Industry Strategy for Malta: 2007-2010 - Doi-archived.gov.mt
Industry Strategy for Malta: 2007-2010 - Doi-archived.gov.mt
Industry Strategy for Malta: 2007-2010 - Doi-archived.gov.mt
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Introduction by the Minister <strong>for</strong> Investments, <strong>Industry</strong> and In<strong>for</strong>mation Technology<strong>Malta</strong> has always successfully met the challenges it faced allowing it not only to maintain wealth andprosperity but to continuously increase the standard of living of its citizens and to adopt a socialinclusive net <strong>for</strong> all of its citizens.<strong>Malta</strong> has not achieved this by default. We achieved this because we had the courage to recognisethe challenges it faced and the ability to take the decisions, at times difficult ones, to successfullyovercome such challenges.The environment we operate in has and will always continue to be a challenging and dynamic one.There is no place <strong>for</strong> complacency. Standing still means we will regress. What has worked yesterdaydoes not mean that it works today. And what works today will potentially not work tomorrow. Thismeans that we must as a nation be rigorous in terms of the questions that we ask ourselves – whetherthis relates to industry target sectors and activities, work practices, skills, ethos, institutions, as well asthe role of public administration. There is no doubt that we must ask such questions on an on-goingbasis as they provide us with the ability to strategically adopt new positions, build on the old whilstdiversifying in new industry sectors, up-grade and re-skill our human and intellectual capital. We haveno choice if <strong>Malta</strong> is to have an industry base that is relevant in terms of its ability to compete onquality and productivity.This <strong>Strategy</strong> sets out to raise such questions and subsequently presents the way <strong>for</strong>ward <strong>for</strong> the nextevolutionary phase of industry growth in <strong>Malta</strong>. This <strong>Industry</strong> <strong>Strategy</strong>, unequivocally, puts to reststatements made that the Government of which I <strong>for</strong>m part of has no interest in strengthening theindustry base in <strong>Malta</strong>. Rather, with the strongest emphasis possible, and in the most honest and<strong>for</strong>thright manner, we are with vigour charting the way <strong>for</strong>ward.Yet the <strong>Strategy</strong> brings with it some critical conclusions. <strong>Industry</strong> will prosper, whether in the internalmarket or in the export market, if it achieves quality high value-added and productivity growth. Inessence this demands that industry must revolutionise itself – whether in its ability to adopt thestandards that are relevant to it, the ability to work with each other so that economies of scale areaggregated, the ability to look at research, development and innovation as an investment and not acost, the ability to up-grade and up-skill its employees, the ability to optimise what have becomebusiness management norms: e-commerce either <strong>for</strong> integration with suppliers, <strong>for</strong> productivityimprovement or <strong>for</strong> marketing purposes.The era of industry based on low cost and cheap quality is over. This does not mean that we play thefuneral blues <strong>for</strong> our traditional industry. What it means, however, is that industry, together withGovernment and the knowledge institutions, must undertake the necessary trans<strong>for</strong>mation process toposition Maltese industry to compete on quality, high value added, and productivity growth.The <strong>Strategy</strong> introduces one further dimension. In tandem with the trans<strong>for</strong>mation process I refer to,which applies <strong>for</strong> both the traditional and the new economy industry base, <strong>Malta</strong> must be focused interms of the type of new industry it should embrace. The <strong>Strategy</strong> seeks a focus that is built on<strong>Malta</strong>’s comparative advantages – with the focus to be primarily directed towards knowledge basedand high-tech industry sectors and activities.I am confident that the <strong>Strategy</strong> we present will provide <strong>Malta</strong> with the right framework to allow it toengender further wealth and prosperity <strong>for</strong> all.Dr Austin GattMinister <strong>for</strong> Investments, <strong>Industry</strong> and In<strong>for</strong>mation Technology<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page ii
(ii) Re-in<strong>for</strong>cing <strong>Malta</strong>’s Human Resource Capital Comparative Advantage: Government,industry, social partners and knowledge institutions are to work together to ensure thatworkers are moulded with the right work ethic milieu and equipped with the necessary skillsthat will allow <strong>Malta</strong> to maintain its competitive advantage with regard to its human resourcecapital. Higher education institutions must establish a nexus with industry so that theyprovide the right skills, at the right time, to the right quality.Mobility of workers to fill gaps in researchers and high-skilled work is to be positivelyadopted to facilitate growth whilst the skilled human capital base in <strong>Malta</strong> is built.(iii)(iv)Achieving Quality High Added-Value and Productivity Growth in <strong>Industry</strong>: Targeting newfuture growth in particular areas within industry does not mean that existing industriesshould be ignored. In terms of existing industry ef<strong>for</strong>ts should be directed to assist themachieve quality high value- and productivity growth. The same, however, applies <strong>for</strong> newinvestment in the ‘traditional’ and ‘new’ economy.Securing Greater Aggression in Seeking Overseas Markets Penetration and Expansion:Indigenous industry, existing or new, in the ‘traditional’ or ‘new’ economy should aspire topenetrate overseas markets, and to expand such penetration. <strong>Industry</strong> should seek toembrace more actively e-commerce business models, to maximise the Internet as amarketing tool and as a sales distribution channel, and <strong>for</strong> networking purposes.Facilitation of business intelligence and overseas promotion should continue to be providedboth at a national level as well as by <strong>Malta</strong> Enterprise (ME).The knowledge institutions and providers should provide marketing professionaldevelopment to provide industry with the necessary talent that will allow them to optimisethe Internet as a marketing and sales channel.(v)(vi)(vii)Clustering and Networking <strong>Industry</strong> and Government: Diseconomies of scale can beovercome by structuring industry, <strong>for</strong>mally or in<strong>for</strong>mally, around common interests.Government must actively encourage and incentivise industry to activate clusters andnetworks in order to leverage a higher critical mass and economies of scale.Incentivising the Research, Development and Innovation (R&D&I) Capacity: R&D&I mustbecome a fundamental pivot of the Maltese economy. Thus it is critical that the necessaryR&D&I enabling and catalysing environment is grafted within <strong>Malta</strong>’s economic andinstitutional fabric so that <strong>Malta</strong> truly becomes a quality high value-added and productiveeconomy and society.Enabling Access to Finance: Access to finance is crucial <strong>for</strong> firms in various developmentphases – particularly so with regards to SMEs and micro-industries and the ‘new’ economy.Government will work with private capital, financial institutions as well as industry to seek tounleash private capital and finance to enable growth.(viii) Re-vitalising the Essential Conditions and Infrastructure to Secure Competitivity:Government will work with industry to manage challenges, inherent such as <strong>Malta</strong>’sgeographical position or emerging ones, in a way that allow <strong>for</strong> immediate and consideredaction so necessary to maintain competitivity in a fast and dynamic world that demandsquick-to-market response.(ix)Orientating Government as a Partner to <strong>Industry</strong>: Government together with industryconstitute two sides of the same coin. Both are mutually dependent, and both will succeedif they work together. Partnership demands trust and credibility – by both parties and fromboth parties. Suspicion results in heavy regulation, which in turn hinders success and,ultimately, is counter-effective. Government there<strong>for</strong>e will strive to partner with industryacross all facets of the appropriate horizontal as well as vertical policy domains to establisha working relationship that fosters trust to enable industry to flourish within a friendly andregulatory administrative framework. Institutional refinement will be carried out as andwhere appropriate, building on lessons learnt to enable industry to grow.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page iv
(x)Joining Forces to Resolve New Challenges: The environment as well as health and safetyare increasingly becoming critical policy issues <strong>for</strong> <strong>Malta</strong>. The challenges relating to theenvironment, health and safety, can only be best met if <strong>gov</strong>ernment and industry worktogether to introduce the best effective, efficient and economic solutions.The strategy and action plan to attain the Vision build on <strong>Malta</strong>’s competitive advantage; either interms of securing and sustaining such competitive advantage where it exists, or on building it where itis so required. A synthesisation of the feedback received from the various stakeholders consulted aswell as a reviews of assessments on <strong>Malta</strong> strengths, weaknesses, opportunities and threats lead the<strong>Strategy</strong> to propose the following as <strong>Malta</strong>’s competitive advantages:- Human Resource Capital.- English and the Multi-Lingual Skills Base.- Innovative Legislation Design.- Agility through Smallness.- Stability.A strategy <strong>for</strong> industry must provide focus – focus built on <strong>Malta</strong>’s comparative advantages. It mustidentify the areas that must be targeted. A ‘scatter gun’ approach will result in a diffusion of resourceswhich <strong>Malta</strong>, in a dynamic and fast changing globalised environment, can ill-af<strong>for</strong>d. In terms oftargeting growth the IS adopts a two-tiered approach.The first relates to the existing industry base. The IS argues that existing industry must be supportedto restructure and strengthen their capacities in order that they meet the strategic direction set by theVision – quality, high value-added, and productivity growth. It argues so because strong examples ofsuccess exist where industry have restructured and up-graded their quality, high value-added, andproductivity growth to successfully <strong>for</strong>ay into the international market or to safe guard their domesticmarket against competition from imports.The second relates to new investment whether this is FDI or local oriented. Without diminishing theimportance of the existing industry base, Government believes that targeted new investment shouldbe focused primarily towards those sectors activities that best meet <strong>Malta</strong>’s comparative advantagesand that minimise the impact of the intrinsic comparative disadvantages that diminish <strong>Malta</strong>’s ability tocompete.The <strong>Strategy</strong> proposes that the following are the Sectors and Activities that <strong>Malta</strong> should target:Target Sectors and ActivitiesEducationHealth CareBusiness Process OutsourcingFinancial ManagementProfessional ConsultancyCreative ServicesLogistics and WarehousingBio-technologyBio-in<strong>for</strong>maticsPharmaceuticalsICTHigh-Tech Manufacturing and ServicesMaritime and Maritime MaintenanceAviation and Aviation MaintenanceThe <strong>Industry</strong> <strong>Strategy</strong> limits its recommendations on Research and Innovation to fiscal measures asthe National <strong>Strategy</strong> <strong>for</strong> Research and Innovation (NSRI) submits recommendations <strong>for</strong> the buildingof a sustainable framework <strong>for</strong> R&I. It is strongly recommended that the <strong>Industry</strong> <strong>Strategy</strong> is read inconjunction with the NSRI.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page v
ContentsPage NoForeword by the Prime MinisterIntroduction by the Minister <strong>for</strong> Investment, <strong>Industry</strong> and In<strong>for</strong>mation TechnologyExecutive SummaryGlossaryiiiiiiix01. Introduction 101.1 Terms of Reference 101.2 Methodology 101.3 Limitations 101.4 Acknowledgements 202. An Environment in a State of Change 303. Background 703.1 Positioning <strong>Malta</strong> <strong>for</strong> <strong>Industry</strong> Growth 703.2 Benchmarking <strong>Malta</strong> 1003.3 <strong>Industry</strong> Policy within the EU 1303.4 Enterprise Policy within the EU 1503.5 Fiscal Measures <strong>for</strong> Research, Development and Innovation within the EU 1604. Review of the Per<strong>for</strong>mance of <strong>Industry</strong> 1904.1 Introduction 1904.2 Foreign Direct Investment 2104.3 <strong>Malta</strong>’s Economic Growth 2304.4 Value Added Generated by the Manufacturing <strong>Industry</strong> 2504.5 The Role of Business in the Maltese Economy 2604.6 <strong>Malta</strong>’s Labour Force 2605. Setting the Strategic Direction <strong>for</strong> <strong>Industry</strong> 3105.1 The Vision and Underpinning Principles 3105.2 Identifying <strong>Malta</strong>’s Comparative Advantages 3305.3 Targeting Growth in <strong>Industry</strong> 3406. The Action Plan <strong>for</strong> Achieving <strong>Malta</strong>’s Strategic Direction <strong>for</strong> <strong>Industry</strong> 3606.1 Inculcating Entrepreneurship 3606.1.1 Instilling Entrepreneurialism in <strong>Malta</strong>’s ‘Genetic’ Framework 3606.1.2 Unleashing Youth Entrepreneurship 3606.1.3 Removing the Stigma of Entrepreneurial Failure 3706.2 Re-in<strong>for</strong>cing <strong>Malta</strong>’s Human Resources Capital Comparative Advantage 3706.2.1 Anticipating and Embracing Change to Improve <strong>Malta</strong>’s Human ResourcesComparative Advantage 3706.2.2 Institutionalising Life-Long Learning as an Integral Part of <strong>Malta</strong>’s Milieu 3706.2.3 Introducing a National Vocational Qualification as the Foundation <strong>for</strong> SkillsUpgrading 3806.2.4 Re-affirming Apprenticeships and Placement Schemes as the Life-Blood to<strong>Industry</strong> 3806.2.5 Complementing Long-Term Building of a High-Skilled and Research HumanCapital Base with Inward Mobility of such Skills 39<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page vi
06.2.6 Supporting Export Orientation with First-class Marketing and Skills Competency 4006.2.7 Safeguarding and Strengthening <strong>Malta</strong>’s Human Resources ComparativeAdvantage 4106.3 Achieving Quality High Added-Value and Productivity Growth in <strong>Industry</strong> 4106.3.1 Upgrading <strong>Industry</strong> in Terms of Quality and Standards 4106.3.2 Securing Productivity Growth 4406.4 Clustering and Networking <strong>Industry</strong> and Government 4506.4.1 Activating Supply Chain Vendors Clusters Initiatives (SCVCI) 4506.4.2 Activating <strong>Industry</strong> Grouping Clusters Initiatives (IGCI) 4706.4.3 Activating Targeted National Clusters Initiatives (TNCI) 4906.5 Incentivising the Research, Development and Innovation (R&D&I) Capacity 5106.5.1 Re-defining Research, Development and Innovation to Incorporate Skills,Processes and Services 5106.5.2 Intensifying Aid to <strong>Industry</strong> Clustering with SMEs and HigherEducation Institutions 5206.5.3 Adopting the EU Commission Review of State Aid Measures <strong>for</strong> R&D&I 5206.5.4 Incentivising the Uptake of S&T Popularisation as a Corporate Responsibility by<strong>Industry</strong> 5406.5.5 Achieving Government- to <strong>Industry</strong> Partnership to Finance Horizontal BusinessDriven R&D&I Initiatives 5406.6 Enabling Access to Finance 5506.6.1 Improving Accessibility to Guarantees 5506.6.2 Institutionalising a Business Angels Network 5506.6.3 Activating Venture Capital 5606.6.4 Facilitating Credit Insurance 5706.6.5 Promulgating Knowledge on Sources of Finance 5706.6.6 Strengthening Micro-credit <strong>for</strong> SMEs 5706.6.7 Monitoring Review of State Aid Rules <strong>for</strong> Risk Capital 5806.7 Re-vitalising the Essential Conditions and Infrastructure to Secure Competitivity 5806.7.1 An Essential Condition: The Management of Inflation 5806.7.2 Re<strong>for</strong>ming the Transportation and Logistics Service Chain 5906.7.3 Upgrading Laboratory, Testing and Quality Assurance Services 6206.7.4 Upgrading Industrial Parks 6306.7.5 Branding <strong>Malta</strong> as a place <strong>for</strong> Investment 6306.7.6 Setting-up of Technology and Commercial Centres 6406.8 Orientating Government as a Partner to <strong>Industry</strong> 6506.8.1 Introducing an <strong>Industry</strong> Portal as the Flagship of Business-to-Government e-Commerce 6506.8.2 Reducing the Regulatory Administrative Burden to <strong>Industry</strong> 6506.8.3 Rewarding Good Governance by <strong>Industry</strong> 6706.8.4 Facilitating the Achievement of Good Governance by <strong>Industry</strong> 6806.8.5 Aligning Government Business Hours with the Productivity Chain 6906.8.6 Innovating Public Management and Administration to Facilitate <strong>Industry</strong> 7006.8.7 Establishing an Enabling Legislative Framework that Spurs <strong>Industry</strong> Growth 7006.8.8 Ensuring Agile Responses to a Fast Changing International Environment 7106.9 Government, <strong>Industry</strong> Work Together to Resolve New Challenges 71<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page vii
07. Summary of Recommendations 73DiagramsDiagram 01: Interaction of an activated Supply Chain Vendor Cluster Initiative 46Diagram 02: Interaction of an activated <strong>Industry</strong> Grouping Cluster Initiative 48Diagram 03: Interaction of an activated Targeted National Cluster Initiative 50TablesTable 01: SWOT as presented in the National Strategic Re<strong>for</strong>m Framework 9Table 02: 2005 World Economic Forum Competition 11Table 03: <strong>Malta</strong>’s Growth and Competitiveness Index Rank 11Table 04: Most Problematic Factors in <strong>Malta</strong> <strong>for</strong> <strong>Doi</strong>ng Business 12Table 05: <strong>Malta</strong>’s Competitiveness Balance Sheet 12Table 06: R&D&I Fiscal Measures Applied by Select European Countries 17Table 07: Objective set <strong>for</strong> R&D&I Fiscal Measures Applied by Select European Countries 17Table 08: Groups Targeted by R&D&I Fiscal Measures Applied by European Countries 18Table 09: Areas Targeted by R&D&I Fiscal Measures Applied by Select European Countries 18Table 10: Distribution of Sectoral Imports and Exports as a % of Total Imports and Exports 20Table 11: Balance of Payment of <strong>Malta</strong> 20Table 12: Imports and Exports of Services to and from <strong>Malta</strong> 21Table 13:Annual Growth Rate of the Maltese Economy in Nominal and Real Terms(2000 / 2005) 24Table 14: Index of Inflation 25Table 15: Number of Employees in <strong>Industry</strong> per Category 26Table 16: Total Employed Persons by Economic Activity 27Table 17: Unemployment Rates 28Table 18: Total Students Receiving Tertiary Education Classified by Sex (Academic year 2003 /2004) 28Table 19: Students Receiving Tertiary Education by Field, ISCED Level and Sex (2003 / 2004) 29Table 20: Graduates by Field of Study, ISCED Level and Sex (2002 / 2003 – 2003 / 2004) 29Table 21: MCAST Students Receiving Technical Education by Field and Sex (2003 / 2004) 30Table 22: Life Long Learning by Gender 30GraphsGraph 01: Net Direct Investment in <strong>Malta</strong> 21Graph 02: Foreign Direct Investment Inflows 22Graph 03: Foreign Direct Investment Intensity 22Graph 04: Foreign Direct Investment in <strong>Malta</strong> Per Capita 23Graph 05: Real GDP Growth Rate of GDP Volume % Over Previous Years 24Graph 06: Manufacturing: Total Value-Added at Factor Cost 25Graph 07: Composition Per Capita Value-Added at Factor Cost 26Graph 08: Total Employed Persons by Broad Category 27AppendicesAppendix A: Consultation MeetingsAppendix B: Review of LiteratureAppendix C: International, Local and Regional Situation Analysis Prepared by <strong>Malta</strong> EnterpriseAppendix D: Executive Summary and Recommendations of the National <strong>Strategy</strong> <strong>for</strong> Research andInnovation: <strong>2007</strong> – <strong>2010</strong>Appendix E: SWOT Analysis Prepared by <strong>Malta</strong> EnterpriseAppendix F: Fiscal Measures <strong>for</strong> R&D&I Currently in PlaceAppendix G: Proposed Risk Impact Assessment Methodology<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page viii
GlossaryBPABPOBRUB2BB2CB2GEAPETCEUFDIFOIGDPICTIGCIISIPSEMCASTMEMFSAMSAMTAMIIITLIFENCHEMIPMOSNRPNSONSRFNSRINVQBusiness Promotion ActBusiness Process OutsourcingBetter Regulation UnitBusiness-to-Business e-CommerceBusiness-to-Consumer e-CommerceBusiness-to-Government e-CommerceEnvironment Action PlanEmployment and Training CorporationEuropean UnionForeign Direct InvestmentFederation of <strong>Industry</strong>Gross Domestic ProductIn<strong>for</strong>mation Communications and Technology<strong>Industry</strong> Grouping Cluster(s) Initiative<strong>Industry</strong> <strong>Strategy</strong>Institute <strong>for</strong> the Promotion of Small Enterprise<strong>Malta</strong> College <strong>for</strong> Arts, Science and Technology<strong>Malta</strong> Enterprise<strong>Malta</strong> Financial Services Authority<strong>Malta</strong> Standards Authority<strong>Malta</strong> Tourism AuthorityMinistry <strong>for</strong> Investment, <strong>Industry</strong> and In<strong>for</strong>mation TechnologyFinancial Instrument <strong>for</strong> the EnvironmentNational Commission <strong>for</strong> Higher Education<strong>Malta</strong> Industrial Parks LtdMotorways of the SeaNational Re<strong>for</strong>m ProgrammeNational Statistics OfficeNational Strategic Reference FrameworkNational <strong>Strategy</strong> <strong>for</strong> Research and InnovationNational Vocational Qualification<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page ix
OPMR&DR&D&IRIASCVCISETSMEsSWOT<strong>Strategy</strong>TCCTEN-TTNCIOffice of the Prime MinisterResearch and DevelopmentResearch, Development and InnovationRegulatory Impact Assessment MethodologySupply Chain Vendor Cluster(s) InitiativeScience, Engineering and TechnologySmall and Medium Enterprises and Micro-EnterprisesStrengths, Weaknesses, Opportunities and ThreatsThe <strong>Industry</strong> <strong>Strategy</strong>Technology and Commercial CentresTrans-European Networks <strong>for</strong> TransportTargeted National Cluster(s) Initiative<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page x
IntroductionChapter 0101.1 Terms of ReferenceThe Prime Minister and the Minister <strong>for</strong> Investment, <strong>Industry</strong> and In<strong>for</strong>mation Technology set thefollowing terms of reference <strong>for</strong> the articulation of an <strong>Industry</strong> <strong>Strategy</strong> (IS), to:(a)(b)(c)build on the work carried out by <strong>Malta</strong> Enterprise (ME) as well as the views of industry;design a strategic direction <strong>for</strong> industry that encompasses:- a Vision- strategic principles underpinning the said Vision- comparative advantages- potential target Sectors and activities of focus;indicate broad action lines to implement the strategic principles.01.2 MethodologyIn the preparation of this IS a consultative approach was adopted. In this regard, the Federation of<strong>Industry</strong> (FOI) played an important role in organising a comprehensive series of meetings withindustry associations, industrialists and entrepreneurs across a range of sectors.Meetings were held with other employer constituted bodies and invitations issued to unions. Meetingswere also held with a select number of <strong>gov</strong>ernment entities. A list of the consultation meetings held isattached in Appendix A.A review of literature setting out developments in industry strategies and policies in the EuropeanUnion (EU), specific Member States, as well as other countries was carried out. This is presented inAppendix B.01.3 LimitationsIn the preparation of the IS, industry is defined primarily to encompass business entities that are anyone of the following:(a)(b)(c)FDI investments in any field except retail, wholesale (that is, not encompassing internationaldistribution), tourism or agriculture.local export oriented industries excluding those in the agriculture sector.local domestic oriented industries in the manufacturing or services sectors.Horizontal measures discussed, where appropriate, impact any <strong>for</strong>m of business – including retail andthe tourism industry.Otherwise, the IS excludes the retail and tourism industry from its remit.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 1
01.4 AcknowledgementsThe FOI is thanked <strong>for</strong> organising and co-ordinating a comprehensive programme of consultationsessions, <strong>for</strong> providing data and in<strong>for</strong>mation on the per<strong>for</strong>mance of the various sectors it representsas well as <strong>for</strong> discussing various facts of the IS. The constituted bodies and unions which participatedin the consultation process are also thanked <strong>for</strong> their contribution.Senior representatives from ME are thanked <strong>for</strong> providing open and honest advice, feedback andsupport, whilst the National Statistics Office (NSO) is thanked <strong>for</strong> providing valuable statistical inputs.Special thanks to Mr Reuben Portanier, Mr Damian Xuereb and Ms Jacqueline Gauci <strong>for</strong> their input inall of the stages of the drafting of the IS.Mr David Spiteri Gingell deserves particular mention and thanks <strong>for</strong> co-ordinating and steering thedevelopment of this strategy.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 2
An Environment in a State of ChangeChapter 02<strong>Malta</strong> has, to date, successfully managed the transition from a colony to an independent Nation. Thissuccess is also attained in the economic sphere. <strong>Malta</strong> diversified, initially, its economic base from amilitary economy to one pronged on tourism as well as light and heavy manufacturing. In the 1990s afurther transition occurred as <strong>Malta</strong> placed the appropriate soft and hard infrastructures toaggressively diversify in the knowledge and services sectors as well as the high value-addedmanufacturing. Successes are present, in terms of the <strong>for</strong>mer, in In<strong>for</strong>mation Communications andTechnology (ICT) and Financial Services, amongst the most vibrant of our micro-economic sectors,and, in terms of the latter, in attracting Foreign Direct Investment (FDI) in the pharmaceuticalsindustry.Despite our successes, the environment within which we operate is in a state of flux. Externalpressures have major consequences on a small Nation as ours. Internal factors require managementand strategic focus so that our comparative advantages are safeguarded and built upon. An industrystrategy that establishes the Nation’s vision, strategic focus and the actions to be taken is offundamental necessity as it establishes the on-going re<strong>for</strong>ms required to better equip Maltese industryto not only weather a dynamic environment but rather to master it in order to continue to engenderwealth and prosperity.The following are seen to be the key elements of change that <strong>Malta</strong> faces. A detailed analysis of theinternational, local and regional situation analysis prepared by ME is attached as Appendix C.01. GlobalisationThe advance of ICT has rendered the world into a global economy. Strategies, actions andpractices that were the norm up to as recently as the end of the 21 st century areincreasingly becoming no longer applicable. The inability <strong>for</strong> a nation, let alone a firm, toadjust to this new reality can have dire consequences. <strong>Malta</strong> is directly experiencing theimpact of globalisation as the part of its industrial base that was dependent on cost is nownegated by emerging economic giants such as China and India which have exceedingly <strong>for</strong>lower cost structures.Globalisation, however, also provides strategic advantages to <strong>Malta</strong>. As a Nation that itsmain comparative advantage is its flexible and educated work<strong>for</strong>ce, <strong>Malta</strong> can compete inthose areas where ICT negates the geographic and the inherent competitive disadvantageof insularity. This is particular true <strong>for</strong> the knowledge economy and services. <strong>Malta</strong> canalso position itself to take advantage of multi-national firms which uprooted knowledge andrelated services to countries on the basis of cost and are now reconsidering their decisionsas they recognise that quality has been impinged. A direct example is the call centresector.Globalisation can also be positive to the ‘traditional’ industrial base of <strong>Malta</strong>. Yet, recentstudies carried out by PriceWaterhouseCoopers on behalf of the Ministry <strong>for</strong> Investment,<strong>Industry</strong> and In<strong>for</strong>mation Technology (MIIIT) show that industry is still lagging behind in theadoption of e-Commerce; whether this is business-2-business (B2B); business-2-<strong>gov</strong>ernment (B2G); and as importantly as a tool to market its wares, goods, and services,business-2-consumer (B2C). Here, too, if applied strategically, ICT can open new marketsinternationally.02. The Vitality of KnowledgeThe world has become far more sophisticated and technology dependent. Over time thefusion between technology and business, technology and productivity, and technology andcompetitivity is bound to increase; potentially exponentially. Increased competitivitydemands high capital investments so that overheads are reduced. The need <strong>for</strong> knowledge<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 3
is not only relevant <strong>for</strong> those industries that provide high value-added services but also inthe traditional industries where machines too have increasingly become more sophisticated.Indeed, the maintenance of a work<strong>for</strong>ce that is knowledgeable, flexible, multi-skilled andable to adapt fast to technology as well as business shifts is integral to the future success of<strong>Malta</strong>. In the traditional industries whilst <strong>Malta</strong> may increasingly be unable to competealone on cost, the knowledge factor becomes a paramount comparative advantage. In theknowledge and services sectors where <strong>Malta</strong> is comparatively competitive to mainlandEurope, the knowledge factor becomes a competitive edge.And where shortages of high skilled employees exist <strong>Malta</strong> must import such skills until itbuilds its appropriate indigenous human capital base as lack of skills inhibit <strong>Malta</strong>’s ability torespond fast to optimise opportunities arising from new and emerging markets.03. Increasing OverheadsThe standard of living in <strong>Malta</strong> has increased, as it should and as the nation should alwaysstrive <strong>for</strong>. This has, however, affected the nation’s competitivity base. On the other handexternal circumstances, which the nation has little influence on due to its size andeconomies of scales, emerge. A case in point is the rising cost of fuel. Thus, theimperative on the nation to reduce its cost base by securing improved total cost ofownership solutions where so necessary is of critical importance.In this regard, structured costs in the public sector must be ruthlessly removed so thatfinance is freed <strong>for</strong> productive and ‘active’ investment. Inefficiencies, outmoded workpractices, archaic procedures, too must be removed so that the interaction betweenindustry, (across its productivity chain), with <strong>gov</strong>ernment is effective, efficient and economic.In tandem, regulatory authorities must ensure that regulation is simplified and where sopossible minimalist so that no unnecessary administrative burdens to industry that reducecompetitivity are introduced.The absence of meaningful competition in key aspects of some sectors of the economyneeds to be addressed. Potentially, competitivity may demand mergers as local industriesstrive to consolidate their cost base. In this regard the regulatory framework must be suchthat it recognises the need <strong>for</strong> such mergers whilst at the same time ensuring that they leadto benefits to the consumers.04. Membership in the EU<strong>Malta</strong>’s membership in the EU demands new rules that industry and public administrationmust adjust to. <strong>Malta</strong> must continue to take an active role in the EU to influence and shapeemerging rules so that these are reflective of <strong>Malta</strong>’s realities so that they provide leverages<strong>for</strong> growth and quality.Yet, membership in the EU also provides new opportunities. <strong>Malta</strong> is now a participant inthe Single Market, and industry must exploit this. Moreover, membership in the EU enablesindustry to participate in the multitude of financing schemes directed to render Europecompetitive. <strong>Industry</strong> must garner the appropriate knowledge, or buy in the necessaryexpertise, so that such opportunities are availed of. Yet, this also demands a far more agileindustry and <strong>gov</strong>ernment milieu in order to optimise the opportunities that prevail within EUtimeframes as against local ones.05. Aging DemographicsThe Maltese population is aging. By 2035 nearly a third of the Maltese population will beover 60 years of age. This demands that action to increase the labour participation rateacross all groups, inculcate life-long learning and continued professional development inthe ‘hearts and minds’ of Maltese workers as well as the adoption of new working practicesmust continue unabated.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 4
06. Environmental MattersThe environment is increasingly becoming one of the key issues and policy areas. Theneed to manage better the environment requires the introduction of new regulation. In mostinstances, the meeting of these regulations require considerable investment; particularly inthe absence of economies of scale.On its part, industry must offset the cost of compliance with the opportunities <strong>for</strong> gains incompetitiveness – better use of by-products and recycling; reduced waste; enhancedenergy efficiency et al. On its part, <strong>gov</strong>ernment should work with industry to removebottlenecks and introduce regulation in a manner that allows <strong>for</strong> manageable transition.07. Access to FinanceWhilst access to finance <strong>for</strong> the larger industries, as well as <strong>for</strong> capital intensive investmentdoes not seem to be an issue, it is evident that the access to finance framework <strong>for</strong> theknowledge economy which is dependent on ‘intellectual property’ as against ‘bricks andmortars’ as well as <strong>for</strong> Small Medium Enterprises and Micro-Enterprises (hereafter SMEs isdefined to include Micro-Enterprises), and <strong>for</strong> risk-capital <strong>for</strong> start-up companies is at bestunder-developed.The need to develop the access to finance framework <strong>for</strong> these key segments of ourindustry base is critical to the future growth of existing, as well as the emergence of newindustries in <strong>Malta</strong>.08. Productivity and GrowthInternational studies show that there is strong correlation between productivity growth onthe one hand, and application of ICT, innovation and the re-structuring of processes andadoption of standards on the other. For example, a Communication from the EUCommission titled ‘Productivity: The Key to Competitiveness of European Economies andEnterprises’ concludes that a “common characteristic across those Member States thathave strong productivity growth comparable to or better than that of the United States ofAmerica in recent years is the pervasive use of ICT.” 1<strong>Industry</strong> must, thus, make choices between strategies focused on cost reductions throughscrapping and postponement of investments in new capital goods or by re-structuringthrough upgrading resources, investment and processes and thus overcoming thebottlenecks which account <strong>for</strong> the difference between average and best practice.On its part, Government must become a partner with industry; both in terms of removingstatutory and other bottlenecks that impact productivity as well as in assisting industry tomake the necessary trans<strong>for</strong>mations that productivity growth demands.09. Research, Development and InnovationResearch, Development and Innovation (R&D&I) is at the heart of productivity growth aswell as of placing new goods and services in the markets. On the part of industry R&D&Imust not be perceived as a cost but as an investment. And Government, on its part, mustintroduce the necessary enabling framework to enable aggressive business driven R&D&Iin <strong>Malta</strong>.It is pertinent to state that the IS restricts its recommendations on R&D&I to fiscal measuresthat Government should consider <strong>for</strong> introduction. Recommendations <strong>for</strong> building asustainable R&D&I framework are placed in the National <strong>Strategy</strong> <strong>for</strong> Research andInnovation (NSRI). It is, there<strong>for</strong>e, important that the IS is read in conjunction with theNSRI. The executive summary of the NSRI is attached as Appendix D.1Pg 7, Productivity: The Key to Competitiveness of European Economies and Enterprises, 21 st May 2002, COM(2002) 262final, [SEC(2002) 528], Brussels<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 5
10. Strengthening an Export Oriented CultureOver the past decade a number of industries in both the ‘traditional’ economy as well as the‘new’ economy have successfully penetrated overseas markets – ranging from both NorthAfrica to the United States of America. These successes show that Maltese industries areable to compete and penetrate markets overseas in sectors that include ICT as well aspottery.Nevertheless, much more is required to achieve an ambitious entrepreneurial culture that isable to think on an international basis, and thus exploit international opportunities. Theattainment of an international perspective requires investment and skills in terms of bothtraditional as well as internet based marketing; use and adoption of B2C e-commercesolutions; clustering and networking on both a local, regional and international level.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 6
BackgroundChapter 0303.1 Positioning <strong>Malta</strong> <strong>for</strong> <strong>Industry</strong> GrowthIn 1999, Government issued a White Paper titled ‘Prosperity in Change: Challenges andOpportunities <strong>for</strong> <strong>Industry</strong>’. The White Paper reviewed both the international and macro environmentand then submitted recommendations in relation to enhancing competitivity, an enabling framework,science and technology, infrastructural requirements, and industry and the environment.The White Paper proposed that the strategy <strong>for</strong> <strong>Malta</strong> is to enable, lead and serve as a pivot in thedevelopment of an axis that reaches from Central Europe to <strong>Malta</strong> and subsequently link with theNorth African region, as well as links back to the European vital axis. The strategy sought to position<strong>Malta</strong> to exploit its geographic location to deepen the relationship between <strong>Malta</strong>, the EU and theMediterranean region. The strategy argued that <strong>Malta</strong> must maximise its potential – given its locationand characteristics – to develop into a major hub of activity with the region. The strategy in essenceadopted a multi-pronged approach:- the provision of the necessary financial and institutional support <strong>for</strong> the rationalisation ofSMEs as well as assisting them to produce higher value-added products;- to assist further growth by the manufacturing sectors;- to open new areas that are built upon a major comparative advantage: human resources;with new areas including Back Office Services, and ICT.In 2001, the Ministry <strong>for</strong> Economic Services prepared a draft industrial policy. The policy, whilst onceagain reviewing the international and macro environments, presented recommendations relating tocapacity building in the Public Sector (including standards, market surveillance, positioning of <strong>Malta</strong>Inc, and consolidation of entities related with industry), transportation, human resources, research anddevelopment, the legal infrastructure, and Gozo as a region.The draft policy established Government’s responsibility as a facilitative one – where-in, itencompasses the overall determination of the manner in which industry will evolve. This was definedto include the identification of selected sectors of activity in a manner consistent with the country’sbroad economic objectives and <strong>Malta</strong>’s competitive advantage as well as providing the necessaryinfrastructure and regulatory framework to enable and facilitate growth.The draft policy positioned its strategic orientation towards promoting industry to increasingly integrateexporting operations within their business philosophy. Moreover, the draft policy placed EUmembership as the centre piece of the <strong>gov</strong>ernment’s aim to develop <strong>Malta</strong> as a hub <strong>for</strong> regionalactivity in trade, industry and commerce.In 2005, ME produced an in-house Enterprise <strong>Strategy</strong> and Policy. The document – adopted aspolicy by MIIIT – adopted a strategy based on a “total clustering strategic approach” where-in:- a number of economic sectors and sub-sectors are identified in order to enable theexploitation of <strong>Malta</strong>’s strategic assets;- synergies and linkages are developed within each cluster <strong>for</strong> the purpose of maximising theefficiency of activities carried out across the value chain;- synergies and linkages are created across clusters to maximise the support that eachcluster can provide <strong>for</strong> the other.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 7
The Enterprise <strong>Strategy</strong> and Policy proposes a series of recommendations and measures spanningall aspects of the enterprise value chain and identified 11 areas as targeted ‘local sectors with highpotential’ and which would <strong>for</strong>m the core investment promotion focus of ME. These are ICT; HealthCare including pharmaceuticals; shared services; R&D&I; maritime; aviation; international logistics; oiland gas; films; food and beverages; and publishing and printing.In October 2005, the Government issued the National Re<strong>for</strong>m Programme (NRP) titled ‘<strong>Malta</strong>’s<strong>Strategy</strong> <strong>for</strong> Growth: Addressing the Lisbon Agenda’. Competitiveness is placed as one of the fivestrategic themes identified in the document. In this regard, the document states:“<strong>Malta</strong> needs to have a more comprehensive enterprise policy. Coupled with the country’s specificcharacteristics, this situation is limiting the ability of the business community and Government to make anoverall consolidated ef<strong>for</strong>t and to channel investment in growth-enhancing activities. Although <strong>Malta</strong>Enterprise has <strong>for</strong>mulated its medium-term strategy, which identifies specific sectors, which are to benefitfrom financial support, a more holistic supportive framework needs to be designed to direct all ef<strong>for</strong>tstowards the sectors that will be identified in the enterprise policy. …In order to address <strong>Malta</strong>’s competitiveness and priorities and implement the above policies, Governmentis proposing the review of <strong>Malta</strong>’s enterprise policy which would hinge on the following pillars:- Financial support framework;- Better regulation;- Government administration;- Research and development;- Innovation;- ICT; and- Interconnectivity.” 2Furthermore, the document identifies infrastructure as one other critical matter that requires attentionin this regard. It expresses concern on the fact that, given <strong>Malta</strong>’s geographical location, there are nodirect connections to the European land corridors, with Maltese industry depending on sea laneconnections <strong>for</strong> the importation of raw materials and the exportation of its products. Moreover, itestablishes the need to introduce competition in the utilities sector to secure more competitive pricesand lower costs to industry.A further strategic theme is directed towards employment. Reference is made to the low participationrates in employment, particularly of women, and targets are established together with supportingmeasures to increase by <strong>2010</strong> the overall employment rate by 3%, the female employment rate by 7%and the older workers’ employment rate by 2.4%.In March 2006, the Ministry of Finance issued the National Strategic Reference Framework: <strong>2007</strong> to2013 as a draft document <strong>for</strong> consultation. An analysis of <strong>Malta</strong>’s strengths, weaknesses,opportunities and threats (SWOT) is carried out. These are identified as follows 3 :2Pg 7-8, National Reference Programme, <strong>Malta</strong>’s <strong>Strategy</strong> <strong>for</strong> Growth and Jobs: Addressing the Lisbon <strong>Strategy</strong>, October2005, Cabinet Committee on Competitiveness, Ministry <strong>for</strong> Competitiveness and Communication, Management Efficiency Unit3SWOT Analysis, National Strategic Reference Framework: <strong>2007</strong> to 2013 (draft document <strong>for</strong> consultation), Ministry ofFinance, March 2006<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 8
Table 01: SWOT as presented in the National Strategic Re<strong>for</strong>m FrameworkStrengthsWeaknesses- Politically stable, strong social fabric and safe country- Strategic location in Mediterranean- Favourable climate conditions- Good <strong>gov</strong>ernance- Good industrial relations climate- Well-established tourism sector and financial servicessector- A wealth of cultural heritage- Established manufacturing base with a goodreputation of retaining FDI- Good airport infrastructure- Natural strategic seaports- Flexible, reliable, and adaptable work<strong>for</strong>ce- Multi-lingual population- Good welfare framework- Active voluntary sector and non-profit organisations.Opportunities- Vulnerability as a small island state- Insularity and discontinuity of the territory- Double insularity <strong>for</strong> Gozo- High population density- Small internal market- Poor integrated land use and transport planning- Poor roads infrastructure- Limited internal (road) access links- Inadequate investment in seaport infrastructureEnvironmental sustainability- High dependency on non-renewable energy sources- Skills mismatches- Insufficient take-up of science based studies- Inadequate continuous VET- Lack of flexible pathways between VET and non-VETstreams- Low female participation rate- Lack of af<strong>for</strong>dable child care and after school careservices- Insufficient entrepreneurial culture- Poor branding of key economic sectors- Perceived narrow tourism offering- Lack of adequate support structures <strong>for</strong> microenterprisesand SMEs- Level of spending in R&D.Threats- Potential diversification in the main economic sectors(niche markets)- Increased trade integration opportunities- Growth through better branding of main economicsectors- Potential focus on higher value-added economicactivity- Potential <strong>for</strong> furthering intra and inter-industry linkages- More strategic focus on Gozo as a region with distinctcharacteristics- Expansion of back-office operations and ICT services- Expansion of E-Services- Capitalising on untapped financial services potential- Expansion of trans-shipment and logistics- Potential increase in Research & Developmentactivities- Potential <strong>for</strong> increased use of renewable energysources- Improvement of infrastructure and services of generaleconomic interest- Potential from the regeneration of urban areas,particularly those linked to historical areas / heritagesites- Potential from the valorisation of cultural heritageassets- Active ageing- Life-long learning and further human resourcesdevelopment- Social inclusion and integration of different levels ofsociety through ICT.- Declining birth rate- Ageing population- Widening welfare gap- Over-utilisation of finite resources- Increased vulnerability of some economic sectorsdue to globalisation- Inability to reap economies of scale- The burden of over regulation- Reduced competitiveness due to current workpractices and reluctance to change these practices- Risk of loosing heritage sites (funds vis-à-vis volume)- Volume of tourism to Gozo and high dependence onday trippers- Further environmental degradation and bio-diversitydecline- Transport congestion- Insufficient risk prevention measures- Environmental fragility.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 9
ME too have prepared a SWOT assessment of <strong>Malta</strong>. This is consistent with the one referred toabove. The ME SWOT is presented in Appendix E.The NSRF too declares that the maintenance and improvement of competitiveness is central to theGovernment’s economic and industrial policy. In establishing the strategic direction <strong>for</strong> <strong>Malta</strong>, thedocument states:“The strategic priority aimed at sustaining a growing and a knowledge-based, competitive economy isunderpinned by measures aimed to support the restructuring of industry to compete in the internal marketand the world economy; attract more FDI; support entrepreneurship; mobilises investment in research,technological development and innovation; sustain the tourism industry and promote <strong>Malta</strong>’s culture in thecontext of the tourism potential; moving towards the in<strong>for</strong>mation society; and last but not least, investmentin the country’s infrastructure (transport and services of general economic interest) as one of the principalbackbones <strong>for</strong> economic growth and competitiveness.” 403.2 Benchmarking <strong>Malta</strong>The World Economic Forum defines competitiveness as “that collection of factors, policies andinstitutions which determine the level of productivity of a country and that, there<strong>for</strong>e, determine thelevel of prosperity that can be attained by an economy.” 5 It further adds that productivity is a keydriver of the rates of return on investment, which in turn determine the aggregate growth rates of theeconomy. Thus, a more competitive economy is one that is likely to grow faster over the medium tothe long term.An organised benchmarking exercise that compares <strong>Malta</strong> with its key competitors, taking intoaccount and calibrating <strong>for</strong> unique characteristics that may stem from such benchmarking, is not inplace. The IS recommends that an on-going benchmarking exercise is of key importance. Itdemonstrates how the competition is faring, the gaps with the competition and thus allows <strong>for</strong>appropriate interpretation of such findings so that the necessary action is taken either to strengthenthe gaps where these are favourable, or to narrow the gaps where these are not.An annual benchmarking exercise with <strong>Malta</strong>’s competition, taking into account <strong>Malta</strong>’s uniquecharacteristics, will provide a powerful leverage <strong>for</strong> both industry as well as public administration toundertake the necessary re<strong>for</strong>ms and changes and thus provide <strong>for</strong> a pro-active yardstick to drivetrans<strong>for</strong>mation as, when and where appropriate.In the absence of a local competitivity benchmark report, the benchmarking source applied in thedrawing up of the IS is the Competitiveness Report issued by the World Economic Forum. TheReport measures national competitiveness and has been issued <strong>for</strong> well over two decades. In thecompetitiveness ranking <strong>for</strong> 2005, Finland maintains its position at the top of the ranking. The GlobalCompetitiveness report states that Finland owes its strong showing to one of the most innovativebusiness environments in the world particularly critical to driving productivity in the country; coupledwith a healthy macro-economic environment, willingness of Finnish <strong>gov</strong>ernments to run budgetsurpluses, plus a degree of political maturity.<strong>Malta</strong>, in 2005, is ranked at 35 – out of 117 nations; two positions lower than in 2004. <strong>Malta</strong>compares as follows in relation to other small nations 6 :4ibid5Pg xiii, The Global Competitiveness Report 2005-2006, World Economic Forum, Geneva, Switzerland, 20056Pg xvii, ibid<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 10
Table 02: 2005 World Economic Forum CompetitionCountry GCI 2005 Rank GCI 2005 Score GCI 2004 RankSingapore 6 5.48 7Iceland 7 5.48 10Switzerland 8 5.46 8Estonia 20 4.95 20Luxembourg 25 4.90 26Ireland 26 4.86 30Israel 27 4.84 19Slovenia 32 4.59 33Cyprus 34 4.58 -<strong>Malta</strong> 35 4.54 32Czech Republic 37 4.42 40Tunisia 40 4.32 42Slovak Republic 41 4.31 43Lithuania 43 4.30 36Latvia 44 4.29 44Croatia 62 3.74 61The <strong>Malta</strong> competitiveness ranking is shown in the table hereunder 7 :Table 03: <strong>Malta</strong>’s Growth and Competitiveness Index RankGrowth Competitiveness Index Rank 35 Business Competitiveness Index Rank 46Macro-economic Environment Index RankMacro-economic Stability Sub-index RankGovernment Waste RankCountry Credit Rating RankPublic Institutions Index RankContracts and Law Sub-index RankCorruption Sub-index Rank54807930322941Sophistication of Company Operations and<strong>Strategy</strong> RankQuality of the National Business EnvironmentRank6146Technology Index RankInnovation Sub-index RankICT Sub-index RankTechnology Transfer Sub-index Rank (outof 92 non-core innovators)23582526The World Economic Forum identifies the following as the most problematic factors in <strong>Malta</strong> <strong>for</strong> doingbusiness 8 :7Pg 370, ibid8Ibid<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 11
Table 04: Most Problematic Factors in <strong>Malta</strong> <strong>for</strong> <strong>Doi</strong>ng Business<strong>Malta</strong>’s competitiveness balance sheet is established as follows 9 :Table 05: <strong>Malta</strong>’s Competitiveness Balance SheetNotable Competitive Advantage2.172.216.168.018.033.143.133.195.083.043.113.153.213.183.123.173.01Growth Competitiveness Index Rank /117Macro-economic EnvironmentInterest Rate Paid, 2004Country credit rating, 2004Public InstitutionsOrganised crimeJudicial IndependenceProperty rightsTechnologyGovernment success in ICT promotionGovernment prioritisation of ICTInternet users, 2003Telephone lines, 2003FDI and Technology transferInternet access in schoolsLaws relating to ICTPersonal computers, 2003Cellular telephones, 2003Quality of competition in the ISP sectorUtility patents, 2004Technology readiness830113030101415181923252728313134Notable Competitive Disadvantage2.012.132.142.206.062.072.152.166.086.216.206.193.073.063.034.173.023.20Growth Competitiveness Index Rank /117Macro-economic EnvironmentRecession expectationsGovernment surplus / deficit, 2004National savings rate, 2004Government debt, 2004Wastefulness of <strong>gov</strong>ernmentspendingAccess to creditReal effective exchange rate, 2004Inflation, 2004Public InstitutionsFavouritism in decision of<strong>gov</strong>ernment of officialIrregular payments in tax collectionIrregular payments in pubic utilitiesIrregular payments in exports andimportsTechnologyUniversity / <strong>Industry</strong> researchcollaborationCompany spending on research anddevelopmentPrevalence of <strong>for</strong>eign technologylicensingGross tertiary enrolmentFirm-level technology absorptionInternet hosts, 2003104999787797878406144403610296625953379Pg 371, ibid<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 12
