Author: Mel Chamber

The following is the speech given by Chris Vassallo Cesareo, The Malta Chamber President, during the EY Malta Future Realised Conference 2023

We are living in times of persistent inflation. This is unfamiliar territory for businesses, consumers and policymakers because we have enjoyed many years of price stability. Price volatility is impacting supply chains in all sectors and in all geographic locations. It is a major concern for businesses everywhere, not least here in Malta where our policy response to inflation has focused on maintaining energy price stability while labour costs have run out of hand. The long-term implications of major hikes in labour costs without matching productivity gains on our competitiveness as an exporting economy, is likely to be a major topic of future attractiveness conferences.

Today, we face a very particular global reality. Markets are not adjusting fast enough in terms of supply. Prices are sticky downwards, and demand is not responding to interest rate hikes in a predictable manner. These weak responses to policy interventions are a post-Covid legacy. Consumer behaviour has been significantly altered by the Covid experience, as has people’s relationship with employment. It is not yet clear whether we are experiencing  a delayed response to policy actions, or a complete rewrite of the rules of the game. Policymakers are therefore hesitant as, if it is a case of delayed reaction, there is a risk of overshooting. The prospect that markets will eventually react suddenly to an accumulation of factors and come tumbling down lurking in the background. The same dilemmas are faced by businesses everyday. There is greater global uncertainty about everything from pricing, to recruitment, to consumer behaviour, to taxation.

Geopolitical tensions are providing an increasingly more complex landscape. We are seeing the end of globalisation as we knew it. This brings with it more uncertainty, less confidence, and more spending on defence and security instead of investment in upgrading productive capabilities in countries that have a major impact on global trade.

Then there is climate change: new challenges of extreme weather that pose significant risks of disruption, loss of assets and even loss of lifes in unprepared territories. These events are impacting supply chains as well. Businesses have parallel derisking challenges. On the one hand there are the long-term decolonisation targets, while on the other there are the immediate supply chain risks that necessitate more prudent approaches to restricting procurement to cleaner sources.

Yet, businesses want to do more. New technologies are inspiring entrepreneurs to develop new ideas and venture into new markets. A major limiting factor is the availability of skilled human resources. So it is opportune to talk about the empowerment of people.

Critical for our future is the empowerment of young people through a better preparation for  more productivity and inspiring life. This is achieved by providing quality hands-on education that is really for the future, that enables our young people to be life-long learners and enterprising at whatever they do.

The empowerment of the existing workforce is also becoming a pressing issue. This can be achieved through facilitation of life-long learning and the promotion of a better quality of life by prioritising the environment, healthcare, and a more promising future for their children.

We also need to seriously think about the empowerment of people who come to work here from other countries. We need to ensure that their capabilities match our requirements, that their expectations are congruent with our employment policies, and that they are treated fairly.

Ultimately, what will make things happen is the empowerment of businesses.

It is imperative that we ensure that all the key enablers are in place, and constantly being upgraded to meet rising standards over time. At the Malta Chamber of Commerce, Enterprise and Industry, this is what we do every day: through our constant communication with the business community, we identify the key enablers and specify the standards for need to aspire for as a country in tangible ways. Our 250 recommendations for Government ahead of the presentation of the National Budget for 2024 in a few days time constitute a comprehensive list of empowerment measures for businesses, the economy and society as a whole. Not surprisingly, they reflect many of the points of concern that come out of this year’s attractiveness survey.

The Malta Chamber’s recommendations are to address skills shortages with sharper policies for education reform, the recruitment of third country nationals and retention of both local and foreign talent; to invest heavily in our infrastructure for energy generation and distribution, transport, and waste management; to have a more efficient public service; and to tackle inflation with greater sensitivity to our competitiveness, by keeping a close eye on productivity and curbing locally-induced inflation.

The Malta Chamber of Commerce, Enterprise and Industry believes that with the persistently high inflation that the country is experiencing, it is imperative to find ways of improving the purchasing power of lower income groups without fuelling a wage inflation spiral across the board.

The discussion that should be taking place with social partners at the moment and given top priority is how to, tangibly, counter inflation. For as long as a large enough portion of the population can still afford to pay more for services, any increases in costs, including wages, will result in an increase in prices, and low income earners will find it even more difficult to keep up. Worse still, increasing wages across the board without corresponding increases in productivity, will see our competitiveness on exports being eroded and lost. The effect of this will be seen over the course of a couple of years, as larger exporters will gradually shift part of their operations to more competitive locations and shed jobs in the process. Make no mistake here – the first jobs to go are always the lower level ones, the ones of the very same people some naively think they are helping by artificially increasing minimum wages.

