvement in productivity and work practices, "were proving to be a serious deterrent in attracting the required level of foreign direct investment".

Mr Scicluna is right to highlight the fact that labour costs in Malta have shot up and that countries in eastern Europe are far more competitive than we are in this regard. However, one thing must be made clear: the countries of the former Communist bloc have extremely low labour costs and it makes no sense to compare such costs with our own situation. Malta is not a cheap labour market, at least not any more, although our labour costs are still far lower than what is found in the European Union member States.

The cost of labour is one consideration that is kept in mind when investors think about the Maltese market, but there are certainly others which are just as important and which perhaps should be exploited more. These include an English speaking workforce, a strategic location in the middle of the Mediterranean, a possible gateway to both the European Union and north Africa, possible tax incentives and a modern legislative framework, among others. Investors come here for these reasons and as well as for our relatively modest labour costs, but hinting that we should be able to compete with eastern Europe is a non-starter. We will never be able to compete with such countries' low labour costs.

Malta needs to seek a balance between fair and decent wages and being competitive in the global market. Mr Scicluna is right to highlight the huge increase in labour costs in Malta. For example, the government's practice of ordering an across the board wage increase irrespective of productivity during the presentation of the budget has become an annual event. While understanding that such a habit is very difficult to break and will be very unpopular politically, such increases are unfair on industry and reduce the country's competitiveness. Why should the private sector be ordered to put up its wages regardless of its business performance? Shouldn't wage increases be left to employers and unions to negotiate?

In order to be more competitive, Malta also needs to introduce labour market flexibility which will create more of an incentive for foreign direct investment and will also reduce labour costs for industry in general. This is one area where we certainly lag behind and where much reform is needed. However, it seems that the reform of this sector is once again back at the Malta Council for Economic Development. One hopes that an agreement will be arrived at between all the social partners, but ultimately, it is the government which has to decide. Ideally, there should be a consensus on this issue, but the unions should not be allowed to veto such an important piece of reform.

A labour shortage?

Many of those who are opposing Malta's membership of the European Union often say that Malta will be flooded with foreign workers once we finally join the bloc and this will result in a loss of jobs. This has never happened within the EU nor is it expected to happen in Malta's case. The facts clearly show that the overwhelming majority of people within the EU prefer to live in their own country where they can speak their own language and enjoy their own culture. Furthermore, our GDP per capita is far below that of the EU average so Malta is not particularly attractive to foreigners from that point of view. Two weeks ago this newspaper published an article about Ireland's labour shortage which said that the country had to rely on immigrants to cope with such a shortfall. The article said:

"Ireland, a European Union member since 1973 which has a population of about three and a half million, is facing a severe labour shortage due to the rapid creation of new jobs and has to rely on increased immigration to make up for this shortfall. With record foreign investment flows and booming domestic demand, the Irish economy has created more jobs in the last three years than in three decades before."

The point that has to be emphasised is that Ireland has not been flooded by EU workers taking Irish jobs but mainly by people outside the EU who are desperately needed to make up for the shortage in the Irish labour market. In such a small market such as Malta's, the same thing could easily happen here. We already have several labour shortages in certain economic sectors.