Business Competitiveness Index Rank /110Business Competitiveness Index Rank /110Sophistication of CompanyOperations and <strong>Strategy</strong>Sophistication of CompanyOperations and <strong>Strategy</strong>8.018.028.11Nature of competitive advantageValue chain presenceExtent of staff training3235423.068.088.13Company spending on research anddevelopmentControl of international distributionExtent of incentive compensation928779Quality of the National BusinessEnvironmentQuality of the National BusinessEnvironment6.093.192.09Extent of bureaucratic red tapeInternet users, 2003Prevalence of trade barriers1415167.083.053.07Local availability of processmachineryQuality of scientific researchinstitutionsUniversity / industry researchcollaboration10710198Other indicators Rank /117Other indicators Rank /1172.026.152.046.126.188.234.066.106.272.106.146.258.22Business costs of terrorismBusiness cost of crime and violenceSoundness of banksEfficiency of the tax systemGovernment effectiveness in reducingpoverty and inequalityStrength of auditing and accountingstandardsMedium term business impact of HIV /AIDSEffectiveness of law making bodiesPervasiveness of money launderingthrough banksImpact of rules on FDIReliability of police servicesBusiness costs of corruptionForeign ownership restrictions21216181921222325252526279.068.199.076.078.207.098.179.096.139.089.039.02Prioritisation of energy efficiencyCooperation in labor-employerrelationsImportance of environment inbusiness planningBurden of <strong>gov</strong>ernment regulationPay and productivityLocal availability of specialisedresearch and training servicesHiring and firing practicesPrevalence of corporateenvironmental reportingCentralisation of economic policymakingProtection of ecosystems bybusinessExtent of <strong>gov</strong>ernment mandatedenvironmental reportingClarity and of regulations107103102999897969694928988The IS is poised, amongst other matters, to address the main competitive aspects and problemsidentified by the World Competitive Forum so that <strong>Malta</strong>’s enhances its positions in terms ofinternational benchmarking.03.3 <strong>Industry</strong> Policy within the EUIn a Communication titled ‘Implementing the Community Lisbon Programme: A Policy Framework toStrengthen EU Manufacturing – Towards a More Integrated Approach <strong>for</strong> Industrial Policy’ issued inOctober 2005, the EU Commission sets out to establish the right framework <strong>for</strong> industry developmentand innovation in order to make the EU an attractive place <strong>for</strong> such development and job creation. Itestablishes that it is the role of the private sector businesses to develop growth; whilst it is the role ofpublic authorities to act only where needed – to, <strong>for</strong> example rectify market failure or to fosterstructural change.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 13
The EU recognises that industry makes an essential contribution to Europe’s prosperity. The a<strong>for</strong>ementioned Communication states:“A strong and healthy industrial sector is essential to fully exploit the EU’s potential <strong>for</strong> growth and toenhance and sustain the EU economic and technological leadership:- EU manufacturing industry is important in its own right: it provides around a fifth of EU output andemploys some 34 million people in the EU. Beyond this:- Manufacturing is the key to exploiting the new knowledge economy – over 80% of EU private sectorR&D expenditures are spent in manufacturing.- Manufacturing generates the new and innovative products that provide some three-quarters of EUexports.- EU manufacturing industry consists of a large majority of SMEs: over 99% of companies and 58%of manufacturing employment are SMEs.” 10Over the period 1993-2004 manufacturing value-added in the EU 25 grew at an average annual rateof 2.3%. Manufacturing output grew substantially in real terms, notwithstanding some cyclicalvariations. Relative to other industrialised countries over the same period, EU-25 manufacturingproduction, however, grew slower than the 3.7% US manufacturing production growth rate, but fasterthan the 0.7% growth in Japan. This positive trend of manufacturing output has been accompaniedby a steady decrease in both manufacturing employment and its value-added share in the economy atlarge, consistent with the long-term overall economic growth process. The faster growth in thedemand <strong>for</strong> services due to higher incomes and sustained above-average productivity growth in themanufacturing sector is seen to explain these trends. 11The industrial structure of the EU economy as a whole is seen to be less than ideally positioned toface the ongoing process of globalisation. While important EU manufacturing sectors such asmechanical engineering, chemicals and motor vehicles have a substantial comparative advantageand record trade surpluses against the whole of the world, EU trade is overall still concentrated insectors with medium to high technologies and low to intermediate labour skills. This is seen toexpose the EU to competition from producers in emerging economies that are upgrading the skillintensity of their exports and catching up in terms of the non-price factors that often underlie the EUcompetitive edge on world markets. Adaptability and structural change, to allow <strong>for</strong> a shift towards amore robust situation of comparative advantage, are seen to be critically needed if the EU is tomaximise gains arising from the integration of the world economy of China, India and other fastgrowing economies. 12In order to ensure that the EU is better positioned so that its industrial base continues to grow andremain competitive a screening process was carried out to systematically identify the policychallenges. In essence, six major policy challenges were identified. These are:- Ensuring an open and competitive Single Market.- Supporting research, innovation and skills.- Better regulation.- Ensuring synergies between Competitiveness, Energy and Environment Policies.- Ensuring full and fair participation in global markets.- Facilitating social and economic cohesion.The a<strong>for</strong>e mentioned Communication identifies seven major cross-sectoral policy initiatives that aredirected to address the common challenges across groupings of different industries and to rein<strong>for</strong>cethe synergies between different policy areas in light of competitiveness considerations. These are:- An initiative to address Intellectual Property Rights and Counterfeiting - 2006.- High Level Group of Competitiveness, Energy and the Environment - end 2005.10Pg 4, Implementing the Community Lisbon Programme: A Policy Framework to Strengthen EU Manufacturing – Towards amore Integrated Approach <strong>for</strong> Industrial Policy, COM (2005) 474 final, 5 th October 2005, Brussels11Pg 4, Annex to the Communication from the Commission, Implementing the Community Lisbon Programme: A PolicyFramework to Strengthen EU Manufacturing – Towards a more Integrated Approach <strong>for</strong> Industrial Policy, SEC(2005) 1215 474final, 5 th October 2005, Brussels12Pg 6, ibid<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 14
- External Aspects of Competitiveness and Market Access - Spring 2006.- New Legislative Simplification Programme - October 2005.- Improving Sectoral Skills 2006.- Managing Structural Change in Manufacturing - 2005.- Integrated European approach to Industrial Research and Innovation - 2005.In addition to the above cross-sectoral initiatives, a number of new political sector-specific initiativeshave been identified, based on their nature or particular importance. These are:- Pharmaceuticals Forum – initiated in 2006.- Mid-Term Review of Life Sciences and Biotechnology <strong>Strategy</strong> – 2006 to <strong>2007</strong>.- New High-Level Groups on the Chemicals <strong>Industry</strong> and the Defence <strong>Industry</strong> – <strong>2007</strong>.- European Space Programme.- Task<strong>for</strong>ce on ICT Competitiveness – 2005 to 2006.- Mechanical Engineering Policy Dialogue – 2005 to 2006.- A series of competitive studies including the ICT, food, fashion and design industries.In terms of clusters, the EU has expanded considerable energy and interest in supporting thedevelopment of the cluster concept as it recognises clusters and networks to be of “paramountimportance <strong>for</strong> the Commission as they contribute to the competitiveness of SMEs and theimprovement <strong>for</strong> entrepreneurship.” 13 In this regard, the Commission has issued a considerablenumber of reports relating, though not necessarily limited, to:- definition of clusters;- policy issues relating to clusters;- incentives <strong>for</strong> clusters;- raising awareness on the potentials and pitfalls of clustering;- case studies of clusters in action in Europe and elsewhere;- policy instruments relating to rein<strong>for</strong>cing synergies between all areas of policy action(competition, innovation, fiscal, and regions).03.4 Enterprise Policy within the EUIn November 2000, the EU Commission issued a communication titled ‘Challenges <strong>for</strong> EnterprisePolicy in the Knowledge-driven Economy: Proposal <strong>for</strong> a Council Decision on a Multi-annualProgramme <strong>for</strong> Enterprise and Entrepreneurship (2001-2005)’. The paper states that the quantumleap stemming from globalisation and new knowledge-driven economy can only be achieved bymaking Europe more entrepreneurial and innovative. It adds that jobs in the new economy willprimarily be created by vibrant SMEs – both in the e-economy proper and in the more traditionallysectors of the economy. 14The Communication identifies six challenges <strong>for</strong> European enterprise policy. These are: (a)Entrepreneurship as a key to the new economy with Europe requiring a “revolution in [its] culture andattitudes” towards entrepreneurship; with salient points of emphasis being education, access to SMEfinance; (b) promoting an innovative business environment where-in innovation is perceived as acritical process; (c) stimulating new business models in the e-economy where-in emphasis is to beplaced on revolutionising the B2B e-commerce environment; (d) optimising the internal market withparticular reference to remove obstacles and unnecessary costs between Member States; (e) cuttingred tap by rendering existing and future regulations as light and as simple as possible; and (j)introducing new methods of coordination mainly benchmarking, monitoring and concerted actions. 1513Pg 18, European Cluster Policy, European Seminar on Cluster Policy, Copenhagen, Denmark, 10 th June 200314Pg 2, Challenges <strong>for</strong> Enterprise Policy in the Knowledge-driven Economy: Proposal <strong>for</strong> a Council Proposal <strong>for</strong> a CouncilDecision on a Multiannual Programme <strong>for</strong> Enterprise and Entrepreneurship (2001-2005) 11 th May, 2000, COM(2000) 256final/2, 2000/0107 (CNS)15Pg 3-5, ibid<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 15
In January 2003, the Commission issued a Green Paper titled ‘Entrepreneurship in Europe’. TheGreen Paper defines entrepreneurship as the “mindset and process to create and develop economicactivity by blending risk-taking, creativity and / or innovation with sound management, within a new oran existing organisation” 16 ; irrespective of whether the organisation is ‘traditional’ or ‘new economy’oriented.The Green Paper establishes a number of policy options which include (a) removal of administrativebarriers to start a business; (b) a re-examination of the risks and rewards associated withentrepreneurship; (c) fostering of capacities and skills; (d) removal of red tape; (e) adoption ofappropriate tax measures to contribute to the development, growth and survival of firms; (f) access toskilled labour; (g) access to finance; (h) assisting firms to exploit knowledge and internationalopportunities; and (i) applying corporate venturing as an effective means of developingentrepreneurial ventures that would otherwise be left unexploited.The Green Paper was complemented by a Commission Staff Working Paper which was titled‘Creating an Entrepreneurial Europe – The Activities of the EU <strong>for</strong> SMEs.’ The recommendationsproposed are consistent with the a<strong>for</strong>e mentioned Green Paper and include: (a) improving start-upprocedures; (b) better regulation; (c) right skills and competence; (d) improving on-line access; (e)taxation; (f) financial matters; (g) strengthening the technology capacity including ICT and e-business;(h) modernisation of the competition rules; (i) corporate social responsibility on matters such as theenvironment.In October 2004 the Commission issued a Communication titled ‘Action Plan: The European Agenda<strong>for</strong> Entrepreneurship’. The Action Plan re-confirmed the direction proposed in the Green Paper andpresented five strategic policy areas:- fuelling entrepreneurial mindsets;- encouraging more people to become entrepreneurs;- gearing entrepreneurs <strong>for</strong> growth and competitiveness;- improving the flow of finance;- creating a more SME friendly regulatory and administrative framework. 17Following the above Communication, the EU Commission and the Directorate General <strong>for</strong> Enterpriseand <strong>Industry</strong> issued a series of working papers, which include:- Financing SME Growth – Adding European Value (29 th June 2006).- Best practices <strong>for</strong> public support <strong>for</strong> early-stage equity finance (September 2005).- Merits and possibilities of an European fund structure <strong>for</strong> Venture Capital Funds (21 st June2005).- A <strong>Strategy</strong> <strong>for</strong> the simplification of the regulatory environment (2005).- Microcredit <strong>for</strong> European small business (11 th September 2004).The above documents and others, will be referred to as appropriate in the IS.03.5 Fiscal Measures <strong>for</strong> Research, Development and Innovation within the EUThe application of fiscal measures <strong>for</strong> R&D&I is a key policy lever within Member States in the EUdirected to retain and grow existing investment as well as attract new investment in high value-addedmanufacturing and services.In fact, the EU Commission has traditionally taken a favourable view of State Aid <strong>for</strong> R&D&I – theaims of such aid being (i) the often considerable financial requirements and risks of R&D&Ioperations; (ii) given the distance from the market-place of such projects, the reduced likelihood thatsuch aid will distort competition and trade. 1816Pg 6,Green Paper: Entrepreneurship in Europe, European Commission, Brussels 21 st January 200317Pg 6, Action Plan: The European Agenda <strong>for</strong> Entrepreneurship, 11 th February 2004, COM(2004) 70 final, Brussels18Pg 6, In<strong>for</strong>mation from the Commission – Community Framework <strong>for</strong> State Aid <strong>for</strong> R&D, 31996Y0217(01), Official JournalC045, 17 th December 1996, p 0005-0016, EU<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 16
In the report submitted to CREST, dated 15 th June 2004, in the context of the Open Method of Coordination,the Expert Group on Fiscal Measures <strong>for</strong> Research provides the following analysis of fiscalmeasures applied by most European countries <strong>for</strong> R&D&I:Table 06: R&D&I Fiscal Measures Applied by Select European CountriesCountry Use of Fiscal Measure Number of FiscalMeasuresAustria Y 3Belgium Y 3Czech Republic N 0Cyprus N 0Denmark Y 3France Y 4Germany N 0Hungary YY 9Ireland Y 6Israel Y 4Italy Y 7Latvia Y 3Lithuania Y 4Netherlands Y 2Norway Y 1Portugal Y 1Romania Y 4Slovak Republic N 0Slovenia N 0Spain Y 3Sweden Y 2UK Y 4The same report, analyses the use of fiscal measures to meet the following objectives:Table 07: Objectives set <strong>for</strong> R&D&I Fiscal Measures Applied by Select European CountriesCountryR&D Costs andInvestmentsResearch CareersResearchFoundationsPatents andIntellectual PropertyAustria Y Y YBelgium Y Y YDenmark Y Y YFrance Y Y YHungary Y Y Y YIreland Y YIsrael Y YItaly Y YLatviaYLithuania Y Y YNetherlandsYNorwayYPortugal Y Y YRomania Y YSpain Y YSweden Y YUK Y Y<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 17
The measures applied are classified as targeting the following groups:Table 08: Groups Targeted by R&D&I Fiscal Measures Applied by European CountriesCountry Business /CompaniesWorkers orIndividualsResearchFoundationsOtherAustria Y YBelgium Y Y YDenmark Y Y YFrance Y YHungary Y Y YIreland Y YIsrael Y Y YItaly Y YLatviaYLithuania Y Y YNetherlandsYNorwayYPortugalYRomaniaYSpainYSweden Y YUK Y Y YThe following are areas that fiscal measures target:Table 09: Areas Targeted by R&D&I Fiscal Measures Applied by Select European CountriesCountry SME Start-Ups ResearchCareersResearchCollaborationResearchFoundationsOthersAustriaYBelgium Y YDenmark Y Y Y YFrance Y Y YHungary Y Y Y Y YIrelandYIsrael Y YItaly Y Y Y YLatviaYLithuania Y YNetherlands Y YNorway Y YPortugal Y Y YRomania Y YSpain Y YSweden Y Y YUK Y Y Y YThe Community Framework <strong>for</strong> State Aid <strong>for</strong> R&D&I expired on 31 st December 2005. In September2005, the Commission adopted a ‘Communication <strong>for</strong> Innovation’. Given the consultative process theCommission extended the existing State Aid R&D&I framework till, at most, 31 st December 2006. 19 Inthis communication, the Commission states that the level of R&D&I in the EU is considered not to beoptimal <strong>for</strong> its economy, implying that an increase in the level of R&D&I would lead to a higher growthin the EU. The Commission concludes that its current rules <strong>for</strong> State Aid <strong>for</strong> R&D&I have to bemodernised in order to meet this challenge. 20 This Communication will be referred to in Section 06.5.19Commission Communication Concerning the Prolongation of the Community Framework <strong>for</strong> State Aid <strong>for</strong> R&D&I, C310/10,Official Journal of the European Union, 8 th December 200520Pg 4, Community Framework <strong>for</strong> State Aid Research and Development and Innovation, Staff Paper, Preliminary Draft, 20 thApril 2006<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 18
Review of the Per<strong>for</strong>mance of <strong>Industry</strong>Chapter 0404.1 IntroductionThe economic health of an economy is primarily determined by the per<strong>for</strong>mance of industry. The roleof the modern state, is not only to ensure that the industry does not have any hindrance to engageeffectively into productive and value-added competitive activity, but should also ‘oil the motor’ of theeconomy by adopting the role of a facilitator in reaching socio-economic growth.The following review illustrates the per<strong>for</strong>mance of industry over the past five years, however keepingin mind that such per<strong>for</strong>mance was also influenced by the level of public administration facilitation,together with international economic influences such as <strong>for</strong>eign currency exchange rates, and the costof raw materials and / or semi-finished goods.Unlike the United States, where the economy is predominantly a closed economy and thus, whereeconomic growth is directly correlated with the United States internal trade capacity, <strong>Malta</strong>’s economyis ‘open’ in nature, thus involving international trade as a main pillar <strong>for</strong> economic per<strong>for</strong>mance.Needless to say is that the internal industry focused activity is also a determining factor in themeasurement of industry per<strong>for</strong>mance, where such economic activity also fuels socio-economicsustainability and is an important supporting structure <strong>for</strong> general economic welfare. However, the‘openness’ of our economy also makes the success or otherwise of our locally focused industriesdependent on international drivers.The characteristic of an ‘open’ economy thus places the per<strong>for</strong>mance of industry at the <strong>for</strong>efront <strong>for</strong>the achievement or otherwise of both macro and micro economic growth. More specifically, <strong>Malta</strong>’sopen economy and heavy reliance on international trade means that the nation’s <strong>for</strong>tunes arevulnerable to the dynamics of world political-economic events and affairs. It is understood however,that an ‘open’ economy’s key success also requires a public administration that facilitatesinternational trade as such activity has a ripple effect on the national ‘internal’ trade activities and onGovernment revenues.<strong>Malta</strong>’s concerted ef<strong>for</strong>t through a gradual exercise of spreading economic activity across a number ofsectors is slowly but surely proving to be a successful buffer since the last few years. The birth and /or growth of specific sectors are a clear testimony of such diversification where today, <strong>Malta</strong>’sindustrial sector comprises more than 200 <strong>for</strong>eign owned companies and over 400 locally ownedmanufacturing companies.The diversification process has registered the emergence of software houses, pharmaceuticalcompanies and manufacturers of electronic components, together with the rapid growth in theoffshore i-gaming and e-billing industries respectively. <strong>Malta</strong>’s diversification process, however, alsofocused on gaining further strength on its established sectors related to financial services andmaritime, although the tourist and hospitality sector (which accounts to an important portion of theGDP) relatively lost ground due to a variety of factors.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 19
Table 10: Distribution of Sectoral Imports and Exports as a Percentage of Total Imports and ExportsIMPORTS % distribution % distribution % distribution % distribution % distribution % distributionSection Description 2000 2001 2002 2003 2004 2005Food and live animals 6.94 8.88 9.38 9.07 9.35 9.78Beverages and tobacco 1.26 1.79 1.86 1.93 1.72 1.33Crude materials, inedible, except fuels 0.91 1.15 0.99 0.94 0.89 1.06Mineral fuels, lubricants and related materials 7.13 8.23 8.39 7.97 8.17 10.87Animal and vegetable oils, fats and waxes 0.15 0.16 0.20 0.20 0.23 0.21Chemicals and related products, n.e.s. 6.20 7.27 7.91 8.05 8.46 8.69Manufactured goods classified chiefly by material 9.72 12.05 12.27 11.35 11.20 11.08Machinery and transport equipment 57.13 49.64 47.71 48.49 47.60 43.80Miscellaneous manufactured articles 9.84 9.91 10.44 11.16 11.84 12.58Commodities and transactions not classified elsewhere in the SITC 0.72 0.92 0.86 0.84 0.54 0.59100.00 100.00 100.00 100.00 100.00 100.00TOTAL EXPORTS % distribution % distribution % distribution % distribution % distribution % distributionSection Description 2000 2001 2002 2003 2004 2005Food and live animals 1.69 2.65 4.07 3.69 3.41 3.53Beverages and tobacco 0.95 1.24 1.81 1.75 1.56 1.09Crude materials, inedible, except fuels 0.22 0.26 0.23 0.27 0.36 0.33Mineral fuels, lubricants and related materials 4.38 5.48 5.45 5.57 4.33 1.17Animal and vegetable oils, fats and waxes 0.00 0.00 0.01 0.00 0.00 0.00Chemicals and related products, n.e.s. 1.59 2.26 1.94 2.05 2.64 4.97Manufactured goods classified chiefly by material 5.24 6.06 5.10 5.25 5.58 6.58Machinery and transport equipment 70.78 63.07 61.84 62.13 63.56 62.45Miscellaneous manufactured articles 15.04 18.84 19.39 19.13 18.51 19.85Commodities and transactions not classified elsewhere in the SITC 0.12 0.14 0.16 0.16 0.04 0.02100 100 100 100 100 100On the other hand, the traditional mainstream manufacturing sector experienced difficulties where<strong>Malta</strong>’s competitive advantage of the last four decades is almost wiped out as this sector reliedheavily on labour cost, which over the years increased at a rate faster than competing economies inthis sector, where China and the southern Mediterranean basin still enjoy low labour rates. In fact,recently published labour cost index statistics published by NSO reveal that <strong>for</strong> the period 2000-2005the total hourly labour costs increased by an average of 3.34% per annum with the highest averageannual increases estimated in Financial Intermediation (+7.25%), Manufacturing (+4.46%) andWholesale and Retail Trade and Repairs (+4.41%).” 21<strong>Malta</strong>, becoming a full European Union member since May 2004, is also slowly proving to be aneffective vehicle <strong>for</strong> the economy and industry in general, to buffer <strong>Malta</strong>’s vulnerability to internationaltrade influences, where with the adoption of the Euro, <strong>Malta</strong> will at least be in a position to dilute theeffect of <strong>for</strong>eign currency fluctuations and associated costs, as the adoption of the EURO is a keynecessity <strong>for</strong> the industry’s stabilisation of trading costs with counterpart EU states. This howeverdoes not eliminate the effect of the US Dollar on industry’s economic activities as the US Dollarremains to be a relatively strong influencing factor in the cost structures of industry.<strong>Malta</strong>’s Balance of Payments and specifically the Current Account within the Balance of Payments isa key measure that accounts <strong>for</strong> the level and type of openness of the Maltese economy, whereby thecurrent account records the balance between inflows and outflows of <strong>for</strong>eign currency. In 2005, theresults contained in the current account show that the Maltese economy registered an imbalance ofLm231,037,000 (in the current account) with one of the major determinants being the risinginternational oil prices. The table below illustrates the imbalances registered since 2000 where since2003 the current account deficit suggests that domestic absorption continued to exceed nationalincome, whilst imports of goods and services decreased, together with a decrease in exports of goodsand services.Table11: Balance of Payments of <strong>Malta</strong>Lm thousandsPeriod 2000 2001 2002 2003 2004 2005Lm '000 Lm '000 Lm '000 Lm '000 Lm '000 Lm '000Current Account -221,303 -75,213 24,104 -83,533 -140,068 -213,03721NSO news release 149/2006<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 20
The current account however shows a positive services balance offsetting part of the trade imbalanceregistered in 2005. The table below illustrates imports and exports registered to and from <strong>Malta</strong> <strong>for</strong> theperiod 2000 to 2005.Table 12: Imports and Exports of Services To / From <strong>Malta</strong>Period 2000 2001 2002 2003 2004 2005Lm '000 Lm '000 Lm '000 Lm '000 Lm '000 Lm '000Services - Net 147,800 159,274 180,685 194,397 198,932 197,520Exports of services from <strong>Malta</strong> 479,706 494,847 516,540 518,890 480,750 495,177Imports of services in <strong>Malta</strong> 331,906 335,573 335,855 324,493 281,818 297,65704.2 Foreign Direct InvestmentForeign Direct Investment (FDI) is not only an economic indicator, but is also a key per<strong>for</strong>manceindicator which depicts the economy’s and industry’s attractiveness. FDI levels can and should act asa magnet to attract further FDI. It is logical to associate such an indicator as a per<strong>for</strong>mance measureof both the legislative / administrative and industry attractiveness as one without the other would notentice <strong>for</strong>eign investors to inject their business activity in <strong>Malta</strong>. In the last five years, Net DirectInvestment levels steadily increased year on year (with the exception of 2002), whilst FDI inflowsrecovered in 2005 but not up to the FDI levels registered in 2003. The graphs below illustrate the netdirect investment levels in <strong>Malta</strong> from 2000 to 2005, and the net FDI inflows <strong>for</strong> the same period.Graph 01: Net Direct Investment in <strong>Malta</strong>Net Direct Investment in <strong>Malta</strong>Lm ('000)160000014000001200000100000080000060000040000020000002000 2001 2002 2003 2004 2005<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 21
Graph 02: Foreign Direct Investment InflowsFDI Inflows400000300000Lm ('000)2000001000000-100000-200000-3000002000 2001 2002 2003 2004 2005The <strong>for</strong>eign direct investment intensity index, that is the average value of inward and outward <strong>for</strong>eigndirect investment flows divided by GDP, shows that <strong>Malta</strong> has a healthy index (excluding 2002) whencompared with the EU 25, EU 15 and the Eurozone indices.Graph 03: Foreign Direct Investment IntensityForeign Direct Investment Intensity20151050eu25 eu15 eurozone Turkey Iceland Norw ay USA Japan MALTA-5-10Undoubtedly, the recent developments of international investors settling in <strong>Malta</strong> such as SmartCity,Actavis and Tecom amongst many others create a positive perception at an international level, thatthe Maltese industry has the capability and potential to bring to fruition the international investorsambitions.However, <strong>Malta</strong> should not loose sight of what other countries are doing in order to attract further FDI.<strong>Malta</strong> is in direct competition with other jurisdictions <strong>for</strong> the same Dollar or Euro, and thus <strong>Malta</strong>’soffering needs to be strong and addressing specific niches in turn based on the high value-added that<strong>Malta</strong> can provide to investors in terms of quality, quick-to-market, and cost.In this regard, the inception of ME in 2003 and its build-up to address niche areas created animportant meeting place <strong>for</strong> investors together with a thought out strategy of approach. The tablebelow illustrates the FDI levels per capita <strong>for</strong> <strong>Malta</strong>.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 22
Graph 04: Foreign Direct Investment in <strong>Malta</strong> per CapitaFDI in <strong>Malta</strong> per CapitaFDI per Capita (Lm '000)4.003.503.002.502.001.501.000.500.002000 2001 2002 2003 2004 200504.3 <strong>Malta</strong>’s Economic Growth2005 results provide indications that the Maltese Economy is starting to record a gradual turnaroundfrom the past few years. GDP expanded, the labour market per<strong>for</strong>mance registered improvements,whilst Government’s fiscal policy resulted in positive results in the attainment of set targets in relationto Government deficit levels and the level of National Debt. The Government’s fiscal policy drive tocontract Government spending has, as expected, created an impact on the domestic market with aslow down in economic activity <strong>for</strong> the domestic players which traditionally trade heavily withGovernment, thus causing a ripple effect on the rest of the domestic industry base. The rise in energyprices placed cost pressures on the domestic market, as has the relatively weak economic situation of<strong>Malta</strong>’s trading partners.At 2.2%, real growth in Gross Domestic Product 22 (GDP) shows an improvement in the ratesregistered in the last five years. Domestic demand showed an increase in real terms, thus partlyoffsetting the difficulties experienced by the domestic market due to higher energy costs, and lowerGovernment consumption expenditure. However, the contribution of the external sector towards GDPgrowth (in 2005) was not positive mainly due to a drop (in real terms) of exports of goods and servicesas compared with imports of goods and services.This imbalance was mainly attributed to the per<strong>for</strong>mance of one Company in the semi-conductorbusiness thus demonstrating that <strong>Malta</strong> needs to place even more ef<strong>for</strong>ts in its diversification andclustering process, in order to reduce the impact of the per<strong>for</strong>mance of singular company on theexternal sector of the economy.22Gross domestic product (GDP) is a measure of the results of economic activity. It is the value of all goods and servicesproduced less the value of any goods or services used in producing them. The calculation of the annual growth rate of GDPvolume allows comparisons of economic development both over time and between economies of different sizes, irrespective ofchanges in prices. Growth of GDP volume is calculated using data at previous year's prices.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 23
Table 13: Annual Growth Rates of the Maltese Economy in Nominal and Real Terms (2000 – 2005)Annual Growth Rates of the Maltese EconomyIn Nominal and Real Terms2000 - 2005YEAR 2000 2001 2002 2003 2004 2005Lm Lm Lm Lm Lm LmCurrent Prices 1,696,296 1,737,694 1,796,823 1,829,069 1,830,406 1,927,094at Current % % % % %(nominal) prices - 2.4 3.4 1.8 0.1 5.3Lm Lm Lm Lm Lm LmConstant Prices 1,696,296 1,702,508 1,727,393 1,684,290 1,659,386 1,700,794at Constant % % % % %(Real) prices - 0.4 1.5 -2.5 -1.5 2.2Comparing <strong>Malta</strong>’s annual real GDP growth rate against the same growth rates <strong>for</strong> the EU 25, EU 15,Eurozone, USA and Japan, <strong>Malta</strong>’s GDP started to recover lost ground as against 2003 and 2004which saw negative growth rates. Eurostat’s <strong>for</strong>ecast <strong>for</strong> 2006 and <strong>2007</strong> are however indicating a dropin the GDP growth rates as opposed to 2005. This <strong>for</strong>ecast contrasts with the <strong>for</strong>ecasted growth ratesof the EU 25, EU 15 and Eurozone, which are anticipated to grow further in 2006 and <strong>2007</strong>.Graph 05: Real GDP Growth Rate of GDP Volume – Percentage over previous yearsReal GDP Growth Rate of GDP Volume - Percentage over previous years<strong>2007</strong> ForecastMALTAeurozone12eurozoneeu15eu25JapanUSA2006 ForecastMALTAeurozone12eurozoneeu15eu25JapanUSA2005eurozone12eurozoneeu15eu25MALTAJapanUSAMALTA2004Japaneurozone12eurozoneeu15eu25USAMALTA2003eurozone12eurozoneeu15eu25JapanUSA2002Japaneurozone12eurozoneeu15eu25USAMALTAMALTA2001JapanUSAeurozone12eurozoneeu15eu252000JapanUSAeurozone12eurozoneeu15eu25MALTA-4 -3 -2 -1 0 1 2 3 4 5 6 7<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 24
The contribution of industry towards GDP and its growth is gaining more significance as Governmentis by design reducing its consumption expenditure. In 2005 23 , sectoral increases were registered infinancial intermediation, real estate, renting and business activities, transport, storage andcommunications, wholesale and retail, trade, construction and other community, social and personalservices activities. These increases partly offset the declines in electricity, gas and water, andmanufacturing sectors of the economy. 24A point of attention relates to the inflation rate which is not only a major key economic indicator, but isalso a major influencing factor on industry’s and enterprises’ cost structure and competitiveness. Therate of inflation in the past five years ranged from 1.3% to 3.01% as depicted in the table below,whereby 2005 saw the highest rate of inflation with inflation reaching 3.01% following a gradualincrease since 2003.Table 14: Index of InflationYear 2000 2001 2002 2003 2004 2005Index of Inflation 607.07 624.85 638.54 646.84 664.88 684.88% Inflation Rate 2.37 2.93 2.19 1.3 2.79 3.0104.4 Value-Added Generated by the Manufacturing <strong>Industry</strong>The 2005 Economic Survey presents an interesting assessment of the developments in valueadded25 by the manufacturing industry <strong>for</strong> the period 2001-2004. This assessment is based on themanufacturers responses to annual business statistics questionnaire in line with the StructuralBusiness Statistics Council Regulation 58/97. The chart below illustrates the total value-added atfactor cost by the manufacturing industry, which indicates that downward trend with a drop from 2003of 3.7% 26 .Graph 06: Manufacturing: Total Value-Added at Factor CostManufacturing - Total Value Added at Factor Cost350300250Lm Million2001501005002001 2002 2003 200423Jan – Sep results published in the 2005 Economic Survey242005 Economic Survey; page 625This methodology measures the value-added at factor costs which is made up of personnel costs and gross operationalsurplus. Personnel costs are made up of wages and salaries and employers’ social security contributions, whilst grossoperating surplus is the surplus generated by operating activities net of labour costs. Value-added data provides an indicationof the contribution of sectoral per<strong>for</strong>mance to the developments in the manufacturing industry.26Economic Survey 2005; pg 98<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 25
The composition of the manufacturing industry based on value-added per capita (on factor cost) isprovided in the chart below, where despite the decline in total value-added, the value-added percapita registered a marginal increase in 2004 reflecting lower employment levels. 27Graph 07: Composition Per Capita Value-Added at Factor CostComposition Per Capita Value Added at Factor Cost70006000Lm5000400030002000100002001 2002 2003 2004Personnel Costs per CapitaGross Opertaing Surplus perCapita04.5 The Role of Business in the Maltese EconomyAlthough it has been emphasised that <strong>Malta</strong>, being an ‘open’ economy, needs to measure andimprove on its levels of international business and on the attractiveness of <strong>for</strong>eign direct investment,however an important pillar of the economic fabric of the Nation revolves around the value-addedgenerated by businesses.<strong>Malta</strong>’s economy, as in the case of other EU countries, is characterised with a predominance ofSMEs. Such businesses are not only fundamental <strong>for</strong> the on-going internal economic activity, but arealso a complementing arm of industry, where <strong>for</strong> instance the tourism and hospitality industry alsoheavily depends on micro and small enterprises which offer products and services to tourists.The number of SMEs employ approximately 50,000 people, with the level of self employed as apercentage of the gainfully occupied standing at approximately 11.7% in 2005. The number ofenterprises per category are listed in the table below.Table 15: Number of employees in industry per category 28Micro Small Medium0 – 9 10 – 49 50 – 24944,297 24,261 29,04604.6 <strong>Malta</strong>’s Labour Force<strong>Malta</strong>’s flexible and highly trained multi-lingual work<strong>for</strong>ce is undoubtedly <strong>Malta</strong>’s most valuable asset.Wages in <strong>Malta</strong> remain below the Western European average, and compares relatively well with theaverage wages of the Eastern European countries. The latter however are the main threat withrespect to <strong>Malta</strong>’s competitiveness on the European front, where <strong>Malta</strong> is now trying to compete onadded-value rather than on a ‘low wages’ proposition. The table below illustrates the employedpersons by broad category with industry employing approximately 45,000, whilst the Services Sector27Economic Survey 2005; pg 10028NSO Business Register, 2004<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 26
employing around 100,000. Out of a total of 149,000 29 gainfully occupied, approximately 45,000 areemployed with the Public Sector, thus approximately 70% of the gainfully occupied are employed withthe Private Sector.Graph 08: Total Employed Persons by Broad CategoryTotal Employed Persons by Broad Category160,000140,000120,000Total, 146,246Total, 146,017Total, 148,452Total, 148,764Total, 148,618Total, 149,091100,00080,000Services, 95,506Services, 96,424Services, 99,559Services, 100,960Services, 101,800Services, 101,46160,00040,00020,0000Agriculture, 2,845<strong>Industry</strong>, 47,895Agriculture, 3,295<strong>Industry</strong>, 46,298Agriculture, 3,223<strong>Industry</strong>, 45,670Agriculture, 3,154<strong>Industry</strong>, 44,650Agriculture, 3,185<strong>Industry</strong>, 43,633Agriculture, 3,045<strong>Industry</strong>, 44,5852000 2001 2002 2003 2004 2005Table 16: Total Employed Persons by Economic ActivityEconomic Activity2000 2001 2002 2003 2004 2005No. No. No. No. No. No.Agriculture, hunting and <strong>for</strong>estry 2,410 2,688 2,752 2,655 2,638 2,566Fishing 435 607 471 499 547 479Mining and Quarrying 715 771 652 979 678 787Manufacturing 33,497 31,944 29,869 28,763 29,091 28,736Electricity, Gas and Water Supply 3,215 3,184 3,406 3,682 3,210 2,823Construction 10,468 10,399 11,743 11,226 10,654 12,239Wholesale and retail trade 20,626 20,989 20,859 21,525 22,168 21,471Hotels and restaurants 10,531 12,577 13,321 12,450 12,263 12,493Transport, storage and communications 11,643 12,289 12,921 12,361 11,268 11,367Financial Intermediation 5,590 5,644 5,040 5,648 4,417 6,093Real Estate, renting and business activities 5,994 6,095 6,768 7,781 7,921 8,041Public admin. and defence; compulsory social security 12,070 11,696 12,344 13,285 14,141 12,638Education 11,787 10,830 11,782 11,479 12,566 11,198Health and Social Work 10,507 10,494 10,857 9,973 11,140 11,315Other community, social and personal service activities 6,228 5,418 5,230 5,974 5,468 6,469Private households with employed persons 399 224 137 348 130 94Extra-territorial organisations and bodies 131 168 300 136 318 282Total Employed 146,246 146,017 148,452 148,764 148,618 149,09129ETC Data<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 27
The unemployment rate ranged between 6.4% and 7.4% (according to the Labour Market Survey) asdepicted in the graph below. This compares well with both the EU 25 average unemployment ratewhich reached 8.7% in 2005 and the EU 15, with its average unemployment rate at 7.9% in 2005.Table 17: Unemployment RatesUnemployment Rates (Source Labour Force Survey)7.60%7.40%7.20%7.00%6.80%6.60%6.40%6.20%6.00%5.80%2000 2001 2002 2003 2004 2005Ef<strong>for</strong>ts at a national level were directed in the last decade to up-skill the technical and educationalbackgrounds of the Islands’ current and future work<strong>for</strong>ce, whereby ef<strong>for</strong>ts were not only directed atincreasing the number of university graduates and MCAST graduates, but were also directed towardsre-skilling the unemployed through various programmes co-ordinated through Employment andTraining Corporation (ETC) and through lifelong learning initiatives stemming from various educationalinstitutions.According to University of <strong>Malta</strong> statistics, the total number of students following tertiary education atthe University of <strong>Malta</strong> (excluding students following tertiary education through <strong>for</strong>eign Universities)amounted to almost 8,000 students in 2004.Table 18: Total Students Receiving Tertiary Education Classified By Sex (academic year 2003 / 2004)SexTotalTotal Students Male 2,857Female 3,760Total 6,617Total Part-Time Students Male 658Female 680Total 1,338GRAND TOTAL Male 3,515Female 4,440Total 7,955Source: The UniversityThe main courses being followed (using 2003/2004 statistics) at the University of <strong>Malta</strong> are listed inthe table below with business and administration, law, engineering and healthcare being the mostpopular course of studies.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 28
Table 19: Students Receiving Tertiary Education By Field, ISCED Level and Sex (2003 / 2004)2003 /2004Field of studyIsc. 5a Isc. 5b Isc. 6Male Female Total Male Female Total Male Female TotalEngineering & Engineering Trades ISC 52 348 82 430 - - - - - -Architecture & Building ISC 58 161 106 267 1 - 1 - - -Medicine & Surgery 211 306 517 - - - - 2 2Dental Surgery 16 16 32 - - - - 1 1Institute of Health Care 139 306 445 117 275 392 - - -Institute of Linguistics (post-tertiary) 1 8 9 - - - 1 - 1Social Behavioural Science ISC 31 - - - 1 1 2 - - -Journalism & In<strong>for</strong>mation ISC 32 123 179 302 7 17 24 - - -Business & Administration ISC 34 - Accountancy 74 78 152 - - - - - -Business & Administration ISC 34 - Business & Computing 97 44 141 - - - - - -Business & Administration ISC 34 - Management Studies - - - 149 125 274 - - -Business & Administration ISC 34 - Other 645 778 1,423 53 44 97 1 - 1Laws ISC 38 307 390 697 45 50 95 3 - 3Teacher Training ISC 141 191 699 890 - - - - - -Education Science ISC 142 32 49 81 28 147 175 2 1 3Arts ISC 22 249 431 680 1 1 2 5 - 5Humanities ISC 22 113 74 187 7 9 16 1 - 1Physical Sciences ISC 44 132 113 245 - - - - - -Computing ISC 48 162 42 204 19 1 20 - - -Agriculture, Forestry & Fishery ISC 62 2 2 4 12 9 21 - - -Environmental Protection ISC 85 - 1 1 - - - - - -Security Services ISC 86 - - - 14 10 24 - - -Certificate in Foundation Studies 45 43 88 - - - - - -Total 3,048 3,747 6,795 454 689 1,143 13 4 17Moreover, the number of graduates per field <strong>for</strong> the academic years 2002-2003 and 2003-2004 wereas follows, with the main number of students graduating in the fields of social services, business andlaw.Table 20: Graduates by Field of Study, ISCED Level and Sex (2002 / 2003 – 2003 / 2004)Field of study 2002/2003 2002/2004Engineering, Manufacturing & Construction 98 112Health and Welfare 246 256Social Services, Business and Law 936 967Education 400 412Humanities and Arts 254 261Science 84 100Agriculture 3 27Environmental Services 5 9In the past years, Government also launched the <strong>Malta</strong> College <strong>for</strong> Arts, Sciences and Technology(MCAST), whereby MCAST provides educational training which complements the skill set generatedthrough the University of <strong>Malta</strong>, with a special focus on industry with over 3,700 registered students.The table below illustrates the number of MCAST students per field <strong>for</strong> the academic year 2003 –2004.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 29
Table 21: MCAST Students Receiving Technical education by Field and Sex (2003 / 2004)Field of studyMale Female TotalArt & Design 98 95 193Building & Construction 450 31 481Business & Commerce 333 624 957Electronics 581 12 593ICT 482 88 570Maritime 30 1 31Community Services 51 351 402Agribusiness 31 3 34Mechanical Engineering 338 4 342GozoFirst Diploma For I.T. Practioners 10 5 15National Diploma in Computing 15 2 17Certificate in Banking 5 4 9Certificate in Secreterial & Admin. 0 2 2Accounting Tech. Course 10 9 19Certificate in Retailing 3 11 14Foundation Certificate Course 28 28Draughtsmanship 4 1 5Foundation Cert. in Care & First Diploma in Care 16 28 44Electrical and Electronics Tech. 16 16Total 2,501 1,271 3,772Having a trained work<strong>for</strong>ce does not however start and stop at secondary, post secondary and tertiaryeducation, but also requires a mechanism of lifelong learning in order to keep ‘knowledge’ current witheconomic and social developments. According to Eurostat, the lifelong learning statistics indicate that<strong>Malta</strong> is registered steady progress in this regard. Such initiatives are crucial as our labour stockshould always be kept current in order to be competitive and to attract <strong>for</strong>eign direct investment.Table 22: Life Long Learning by Gender 30Gender2000 2001 2002 2003 2004 2005% % % % % %Males 5.6 5.8 4.9 4.9 5.5 6.7Females 3.5 3.4 3.8 3.6 4.4 4.8Total 4.5 4.6 4.4 4.2 5.0 5.8Source Eurostat30Eurostat<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 30
Setting the Strategic Direction <strong>for</strong> <strong>Industry</strong>Chapter 0505.1 The Vision and Underpinning PrinciplesA review of countries that are prospering shows that, in part, their success is strongly underpinned bya Vision that has garnered political support, which in turn enables industry to mobilise resources andinvestment in the secure knowledge that changes of administration will not prejudice stability.The IS seeks to put <strong>for</strong>ward a vision that is <strong>for</strong>ward looking, that facilitates common understanding,and as importantly, that ensures that all players in society emerge as winners. In this regard, the ISestablishes the following vision:“Enabling <strong>Industry</strong> to achieve quality high value-added and productivity growthto engender prosperity and wealth.”This Vision is based on the recognition that a vibrant private sector engenders prosperity and wealthacross society. It is thus in the interests of all the stake-holders to see <strong>Malta</strong>’s industry base toexpand to the largest extent possible. As importantly, the Vision establishes the focus of the strategicdirection proposed in the IS. Growth should be strategic and focused: the vision unequivocally placesthat the thrusts of emphasis must be directed at achieving, continuously, increased quality and highvalue-added growth across all elements in industry, within the ‘traditional’ as well as the ‘new’economy.The Vision is underpinned by the following strategic principles:(i)Inculcating EntrepreneurialismGovernment and industry together with the knowledge institutions and providers as well as socialpartners are to work jointly to inculcate an entrepreneurial spirit in <strong>Malta</strong> to enable a new generation ofentrepreneurs to emerge.(ii)Re-in<strong>for</strong>cing <strong>Malta</strong>’s Human Resource Capital Comparative AdvantageGovernment, industry, social partners and knowledge institutions are to work together to ensure thatworkers are moulded with the right work ethic milieu and equipped with the necessary skills that willallow <strong>Malta</strong> to maintain its competitive advantage with regards to its human resource capital. Highereducation institutions must establish a nexus with industry so that they provide the right skills, at theright time, to the right quality.Mobility of workers to fill gaps in researchers and high-skilled work is to be positively adopted tofacilitate growth whilst the skilled human capital base in <strong>Malta</strong> is built.(iii)Achieving Quality High Added-Value and Productivity Growth in <strong>Industry</strong>Targeting new future growth in particular areas within industry does not mean that existing industriesshould be ignored. In terms of existing industry ef<strong>for</strong>ts should be directed to assist them achievequality high value- and productivity growth. The same, however, applies <strong>for</strong> new investment in the‘traditional’ and ‘new’ economy.(iv)Securing Greater Aggression in Seeking Overseas Markets Penetration and ExpansionIndigenous industry, existing or new, in the ‘traditional’ or ‘new’ economy should aspire to penetrateoverseas markets, and to expand such penetration. <strong>Industry</strong> should seek to embrace more actively e-commerce business models, to maximise the Internet as a marketing and sales channel, and tonetworking their knowledge or products. Facilitation of business intelligence and overseas promotionshould continue to be provided both at a national level as well as by ME.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 31
The knowledge institutions and providers should provide marketing professional development toprovide industry with the necessary talent that will allow them to optimise the Internet as a marketingand sales channel.(v)Clustering and Networking <strong>Industry</strong> and GovernmentDiseconomies of scale can be overcome by structuring industry, <strong>for</strong>mally or in<strong>for</strong>mally, aroundcommon interests. Government must actively encourage and incentivise industry to activate clustersand networks in order to leverage a higher critical mass and economies of scale.(vi)Incentivising the Research, Development and Innovation-CapacityR&D&I must become a fundamental pivot of the Maltese economy. Thus, it is critical that thenecessary R&D&I enabling and catalysing environment is grafted within <strong>Malta</strong>’s economic andinstitutional fabric so that <strong>Malta</strong> truly becomes a quality high value-added and productive economyand society.(vii)Enabling Access to FinanceAccess to finance is crucial <strong>for</strong> firms in various development phases – particularly so with regards toSMEs and micro-industries and the ‘new’ economy. Government will work with private capital,financial institutions as well as industry to seek to unleash private capital and finance to enablegrowth.(viii)Re-vitalising the Essential Conditions and Infrastructure to Secure CompetitivityGovernment will work with industry to manage challenges, inherent such as <strong>Malta</strong>’s geographicalposition or emerging ones, in a way that allow <strong>for</strong> immediate and considered action so necessary tomaintain competitivity in a fast and dynamic world that demands quick-to-market response.(ix)Orientating Government as a Partner to <strong>Industry</strong>Government together with industry constitute two sides of the same coin. Both are mutuallydependent, and both will succeed if they work together. Partnership demands trust and credibility –by both parties and from both parties. Suspicion results in heavy regulation, which in turn hinderssuccess and, ultimately, is counter-effective.Government there<strong>for</strong>e will strive to partner with industry across all facets of the appropriate horizontalas well as vertical policy domains to establish a working relationship that fosters trust to enableindustry to flourish within a friendly regulatory administrative framework.Institutional refinement will be carried out as and where appropriate, building on lessons learnt toenable industry to grow.(x)Joining Forces to Resolve New ChallengesThe environment as well as health and safety are increasingly becoming critical policy issues <strong>for</strong><strong>Malta</strong>. The challenges relating to the environment, health and safety can only be best met if<strong>gov</strong>ernment and industry work together to introduce the best effective, efficient and economicsolutions.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 32
05.2 Identifying <strong>Malta</strong>’s Comparative AdvantagesThe strategy and action plan to attain the Vision must build on <strong>Malta</strong>’s competitive advantage; eitherin terms of securing and sustaining such competitive advantage where it exists, and on building itwhere it where so required.A synthesisation of the feedback received from the various stakeholders consulted, as well as areview of the a<strong>for</strong>e mentioned SWOT assessments, lead the Government to recommend the followingas <strong>Malta</strong>’s competitive advantages:- Human Resource Capital: This is <strong>Malta</strong>’s main resource. Maltese workers areacknowledged to be hard-working, flexible, intelligent, adaptable, trainable and diligent.This competitive advantage must be sustained and up-graded on a continuous basis.Potential dangers lurks: entrepreneurial spirit, discipline, work ethos, self-development inyoung and emerging workers are perceived to be regressing when compared to workerswho are 30 years of age and over.- English and the Multi-Lingual Skills Base: <strong>Malta</strong>, together with England and Ireland, hasEnglish as a working language. This gives <strong>Malta</strong> an added edge on mainstream Europeand North Africa as English is both the business language and the technology and ICTlanguage. Safeguarding our ability to write and speak good English is critical. Here toopotential dangers lurk. Young and emerging workers are seen to have a lower command ofthe English language compared to workers who are 30 years of age and over.The same stands <strong>for</strong> the ability of commanding, at least, one other language other thanMaltese and English.- Innovative Legislation Design: Through innovative legislative design, <strong>Malta</strong> has in thelast decade created two vibrant micro-economic sectors in the ‘new’ economy and one inthe high-tech manufacturing industry.In terms of the <strong>for</strong>mer the financial services and e-commerce legislative frameworksrespectively have acted as a fundamental spur <strong>for</strong> the emergence of these two vibrantservice sectors. In both, the competition was reviewed and a <strong>for</strong>ward looking legislationintroduced, based on principles – relegating criteria to subsidiary legislation to enablespeed to respond to a dynamic environment. The success achieved in the financialservices sector as well as in i-gaming and e-billing would not have been achieved to thedegree reached in the absence of such innovative legislative design.In terms of the latter, innovative patent legislation design created a niche market that hasattracted the generic pharmaceutical industry to <strong>Malta</strong>.- Agility Through Smallness: Whilst smallness provides diseconomies of scale it is also acompetitive advantage as it should allow <strong>for</strong> immediate action to changing circumstances.Representatives of Government and industry can meet face-to-face without undue delay tofind solutions and agree on actions. Agility necessitates a responsive <strong>gov</strong>ernment –primarily in that public administration is to consider its role as a partner to industry driven bythe milieu to facilitate industry to grow.- Stability: As a small non-aligned nation <strong>Malta</strong> is recognised as an international stablehaven – whether this relates to the new international dynamics arising from geo-politicaland social international threats, as well in terms of its internal policy design andsustainability. In terms of the <strong>for</strong>mer <strong>Malta</strong> assumes an importance far greater than its size,particular in terms of acting as an honest broker between Europe and the Mediterranean.In terms of the latter, greater long term stability can be institutionalised if political partiesand social, as well as civic partners, manage to find consensus and common ground on thekey issues – including the IS.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 33
