Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 11th August 2022

A recent survey shows eurozone business activity has unexpectedly contracted last month due to a slowdown in manufacturing, and services sector growth coming to a near halt. Accelerating cost increases forced British consumers to tighten their belts.

Why is this relevant? Just consider that the UK is a major trading partner for Malta. The Bank of England (BoE) said it was being forced to take aggressive action due to a new forecast that sees inflation rise to over 13 per cent by the fourth quarter of this year, largely due to another big increase in regulated household energy prices.  The bank also confirmed its expectations that the economy will start contracting later this year.

In more grim news, the BoE predicted the UK economy would enter a painful recession that will last until late 2023. This is a sober thought since the highest percentage of tourists still originate from UK and as the recession next year will eat into their spending power, expect that MTA will net in more of the lower-spending variety.

Back home, a vast majority of business leaders are also expected to raise prices of their products and services in the year ahead to offset their costs, according to the Q2 Vistage CEO Confidence Index 2022 issued in collaboration with the Malta Chamber.

The report showed higher costs for raw materials and inputs were 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, retail and light manufacturing sectors are facing a labour shortage.  The minister for the economy and industry claims the furlough scheme has during the pandemic saved 50% of the non-state working population (100,000 workers).

So, it stands to reason to ask why such an acute shortage when 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).  Can we accept the unpalatable truth 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 era takes over? Is it a sign of 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”.  Do economic operators and the education system appreciate that to perform certain knowledge-based jobs, one does not necessarily require an academic degree as knowledge which is obtained through experience such as 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 25% of registered workers).

This has had a crowding-out effect of the private sector. As can be expected, with the onset of Covid-19 last March 2020, most businesses, schools, airport closed shop and a considerable number of foreigners went back to their country and have not returned.

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 more workers. Even firms of lawyers, engineers, medical clinics and auditors are facing shortages and are having to start poaching 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 or Bangladesh motorcycle couriers  frantically following GPS instructions on mobiles to deliver meals in the shortest time possible to elk a decent fee to earn a living.

About 300 drivers went out on strike this month.  It is believed that the action stems from discontent over a drop in how much money the couriers were making for carrying out deliveries when compared with the last few months.  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 lowers the delivery rates.

Workers often make less than the minimum wage, often receiving just €2.60 every hour, as they are paid €2.60 per 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 of about 600 Air Malta surplus employees to be sourced a government job with same salary conditions. Finance Minister Caruana has admitted that some 600 staff employed by the national airline will be dumped 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.

Of these employees so far only 88 were given jobs at levels that match other government grades.  In this transfer, such 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 end of October, an honorable solution is found to quell unrest in the troubled airline.

One hopes that permission to grant another tranche of state aid is approved by Brussels to bail out Air Malta. It is registering millions of euros in losses every month.

Naturally, as stated earlier, our inflation at under 7% has touched freight costs and prices of imported construction materials (particularly steel, cement) have seen prices quadruple.

This is fuelling house prices where a three bedroom (145 square meters) apartment in a finished and unfurnished state are fetching over €320,000 in towns and villages. With a ten percent deposit and a 90% mortgage young couples will spend their lifetime paying the bank. Upper market rents have tumbled due to lack of new entrants to the market from high rollers yet some think they will soon start to rise, too.

And that is why economies that are riding on the back of a tiger need to change, climb down and face the music.

Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 11th August 2022
Get in touch: info@pkfmalta.com