The Cost-of-Living-Adjustment (COLA) is there specifically to protect the purchasing power of minimum wage earners. The minimum wage has increased by €9.90 in 2023 and is expected to increase by another €13.00 in 2024. These are significant increases that are not being matched by productivity increases. There is also another mechanism that was introduced in 2017 in agreement with the social partners that provides for increases of an additional €3.00 per week per year in the minimum wage payable to employees in the first two years of employment. The 2017 mechanism together with COLA have safeguarded the income of minimum wage earners in steady employment and ensured that they do not stay on the minimum wage for long. In fact, Malta has the lowest percentage of full-time workers on minimum wage in the EU.

Performance-based pay, in the form of commissions, production bonuses and performance bonuses, is also a significant component of pay packages in the private sector. This incentivises improvements in productivity which we so badly need to remain competitive – this is what policy makers should be focusing on. Basing policy considerations strictly on basic pay grossly underestimates both labour costs for employers and take home pay.

Our inflation rate has been kept at compatible levels to the EU average through a blanket, full subsidisation of energy costs. It must be noted that our inflation rate, excluding energy, is substantially higher than the EU average, particularly in services. This is a reflection of our very tight labour market which is demanding higher wages to employ and retain capable workers, and where the employer cannot afford the premium, necessitating the employment of people in jobs for which they lack the desired skills and qualifications. The latter effectively translates into wage inflation as well, because the employer ends up getting much less value for the same pay. Piling more artificial increases in wages on top of all this will fuel the inflation spiral even more.

Therefore, it comes as no surprise that while other countries express hope that inflation is being tamed, our own Finance Minister says that it will remain with us for longer. It certainly will if policy makers and decision takers ignore fundamental economic principles and put our country on the path of implosion.
Increasing minimum wages is not a silver bullet. The risks of fuelling higher and more persistent inflation are high. Some countries in Europe have rushed to increase the minimum wage in 2022, only to be faced with a painful recession in 2023 that is pushing struggling companies in many sectors to cut down jobs. The world is extremely unsettled, and we need to proceed with extreme caution because we can never guess what the next adverse development will be. In such circumstances, committing to a series of wage hikes over the next few years will accelerate inflationary expectations and restrict our policy responses to potential future developments. It is naive at best, suicidal at worst.

What Government can do to help low-income earners and avoid fuelling inflation further is to revise the lower income tax bands so as to ensure that the increases in minimum wage that came into force since the start of the inflation crisis in 2022 are fully tax exempt. It does not make sense to compensate people for increases in the cost-of-living through COLA, only to divert part of those increases to the Government coffers. All social partners, whether representing employers or employees, are in agreement on this.

During the launch of the Academy for Women Entrepreneurs (AWE) on October 12, U.S. Deputy Chief of Mission Ken Toko welcomed over 50 women, who applied for the U.S. Department of State’s 2023 AWE program. Once again, in 2023 the U.S. Embassy partnered with The Malta Chamber of Commerce, Enterprise, and Industry to implement the third iteration in Malta of this global entrepreneurship program.

The AWE program provides women entrepreneurs around the world with the knowledge, networks, and access needed to start and scale successful businesses. Participants will have the opportunity to engage in a competition, pitching business plans they develop through the AWE program for seed funding to invest in their businesses.

In brief comments, Mr. Toko said, “I am honored to join you all today to kick-off our third iteration of the Academy for Women Entrepreneurs in Malta. In Malta, we now have approximately 65 alumnae, who have successfully graduated from the AWE program over these past two years, and we wish this year’s cohort the same success.”

Addressing the newest cohort of aspiring women entrepreneurs, Chris Vassallo Cesareo, President of The Malta Chamber of Commerce, Enterprise, and Industry, said, “You are here because you are ambitious, determined and want to continue climbing the career ladder. You represent the future of entrepreneurship in Malta, and we believe in your ability to make a meaningful impact on our business landscape.”

AWE supports the U.S. government’s National Strategy on Gender Equity and Equality aimed at advancing women’s economic empowerment globally. Implemented in nearly 100 countries, AWE has supported more than 25,000 women entrepreneurs around the world to develop their entrepreneurial ideas and grow their businesses.