05.3 Targeting Growth in <strong>Industry</strong>A strategy <strong>for</strong> industry must provide focus – focus that builds on <strong>Malta</strong>’s comparative and competitiveadvantages. It must identify the areas that must be targeted. A ‘scatter gun’ approach will result in adiffusion of resources which <strong>Malta</strong>, in a dynamic and fast changing globalised environment, can illaf<strong>for</strong>d.In terms of targeting growth the IS adopts a two-tiered approach. The first relates to the existingindustry base. The IS argues that existing industry must be supported to restructure and strengthentheir capacities in order that they meet the strategic direction set by the Vision – quality, high valueadded,and productivity growth. It argues so because strong examples of success exist whereindustries have restructured and up-graded their quality, high value-added, and productivity growth tosuccessfully <strong>for</strong>ay into the international market or to safeguard their domestic market againstcompetition from imports.The second relates to new investment whether this is FDI or local oriented. Without diminishing theimportance of the existing industry base, Government believes that targeted new investment shouldbe focused primarily towards the knowledge and high-tech manufacturing sectors and activities – asthese are the sectors that meet <strong>Malta</strong>’s comparative advantages and that minimise the impact of theintrinsic comparative advantages that diminish <strong>Malta</strong>’s ability to compete.Government believes that the following are the Sectors and Activities that <strong>Malta</strong> should target:- Education 31 : <strong>Malta</strong> has an active and vibrant education industry with significant growthpotential. There are a number of well established public and private institutions, localfacilities and expertise. Potential benefits would include a larger education sector thatwould offer a wider range of professional and vocational training as well as tertiaryeducation and the development of a larger diversified education sector that would serve theneeds of both <strong>for</strong>eign and domestic students as well as facilitating the trans<strong>for</strong>mation to amore advanced knowledge economy.- Health Care 32 : Global health ‘tourism’ is estimated to be worth US$ 40 billion. <strong>Malta</strong> hasmuch of the necessary physical and human capital in place and is well served, with good airlinks with mainland Europe and North Africa to provide a high level of health care topatients. Potential benefits would include the evolution of a deeper health care sector thatwould also benefit Maltese citizens, a larger health care sector, as well as an attractiveliving environment that is capable of attracting high net worth retirees.- Business Process Outsourcing (BPO) 33 : This, to date, is a fledging industry in <strong>Malta</strong>.Whilst <strong>Malta</strong>’s location works against its ability to become a major BPO provider,nevertheless it can act as an extension to SMEs, call centres and firms dealing withknowledge process outsourcing; which the latter ties into financial and legal services.- Financial Management Services: Financial services as has been demonstrated in thepast decade has become one of the fastest growing economic sectors in <strong>Malta</strong>; attractingmajor financial institutions and firms to operate through our legislative and regulatoryframework. The achievements gained to date provide an excellent basis <strong>for</strong> further growth.- Consultancy: <strong>Malta</strong>’s subsidiaries of the ‘big five’ international consultancy groups as wellas others have shown that they can compete internationally both in terms of pricing andquality and scope exists to broaden further this service sector.- Creative: <strong>Malta</strong> has established itself as a vibrant site <strong>for</strong> film production. The bringingtogether of the supporting services – media, studios, set-design and construction, ICT filmgraphics design, heritage sites, et al would strengthen <strong>Malta</strong>’s attractiveness in this regard.31National Export Marketing Plan <strong>for</strong> the Promotion of Professional Services: Action Plan, Funded by the Special AdvisoryServices Division of the Commonwealth Secretariat, prepared on behalf of <strong>Malta</strong> Enterprise, February 200632Ibid33Ibid<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 34
- Maritime and Maritime Maintenance: China and India are fast growing economies; withtrade as a key prong – with their goods entering Europe primarily through the Suez Canal.<strong>Malta</strong>, given its strategic geographic position, could, <strong>for</strong> example, act as a ‘Com<strong>for</strong>t Zone’<strong>for</strong> their respective fleets providing trans-shipment services; ship maintenance servicing;supply replenishment; et al. <strong>Malta</strong> has also established itself as a quality leisure zone.Moreover its strategic geographic position could provide it with a vantage ‘servicing andmaintenance’ zone <strong>for</strong> yachters increasingly making use of low cost land berthing facilitiesin North Africa. Similarly the same service can be provided to the cruise-liners’ industry.- Aviation and Aviation Maintenance: <strong>Malta</strong> has shown that it can compete in the provisionof high-tech aviation services and maintenance and success has also been achieved interms of R&D&I in this matter. Scope exists to broaden further this sector.Logistics and Warehousing: <strong>Malta</strong>, due to its strategic geographical position, has thepotential to lure international or engender indigenous logistic and freights <strong>for</strong>wardingservices providing regional supply chain solutions to North African et al. This Sector wouldengender spin-off activities such as re-labelling, re-packaging, stock monitoring, lightassembly, repairs, etc.- Biotechnology, Bio-in<strong>for</strong>matics and Pharmaceuticals 34 : <strong>Malta</strong> has managed to build asuccessful pharmaceutical industry through certain patent legal provisions. The challengeis to trans<strong>for</strong>m this industry into a permanent feature of our industrial landscape. Theevolution of excellent centres <strong>for</strong> bio-equivalence testing as well as clinical trials wouldconstitute an anchor that could successfully generate further growth in this regard;particularly when coupled with the favourable cost and skills of Maltese labour.<strong>Malta</strong> has a comparative advantage in the bio-technology and bio-in<strong>for</strong>matics areas. Thisarises from the fact that the Maltese population is relatively young and thus comparativelyundiluted in terms of its genetics. This provides a ‘founding’ effect where genetics ‘errors’can be identified by use of smaller clusters of population sample resulting in a higheridentification of genetic ‘errors’ then what would be required <strong>for</strong> research undertaken inother societies. This can enable better ‘quick-to-market’ transition from genetic erroridentification to the development of new medication.- ICT Sector 35 : <strong>Malta</strong> is acknowledged as a leading in<strong>for</strong>mation economy and society.Government’s <strong>for</strong>warding looking vision and action in this regard have led to theestablishment of a state-of the-art ICT infrastructure, enabling e-commerce legislation thathas induced companies such as e-billing and i-gaming to set up shop in <strong>Malta</strong>, as well asan ICT skills base that is internationally recognised <strong>for</strong> its competence and value-added.Moreover, ICT employment provide higher valued-added output, higher paid employment,et al.- High-Tech Manufacturing Sector: This relates to engineering and other high-techmanufacturing in which <strong>Malta</strong> has demonstrated competent ability to compete and shouldcontinue to do so.34Ibid35Ibid<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 35
The Action Plan <strong>for</strong> Achieving <strong>Malta</strong>’s Strategic Direction <strong>for</strong> <strong>Industry</strong>Chapter 0606.1 Inculcating Entrepreneurship06.1.1 Instilling Entrepreneurialism in <strong>Malta</strong>’s ‘Genetic’ Framework<strong>Malta</strong> has a strong commitment to education. It boasts one of the oldest universities in Europe.<strong>Malta</strong>’s economic growth is dependent, on the one hand, on the need to encourage moreentrepreneurs – as without entrepreneurs there are no enterprises – and on the other hand, onknowledge which is essential in making the transition to achieve quality high value-added industryacross both the existing industry base as well as in the ‘new’ economy.As recommended in the NSRI, <strong>for</strong> entrepreneurship to be inculcated creativity, innovation and risktaking– so essential to entrepreneurship – must be taught, right through primary, secondary andtertiary education. Entrepreneurship education should also include the development of a culture ofservice towards customers.Recommendation 01The educational curriculum, across all its tiers, as proposed in the National <strong>Strategy</strong> <strong>for</strong> Researchand Innovation should be such that it instills in Maltese children and youth creativity, innovation andrisk-taking which are so essential <strong>for</strong> inculcating an entrepreneurial culture.06.1.2 Unleashing Youth EntrepreneurshipThe inculcation of entrepreneurship requires not only the grafting of creativity, innovation and risktakingin the <strong>for</strong>mal curriculum but also active encouragement in extra-curriculum activities. Twoparticular measures stand out. First youths should be actively encouraged to participate in <strong>for</strong>a suchas Young Enterprise and the Juniour Chamber which provides students in post-secondary institutionswith excellent opportunities <strong>for</strong> entrepreneurialism.Second, the measure proposed in the NSRI to place within the National R&I Investment Programmeaccess to seed financing <strong>for</strong> students in Science, Engineering and Technology (SET) in order toprovide them with the capital to translate their entrepreneurial R&D&I and business ideas intoenterprises should be complemented with a similar access to seed financing programmes that coversareas other than SET. Government believes that the current incubation services should be extendedto encompass students in higher education so that their entrepreneurial sprits are nurtured.Recommendation 02In complement to the recommendation in the National <strong>Strategy</strong> <strong>for</strong> Research and Innovation, theMinistry <strong>for</strong> Education, Youth and Employment in conjunction with <strong>Malta</strong> Enterprise should extendthe provision of incubation services to students in higher education so that their entrepreneurialspirits are nurtured.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 36
06.1.3 Removing the Stigma of Entrepreneurial FailureIn <strong>Malta</strong>, as in Europe, a failed industrialist faces the stigma of failure. An Eurobarometer shows thatthe primary concern of Europeans in relation to the risk associated with entrepreneurship isbankruptcy and the loss of property were prevalent 36 . In addition to social stigma, personalbankruptcy implies severe legal consequences: discharge of remaining debts may take years,bankrupts may lose their possessions and be subject to certain restrictions. The a<strong>for</strong>e mentionedGreen Paper states that such consequences are justified in cases of fraud and dishonesty, (and insuch circumstances full measures of law should be applied) but failure is an intrinsic part of economiclife and a proportion of entrepreneurs do go bankrupt 37 .There, thus, is merit in reviewing the legal provisions relating to insolvency in order to reduce barriers<strong>for</strong> honest entrepreneurs to make a fresh start; without of course unduly harming creditors’ interests.Recommendation 03Government will review the legal provisions relating to insolvency in order to see how barriers <strong>for</strong>honest entrepreneurs are reduced to allow them to make a fresh start without unduly harmingcreditors’ interests.06.2 Re-in<strong>for</strong>cing <strong>Malta</strong>’s Human Resource Capital Comparative Advantage06.2.1 Anticipating and Embracing Change to Improve <strong>Malta</strong>’s Human Resources ComparativeAdvantageGlobal economic transitions, competitivity, increased dependency on sophisticated technologies,changing norms and cultures, issues related to the aging demand fundamental review in the way jobsare designed and in the knowledge that one requires, and in the continuous up-grading of one’sknowledge. In this regard, the Unions are key players and they should take a pro-active role togetherwith industry to anticipate transitions, and prepare <strong>for</strong> them – both in terms of existing workers as wellas the new generation of workers.As cultures and norms change, with the new generation of workers increasingly departing from a job<strong>for</strong>-lifeas well as an one-job-per-person, industry and the Unions must look to introduce new methodsof job design as and where appropriate – ranging from flexible working to tele-working to job-sharing.Recommendation 04<strong>Industry</strong> and the Unions are to work together to introduce new methods of job design as and whereappropriate such as flexible working, tele-working, job-sharing, et al to account <strong>for</strong> changing normsas well as to increase the labour participation rate.06.2.2 Institutionalising Life-Long Learning as an Integral Part of <strong>Malta</strong>’s MilieuProductivity growth, as shown earlier, is strongly correlated with investment in ICT. In essence, eventhe most basic of jobs are today increasingly becoming dependent on sophisticated technology andmachinery. The danger resides that as this trend increases the higher is the risk that people willbecome unemployable as they fail to equip themselves with an appropriate level of technologicalsavvies and aptitude. The issue of continuous development and life-long learning does not, however,relate only to jobs in the traditional industry base. It relates, potentially to a larger degree, also to the‘new’ economy.36Pg 11, Green Paper: Entrepreneurship in Europe, European Commission, Brussels 21 st January 200337Pg 12, Ibid<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 37
Thus, life-long learning is essential, and employees should be encouraged, facilitated and motivatedby industry to continually raise their skills in terms of (a) up-grading, that is increasing their level ofskills and qualifications; (b) broadening, that is acquiring skills and knowledge in new areas includingmulti-skilling; and (c) continual development, that is renewing existing skills to stay abreast withdevelopments.Furthermore, higher education institutions must shift from the <strong>for</strong>mal traditional and structuredcurriculum to more flexible <strong>for</strong>ms of training and tuition to enable workers to continue to developthemselves – whether this relates to the attainment of accreditation which, <strong>for</strong> example, is so vital inthe ICT sector to industry related training in lieu of changes in technology within a particular sector.Embracing life-long learning as a strategic commitment requires combined ef<strong>for</strong>t in the followingareas:- a balancing of rights and responsibilities of employers, individuals and Government.- a cultural and attitudinal shift on the part of higher education institutions, employers,employees’ bodies and Government.- greater flexibility in the provision of higher education.- the recognition of learning as an investment and not a cost.Recommendation 05<strong>Industry</strong>, and higher education institutions are to work together to establish the appropriatefacilitative framework that will institutionalise life-long learning.06.2.3 Introducing a National Vocational Qualification as the Foundation <strong>for</strong> Skills UpgradingThe upgrading of skills is, to a degree, handicapped by the fact that <strong>Malta</strong> is yet to implement aNational Vocational Qualification (NVQ). A NVQ framework is of critical importance as it brings clarityto the meaning of different types of qualifications and would allow qualifications to be comparedeasily. Together with the associated policies on access, transfer and progression, a NVQ frameworkwould allow <strong>for</strong> a wider access to awards, creating additional opportunities <strong>for</strong> transfer to differentprogrammes, and encouraging as well as facilitating learners to progress to tertiary education.Recommendation 06The introduction of a National Vocation Qualification framework is critical to the maintenance of<strong>Malta</strong>’s comparative advantage in the human capital base, and its introduction in the immediate termis seen as a matter of national importance.06.2.4 Re-affirming Apprenticeships and Placement Schemes as the Life-Blood to <strong>Industry</strong>Apprenticeship and placement schemes are important recruitment venues <strong>for</strong> employers – whetherthis relates to the traditional industry base, high-tech industry or the ‘new’ economy. Apprenticeshipand placement schemes allow industrialists to groom young future employees with skills relevant totheir respective industry as well as to provide an on-going life blood injection of new employees. Asimportant, they provide employers with the opportunity to mould at a young age such employees atthe start of their career with the ethos of work ethic and value system of the respective industry.A review of the apprenticeship and placement schemes in place and how these can be improved inorder to provide increased value to employers is required so that we embrace lessons learnt in orderto strengthen the existing framework as appropriate. The review will look at, though not be limited to,matters such as:<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 38
- whether overlaps exist between the Employment and Training Corporation (ETC) and the<strong>Malta</strong> College <strong>for</strong> Arts, Science and Technology (MCAST) in the training programmes aswell as apprenticeship and placement schemes offered and if so how these can bestreamlined;- how the University of <strong>Malta</strong> can introduce <strong>Industry</strong>-to-Academia partnerships which willallow its lecturing staff as well as tertiary and post-tertiary students to win placements withindustry;- the types of apprentice and placement schemes in place and how these can be furthercalibrated <strong>for</strong> niche industries;- how students and apprentices are brought closer to the work place and the technologiesavailable there, to make up <strong>for</strong> any deficiencies, <strong>for</strong> example, in laboratory environments;- how employers can benefit longer term in terms of the students they sponsor during theapprenticeship and placement period;- what programmes are offered, and how existing ones can be calibrated to meet current aswell as future needs.Recommendation 07The National Commission <strong>for</strong> Higher Education together with the Employment and TrainingCorporation in collaboration with <strong>Malta</strong> Enterprise are to review the existing apprenticeship andplacement frameworks in order to strengthen them to provide increased value to industry.06.2.5 Complementing Long-Term Building of a High-Skilled and Research Human Capital Base withInward Mobility of Such SkillsGovernment has invested considerably in the past decade to ensure that the level of quality skillssupply to industry meets demand. The MCAST was set-up and is resulting in improvement in partiallyaddressing the level, quantity and quality of skills required by industry. Considerable investment hasbeen made in the University of <strong>Malta</strong> in order to allow it meet the demand <strong>for</strong> tertiary education.Vertical Strategic Alliances have been reached by MIIIT with major ICT multi-nationals such as IBM,Oracle, CISCO and Microsoft setting-up academies or providing research opportunities which havenow rendered specialised ICT training af<strong>for</strong>dable <strong>for</strong> industry and accessible to students and workers.Continued success, however, demands continuous interaction between industry on the one hand, andhigher education institutions and Government on the other. A nexus between the two parties must beestablished. Indeed, the nexus, must be on a multiple fronts:- on a national level, where an institutional <strong>for</strong>um provides the parties concerned the plat<strong>for</strong><strong>mt</strong>o plan and implement with agility the needs of industry. The NHEC will play an importantrole in this regard.- on an industry sector basis, where appropriate skills are necessary to exploit newopportunities as well as address challenges. In this regard clustering, which is discussedlater, is seen to be a powerful instrument.The NSRI in Section 06.5 titled ‘Expanding <strong>Malta</strong>’s Science, Engineering and Technology HumanCapital Base’ places specific recommendations related to <strong>Malta</strong>’s SET human capital base which arenot replicated in this document.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 39
Yet, whilst the landscape <strong>for</strong> increasing the quality and quantity of skills has improved dramatically inthe last decade the reality is that <strong>Malta</strong> has particular gaps in certain high-skilled areas – perhaps, themost evident resides in the SET human capital base. Whilst ef<strong>for</strong>ts will continue to be channeled toaddress this important matter, and the NSRI will play an important role in this regard, the fact is thatbuilding quality high-level skills requires time, and thus will not address current, and potentiallymedium term, high-skilled labour supply gaps. Further to the a<strong>for</strong>ementioned recommendationsplaced in NSRI, it is believed that two further prongs are required.First. A focused approach directed at identifying the appropriate skills required as well as the skillsgaps that need to be addressed to enable both ‘traditional’ industry and the ‘new’ economy to positionthe appropriate human capital supply that will provide them with the right quality jobs at the right timeneeds to be undertaken. Hence, ME in conjunction with ETC and the knowledge providers andindustry is to carry out a skill gap analysis to be followed by a co-ordinated and sustained educationaltraining and skills development initiative to address identified gaps.Recommendation 08The <strong>Malta</strong> Enterprise together with the knowledge providers, the Employment and TrainingCorporation and industry are to carry out an extensive skills audit and profiling that will result in along-term coordinated and sustained human capital development programme that will provideindustry with the right quality skills <strong>for</strong> the right jobs at the right time.Second. Whilst the ef<strong>for</strong>ts to address the gaps by positively tilting students and youths to high skilledemployment in the labour market will be addressed through the a<strong>for</strong>e mentioned recommendations,obstacles to the mobility of high-skilled workers and researchers to <strong>Malta</strong> should be identified andremoved in order to provide the industry, in the immediate and short-term with the human resourcecapital it requires to engender growth and address challenges and optimise opportunities as theyarise.Recommendation 09Obstacles to the mobility of high-skilled workers and researchers to <strong>Malta</strong> should be identified andremoved in order to provide industry with the human capital capacity so essential <strong>for</strong> growth whilstlong-term ef<strong>for</strong>ts to achieve a quality indigenous high-skilled and research human capital base takesroot.06.2.6 Supporting Export Orientation with First-Class Marketing and Skills CompetencyHigher education is not adequately meeting the needs of industry in relation to sales and marketingskills. Difficulties in sourcing suitably qualified and experienced sales and marketing staff will limit thepotential of <strong>Malta</strong>’s industry to seek growth, primarily through exportation. Thus, growing the nationalpool of sales and marketing skills and talent to exploit B2C e-commerce opportunities and the Internetas a sales distribution channel, particularly to penetrate new markets overseas, is a priority.Recommendation 10Agreement is to be reached with the University of <strong>Malta</strong> and other higher education institutions <strong>for</strong>the introduction of specialised sales and marketing studies directed to provide essential skills suchas how B2C e-commerce solutions and the Internet are to be optimised as market mediums andsales distribution channels in order to allow industry to leverage the global economy to expandoverseas.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 40
06.2.7 Safeguarding and Strengthening <strong>Malta</strong>’s Human Resources Comparative AdvantageThe observations arising from the consultation process in relation to the perceived decrease in thecommand of the English language, our multi-lingual ability, as well as a work ethic that is primed in the<strong>for</strong>mulative years of education are a matter of concern. The IS has not delved into the causes of thisperceived deterioration.Yet the fact that such observations have been made on a consistent basis across the ‘traditional’industry base, the high-tech industry, and the ‘new’ economy demand that action must be taken to (a)identify whether such deterioration is taking placing and, if so, to what extent; (b) the roots <strong>for</strong> thisperceived deterioration; and (c) the policy instruments to be adopted to halt this decline and reversethe trend.Recommendation 11A high level task <strong>for</strong>ce is constituted to review the concerns raised in the consultation process inrelation to the deterioration of the command of English, our multi-lingual ability, and work ethic andto propose policy instruments to safeguard <strong>Malta</strong>’s comparative advantage in this regard.06.3 Achieving Quality High Added-Value and Productivity Growth in <strong>Industry</strong>This section is directed, primarily, towards the first of the two-tiered strategic approach emphasised inSection 05.3 titled ‘Targeting Growth in <strong>Industry</strong>’. It seeks to provide measures of how existingindustry is to be supported to restructure so that they strengthen their capacities in order that theyachieve quality high value-added and productivity growth to be able to successfully compete in theinternational market or to safe guard their domestic market.06.3.1 Upgrading <strong>Industry</strong> in Terms of Quality and StandardsThe notions of ‘quality’, safety’ ‘authenticity’, ‘good practice’ and ‘sustainability’ have on the one handbecome an expected supplier and consumer norm, and on the other hand become a more common,though subtle, hurdle to trade in terms of the export market. 38 Thus, international call <strong>for</strong> tendersinvariably request that participating firms must hold appropriate accreditation to be able to compete<strong>for</strong> such bids with accreditation being of a general nature, <strong>for</strong> example ISO 9001:2000; of aspecialised nature, <strong>for</strong> example in terms of the ICT security industry ISO 17799 or BS 7799 or COBIT;and at an employee level, <strong>for</strong> example in terms of the ICT industry the need <strong>for</strong> PRINCE 2 <strong>for</strong> staff toact as project managers, and ITIL <strong>for</strong> staff in infrastructure services provision.In terms of producers of the domestic market, importations perceived to be of a higher quality than thelocal produce may make heavy in-roads to what was previously guaranteed local consumptiondemand.It is thus a necessity <strong>for</strong> local industry to increase their quality and high value-added throughinvestment in process re-design and improvement, and the adoption of international standards andaccreditation – both at an industry level, specialised level, and at a staff level. Quality managementsystems and other international standards enhance reputation and credibility. For this goal to be met,the implementation of such standards must be done effectively – as the cost of compliance may endup exceeding the gains in market share.38Pg 94, Capacity Building <strong>for</strong> Catching-up, Industrial Development Report 2005, Industrial Development Organisation, UnitedNations, Vienna 2005<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 41
Nevertheless, such certification and standards are critical if suppliers are to trans<strong>for</strong>m themselvesinto, say preferred vendors or outsourcers to large enterprises both locally and overseas where-inthey integrate directly in the vertical supply chain of such large firms; or to compete in the internationalmarket. The adoption of these standards provide a guarantee to established firms that the subcontractedor outsourced component will, with minimal quality assurance, loop directly into theirproduction line. Further to this, expansion into mature markets such as the Single Market can only besuccessful if the products or services meet expected levels of quality and assurance.Government has embarked on a strategy directed towards up-grading the quality and standardsenvironment of SMEs. The IS argues that this approach should be intensified as this constitutes afundamental leverage that assists SMEs to up-grade towards quality high value-added.The IS proposes a three-pronged approach. The first is the adoption of measures to verticallyintegrate suppliers with local or overseas large industries as either preferred vendors or outsourcers.This would require an upgrading process that would trans<strong>for</strong>m suppliers into preferred vendors oroutsourcers. This is discussed in Section 07.1.The second relates to a focused approach to up-grade SMEs to the relevant standards that areapplicable in their respective business areas to prepare SMEs, on the one hand, to be in a position tovie <strong>for</strong> opportunities where they can become the preferred vendors <strong>for</strong> industries overseas – bothregionally, in the single market, as well as elsewhere; and on the other, to compete in the internaldomestic market with <strong>for</strong>eign imports on a higher level of quality. The costs related to the applicationand adoption of standards may be prohibitive to SMEs given that this entails training of staff,documentation of procedures, opportunity cost, product certification, et al. Thus cost prohibition mustbe minimised so that SMEs are allowed to up-grade towards quality high value-added.Thus, the following <strong>for</strong>ms of assistance are proposed:- in the identification of the appropriate standards to apply <strong>for</strong> the market within which theindustry is competing;- in the training of staff to up-grade their skills with respect to the standards adopted.ME is to assess the existing assistance schemes in place and to put <strong>for</strong>ward recommendations of howthese can be calibrated or complemented to meet the goals set out in this section.Recommendation 12<strong>Malta</strong> Enterprise is to assess its current assistance schemes to industry and evaluate how these canbe calibrated or complemented so that support is provided to industry with respect to theidentification of appropriate standards to be adopted and in the training of staff to up-grade theirskills appropriately.The adoption of standards, if introduced strategically, should lead to increased productivity. Thisdemands that the implementation of standards constitutes a process of change and re<strong>for</strong>m, other thanmere transposition of in<strong>for</strong>mal procedures into <strong>for</strong>mal ones, directed to improve production processes.In essence, the investment in improving quality management systems and other internationalstandards and methodologies must result in an improved environment not only in terms of the qualityof the product itself but also in terms of productivity gains.Yet strategic trans<strong>for</strong>mation implies a high level of opportunity cost as well as competencies in changemanagement. Most SMEs may be constrained in managing both. Focusing on change at the cost ofreducing attention on the management of operations may not be sustainable. On the other hand, ifsuch trans<strong>for</strong>mation fails to take root, SMEs may face extinction as supplier relations as well asconsumer demand shifts to more quality oriented products.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 42
The IS argues that there is merit to support SMEs that seek to up-grade their quality high value-addedby means of providing them with transition management skills that will facilitate successfultrans<strong>for</strong>mation.Recommendation 13Assistance in terms of trans<strong>for</strong>mation management assistance should be provided to SMEs that arecommitted to undergo a process of transition to increase their quality and achieve high value-added.The third relates to the role that Government should play in terms of rewarding firms that invest to upgradequality and achieve high value-added. Government must not only promote quality andexcellence but should leverage its purchasing power, which on average stands at approximately 16%of the GDP, to reward, in the most demonstrative manner, quality and excellence when securinggoods and services <strong>for</strong> its use.A trans<strong>for</strong>mation in <strong>gov</strong>ernment procurement would be necessary to achieve this. Increased qualityhigh value-added may result in a higher price (as an immediate investment though internationalstudies show that the return of investment of a quality product tends, over its lifetime, to have a lowerTotal Cost of Ownership – longer obsolence life cycle, decreased maintenance costs, lessper<strong>for</strong>mance issues, less opportunity cost whether this arises from downtime of equipment ofmachinery or people being idle due to a lower incidence of breakdown) than firms that <strong>for</strong>go quality inorder to win on the basis of ‘lowest price’ – though the end result is long-term competitivity of <strong>Malta</strong> asindustry will have a direct local incentive (or sanction) to achieve quality high value-added. Thus, amarked shift in the criterion <strong>for</strong> selection from that mainly of price to quality and track-record is anecessity as Government will unequivocally demonstrate that achieving ‘quality and high valueaddedness’positively pays.Further to this, Government will introduce at the earliest possible a preferred suppliers <strong>for</strong> goods andservices framework where-in firms are selected on the basis of quality high value-added, and trackrecord as well as price. It is pertinent to underline that such a preferred suppliers framework <strong>for</strong>goods and services would not be unique to <strong>Malta</strong>. The Office of Government Commerce in the UnitedKingdom, <strong>for</strong> example, operates the G(oods)-Cat(alogue) and S(ervices)-Cat(alogue) respectively.Recommendation 14Government will demonstrate that achieving quality high value-added as well as a successful trackrecord positively pays and to facilitate this process will seek to introduce a Preferred Goods andServices Suppliers framework.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 43
06.3.2 Securing Productivity GrowthCompetitivity is intrinsically linked with an industry’s ability to secure growth through higherproductivity and output as this reduces an entity’s cost base. Further to this, productivity growth isintrinsically correlated to the application and optimisation of ICT:“The benefits from ICT production and use materialises through various possibilities and through changes ina variety of business practices. Essentially, the role of ICT in enterprises is one of processing in<strong>for</strong>mationand, thus, reducing co-ordination costs (<strong>for</strong> example, inventory management) that are endemic in adecentralised economy. Firms clearly benefit from improvements in the organisation of production anddistribution, from better inventory management … Firms can thus respond more effectively to changes in thedemand of their products. The use of ICT could also make possible an improvement in competitiveconditions, thus increasing efficiency and reducing prices. Finally the emergence of new industries andsectors has only been possible because of the intensive use of ICT.Productivity growth in mature economies is determined less by capital accumulation and more by innovationoriginating in private and public institutions and within firms.”. 39The application of ICT, there<strong>for</strong>e, either as a means of its direct impact on productivity as a result ofstrategic investment or as an indirect impact by means of applying B2B or a B2C e-commercesolutions assumes a critical dimension <strong>for</strong> the success of industry – existing or new.<strong>Industry</strong> must be encouraged to adopt and optimise ICT and technology so that increased productivitygains can be secured. The National ICT <strong>Strategy</strong> drawn up by MIIIT sets out targets to be achievedby the end of this year to promote ICT culture within SMEs so that they derive direct benefits throughthe use of ICT in their operations.The articulation of a specific National B2B and B2C e-Commerce <strong>Strategy</strong> that focuses on theapplication of ICT and technology within industry in order to maximise productivity growth is seen as anatural next evolutionary step to build further on the business related thrusts set out in the NationalICT <strong>Strategy</strong>. <strong>Malta</strong> requires a specific ICT <strong>Strategy</strong> that focuses directly on the application of ICT <strong>for</strong>industry use – whether this relates to technology intensive investment, B2B initiatives such inventoryintegration, of <strong>for</strong> market penetration both locally and overseas.Government is thus committed that through its appropriate entities it shall:- continue to promulgate to industry knowledge on the powerful impacts of ICT onproductivity;- assist through specialist ICT and technology advice and consultancy on matters relating toICT and technology acquisition to industry that show an active determination to up-grade toquality high value-added and productivity growth.Recommendation 15Government recognises the increasingly strong correlation between ICT and productivity growth andwill articulate a strategy <strong>for</strong> the promulgation of Business-to-Business e-commerce and Business-to-Consumer e-commerce solutions by industry.39Pg 8, Productivity: The Key to Competitiveness of European Economies and Enterprises, 21 st May 2002, COM(2002) 262final, [SEC(2002) 528], Brussels<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 44
06.4 Clustering and Networking <strong>Industry</strong> and GovernmentThe IS argues that given the structure of local as well as FDI industry in <strong>Malta</strong> the development ofclustering and networking strategies to synergise Maltese industry at a local level as well as at aregional and international level is an important policy instrument that should be strategically adopted.Clustering and networking if applied intelligently should provide the following benefits: 40- an increased focus on the micro-economy business environment as opposed to a traditionalmacro focus;- a long-term agenda to improve competitiveness of clusters rather than individual firms;- improved networking among cluster firms, trust-building, and enhanced dialogue amongstall the parties and stake holder to create spill-overs;- the provision of seed money rather than large subsidies;- a balanced input of resources from <strong>gov</strong>ernment and industry;- a mix of competition and co-operation as underlying drivers of learning and innovation;- a mix of SMEs and large firms participating;- partnerships across the ‘triple helix’, involving not only cluster firms and <strong>gov</strong>ernment, butalso higher education institutions;- learning and innovation based on a systems-view rather than on isolated firms;- a higher level of efficiency as clusters draw on more specialised assets and suppliers withshorter reaction times than they would in isolation;an improved base to reduce costs by aggregating economies of scale to enable industry toposition itself better to compete in the domestic market and overseas as appropriate.The IS proposes three cluster initiatives <strong>for</strong> activation directed to assist industry to meet the Visionproposed.06.4.1 Activating Supply Chain Vendors Clusters Initiatives (SCVCI)A SCVCI activation will bring together a large industry and a satellite of SMEs as well as knowledgeinstitutions supplying products, services and potentially R&D&I solutions to the said industry. Theobjective of a SCVCI would be that of injecting within the supply chain of the industry components,products, services, or R&D&I of a certifiable quality that would, with, minimal testing at the industrylevel, directly move into its production, service or R&D&I production and / or development processchain.The benefits to the stakeholders within the SCVCI can be various. In terms of the large industry, thebenefits will include a cadre of preferred vendors that understand the said industry and provideservices, goods and innovation at the right quality level as demanded by it thereby minimising theneed, <strong>for</strong> example, to import components et al. Moreover, a cluster of quality preferred vendors oroutsourcers may allow the industry to hive-off, or divest non-core business components therebyreducing its structured cost base.Furthermore, integrating vendors, outsourcers or innovation providers within the supply chain will helpthe industry to reduce or share its inventory and stock base and thereby minimise on its overheads.ICT can be leveraged to allow <strong>for</strong> effective supplier and outsourcing management by virtuallyintegrating the relevant functions thereby allowing <strong>for</strong> improved effectiveness.In relation to the supply or outsourcing providers integrating within the industry supply chain willdemand that they up-grade the quality of their products and services, the adoption of the appropriatestandards and the grafting of their production and revenue streams to a guaranteed market. It canalso open up opportunities to extend their integrated supply services to enterprises located overseas.40Pg 15, Solvell, O., Lindqvist, G., and Ketels, C., Porter, M, E. (<strong>for</strong>eward), The Cluster Initiative Greenbook, Bromma tryck AB,Stockholm, 2003<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 45
The SCVCI can be established in many, if not most of the FDI or local industry sectors – in rubber andplastics, electrical engineering, mechanical engineering to mention a few. A SCVCI can also beprimed to allow local industry to act as preferred vendors et al <strong>for</strong> regional and international firms sitedoverseas. It is pertinent to underline that a SCVCI can be activated in the ‘new’ economy as well asthe ‘traditional’ economy.Nevertheless, the creation of SCVCs is dependent on one fundamental premise: that the supplychain providers are able to meet the quality and standards demands of the industry or enterprise. Inmost probability, this will require comprehensive upgrading of suppliers to pre-qualification standardsestablished by the industry or demanded by the industry sector and activity so that SMEs trans<strong>for</strong>mfrom simple suppliers to preferred vendors or outsourcers. The recommendations made in Section06.3 are directed to facilitate such trans<strong>for</strong>mation.The Diagram 01 below demonstrates the interaction of an activated SCVCI:Activated Supply Chain Vendors Cluster<strong>Malta</strong> EnterpriseLarge <strong>Industry</strong> / Enterprise(Local / FDI / Overseas)IncentivesIntegrated Supply ChainPreferred Vendor APreferred Outsourcer CDivested ActivityProvider ‘n’IncentivesTrans<strong>for</strong>mation ProcessProcess ImprovementProduct ImprovementStandards ImprovementChange ManagementHealth and Safety ImprovementEnvironment ImprovementSkills ImprovementTechnology ImprovementICT ImprovementProductivity ImprovementSupplier ASupplier BSupplier C Supplier D Supplier ‘n’A number of prerequisites are necessary <strong>for</strong> activating of SCVCIs. First. An industry should beincentivised to adopt a SCVC. This requires a re-orientation of current industry incentive schemes toones designed to intensify the level of assistance to local as well as FDI industries that are ready totrans<strong>for</strong>m their current operations to one that is based on a SCVCI. In essence, a firm adopting aSCVCI approach will get a higher intensity of assistance than one that does not.The decision to assist an industry in the activation of a SCVCI should be based on the quality highvalue-added and productivity activated growth that a particular activated initiative will have on SMEsand other supply providers. Furthermore the application of B2B e-commerce solutions becomeimportant tools to increase the productivity growth of the activated SCVCI.The decision of suppliers that will constitute part of the SCVCI process leading to their trans<strong>for</strong>mationinto preferred vendors et al should be left entirely in the hands of the industry. The <strong>gov</strong>ernmentcannot, nor should it seek to impose the supply or outsourcing vendors onto the industry. Theparticipation of <strong>gov</strong>ernment, in this regard, should be at the target sector and activity level, to ensurethat the choice of where assistance towards activation should be directed should rest on the SCVCIthat will secure the largest long-term multiplier effect that will result in increased quality high valueaddedand productivity growth to be attained in the targeted micro-economic sector.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 46
It is pertinent to underline that the NSRI identifies the upgrading of the quality high value-added ofindustry as one of the four plat<strong>for</strong>ms of strategic importance.Recommendation 16<strong>Malta</strong> Enterprise introduces an assistance scheme directed to activate Supply Chain VendorClusters in the ‘traditional industries’ as well as the ‘new’ economy with assistance directed tofacilitate the trans<strong>for</strong>mation of suppliers into preferred vendors et al, and in managing thetrans<strong>for</strong>mation process.06.4.2 Activating <strong>Industry</strong> Grouping Clusters Initiatives (IGCI)The IGCI will be directed to bring together industries that operate within the same industry sector oractivity to pool resources on various activities to mobilise critical mass within industry <strong>for</strong> both the localand overseas market. Activities may include, amongst others, all or any of the groups listed below:Activity GroupJoint ProductionActivitiesPromote joint purchasingPromote joint logisticsPromote joint or bundled productionPromote supply chain developmentJoint salesConduct joint branding or products / servicesConduct joint branding of regionConduct joint promotion of <strong>for</strong>eign marketsHuman Resource UpgradingProvide technical trainingProvide management trainingPromote production process improvementEstablish technical standards <strong>for</strong> the industryImprove education systemIntelligenceCollect market intelligenceAnalyse and in<strong>for</strong>m about technical trendsBusiness EnvironmentPromote changes in <strong>gov</strong>ernment regulations and policyFirm FormationProvide incubator servicesPromote spin-off <strong>for</strong>mationPromote business servicesJoint R&DPromote joint R&D projects.The benefits to firms participating in an IGCI are:- shared risks, where-in firms share the cost and risk of major innovations, marketdevelopment, consultancy, equipment;- increased economies of scale as particular supplies, research, equipment, waste disposalet al can be pooled thereby decreasing the unit cost to individual industry;- enhanced learning, where-in co-operation between IGCI partners can transfer knowledge,experiences, suppliers, organisational practices et al thereby decreasing the cost of ‘trialand error’ or re-inventing the wheel;<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 47
- pooled development of human resources, where labour supply difficulties can be met byorganising joint training independently or with the higher education institutions and therebyminimising the potential wage inflation spiral effect as scarce resources are poached;- institutional plat<strong>for</strong>ms <strong>for</strong> industry, higher education institutions and <strong>gov</strong>ernment cooperationwhere each party can develop a shared understanding of and response toopportunities and challenges, establish trust, and where public administration becomes anactive partner to the IGCI seeking to provide solutions to and facilitate resolution ofproblems that fall within the <strong>gov</strong>ernment domain;- aggregating critical mass to reduce costs so that industries within the cluster activity arebetter positioned to compete.This demands that an IGCI would require the constitution of a powerful Steering Group that will bringtogether the senior representatives of public administration as well as the key players of the industrysector or activity and higher education institutions within the IGCI on an on-going basis so that issuesare resolved with expediency, relationships are <strong>for</strong>ged, critical mass aggregation strategies designedand embarked upon.Studies of cluster initiatives overseas similar to the IGCI proposed, show that success demands theappointment of a Cluster Co-ordinator with the brief to co-ordinate and support the cluster activities.Experience also shows that the Cluster Co-ordinator should originate from the industry sector oractivity represented within the said IGCI.Diagram 02 below demonstrates the interaction of an activated IGCI:The IS argues that IGCIs should be considered as tools <strong>for</strong> economic growth where all clustergroupings of this kind are considered as important in so far that they seek to achieve quality highvalue-added and productivity growth and are ambitiously motivated to expand their operationsoverseas. In essence, the suggested thrust is to activate IGCIs as against targeting specific on thebasis that the participants demonstrate quantitatively and qualitatively of how the activation of an IGCIwill result in quality high value-added and productivity growth on the one hand, and export growth onthe other. The IS thus proposes that the IGCI is structured on the basis of an open invitation withincentives directed towards cluster activation – mainly the engagement of the Cluster Co-ordinator.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 48
Recommendation 17<strong>Malta</strong> Enterprise introduces an assistance scheme directed to activate <strong>Industry</strong> Grouping ClustersInitiatives (IGCI) by supporting the engagement from industry of Cluster Co-ordinators, with the IGCIbeing established on the basis of open invitation subject to demonstration of the quality high valueadded,productivity growth and export penetration that will result from the said IGCI.06.4.3 Activating Targeted National Clusters Initiatives (TNCI)The IS argues that there is merit in adopting a third cluster initiative – that of activating TNCIs. TNCIsshould be directed towards economic sectors which although under-developed have significantopportunity <strong>for</strong> economic development and growth – particularly export oriented. The benefits toindustry participating in a TNCI are similar to those related with the IGCI but would have a strongerfocus on working together in establishing the various elements of the sector under a particular brandand in jointly engaging in promotions to build a market – internationally as well as locally – <strong>for</strong> thebrand.The application of the TNCI is best shown through an example. Gozo has massive tourism potentialdue to its rural landscape – a haven that compares well with Tuscany <strong>for</strong> example. <strong>Malta</strong> is rich inindigenous local products – some of which have won international awards – and others with potential<strong>for</strong> export in the event that they reach, <strong>for</strong> example, international food processing standards. <strong>Malta</strong> isalso rich in local crafts. All these ingredients have excellent opportunities – clustered they can makea winning <strong>for</strong>mula as they bring together a beautiful Mediterranean landscape with indigenous foodproducts and beverages with local crafts and artifacts. Yet to date most of these elements have notbeen aggregated into an indigenous branded product.The purpose of a TNCI in this regard would be that of bring together all the various elements underone branded image, supported by the building of robust marketing channels directed at both exportand local consumption. In essence this would require the activation of a TNCI that would act as anExport and Marketing Shop which will synergise the various constituent parts and apply leveragestemming from a critical mass to sell these products to, <strong>for</strong> example, hotel chains as well ashypermarkets overseas.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 49
The TNCI there<strong>for</strong>e has two roles. The first is internal. It will bring together the constituent partswithin the industry and <strong>gov</strong>ernment that <strong>for</strong>m the cluster. It will synergise them together to create abrand that represents that total sum of the products within that cluster. It will ensure that <strong>gov</strong>ernmententities become partners within the cluster and work pro-actively to promulgate the brand.The second role is external. Once the brand is set up it will work to market the brand, both <strong>for</strong> thedomestic market, where so relevant, as well as to act as the ‘export shop’ <strong>for</strong> the brand. As an ‘exportshop’ it will assume an aggressive role – whether this relates to marketing, business intelligence,networking, exposition et al.Moreover it would strive to establish B2C e-commerce solutions to market and promote the brand andthe clustered products and services within the brand, as well as B2B e-commerce solutions toincrease productivity growth within the activated TNCI.Recommendation 18<strong>Malta</strong> Enterprise introduces an assistance scheme directed to activate Targeted National ClustersInitiatives on designated sectors and activities.For the proposed cluster and networking initiatives to work trust amongst and within industry is offundamental importance. The constituted bodies representing industry have a key role to play tofacilitate the institutionalisation of trust amongst the industry community.Recommendation 19Clusters will successfully work if industries perceive each other as allies and the establishment oftrust is a key goal that their constituted bodies are to facilitate.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 50
