Reflections on EU-Malta Country Report

Reading the detailed analysis of the Country-byCountry report makes you think that we have a lot of weeding to do in our garden. Granted the reduced fiscal deficit, lower unemployment, higher tourist arrivals and bold measures to reduce greenhouse gases a

It is encouraging to note that our public debt ratio is lower than the euro area average and approaching the 60 per cent of GDP threshold. The public debt ratio has been decreasing since 2011 on the back of fiscal consolidation and high nominal GDP growth. The report points out that long-term sustainability remains a challenge reflecting the budgetary impact of ageing costs, in particular pensions and escalating healthcare costs.

Regrettably, the report did mention that flies in the ointment are plenty and include pensions sustainability, skills mismatch, low female employment, congested transport, high number of early school leavers and lowest target achieved on R&D expenditure. This article takes a cue from the report and tries to focus on our industrialisation policy. Observers agree that since Independence, it has not been based on attracting cutting edge technology and transfer of intellectual talent but took the easy option to open the doors to investors giving tax perks, including 10-year tax holidays and various incentives so long as these guaranteed creation of jobs. This policy attracted various cycles of investors since the sixties and apart from building a tourism infrastructure from scratch, we welcomed investors in the ‘cutmake-and trim’ textile operations lured to the island because of our comparatively low labour cost. Such a nascent textile industry was not suitably capitalized and attracted no R & D or innovation/design units. With hindsight, we can see that unique intellectual capital was not transferred by the foreign investor. The obvious consequence of this frail industrialization policy was that once wages increased beyond a certain level, there was a mass exodus and the industrial estates became a ghost city.

Replacement of the textile industry was followed by a fresh approach to attract other manufacturing units which included (but not limited to) pharmaceuticals, light engineering, microchip, printing and Playmobil investors. All these have a common denominator – they do not carry out any R & D studies in Malta. This is a policy crying out for reform as competition from other Eastern European countries is intensifying and we risk being exposed to another exodus as wages are gradually revised upwards. Having attracted foreign manufacturing companies to our industrial estates which do not conduct own R & D is a risky scenario. Readers ask: what is the solution? The answer is not easy.

There is an offer by a top US university to set up a private business accelerator and a venture capital unit which so far has not met the sympathetic ear of the government. The Minister