06.5 Incentivising the Research, Development and Innovation (R&D&I) CapacityThe primary policy tool adopted in <strong>Malta</strong> to incentivise R&D&I is that of fiscal instruments. It is arguedthat this should continue to be the financial instrument of choice as fiscal measures have a number ofdirect advantages 41 :- The private sector decides what is the most productive way to invest; which thus reducesthe risk of <strong>gov</strong>ernment failure.- Ex-ante companies have the certainty that financial support by means of tax-credit will beavailable, if the necessary requirements are met.- Such measures are simpler <strong>for</strong> the <strong>gov</strong>ernment to implement and should be lesscomplicated to comply by industry, resulting in low administrative costs when compared todirect financial incentives <strong>for</strong> both parties.- Measures usually do not depend on the amount of available funds but on conditionsestablished in fiscal rules.- Because of the usually relatively large take-up of fiscal measures, they are likely to have theeffect of political recognition of companies investing in R&D&I.- Fiscal integrity may be improved as the existence of fiscal measures <strong>for</strong> R&D&I mayencourage companies to report their profits more accurately.The fiscal measures currently in place are presented in Appendix F.06.5.1 Re-defining Research, Development and Innovation to Incorporate Skills, Processes andServicesLegal Notice 330 establishes the eligibility criteria <strong>for</strong> R&D&I fiscal aid. The introduction of therecommendations proposed in the IS necessitate a review of the R&D&I fiscal aid plat<strong>for</strong>m in order toensure that they are aligned with the said recommendations.As a first instance the definition that <strong>Malta</strong> applies <strong>for</strong> R&D&I State Aid entitlement should be suchthat reflects the definition that the Commission applies <strong>for</strong> such aid so that industry is not placed at adisadvantage when compared to their EU counterparts. In this regard the R&D&I State Aid definitionsshould be broadened to encompass not only technology and product development but to include aswell services and skills. 4241Pg 30 Expert Group on Fiscal Measures <strong>for</strong> Research, CREST, 15 th June 2004, The Hague42The EU Commission in its document titled: Community Framework <strong>for</strong> State Aid Research and Development and Innovation,Staff Paper, Preliminary Draft 20 th April 2006:(a) defines “fundamental research” to mean “experimental or theoretical work undertaken primarily to acquire newknowledge of the underlying foundations of phenomena and observable facts, without any direct practical application or use inview”; and(b) includes “acquisition of new knowledge and skills … [and comprises] the creation of complex systems, necessary <strong>for</strong>the industrial research …” to the definition of ‘industrial research’; and(c) includes “new altered or improved products, processes or services. These may include e.g. other activities aimed atthe conceptual definition, planning and documentation of new products, processes and services. The activities may compriseproducing drafts, drawings, plans and other documentation provided that they are not intended <strong>for</strong> commercial use” to thedefinition of “experimental development”.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 51
Recommendation 20<strong>Malta</strong> will seek to adopt the definitions that the EU Commission adopts <strong>for</strong> R&D&I so that industry ispositioned on the same level playing field as their EU counterparts <strong>for</strong> eligibility of R&D&I State Aidunder EU rules.06.5.2 Intensifying Aid to <strong>Industry</strong> Clustering with SMEs and Higher Education InstitutionsThe eligibility criteria too should be redefined to allow bias intensity <strong>for</strong> fiscal aid <strong>for</strong> R&D&I towardsthose industries that cluster with SMEs and higher education institutions. This redefinition of eligibilitycriteria <strong>for</strong> State Aid biased towards a higher level of intensity of aid is central to the clusteringrecommendations proposed earlier in the IS as this will provide <strong>for</strong> a powerful leverage to enablecluster activation.This, as is shown in Section 06.5.3 below, too is consistent with the new thinking <strong>for</strong> R&D&I State Aidby the EU Commission directed to incentivise clusters activation.Recommendation 21The criterion <strong>for</strong> eligibility <strong>for</strong> fiscal aid <strong>for</strong> R&D&I should provide <strong>for</strong> a higher intensification of suchaid <strong>for</strong> firms that cluster with SMEs and higher education institutions.06.5.3 Adopting the EU Commission Review of State Aid <strong>for</strong> R&D&IThe EU Commission in the Community Framework <strong>for</strong> State Aid <strong>for</strong> R&D&I proposes the followingmeasures:(i)Aid <strong>for</strong> R&D&I ProjectsThe following aid intensities are proposed:Small EnterpriseMedium SizedEnterpriseLarge EnterpriseFundamental Research 100% 100% 100%Industrial Research 65% 60% 50%Industrial Research subject to (i)collaborationbetweenundertakings (<strong>for</strong> largeundertakings: cross border orwith at least one SME); or (ii)collaboration with a publicresearch body; or (iii)dissemination of results80% 75% 65%Experimental Development [35]% [30]% [20]%Experimental Developmentsubject to (i) collaborationbetween undertakings (<strong>for</strong> largeundertakings: cross border orwith at least one SME); or (ii)collaboration with a publicresearch body[50]% [45]% [35]%<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 52
(ii)Aid <strong>for</strong> Technical Feasibility StudiesThe following aid intensities are proposed:- SMEs: 75% <strong>for</strong> studies preparatory to industrial research activities and 50% <strong>for</strong> studiespreparatory to experimental development activities.- Large enterprises: 65% <strong>for</strong> studies preparatory to industrial research activities and 35% <strong>for</strong>studies preparatory to experimental development activities.(iii)Aid <strong>for</strong> Young Innovative EnterprisesAid to young innovative enterprises to an amount of Euro 1million may be provided subject to certainconditions such as that the R&D carries a risk of technological or industrial failure or that the R&Dexpenses represent a minimum of 15% of its total operating expenses and that the young innovativeenterprises would have been in existence <strong>for</strong> less than 5 years.(iv)Aid <strong>for</strong> Process and Organisational Innovation in ServicesAid intensity to a maximum of 25% <strong>for</strong> SMEs and of 15% <strong>for</strong> large companies, with large companiesbeing eligible only if they collaborate with SMEs whereby the collaborating SMEs must incur at least30% of the eligible costs are to be provided subject to certain conditions. Conditions includeorganisational innovation exploiting ICT and that the end result is the development of a standard.(v)Aid <strong>for</strong> Innovation Advisory Services and Aid <strong>for</strong> Innovation Support ServicesThis instrument is open to SMEs only and up to a maximum of Euro 200,000 within any three yearperiod subject to certain conditions which include that services must be purchased at market price.(vi)Aid <strong>for</strong> the Loan of Highly Qualified PersonnelAid intensity to the maximum of 50% of the eligible costs <strong>for</strong> a maximum of 3 years per undertakingand person borrowed is to be made available to SMEs receiving personnel on loan from a universityor from a large undertaking.(vii)Aid <strong>for</strong> Innovation ClustersInvestment aid may be made available to the legal entity setting up or expanding an innovation cluster<strong>for</strong> facilities relating to (i) training and research centres; (ii) open-access research infrastructure suchas laboratory and testing facilities; and (iii) broadband network infrastructures. The maximum aidintensity is 15%. In the case of a small enterprise this may be a maximum of 30% and 25% <strong>for</strong> aSME.(viii)Aid <strong>for</strong> Cluster AnimationInvestment aid may be granted to the legal entity operating the innovation cluster to cover theanimation of the cluster including networking, technology transfer and training <strong>for</strong> a maximum of fiveyears. Aid intensities cover the personnel costs <strong>for</strong> one project manager and one assistant annuallyand administrative costs of Euro 5,000 per annum <strong>for</strong> each activity within a cluster.Here too, <strong>Malta</strong> should seek to adopt the State Aid instruments as will be <strong>for</strong>mulated by the EU laterthis year in order to ensure that Maltese industry enjoys a level playing field with their EUcounterparts.This <strong>Strategy</strong> re-in<strong>for</strong>ces the argument made in NSRI, that R&D&I is one of the pivotal leverages <strong>for</strong>economic growth and development. The multiplier effect of these measures as a result of thestimulation given to the economy and industry – whether through more employment, upgrading ofexisting industry et al are bound to provide added impetus to the economic growth of the country.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 53
Recommendation 22<strong>Malta</strong> will seek to adopt the State Aid instruments that the EU Commission adopts <strong>for</strong> R&D&I so thatindustry is positioned on a level playing field as their EU counterparts <strong>for</strong> R&D&I State Aid under EUrules.Increasingly, R&D&I relies on computers and software tools as against or instead of physicalmaterials and staff time. The nature of R&D&I is such that, to support each successive generation ofR&D&I such advanced software will need to be replaced or up-graded frequently. Often suchsoftware is purchased under licence and the licence is time limited 43 . Government will, through itsentities seek, to influence the EU to positively adopt this matter.Recommendation 23Government will seek to influence the EU to recognise expenditure related to licences <strong>for</strong> R&D&Iadvanced software as legitimate R&D&I State Aid.06.5.4 Incentivising the Uptake of S&T Popularisation as a Corporate Responsibility by <strong>Industry</strong>The NSRI proposes that industry in <strong>Malta</strong> should be incentivised to donate funds <strong>for</strong> S&Tpopularisation related activities. Government will actively consider the NSRI recommendation ofwhether donations up to a set maximum value annually should be subject to a tax relief.Recommendation 24Government will actively consider the National <strong>Strategy</strong> <strong>for</strong> Research and Innovationrecommendation that donations by industry to a set maximum value <strong>for</strong> S&T education andpopularisation measures will be subject to a tax relief.06.5.5 Achieving Government to <strong>Industry</strong> Partnership to Finance Horizontal Business Driven R&D&IInitiativesThe IS argues that it is paramount that Government-and industry come together on the matter ofR&D&I on a national basis. The strengthening of the infrastructural capacity <strong>for</strong> R&D&I goes beyondthe provision of fiscal incentives as well as the building of the SET human capital. General upgradingof knowledge and skills such relating to legal, patent as well as other R&D&I matters, the building ofcentres of excellence, as well access of R&D&I financial resources within and outside the EU is ofparamount importance and beneficial to industry in general.The IS proposes that the Government should work with industry to establish an <strong>Industry</strong> R&D&I Fund,managed by a joint board of <strong>gov</strong>ernors, directed to strengthen the infrastructural capacity <strong>for</strong> R&D&Iwhere-in Government will complement finance contributed by industry by one-third of the valueinjected – reflecting the 1% Government and 2% private sector R&D&I GDP target established by theLisbon Agenda – to a set maximum value.43Pg 21, Defining Innovation: A Consultation on the Definition of R&D <strong>for</strong> Tax Purposes, HM Treasury, DTI and InlandRevenue, July 2003, United Kingdom<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 54
Recommendation 25Government will actively consider the establishment of a Government-to-<strong>Industry</strong> R&D&I funddirected to strengthen the national infrastructural capacity <strong>for</strong> R&D&I where-in Government willcomplement by 1/3 (that is its share under the Lisbon Agenda R&D&I GDP target) contributionsmade by industry in any one year to a set maximum value.06.6 Enabling Access to Finance06.6.1 Improving Accessibility to GuaranteesThe Spring 2006 European Council concluded that improving SMEs’ access to finance is one of thekey factors <strong>for</strong> business expansion, job creation and economic growth. The resolution to this issuerequires re<strong>for</strong>m in both the supply and demand side of finance. 44In <strong>Malta</strong>, to date, the primary source of external finance to industry are bank loans. Banks usuallyrequire collateral against their lending and <strong>for</strong> SMEs that are investing in intellectual property andintangibles and that do not have collateral, the lack of availability of external guarantees to secureaccess to loans is a serious impediment to growth.Thus the resolution of the issue of guarantees is critical. The NSRI recommends that the proposedR&I National Investment Programme should support access to financing of seed capital <strong>for</strong> R&Ibusiness driven investment to mitigate the issue of collateral. Other instruments, however, exist –such as the establishment of mutual guarantee societies, asset-backed securities and covered bondsinstruments, and supplier credit.The IS thus recommends that the <strong>Malta</strong> Financial Services Authority (MFSA) should look at newguarantee instruments that if introduced could have a large effect on the lending volume available toSMEs.Recommendation 26The <strong>Malta</strong> Financial Services Authority should look at new guarantee instruments that can beintroduced to increase the lending volume available to SMEs.06.6.2 Institutionalising a Business Angels Network<strong>Malta</strong> has to date experienced few if any private investors that are ready to finance an entrepreneurialidea that would result in a commercially viable product or service. Whilst an initiative has beenundertaken in the recent past to activate Business Angels this met with little success.Business Angels are flexible investors who can lower the riskiness of their deals by providing handson-advicebased on personal experience to the entrepreneurs and thus increase their chances ofsuccess. Business Angels are thus an essential part of the financing food chain and from a policyperspective it is important that they take root in <strong>Malta</strong>, and in doing so are integrated with othersources of funding.It is pertinent to underline that European Member States have applied tax incentives as well assubsidies to non-profit Business Angels Networks to encourage more Angel finance.44Pg2, Annex III to Communication from the Commission titled ‘Implementing the Community Lisbon Agenda: Financing SMEGrowth – Adding European Value, Commission Staff Working Document, SEC(2006) 84/2, 29 th June 2006, Brussels<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 55
The concept of Business Angels continues to be too an important goal to <strong>for</strong>ego if <strong>Malta</strong> is to fosterentrepreneurship, innovation and growth. A review, which should include consultation with privateinvestors, should be carried out to understand why the Business Angels scheme failed to take rootand to re-launch this scheme on the basis of lessons learnt.Recommendation 27<strong>Malta</strong> Enterprise, together with other public authorities and the private sector, should study why theBusiness Angels scheme failed and re-launch a new scheme on the basis of lessons learnt so thatBusiness Angels become an active part of the environment necessary to foster entrepreneurship,innovation and growth.06.6.3 Activating Venture CapitalEntrepreneurship is a major driver of innovation, competitiveness and growth. Yet a number of goodentrepreneurial concepts fail to start-up due to the absence of financing. Passion, perseverance anddedication go a long way in determining the success of an enterprise but such traits can only take thebusiness so far. Access to Venture Capital is there<strong>for</strong>e critical if concepts are to be translated to startups,and start-ups to grow.Venture Capital relates to investment in unquoted enterprises by investment funds (venture capitalfunds) that, acting as principals, manage individual, institutional or in-house money. It includes earlystageand expansion financing, but does not include replacement and buy-outs. Venture Capital couldwell be the key to help would-be entrepreneurs trans<strong>for</strong>m their innovative business ideas into creativeconcrete results.The idea of setting up a Venture Capital Fund in <strong>Malta</strong> is not new. Nevertheless, to date, VentureCapital Funds in <strong>Malta</strong> still remain a concept. The setting up of proper Venture Capital funds will,undoubtedly, increase the amount of private investment capital available <strong>for</strong> <strong>Malta</strong>-based enterprisesin the seed or early stage of business development as well as provide finance <strong>for</strong> innovativeprocesses, ideas and techniques.The relevant authorities should strive to conclude the good work already done in this area. RecentlyMIMCOL was appointed to issue a Request <strong>for</strong> Proposals to solicit proposals from entities interestedin and qualified to serve as a Fund Manager <strong>for</strong> a proposed Venture Capital Fund to be establishedwith seed capital investment of Lm300,000 per annum <strong>for</strong> the first 3 years, which seed capital is to beprovided by Government. In addition, the Fund is expected to generate further funding of not lessthan Lm10 million from external investors. To assist the Fund to raise finances, L.N. 50 of 2006authorises the issuance of tax credits that support the repayment of the principal and interest oninvestments in the Fund.The appointment of a Fund Manager to manage the first ever Venture Capital in <strong>Malta</strong> is a strongpositive signal of Government’s determination to ensure that <strong>Malta</strong>-based industries in the seed orearly stage of business development will have access to Venture Capital.Recommendation 28The Fund Manager should strive to attract a healthy share of external finance and investments in theVenture capital fund in addition to the seed capital provided by Government.<strong>Malta</strong> Enterprise should work in tandem with the appointed Fund Manager to ensure that innovativeideas generated by would-be entrepreneurs are registered accordingly and given the requiredassistance to further develop and concretise their innovative business ideas.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 56
06.6.4 Facilitating Credit InsuranceThe market in <strong>Malta</strong> in the sector of credit insurance is moribund. Demand <strong>for</strong> this service has, atbest, been weak – and may be unaf<strong>for</strong>dable <strong>for</strong> SMEs with low-level interaction. Consequently supplyproviders have been reluctant to enter into the market. Yet, given arising economic challenges, creditinsurance is increasingly being requested by international suppliers of goods and raw materials.Credit insurance firms investigate the credit worthiness of customers and prospects and monitorspossible changes in the financial and general position of debtors. Thus a credit insurance provides adegree of security in terms of the collection of revenue due, or guarantee purchase payments. Creditinsurance there<strong>for</strong>e provide mitigation of risk <strong>for</strong> export oriented industries, as well as those seeking toexplore new markets, those broadening their product range or those operating in high-risk sectors.Moreover, credit insurance may be a powerful instrument to manage short-term liquidity risks inbusiness-to-business activities and <strong>for</strong> improving a company’s risk management – though it is not asubstitute <strong>for</strong> long-term loan finance.Recommendation 29The <strong>Malta</strong> Financial Services Authority and the <strong>Malta</strong> Enterprise should make industry aware of thebenefits of utilising credit insurance and if demand remains small in <strong>Malta</strong> provide routing support tointernational credit firms of repute to those industries that wish to use their services.06.6.5 Promulgating Knowledge on Sources of FinanceGrowth entrepreneurship requires the potential, the willingness, and the knowledge to grow.Achieving growth and wealth implies that industrialists have a willingness to share ownership withequity investors. Yet, in <strong>Malta</strong>, inspite of the establishment of the <strong>Malta</strong> Stock Exchange, the majorityof industrialists have, so far, shown that they are not ready to release partial control of theirenterprises and finance further growth through private equity.To be ready to seek investment, entrepreneurs should be able to identify appropriate sources offinance <strong>for</strong> their business.Recommendation 30The <strong>Malta</strong> Financial Services Authority, the <strong>Malta</strong> Stock Exchange and <strong>Malta</strong> Enterprise shouldsupport SMEs and start-ups through building knowledge and awareness by means of coachingtools, hands-on coaching schemes, access to best practices et al in terms of financing options.06.6.6 Strengthening Micro-credit <strong>for</strong> SMEsSmall and micro enterprises often face certain problems when they seek private finance <strong>for</strong> bothenterprise fixed capital investment and working capital. This insufficient supply of micro-loans is amajor issue, particularly where the entrepreneurs are unemployed persons or women. In this regard,micro-finance <strong>for</strong> new or existing small enterprises has been recognised as an issued by several EUCouncils of Ministers since 2000; particularly given that micro-loan supply is not only an issue ofentrepreneurship and economic growth, but also of social inclusion. 4545Pg 1, Micro-credit <strong>for</strong> European Small Businesses, Commission Staff Working Document, SEC(2004) 1156, 11 th September2004, Brussels<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 57
The importance of micro-loans in <strong>Malta</strong>, potentially gains greater importance given that a largepercentage of industry are in fact micro-enterprises. The IS recommends that the MFSA together withME should carry out a review to assess the degree of the presence of a micro-credit friendlyenvironment and to submit recommendations of how this can be improved.Recommendation 31The <strong>Malta</strong> Financial Services Authority together with <strong>Malta</strong> Enterprise should carry out a review toassess the degree of the presence of a micro-credit friendly environment and to submitrecommendations of how this can be improved.06.6.7 Monitoring Review of State Aid Rules <strong>for</strong> Risk CapitalThe EU Commission is reviewing State Aid Rules <strong>for</strong> risk capital in order to help Member Statesovercome “market failures in early stage finance … [with] the aim … to further stimulate investment inthe <strong>for</strong>m of risk capital, in particular in favour of start-ups and young innovative SMEs, where this canproperly address identified market failures. Particular emphasis will be directed toward the need toincrease the flexibility of current rules so they better reflect the different and time-varying levels ofequity gaps in the Member States, as well as to streamline the procedure <strong>for</strong> the assessment of casesreferred to the Commission.” 46It is thus imperative that the MFSA together with the ME influence the debate on this review so thatappropriate conditions are introduced that reflect intrinsic difficulties in <strong>Malta</strong> due to its inherentcomparative disadvantages, and that can be applied to achieve meaningful success within ourenvironment, characterised by diseconomies of scale.Recommendation 32The <strong>Malta</strong> Financial Services Authority and <strong>Malta</strong> Enterprise should influence the debate on thereview of State Aid Rules <strong>for</strong> Risk Capital so that appropriate conditions are introduced that reflectintrinsic difficulties in <strong>Malta</strong> due to its inherent comparative disadvantages, and that there<strong>for</strong>e beapplied to achieve meaningful success within the parameters of our environment.06.7 Re-vitalising the Essential Conditions and Infrastructure to Secure Competitivity06.7.1 An Essential Condition: The Management of InflationIn terms of domestic generated effects the Government will continuously strive to, amongst otheref<strong>for</strong>ts, ensure that the market functions, that regulatory initiatives do not result in inflationary impacts,and that the <strong>gov</strong>ernment as an employer does not spur wage inflation artificially by paying more thanthe market. In terms of international generated effects <strong>for</strong>ward national and macro-economic planningis important.Undoubtedly, the management of inflation must be such that this is not allowed to exceed thatexperienced by our competitors and to be within the EU25 threshold.46Pg 21, Best Practice of public support <strong>for</strong> early stage equity finance, Final Report of the Expert Group, EuropeanCommission, September 2005<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 58
Recommendation 33Government should continuously strive to manage inflation so this, to the extent possible, is notallowed to exceed the rate of inflation in the EU25 threshold as well as that of competing nations.It is pertinent, however, to state that inflation is effected by two other important local factors. Theseare industry on the one hand, and the unions on the other. <strong>Industry</strong> have an obligation to ensure thatthey do not unnecessarily create inflation – whether this is constituted through cartels (explicit orimplicit) or, whether within the context of particular regulatory regimes and select products they do notinflate their prices, or take advantage of structural changes – <strong>for</strong> example the introduction of theEURO - to increase their prices. It is Government’s obligation to rigorously survey the market and tointervene where there is market dysfunction; to protect both industry itself against the long-termnegative impacts of inflation as well as society at large. Government will maintain this responsibilityand apply it with rigour where so necessary.Recommendation 34<strong>Industry</strong> has an obligation not to unnecessarily create inflation and it is Government’s obligation torigorously survey the market and to intervene with rigour where market dysfunction occurs.There is no doubt that the role of the unions and constituted bodies is important. They have played amajor role in increasing the standards and benefits of the employees they represent. It is a role thatsociety requires so that the balance between the demands of industry and of employees are kept inequilibrium. Yet as with industry, unions too, have an obligation and a responsibility to ensure thatinflation is not artificially raised.The unions and constituted bodies should continuously balance the demands of their sectoralmembers interests as against those of society at large. In general, it is seen that both unions andconstituted bodies recognise that growth leads to greater prosperity and wealth; and that at times thewell-being of society in general must take precedence over sectoral interests. It is thus important thatthe unions and constituted bodies, without <strong>for</strong>egoing any parts of their responsibilities, should seeksolutions that are realisable and realistic and that ensure long-term growth and prosperity as againstshort-term gains and long-term pain. The achievement of goals should be through mature discussionand consultation as against threats and industrial action; which destabilises the macro-economicenvironment and which, ultimately, constitutes a threat to the well-being of the nation.Recommendation 35Unions and constituted bodies, without <strong>for</strong>egoing any parts of their responsibilities should seeksolutions, through consultation and negotiation that are realisable and realistic and that secure longtermnational growth and prosperity as against short-term sectoral gains and potentially long-termpain.06.7.2 Re<strong>for</strong>ming the Transportation and Logistics Service ChainGovernment has recently concluded the tender of the Grand Harbour port management, includingcargo handling. A private company is now chosen which Government is currently negotiating with inorder to re<strong>for</strong>m the entire port management process chain so that efficiency and economy is effected.The high cost of transportation of raw materials to <strong>Malta</strong> and the exportation of the final product isundoubtedly a key concern to industry. There is no need to replicate these arguments in the IS. Thecentral issue to the IS is the action that is being and should be taken in this regard. Government hasrecently awarded the tender of the Port of Valletta cargo handling concession at the Grand Harbour.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 59
Following several years of discussions with the various stakeholders and the drawing up of severalreports on port re<strong>for</strong>m strategy (most notably, the Hyder Report (1999) and the Ports ConsultativeCouncil Report (2001)), the award of this tender in June 2006 marks the first significant and tangiblestep in the re<strong>for</strong>m of the entire port management process chain with the ultimate objective ofincreasing the cost-effectiveness and competitiveness of <strong>Malta</strong>’s ports, industry and the economy ingeneral, as well as creating new business and employment opportunities.In this regard, Government is seeking to achieve these objectives through initiatives aimed atintroducing re<strong>for</strong>ms in port legislation, the introduction of new tariff systems, the overhauling of archaicoperational labour practices and the modernisation of nautical services. In particular, theestablishment of competitive port charges needs to be viewed in the context of the several serviceproviders operating within the ports. To begin with, the cargo handling operator within each of <strong>Malta</strong>’stwo international ports (Port of Valletta and <strong>Malta</strong> Freeport) operates exclusively within the respectiveport. In view of this exclusivity, both port terminal operators are regulated contractually with regardsto the maximum allowable charges that can be charged to receivers of domestic cargo. In the sameway, Government will also establish maximum tariffs that can be charged by the various exclusiveservice providers (port workers, <strong>for</strong>emen of port workers, and tally clerks) to the port operators, thusalso allowing the possibility of negotiated lower tariffs and port charges. Nautical services (maritimepilotage, mooring and towage) are similarly provided by exclusive service providers who themselvesare likewise regulated by maximum tariffs that can be charged to shipping lines. On the other hand,ship agents and hauliers operate in what is considered to be a liberalised environment and, as such,are regulated by market <strong>for</strong>ces and not by tariffication of charges.This approach will also lead to a fair and level playing ground between both ports through theprovision of the same maximum charges <strong>for</strong> cargo handling services using the same exclusiveregulated service providers in both ports. The establishment of the same maximum cargo handlingcharge <strong>for</strong> domestic cargo in both the Port of Valletta and the <strong>Malta</strong> Freeport may be achievedthrough the introduction of a regulated consolidated tariff, which consists of two components, namelythe terminal operator charge and the regulated service provider charge. In this way, and throughnegotiations with the regulated service providers, it would be up to each terminal operator as towhether it would be in a position to offer discounts or cost reductions to cargo receivers in order toattract an even larger share of the domestic cargo market.In as far as labour practices are concerned, discussions are currently under way betweenGovernment and the several exclusive regulated service providers. The maritime pilots already havea service agreement with the <strong>Malta</strong> Maritime Authority <strong>for</strong> the provision of exclusive maritime pilotageservices. A similar service agreement is also in place with the exclusive towage company whilediscussions are under way with the mooring men group in order to establish a similar serviceagreement. A draft ship agency act is currently being drawn up <strong>for</strong> discussion with the ship agents soas to provide a legal framework <strong>for</strong> the provision of ship agency services, while discussions are alsoto be held with the hauliers with the objective of improving the provision of haulage services toindustry.However, it is recognised that significant changes to labour practices are particularly required in theprovision of services given by port workers, <strong>for</strong>emen of port workers, and tally clerks so as to increaseefficiency and cost-effectiveness within our ports. One important initiative in this regard is theintroduction of a Certificate of Competence issued by the <strong>Malta</strong> Maritime Authority <strong>for</strong> a specificcategory of port work after obtaining a Certificate of Completion of training from a recognised traininginstitution, such as the MCAST. Terminal operators will hence<strong>for</strong>th be obliged to engage onlyindividuals in possession of a Certificate of Competence in order to provide port work. It is alsointended to provide clearer definitions of work which may be considered to fall under the regulation ofprescribed port services. The ultimate objective of these port re<strong>for</strong>m discussions are to bring about aculture change in the present archaic work practices in the ports, to ensure that services are paid onlywhere they are rendered, to achieve value <strong>for</strong> money and to make <strong>Malta</strong>’s ports more competitive,particularly with respect to rival Mediterranean ports. It is also worth noting that the <strong>for</strong>mer deliveryclerks group has been assimilated with the staff of previous cargo handling terminal operator in thePort of Valletta and who are now all employed by the new terminal operator in the Grand Harbourfollowing the award of the cargo handling concession tender in June 2006.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 60
Further initiatives in this regard include the setting up of a consultative committee where industryplayers, port users, terminal operators, exclusive services providers and the <strong>Malta</strong> Maritime Authorityas regulator would have a <strong>for</strong>um <strong>for</strong> discussion aimed at continually improving and updating portlabour legislation and practices. It is also intended to set up an independent appeals board in order toprovide remedies against decisions taken by the regulator. In addition, discussions are also underway with the port workers on the necessary re<strong>for</strong>ms regarding the Pensions and Contingency Fundwhich is currently administered by a Government-appointed committee.The re<strong>for</strong>m of the Grand Harbour port management is only, however, one, albeit important, aspects ofthe transportation process chain that requires re<strong>for</strong>m. One other issue, as discussed in Section06.8.5 is the need to introduce business hours all year round. In addition, there is another matter thatis vitally important <strong>for</strong> industry – whether FDI or domestic-owned. This issue concerns the logisticaland transportation network that links <strong>Malta</strong> to its suppliers <strong>for</strong> the necessary raw materials, to markets<strong>for</strong> exportation, as well to new market opportunities as they arise. <strong>Malta</strong>’s insularity is a majordrawback in this regard. The only constant logistical and transportation network in place is thatbetween <strong>Malta</strong> and Sicily and Italy – recently privatised. Following recent privatisation, the newterminal operator at the <strong>Malta</strong> Freeport brought along with it a new logistical and transportationnetworking venues. Nevertheless, the <strong>Malta</strong> Freeport is, first and <strong>for</strong>emost, a trans-shipment port –working under its own particular conditions and constraints. Inevitably, cargo dependency cannot beguaranteed on a 99.9999% certainty as cargo ships may miss calling at the <strong>Malta</strong> Freeport ifcircumstances so demand. <strong>Malta</strong> Freeport, however, does handle in excess of 55% of the domesticcargo market share, with the rest of domestic imports, exports and re-exports being handled at thePort of Valletta.The consequence of <strong>Malta</strong>’s logistical and transportation networking limitations imposes problems onindustry. Just-In-Time inventory management cannot be exploited fully as raw materials that aredependent on the <strong>Malta</strong> Freeport may face capacity and opportunity cost issues if circumstancesresult in ‘just-in-time’ supplies missing the cargo stop. The same relates to exports, with problemsarising to potential penalties if deliveries are not in time. Further to this, strategies to exploit arisingopportunities such as entry into North Africa may not be realisable in the absence of permanent androbust logistical and transportation networks between <strong>Malta</strong> and key ports in North Africa.The concept of <strong>Malta</strong> as a strategic regional hub is only as strong as the logistical and transportationnetworks that it has in place. The answers to this are not simple – and they do not depend directlyand only on Government. However, recent developments across maritime regions, particularly theMediterranean region, have brought about the concept of port clusters, where traditionally rivalneighbouring ports are now working together in a synergistic alliance that will ensure their survivaland benefit both the ports as well as the region’s economic activity. This same principle could beapplied locally by considering the <strong>Malta</strong> Freeport and the Port of Valletta as <strong>for</strong>ming one port syste<strong>mt</strong>hat could collectively handle even higher volumes of domestic and trans-shipment cargoes than hashitherto been the case. This concept would, of course, require the establishment of a cost-effectivetransport link between both ports, which could be land-based (through existing road networks and/orthe construction of an underground fixed rail tunnel link between both ports) or even sea-based bymeans of regular and efficient barge services.Such concepts are also being addressed in a number of EU-funded studies which are presently beingcarried out by the <strong>Malta</strong> Maritime Authority under the EU Trans European Networks <strong>for</strong> Transport(TEN-T) projects. These TEN-T projects are aimed at promoting a modal shift in transport from thecongested road networks and cross-border bottlenecks in mainland Europe to more traditional <strong>for</strong>msof transport, such as railways, inland waterways and the sea. Coupled with these initiatives is thepromotion of the use of the main shipping routes around European waters, better know as theMotorways of the Sea (MOS) between different maritime regions, which are, in turn, served bysecondary Short Sea Shipping (SSS) routes linking different ports within the same maritime region.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 61
In this respect, <strong>Malta</strong> is actively working in order to establish its two international ports as cluster hubports within the MOS serving both intra-European and pan-continental trans-shipment cargo,particularly within the framework of the Euro-Med Forum between EU Member States and ThirdCountries around the Mediterranean littoral. In this way, <strong>Malta</strong> will also be in a position to mitigateagainst the impacts of insularity through enhanced territorial cohesion with mainland Europe and alsowith other regions within the Mediterranean Basin. In addition, the <strong>Malta</strong> Maritime Authority iscurrently in the process of finalising a Strategic Master Plan <strong>for</strong> the Port of Valletta aimed atmaximising the use of existing facilities and quays as well as developing new port infrastructure inorder to increase the handling capacity of the Port of Valletta both <strong>for</strong> domestic and trans-shipmentcargo.In view of the <strong>for</strong>egoing, Government’s commitment in this regard is two-fold. First, it believes that thepresence of private port terminal operators, that already manage several other ports across the world,provides an opportunity <strong>for</strong> the Maltese ports to lock into an existing logistical and transportationnetwork which should result in tangible benefits to <strong>Malta</strong>. In this regard, Government will do its utmostto achieve this grafting.Strategic Decision 36Government will seek to graft the <strong>Malta</strong> Freeport and the Port of Valletta in the logistical andtransportation network of the recently-selected terminal operators in order to establish newpermanent and robust routes <strong>for</strong> industry.Further to this, Government will together with industry review the existing logistical and networkingtransportation mechanisms in place <strong>for</strong> raw materials and exportation of finished products that aredependent on supply routes other than those via Italy and Sicily in order to attain competitive andsecure alternatives.Strategic Decision 37Government will together with industry review the existing logistical and networking transportationmechanisms in place <strong>for</strong> raw materials and exportation of finished products that are dependent onsupply routes other than those via Italy and Sicily in order to attain competitive and securealternatives.06.7.3 Upgrading Laboratory, Testing and Quality Assurance ServicesThe undertaking of certification and standards demands the availability of laboratories to carry outmechanical, pharmaceutical, chemical, clinical, metal, API and TUV norms, software testing tomention a few. Studies show that laboratories constitute one of the major overheads on the costframework of an industry. In terms of SMEs it is illogical to assume that such industries will invest in,let alone set-up such major cost centres.Given the structure of our industry there is merit to consider the provision of <strong>gov</strong>ernment directedlaboratory services at cost to industry in order to make up <strong>for</strong> market gaps in the provision of suchservices, in so far that such gaps are consistent with national testing priorities.Strategic Decision 38Government will consolidate, cluster and accreditate its various State laboratories as proposed inthe National <strong>Strategy</strong> <strong>for</strong> Research and Innovation, in order to ensure that they providesupplementary services to industry and SMEs where such testing cannot be secured from themarket and in so far that such gaps are consistent with national testing priorities..<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 62
06.7.4 Upgrading Industrial ParksThe role of the <strong>Malta</strong> Industrial Parks (MIP) Ltd in the industrial strategic outlook is critical. Itsimportance cannot be under-estimated. In terms of attracting FDI as well as spurring local industry toup-grade to quality high value-added, <strong>Malta</strong> must be ‘quick-to-market’ in supplying the necessaryfactory or industrial space. Poor per<strong>for</strong>mance in essence means that FDI opportunities are lost toother competition nations and local expansion and growth may be stemmed.With the exception of a very few Industrial Parks, the impression that such parks reflect is one ofneglect. Moreover, a number of factories are used <strong>for</strong> non-industrial activity, rendering abuse andunfair competition. Others are abandoned yet still in the hands of the tenants. Amenities are, at best,basic. Moreover, most of the parks were designed and built in the 1960s and 1970s <strong>for</strong> humanresource and machine requirements of the time. Furthermore, over time, a number of industrial parkshave been drawn into the urban environment as internal roads have become major thoroughfares.A process by MIP Ltd of upgrading the quality of <strong>Malta</strong>’s industrial parks is underway to address thisstate of affairs, with action directed towards the:- building of new factory stock so that available capacity is always in hand to provide a ‘quickto-market’response;- removal of tenants who are either not utilising or are abusing the space leased to them;- re<strong>for</strong>m of the sub-contracting process so that building of factories is expedited to the extentpossible whilst ensuring transparency;- re-vamping of industrial estates, with primary initial ef<strong>for</strong>ts directed towards SMEs estates;- establishment of Public-Private Partnerships between private developers and theGovernment to build, finish, rent and maintain high-quality industrial space that couldinclude modern concepts of a complete living solution.ME in conjunction with MIP Ltd are studying the possibility of setting up new specialised industrialzones by means of a Public-Private Partnership set-up which amongst its features would includetransport connectivity.Recommendation 39Government, through <strong>Malta</strong> Industrial Parks Ltd, will maintain and sustain the tempo adopted in theupgrading of <strong>Malta</strong>’s industrial parks in order to secure an excellent industrial parks’ infrastructurethat portrays an image of quality and excellence.06.7.5 Branding <strong>Malta</strong> as a place <strong>for</strong> Investment<strong>Malta</strong> should be branded as an ideal location <strong>for</strong> investment. The motif of the brand should be one ofa dynamic <strong>Malta</strong> that provides quality high value-added and productivity in all sectors of production,manufacturing, enterprise and commerce.The Ministry of Foreign Affairs and <strong>Malta</strong> Enterprise will continue to play a leading role in promotingthis motif overseas.The constituted bodies representing industry, however, have a direct responsibility and an obligationto assume a pro-active and direct role in promoting industry both horizontally and vertically.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 63
Recommendation 40Government, through the Ministry of Foreign Affairs and <strong>Malta</strong> Enterprise, will continue to play aleading role in promoting the motif of a dynamic <strong>Malta</strong> that provides quality high value-added andproductivity in all sectors of production, manufacturing, enterprise and commerce, with industry’sconstituted bodies having a direct responsibility to pro-actively promote industry both horizontallyand vertically.06.7.6 Setting-Up of Technology and Commercial CentresThe consideration of the setting-up of Technology and Commercial Centres (TCCs) is based on thepremise of establishing the appropriate infrastructure that will support industry in their strive to upgradeand restructure to achieve quality high value-added and productivity growth as well as to act asthe support arm to the proposed cluster activation initiatives.In terms of its remit as a Technology centre, the TCCs would be primed towards the following:- providing the assistance recommended in Section 06.3.1 in relation to upgrading in termsof quality and standards, with assistance including the identification of the appropriatestandards to be applied and the training of staff to up-grade their skills with respect to thestandards adopted.- providing assistance recommended in Section 06.3.2 in terms of securing productivitygrowth, with assistance including specialist advice in terms of technology acquisition andimplementation, and the transfer, development and absorption of updated technologieswithin the sector as well as in the provision of B2B and B2C e-commerce solutions advice.- development of patent oriented technology, with the TCC’s per<strong>for</strong>mance directly linked tothe number of patents registered.In terms of its remit as a Commercial centre, the TCC would be primed towards the following:- providing up-to-date business intelligence about developments in geographical, sectoraland customer specific markets and thus strengthening <strong>Malta</strong>’s overseas mark watch.- building a shared common trade network.- acting as the pivot in terms of the identified Export and Marketing shop of the TNCI.- facilitating the marketing of the SCVCIs, IGCIs and TNCIs and assisting industries in thebranding of their respective sectors.Further to the above, the TCC would also act as the support arm <strong>for</strong> the SCVCIs, IGCIs and theTNCIs and would be a key <strong>gov</strong>ernment partner in activated cluster initiatives. It would also act as hubto share the knowledge accrued between the different cluster members. The TCC would also act asthe cluster ‘institutional memory’, ensuring that the knowledge is retained and accessible to the othermembers as well as new members within the cluster.Recommendation 41<strong>Malta</strong> Enterprise should, through a Public-Private Partnership, set-up a Technology and CommercialCentre(s) that would assume the lead role in assisting industry to achieve quality high value-addedand secure productivity growth; act as the business intelligence centre; and be a key <strong>gov</strong>ernmentpartner and the lead support arm to the Supply Chain Vendor Cluster Initiative, the <strong>Industry</strong> GroupCluster Initiative, and the Targeted National Cluster Initiative.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 64
06.8 Orientating Government as a Partner to <strong>Industry</strong>06.8.1 Introducing an <strong>Industry</strong> Portal as the Flagship of Business-to-Government e-CommerceThe investment that Government has made since 1990 towards building a hard and soft ICTinfrastructure is now, exponentially, rendering the return on that investment. <strong>Malta</strong> in internationalbenchmarks is increasingly shown to compete successfully with advanced societies. It has placed thebasis <strong>for</strong> the vibrant growth of the ICT sector – ranging from ‘traditional’ ICT businesses to newbusinesses such as i-gaming and e-billing.In terms of e-Government, <strong>Malta</strong> was this year ranked as 2 nd in terms of the breadth of e-Governmentservices, and 3 rd in terms of the sophistication of the solutions applied from amongst the EU25.Government intends, with strategic <strong>for</strong>esight, to continue to build on these successes.A key initiative will be the setting up of an <strong>Industry</strong> Portal, which shall act as the flagship <strong>for</strong> B2G e-commerce. The scope of the Portal would include:- establishing a single ‘window’ entry point <strong>for</strong> industry interaction with public administration;- virtualising the interaction between industry and public administration to achieveseamlessness;- virtually integrating public administration back-end interaction with industry so thatprocessing operations are streamlined and where possible allowing <strong>for</strong> immediatesimultaneous trigger of events on a single transaction basis (example VAT, InlandRevenue, Social Security Department et al in relation to opening a business) so thatprocessing time is exponentially improved.The <strong>Industry</strong> Portal would there<strong>for</strong>e facilitate and improve interaction with public administration; andwould substantially improve process and response time from public administration. Moreover, thePortal would act as the key flagship to continue to spur industry to adopt B2B e-commerce solutions.The Portal would also increasingly become the channel between public administration and industry asmore B2G e-commerce solutions are plugged onto it.It is pertinent to state that work is actively underway on the establishment of this Portal. MIIIT havecompleted a business assessment and are currently drawing up a Request <strong>for</strong> Proposal.Recommendation 42The Ministry <strong>for</strong> Investment, <strong>Industry</strong> and In<strong>for</strong>mation Technology will issue a Request <strong>for</strong> Proposal<strong>for</strong> an <strong>Industry</strong> Portal which will act as the flagship <strong>for</strong> Business-to-Government e-commerce.06.8.2 Reducing the Regulatory Administrative Burden to <strong>Industry</strong>Regulations are recognised as necessary <strong>for</strong> the essential and good working of market economies.Yet, too much regulation may undermine productivity per<strong>for</strong>mance as:“Even regulations introduced <strong>for</strong> sound economic reasons may be excessive and entail compliance coststhat exceed any benefits; alternatively regulations may be badly designed. In either case, the regulatoryoutcome will be inefficient. And when regulations are introduced as a result of regulatory capture they areare almost inevitably costly. Regulations which curb competition and private <strong>gov</strong>ernance are likely to havea negative effect on productivity by slowing down technological catch-up to best-practice technologies orimpact negatively on employment creation.” 4747Pg 2, Sheehy, J., Regulation in the UK: Is it Getting Too Heavy, ECFIN Country Focus, Volume III, Issue 7, Directorate-General <strong>for</strong> Economic and Financial Affairs, 29 th June 2006<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 65
The issue relating to reducing the regulatory administrative burden to industry is a challenge that is,practically, universal. It is pertinent to note, <strong>for</strong> example, that the EU Communication of March 2005titled ‘Better Regulation <strong>for</strong> Growth and Jobs’ identified simplification as a critical priority <strong>for</strong> the EU 48 .Government recognised the challenge posed by regulation. As declared in the 2006 Pre-BudgetDocument, Government established the Better Regulation Unit (BRU) within the Office of the PrimeMinister (OPM) in late summer 2005. The 2006 National Budget established that by June 2006 theBRU will submit recommendations to Cabinet on how existing regulations are to be consolidated oramended to lighten the cost of administration on industry whilst at the same time safeguarding thenational interests. Public administration was instructed to carry out an internal review and evaluationof regulations and tariffs within their respective areas in order to “ensure a far simpler and streamlinedregulatory framework” <strong>for</strong> industry. 49The Management Efficiency Unit (MEU), which has been assigned functional responsibility <strong>for</strong> theBRU, has managed this simplification programme and has presented 111 simplification initiatives toCabinet. The identified initiatives include virtualisation measures that will be attained through B2G e-commerce solutions such as the a<strong>for</strong>e mentioned <strong>Industry</strong> Portal; rationalisation of processes;simplification of legislation, and repealment of obsolete legislation.Cabinet has accepted the recommendations proposed by the BRU and has invested it with theauthority to manage the implementation process.Recommendation 43Government invested the Better Regulations Unit with the authority to manage the implementation ofthe simplification process with a target to implement 90% of the initiatives accepted by Cabinetwithin one calendar year.The work carried out to date by the BRU in conjunction with public administration has been internallyled. Government, nevertheless, recognises the concerns of industry, commerce and enterprise onover-regulation and the need to maintain sustained rigour to secure simplification where so possible.It is thus imperative that the BRU establishes an open channel of communications with industry andits constituted bodies. This will secure that the identification of simplification measures, and hence thepressure <strong>for</strong> change, does not come solely from within public administration – where public entitiesmay have a vested interest to retain the status quo – but also, in an organised fashion, directly fromindustry.Whilst the undertaking of ex-post reviews by Government on an on-going basis will, undoubtedly,demonstrate its commitment to simplification of the regulatory environment, the key issue is the needto build the appropriate methodologies, skills and competencies to design light and simplifiedregulation at the first instance.Fundamental to the instilling of the appropriate discipline and skill to design balanced regulation is theneed to adopt a Regulatory Impact Assessment (RIA) methodology. The RIA will compel thedesigners of regulation to:- gauge the statement and magnitude of the problem and the need <strong>for</strong> <strong>gov</strong>ernment action;- gauge the statement of the public policy objective;- gauge the statement of feasible options;- gauge the statement of consultation taken;- gauge the statement of business compliance which will seek to address, amongst others,the following issues:- source of any compliance costs;48Pg 2, Communication of the Commission titled ‘A <strong>Strategy</strong> <strong>for</strong> the Simplification of the Regulatory Environment’, COM(2005),535 final, Brussels, 200549Pg 39, Budget Speech 2006, Ministry of Finance, 31 st October 2005<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 66
- firms to be affected by size and sector;- quantative and qualitative estimates of compliance cost;- longer term implications to industry and business;- overlapping compliance requirement with other public entities;- steps taken to ensure compliance costs and processing impact are minimised.The adoption of such a structured RIA methodology should result in far better designed regulatoryinstruments than experienced today.In this regard, the BRU will develop the RIA methodology – a sample methodology is attached inAppendix G - and will work with line ministries, departments and entities to help them developcapacity and expertise to design well developed regulatory instruments.Recommendation 44The Better Regulations Unit will work with line Ministries, departments and entities to developcapacity and expertise at the line to enable them to design, at the first instance, well developedregulatory instruments on the basis of a best practice Regulatory Impact Assessment methodology.The IS identifies examples of where innovative legislative design provided <strong>Malta</strong> with a comparativeadvantage in terms of establishing the appropriate regulatory framework to fuel growth. Given theconcerns in most advanced societies the negative impact stemming from poorly designed regulations,building the capacity and expertise within public administration to enable it to design innovativeregulatory instruments is an opportunity to place the regulatory environment as a competitiveadvantage – as visibly demonstrated in the financial services and e-commerce sectors – to strengthen<strong>Malta</strong>’s ability to successfully compete <strong>for</strong> further FDI investment.The fact that regulatory instruments need to be carried out within the parameters of EU legislationshould not lead the designers of regulatory instruments to treat EU legislation as “unnecessarily goldplated”50 , that is introducing more regulation to implement an EU Directive than is required – unlessstrong justifiable reasons exist. It is also imperative that <strong>Malta</strong> participates strongly in the design ofEU regulatory instruments to influence their shape and scope and to ensure that the realities andunique characteristics of <strong>Malta</strong> are factored and adopted in such EU regulatory instruments so that<strong>Malta</strong>’s comparative and competitive strengths are not negatively impacted.Further to this, Government, through its change agency entities, should continuously seek tostreamline and consolidate regulatory entities and remove overlap, duplication et al to reduce the costof regulation both to Government itself as well as to the economy at large.06.8.3 Rewarding Good Governance by <strong>Industry</strong>Regulation, amongst other matters, secures a level playing field within industry. The approach toregulation, however, should not be applied ‘heavy handedly’ – that is, with the same level of intent onindustries that apply good <strong>gov</strong>ernance as with those that fail, or consistently fail, to do so.The IS argues that this is one area, where public administration must act as a partner to industry. Itcan achieve this by applying a scaling regulatory regime where the degree of en<strong>for</strong>cement lessens tothe absolute minimum in the case of industries that on a consistent basis show that they apply good<strong>gov</strong>ernance in terms of the application of regulation; and conversely in the case of industries whichhave a defaulting track record.50Pg 2, Sheehy, J., Regulation in the UK: Is it Getting Too Heavy, ECFIN Country Focus, Volume III, Issue 7, Directorate-General <strong>for</strong> Economic and Financial Affairs, 29 th June 2006<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 67
Thus, Government will seek to build trust between public administration and industry based on good<strong>gov</strong>ernace behaviour by industry, directed to reward those entities that make it their goal to ‘behaveproperly’. In turn, this will allow public administration to focus on industries that do not con<strong>for</strong>m, andwhich in turn create a negative impact, by distorting, amongst others, the level playing field, on thosethat do.It is pertinent to state that such a regime of scaled regulation that awards good <strong>gov</strong>ernance is appliedby the Customs Division on the basis of risk-management methodologies, and there is no reason whythis should not be introduced as a policy direction <strong>for</strong> all regulatory authorities where it can so beapplied.Recommendation 45Government will direct its regulatory authorities to adopt scaling regimes that rewards good<strong>gov</strong>ernance whereby the degree of en<strong>for</strong>cement lightens where industries demonstrate good<strong>gov</strong>ernance track records.06.8.4 Facilitating the Achievement of Good Governance by <strong>Industry</strong>The adoption of a scaling regulatory regime that awards and rewards good <strong>gov</strong>ernance, howeverdemands, that in the application of regulations, industry are guided by clear and coherent guidelinesthat allow them to apply the regulatory instruments in a consistent manner. Clear and consistentguidelines provide a definitive yardstick against which compliance is measured and thus removes, tothe extent possible, administrative discretion.Instances exist where regulatory entities set compliance expectations without providing suchguidelines, at times leaving the interpretation to, and hence the risk with industry. Governmentrecognises that such behaviour by its entities is bad practice – where the level of administrativediscretion may at best be misused, at worst abused.Work should thus ensue to achieve good administration in the regulatory environment where-in theregulatory authorities are instructed to back regulatory instruments, within definitive time-frames, with<strong>for</strong>mal guidelines, <strong>for</strong>mal documentation, best practice guidelines et al.Recommendation 46Regulatory authorities are to achieve good administration in the regulatory environment where theyback their regulatory instruments with <strong>for</strong>mal guidelines, <strong>for</strong>mal documentation, best practices et al.There is no doubt that <strong>for</strong> industry to up-grade their quality high value-added they need to up-gradetheir respective work environments – whether this relates to health and safety issues or matters suchas the disposal of hazardous toxins. Good <strong>gov</strong>ernance in this regard is necessary – both to securethe safety of employees as well as to secure the well-being of the general environment.The adoption of new regulatory instruments or standards may, however, require time <strong>for</strong> the transitionto be successfully achieved – in terms of the investment required to render the transition, the cultureand skills up-grade necessary, et al.The approach to such transition should be a facilitative one. Guillotine deadlines stemming fromen<strong>for</strong>cement activity may have a counter-effect as the mobilisation to achieve good <strong>gov</strong>ernance mayinvolve too high a burden within a short-time span.Education, support in working out a compliance programme that is realistic, sharing of good practiceet al should precede sanctioned en<strong>for</strong>cement; with sanctioned en<strong>for</strong>cement assuming an escalatoryregime where industry displays dishonesty in its commitment to meet the regulatory requirements.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 68
Recommendation 47Regulatory authorities are to work with industry to facilitate the transition <strong>for</strong> the adoption of newregulatory instruments or standards on the principle of ‘honest’ behaviour in so far that suchfacilitation is managed.Partnership demands trust and honesty to be successful. Constituted bodies representing industrieshave an obligation to inculcate good <strong>gov</strong>ernance in terms of the application of regulatory instruments.Moreover, they have a moral obligation to refrain from representing businesses that fail to playhonestly and tarnish the reputation of industry generally. Thus, representatives of industry shouldassume a pro-active role to ensure that their respective members work ethically and in compliancewith the regulatory environment; and that they do not represent organisations which have negativetrack records in this regard. Furthermore, together with Government, constituted bodies should ‘nameand shame’ industries that build a negative track record – thereby inducing not only publicaccountability but also transparency and openness in terms of the contribution of such industries tosociety at large.Government, on the other hand, should continue to withdraw from economic activity to continue toprovide the private sector with the necessary space to invest and create new opportunities in order toengender economic growth.06.8.5 Aligning Government Business Hours with the Productivity ChainIn November 2005, Government entered into a new collective agreement with Unions <strong>for</strong> the period2005-<strong>2010</strong>. In recognising and accepting the Unions’ request to ameliorate pay and other conditions,Government also reached agreement to re<strong>for</strong>m its working hours in order to render them in sync withindustry’s productivity chain. The Collective Agreement states:“8.2 The Employer and the Unions recognise the need of flexibility in work schedules and staff deploymentin order to ensure the effective and efficient delivery of service, and in order to achieve this objective;(a)The Employer shall take effective steps to introduce new schedules according to the exigencies of theService. Such steps in particular shall be taken where public services to the business and tourismsectors are involved;And(b)Changes with respect to appropriate work schedules to be adopted by the Employer in particularMinistries, Divisions, Departments or Units shall be thoroughly discussed between the Employer andthe Union / Unions concerned <strong>for</strong> at least six months be<strong>for</strong>e such changes are introduced andbrought into <strong>for</strong>ce.Without prejudice to the above, the Employer or the Union may request the assistance of the conciliatorystructure established under Claude 5.2 (b) not earlier than three months after the initiation of suchdiscussions to mediate any difference that might arise.” 51The Public Service has taken steps to initiate this Clause of the Collective Agreement. In 6 th June2006 the Office of the Prime Minister issued a circular titled ‘Flexibility in Work Schedules’ bylaunching a pilot project directed to:“… further strengthen the service given to the citizens by allowing <strong>for</strong> greater flexibility to be achieved in workschedules across the Public Service … to allow both the organisation and its employees to define a ‘best fit’model and jointly achieve to set objectives in the best interest of all, not least in that of their clients, be theyinternal or external clients.” 52Senior executives in public administration will be held accountable to adopt a pro-active role to applythe parameters in the Collective Agreement in this regard; with Unions expected to respond positivelyso that the productivity chain of industry is enhanced.51Pg 7, Collective Agreement <strong>for</strong> Employees in the Public Service: Effective 1 st January 2005, Collective Agreement 2005 –<strong>2010</strong>, Office of the Prime Minister52‘Flexibility in Work Schedules, Circular No 21/2006, Office of the Prime Minister, 9 th June 2006<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 69
Recommendation 48Senior executives in public administration will be held accountable to adopt a pro-active role to applythe parameters reached in the Collective Agreement on the introduction of new work schedules inrelation to industry; with Unions expected to respond positively so that the productivity chain ofindustry is enhanced.06.8.6 Innovating Public Management and Administration to Facilitate <strong>Industry</strong>Public administration should seek innovative ways to induce smart public management andadministration in relation to industry. A potential mechanism, which has worked successfully betweenMFSA and the Inland Revenue Department is the notion of ‘internal sub-contracting’ directed atconverging activities that may span different entities and different portfolios to allow <strong>for</strong> a more coordinatedand focused approach in relation to industry.MIIIT has also introduced this concept in terms of internally sub-contracting ME activities relating tomicro-industry and micro-enterprise to the Small Business Unit within the Ministry <strong>for</strong> Competition andCompetitiveness in order to ensure one focused source of interaction. Activities sub-contractedinclude:- development and implementation of schemes of assistance including training, businessmanagement, finance and funding including loan guarantees;- review of appropriate EU Commission Directives;- attainment of clearances relating to State Aid authorisation;- management of SME industrial zones such as those at Ta’ Qali, Ta’ Dbiegi, and Luqa;- client relationship management.Merit exists <strong>for</strong> policy development in relation to ‘internal sub-contracting’ <strong>gov</strong>erned by Service LevelAgreements and <strong>gov</strong>ernance mechanism <strong>for</strong> introduction across public administration so that publicmanagement is directed to work smarter in order to facilitate industry.Recommendation 490The Public Service is to seek innovative ways to induce innovative public management andadministration in relation to industry; and merit exists <strong>for</strong> policy development in relation to ‘internalsub-contracting’ <strong>gov</strong>erned by Service Level Agreements and <strong>gov</strong>ernance mechanism across publicadministration, so that public management is directed to work smarter in order to facilitate industry.06.8.7 Establishing an Enabling Legislative Framework that Spurs <strong>Industry</strong> GrowthParts of the Business Promotion Act (BPA) will expire in <strong>2007</strong>. The IS argues that rather thanamending or introducing a new BPA the introduction of a new enabling legislative framework basedon principles would constitute a far better option. A principled based legislative framework,complemented by secondary legislation would secure a far more dynamic legislative instrument as thedefinitive enabling legislation would not require major overhauls as and when the local andinternational competitive environment changes. This will infuse agility in terms of policy instrumentsintroduced as amendments to legal instruments would not require major overhaul of the law itself butrather review of secondary legislation as and where appropriate.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 70
The drafting of an enabling legislative framework also provides the opportunity to streamlinelegislation that relate to industry currently found across different legislation – a particular case in pointare the provisions <strong>for</strong> fiscal measure in relation to R&D&I.Merit exists in considering the drafting of a new enabling principle based legislation that is embeddedwithin the framework of the <strong>Malta</strong> Enterprise legislation.Recommendation 50Government will replace the Business Development Act by a principled based enabling legislationwithin the framework of the <strong>Malta</strong> Enterprise legislation complemented by secondary legislation tosecure a dynamic legislative instrument that will allow <strong>for</strong> agility in response to changes in the localand international environment.06.8.8 Ensuring Agile Response to a Fast Changing International EnvironmentThe environment within which <strong>Malta</strong> operates has changed following membership in the EU – in termsboth of the body of European law that <strong>Malta</strong> must now adhere to, as well as the myriad of financialinstruments that the EU effects so that Europe retains its global competitive status. To benefit fromfinancing opportunities and incentives arising from membership, <strong>Malta</strong> must be smart and agile in itsability to embrace such opportunities. Circumstances prevail where agile response to suchopportunities are constrained as public administration is yet to reflect its regulatory and <strong>gov</strong>ernanceframeworks to the new reality.For example, processing of applications by the <strong>Malta</strong> Environment and Planning Authority submittedby industry to up-grade their hard infrastructures to increase their respective quality high value-addedand productivity growth through financing secured from various EU funding instruments are at timesjeopardised as the processing cycle is not calibrated <strong>for</strong> the specified EU time-frames under whichsuch finance instruments operate.Public administration should, with agility and smartness, establish mechanisms, if so necessarythrough the introduction of fast track mechanisms, that will facilitate industry to successfully utilise EUfunding instruments to up-grade their quality high value-added and productive growth.Recommendation 51The Public Service and other <strong>gov</strong>ernment entities will stream-line, where so necessary, theiradministrative processes to ensure that they do not become bottlenecks that curtail industry fromsuccessfully benefiting from EU funding.06.9 Government, <strong>Industry</strong> Work Together to Resolve New Challenges<strong>Industry</strong> is facing new challenges. The IS does not attempt to identify all of these new challenges,and it is not in a position to propose recommendations as these require specialist review andassessment in their own right. The IS, however, denotes that new challenges exist and that theyhave to be faced.A predominantly escalating issue, <strong>for</strong> example, is the environment – both in terms of the increasingawareness of the importance of the environment in the Maltese milieu as well as the international andEU protocols and directives directed to secure a sustainable environment.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 71
<strong>Malta</strong>’s size imposes constrains in terms of addressing such challenges. Diseconomies of scalerender investment to address environment issues expensive. The storing of toxic and hazardouswaste on-site by industry can at best be only a temporary solution. Disposal of such waste in <strong>Malta</strong> isnot a viable option. On the other hand, disposal by means of trans-shipment to a third country to anoverseas country demands excellent logistical capability as individual firm discharge may be so smallthat the cost of trans-shipment renders it far too prohibitive. In any event, the processing of disposalto third countries of such waste by public administration must be streamlined to the extent possible sothat storage costs are not allowed to rise, safety is not compromised, and illegal discharge does notbecome an attractive option.Waste, on the other hand, can lead to the creation of, on the one hand new business opportunities interms of both the recycling of the material itself (paper, aluminium, photographic material, etc) or interms of the management of logistics related to waste disposal and recycling; and on the other hand,a potential source of alternative energy.In terms of the <strong>for</strong>mer, economies of scale may render waste re-cycling too costly to be a viableoption, though clustering initiatives can facilitate, to a degree, the attainment of critical mass. In termsof the latter, the NSRI places Environment and Energy technologies as one of the plat<strong>for</strong>ms ofstrategic importance towards which R&D&I is to be directed to reduce the cost by means of alternativeenvironment and energy solutions.Knowledge on funds established by the EU Commission to assist industry in addressing such newchallenges should be acquired and disseminated to industry on an on-going basis. For example, inrelation to the environment, the EU Commission launched the 6 th Environment Action Plan (EAP) <strong>for</strong>the period 2001-<strong>2010</strong>. The EAP identifies four priority areas: (climate change, nature and biodiversity,environment and health, and natural resources and waste). To achieve improvements inthese areas, the EAP sets out five key approaches: (a) ensuring implementation of existingenvironment legislation; (b) integrating environmental concerns into all relevant policy areas; (c)working closely with business and consumers to identify solutions; (d) ensuring better and moreaccessible in<strong>for</strong>mation on the environment <strong>for</strong> citizens; and (e) developing a more environmentallyconscious attitude towards land use.To implement the environment community policy as set out in the various iterations of the EAP, theEU Commission had established the LIFE – Financial Instrument <strong>for</strong> the Environment – programme.It is pertinent to note that LIFE is mainly directed to SMEs – and even so with regards to LIFE -Environment; with Euro 640 million injected in LIFE <strong>for</strong> the period 2000-2004. 53 In September 2004with the publication of Regulation (EC) No 1682/2004, LIFE III was extended <strong>for</strong> a further two years(2005 and 2006), with an additional budget of Euro 317 million. 54The opportunities relating to EU finding, such as the LIFE programme in relation to the environment,to undergo re<strong>for</strong>m to address new challenges must be aggressively exploited by industry.Recommendation 52Knowledge on funds established by the EU Commission to assist industry in addressing such newchallenges should be acquired by the representatives of industry and disseminated on an on-goingbasis so that opportunities relating to funds, such as the LIFE programme in relation to theenvironment, to undergo re<strong>for</strong>m to address new challenges are aggressively exploited by industry.53Pg 86, Creating an Entrepreneurial Europe: The Activities of the EU <strong>for</strong> SMEs, Commission Staff Working Paper, SEC(2003) 58, {COM(2003) 26}, 21 st January 2003, Brussels54http://ec.europa.eu/environment/life/life/historyoflife.htm<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 72
Summary of RecommendationsChapter 0701. The educational curriculum, across all its tiers, as proposed in the National <strong>Strategy</strong> <strong>for</strong>Research and Innovation should be such that it instills in Maltese children and youthcreativity, innovation and risk-taking which are so essential <strong>for</strong> inculcating anentrepreneurial culture.02. In complement to the recommendation in the National <strong>Strategy</strong> <strong>for</strong> Research andInnovation, the Ministry <strong>for</strong> Education, Youth and Employment in conjunction with <strong>Malta</strong>Enterprise should extend the provision of incubation services to students in highereducation so that their entrepreneurial spirits are nurtured.03. Government will review the legal provisions relating to insolvency in order to see howbarriers <strong>for</strong> honest entrepreneurs are reduced to allow them to make a fresh start withoutunduly harming creditors’ interests.04. <strong>Industry</strong> and the Unions are to work together to introduce new methods of job design asand where appropriate such as flexible working, tele-working, job-sharing, et al to account<strong>for</strong> changing norms as well as to increase the labour participation rate.05. <strong>Industry</strong> and higher education institutions are to work together to establish the appropriatefacilitative framework that will institutionalise life-long learning.06. The introduction of a National Vocation Qualification framework is critical to themaintenance of <strong>Malta</strong>’s comparative advantage in the human capital base, and itsintroduction in the immediate term is seen as a matter of national importance.07. The National Commission <strong>for</strong> Higher Education together with the Employment and TrainingCorporation in collaboration with <strong>Malta</strong> Enterprise are to review the existing apprenticeshipand placement frameworks in order to strengthen them to provide increased value toindustry.08. The <strong>Malta</strong> Enterprise together with the knowledge providers, the Employment and TrainingCorporation and industry are to carry out an extensive skills audit and profiling that willresult in a long-term coordinated and sustained human capital development programmethat will provide industry with the right quality skills <strong>for</strong> the right jobs at the right time.09. Obstacles to the mobility of high-skilled workers and researchers to <strong>Malta</strong> should beidentified and removed in order to provide industry with the human capital capacity soessential <strong>for</strong> growth whilst long-term ef<strong>for</strong>ts to achieve a quality indigenous high-skilled andresearch human capital base takes root.10. Agreement is to be reached with the University of <strong>Malta</strong> and other higher educationinstitutions <strong>for</strong> the introduction of specialised sales and marketing studies directed toprovide essential skills such as how B2C e-commerce solutions and the Internet are to beoptimised as market mediums and sales distribution channels in order to allow industry toleverage the global economy to expand overseas.11. A high level task <strong>for</strong>ce is constituted to review the concerns raised in the consultationprocess in relation to the deterioration of the command of English, our multi-lingual ability,and work ethic and to propose policy instruments to safeguard <strong>Malta</strong>’s comparativeadvantage in this regard.12. <strong>Malta</strong> Enterprise is to assess its current assistance schemes to industry and evaluate howthese can be calibrated or complemented so that support is provided to industry withrespect to the identification of appropriate standards to be adopted and in the training ofstaff to up-grade their skills appropriately.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 73
13. Assistance in terms of trans<strong>for</strong>mation management assistance should be provided to SMEsthat are committed to undergo a process of transition to increase their quality and achievehigh value-added.14. Government will demonstrate that achieving quality high value-added as well as asuccessful track record positively pays and to facilitate this process will seek to introduce aPreferred Goods and Services Suppliers framework.15. Government recognises the increasingly strong correlation between ICT and productivitygrowth and will articulate a strategy <strong>for</strong> the promulgation of Business-to-Business e-commerce and Business-to-Consumer e-commerce solutions by industry.16. <strong>Malta</strong> Enterprise introduces an assistance scheme directed to activate Supply ChainVendor Clusters in the ‘traditional industries’ as well as the new economy with assistancedirected to facilitate the trans<strong>for</strong>mation of suppliers into preferred vendors et al, and inmanaging the trans<strong>for</strong>mation process.17. <strong>Malta</strong> Enterprise introduces an assistance scheme directed to activate <strong>Industry</strong> GroupingClusters Initiatives (IGCI) by supporting the engagement from industry of Cluster Coordinators,with the IGCI being established on the basis of open invitation subject todemonstration of the quality high value-added, productivity growth, and export penetrationthat will result from the said IGCI.18. <strong>Malta</strong> Enterprise introduces an assistance scheme directed to activate Targeted NationalClusters Initiatives on designated sectors and activities.19. Clusters will successfully work if industries perceive each other as allies and theestablishment of trust is a key goal that their constituted bodies are to facilitate.20. <strong>Malta</strong> will seek to adopt the definitions that the EU Commission adopts <strong>for</strong> R&D&I so thatindustry is positioned on the same level playing field as their EU counterparts <strong>for</strong> eligibilityof R&D&I State Aid under EU rules.21. The criterion <strong>for</strong> eligibility <strong>for</strong> fiscal aid <strong>for</strong> R&D&I should provide <strong>for</strong> a higher intensificationof such aid <strong>for</strong> firms that cluster with SMEs and higher education institutions.22. <strong>Malta</strong> will seek to adopt the State Aid instruments that the EU Commission adopts <strong>for</strong>R&D&I so that industry is positioned on a level playing field as their EU counterparts <strong>for</strong>R&D&I State Aid under EU rules.23. Government will seek to influence the EU to recognise expenditure related to licences <strong>for</strong>R&D&I advanced software as legitimate R&D&I State Aid.24. Government will actively consider the National <strong>Strategy</strong> <strong>for</strong> Research and Innovationrecommendation that donations by industry to a set maximum value <strong>for</strong> S&T education andpopularisation measures will be subject to a tax relief.25. Government will actively consider the establishment of a Government-to-<strong>Industry</strong> R&D&Ifund directed to strengthen the national infrastructural capacity <strong>for</strong> R&D&I where-inGovernment will complement by 1/3 (that is its share under the Lisbon Agenda R&D&I GDPtarget) contributions made by industry in any one year to a set maximum value.26. The <strong>Malta</strong> Financial Services Authority should look at new guarantee instruments that canbe introduced to increase the lending volume available to SMEs.27. <strong>Malta</strong> Enterprise, together with other public authorities and the private sector, should studywhy the Business Angels scheme failed and re-launch a new scheme on the basis oflessons learnt so that Business Angels become an active part of the environment necessaryto foster entrepreneurship, innovation and growth.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 74
28. The Fund Manager should strive to attract a healthy share of external finance andinvestments in the Venture capital fund in addition to the seed capital provided byGovernment.<strong>Malta</strong> Enterprise should work in tandem with the appointed Fund Manager to ensure thatinnovative ideas generated by would-be entrepreneurs are registered accordingly and giventhe required assistance to further develop and concretise their innovative business ideas.29. The <strong>Malta</strong> Financial Services Authority and the <strong>Malta</strong> Enterprise should make industryaware of the benefits of utilising credit insurance and if demand remains small in <strong>Malta</strong>provide routing support to international credit firms of repute to those industries that wish touse their services.30. The <strong>Malta</strong> Financial Services Authority, the <strong>Malta</strong> Stock Exchange and <strong>Malta</strong> Enterpriseshould support SMEs and start-ups through building knowledge and awareness by meansof coaching tools, hands-on coaching schemes, access to best practices et al in terms offinancing options.31. The <strong>Malta</strong> Financial Services Authority together with <strong>Malta</strong> Enterprise should carry out areview to assess the degree of the presence of a micro-credit friendly environment and tosubmit recommendations of how this can be improved.32. The <strong>Malta</strong> Financial Services Authority and <strong>Malta</strong> Enterprise should influence the debate onthe review of State Aid Rules <strong>for</strong> Risk Capital so that appropriate conditions are introducedthat reflect intrinsic difficulties in <strong>Malta</strong> due to its inherent comparative disadvantages, andthat there<strong>for</strong>e be applied to achieve meaningful success within the parameters of ourenvironment.33. Government should continuously strive to manage inflation so this, to the extent possible, isnot allowed to exceed the rate of inflation in the EU25 threshold as well as that ofcompeting nations.34. <strong>Industry</strong> has an obligation not to unnecessarily create inflation and it is Government’sobligation to rigorously survey the market and to intervene with rigour where marketdysfunction occurs.35. Unions and constituted bodies, without <strong>for</strong>egoing any parts of their responsibilities, shouldseek solutions through consultation and negotiation that are realisable and realistic and thatsecure long-term national growth and prosperity as against short-term sectoral gains andpotentially long-term pain.36. Government will seek to graft the <strong>Malta</strong> Freeport and the Port of Valletta in the logistical andtransportation network of the recently-selected terminal operators in order to establish newpermanent and robust routes <strong>for</strong> industry.37. Government will together with industry review the existing logistical and networkingtransportation mechanisms in place <strong>for</strong> raw materials and exportation of finished productsthat are dependent on supply routes other than those via Italy and Sicily in order to attaincompetitive and secure alternatives.38. Government will consolidate, cluster and accreditate its various State laboratories asproposed in the National <strong>Strategy</strong> <strong>for</strong> Research and Innovation in order to ensure that theyprovide supplementary services to industry and SMEs where such testing cannot besecured from the market and in so far that such gaps are consistent with national testingpriorities.39. Government, through <strong>Malta</strong> Industrial Parks Ltd, will maintain and sustain the tempoadopted in the upgrading of <strong>Malta</strong>’s industrial parks in order to secure an excellent industrialparks’ infrastructure that portrays an image of quality and excellence.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 75
40. Government, through the Ministry of Foreign Affairs and <strong>Malta</strong> Enterprise, will continue toplay a leading role in promoting the motif of a dynamic <strong>Malta</strong> that provides quality highvalue-added and productivity in all sectors of production, manufacturing, enterprise andcommerce, with industry’s constituted bodies having a direct responsibility to pro-activelypromote industry both horizontally and vertically.41. <strong>Malta</strong> Enterprise should, through a Public-Private Partnership, set-up a Technology andCommercial Centre(s) that would assume the lead role in assisting industry to achievequality high value-added and secure productivity growth; act as the business intelligencecentre; and be a key <strong>gov</strong>ernment partner and the lead support arm to the Supply ChainVendor Cluster Initiative, the <strong>Industry</strong> Group Cluster Initiative, and the Targeted NationalCluster Initiative.42. The Ministry <strong>for</strong> Investment, <strong>Industry</strong> and In<strong>for</strong>mation Technology will issue a Request <strong>for</strong>Proposal <strong>for</strong> an <strong>Industry</strong> Portal which will act as the flagship <strong>for</strong> Business-to-Government e-commerce.43. Government invested the Better Regulations Unit with the authority to manage theimplementation of the simplification process with a target to implement 90% of the initiativesaccepted by Cabinet within one calendar year.44. The Better Regulations Unit will work with line Ministries, departments and entities todevelop capacity and expertise at the line to enable them to design, at the first instance,well developed regulatory instruments on the basis of a best practice Regulatory ImpactAssessment methodology.45. Government will direct its regulatory authorities to adopt scaling regimes that rewards good<strong>gov</strong>ernance whereby the degree of en<strong>for</strong>cement lightens where industries demonstrategood <strong>gov</strong>ernance track records.46. Regulatory authorities are to achieve good administration in the regulatory environmentwhere they back their regulatory instruments with <strong>for</strong>mal guidelines, <strong>for</strong>mal documentation,best practices et al.47. Regulatory authorities are to work with industry to facilitate the transition <strong>for</strong> the adoption ofnew regulatory instruments or standards on the principle of ‘honest’ behaviour in so far thatsuch facilitation is managed.48. Senior executives in public administration will be held accountable to adopt a pro-active roleto apply the parameters reached in the Collective Agreement on the introduction of newwork schedules in relation to industry; with Unions expected to respond positively so thatthe productivity chain of industry is enhanced.49. The Public Service is to seek innovative ways to induce innovative public management andadministration in relation to industry; and merit exists <strong>for</strong> policy development in relation to‘internal sub-contracting’ <strong>gov</strong>erned by Service Level Agreements and <strong>gov</strong>ernancemechanism across public administration, so that public management is directed to worksmarter in order to facilitate industry.50. Government will replace the Business Development Act by a principled based enablinglegislation within the framework of the <strong>Malta</strong> Enterprise legislation complemented bysecondary legislation to secure a dynamic legislative instrument that will allow <strong>for</strong> agility inresponse to changes in the local and international environment.51. The Public Service and other <strong>gov</strong>ernment entities will stream-line, where so necessary,their administrative processes to ensure that they do not become bottlenecks that curtailindustry from successfully benefiting from EU funding.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 76
52. Knowledge on funds established by the EU Commission to assist industry in addressingsuch new challenges should be acquired by the representatives of industry anddisseminated on an on-going basis so that opportunities relating to funds, such as the LIFEprogramme in relation to the environment, to undergo re<strong>for</strong>m to address new challenges areaggressively exploited by industry.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 77
<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong> - <strong>2010</strong>Enabling <strong>Industry</strong> to Achieve Quality High Value-added and Productivity GrowthAppendices
<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 1List of Consultation MeetingsAppendix A
SectorsEnvironment and Waste Management sectorsTextile, clothing, leatherwear and laundriesMetal ProductsWooden, paper and printingChemicals - Detergents, Paints, Thinners, Oilsand related mfg. sectorsConsultants including economic, management,design, engineering, standards and securityconsultantsLight engineering and contracting, including liftinstallersBeverages including vintners and brewers, aswell as soft drinks, juices and spirits mfgPlastic, rubber and glassAttendance registeredG Micallef (Environment)Liz Curmi (AIS Environmental Ltd.)M Schembri (AIS Environmental Ltd.)M Duca (FM Environmental (<strong>Malta</strong>) Ltd.)M Gaerty (Green Skip Services Ltd.)Tony Spiteri (Harrison <strong>Malta</strong> Environmental Ltd.)Raymond Fenech (Metalco Ltd.)J Eisinger (McNeill Ltd.)Pier L di Pilato (Nylon Knitting Ltd.)J Mansueto (Swan Laundry and Drycleaning Co.Ltd.)J Muscat (V F (<strong>Malta</strong>) Ltd)V Camilleri (V F (<strong>Malta</strong>) Ltd)J Cortis (Calibre Industries)Joe Delia (Stainless Steel Products Ltd)Anthony Darmanin (F G P Ltd)J Cortis (S M W Cortis Ltd)J Cussens (De La Rue Currency & Security PrintLtd)Gutenberg officialA Zammit (Zamco Caterware Ltd.)Edward Muscat Azzopardi (Allied NewspapersLtd.)F Galea (Repro House Co. Ltd.)Multi packaging & Packprint officialsD Zammit (Sigma Coatings (<strong>Malta</strong>) Ltd.E Micallef (Drop Chemicals Ltd.)Adrian and Marthese Triganza (SKAT Ltd)Andrew Magri Overend (MacphersonMediterranean Ltd)R Spiteri (TUV-Austria (<strong>Malta</strong> Office))M Joslin (MSB Valletta Ltd)Ing. Charles Cuschieri (Camilleri & CuschieriConsulting Engineers)R Sant (SS Lifts & President of the <strong>Malta</strong> LiftsAssociation)R Spiteri (TUV-Austria(<strong>Malta</strong> Office))S Abela (Titan International Ltd.)Joseph Pavia (Brownrigg Supplies & ServicesLtd.)Michael Francica (Mekanika Ltd.)A Tabone and Paul Micallef (Simonds FarsonsCisk plc)P Debattista (Marsovin Group)G Delicata (Emmanuel Delicata Winemaker Ltd)Maria Micallef and Carmel Schembri (TheGeneral Soft Drinks Co. Ltd)Mark Scerri (Camilleri Wines Ltd.)H Ellul, (Playmobil <strong>Malta</strong> Ltd.)A Borg (JB Plastics Ltd.)<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 2
SectorsElectronic, electrical and mechanical equipmentShipping and freightPharmaceutical, health related and cosmeticsFoodstuffs and tobacco including tomato, meat,dairy processors, bakeries & snacksConstruction Sector including Stonework,building, road and trenching contractorsFinancial Sector – Banks, insurance, financialauditors, and financial institutionsTrading<strong>Malta</strong> Printers AssociationAttendance registeredNicholas Grima (Menrad Ltd.)E Borg Cardona (Toly Products Ltd.)Marisa Xuereb (Raesch Quarzglas (<strong>Malta</strong>))Martin Hignett (Trelleborg Sealing Solutions<strong>Malta</strong> Ltd)S Grima (Hetronic <strong>Malta</strong> Ltd.)E Friggieri (Adpro-Instruments Ltd)S Alden (Bavarian Technology Systems)N Ellul (Cheops (<strong>Malta</strong>) Ltd.)R Cuschieri (Carlo Gavazzi Ltd.)A Galea (MSC (<strong>Malta</strong>) Ltd)R. Buttigieg (BAS Ltd.)V Callus (Kuehne & Nagel Ltd)P Attard (Airspeed Express Ltd.)Joseph Chetcuti (John Ripard & Son (Shipping)Ltd.)Saviour Sciberras (Express Trailers Ltd.)C Farrugia (Eurocosmetic Products Ltd.)S Palsson (Actavis Ltd.)M Sultana (Blaschem (<strong>Malta</strong>) Ltd.)Marthese Triganza (SKAT Ltd.)S Vella (Baxter Ltd.)A Cachia (Multigas Ltd.)J Pace (Consolidated Biscuit Co. Ltd.)Edmund Azzopardi (Tenderfresh Processing Ltd.)Chris Degiorgio (Foster Clark Products Ltd.)Ezeddin Faraoun (Chef Choice Ltd.)P Gatt (Andrews Feeds (<strong>Malta</strong>) Ltd.)G Buttigieg (KPH (Koperattiva Produtturi tal-Halib) Ltd.)R Calleja (Strand Palace Agencies Ltd.)M Grech (<strong>Malta</strong> Dairy Products Ltd.)A Xuereb (A X Construction Ltd.)T Ghiga (G A Services Ltd.)M Agius (Philip Agius & Sons Ltd.)V Borg, (V & C Contractors Ltd.)Joseph Cassar (J A J Co. Ltd.)James Bonello (<strong>Malta</strong> Bankers’ Association)G Gusman (Lombard Bank <strong>Malta</strong> plc.)Charles Borg (Bank Of Valletta plc.)Andre Zarb (KPMG)Claire Caruana (R S Attard & Co – MooreStephens <strong>Malta</strong>)Grace Camilleri (Ernst & Young)APS Bank officialJoseph Bonello (Medilog Ltd.)Gianluca Giorgino (Universal Import & ExportLtd.)Margaret Buhagiar, President of the Council<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 3
SectorsIT & Telecommunications<strong>Malta</strong> Furniture AssociationAttendance registeredMario Calleja, Business ExecutivePeter Mifsud, Council MemberCarmel Bonnici, Council MemberJames Bonello (Crimsonwing Ltd.)Pierre Luca Demajo (Demajo Group ofCompanies)Peter Gauci & Alan Zammit (Go Mobile (MobisleCommunications Ltd))Joe Azzopardi & Eng Farrugia (<strong>Malta</strong>com plc)John Ambrogio (Megabyte Ltd.)Franco Degabriele (Melita Cable plc)Tim Camilleri (Integrated Business Systems Ltd.)Joseph Cuschieri (Vodafone <strong>Malta</strong> Ltd)George Zerafa, President of the CouncilMario Calleja, Business ExecutiveOther meetingsMinistry / Union / EntityMinistry <strong>for</strong> Competitiveness and CommunicationMinistry of FinanceCustoms DepartmentUnion Haddiema Maghqudin<strong>Malta</strong> Federation of <strong>Industry</strong><strong>Malta</strong> Federation of <strong>Industry</strong><strong>Malta</strong> Employers AssociationGRTU<strong>Malta</strong> Enterprise<strong>Malta</strong> Maritime AuthorityMSB Valletta Ltd<strong>Malta</strong> Chamber of Commerce and EnterpriseParticipantsMinister Censu GaleaMr Alfred CamilleriMr John MifsudMr Gejtu VellaMr Adrian BajadaMr Wilfred KenelyMr Martin GaleaMr Joe PaceMr Anthony TaboneMr Ian MizziMr Joe CortisCouncil MembersRepresentatatives from different SectorsMr Joseph FarrugiaMr Vincent FarrugiaDr MizziMr Chris FalzonIng Ray MuscatMr Joe SammutMr Melvin PelicanoMs Audrey GenoveseDr Marc BonelloMr Oscar BorgMr Matthew JoslinMr Victor GaleaMr Norman AquilinaMr Anthony GaleaMr Mario SpiteriMr Andre FenechMr Edgar Chircop<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 4
Ministry / Union / EntityParticipantsMr Stefano MalliaMs Phyllis FarrugiaIng Philip Micallef<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 5
<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 6Review of LiteratureAppendix B
A Better Quality of Life – 2006 – <strong>2010</strong> pre-budget documentAhead of the Curve, Ireland’s Place in the Global Economy, Enterprise <strong>Strategy</strong> GroupA <strong>gov</strong>ernment action plan <strong>for</strong> small business, Making the UK the best place in the world to start andgrow a business, The evidence base, DTIA Policy <strong>for</strong> Industrial Champions: From picking winners to fostering excellence and the growth offirms, Enterprise and <strong>Industry</strong> Directorate General, European Commission, April 2006A Smart, Successful Scotland, Strategic Direction to the Enterprise Networks and an enterprisestrategy <strong>for</strong> ScotlandAction Plan: The European agenda <strong>for</strong> entrepreneurship, Communication from the Commission to theCouncil, the European Parliament, The European Economic and Social Committee and the committeeof the RegionsAction 6 : Cooperation and cluster-buildig among SMEs - Pilot Project <strong>for</strong> European BusinessCooperation Events and Clustering activities in Border Regions between New and Old Member Statesof the European Union – Grant Programme 2005Annex to the Communication from the Commission, Implementing the Community Lisbon Programme:A Policy Framework to Strengthen EU Manufacturing – Towards a more Integrated Approach <strong>for</strong>Industrial Policy, SEC(2005) 1215 474 final, 5 th October 2005, BrusselsAnnual Competitiveness Report 2005, National Competitiveness Council, ForfasAssessment of the regional innovation and technology transfer strategies and infrastructures (RITTS)scheme, Final Evaluation Report, Centre <strong>for</strong> Urban & Regional Development Studies, August 2000Benchmarking business angels, Final report, European Commission, 4 November 2002Benchmarking national and regional policies in support of the competitiveness of the ICT sector in theEU (Final Report), November 2004, European CommissionBest Practice of public support <strong>for</strong> early stage equity finance, Final Report of the Expert Group,European Commission, September 2005Better Policy Making: A Guide to Regulatory Impact Assessment, Cabinet OfficeBridging Community and Economic Development. A <strong>Strategy</strong> <strong>for</strong> Using <strong>Industry</strong> Clusters to LinkNeighbouhoods to the Regional Economy. June 2002. Paul Christnesn, Nan McIntyre, Lynn PikhozBudget Speech 2006, Ministry of FinanceBusiness Promotion Act (Chapter 325)B2B Internet trading plat<strong>for</strong>ms: opportunities and barriers <strong>for</strong> SMEs, A first assessment, EnterprisePaper No 13, Maria Perogianni, enterprise Directorate General, European Commission, 2003Challenges <strong>for</strong> enterprise policy in the knowledge driven economy, Proposal <strong>for</strong> a Council Decision ona Multiannual Programme <strong>for</strong> Enterprise and Entrepreneurship (2001 – 2005), Communication fro<strong>mt</strong>he CommissionCollective Agreement <strong>for</strong> Employees in the Public Service, Effective 1 st January 2005, Office of thePrime MinisterCommission Communication Concerning the Prolongation of the Community Framework <strong>for</strong> State Aid<strong>for</strong> R&D, C310/10, Official Journal of the European Union, 8 th December 2005<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 7
Communication from the Commission to the Council, the European Parliament, The EuropeanEconomic and Social Committee and the Committee of the regions – Implementing the CommunityLisbon Programme: Financing SME Growth – Adding European Value, Com (2006) 349 finalCommunication of the Commission to the European Parliament, the Council, the European Economicand Social Committee and the Committee of the Regions – Implementing the community Lisbonprogramme – A strategy <strong>for</strong> the simplification of the regulatory environment, Com/2005/0535 finalCommunity Framework <strong>for</strong> State Aid <strong>for</strong> research and development and innovation (Staff Paper,Preliminary Draft) 20 th April 2006Community Framework <strong>for</strong> State Aid <strong>for</strong> research and development. Official Journal C045,17/02/1996. Internet ExtractConference of the European charter <strong>for</strong> Small enterprises, Vienna, 13 – 15 June 2006Conference Report on the Risk Capital Summit 2005: Investing <strong>for</strong> Growth and Competitiveness inEurope, UK Presidency of the EU 2005, European CommissionConsultation document on a framework programme <strong>for</strong> Competitiveness and Innovation, PaperConsultation on the New EU Enterprise Programme, Emma Drever, 20/03/04Cluster Dynamics in Theory and Practice with Application to Scotland – Ross Brown: Regional andIndustrial Policy Paper Number 38 – March 2000Cluster Formation as an Efficient Tool <strong>for</strong> High Tech <strong>Industry</strong> Development in the Innovation DriveEconomy in the 21 st Century. Medicon Valley Academy. Internet ExtractCluster Initiatives in Developing and Transition Economies. Centre <strong>for</strong> <strong>Strategy</strong> and Competitiveness– Christian Ketels, Goran Lindqvist, Orjan Solvell. Stockholm, May 2006Creating an entrepreneurial Europe, The activities of the European Union <strong>for</strong> small and medium-sizedenterprised (SMEs), Commission of the European CommissionCredit insurance <strong>for</strong> European SMEs, A guide to assessing the need to manage liquidity risk,Enterprise Guides, Directorate General <strong>for</strong> Enterprise European CommissionDefining and Measuring Success In Canadian Public Sector Electronic Service Delivery, Issue PaperPrepared <strong>for</strong> Discussion and Debate at Lac Carling V, 24 April 2001Defining innovation: A Consultation on the Definition of R&D <strong>for</strong> tax purposes. HM Treasury; DTI;Inland Revenue. July 2003. United KingdomDesign measures to promote growth of young research intensive SMEs and start-ups. Preliminaryreport of the expert-group on SMEs. Second Cycle of the Open Method of Coordination <strong>for</strong> theImplementation of the 3% Action Plan (Draft Report) March 2006. Prepared by Marcel de Heide,TechnopolisDoes the European Union Need to Revive Productivity Growth? Research Memorandum GD-75,University of GroningenDiscussion Paper on Major Key Issues facing the Tourism <strong>Industry</strong>, <strong>Malta</strong> Hotels & RestaurantsAssociation, 7 th June 2006‘Do R&D tax credits work? Evidence from an international panel of countries 1979-1994’, IFS,Working Paper 99/8, 1999, Bloom, Griffith, and Van ReenenECFIN Country Focus, Regulation in the UK: is it getting too heavy? John Sheehy, Volume III, Issue7, 29/06/2006<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 8
Effects of ICT capital on economic growth, European Commission, 30 June 2006Entrepreneurship in Ireland, Goodbody Economic Consutlants, November 2002Enterprises’ access to finance, Commission staff working paperEnterprise <strong>Strategy</strong> and Policy, 2005 – <strong>2010</strong>, <strong>Malta</strong> EnterpriseEuropean <strong>Industry</strong>: A Sectoral Overview, Commission of the European CommunitiesEuropean Clusters. Christian Ketels, Harvard Business School, Boston MA, USA. Internet ExtractEuropean Cluster Policy – National Agency <strong>for</strong> Enterprise and Housing – European Seminar onCluster Policy – 10 th June 2003 – Copenhagen, DenmarkEU Productivity and Competitiveness: An <strong>Industry</strong> Perspective, Can Europe Resume the Catching upProcess? National Institute of Economic and Social Research, London; Groningen Growth andDevelopment Centre, Universtiy of Groningen; The Conference BoardEU R&D Innovation: Opportunities <strong>for</strong> SMEs, European commissioner <strong>for</strong> Science and Researh,Kortrijk, 23 May 2006Evaluation of current fiscal incentives <strong>for</strong> business R&D in Belgium (Executive Summary). June 2003.B Van Pottelsberghe; E Megally; S NystenExpert Group on Fiscal Measure <strong>for</strong> Research. Report submitted to CREST in the context of the OpenMethod of Co-ordination. The Hague, 15 th June 2004Final Report on the Expert Group on Enterprise Clusters and Networks – European Commission –Enterprise Directorate GeneralFostering structural change: an industrial policy <strong>for</strong> an enlarged Europe, Commission of the EUCommunitiesGlobal competitiveness in Pharmaceuticals, A European Perspective, Report prepared <strong>for</strong> theEnterprise Directorate General of the European Commission, November 2000Green Paper, Entrepreneurship in Europe, European CommissionGreen Paper, A European <strong>Strategy</strong> <strong>for</strong> Sustainable, Competitive and Secure Energy, Commission ofthe European CommunitiesGuarantee mechanisms <strong>for</strong> financing innovative technology, Innovation Paper No 15, EuropeanCommissionHow to deal with the new rating culture, A practical guide to loan financing <strong>for</strong> small and mediumsizedenterprises, European CommissionICT/Life Sciences converging technologies cluster study: A comparative study of the In<strong>for</strong>mation andCommunications, Life Sciences and Converging Next Generation Technology Clusters in Vancouver,Montreal and Ottawa. Final Report 25 th November 2004Industrial Policy in the economic literature – Recent theoretical developments and implications <strong>for</strong> EUpolicy – Enterprise papers No 12 2003 – Enterprise Directorate – General European CommissionInnovation Papers No 30, Paxis – Results and policy recommendations, Published by the EuropeanCommission, Enterprise Directorate General<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 9
Implementing the Community Lisbon Programme: A Policy Framework to Strengthen EUManufacturing – Towards a more Integrated Approach <strong>for</strong> Industrial Policy, COM (2005) 474 final, 5 thOctober 2005, Brussels – Annex to the Communication from the Commission to the Council, theEuropean Parliament, the European Economic and Social Committee and the Committee of RegionsImplementing the Community Lisbon Programme: A Policy Framework to Strengthen EUManufacturing – Towards a more Integrated Approach <strong>for</strong> Industrial Policy, COM (2005) 474 final, 5 thOctober 2005, Brussels – Annex to the Communication from the CommissionImplementing the Community Lisbon Programme: A strategy <strong>for</strong> the simplification of the regulatoryenvironment, Commission of the European CommunitiesImplementing the Community Lisbon Programme: Communication from the Commission to theCouncil, the European Parliament, the European Economic and Social Committee and the Committeeof the Regions – More Research and Innovation – Investing <strong>for</strong> Growth and Employment: A CommonApproach – Commission of the European CommunitiesImplementing the national eBusiness strategy of the department of enterprise, trade and employment,Progress Report, Department of enterprise, trade and employment, April 2006Impact Assessment to the Communication from the Commission, Implementing the CommunityLisbon Programme: A Policy Framework to Strengthen EU Manufacturing – Towards a moreIntegrated Approach <strong>for</strong> Industrial Policy, SEC(2005) 1215 474 final, 5 th October 2005, BrusselsImproving the Effectiveness of Public Support Mechanisms <strong>for</strong> Private Sector Research andDevelopment: fiscal Measures – Report to the European Commission by an Independent ExpertGroup. Directorate-General <strong>for</strong> Research Knowledge Based Society and Economy <strong>Strategy</strong> andPolicy, Investment in ResearchIncome Tax Act, Chapter 123Industrial Development Report 2005, Capability building <strong>for</strong> catching-up, United Nations IndustrialDevelopment Organisation, Vienna 2005Industrial Policy in the economic literature, Recent theoretical developments and implications <strong>for</strong> EUpolicy, Enterprise Papers No 12, 2003, Lluis NavarroIndustrial Policy, 2001 (Draft), <strong>Malta</strong> Ministry <strong>for</strong> economic servicesInnovation Hot Spots in Europe: Policies to promote trans-border clusters of creative activity – TrendChart Policy workshop – May 5-6, 2003, Luxembourg – Sythesis and ConclusionsInnovation Instrument <strong>for</strong> raising equity <strong>for</strong> SMEs in Europe, Study Contract ETD/00/503116.Prepared <strong>for</strong> DG Enterprise of the European Commission by Bannock Consulting, June 2001Innovating Regions in Europe – An Overview of Clluster Policies and Clusters in the New MemberStates of the European Union – Learning Module 3 – IRE subgroup on ‘Regional clustering andnetworking as innovation drivers’ http://www.innovating-regions.org/Internet Extract: Simplifying EU legislation makes life easier <strong>for</strong> citizens and enterprisesInternet Extract: Initiative to boost growth of SMEs: EU wants to triple early-stage capital investmentsInternet Extract: Government Portals: Whose Life View?Internet Extract: South Africa Drops Intermediaries <strong>for</strong> Online Tax PaymentsInternet Extract: It is Time <strong>for</strong> Online Partners<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 10
Investing in research: an action plan <strong>for</strong> Europe. Commission of the EU Communities. EuropeanTrend Chart on InnovationManufacturing Network Development “A Centre of Excellence” – Robb McColl, Cluster Manager –Economic Development Edmonton, March 2004Measures <strong>for</strong> National Competitiveness Proposed by the National Competitiveness Workingcommittees, June 2004Merits and possibilities of a European fund structure <strong>for</strong> venture capital funds, Report from aworkshop held on 21 June in Brussels, European CommissionMicrocredit <strong>for</strong> European small business, Commission Staff Working Document, Commission of theEuropean CommunitiesMore Research and Innovation – Investing <strong>for</strong> Growth and Employment: A Common Approach,Communication from the Commission to the Council, the European Parliament, the EuropeanEconomic and Social Committee, and the Committee of the Regions, Sec (2005) 1253, COM(2005)488 FinalNational Export Marketing Plan <strong>for</strong> the Promotion of Professional Services Action Plan, Funded by theSpecial Advisory Services Division of the Commonwealth Secretariat, prepared on behalf of <strong>Malta</strong>Enterprise, February 2006National Strategic Plan <strong>for</strong> Research and Innovation: <strong>2007</strong> – <strong>2010</strong>: Building and Sustaining the R&IEnabling Framework. Final Draft : 30 th May 2006National Re<strong>for</strong>m Programme, <strong>Malta</strong>’s strategy <strong>for</strong> growth and jobs, October 2005National Strategic Reference Framework (<strong>Malta</strong>) <strong>2007</strong> – 2013, Draft Document <strong>for</strong> Consultation,March 2006Operational Programme II, Cohesion Policy <strong>2007</strong> – 2013: Empowering people <strong>for</strong> more jobs andbetter quality of life, 14 th June 2006Operational Programme II, Cohesion Policy <strong>2007</strong> – 2013: Investing in Competitiveness <strong>for</strong> a BetterQuality of Life – Draft 30-0506OPM Circular No 21/2006 Flexibility in Work Schedules, 9 th June 2006Pjan ta’ Azzjoni Ghat-tigdied ta’ l-Industrija – Abbozz ta’ Dokument ghad-Diskussjoni – <strong>Malta</strong> LabourParty, Mejju 2006Policy and Enterprising Places <strong>for</strong> Technology Based Development, Christie Baxter; Peter TylerPolicies <strong>for</strong> Business in the Mediterranean Countries, Republic of Cyprus, Christie Baxter, Peter Tylerwith Moore B, Morrison N, McGaffin R and Otero GarciaPharmaceutical <strong>Industry</strong> Competitiveness Task Force, Competitiveness and Per<strong>for</strong>mance Indicators2004Productivity and Participation: An International Comparison, Research Memorandum GD-78,University of GroningenProductivity: The Key to Competitiveness of European Economies and Enterprises, Communicationfrom the Commission to the Council and the European ParliamentProductivity, Innovation and ICT in Old and New Europe, Research Memorandum GD-69, Universityof Groningen<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 11
Prosperity in Change: Challenges and Opportunities <strong>for</strong> <strong>Industry</strong>, <strong>Malta</strong> Ministry <strong>for</strong> EconomicServices, 1999Prosperity in Change: Challenges and Opportunities <strong>for</strong> <strong>Industry</strong>, FOI Position Paper, February 2000Quantitative Targets in Enterprise Policy, Steps towards the Lisbon Objectives, Commission of theEuropean Communities, 7 th November 2002Raising EU R&D Intensity, Improving the Effectiveness of Public Support Mechanisms <strong>for</strong> PrivateSector Research and Development: Fiscal Measures, Report to the European Commissionby anIndependent Expert GroupReport on Europea Seminar on Cluster Policy, Copenhagen, 10 June 2003. Brussels, 24 June 2004Research in the Services Sector (Final Report), Walter Ganz, July 14 th 2005R&D Incentives in Canada. KPMG in Canada. Internet ExtractR&D Investment targets and current trends. European Commission, Research Directorate General.24 th September 2004. Internet ExtractR&D Tax Relief: conditions to be satisfied: DTI guidelines (2004). Internet ExtractScience and technology, the key to Europe’s future – Guidelines <strong>for</strong> the future European Union policyto support research. Commission of the EU CommunitiesSingapore: Fiscal Incentives (Services & Manufacturing Industries). Internet ExtractSmall Firms: Red Tape. Research Paper 05/52. 28 th June 2004. Vincent Keter, Business & TransportSection, House of Commons LibraryStatement on Regulatory Re<strong>for</strong>m 2000, National Competitiveness CouncilStrengthening structures: Upgrading specialised support and competitive pressure. Working Paper 5,July 2004. The Institute <strong>for</strong> Competitiveness & ProsperitySouthwark Enterprise <strong>Strategy</strong>, Southwalk allianceSubmission to the Enterprise <strong>Strategy</strong> Group which has been commissioned by the Tanaiste toprepare a blue print <strong>for</strong> enterprise strategy <strong>for</strong> growth and employment in Ireland in the medium term,South East Regional Authority, October 2003Subsidiary Legislation 123.82. Deduction and Tax Credits (Research and Development) Rules. 1 stJanuary 2005Supporting growth in innovation: Enhancing the R&D Tax Credit. HM Treasury; DTI; HM Revenue &Customs. July 2005. United KingdomSwedish Clusters. Presentation. Goran Lindqvist, Anders Malmberg, Orjan Solvell, Cind UppsalaUniversity, Professor Michael E Porter, ISC Harvard Business SchoolTen Thousand Commandments, An annual Snapshot of the Federal Regulatory State, Clyde WayneCrews, Jr, 2006The development of the cluster concept – present experiences and further developments, ChristianKetels, 2003The Cluster Approach and the Dynamics of Regional Policy-Making – Philip Taines – September2001 – Regional and Industrial Policy Research Paper Number 47<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 12
The Cluster Initiative Greenbook, Orjan Solvell; Gorann Lindqvist; Christian KetelsThe European Enterprise Journal, European Enterprise Institute, Issue 01, July 2004The European Enterprise Journal, European Enterprise Institute, Issue 02, January – February 2005The European Enterprise Journal, European Enterprise Institute, Issue 03, Autumn – Winter 2005The Development of the cluster concept – Present experiences and further developments – DrChristian H.M. Ketels, Harvard Business School, 2003The Global Competitiveness Report 2005-2006, World Economic Forum, Geneva, Switzerland, 2005The Go Digital Awareness Campaign 2001 – 2003: the main lessons to be learnt, EuropeanCommission, Directorate General <strong>for</strong> Enterprise / Unit ebusiness and ICT industries and services,February 2004The Implementation of the framework action “Updating and Simplifying the Community Acquis”,Communication from the CommissionThe Mobile Telephone Cluster in the Nordic Countries: Policies to Foster Innovation and Successthrough Provider Competition and Knowledge Alliance DevelopmentThe National ICT <strong>Strategy</strong> 2004 – 2006, Ministry <strong>for</strong> Investment, <strong>Industry</strong> and In<strong>for</strong>mation TechnologyThe Public debate following the Green Paper ‘entrepreneurship in Europe’, Summary Report, 19 thOctober 2003The Regional Competitiveness Debate – Michael Kitson, Ron Martin, peter Tyler – Judge BusinessSchool, university of Cambridge, Department of Geography, University of Cambridge, Department ofLand Economy, University of CambridgeTowards Enterprise Europe, Work programme <strong>for</strong> enterprise policy 2000 – 2005, Commission StaffWorking PaperWhat drives productivity growth in the new EU Member States? The Case of Poland, Working PaperSeries No 486, European Central Bank, May 2005<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 13
International, Local and Regional Situation Analysis Prepared by <strong>Malta</strong> EnterpriseAppendix C<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 14
01. The International Framework01.1 Global Overview of Foreign Direct Investment01.1.1 Trends in FDI inflowsTrends provided by the World Investment Report reveal that there has been an overall decline in FDIinflows in the World largely caused by a steep fall experienced by the United States following thetragic events of 11 th September. Findings include:o Global FDI Inflows declined in 108 out of 195 economies in 2002. This was largely due to:- Slow economic growth: World events such as the War on Iraq and the 11 th Septembertragedy have left their markets on world economies in general particularly on the UnitedStates. Given the significant openness of most economies in the developed worlds andthe substantial amount of trade and <strong>for</strong>eign investment originating from the UnitedStates, a slow down of the US economy has left it marks on most other developedeconomies world wide.- Falling stock market valuations: A slow down in economic growth has had negativeeffects on the stock market largely fueled by loss of investor confidence. Stock marketswent bearish thereby reducing share prices and hence<strong>for</strong>th shareholder’s wealth ofmajor companies quoted on established stock exchanges.- Lower Corporate profitability: The friction inherent on economic growth has loweredoverall corporate sales resulting in a loss of profitability and increasing competitivepressures.- Slow Down in the pace of Corporate Restructuring: Faced with an uncertain future,many companies around the world have adopted a defensive strategy in which theirintent was to defend their existing market share rather than expand into new markets.- Overall reduction in Merger and Acquisition Activity: Most <strong>for</strong>eign direct investmentis largely developed through merger and acquisition activity. The number of Mergersand Acquisitions fell from 7,894 in 2000 to 4,493 in 2002 and their average valuedecreased substantially from US$145 million in 2002 to US$82 million in 2002. TheWorld Investment Report envisages a growth preference to Greenfield as opposed toBrown Field Investment. This is a good opportunity <strong>for</strong> <strong>Malta</strong> since most FDI attracted tothe Island is the Greenfield type of investment.- Changing Sectoral Trends: During the year 2002 flows into Manufacturing andservices declined while those into the primary sector rose; Services however still remainthe largest sector <strong>for</strong> FDI inflows with the telecommunications industry facing the highestgrowth potential.- Decline in FDI: The decline in world FDI was largely due to a reduction in Equity andintra-company loans components rather than in reinvested earnings.01.1.2 Globalisation and the Formation of Mega-blocksOver the past century, the world has witnessed the inevitable phenomenon of Globalisation which <strong>for</strong>better or <strong>for</strong> worse is trans<strong>for</strong>ming the world in a global market place. Globalisation has also beenfuelled by a number of international agreements and partnerships such as the United Nations, theWorld Trade Organisation (the new DOHA round), the North American Free Trade Agreement, theEuropean Union, the eventual development of the Euro-Mediterranean Region in which tradeliberalisation is being contemplated and various other global partnerships are being <strong>for</strong>med that arereshaping the geographic boundaries of the world. Although not without its deficiencies, Globalisationprovides increased opportunities <strong>for</strong> world trade and investment. Findings from the World InvestmentReport reveals that:<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 15
o In 2002, the world FDI stock stood at US$ 7.1 trillion, up more than 10 times since 1980;ooooIn 2002, the estimated value added of <strong>for</strong>eign affiliates, at US$ 3.4 trillion, accounted <strong>for</strong>about one tenth of world GDP;Employment by Foreign Affiliates reached an estimate of 53 million workers in 2002, two anda half times the number of 1982;The Developed World hosts two-thirds of world inward FDI stock and accounts <strong>for</strong> nine-tenthsof the outward stock signifying the inherent regional disparity amongst nations;FDI originating from developing countries accounted <strong>for</strong> 11% of the global outward FDI stock;o The Concentration of FDI within the Triad (US, EU and Japan) remained high at around 80%<strong>for</strong> the world’s outward stock and 50-60% <strong>for</strong> the world’s inward stock.oooooooooFDI Inflows to developed countries fell by 25% from US$490 billion in 2002 to US$367 billionin 2003;Flows to developing countries, on the other had rose by 9% from US$ 158 billion in 2002 toUS$ 172 billion in 2003;After a record year in 2002, when inflows reached US$ 31 billion FDI to Central and EasternEurope fell sharply in 2003 to US$ 21 Billion equivalent to a decrease of 32% over the year2002;Inflows into the accession eight shrunk from US$ 23 billion to US$ 11 billion equivalent to adecrease of 52%;In the period 2000 – 2003, the decline in FDI inflows followed the same trend as overallinvestment in most of the countries in the world;Although <strong>Malta</strong> has been ranked in the 81 st place in the rankings by Inwards FDI Per<strong>for</strong>manceIndex, it has outper<strong>for</strong>med countries such as Iceland (89 th ), Norway (108 th ) and India (114 th )<strong>for</strong> the period between 2001 and 2003 (as per World Investment Report – UNCTAD 2004);<strong>Malta</strong> has been one of the main losers in the Inwards FDI Per<strong>for</strong>mance ranking. This isbecause since its GDP is very small when compared to other destination a slight change inForeign Direct Investment is bound to contribute to substantial fluctuations in the index;The top rankings by Inwards FDI per<strong>for</strong>mance index <strong>for</strong> the period 2001 – 2003 whereLuxemburg/Belgium, Brunei Darussalam, Azerbaijan, Ireland, Angola, Singapore, Gambia,Kazakhstan, Hong Kong/China and Estonia.The top rankings by the inward FDI potential index during the period 1988 – 2002 were UnitedStates, Norway, United Kingdom, Singapore, Canada, Belgium/Luxemburg, Ireland, Qatar,Germany and Sweden.Given that the highest concentration of world trade and investment are located in the Triad region, itmay make sense <strong>for</strong> <strong>Malta</strong> to focus its targeting ef<strong>for</strong>ts specifically on such regions.01.1.3 Global ProspectsThe World Investment report <strong>for</strong>ecasts that a rebound in patterns of Foreign Direct Investment is likelyto take place thereby returning to an upward trend. Moreover, intense competition will continue to<strong>for</strong>ce Transnational Corporations (TNCs) to invest in new markets and to seek access to low costresources. China and India alone, the most populous developing countries are <strong>for</strong>ecast to grow by7.5% and 5.1% in the next couple of years (source IMF). This does not augur well <strong>for</strong> the MalteseEconomy in general since the latter is facing spiralling labour costs and depletion of water resources.Prospects <strong>for</strong> growth vary widely by industry. For example the World Investment Report <strong>for</strong>ecasts abright future <strong>for</strong> consumer pharmaceuticals, electronics and semi-conductors but dimmer prospects<strong>for</strong> automobiles, metals, machinery and aerospace. Worth noting is the fact that there is a sizeable<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 16
presence of firms engaged in the metals and machinery industry in <strong>Malta</strong> and some repercussionsmay be felt in these areas because of international trends. Pharmaceuticals, electronics and semiconductorsare all growing markets in <strong>Malta</strong> and prospects <strong>for</strong> these appear to be bright.On a positive note, Tourism and Telecoms are expected to lead the recovery in world economicactivity in the coming years. Increased leisure time, improved standards of living and improved meansof transportation have largely contributed to the growing popularity of Tourism. On the other hand,increased convergence between In<strong>for</strong>mation Technology and Communication Equipment have madethe Telecom Sector a lucrative market probably still being in the growth stage of the industry life cycle.Tourism is and will remain a strong pillar of the Maltese Economy and hence a boom in this sector islikely to yield substantial economic benefits to the country as a whole. With respect to Telecoms, thesector is still in an evolutionary stage in <strong>Malta</strong> which has been operating in a liberalised market only<strong>for</strong> a few years.When the services sector is considered, the outlook <strong>for</strong> real estate, business services, financialservices and retail trade is optimistic. Being faced with spiralling labour costs, <strong>Malta</strong> has no choicebut to position its offering to include services that generate high value added such that it attractsindustries which rely on skill and flexibility rather than on cheap labour costs.It is also worth noting that a survey carried out by the United Nations amongst Investment PromotionAgencies reveals that Greenfield investment will become more important as a mode of entry into otherregions especially in developing countries and Central and Eastern Europe. <strong>Malta</strong> is bound to benefitfrom this as the main investment opportunities available on the island originate primarily fromGreenfield investment. Moreover, it is also evident that Government Policies through theGlobalisation phenomenon have become more open, involving more incentives and focusedpromotion strategies.01.2. International Trends and Prospects in World TradeNotwithstanding the pervasiveness of globalisation, merchandise trade expansion in 2002 was limitedto 3% in real terms, only half the rate observed in the 1990s. The Iraqi war and the September 11 thevents were only part to blame. A slowdown in economic growth in the United States coupled by anincrease in imports and a decrease in exports by the US has led to a record trade and current accountdeficit, the latter equivalent to 5% of its GDP. In response to increases in import in the US, WesternEuropean Currencies appreciated by 6% on an annual average basis against the dollar in 2002thereby further aggravating the effect on the current account balance.On the other front, China’s trade expansion remained outstanding. In the 1990s, China’s trade growthwas three times faster than global trade and between 2000 and 2002, its exports and imports rose by30% while world trade stagnated. China promises to be an emerging economy which although facedby an unstable political situation, through the sheer size of its population further supported by lowlabour costs provides prospective investors with an attractive plat<strong>for</strong>m in which to expand their marketinternally within China and even externally through export activity.World Merchandise output is estimated to have increased by slightly less that 1% in 2002. All threesectors, Agriculture, Manufacturing and Mining recorded a positive albeit moderate growth in output.Having provided a general overview of world trade as outlined in the International Trade Statistics ascompiled by the World Trade Organisation, what follows is an outline of the trade per<strong>for</strong>mance at aninternational level of a number of sector that have experience significant growth during the period2000 – 2002.oChemicals: For the second year in a row, chemicals were the most buoyant component ofworld merchandise trade. World exports in this product category expanded by 10%. In thisrespect, there are two trends in development of chemicals worth highlighting:- The strength of trade in chemicals in recent years can largely be attributed to the rapidexpansion of trade in pharmaceutical products;<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 17
- The US recorded a trade deficit in its chemicals trade <strong>for</strong> the first time since World War2.oooAutomotive, Iron and Steel: World exports of automotive products benefited from the pickup in global automotive production/demand. EU exports, accounted <strong>for</strong> nearly one half of theworld’s exports of automobiles. A combination of trade liberalisation, leading to lower carprices, rising <strong>for</strong>eign direct investment inflows in the automobiles sector and strong domesticdemand led to an import surge of automotive products in China in 2002. Although world tradein iron and steel recovered by 7% in 2002, this did not fully offset the decline of the precedingyear. An outstanding feature in global steel trade in 2002 was the strength of China’s steelimport expansion. China’s steel imports rose by 27% to US$ 13,6 billion and accounted <strong>for</strong>9% of world steel imports.Clothing: International Trade in clothing continued its expansion of the second half of the1990’s in 2002 by almost 4%.The three major importers of clothing, Western Europe, The USand Japan recorded divergent trends:- EU clothing imports rose by 5%;- Japan decreased clothing imports by 8%;- US imports in clothing stagnated.Telecommunications: The collapse of the rapid expansion in the global in<strong>for</strong>mation andcommunication technology industry continued to depress international trade flows in officeand telecom equipment. Exports of office and telecom equipment which was the mostdynamic product category in world merchandise in the 1990’s stagnated at nearly US$ 840billion in 2002. China established itself as the largest supplier of and destination <strong>for</strong> electronicgoods among the developing economies. Its exports of office and telecom equipment surgedby 45% to US$ 75 billion while its imports rose by one third to US$ 66 Billion01.3 Regional AnalysisHaving provided a general overview of trends in International Trade and Foreign Direct Investment,the following analysis provides a more indepth review on per<strong>for</strong>mance obtained at a regional level.01.3.1 Developing CountriesAfricaMany African countries marginally sustained or increased their FDI inflows in 2002. The most strikingfeature of the FDI downturn of Africa in 2002 was its size (41%) a good part of which was linked to theabsence of large Merger and Acquisition activity as comparable to those that took place in 2001. Thedownturn also reflects drops in outflows from the major home countries of FDI to Africa.In spite of the downturn, 30 countries out of Africa’s 53 attracted higher inflows in 2002 than in 2001largely through greenfield FDI mainly in Petroleum and to a lesser extent in apparel. In somecountries, manufacturing attracted considerably more FDI than natural resources as in South Africa.The Automobile industry in South Africa employs nearly 300,000 people and is the third largestindustry. South African Firms have traditionally invested Abroad in mining and breweries, largelywithin the region, but some also invested in telecommunications in 2002.Africa’s economic growth in 2002 at 2.7% remained below expectations and only marginally above itspopulation growth. South Africa’s economy accounting <strong>for</strong> more than one third of the region’s outputgrew faster than the regional average. Provisional 2002 trade data indicate a moderate expansion ofAfrica’s merchandise and commercial services trade. Prices <strong>for</strong> Africa’s principal commoditiesrecorded no uni<strong>for</strong>m developments. A Breakdown of Africa’s merchandise exports by productindicates that exports of agricultural products rose by 9% to US$ 22.1 Billion in 2002. Agriculturalproducts which account <strong>for</strong> 16% of total merchandise exports by region, expanded significantly to<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 18
Western Europe and North America. Developments of Africa’s merchandise exports by region differedstrongly in 2002. Shipments to Western Europe decreased slightly while those to North Americastagnated.Asia and the PacificAsia is one of the most rapidly liberalising host regions <strong>for</strong> FDI making more national policy changesin a direction favourable to investors in 2002 than in any other region. In spite of this, FDI flowsdeclined <strong>for</strong> the second year down from US$ 107 billion in 2001 to US$ 95 billion in 2002. FDI flowscontinue to be concentrated in India, China, Hong Kong and Singapore. FDI flows to China rose by13% in 2002, to US$ 53 billion, a new record rein<strong>for</strong>cing China’s position as the largest recipient ofFDI inflows in the developing world. China’s large domestic market, strong economic growth,increasing export competitiveness and access to the WTO have all increased investor’s interest inlocating operations in that economy. The top 10 host economies took 93% of the region’s total inflowsin 2002.FDI flows to India rose to US$ 3.4 billion sustaining it as the largest recipient in South Asia. Thecountry’s market potential improved economic per<strong>for</strong>mance, growing competitiveness of IT andimpetus of recent liberalisation are factors attracting more FDI into the country.China and India are the giants of the developing world. Both enjoy healthy rates of economic growth.But there are significant economic differences in their FDI per<strong>for</strong>mance:o FDI has contributed to the rapid growth of China’s merchandise exports at an annual rate of15%;o In India, by contrast, FDI has been much less important in driving India’s export growth,except in IT. FDI in Indian manufacturing has been and remains domestic market seeking.Trade of the transition economies, expanded at double digit rates <strong>for</strong> both exports and imports(merchandise and commercial services). The Transition countries’ merchandise imports rose in realterms by more than 10% in 2002. However, the expansion rate of major product groups in themerchandise exports of transition economies differed sharply.o Exports of mining products recovered by 5%;o Those of Manufactured and agricultural products rose by more than 10%.In 2002, Asia recorded the strongest recovery in merchandise of all regions, almost offsetting thesharp contraction of its exports and imports in the preceding year.Latin America and the CaribbeanFDI inflows declined in 2002 <strong>for</strong> the third consecutive year, falling by a third to US$ 56 billion, thelowest since 1996. From a sectoral perspective, the decline concentrated in services, especially in theSouth American countries where TNCs had been attracted. From a geographic perspective, thedecline in FDI was concentrated in Argentina, Brazil and Chile where FDI into services was moreimportant.The largest host in 2002 was Brazil, followed by Mexico. On the other hand, privatisation initiativeswere postponed or cancelled due to a lack of political support or direct opposition as in Ecaudor. Inthe case of Mexico, more than 200,000 jobs were lost in the maquiladora industries in 2000 – 2001with no recovery from this loss in 2002.In this region, the World Investment Report predicts that TNCs will continue to be attracted by naturalresources, especially if high oil prices persist. Moreover, efficiency seeking FDI in Mexico and theCaribbean basin will likely remain at the same level. Facing stiffer competition from China andelsewhere, most labour intensive manufacturing has an uncertain future in Mexico and the Caribbeanand Mexico. Chile’s high technology investment programme targets the software industry andservices that are intensive users of IT such as Call Centres, support Centres, Shared Services andback offices. In this respect, <strong>Malta</strong>’s potential targeting ef<strong>for</strong>ts aimed at this industries have to be<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 19
considered in the light of other countries such as Chile which already have an established market,with an appropriate level of skill at the fraction of the cost that would be borne in <strong>Malta</strong>.In 2002 however, Latin America’s economy recorded its worst per<strong>for</strong>mance in more than a decade,Merchandise imports and commercial services trade shrank as they have not done since the debtcrisis in 1982/83. More than half of Latin America’s commercial services exports are travel receipts,the highest share among all regions. The downturn in global tourism in 2002 there<strong>for</strong>e reduced theexport potential of Latin America’s services exportsCentral and Eastern EuropeWhen this region is considered, FDI inflows reached a new high to US$ 29 billion rising in 9 countries,falling in the other 10. Firms in several CEE countries particularly those slated <strong>for</strong> EU accessiontended to shed activities based on unskilled labour and to expand higher value added activities. Thismeans that such countries are bound to offer strong competition to <strong>Malta</strong> as an investment baseparticularly since these destination are aiming <strong>for</strong> higher value added activities.The stability in FDI inflows in 2001 – 2002 can be attributed partly to the positive impact of theanticipated EU enlargement on investment. Cross border Merger and Acquisitions, both privatisationrelated and others were important <strong>for</strong> CEE’s inflows in 2002. The automobile industry in CEE, amajor recipient of FDI, is still on a growth path. By Contrast, the electronics industry in the CEE bothlocal and <strong>for</strong>eign faces global overcapacity, sluggish demand and cost competition from East Asia,especially China;In the middle income countries such as the Czech Republic, Hungary, Poland, Slovakia and Slovakia,inward FDI increasingly targets logistical centres and R&D. The move to FDI based on higher labourskills makes the EU accession countries direct competitors with other emerging location including<strong>Malta</strong>.An increasing number of Greenfield projects may indicate that such projects can at least in partcompensate <strong>for</strong> the end of the privatisation-related FDI inflows. The growing number of GreenfieldFDI projects announced in 2003 is another indication of possible take off. However, it must be notedthat the sustainability of FDI inflows higher than those in the previous years depends on how theRussian Federation attracts FDI based on the full range of its competitive advantages. The RussianFederation has a sizeable untapped potential in natural resources. It has also been host to somemarket seeking investments especially in the food, beverage, tobacco and telecoms. The scope <strong>for</strong>such investment has been limited by the low purchasing power of the Russian population.In search <strong>for</strong> international competitiveness under EU membership, some accession countries are alsolowering their corporate taxes. By 2004, these taxes will be significantly below the average of thecurrent EU members, although still higher than those of some FDI front runners such as Ireland.New EU member countries may become major sources of skill-intensive assets, combining theiradvanced education with competitive production costs. Realizing the potential of natural-resourceseeking FDI largely depends on the willingness of <strong>gov</strong>ernments to allow <strong>for</strong>eign ownership in naturalresources. For market seeking investments, prospects depend mostly on the speed of economicrecovery in the Russian Federation and the rise in disposable income. For efficiency seeking FDI, theRussian Federation has the biggest untapped potential. With its technological capabilities and skilledwork<strong>for</strong>ce, it could become a major international engineering hub.Developed CountriesFDI inflows to developed countries in 2002 declined by 22% to US$ 460 billion in 2001. In particular,the UK and US accounted <strong>for</strong> half of the decline in the countries with reduced inflows in 2002. Theslow recovery of the US and other host economies affected profit prospects, making companies morecautious about FDI, especially the market seeking type. Intra-company loans declined sharply <strong>for</strong>several countries of the 19 countries that report components of inward FDI. FDI from the EU into theUS plummeted, with fewer cross border mergers and acquisitions. The major sources of FDI in the US<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 20
in 2002 were France, UK, Japan and Australia. The largest declines in the US were financial servicesas well as computer related services and chemicals.On the other hand, flows into other developed countries were uneven. In Japan, FDI inflowsincreased (by 50%) mainly <strong>for</strong> the acquisition of Japanese financial companies by US firms. Inflowsfrom the EU almost doubled, mainly in automobiles and financial services. Outflows from 8 out of 25countries rose with Norway, Sweden and Austria registering the largest increases. EU companieswere investing more in the CEE and China as wereAlth those from some other developed countriessuch as Switzerland. Most outward investment from the EU was in services. Although outward FDI inskill intensive manufacturing activities (automobiles, pharmaceuticals) was on the rise in severalcountries, it generally fell in manufacturing because of weak growth prospects and low profit margins.When trade is considered, Western Europe’s merchandise and services trade values were sustained,in the short run mainly by the price effects of the strength of the euro and other currencies vis-à-visthe US Dollar. Western Europe’s commercial services exports and imports rose by 9%. Alternatively,merchandise exports by product group recorded an unusual development in 2002 with export value ofagricultural products expanding by nearly 7%;The Sluggish Growth in Western Europe is due to the weakness of private domestic demand. Privateinvestment and consumption nearly stagnated in the Euro-Zone and expansionary fiscal policies ledto rising public sector deficits but failed to bring back confidence to investors and consumers. WesternEurope’s merchandise trade with transition economies was again the most dynamic regionalcomponent of its exports and imports expanding at double digit rates. Although EU’s merchandiseexports to Asia expanded by 5% and thus somewhat faster than imports from that region, the bilateraldeficit continued to wide. In the case of Commercial Services Trade, outstanding developments in thissector are increases of 20% by Germany and Ireland;On the other hand, although North American economic activity gained momentum in the course of2002, its nominal trade growth was weak. Marginal Increases in services and trade and a decline inmerchandise exports led to an erosion of North America’s share in global trade. Merchandise exportand import prices of North America continued to decrease slightl, in particular, those of fuels,contributing to the value decline in merchandise exports and limiting the rise in merchandise imports.01.4 Identifying our CompetitorsHaving provided an overview of recent trends in <strong>for</strong>eign direct investment in various regions, theseregions will now be assessed against a set of criteria to determine their likely competitive pressure on<strong>Malta</strong> as a whole. Although the actual competing destinations can only be determined once thesectors in which <strong>Malta</strong> will have to focus on will be identified, at a regional level, it is possible toestablish which are those regions that are likely to compete with <strong>Malta</strong> owing to their regional andstrategic similarities. The criteria under review include:oooooGeographic Proximity: This is the extent to which regions are close to <strong>Malta</strong> from ageographic perspective thereby giving them access to the same markets that are accessiblefrom <strong>Malta</strong> as a whole.Current Value added per capita: The extent to which a region relies on high value addedactivities as compared to traditional low cost operations and there<strong>for</strong>e the likelihood that suchregions would be targeting similar activities to those targeted by <strong>Malta</strong> as a whole.Targeted Sectors: The extent to which the sectors targeted by regions are similar to thosetargeted by <strong>Malta</strong> in general.Reliance on Foreign Direct Investment <strong>for</strong> economic development: The extent to which aregion places emphasis on Foreign Direct Investment as part of its economic developmentprocess.Reliance on International Trade: The extent to which countries in the region depend onimports from other countries to develop appropriate products and service and rely on <strong>for</strong>eignmarkets to generate an appropriate level of economic activity.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 21
ooStage of Economic Development: The general standard of living of the region as defined byWorld Development Indicators as established by the United Nations.Relations with the European Union: The level of trading relationships established betweenthe region and the European Union.AfricaAsia & thePacificLatin America& theCaribbeanCentral &EasternEuropeTRIAD(EU/US/Japan)MediterraneanCountriesMiddleEastGeographicProximityNorth Africavery closeFar Far Not very closebut has potentialto serve similarmarketsVery Close; arehighly likely toserve similarmarketsCurrent Valueadded per capitaLowVery Lowexcept <strong>for</strong>Japan,Singapore,Hong Kon;India is rapidlyincreasingVery LowRange from lowto medium butrapidly increasingVery high/stableQuite High andstableTargeted SectorsLow CostIndustriesmaking use ofnaturalresourcesVariessignificantly –Japan , HongKong &Singapore –TargetKnowledgeEconomies –China & Indiatarget low costbut rapidlygaining groundStill target lowcost industries –standard ofeducation stillrelatively low;Heavy industrialmanufacturingsuch asAutomotive andlabour intensiveindustrial such asTextiles. Movingrapidly to highervalue addedactivities –KnowledgeEconomyPrincipally ServicesMaritime, Tourism,Manufacturing &Financial ServicesReliance on FDI Low Some such asSingapore andHong Konghave highreliance, mostare very low.LowHighReliance onInternationalTradeModerateLow to MediumStage ofEconomicDevelopmentMost are in thegrowth stageForecastedeconomic growthSubstantialRelations withEUStrong MostForm part of theEU as from 2004Strong Northern,Mediterraneancountries <strong>for</strong>m partof the EU. AEuromedpartnership is alsobeing considered.Following the analysis of the above factors, the following competitors at a national level may bedivided as follows:1. Primary Competitors: These are the regions which are deemed to compete directly with<strong>Malta</strong> in attracting a specific segment of Foreign Direct Investment. It is believed that <strong>Malta</strong>’sprimary competitor regions are:a. The Mediterranean Region: This is due not only because of the close proximity of thecountries in the region to <strong>Malta</strong> thereby having access to similar markets, but also due<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 22
to their similar culture, level of skill, economic development and dependence on FDI asa means of sustaining the economy.b. Central and Eastern Europe: Unlike popular belief, a number of countries in this regionare targeting high value added activities which are similar to those targeted by <strong>Malta</strong>.Membership in the European Union of these countries has enabled them to access alucrative marketing which is also being targeted by <strong>Malta</strong> as a whole. There relativelylower labour costs places them in a better position to attract investment even in highvalue added activities particularly in the medium income countries such as Poland andHungary.2. Secondary Competitors: These are the regions which are deemed to offer somecompetition to <strong>Malta</strong> in attracting Foreign Direct Investment but are not deemed to offer thesame level of competition as primary competitors. <strong>Malta</strong>’s secondary competitors include:a. The Triad: The TRIAD region is comprised of the European Union, the United Statesand Japan. Together the Triad accounts <strong>for</strong> 80% of all Foreign Direct Investmentoutflows and inflows. Whilst the region’s focus is primarily on high value addedactivities, <strong>Malta</strong>’s stage of economic development is still far behind (<strong>Malta</strong>’s GDP percapita at purchasing power parity prior to accession standing at less than 60% of theEuropean Average) and is there<strong>for</strong>e unlikely to attract similar industries at least in theshort term until such time, <strong>Malta</strong>’s stage of economic development reaches theEuropean Average. Once this average is achieved, it is expected that competition <strong>for</strong>Trade and Foreign Direct Investment from the Triad region is likely to intensify.3. Unrelated Regions: These are the regions which are not considered to offer any significantcompetition to <strong>Malta</strong> in attracting Foreign Direct Investment principally because of a differentstrategic focus, geographic location and culture. These include all the remaining Regionsmentioned in the report.Having established that the Mediterranean Countries and Eastern Europe are the key Competitors <strong>for</strong><strong>Malta</strong> <strong>for</strong> International Business, what follows is an identification and evaluation of key competitors ata country level within these two regions through a competitor analysis.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 23
Wealth - FDI Matrix35000ItalyFrance300002500020000IsraelSpainGDP/Capita1500010000GreeceCyprusTunisiaSloveniaPolandCzech Rep<strong>Malta</strong>EstoniaHungary5000LatviaSerbiaSlovakiaSyriaCroatia0-1 0 1 2 3 4 5 6 7 8 9Akgeria Turkey EgyptMoroccoAlbaniaJordan-5000FDI % of GDPCountry Risk/Market Growth10Lithuania8LatviaAlgeriaTurkey6GreeceEstoniaMoroccoAlbaniaSlovakiaTunisiaMarket Growth4PolandHungaryCroatiaJordanEgyptSpainCzech Rep2SloveniaSerbia<strong>Malta</strong>CyprusSyria00 0.5 1 1.5 2 2.5 3 3.5 4 4.5ItalyIsrael-2FranceOverall Country RiskThe Wealth/FDI matrix evaluates the competitiveness from the wealth generated from each countryas against actual Foreign Direct Investment Attracted in proportion to each country’s wealth ingeneral. It may be observed that the smallest countries including Estonia, Slovakia, Jordan andCroatia are placing a high reliance on <strong>for</strong>eign direct investment as a method <strong>for</strong> developing theireconomy. Hence these are the countries which would be highly motivated to attract <strong>for</strong>eigninvestment in their country and are likely to exhibit aggressive <strong>for</strong>eign direct investment policies.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 24
These countries have been traditionally positioned themselves as a low cost base. FDI attractivenesshas been principally resource seeking and efficiency seeking. However, over the past EasternEuropean Countries are also repositioning themselves and leapfrogging into the knowledge economycompeting directly with <strong>Malta</strong> but with the added cost advantage. In contrast, larger and moredeveloped countries such as France, Spain and Italy have a much lower reliance on FDI <strong>for</strong> their owndevelopment sustaining growth through internal development.The Risk/Market Growth Matrix compares each country’s overall risk as computed by the WorldMarkets Research Organisation against actual growth rates in GDP. It may be observed thatalthough Hungary, Czech Republic, Poland and Estonia have a marginally higher country risk than<strong>Malta</strong>, their growth rates are substantially higher. Hence while the Wealth/FDI matrix has shown thatthese countries have recorded a generally lower level of GDP per Capita than <strong>Malta</strong>, the substantiallyhigher growth rates in GDP recorded may indicate that these countries are rapidly catching up.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 25
02. The Local Framework<strong>Malta</strong> is a small island economy inheriting a vast array of customs and traditions from its historicalcolonizers dating back to the Phoenicians up until its independence in 1964. In the past, <strong>Malta</strong>’s majorstrategic asset was its geographic location.Positioned at the centre of the Mediterranean, the Maltese Economy owed its subsistence to itstraditional naval base hence bringing periods of economic prosperity un<strong>for</strong>tunately during the times ofwar. With independence however, decisions had to be made by the first autonomous MalteseGovernment to diversify the local activities in other local interests. At that time, cheap labour costsenabled the <strong>gov</strong>ernment to pursue an aggressive strategy towards attracting <strong>for</strong>eign direct investmentclaiming cost comparative advantage against other nations. After a period of economic uncertaintyimmediately after independence, the economy started to develop a healthy manufacturing sector mostnotably in the textile industry and tourism. While the growth of the textile industry rested on the realcost advantages arising from comparatively lower labour costs charged by other developed countries,the success of the tourism industry rested primarily on British Tourists who <strong>for</strong>merly lived in <strong>Malta</strong>during the colonial years and who were still emotionally attached to the island.At the turn of the 21st Century, the environmental framework in which the Island is struggling tosurvive draws no comparison to the above. What follows is an assessment of the economicper<strong>for</strong>mance of the island over the period with a focus on the enterprise sector.02.1 Gross Domestic Product- Expenditure AnalysisThe Gross domestic Product is the widest indicator of economic output and growth. The economicper<strong>for</strong>mance of any economy is normally measured by the Gross Domestic Product per capita. Thiscurrently stands at US$ 10,233 per capita 1 increasing by 40% over the period between 1995 and2002. Until recently, the National Statistics Office compiled two out of the three approaches ofmeasuring GDP being the Income Approach and the Expenditure Approach. The Income approach iscompiled from the supply side through the resource costs involved in the production of goods andservices. The expenditure approach outlines the demand side and is calculated using the following<strong>for</strong>mula:Where:GDP = C + I + G + (X – M)- C is the local consumption of goods and services in <strong>Malta</strong> and will be assessed against thefindings of the last household budgetary survey carried out by the National Office of Statistics.- I stands <strong>for</strong> the investment trends observed in <strong>Malta</strong> and findings from an Investment Auditreport carried out by <strong>Malta</strong> Enterprise will be used to assess per<strong>for</strong>mance in investmentachieved to date.- G stands <strong>for</strong> the Government Expenditure and given the enterprise focus of this document willonly be briefly assessed against the budget estimates and the last statement of theConsolidated Fund of Government.- X and M stand <strong>for</strong> Exports and Imports respectively and will be evaluated against the latestInternational Trade Statistics released by the National Office of Statistics.It must however be outlined that NSO have traditionally adopted the Income Approach to measureand establish the level of GDP at factor cost. Theoretically the GDP derived from such an approachshould be equal to that derived from the Expenditure Approach. However, the discrepancy thatemanates is resultant from imperfect data and this discrepancy is always shown on the expenditureside.1GDP at current market prices per capita/population (2002 estimate)<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 26
The recently compiled GDP from the production approach deducts intermediate consumption fromoutput of goods and services and follows the methodology of the European System of Accounts(ESA95). 202.1.1 Trends in Local ConsumptionConsumer Expenditure by yearTrends in Consumer Expenditure12001000800Lm Million60040020001998 1999 2000 2001 2002At current market pricesIn real terms1998 1999 2000 2001 2002Lm millionConsumers’Expenditure at846 915 996.7 1044.7 1081.8current market pricesConsumers’ expenditure at781.4 829 890.1 905.1 928.1constant 1995 pricesGDP at current market prices 1362.3 1456.1 1562.8 1634.4 1680.4GDP at real prices 1291.8 1344.3 1430.5 1413.8 1438.1Consumer Expenditure as a %to the GDP62.1% 63% 63.7% 63.4% 64.1%% increase in consumer expenditure1999 2000 2001 2002% % % %At current marketpricesAt constant 1995prices8.1% 8.9% 4.8% 3.6%6.9% 7.4% 1.7% 2.5%2The revised GDP is higher than the previous estimate. The revised figures as per NSO News Release (in Lm thousands) areas follows:1999: Lm 1,576,4152000: Lm 1,668,2632001: Lm 1,752,6992002: Lm 1,803,767<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 27
Consumer Expenditure 3 is the main component of the Gross Domestic Product amounting to 64% ofGDP. In the period under review, this variable increased by one percentage point.Consumer Expenditure increased substantially between 1999 and 2000. The rate of growth sloweddown in subsequent years.Breakdown of Consumer Expenditure8%11%24%8%9%19%10%11%Food, Beverage & Tobacco Transport & Communications Household EquipmentRecreation & Culture Housing & Energy Education, Catering & Accomodation ServicesClothing & FootwearHealth & Other ServicesAccording to the Household Budgetary Survey 4 , households spend most on food beverages andtobacco. In fact, 23.9% of household expenditure is on this item. This amounts to a total expenditureof Lm 257.6 million on these items during the year 2002. These trends may partly explain the reasonwhy the food and beverage manufacturing sector in <strong>Malta</strong> is one the most established locally orientedindustries creating a significant impact on employment. In <strong>Malta</strong>, Transport and Communicationfollows with 19.3% of consumer expenditure. 10.7 % is spent on household equipment and housemaintenance, 10% on recreation and culture, 9% on housing and energy, 8.3% on education, cateringand accommodation services another 8.2% is spent on clothing and footwear and another 10.6% isspent on health and other services.1998 1999 2000 2001 2002Disposable income 936.7 1008 1042 1066.2 1096% increase in disposable income 7.6% 3.3% 2.3% 2.8%Consumption 846 915 996 1044.7 1081.8Savings 90.7 93 45.3 21.6 14.2Savings ratio 9.7 9.2 4.3 2 1.3Source: Economic SurveyThe savings ratio has followed a downward trend, probably due to extended consumer credit. Thisfigure averaged at around the 10% mark during the nineties but fell as low as 1.3% in 2002.4Carried between March 2000 and March 20015Household disposable income is made up of Gross Household income ( wages and salaries, employers social securitycontributions, non-wage income, net transfers from <strong>gov</strong>ernment including social benefit payments and net transfer from abroad)less direct taxes including social security contributions<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 28
02.1.2 Trends in Investment and EmploymentForeign direct investment 6 peaked in 1999 where it reached a hefty Lm 327.9 million coinciding withthe period during which HSBC invested in <strong>Malta</strong>. This figure declined slightly in 2000 at Lm 272.4million and halved in 2001. 2002 figures reveal a negative inflow due to the financial transactions inthe banking sector. However, the trend lines show that <strong>Malta</strong> still has a very positive FDI track record.Foreign investment recovered to a positive figure of Lm 143 million in 2003.Foreign Direct Investment in Lm million1995 46.4571996 99.9071997 31.1881998 103.6571999 327.9492000 272.4862001 126.3832002 -188.2822003 143.278Jan-Sept 2002 -82.156Jan-Sept 2003 17.738Source: Balance of Payments Statistics :National Statistics Office.At current market pricesin Lm millionGross Fixed Capital Formation in Lm million 71998 1999 2000 2001 2002333.6 340 410 379.7 350.7% changes 2.2 1.9 20.6 -7.4 -7.6At constant 1995 prices 308.5 320.9 377.2 335.2 290.5% changes -3.4 4 17.5 -11.1 -13.3As outlined in the table above, there was a significant large outlay in 2000 resultant from a substantialcapital investment carried out by one large company operating in the manufacturing industry.Exceptional investment outlays tend to cause substantial fluctuations in investment levels insubsequent periods following the termination of the investment planning horizon.The construction industry which is another component of gross fixed capital <strong>for</strong>mation is characterisedby a high degree of volatility due to the projects’ life cycles. Large projects thus have a considerableimpact on a small economy like <strong>Malta</strong>.Between 2000 and 2001, a decline in gross fixed capital <strong>for</strong>mation was registered. This wasunderpinned by a decline in the machinery component that more than offset the expansionencountered in the construction component. As outlined in the Economic Survey Jan –Sept 2001,6Direct investment as extracted from the Balance of Payments account includes equity capital that is, the <strong>for</strong>eign direct investor’s purchase of shares of an enterprise in a country other than its own. Reinvested Earnings that are the direct investor’s share in proportion to direct equity participation) of earnings notdistributed as dividends by affiliates or earnings not remitted to the direct investor Other capital which includes intra- company loans and inter-company debt transactions.This figure relates to investment in both the manufacturing and sevices sectors.7Gross fixed capital <strong>for</strong>mation consists of producers’ acquisition less disposals of fixed assets undertaken by companiesoperating in both the manufacturing and services sectors in <strong>Malta</strong> . Gross fixed capital <strong>for</strong>mation also includes:(i) work-in-progress of construction such as unfinished dwellings, non-residential buildings and civil engineering works;(ii) improvements to existing fixed assets that go well beyond the requirements of ordinary maintenance and repairs;(iii) transfer costs of fixed assets, such as conveyance fees and costs made by real estate agents, architects and notaries. Thisfigure also relates to investment undertaken in manufacturing and services sectors.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 29
private investment is a major contributor to gross fixed capital <strong>for</strong>mation contributing to more than75% of this figure.Investment in the Manufacturing <strong>Industry</strong> 8When analysing the period 1998 to 2003, the Radio, TV and Communication equipment (32)contributed to 56% of investment undertaken by sampled manufacturing companies. The Food andBeverage (15) and the Chemical sector (23/24) accounted <strong>for</strong> 7% respectively. Furniture and othern.e.c (36), Publishing and Printing (22) and Rubber and Plastic products (25) each contributed to 5%of investment undertaken by sampled manufacturing companies between 1998 and 2003. 4% ofinvestment was undertaken by the Electrical Machinery and Apparatus sector (31) and another 3% ofinvestment was accounted <strong>for</strong> by the Medical, Precision and Optical sector (33).Investment in the Services Sector 9During 2001, the Hotels and restaurants sector (55) outlaid Lm 22.8 million in investment mainlyconsisting of the construction of new hotels. The real estate sector (70) followed with an investmentequivalent to Lm 16.4 million. The post and telecommunications sector <strong>for</strong>ked out a similar amountequivalent to Lm 16.2 million. This was closely followed by the Financial Intermediation sector whichinvested an amount of Lm 15.4 million.Trends in EmploymentOver the years , employment has shifted more towards the services industry. The largest increasewas registered in the banking, insurance and real estate sector. In fact since 1983, employment inthis sector increased by 604%, whilst a growth of 125% was recorded in the Hotels and CateringEstablishments sector. In a time span of 20 years whilst employment in private market servicesincreased by 72%, oil drilling and manufacturing registered a meagre increase of only 5%. The shift inemployment from manufacturing to services occurred in the early 90s. Worth noting is the fact thatthere was a decline of 20% in the agriculture and fisheries sector.Employment in ManufacturingThe highest employers in manufacturing 10 are the Radio TV and Communication equipment (32), theFood and Beverage sector (15) and the Wearing Apparel sector (18) each of which contributes to14% of employment amongst sampled manufacturing firms. The Furniture (36) and Rubber andPlastic (25) follow accounting <strong>for</strong> 9% respectively. The Printing and Publishing sector (22) comes sixthcontributing to 7% of employment amongst sampled manufacturing firms. Electrical Machinery andApparatus (31) contributes to 6% of employment whilst the Medical, Precision and Optical and theChemical sector each generate 5% of employment in sampled manufacturing firms. Other nonmetallicand fabricated metal products come next with a contribution of 3% each. The remainingsectors which collectively contribute to the remaining 10% of employment may be considered asrelatively small employers.8Investment: Investment refers to new investment during the reference period. These are tangible capital goods <strong>for</strong> company’sown use but not <strong>for</strong> speculative use. They have a useful life of over 1 year. Any additions, alterations, improvements orrenovations prolonging service life or to increase the productive capacity of capital goods are not taken into account. Excludedfrom the definition are current maintenance costs as well as investment in capital used under rental or lease contracts,intangible goods (patents and trademarks) and financial assets or goods acquired through merger. Computer software isregarded as an investment if its life is over 1 year and of a relatively considerable amount.Data <strong>for</strong> investment is based on a sample of 450 enterprises covering 95% of exporters and around 73% of employment inmanufacturing. It is assumed that the sample has been kept constant over the period specified.9The following sectors have been analysed. (NACES 37, 40/41, 45, 50, 51, 52,55,60,61,62,63,64,65,66,67, 70, 71, 72, 73, 74,92)10 based on a sample of 450 enterprises covering 95% of exporters and around 73% of employment in manufacturing. It isassumed that the sample has been kept constant over the period specified.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 30
Employment in the Services <strong>Industry</strong>The Hotels and Restaurants industry is the highest employer employing 17,342 workers in 2001 i.e.20% of employment in the services sectors under review 11 . The retail trade sector (52) follows with13,955 employees and the wholesale trade sector (51) which experienced continuous increases inemployment during the period under review employed 9,013 employees in 2001.Sectors which are low on the employment side include recycling (37), water transport (61), airtransport (62), Insurance and pensions (66), Activities auxiliary to financial intermediation (67), rentingand machinery (71) and research and development (74). These sectors employ less than 1000workers and range from 958 employees employed in NACE 71 and a meagre 18 employees engagedin research and development.02.1.3 Trends in Government ExpenditureGovernment Current Expenditure 12 demonstrated continuous increases in nominal terms between1998 and 2002. According to the Economic Survey, this increase may be attributed to higherexpenditure on general administration. The same report outlines that expenditure on generaladministration and education and health account <strong>for</strong> 75% of current expenditure.Government current expenditure excludes outlays which finance transfer payments such as NIbenefits, subsidies and grants. Such items of expenditure do not reflect the production of goods andservices but just involve a redistribution of wealth.Government Current Expenditure1998 1999 2000 2001 2002In Lm millionAt current market prices 269 272.6 291.2 328.5 340.9In real terms 242 240.6 253.6 261.2 267.5Growth rates in % nominal 1.9 1.3 6.8 12.8 3.8Growth rates in % (real) -4 -0.6 5.4 3 2.402.1.4 Trends in International TradeInternational trade, and in particular export activities, represent <strong>Malta</strong>'s economic lifeline. Measuresdesigned to increase the competitiveness of Maltese exports and to widen the range of incentivesavailable to the industrial investor are given priority. The importance of this emphasis follows from thefact that apart from its tourist attractions, <strong>Malta</strong> lacks natural resources and has to import a substantialpart of its requirements.The Maltese have always been convinced that their future lies with exports. Exports of manufacturedgoods, along with tourism, transport-related services such as transhipment and ship repair, as well asfinancial services, are now the prime motors of <strong>Malta</strong>'s economic growth and development.<strong>Malta</strong> has one of the highest domestic exports per capita ratios in the world, standing at €5,621 <strong>for</strong>2003. The range of products made in <strong>Malta</strong>, and/or exported from <strong>Malta</strong>, to all over the world includeelectronic products and components, electrical distribution equipment, automotive parts, plastic andrubber products <strong>for</strong> industrial and non-industrial applications, medical products and equipment,11 11 The following sectors have been analysed. (NACES 37, 40/41, 45, 50, 51, 52,55,60,61,62,63,64,65,66,67, 70, 71, 72, 73,74, 92)12Government current expenditure as enlisted in the GDP computation broadly includes wages outlayed by <strong>gov</strong>ernment,<strong>gov</strong>ernment intermediate consumption, extended <strong>gov</strong>ernment entailing organisations that rely on <strong>gov</strong>ernment subventionexcluding those the charge a price <strong>for</strong> their services e.g. Enemalta and Water Services Corporation and depreciation.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 31
pharmaceuticals, a myriad of engineering-based products, ship repair services, as well as anassortment of high quality consumer goods and services.During 2003, <strong>Malta</strong>’s top five export markets were Singapore, the United States, France, the UK andGermany. For the same year, <strong>Malta</strong>’s top five import sources were Italy, France, the UK, theUSA and Germany. This not only indicates how well the Maltese economy is integrated in the globaleconomy but also confirms that Maltese products are very competitive in some of the world’s mostsophisticated and demanding markets.Major Trading PartnersDuring 2003, total exports stood at €2.18bn. The EU remains the most important regional tradingpartner <strong>for</strong> <strong>Malta</strong>, accounting <strong>for</strong> 44.3 per cent of Maltese exports and 66.8 per cent of Malteseimports.Singapore has retained the top spot <strong>for</strong> Maltese domestic exports valued at €365.6 million, showing a3.9 per cent increase over 2002. Other significant importers <strong>for</strong> Maltese domestic exports includedthe USA (€312.6 million), France (€280.6 million), the United Kingdom (€215.7 million) and Germany(€213.1 million). Among these countries, the highest growth was reported by the USA with a 15.3 percent increase over 2002.Maltese Domestic Exports 2003Other20.12%Singapore19.06%Italy3.07%Japan4.48%Germany11.11%UK11.25%France14.62%USA16.30%Imports from Italy were valued at €691 million, showing an 8.3 per cent growth over 2002, andremaining the leading supplier of Maltese imports since 2001. France was the second most importantsupplier, with imports from this market valued at €513.7 million. Other significant suppliers includedthe UK (€278.4 million), the USA (€240.2 million) and Germany (€237 million).<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 32
Maltese Imports 2003Other27.18%Italy23.01%China2.89%Singapore4.66%Germany7.89%USA8.00%UK9.27%France17.11%Leading Imports and ExportsImports4,000,000,0003,500,000,0003,000,000,0002,500,000,000Maltese ImportsTotal8542271085418703Euros2,000,000,0001,500,000,0001,000,000,000500,000,00001998 1999 2000 2001 2002 2003YearsTotal 8542 2710 8541 87031998 2,428,961,000 718,892,200 88,175,877 2,242,324 75,027,2201999 2,665,713,970 840,212,340 132,972,378 1,838,616 101,157,0712000 3,502,609,495 1,346,776,496 243,305,520 2,802,443 105,507,2452001 2,875,447,537 790,962,522 230,424,792 3,142,640 102,337,8302002 2,880,848,108 534,754,273 235,570,509 211,538,166 107,972,5732003 3,003,725,591 724,336,958 233,480,262 99,969,982 96,310,654<strong>Malta</strong> is highly dependent on importing the necessary raw materials and natural resources, withimports totalling €3bn. The lion’s share of imports was provided by Electronic integrated circuits andmicro-assemblies (€724 million, or 24 percentage share of imports) and Petroleum oils (€233 million,or 7.8 percentage share of imports). Other significant products imported included Diodes andtransistors (€100 million, or 3.3 per cent); Motor Vehicles (€96.3 million, or 3.2 per cent);Medicaments (€52 million, or 1.7 per cent) and Parts <strong>for</strong> Aircraft (€40.8 million, or 1.3 per cent).<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 33
HS 8542: Electronic integrated circuits and micro-assembliesImports of products falling under HS heading 8542 remained somewhat stable over the periodbetween 1998 and 2003, showing only an overall marginal downwards trend. Following a sharpdecline after 2000, imports of electronic integrated circuits and micro-assemblies only started pickingup in 2003, reaching €724 million. During 2003 the majority of imports <strong>for</strong> this product originated fromFrance (€342 million), followed by Singapore (€115 million), USA (€90 million), Italy (€68 million) andMalaysia (€48 million).<strong>Malta</strong>'s trade of HS85421,600,000,0001,400,000,0001,200,000,0001,000,000,000Euro800,000,000600,000,000400,000,000200,000,00001998 1999 2000 2001 2002 2003YearsImportsTrendline ImportsHS 2710: Petroleum oils, etc, (excl. crude); preparations thereof, nesTotal imports of Petroleum oils and related products amounted to €233.5 million in 2003, Italy beingthe largest supplier with €189 million. An upwards trend has been evident since 1998. Following asharp increase between 1999 and 2000, imports of such products levelled off.<strong>Malta</strong>'s trade of HS2710300,000,000250,000,000200,000,000Euros150,000,000100,000,00050,000,00001998 1999 2000 2001 2002 2003YearsImportsTrendline Imports<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 34
HS 8541: Diodes, transistors, etcAlthough imports <strong>for</strong> products falling under heading HS8541 reported an upwards trend between 1998and 2003, which was mainly due to a huge increase in 2002, there was a sharp decline in 2003 withimports reaching €100 million. Main suppliers <strong>for</strong> 2003 were France, accounting <strong>for</strong> €54 million, andthe USA with €18.7 million.<strong>Malta</strong>'s trade of HS8541250,000,000200,000,000150,000,000Euros100,000,00050,000,0000-50,000,0001998 1999 2000 2001 2002 2003YearsImportsTrendline ImportsHS 8703: Motor cars and other motor vehicles <strong>for</strong> the transport of personsDespite reporting a decline from the previous year, imports of motor cars and other motor vehiclesshowed a gradual upwards trend between 1998 and 2003 to reach €96.3 million in 2003. The highestvalue in car imports in 2003 originated from Germany (€23.5million), France (€21.6 million) and Japan(€19.5 million).<strong>Malta</strong>'s trade of HS8703120,000,000100,000,00080,000,000Euros60,000,00040,000,00020,000,00001998 1999 2000 2001 2002 2003YearsImportsTrendline Imports<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 35
HS 3004:Total: €52 millionUK: €17.6 million<strong>Malta</strong>'s trade of HS300460,000,00050,000,00040,000,000Euros30,000,00020,000,00010,000,00001998 1999 2000 2001 2002 2003YearsImportsTrendline ImportsDomestic ExportsMaltese Domestic Exports2,500,000,0002,000,000,000Euro1,500,000,0001,000,000,000Total85418542Other500,000,00001998 1999 2000 2001 2002 2003YearsAverage Annual Exchange Rate 2003: Lm 1: Euro 2.3470.HS 8541: Diodes, transistors, etc.HS 8542: Electronic integrated circuits and micro-assemblies.With the exception of exports in the machinery and transport equipment category, Maltese domesticexports have shown a gradual increase over the last 5 years. Following a slump in 2001, a reflectionof the slowdown in the demand <strong>for</strong> electronic components, domestic exports started picking up againin 2002 and continued the upward trend in 2003.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 36
HS 8541: Diodes, transistors, etcTotal: €1bnSingapore: €363.3 millionFrance: €255.2 millionUSA: €248.6 millionHong Kong: €49.3 millionJapan: €41.6 millionHungary: €32.1 millionRep of Korea: €23.4 millionDomestic Exports of products falling under HS heading 8541 increased substantially, first in 2002 andagain in 2003 to reach €1bn. During 2003 Singapore was the top destination <strong>for</strong> diodes, transistorsand related products, with domestic exports accounting <strong>for</strong> €363.3 million. Other significant importmarkets included France (€255.2 million), USA (€248.6 million), Hong Kong (€49.3 million), Japan(€41.6 million), Hungary (€32.1 million) and Rep of Korea (€23.4 million).<strong>Malta</strong>'s trade of HS85411,200,000,0001,000,000,000800,000,000600,000,000Euros400,000,000200,000,0000-200,000,000-400,000,0001998 1999 2000 2001 2002 2003YearsDomestic ExportsDomestic Exports Trendline<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 37
HS 6203: Men's or boys' suits, ensembles, jackets, blazers, trousers, etcAlthough 2003 reported a marginal decrease over the previous year in domestic exports of men’s orboys’ clothing articles falling under heading HS 6203, the trend since 1998 has been upwards. Totaldomestic exports <strong>for</strong> 2003 reached €116.8 million, with the UK and Belgium being the top destinationmarkets at €49.3 and €39.6 million respectively. These were followed by Germany (€12.7 million) andItaly (€4.4 million).<strong>Malta</strong>'s Trade of HS6203160,000,000Euros140,000,000120,000,000100,000,00080,000,00060,000,00040,000,00020,000,00001998 1999 2000 2001 2002 2003YearsDomestic ExportsDomestic Exports TrendlineHS 4911: Other printed matter, including printed pictures and photographsExcept <strong>for</strong> the years between 2000 and 2001, domestic exports of products classified under otherprinted matter have shown an increasing trend from 1998 to 2003, reaching €72 million in the finalyear. The UK, accounting <strong>for</strong> €47.5 million, was the major importer of such products from <strong>Malta</strong>,followed by Malaysia with €14 million.<strong>Malta</strong>'s trade of HS491180,000,00070,000,00060,000,000Euros50,000,00040,000,00030,000,00020,000,00010,000,00001998 1999 2000 2001 2002 2003YearsDomestic ExportsDomestic Exports Trendline<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 38
HS 8536: Electrical apparatus <strong>for</strong> switching... electrical circuits, =
03. Gross Domestic Product- Sectoral AnalysisThe <strong>for</strong>egoing analysis has presented an overview of GDP per<strong>for</strong>mance from a consumptionperspective. The following analysis provides additional insight in GDP by taking a Sectoral View.03.1 General OverviewGDP is divided into two distinct sectors, Direct Production and Market Services. Agriculture andfisheries, Manufacturing, Construction and Quarrying and Public Utilities make up the DirectProduction. On the other hand Market Services comprises:ooooooTransport and Communications,Wholesale and Retail TradesInsurance, Banking and Real EstatePublic AdministrationProperty Income andPrivate ServicesProduction36%Public Services16%Financial Services10 %Other Services38%For the period under review (1980-2000) <strong>for</strong> which data is publicly available, some significant changescan be noticed. While in the early 80s Direct Production accounted <strong>for</strong> 47% of GDP, nowadays it isonly 36%, a shift typical of a more service oriented economy, which took a significant direction in thebeginning of the 90s.The manufacturing percentage contribution to GDP declined by 10 percentage points over 20 years,from 33% to 23%. This is followed by 4 percentage points in the wholesale and retail trades.Agriculture and fisheries and construction and quarrying also registered a decline by 1 and 2percentage points respectively.In a time span of 22 years GDP at factor cost has increased by 309%, but one has to take intoaccount consideration inflation, increasing wages and salaries, money supply among a number ofother economic variables. However the increase is still somewhat significant. Not surprisingly, thehighest increase (763%) was accounted <strong>for</strong> in Market Services in the Insurance, Banking and RealEstate sector. The financial sector has undergone major restructuring in the past years and whilstemployment has increased, both profits made by banks and wages and salaries were on the increaseas well. Also worth noting is the boom in real estate prices which surely had a major impact in thissector.Another significant increase was registered in property income (528%). This increase was mainly dueto higher interest paid from local sources, higher receipts from tourist accommodation and receiptsfrom ownership of land and buildings (rent).<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 40
The lowest change occurred in the manufacturing sector, in 22 years it only increased by 183%.Manufacturing in the 80s faced declining export markets together with a recession in Western Europe.Also there were a number of aids directed to the manufacturing industry. Two major manufacturingindustries in the early 80s were footwear and security paper printing.In the same years, fuel costs impinged on the per<strong>for</strong>mance of the airline industry which was still in itsearly stages.During the mid-80s the construction and quarrying sector faced a slowdown, whilst exports of springpotatoes surged the agriculture and fisheries sector.The 90s saw a significant shift towards market services. There was a rise in employment income andin profit levels in construction and quarrying. Banks made higher profits following increases in interestincome on loans and advances and income <strong>for</strong>m non-residents’ assets held by local banks.On average GDP at factor cost grew by about 6.37% per annum with the worse ever per<strong>for</strong>mancerecorded between 1982 and 1983 (a contraction of 0.17%). Between 2000 and 2002 there wasanother major slowdown matching the sluggish international scenario. During the period 1980-1985,GDP at factor cost grew by 24% as compared to the 51% of the periods 1985-1990 and 1990-1995.As at 2003, economic activity as measured by GDP at factor cost was underpinned by increases inagriculture and fishing, insurance, banking and real estate, private services and public administration.These served to counteract the fall recorded within the transport and communication sector andproperty income.EmploymentSimilar trends as those observed in sectoral contribution to GDP can be drawn on labour distribution.The largest increase was registered in the banking, insurance and real estate sector. In fact since1983, employment in this sector increased by 604%, whilst a growth of 125% was recorded in theHotels and Catering Establishments sector. Indeed employment in a time span of 20 years, privatemarket services increased by 72% whilst that of private direct production (agriculture and fisheries,quarrying construction and oil-drilling and manufacturing) registered an increase of only 5%. Worthnoting is the fact that there was a decline of 20% in the agriculture and fisheries sector. On a positivenote is that women in the labour <strong>for</strong>ce increased by 43%. The shift in employment frommanufacturing to services occurred in the early 90s.TradeTrade is highly effected by machinery and transport equipment which includes exports and imports bya firm manufacturing semiconductors. As a matter of fact trade from 1996 to 2002, excludingmachinery and transport equipment increased in a fairly constant manner.During the period 1996-2002 our imports from North-Africa decreased by 60% whilst that fromOceania and Australia increased by 61%. Imports and exports with the EU increased by 28% over1996. However over 7 years our export share to the EU decreased by 10 percentage points from57% to 47% whilst trade directed from <strong>Malta</strong> to Asia increased by 8 percentage points.03.2 Overview of the Manufacturing SectorTurnoverOn average, 50% of turnover was accounted <strong>for</strong> by the Radio, TV and Communication equipmentsector (32). This was followed by an 11% contribution from the Food and Beverages sector (15). TheWearing Apparel sector (18) accounted <strong>for</strong> around 6% of turnover generated by sampledmanufacturing companies between 1998 and 2003. 5% was generated by Furniture and othermanufacturing (36). Publishing and Printing (22) and Electrical machinery and apparatus (31) each<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 41
contributed to 4%. The Chemical sector (23/24) and Tobacco sector (16) follow with a contribution of3% each. The other remaining sectors only contribute negligibly to turnover figures.Average Turnover 1998-200315 - Food and Beverages16 - Tobacco products17 - Textiles and textile products18 - Wearing apparel and clothes19 - Leather and leather products5.16%0.80%0.10%2.25%11.23% 2.84%0.86%6.04%1.50%0.07%0.79%3.64%3.49%20 - Wood and w ood products21 - Paper and Paper products22 - Publishing and printing23/24 - Chemicals and Chemical products25 - Rubber and Plastic Products26 - Other non-metallic mineral products27 - Basic metals products28 - Fabricated Metal products49.60%3.74%1.34%0.07%1.52%1.15%0.09%3.74%29 - Machinery and equipment n.e.c30 - Office machinery and computers31 - Electrical machinery and apparatus32 - Radio, TV and Communication equipment33 - Medical, precision and opticalinstruments34 - Motor vehicles, trailers and semi-trailers35 - Other transport equipment36 - Furniture and Manufacturing n.e.c<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 42
InvestmentWhen analysing the period 1998 to 2003, the Radio, TV and Communication equipment (32)contributed to 56% of investment undertaken by sampled manufacturing companies. The Food andBeverage (15) and the Chemical sector (23/24) accounted <strong>for</strong> 7% respectively. Furniture and othern.e.c (36), Publishing and Printing (22) and Rubber and Plastic products (25) each contributed to 5%of investment undertaken by sampled manufacturing companies between 1998 and 2003. 4% ofinvestment was undertaken by the Electrical Machinery and Apparatus sector (31) and another 3% ofinvestment was accounted <strong>for</strong> by the Medical, Precision and Optical sector (33).Average Investment by sector 1998-200315 - Food and Beverages16 - Tobacco products17 - Textiles and textile products18 - Wearing apparel and clothes19 - Leather and leather products5.44%0.36%0.01%2.66%0.79% 1.26%7.10%0.0004%1.86%0.38%0.003%0.52%4.68%20 - Wood and w ood products21 - Paper and Paper products22 - Publishing and printing23/24 - Chemicals and Chemical products7.03%25 - Rubber and Plastic Products26 - Other non-metallic mineral products55.75%5.49%0.47%0.002%1.34%0.53%27 - Basic metals products28 - Fabricated Metal products29 - Machinery and equipment n.e.c30 - Office machinery and computers4.32%31 - Electrical machinery and apparatus32 - Radio, TV and Communicationequipment33 - Medical, precision and opticalinstruments34 - Motor vehicles, trailers and semitrailers35 - Other transport equipment36 - Furniture and Manufacturing n.e.c<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 43
EmploymentThe highest employers in manufacturing are the Radio TV and Communication equipment (32), theFood and Beverage sector (15) and the Wearing Apparel sector (18) each of which contributes to14% of employment amongst sampled manufacturing firms. The Furniture (36) and Rubber andPlastic (25) follow accounting <strong>for</strong> 9% respectively. The Printing and Publishing sector (22) comes sixthcontributing to 7% of employment amongst sampled manufacturing firms. Electrical Machinery andApparatus (31) contributes to 6% of employment whilst the Medical, Precision and Optical and theChemical sector each generate 5% of employment in sampled manufacturing firms. Other nonmetallicand fabricated metal products come next with a contribution of 3% each. The remainingsectors which collectively contribute to the remaining 10% of employment may be considered asrelatively small employers.Average Employment 1998-200315 - Food and Beverages16 - Tobacco products17 - Textiles and textile products18 - Wearing apparel and clothes19 - Leather and leather products20 - Wood and w ood products21 - Paper and Paper products1.02% 8.63%0.29%14.11%22 - Publishing and printing5.22%0.71%2.26%23/24 - Chemicals and Chemical products25 - Rubber and Plastic Products13.80%13.84%26 - Other non-metallic mineral products27 - Basic metals products28 - Fabricated Metal products5.55%0.08%1.91%3.24%0.30%3.06%9.06%4.92%6.69%3.59%0.27%1.47%29 - Machinery and equipment n.e.c30 - Office machinery and computers31 - Electrical machinery and apparatus32 - Radio, TV and Communicationequipment33 - Medical, precision and opticalinstruments34 - Motor vehicles, trailers and semi-trailers35 - Other transport equipment36 - Furniture and Manufacturing n.e.c<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 44
Value AddedValue Added is significantly higher than industry average in the case of Tobacco (16), Chemicals(23/24), and Radio, TV and Communication Equipment (32).The Food and Beverage (15), Printing and Publishing (22), Plastics and Rubber (25), Machinery andEquipment (29) and Medical and Precision (33) sectors have higher than average value added whilstthe average value added between 1998 and 2003 <strong>for</strong> the Textiles sector (17) and the ElectricalMachinery and Apparatus (31) amounted to the average <strong>for</strong> manufacturing.The other sectors’ value added falls below the average. The lowest value added had been recorded inthe other transport equipment sector (35) which had a negative gross operating surplus during theperiod stipulated. As previously outlined, such a loss may be attributable to the operations of <strong>Malta</strong>Dry Docks and Ship Building. Whilst these two companies have evidently been excluded from thesample, they must feature in value added figures since this takes all manufacturing into account.Sector Value Added Compared to <strong>Industry</strong> Average300002500020000LM15000100005000015 16 17 18 19 20 21 22 23/24 25 26 27 28 29 30 31 32 33 34 35 36NACESector Value Added per CapitaAverage <strong>for</strong> Total ManufacturingConclusionFrom the analysis it is evident that the manufacturing sector relies heavily on the Radio, TV andCommunication Equipment sector. Such reliance is even more dangerous when one considers thedominant contribution of one company on this sector and on the economy as a whole. If such anenterprise was to relocate to another country, the drastic negative effect is not limited to a sizeableloss in employment but will impact more heavily on the generation of <strong>for</strong>eign exchange through thehalving of exports and investment.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 45
03.3 The Services <strong>Industry</strong> in the Maltese EconomyTurnoverTurnover2001600,000500,000400,000Lm300,000200,000100,000037 40/41 45 50 51 52 55 60 61 62 63 64 65 66 67 70 71 72 73 74 92TurnoverOut of the sectors reviewed, the sector that emerged with the highest turnover was the wholesaletrade and commercial trade (51) which generated Lm 537 million in turnover. This is followed by thefinancial intermediation sector (65) which yielded sales equivalent to Lm 468 million. Sectors thatgenerated less than Lm 50 million in turnover included the Land, water and other transportsectors(60), (61), (62), insurance and pensions sector (66), real estate (70), renting of machinery (71),computer and related activity sector (72) and the recreational cultural and sporting sector (92). Theresearch and development sector (73) is still largely undeveloped and yielded only Lm 151,000 inrevenue.InvestmentInvestment200125,00020,00015,000Lm10,0005,000037 40/41 45 50 51 52 55 60 61 62 63 64 65 66 67 70 71 72 73 74 92Out of the sectors reviewed, the Hotels and restaurants sector (55) <strong>for</strong>ked out Lm 22.8 million ininvestment mainly consisting of the construction of new hotels during 2001. The real estate sector(70) followed with an investment equivalent to Lm 16.4 million. The post and telecommunicationssector <strong>for</strong>ked out a similar amount equivalent to Lm 16.2 million. This was closely followed by theFinancial Intermediation sector which invested an amount of Lm 15.4 million. It is interesting to notethat with the exception of real estate (70) and renting of machinery (71), the sectors that werecharacterized by the lowest investment also generated the lowest turnover.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 46
EmploymentEmployment2001Lm20,00018,00016,00014,00012,00010,0008,0006,0004,0002,000037 40/41 45 50 51 52 55 60 61 62 63 64 65 66 67 70 71 72 73 74 92Employment <strong>for</strong> Selected NACE CodesAverageThe largest employer in the services industry is the Hotels and Restaurants industry which employed17,342 workers in 2001 i.e. 20% of employment in the services sectors under review. The retail tradesector (52) follows with 13,955 employees and the wholesale trade sector (51) which experiencedcontinuous increases in employment during the period under review employed 9,013 employees in2001.Sectors which are low on the employment side include recycling (37), water transport (61), airtransport (62), Insurance and pensions (66), Activities auxiliary to financial intermediation (67), rentingand machinery (71) and research and development (74). These sectors employ less than 1000workers and range from 958 employees employed in NACE 71 to a mere 18 employees engaged inresearch and development.Average WagesAverage WagesLm10,0009,0008,0007,0006,0005,0004,0003,0002,0001,000037 40/41 45 50 51 52 55 60 61 62 63 64 65 66 67 70 71 72 73 74 92Average Wages <strong>for</strong> Selected NACE CodesAverageAverage wage <strong>for</strong> the services sector under review is Lm 4,252. The highest paying employer is thefinancial intermediation sector (65) whereby average wage per employee is Lm 9,509. This is followedby Insurance and pension funding sector (66) at Lm 8,202 per worker. Other sectors which recorded awage rate above the average wage include Electricity, Gas and Water Supplies (40), Water Transport(61), Air Transport (62), Post and Telecommunications (64), Activities auxiliary to financialintermediation (67) and Computer and Related Activities (72). Wages in the recycling sector (37) areequivalent to the average.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 47
The remaining sectors surveyed are characterized by a wage that is below average. Average wagesare lowest in research and development (73) (possibly suggesting a rampant underdeclaration ofincome) and are closest to average in the wholesale industry where they stood at Lm 3,736 in 2001.Most of these sectors portray a wage that is unrealistically low and outline an element of underdeclaration of income.It may be the case that value added which is the summation of personnel costs and gross operatingprofit is being understated in some sectors resulting from the underground activity which goes hand inhand with the intangibility of services.Value AddedValue Added2001180,000160,000140,000120,000Lm100,00080,00060,00040,00020,000037 40/41 45 50 51 52 55 60 61 62 63 64 65 66 67 70 71 72 73 74 92Value Added <strong>for</strong> Selected NACE CodesAverageRecording a phenomenal value added figure of Lm 88,196 and 157,367 respectively, sectors 66 and67 skew the average value added <strong>for</strong> the services industry upwards and the other sectors strayfurther from the average. In fact only the air transport sector (NACE 62) and the financialintermediation sector (NACE 65) exceed the steep average value added of Lm 22,770.If sectors 66 and 67 are excluded from the analysis, the average value added <strong>for</strong> the services industrydrops down to Lm 12,242 which is quite close to the manufacturing average. Under this scenario,posts and telecommunication (NACE 64) and computer and related activities (NACE 72) achieve avalue added that is above average as outlined in the table below. Sectors 40 (Electricity, gas andwater), 61 (water transport), 63 (supporting and auxiliary transport activities), 70 (real estate), 71(renting of machinery), 74 (other business activities), fail the average by a relatively narrow marginand all record a value added figure that exceeds the Lm 10,000 mark. The remaining sectors record arelatively low value added which ranges from Lm 9,411 in recycling reaching the lowest at Lm 5,238in retail trade.Value Added2001Lm50,00045,00040,00035,00030,00025,00020,00015,00010,0005,000037 40/41 45 50 51 52 55 60 61 62 63 64 65 70 71 72 73 74 92Value Added excluding NACE 66 & 67Average<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 48
04. General Economic Background IndicatorsGDP per capita in PPS<strong>Malta</strong>’s GDP per capita as expressed in PPS13 amounts to around 72.514 of the EU25 average set toequal 100. As outlined in the table, between 1999 and 2005 (f) this indictor has continued to strayaway from this average. In fact in 1999, it amounted to 77.9.This implies that <strong>Malta</strong> although nearing the threshold still classifies <strong>for</strong> Objective one classificationwhich necessitates that member states’ GDP per head amounts to or is less than 75% of Communityaverage.When compared to the other new entrants only Slovenia and Cyprus have a higher GDP per capita. Itis interesting to note that the three year <strong>for</strong>ecasts (2003-2005) of GDP per capita <strong>for</strong> all new entrantsexcept <strong>for</strong> <strong>Malta</strong> are showing increasing trends. On the other hand, the EU15 trend points downwardsoutlining that the EU is still facing an economic slow down since the turn of the century.Real GDP growth rate<strong>Malta</strong> fares worse than the EU 15 and EU 25 average when it comes to GDP growth <strong>for</strong> 2003(<strong>for</strong>ecast) to 2005 (<strong>for</strong>ecast). However, the gap in growth is expected to become narrower in 2005.East European economies are driving growth in the European Union in 2004 and are expected tocontinue growing at a faster rate than traditional EU members into 2005 Those growth rates arelargely fuelled by the per<strong>for</strong>mance of countries such as Poland, Hungary, Slovakia, the CzechRepublic and the Baltic statesThe new EU members from central and eastern Europe are set to achieve combined average growthof around 4.8 % in 2005, against the 2.3 % of the previous EU 15;.Estonia, Latvia and Lithuania in particular are expected to experience the highest growth rates. (Theiraverage real growth rate is in the region of 6.1%)The new EU members are expected to continue to benefit from the general improvement in globaland west European demand from imports.Labour productivity per person EmployedWhen measuring trends in labour productivity, two measures are commonly used. These are GDP perperson employed and GDP per hour worked. Such measured are then contrasted to GDP per capita.When it comes to <strong>Malta</strong>, only the GDP per person employed is available.It is positive to see that <strong>Malta</strong> ranks highest when compared to the new EU member states with thisindicator amounting to 81.7 against the EU average of 100.When viewed in terms of the GDP per capita which features as quite low, such an indicator outlinesthe high dependency ratio that characterizes the Maltese economy as well as the low level of femaleparticipation in the labour <strong>for</strong>ce.13PPS stands <strong>for</strong> Purchasing Power Standards and it is an index that eliminates price differences amongst countries enabling amore meaningful comparison of GDP data.14Source: Europa web site. Figure <strong>for</strong> GDP per capita in PPS <strong>for</strong> 2003 is a <strong>for</strong>ecast<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 49
Total Employment GrowthEurope's employment rate this being computed as the proportion of its population of working age thatis gainfully occupied is considered to be very low. This has instigated European Union member toplace an emphasis on increasing this employment rate to reach 70% by <strong>2010</strong> in accordance with theLisbon Objectives.Such an indicator has fallen over the past two decades - from around 60% to somewhat below. Incontrast, the employment rates in Japan and Scandinavia have remained consistently above 70%.The US employment rate started in 1970 at a similar level to that of the Community but has grownconsistently during the eighties and nineties to reach its present level of 70%.As outlined in the White paper on Growth, Competitiveness and Employment, the divergence inemployment creation per<strong>for</strong>mance between the EU and other economies has been much more acutethan the difference in economic per<strong>for</strong>mance.In the case of <strong>Malta</strong>, employment growth rate was higher than the EU 15 and EU 25 average in 2000and 2001 but was negative and below average <strong>for</strong> 2002 when it stood at -0.7%. (Data <strong>for</strong> 2003 isunavailable <strong>for</strong> <strong>Malta</strong>).Inflation RateThe EU utilises the HICP that is the Harmonised Indices of Consumer prices <strong>for</strong> internationalcomparisons of consumer price inflation. As outlined by the FOI in the document “The LisbonIndicators: How does <strong>Malta</strong> Compare?” until recently the system was not completely introduced in<strong>Malta</strong> and figures were as at then unavailable. However, recent data from Eurostat outlines that suchdata is now available <strong>for</strong> <strong>Malta</strong> and dates from 1997-2003. 2003 registered the lowest inflation rate inthe series at 1.9%Unit Labour Cost GrowthThis indicator compares compensation per employee and GDP per employment which is an indicatorof productivity valuing the relationship between how much each worker is paid in relation to what heproduces. <strong>Malta</strong> had a high labour cost growth rate in 2001 when this stood at 4.4% marking asubstantially higher rate than the growth rate experienced in most countries. This indicator declinedto a negative value of -1.8 during 2002 which is positive given that a high growth rate erodescompetitiveness. (The increase experienced in 2001 may be due to revised <strong>gov</strong>ernment collectiveagreements with public sector employees).Year <strong>Malta</strong> USA EU25 EU15 Ireland Luxembourg Italy2001 4.4 -0.4 0.6 0.5 0.6 6.2 0.42002 -1.8 -2 -0.5 -0.4 -5.5 4.1 0.22003 n/aPublic BalanceThis indicator marks the difference between <strong>gov</strong>ernment revenue and <strong>gov</strong>ernment expenditureexpressed as a percentage of the GDP. The Maastricht criteria stipulate that this figure should notexceed 3% of the GDP. As outlined in the table below, the figure <strong>for</strong> <strong>Malta</strong> soared in 2003 reaching ahefty -9.47% which outlines that we are steering away from the attainment of the Maastricht criteria.Year <strong>Malta</strong> EU 25 EU 15 USA2002 -5.7 -2.1 -2.0 -3.42003 -9.7 -2.8 -2.6 -4.9<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 50
General Government Consolidated Gross Debt as a % of the GDP.Government debt as a percentage of the GDP <strong>for</strong> <strong>Malta</strong> continued to increase. In fact, whilst decliningbelow the Maastricht threshold <strong>for</strong> the period 1999 and 2000, this indicator increased continuouslyfrom 2001 to 2003 when it reached 71.1% of the GDP.Year <strong>Malta</strong> EU 25 EU 15 USA2002 62.7 61.6 62.7 60.62003 71.1 63.3 64.3 63.1Government’s fiscal position is characterised by a recurring deficit which necessitates a higher publicsector Borrowing Requirement. The method by which shortfalls in <strong>gov</strong>ernment’s fiscal position arefinanced is of relevance since different methods of financing lead to different costs. Maltese<strong>gov</strong>ernment relies on financing the deficit by issuing domestic public debt. In 2003, it however partiallyfinanced the hospital project by drawing on a <strong>for</strong>eign loan. By resorting to domestic borrowing,<strong>gov</strong>ernment finances the deficit without drawing down international reserves and without increasingexposure to exchange rate risk.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 51
05. EmploymentThe main objectives under the proposed Employment Guidelines are:- Improving Employability which entails helping the unemployed and inactive find a job.- Increase labour supply and promote active ageing.- Develop Entrepreneurship to encourage the climate conducive to start ups.- Encouraging adaptability of workers and firms to change in accordance with the everchangingenvironment.- Strengthening equal opportunities by promoting gender equality in work and pay.- Work against discrimination against disadvantaged groups.- Provide more and better investment in human capital.- Improve financial incentives to make work pay.- Promote geographical and occupational mobility.Employment RateThis indicator is calculated by dividing the population aged 15-64 in employment to the totalpopulation within the same age group. Such an indicator is based on the EU Labour Force Survey.Standing a 54.2% in 2003, such an indicator emerges as very low when compared to EU 15 wherebythe average stands at 64.4% and is also low when compared to the new EU members.( It is thesecond lowest after Poland).Tables published by Eurostat, an extract of which is portrayed belowoutline that <strong>Malta</strong> has the lowest female employment rate at 33.6%. This exorbitantly low femaleparticipation rate pushes down the total employment rate. In fact, the same indicator <strong>for</strong> males is 74.5which exceeds both the EU25 and EU 15 average.Effective Average Exit AgeThis indicator gives the average age at which active persons withdraw from the labour market.Un<strong>for</strong>tunately, this statistic is unavailable in the Europa web site. Such an indicator cannot be ignoredgiven that it has implications on the country’s labour market and on pension policies.Gender Pay Gap in an unadjusted <strong>for</strong>mWomen workers in <strong>Malta</strong> earn 90% of their male counterparts according to the Europa web site andenjoy one of the lowest gaps in wage when compared to other countries. Female workers in the EU15 earn 16% less than males.Tax Rate on low wage earnersThis indicator outlines the incentive/disincentive of an inactive person to enter the labour market. Alow rate of tax encourages participation in the labour market whilst a high tax rate encouragesunemployed to stay on the dole. Participation is further hindered if unemployment benefits aregenerous. As outlined in the Europa web site <strong>Malta</strong> imposes a low burden on a person with a lowincome with a tax wedge on labour cost of 15.8%.In fact, it imposes less than half the burden of theEU15 average which stands at 37.2%. This incentive <strong>for</strong> participation is reduced by the fact thatunemployment benefits are very near the minimum wage.Life long learningThis indicator refers to the people aged 25-64 that state they received training in the four weekspreceding the Labour Force Survey. <strong>Malta</strong> fares quite badly in this statistic with only 4.2% of thosefalling in this age group receiving training. Such a figure deteriorated from 4.4% in 2002 to 4.2% in2003. The average <strong>for</strong> the EU25 and EU15 was 9% and 9.7% respectively.It is evident that such a statistic must be improved in the case of <strong>Malta</strong> since life long learning enablesworkers to continually upgrade themselves to cater <strong>for</strong> the needs of an ever-changing environment.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 52
Accidents at WorkFigures refer to the number of serious accidents per 100,000 of the employed population. At 94, theindex <strong>for</strong> <strong>Malta</strong> is equivalent to the EU15 index (figures <strong>for</strong> 2001).However, this statistic outlined anincrease over the previous year when it stood at 77.Unemployment RateAccording to Eurostat figures the unemployment rate in <strong>Malta</strong> is increasing standing at 8.2% in 2003.This somewhat differs from the 6.4% reported in the Labour Survey <strong>for</strong> June 2003. As outlined by theFOI report this is due to Eurostat seasonally adjusting its unemployment figures. <strong>Malta</strong> has a slightlylower unemployment rate when compared to the average <strong>for</strong> the EU 25 which is 9.1%. However,2003 Eurostat figures <strong>for</strong> <strong>Malta</strong> slightly exceed the EU 15 average by a meager 0.1 percentagepoints.The following section contains a summary of the main conclusions and recommendations drawn bythe <strong>Malta</strong> Federation of <strong>Industry</strong>:- The need <strong>for</strong> proper utilization of scarce human resources. The requirements of the economymust be matched by appropriately trained employees. One must say that some of the coursesdevised by the <strong>Malta</strong> College <strong>for</strong> Science and Technology are designed specifically to cater<strong>for</strong> the needs of industry and are thus an important step in the right direction.- The fact that a significant percentage of unemployed fall within the younger and older workerscategory necessitates that programmes and policies need to be drawn up to address theneeds of these groupings.- The need to address skills mismatch and skills gaps.- The importance of life long learning which ascertains that workers are retrained to match theneeds of a changing environment.- Encourage female workers to join the labour market through family friendly policies includingthe adoption of flexi time.- The need of the Occupational Health and Safety Unit to step up its ef<strong>for</strong>ts in addressinghealth and safety issues.- The consideration of increasing the mandatory pension age due to an ageing population,better health and longer life expectancy could be one of the measures to tackle the welfaregap.The report outlined a concern in the possible brain drain arising because of EU membership wheremore lucrative wage packets will attract skilled and professionals to work abroad. It also outlines thatdue to existing skill gaps, a certain amount of worker inflow should be encouraged to make up <strong>for</strong> theshortages which are being felt in certain skills.The private sector should make use of the EU programmes aimed at promoting female participation,combating illiteracy and correcting other imperfections in the labour market.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 53
06. InnovationThe importance of innovation has been given a lot of prominence by the European Union. However,as outlined in the Lisbon Review 2004, this area scores the lowest when the EU 15 average iscompared to the US benchmark.A lot of importance is cast on education when innovation and research is concerned. To this end, theEU embarked on various programmes such as the Framework Programmes <strong>for</strong> R and D, EuropeanCharter <strong>for</strong> SME’s, DG Enterprise. Such programmes encourage the setting up of innovativebusiness, development of innovative sources of finance, protection of intellectual property rights andincreased linkages between industry and research.As outlined in the FOI report, there are doubts whether the 3%of GDP objective will be reached by<strong>2010</strong> and the European Commission is intensifying its ef<strong>for</strong>ts to make this objective achievable byencouraging both public and private players to intensify their research ef<strong>for</strong>ts.Total R and D expenditureThe four indicators provided are Gross Domestic expenditure on R&D as a % of the GDP, thepercentage of gross domestic expenditure on research and development financed by industry,percentage of GERD financed by <strong>gov</strong>ernment and % of GERD financed from abroad. Un<strong>for</strong>tunately,figures <strong>for</strong> <strong>Malta</strong> are still unavailable in the Eurostat web site.Internet AccessThe latest data <strong>for</strong> <strong>Malta</strong> in the Eurostat web site dates 2000 and is thus quite outdated given thatadvancement in such an area have been quite rapid over the past years. According to the FOI report,<strong>Malta</strong> had a household internet access rate of 31.3% in 2002 compared to the EU 15 average of38.9% <strong>for</strong> the same year. Internet access figures <strong>for</strong> enterprises is un<strong>for</strong>tunately unavailable <strong>for</strong> <strong>Malta</strong>.The figure <strong>for</strong> the EU 15 stood at 84.2% in 2003. The quantification of such a figure <strong>for</strong> <strong>Malta</strong> is ofinterest because it is perceived as an important indicator showing companies’ willingness to adoptinnovative ideas. (ICT in ENTERPRISES BY NSO).Science and research GraduatesThe number of science and research graduates in <strong>Malta</strong> is very low standing at 2.7 per 1000population aged 20-29 in 2001 when the average <strong>for</strong> the EU 15 stood at 11.9 and that <strong>for</strong> the EU 25was only very slightly lower at 10.9.The number of science and research graduates is even lower when females are concerned. In fact,only 1.4 per 1000 population aged 20-29 years being female. The corresponding figure <strong>for</strong> males is 4.PatentsThe figure <strong>for</strong> <strong>Malta</strong> when it comes to the number of patent applications per million inhabitants madeto the European Patents Office (EPO) and the US Patents Office by Maltese companies is low whencompared to the EU15. However, it is higher than that of most of the new EU members.The need to take out patents <strong>for</strong> new processes is a relatively new phenomenon in the local contextand <strong>Malta</strong> is not yet a member of the European Patents Office. The European Patent Conventionencourages registration of inventions in countries not otherwise considered <strong>for</strong> registration sinceunder its system of inter<strong>gov</strong>ernmental cooperation it is possible <strong>for</strong> any legal person to file a singlepatent application in one of three official languages and thereby obtain a patent with effect in oneseveral or all the contracting member states. As outlined in the <strong>Malta</strong> Today of 25th April 2004 byMinister Censu Galea, <strong>Malta</strong>’s accession to the European Patent Convention is imminent. It isbelieved that such a measure will encourage innovation.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 54
Venture Capital InstrumentsThis may be defined as the private equity raised <strong>for</strong> investment in companies. This data is brokendown in two investment stages being the early stage and the expansion and replacement stage Sucha financial instrument which is believed to be an indicator of innovative growth is presently inexistentin <strong>Malta</strong>ICT Expenditure: IT expenditure and Telecommunications expenditureAnnual data on expenditure <strong>for</strong> IT and telecommunications software, hardware equipment and otherservices as a % of the GDP is unavailable <strong>for</strong> <strong>Malta</strong> and the appropriate comparisons cannot bemade. When it comes to the telecommunications sector, there is a clear shift from fixed to mobiletelephony. As outlined in An NSO News Release dated 3rd Aug 2004, whilst the number of telephonelines increased from 171 per 1000 population in 1995 to 211 in 2002, subscriptions to cellular mobilephones increased from a meager 11 per 1000 population to 239 in 2002.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 55
07. Social CohesionInequality of Income DistributionThis is the ratio of total income received by the 20% of the population with the highest income andthe 20% of the population with the lowest income. It follows that the higher the gap between theupper quartile and the lower quartile the greater the social exclusion. At 4.515, this ratio <strong>for</strong> <strong>Malta</strong> isslightly higher than the EU (15) average which stands at 4,4 (Eurostat estimate).At Risk of Poverty Rate be<strong>for</strong>e and after Social TransfersThese indicators measure the share of persons with an equivalised disposable income be<strong>for</strong>e andafter social transfers. As outlined in the table below, social transfers in <strong>Malta</strong> do have an impact (-6%) that is an additional 6% of the population fall above the risk-of poverty threshold as a directresult of social transfers. In the case of the EU 15, 9% of the population fall above the risk ofpoverty threshold if social transfers were to be removed.Country Be<strong>for</strong>e Be<strong>for</strong>e After After1999 2000 1999 2000<strong>Malta</strong> n/a 21 n/a 15EU 15EU 2524 (eurostatestimate)24 (Eurostatestimate)23 ( Eurostatestimate)n/a15 ( Eurostatestimate)15 ( Eurostatestimate)15 ( Eurostatestimate)n/aAt persistent risk of poverty rateThis indicator outlines the share of persons with an equivalised income below the risk of povertythreshold in the current year and in the preceding three years. The threshold is set at 60% of thenational median equivalised disposable income. Such an indicator is unavailable <strong>for</strong> <strong>Malta</strong> and <strong>for</strong>other new EU Members.A similar though not equivalent indicator has been devised by the NSO in the Household BudgetarySurvey. With 14.9% of the population being at persistent risk of the poverty rate, <strong>Malta</strong> has one ofthe lowest poverty rates. Only Slovenia preceded <strong>Malta</strong> with a rate of 11%. Gender inequalityemerges from such data with a larger percentage of females being at the risk of poverty.Early School leaversThis indicator refers to persons aged 18-24 with the lowest educational attainment and that havenot furthered their education in the four weeks preceding the survey which is an indicator ofemployability of the school leaver. As outlined in the Eurostat website, it is worrisome that <strong>Malta</strong>has the highest amount of early school leavers16 meaning that <strong>Malta</strong> lags behind in the provision ofincreasingly skilled manpower which is a necessity <strong>for</strong> today’s increasingly specialized economies.Total Long term unemployment rateThis indicator provides a measure of whether the policies adopted by <strong>gov</strong>ernment in retraining theirlong term employed are being successful. This rate <strong>for</strong> <strong>Malta</strong> is slightly higher than the EU15 ratebut lower than the average <strong>for</strong> the EU25.152000 figure16more than three times the EU25 average.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 56
Population in Jobless HouseholdsIn 2003, <strong>Malta</strong> had a lower percentage of the population living in jobless households than the EU15and EU 25 average. In fact, only 8% of the population aged 0-17 lives in jobless households vis avis the EU 15 and EU 25 rate which is estimated at 9.9%. This indicator is even lower <strong>for</strong> the peopleaged 18-59 whereby the rate <strong>for</strong> <strong>Malta</strong> is 7.9% and the rate <strong>for</strong> the EU 15 and EU 25 is estimated at9.8 and 10.2 respectively.Recommendations and Conclusions by FOI<strong>Malta</strong> has a higher drop out and illiteracy rate which outlines that although public expenditure oneducation as a % of the GDP is very close to the EU15 average, we are not achieving the desiredresults.As outlined in the employment section, the minimum wage is very close to what a person gets inunemployment benefits and the resultant disincentive to enter the job market must be removed.The private sector should be incentivised to assist the public sector in carrying out a needsassessment so that any retraining programmes identifying current and future needs of the economyare outlined.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 57
08. EnvironmentThis is one of the most rapidly developing areas of EU legislation. Environmental benefits to theeconomy may be measured through the financial savings that arise from the use of modern andcleaner technologies as well as the non-monetary benefits arising from a better quality of life.Greenhouse Emissions<strong>Malta</strong>’s greenhouse emissions are high and comparable to Greece and Ireland though one mustoutline that emissions are expected to decline from 128.9 to 113 by <strong>2010</strong> though it remains quitehigh when compared to EU projected average of 92. The projected data is unavailable <strong>for</strong> <strong>Malta</strong> butthe current 128.5 is very high resulting from the high usage of fossil fuel used in transport, powerstations and agriculture.Under the Kyoto Protocol, the EU has agreed to an 8% reduction in greenhouse emissions by 2008-2012. The reductions <strong>for</strong> each of the EU 15 has been agreed under the EU burden sharingagreement which allows some countries to actually increase emissions provided that these areoffset by decreases in other countries.Energy Intensity of the EconomyThis is the ratio between gross inland consumption of energy and the GDP. The gross inlandconsumption of energy is calculated as the sum of five energy types being coal, electricity, oil,natural gas and renewable energy sources.The EU15 improved its energy intensity from a ratio of 216 in 1991 to a provisional 194 in 2001.Asoutlined by Eurostat statistics, the ratio <strong>for</strong> <strong>Malta</strong> improved from 298 to 264 over a period of 11years although it actually registered increase in the mid- nineties. However such a ratio remainsquite high when compared to EU average and outlines that <strong>Malta</strong> has to actively promote energyconservation project and tap on the use of alternative energy sources such as solar and windenergy.TransportAlthough there are four Lisbon calculations <strong>for</strong> this figure, the only figure available <strong>for</strong> <strong>Malta</strong> is theshare of road in inland freight transport which stands at 100% outlining that all inland freighttransport is carried out using land transport.Urban air qualityFigures <strong>for</strong> population exposure are unavailable <strong>for</strong> <strong>Malta</strong> but studies carried out by MEPA and theUniversity of <strong>Malta</strong> outline that we have very high levels of certain chemical pollution.Municipal WasteThree indicators under this heading are waste collected, landfilled and incinerated. When it comesto collected waste though lower than EU15 average, the rate <strong>for</strong> <strong>Malta</strong> steadily and heftily increasedfrom 1998 to 2002. <strong>Malta</strong> also landfilled a greater amount per person per year. It should also beoutlined that <strong>Malta</strong> has been collecting such statistics only since1998.Share of Renewable ResourcesAlthough there has been more awareness of the benefits of renewable energy <strong>for</strong> <strong>Malta</strong> little hasbeen done to harness such sources of energy. Indeed, some fiscal incentives have been introducedbut the initial set up costs have till now remained a deterrent.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 58
09. Economic Re<strong>for</strong>mIf the EU is aiming at surpassing the per<strong>for</strong>mance of its competitors, structural re<strong>for</strong>ms in itsproduct, capital and labour markets must be addressed. The indicators taken into account in thissection measure progress in achieving better and more efficient product and capital markets.<strong>Malta</strong> has been in an advantageous position compared to a number of Central and EasternEuropean new members given its long experience functioning as a market economy. However, anumber of re<strong>for</strong>ms remain necessary.Relative Price Levels and Price ConvergenceSuch indicators gauge the progress made in market integration and efficiency. Comparative pricelevels are the ratio between purchasing power parities and the market exchange rate <strong>for</strong> eachcountry. If the index of the comparative price level <strong>for</strong> a particular country is higher/lower than theEU 15 average which is taken as 100, the country concerned is relatively expensive/cheap whencompared to EU average. With a ratio of 71.9 <strong>for</strong> 2002, <strong>Malta</strong> is quite low when compared to theEU15 average. However, it has one of the highest ratios when compared to the new EU entrants.When it comes to the coefficient of variation of comparative price levels , this indicator hasdecreased when considering EU 25 with the exception of 2001 and 2002 when such a rationregistered a slight increase. Thus, comparative price levels amongst EU member states areconverging. The same indicator <strong>for</strong> the EU 15 has fluctuated during the past decade but the maintrends pointed downwards that is at convergence.TelecommunicationsThis is considered as one of the key drivers <strong>for</strong> economic growth. Whilst the mobile telephonymarket is characterized by two market players, the fixed line market is characterized by a monopolysituation. As outlined by Eurostat statistics, <strong>Malta</strong> features as relatively low when the price of localcalls is under consideration .at 0.25 eurocents per ten minute call compared to the EU 15 averageof 0.39 eurocents. ( It must be outlined that the rental costs are excluded from this figure giving onlya partial reflection of the final price to be paid. Given the small size of the Maltese market, the priceof telecommunications of national calls is not applicable.When it comes to international call rates <strong>Malta</strong> features as very expensive at a rate of 12.7eurocents <strong>for</strong> a ten minute call to the US compared to 2.22 which is the average <strong>for</strong> the EU 15.Thishas however improved with VOIP which has substantially reduced costs.Gas and ElectricityThe electricity and gas market are characterized by one large operator which has 100% of themarket share of electricity generation in <strong>Malta</strong>, Given the small size of the Maltese market, there isno place <strong>for</strong> a second operator given the high costs that characterize entry of a competitor in thismarket.Public procurementThis indicator monitors the value of public procurement which is based on in<strong>for</strong>mation contained inthe calls <strong>for</strong> competition and contract award notices submitted <strong>for</strong> publication in the Official Journalof the European Communities that is openly advertised as a percentage of the GDP. As outlined inthe Eurostat web site, the average <strong>for</strong> the EU 15 is 2.67%. No data is available <strong>for</strong> <strong>Malta</strong> or anyother new member state.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 59
Sectoral and Adhoc State AidThis indicator monitors the state aid granted to specific sectors as well as to individual companiesexpressed as a percentage of the GDP enabling the measurement of the extent to whichcompetition is distorted. This data is unavailable <strong>for</strong> <strong>Malta</strong> and other new EU member states. It mayalso be observed that such a figure which averaged at 0.75% in 2001 witnessed continuousdecreased from 1990( with the exception of 2000 whereby such an indicator was lower than 2001).Market IntegrationThe extent to which multiple linkages exist between present member states outlines the extent towhich the capital and product markets are integrated.The Variation of Interest Rates across the EU indexMonitoring the extent to which financial markets are integrated, this figure gives an indication as towhat extent capital markets are efficient. As outlined in the FOI report, such a figure is currentlyunavailable <strong>for</strong> <strong>Malta</strong>Trade Integration Of GoodsIn a truly European Market which stresses the four freedoms, amongst which there is the freedomof goods and services, national boundaries should not affect trade flows. This figure amounts to59% <strong>for</strong> <strong>Malta</strong> outlining that it is quite well integrated within the international economy. Such a figurewas exceptionally high during 2000 which coincides with the year whereby a major electronics firmsubstantially increased its exports.Trade Integration of ServicesAs with the trade integration of goods, <strong>Malta</strong> portrays substantially higher figures that EU 15average. This index decreased slightly but continually between 1999 and 2003.Another country thathas a substantially high index is Ireland whose figure continuously rose and almost trebled from10.3% in 1992 to reach 29.2% in 2003.Trade Integration of FDI- Average Value of inward and outward <strong>for</strong>eign direct investmentdivided by the GDP and multiplied by 100.This indicator shows a country’s potential in attracting <strong>for</strong>eign direct investment to it therebyoutlining how competitive that particular country is. As outlined in the Eurostat web site, this figurefluctuated in the case of <strong>Malta</strong> reaching the highest in 1999 at 11% which most probably outline thesale of Mid- Med Bank to HSBC declining to a negative figure of -5.2% in 2002. It must be outlinedthat such a figure which is sourced from the Balance of Payments account does not draw anydistinction between existing investment and new or Greenfield investment. As suggested by the FOIreport, it would be desirable if this distinction were to be made.Business Investment-Gross Fixed Capital Formation by the private sector as a % of the GDPThis ratio gives the share of the GDP that is used by the private sector <strong>for</strong> investment rather thanbeing used <strong>for</strong> consumption or exports. Such a figure <strong>for</strong> <strong>Malta</strong> lies slightly below the average <strong>for</strong>the EU 15 and has decreased from 18.4% in 2000 to 14.4% in 2002 rising to 16.3% in 2003. Asoutlined in the Economic Survey January-September 2003, this nominal increase was primarilyunderpinned by an increase in the machinery component.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 60
10. Human ResourcesIn marketing our country overseas, we market our human resources as a key competitive advantage<strong>for</strong> companies located an operation in <strong>Malta</strong>. Our manpower is essentially one of the few resourcesthat we have. This section aims at providing more insight as to human resource availability hinting atthe sectors which are experiencing shortages as well as assessing the skills of Maltese manpower.From a strategic point of view, a need <strong>for</strong> identifying whether we have enough resources to cater <strong>for</strong>demands generated by targeted sectors is essential.Labour Market in <strong>Malta</strong>The total population that is of working age 17 amounts to 274,860 18 .However, it must be pointed outthat labour supply which is the summation of gainfully occupied and registered unemployed amountsto just 144,409 leaving an employment rate of 52.5%. The remaining 47.5% is the total dependencyratio (out of this 31.2% relates to population aged between 0-14 and 65+). As outlined in the LisbonIndicators detailed in another section of this document, this falls short of the employment targets set<strong>for</strong> the EU stipulating that overall employment rate should reach 67% by 2005 and 70% by <strong>2010</strong>.Table 1: Total Population (Maltese and Foreign) by sex and age groupAges Males Females Total0-4 10,469 10,106 20,5755-9 12,586 11,716 24,30210-14 14,376 13,626 28,00215-19 14,691 13,715 28,40620-24 15,493 14,728 30,22125-29 15,401 14,343 29,74430-34 13,248 12,701 25,94935-39 12,465 12,235 24,70040-44 14,704 14,543 29,24945-49 15,060 14,802 29,86250-54 14,650 14,545 29,19555-59 14,828 15,416 30,24460-64 8,215 9,077 17,25265-69 7,809 9,261 17,07070-74 5,788 8,030 13,81875-79 4,292 6,124 10,41680-84 2,580 4,088 6,66885-89 1,010 1,679 2,68990+ 434 1,033 1,467Source: NSO17Age bracket 15-6418data based on total population that is Maltese and <strong>for</strong>eign residents and dated Dec. 2003 based on 1995 census<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 61
Table 2: Population Projections ( US Census Bureau)2000 2025Age Total Male Female Total Male FemaleTotal 389,947 193042 196905 421,239 209,926 211,3130-4 23,520 12,095 11,425 19,629 10,084 9,5455-9 26,317 13,554 12,763 20,922 10,734 10,18810-14 28,165 14,512 13,653 21,449 10,997 10,45215-19 29,194 14,987 14,207 21,168 10,859 10,30920-24 29,245 15,132 14,113 20,498 10,509 9,98925-29 26,256 13,459 12,797 24,102 12,394 11,70830-34 23,450 11,881 11,569 26,871 13,853 13,01835-39 27,492 13,916 13,576 28,748 14,790 13,95840-44 30,051 15,072 14,979 29,962 15,353 14,60945-49 28,538 14,322 14,216 30,152 15,540 14,61250-54 30,617 15,206 15,411 27,209 13,850 13,35955-59 20,725 10,025 10,700 24,273 12,172 12,10160-64 18,260 8,591 9,669 27,447 13,691 13,75665-69 15,938 7014 8,924 28,316 13,823 14,49370-74 12,866 5,547 7,319 24,625 11,803 12,822Forecasts published by the US Census Bureau outline that whereas people aged between 15-64amounted to 67.6% of the population <strong>for</strong> the year 2000, this figure will decrease to 61.7% in 2025outlining a higher dependency ratio. The demographic situation becomes more grim when oneconsiders that the population aged 0-14 whilst <strong>for</strong>ming 20% of the population in 2000, will decreasedrastically to 14% in 2025 resultant of a lower birth rate and outlining an ageing population making thecurrently burdensome pension system in <strong>Malta</strong> unsustainable.Future Employment and The Lisbon CriterionAs outlined in the National Action plan <strong>for</strong> Employment dated 2004, <strong>for</strong>ecasts <strong>for</strong> <strong>Malta</strong> <strong>for</strong> the year<strong>2010</strong> suggest that male employment is expected to remain constant around the 70% mark whilst thatof females is expected to increase to 40% from the present 33.6%. The overall rate <strong>for</strong> <strong>2010</strong> isexpected to be around 56%19 outlining that the Maltese employment rate is not expected to reach thestipulated target. As outlined in the National Action Plan, the gendered division of labour with the malebeing the breadwinner and the female raising children has historically been strongly cast in theMaltese social life. In fact, women participation up to child bearing is quite high but falls significantlywhen they have children.The Employment Topic paper drafted in November 2001 projects that the population will contract by0.2%per annum between 2000 and 2020. However, the same report outlines that this should not leada significant drop in labour supply as it is expected to be almost offset by higher female participation.The same report <strong>for</strong>ecasts the following labour supply.19part time employment has been included<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 62
Table 3: Forecasts of the Labour Supply and the Unemployment RateYear Labour Supply ( persons) Unemployment2000 146,740 4.8%2005 151,715 4.7%<strong>2010</strong> 152,590 5%2015 152,680 4.7%2020 151,970 5.3%Sourced from: The Employment Topic Paper 2001When referring to the above <strong>for</strong>ecasts, one must not depart from the original aim of the EmploymentTopic paper which essentially aims at <strong>for</strong>ecasting demand <strong>for</strong> land rather than being a humanresource audit of any sort.Skills Availability and ExperienceThe Labour Force Survey 2002 outlines population aged 15 and upwards by education level. It isevident that a large percentage of the population have completed only the primary (32.7%) andsecondary (39%) level outlining that a large percentage of the population are largely unskilled. It isindeed worrying that <strong>Malta</strong> lags behind in the provision of increasingly skilled manpower which is anecessity <strong>for</strong> today’s increasingly specialized economies. The situation continues to worsen when oneconsiders that unskilled manpower is not cheap as it used to be. Hence, <strong>Malta</strong> is currentlyuncom<strong>for</strong>tably placed between wanting to attract projects in high value added sectors which requirespecialization whilst not having enough specialized human resources and at the same time having anabundant supply of unskilled manpower that are too expensive <strong>for</strong> companies that seek to relocate onthe basis of lower costs. We do have a competitive edge when it comes to wage costs of skilledemployees and professionals especially when comparing such costs to Northern Europeancounterparts. The visible problem is that skilled employees are not abundantSource: Labour Force Survey 2002- December<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 63
Chart 4.4Education level successfully completedNo SchoolingPrimarySecondary (General)Secondary (Vocational)Post-secondary (General)Post-secondary (Vocational)Diploma issued by a universityFirst DegreeMastersPh. DSpecial School <strong>for</strong> Students w ithDisabilityMain Occupation of total employed personsThe Labour Force Survey 2002 classifies the work<strong>for</strong>ce by occupation and outlines that around 27%of the labour <strong>for</strong>ce occupy an elementary function or are machine operators which is in line with thefact that a considerable amount of the population do not pursue post secondary education. Another24% per<strong>for</strong>m a clerical job or are service workers, shop workers or other sales employees. Around14% may be classified as technicians and associate professionals and approximately 20% areprofessionals or occupy high posts. If one were to compare this figure to those that successfullycompleted tertiary studies as a % of sampled GOP( coming to around 18%) there is an indication thatmost of the people that have a tertiary education are in fact on the labour market.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 64
Registered UnemploymentRegistered unemployment has been on the rise lately. As outlined in the following table, this figurewas the highest in September 1999 where it amounted to 6% declining to 4.8% in 2001 andincreasing to 5% during September 2003.Table 5: Registered Unemployment1999 Sept 2000 Sept 2001 Sept 2002 Sept 2003 SeptUnemployment 8,693 7,253 6,984 7,520 7,942As a % of the6 5 4.8 5.2 5.5Labour SupplyUnemployment includes Part 1 and Part 2 unemployment 20Source: Employment and Training Corporation20Part 1 of the unemployment register: Those registering under Part 1 are either new job seekers who have left school, reentrantsinto the labour market, and job losers who have been made redundant by their <strong>for</strong>mer employers.Part 2 of the unemployment register: Those registering under Part 2 are either workers who have been dismissed from workdue to disciplinary action, left work of their own free will, refused work or training opportunities or were struck off the registerafter an inspection by the Law En<strong>for</strong>cement personnel.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 65
Table 6: Registered Unemployed by jobDescription Dec-02 July-04Legislators, Senior Officials and Managers 98Professionals 50Technicians and associate professionals 257Clerks 760Service workers and shop and market salesworkers 850Skilled agricultural and fishery workers 105Craft and related trade workers 8961261103258928791151,020Plant and machinery operators and assemblers 1,373 1,3423,322Elementary occupation 3,127Total 7,5168,131Chart 6:Registered Unemployed by JobRegistered UnemployedRegistered Unemployed by Job35003000250020001500100050002002 2004YearLegislators, Senior Officials &ManagersProfessionalsTechnicians & associateprofessionalsClerksSerivce w orkers & shop & marketsales w orkersSkilled agricultural & fishery w orkersCraft and related trade w orkersPlant & machinery operators andassemblersElementary occupationTable 7: Registered Unemployed by Academic KnowledgeLEVEL Description: Academic / Trade Dec-02 Jul-041 Working Knowledge / Operator 3,047 3,1563 Competent / Skilled Operator 2,524 3,5605 'O' Level / City & Guilds 1,505 9366 Intermediate 18 267 'A' Level / Engineer by Experience 284 2628 Diploma 65 889 Graduate / Graduate Engineer 73 103Total 7,516 8,131Source: ETC<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 66
Chart 74,0003,5003,0002,5002,0001,5001,0005000Registered Unemployment by Academic / Trade2002 2004Working Knowledge /OperatorCompetent / SkilledOperatorO' Level / City & GuildsIntermediateA' Level / Engineer byExperienceDiplomaGraduate / GraduateEngineer57% of registered unemployed are unskilled. As outlined in the ETC web site, about 38% of thoseregistering <strong>for</strong> work in <strong>Malta</strong> and Gozo are persons over <strong>for</strong>ty years of age. 88% are males and 12%are females. 26% of the over 40’s unemployed are registered as illiterate. Around 36% of theregistered unemployed over 40 register <strong>for</strong> unskilled and labouring type of jobs.The NSO news release dated 22nd September 2004 delineates that 58% of registered unemployedhave been registering <strong>for</strong> work <strong>for</strong> more than 20 weeks. The same news release outlines that the longterm rate of unemployment21 is around 1.9% which translates into some 2,750 employees that havebeen classified as registered unemployed <strong>for</strong> a long period of time and are thus more difficult tointegrate in the labour market.Skills Availability and Duration to fill Vacancies: The Employers’ side Results from the ETCEmployment Barometer Summer-Autumn 2004According to a survey 22 conducted by the Employment and Training Corporation, 20% of employersface skills shortages. Out of these 51% face shortages related either to the absence of qualificationsor due to a lack of skilled human resources. 29% reported that they suffer from both types ofshortages. The remaining 20% declared to suffer from a shortage without specifying further.The same report outlines that the average duration to fill a vacant post is relatively lower in the caseof unskilled and labouring type of jobs .Crafts and related trade workers 23 emerged as one of thecategories that was hardest to fill having one third of the employers taking 3 months and another thirdtaking more than six months to fill the post. In the case of services workers and shop workers, 50% ofjobs are filled in less than 2 months but 40% take more than 3 months to fill. About 50% ofprofessional vacancies take more than 6 months to fill. Such vacancies often demand a tertiary levelof education.21Long-term unemployment rate: refers to those people who have been registering <strong>for</strong> work <strong>for</strong> more than twelve months.22Survey carried out between May and June 2004. The sample is stratified according to economic sector and company sizeand has a margin of error of 3%. 1446 employers from all economic sectors including some <strong>gov</strong>ernment departments areincluded in the sample.1093 employ between 5-49 employees and 353 employ more than 50.23The majority of these vacancies require a post secondary vocational qualification with work experience.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 67
Training and EducationTertiary EducationAccording to the Labour Force Survey 2002, around 17,500 people have a degree level of education.If one were to include the diploma students, the figure will rise to around 23,000 people which isroughly around 6% of the population.Data obtained from the University outlines that between 1988 and 2003, there were 20,536graduates. Out of these roughly 1,750 may be classified as pertaining to the Science and Technologyfield. This is very close to conclusions derived from the Lisbon report which outlines that the numberof science and research graduates in <strong>Malta</strong> is very low standing at 2.7 per 1000 population aged 20-29 in 2001 when the average <strong>for</strong> the EU 15 stood at 11.9.University statistics 24 <strong>for</strong> the period 1988-2003 reveal that the largest number of graduates is in theEducation Courses, followed by Business graduates of 3,803 and 3,282 (3997 if one were to includethe accounts graduates). Science related areas are characterised by smaller number of graduates. Ifone were to aggregate science related areas 25 , a total of around 6000 students that is only 29% ofstudents have graduated in a science related field.It stands to reason that there is a need <strong>for</strong> more students to pursue their studies in this area.Table 8: Total Number of Students in different courses: 1988 to 2003Distribution of Graduates 1988 – 2003Course Type Total No. of Students % of TotalAccounts 715 3.5Architecture 369 1.8Arts 2,783 13.6Business 3,282 16.1Education 3,803 18.6Law 2,353 11.5Medical 2,141 10.5Pharmacy 530 2.6Science & Technology 1,763 8.6Engineering 1,020 5Other 1,672 8.1Total 20,421 100Source: University Stats – 1988 - 200324There may be an element of double counting in University statistics.25Engineering, medical, pharmacy, science and technology and architecture.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 68
Chart 8: Frequency Distribution of Graduates from SampleFrequency Distribution of Graduates from Sample40003500300025002000150010005000Accountants Architecture Arts Business Education Engineering Law Medical Other Pharmacy Science &TechnologyDistribution of Graduates: A Comparison between 1988 and 2003When comparing 1988 to 2003 figures, it is evident that there has been a considerable surge instudents graduating in education, business, law and arts. Actually, such courses are characterized bythe largest “stock” of graduates as outlined in table 8. Other courses whereby number of graduateshas increased but in smaller nominal amounts are medical and science and technology courses.Students reading <strong>for</strong> architecture, engineering and pharmacy only increased slightly. Again this is inline with the fact that such courses are characterized by the lowest “stock” of graduates revealing thatover the years such courses have been a less popular choice <strong>for</strong> students.Whilst the reasons <strong>for</strong> underlying such choices are largely unknown, these need to be studied so thatmore students are incentivised to read <strong>for</strong> such courses which are increasingly required.In line with this, <strong>gov</strong>ernment should consider options that divert students to the choice of suchsubjects. It is obviously desirable to have more students that read <strong>for</strong> a tertiary degree whatever thecourse. However, diverting students to courses where there is a current shortage or a perceivedfuture shortage in the labour market is obviously a wise decision.Table 9Distribution of Graduates. A comparison between students graduatingin year 1988 and students graduating in 20031988 2003 %growth in nominaltermsAccountants 24 69 187 45Architecture 25 36 44 11Arts 61 319 423 258Business 25 350 1,300 325Education 83 325 291 242Engineering 52 52 0 0Law 17 312 1,735 295Medical 58 242 317 184Other 11 161 1,363 150Pharmacy 0 25 25Science & Technology 24 251 946 227<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 69
Chart 9Distribution of Graduates year 1998 & 2003400350300250200150100500AccountantsArchitectureArtsBusinessEducationEngineeringLawMedicalOtherPharmacyScience & Technology19982003Technical and Post Secondary EducationThis section provides an overview of MCAST which has embraced various schools and areas ofdiscipline under its domain. Un<strong>for</strong>tunately, a time series analysis dating from 1988 to date of studentsthat completed their studies in a technical field is extremely complex to compile. Courses offered bythe same school have been often integrated under separate institutes. Given that 1988 to 2001 datatotals the number of students by school, segregation by course is impossible to obtain. This is furthercomplicated by the fact that more than 20 different schools have been integrated into MCAST.The following table outlines the number of students that finished their courses during 2002 to 2004.The increase in the number of students during this year is in line with the gradual taking over ofdifferent schools. The increase in the In<strong>for</strong>mation Technology Institute is however totally attributableto MCAST given that this institute was a totally new institute.Number of Students who finished their courses in year 2002, 2003 and 2004Institute ‘2002 ‘2003 ‘2004In<strong>for</strong>mation & Communication Tech. 120 215 269Business & Commerce 144 245 257Electronic Engineering 40 43 118Buildings & Construction Engineering 35 35 173Maritime 4 7 5Art & Design 49 39 151Agribusiness 18Mechanical Engineering 143Community Services 150Gozo Centre 14 105392 598 1,132Source: MCast Stats<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 70
No fo Students' Courses (year 2002-2004)No of Students3002502001501005002002 2003 2004YearsIn<strong>for</strong>mation &CommunicationTech.Business &CommerceElectornicsEngineeringBuildings &ConstructionEngineeringMaritim eArt & Des ignAgribusinessMechanicalEngineeringCommunity ServicesData obtained from M’Cast outlines that between year 2002 and year 2004 there were 2,117students. In 2003 and 2004, the highest number of students was in the Business & CommerceInstitution and the smallest number of students was in the Maritime Institute. In 2004, the number ofstudents almost doubled because three Institutes were set up pushing up the number of students. (Agribusiness Institute with 18 students, Mechanical Engineering Institute with 143 students andCommunity Services Institution with 150 students).Overview of MCAST InstitutionsMCAST was set up in 2001 and is now made up of ten institutes covering diverse areas of disciplineincluding In<strong>for</strong>mation & Communication Technology, Business & Commerce, Electronic Engineering,Building & Construction Engineering, Maritime, Art & Design, Agribusiness, Mechanical Engineering,Community Services and Gozo Centre.In<strong>for</strong>mation & Communication Technology Institute is a new Institute. In year 2001, MCAST took overFellenberg and Mikielang Sapiano in Paola which were trans<strong>for</strong>med in the Electronics and ElectricalEngineering Institute. During the same period, Paolino Vassallo was organised into the Business andCommerce Institute. Moreover, last September MCAST took over the part of the Technical Instituterelated to Electronics & Electrical. The Mechanical segment remained part of the Institute ofMechanical & Engineering Institute.The Building & Construction Engineering Institute took over George Grognet de Vasse School inNaxxar, Mikielang Sapiano School and all draftsman ship courses. The Maritime Institute took overNautical School which was situated in Naxxar. The Art & Design School in Valletta and the Art Schoolin Targa Gap were amalgamated in the Art & Design Institute. MCAST also retained some studentsfrom the technical institutes which were being phased out. The previous Nautical School in Floriana,became the Maritime Institute. The Agribusiness Institute took over the function of the G. MicallefCollege of Agriculture in Marsa. Furthermore, the Community Services Institute took over the <strong>for</strong>merHairdressing and Beauty School, Mother Theresa School and the Kinder Garden School in Sliema.Lastly, The Gozo Centre took over all Gozo Schools which include Sir Michael Refalo, Boys’ TradeSchool and Carmelo Refalo in Victoria - Gozo, Mary Meilaq in Xaghra – Gozo, Kelinu Galea and K.Galea School of Agriculture in Xewkija- Gozo.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 71
11. LandGiven that <strong>Malta</strong> is a small island with an area of 316 km2, land is considered as a major limitingfactor of production calling <strong>for</strong> efficient use of such a scarce resource both when it comes toresidential use as well as land use <strong>for</strong> enterprise.Premises used <strong>for</strong> enterprise may be classified into two; namely commercial and industrial premises.Commercial PremisesCommercial premises comprises all land used by enterprises in <strong>Malta</strong> used <strong>for</strong> non manufacturing/production activities including wholesale and retail activities, hotels, restaurants and office space.Most commercial premises are financed by the privatesector and there is a concentration in urbanareas including but not limited to Valletta, Sliema and St Julians. A number of prestigiousdevelopment projects are currently underway including the Portomaso Area, Tigne Point, CottoneraWaterfront and various others. Moreover,<strong>Malta</strong> Enterprise has inherited a licence to operate aninternational Word Trade Centre with Pembroke earmarked as an area <strong>for</strong> potential development, butto date no progress has been achieved. In this respect, it is believed that <strong>Malta</strong> Enterprise shouldreconsider reactivating the International Trade Centre Project particularly in light of increasingemphasis on the services sector in <strong>Malta</strong>.Government Owned PropertyGovernment owns vast areas of land that are used <strong>for</strong> entrepreneurial ventures. Such areas may beclassified into:The DocksThis primarily includes the <strong>Malta</strong> Ship Building and Drydocks area which in the aggregate have anarea of around 150,000m2 . The two companies have merged into <strong>Malta</strong> Shipyards Ltd and anothercompany Industrial Projects Services Ltd which was set up to redeploy additional staff in the process.Following the merger, the area has become vacant <strong>for</strong> potential conversion into a marine park.The FreeportAnother area which could be potentially developed into another Marine Park is an area of a further150,000 m2 adjacent to the Freeport operations. Around 24,000sq.m. of warehousing is situated nearFreeport currently has a warehousing function. Future demand <strong>for</strong> warehousing must be incorporatedand maybe tapped from this space.Industrial LandIndustrial land may be categorised into private land and land administered by <strong>Malta</strong> Industrial Parks 26.Private industrial areas 27 have developed in an uncoordinated and incremental way <strong>for</strong> reasonsspecified later on in this report some of which are also located within residential areas consistingmainly of “garage industries”The industry section of this report elaborates on current usage of industrial estates that are<strong>gov</strong>ernment-owned, potential land availability <strong>for</strong> industrial development on such estates proceedingin the same manner <strong>for</strong> land that is designated <strong>for</strong> industrial use that is owned by the private sector.Land Availability in EstatesAs outlined in the land use <strong>Industry</strong> Subject Study <strong>for</strong> the Maltese Islands, there are around 3.4 millionsquare metres of land on 12 estates. There are also around 1.30million square metres of potentiallyvacant industrial land within existing MDC estates that may become available <strong>for</strong> development. This26<strong>Malta</strong> Industrial Parks manages the industrial estates on behalf of <strong>gov</strong>ernment and is a separate entity from <strong>Malta</strong> Enterprise.MIP Industrial Estates are situated in Attard, Bulebel, Hal Far, Kirkop, MArsa, Mosta, Mriehel, Ricasoli, Safi, San Gwann, Ta’Qali and Xewkija.27Private Industrial Areas are situated in Marsa, Qormi (Handaq), Qormi (Marsa), Mriehel, Mosta, Xewkija, Msida, Zebbug,Paola, Naxxar.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 72
does not mean that there are no constraints 28 on land but that this has been zoned <strong>for</strong> industry andhas been endorsed by <strong>gov</strong>ernment. In fact, only around 550,000 metres 2 are available <strong>for</strong> immediateuse. Around 300,000 metres2 of these are situated in Hal Far. It is worth noting that there are veryfew locations where there is a reasonable supply of land available <strong>for</strong> industrial development.Table 1: Current Usage: Existing Industrial Buildings and PropertyEstateSite Area insq.mNo of Premises Employment Total FloorSpace in sq.mAv Unit sizeAttard 48,400 16 107 21,271 1,329Bulebel 434,500 85 5,115 168,320 1,980Hal Far 1,284,100 59 926 2,81,370 4,769Kirkop 38,800 2 2,591 38,000 19,000Kordin 261,700 75 1,081 80,533 1,074Marsa 374,800 91 2,613 168,432 1,851Mosta 180,900 25 673 41,743 1,670Mriehel 96,800 24 2,511 51,372 2,141Ricasoli 203,100 28 375 62,525 2,233Safi 120,900 2 14 26,151 13,076San Gwann 239,000 67 2,508 115,716 1,727Xewkija 131,400 21 826 52,480 2,499Source: Atkins Report3,414,500 495 1,107,913 2,238There are around 500 industrial premises located on 1.1 million square meters of industrial floorspace. Bulebel, Hal Far, Marsa and San Gwann are the four largest estates each accommodatingbetween 60 and 90 units and are characterised by larger employers and premises.As outlined in the report commissioned by the <strong>Malta</strong> Development Corporation, over 30% of thepremises are over 2000 sq.min size and another 20% are less than 500 sq.m. From the demand side,it appears that factories measuring between 250-1000 sq.m are insufficient.Table 2Building size in square metres Number of Premises % premisesLess than 500 82 19.2500-1000 71 16.61000-1499 89 20.81500-1999 52 12.22000-2499 28 6.62500+ 105 24.6Source; Atkins ReportIt must also be outlined that only a very small proportion of existing stock is vacant <strong>for</strong> potential clientsto move into.Leasing PracticesAlthough most estates have standard type leases which entail 16 years in length plus an option torenew leases <strong>for</strong> a further three periods of ten years, some estates have granted a significant number28There is a considerable amount of land which could be made available <strong>for</strong> development but is constrained in some way.Examples are land to be transferred to the now MIP, land that could be released due to company relocations. There is alsowhat is defined as <strong>gov</strong>ernment land most of which is agricultural land adjacent to existing estates and in addition, there is landthat is currently occupied by <strong>gov</strong>ernment such as the Civil protection department at Hal Far which has development potential.Actions are required to bring constrained land <strong>for</strong>ward <strong>for</strong> development. Around 25 ha of constrained land are located at HalFar, 19 ha are at Bulebel and another 6ha are in Marsa.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 73
of their premises on an emphytheutis that is a 65 year period plus the option of two periods of tenyears. The latter limits the flexibility of changes within the estates.Existing Property: UtilisationEmployment density 29 may provide an indication of property utilisation. However, it must be used withcaution given that floor space per employee varies in accordance <strong>for</strong> different sectors, the use of plantand machinery and shift patterns. Employment densities also reflect a particular point in time and varyconsiderably if a major firm relocates from one area to another.Employment densities by Estate 30A very low density of 100 sq m per employee was taken as the threshold to identify factories that areprobably underutilised. The analysis by estate points out that there are wide variations in overallweighted floor space per employee with the highest floor space per employee occurring in Safi whichis understandable given that the area is utilised <strong>for</strong> aviation related uses. Hal Far (254 square metresper employee), Attard (174 square metres per employee) and Ricasoli (131 square metres peremployee) have a high average floor space per employee possibly outlining that the land is notefficiently utilised in these estates. Mriehel (20), Kirkop (15) and Bulebel (32) have a relatively highdensity being characterised by larger operations that tend to attain higher operational efficiency. Theremaining estates have an employment density ranging between 40-60metres squared per employee.These do not stray too far from mean employment densities <strong>for</strong> factories in the UK which lie in theregion of 35.6 square metres per employee.Employment Densities by sectorEmployment densities also vary by sector in line with sectoral differences experienced internationally.When compared to international benchmarks, one can say that in the case of food, beverage andtobacco, leather and rubber, metals and machinery and other manufacturing sectors, the employmentdensities are comparable. Non-metals, wood and furniture and paper and printing however havesignificantly lower densities when compared to areas per employee in other countries.Table 3Sector Floor Space in m2 Employment Number of Firms WeigtedEmploymentDensity (m2 peremployee)Food Beverages and73,085 1,130 28 63TobaccoTextiles, Clothing and 128,225 4,544 55 28FootwearWood and Furniture 74,690 443 43 140Paper and Printing 68,321 923 27 71Leather and Rubber 121,133 4,418 53 27Chemicals 59,261 538 32 107Metals, Machinery 311,756 6,577 132 44and TransportEquipmentOther Manufacturing 2,905 60 2 48Source: Atkins Report29Weighted floor space per employee ratios.30Study was undertaken in 2000/2001 and some larger factories have relocated from one estate to another potentially affectingemployment densities.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 74
Table 4Comparison by sector and international standardsSector Equivalent Category Suggested Employment DensityRangeFood and Beverages Food Beverages and Tobacco 50-70sq.m. per employeeWood, Textiles and PrintingTextiles, Clothing and Footwear, 35-55 sq.m. per employeePaper and PrintingChemicals and Plastics Leather, rubber and Plastics 55-75sq.m. per employeeBuilding Products (some non metallic products) 55-60 sq.m. per employeeMetal IndustriesMetals, machinery and transport 55-60 sq.m. per employeeequipment (part)Engineering industriesMetals, machinery and transportequipment (part)60-75 sq.m per employeeWarehousing100 sq.m. per employeeHigher Technology Other 90 sq.m. per employeeSource Atkins ReportPrice <strong>for</strong> the Construction of FactoriesThe Atkins report outlines that basic construction costs including the provision of infrastructure <strong>for</strong> aone storey factory lie in the region of Lm 120 per square metre to Lm180 per square metre. It musthowever be pointed out that recently this figure soared to around Lm230 per square meter in theconstruction of factories that have catered <strong>for</strong> specific functions.Possible Options <strong>for</strong> the Provision of Factories.A large percentage of the stock of factories has aged considerably and is in dire need ofrefurbishment. If one were to exclude the services provision, the cost of refurbishment would lie in theregion of Lm50-Lm80 per square metre.Another option would be the demolition of such factories. However, the leasing practices must betaken into consideration. Such an option does not come out cheap and as outlined in the Atkinsreport, the first option has inherent cost advantages over the second option.Another option outlined in the report is the introduction of two storey factories. Such an option ishowever not possible in most cases given the current structure of factories. In areas where such aconcept was introduced such as Mosta, such an arrangement proved to be problematic.Subdivision of factories is also often cumbersome given that most factories are not built in flexiblemodules implying that their layout may not be easily changed.The possibility of entering into a public private partnership in developing new sites and in themanagement of estates in general should be considered in more depth.Private Industrial Land AvailabilityThere are nine areas 31 of private industrial land covering a gross area of 820,000 metres2. The netdevelopable area is around 60,000 metres2 out of which around 30.1 metres 2 is vacant 32 . The lack ofindustrial development activity in these areas may be attributed to the following factors.The low rent charged by the <strong>Malta</strong> Development Corporation has been a major disincentive <strong>for</strong> privateinvestors to provide industrial property. Another disincentive has been that land <strong>for</strong> non-industrial usescommands a very high price. As outlined by the Atkins consultants there have been and presently areno fiscal or regulatory measures to promote the assembly and development of land <strong>for</strong> industrialdevelopment.Private land is characterised by fragmented ownership with land being parcelled in plots with afrontage of 6.3 metres resulting in very narrow plots which affects the design and layout of industrialbuildings. This also results in uncoordinated development in terms of access, parking which creates alow quality environment.31Marsa, Paola, Mosta, Mriehel, Msida, Naxxar, Paola, Qormi (Marsa), Qormi (Tal-Handaq), Xewkija and Zebbug.32Around one third of this is situated at Mriehel.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 75
The functions carried out on private industrial land has typically varied from those carried out on MDCestates and accommodate uses such as warehousing, storage, garage industries and casa bottegawhich are not permitted on MDC estates. Private industrial estates thus tend not to incubate and thenfeed tenants on to MDC estates.WarehousingThe distribution and storage sector may be regarded as very important in providing a link betweensuppliers, manufacturers and retailers. If inappropriately planned and located, this can act as a majorconstraint <strong>for</strong> operational efficiency resulting in additional costs <strong>for</strong> enterprise.The Freeport area and the Grand Harbour area cater <strong>for</strong> most of the warehousing needs. Freeport 33handles most of the containerised freight and the Grand Harbour remains the main location <strong>for</strong> breakbulk cargo.The storage and warehousing facilities of small retailers and services industry are largely scattered allover the island but the exact amount in square meters of land allocated <strong>for</strong> such use is largelyunknown.As previously outlined, MDC estates have not catered <strong>for</strong> warehousing usage even though theStructure Plan envisages new warehouse developments on industrial estates. Most warehousing isthus found close to residential areas. It is widely acknowledged that there is a need to refurbishwarehousing facilities which are perceived to have a negative impact on residential areas.Approvals <strong>for</strong> warehousingThe rate of approvals in the warehousing sector has been cyclical as outlined in the table below andhas averaged at 31,400 square meters per year over the period 1993-2000. More than 50% of thesaid approved floor space is located in Central <strong>Malta</strong> Local Plan (37%)34 and South <strong>Malta</strong> Local Plan(21%).Table 5Year 1993 1994 1995 1996 1997 1998 1999 2000Approvals 42 43 50 142 141 45 40 41Floorspaceapproved(sq.m.)23,742 20,917 18,035 58,385 44,672 27,580 14,658 43,327Refusals 23 29 50 56 90 106 44 103Source: Planning Authority Development Applications Database (1993-2000)33Industrial storage within Freeport include 10 general purpose warehouses of 2400 sq.m. each having around 1000 sq m ofcovered space.34Qormi is undoubtedly the most popular location <strong>for</strong> warehousing with 21.8% of approved applications<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 76
Office SpaceThe Employment Topic Paper outlines that in the next 20 years there will be a shift from employmentin manufacturing to employment in services. In fact, office based employment projections increasedfrom 45,907 in 2000 to 53,169 in 2020; an increase of 16%. Most of this increase is <strong>for</strong>ecasted toemerge from market services whilst <strong>gov</strong>ernment workers are expected to essentially remain constant.Most of the existing office space is in Valletta and Floriana accommodating the majority of the<strong>gov</strong>ernment departments, corporations and parastatals as well as a significant amount of office basedemployment in the private sector though the latter is scattered throughout the islands. BesidesValletta and Floriana, other main localities that accommodate private sector employment includeSliema, Gzira, St Julians and Msida.MEPA Approvals <strong>for</strong> Office SpaceAs outlined by the MEPA study, the overall rate of approvals in the office sector averages at 22,625square metres per annum. Approvals <strong>for</strong> office space varied in a cyclical manner as outlaid in thetable that follows.Table 61993 1994 1995 1996 1997 1998 1999 2000Projects Approved 20 40 46 83 69 95 91 114Floor space approved in squaremetresSource: Planning Authority Applications Database (1993-2000)19,881 30,065 30,129 27,763 19,776 14,311 20,663 16,147An analysis of the Planning Authority database <strong>for</strong> 1998-2000 reveals that 85% of projects approvedconsisted of office space with a floor space of less than 150 square metres. Only 3% requested afloor space in excess of 1000 square metres.Table 7 - Office Approvals by FloorspaceRange in sq.m Frequency Per CentLess than 50 73 24.651-100 39 13.1101-150 141 47.5151-200 6 2201-300 13 4.4301-400 5 1.7401-500 5 1.7501-1000 5 1.71000+ 10 3.4Source: Planning Authority Development Applications Database (1993-2000)<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 77
A lot of private sector development taking place largely consists of relatively small projects and iswidely distributed across <strong>Malta</strong>. The private market services sector is characterised by micro or smallcompanies which require very little space. Purpose built areas <strong>for</strong> offices are not very common.As far as conversions to offices are concerned, the most common type of conversion was fromresidential type of housing to offices.Rent <strong>for</strong> OfficesThe rental price varies according to location but generally ranges from Lm 35 to Lm 55 per sq m peryear. The top of the range office space such as Portomaso in St.Julians, demand some Lm 90 per sqm per year. The prices per sq m <strong>for</strong> sales are on average about Lm 2,000 per sq m. However theprice per sq m <strong>for</strong> office space in a prominent location in Valletta was about Lm 13,000.Future Demand <strong>for</strong> Office SpaceThe Employment Topic report constructed 3 scenarios to predict the demand <strong>for</strong> office space. Theunderlying assumptions were that:- Government employment will remain relatively constant and office space occupied by<strong>gov</strong>ernment will remain relatively the same.- There will be no increase in office space from the production sectorOf the 3 models, the first scenario 35 is most land hungry with a demand <strong>for</strong> some 346,000 sq m overthe next twenty years. Scenario 236 requires 183,000 sq m whilst Scenario 337 has a demand <strong>for</strong>243,000 sq m. The demand <strong>for</strong> floor space <strong>for</strong> the next Structure Plan Review period is expected torange between Scenarios 2 and 3. The average office floor space per year <strong>for</strong> the first scenario is17,300 sq.m., that <strong>for</strong> the second scenario is 9,150 sq m and the third scenario has an annual landrequirement of 12150 sq.m. When one compares such figures with the current approval rate of 22,625sq.m. per annum, it is evident that the projected demand <strong>for</strong> office space falls way below the currentapproval rate outlining that there could be a possible oversupply of office space.As outlined in table 7 however, most of the approvals are granted <strong>for</strong> offices that are smaller than150sq.m. The type of projects that <strong>Malta</strong> Enterprise is envisaging to attract to <strong>Malta</strong> are to employ inthe region of 30 workers implying a required office space of around 500sq.m. Given that the currentfrequency of approvals by this floor space is relatively low, it may well be the case that there may be ashortage of offices of such size.35involved the construction of a regression wherein it was assumed that floor space is a function of employment and is baseson the projected increase in employment of 726236Scenario 2 incorporates a time factor reflecting efficiency in floor space use37Scenario 3 assumes an employee: floor space of 1: 20.( based on the recommendation of the draft Commerce and <strong>Industry</strong>Subject Study 1997). According to a report compiled by King Sturge, the density of 16m2 per employee to calculate the amountof floor space required is a widely established benchmark and was originally based on a survey by Rics Foundation and GeraldEve.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 78
12. Energy & Water ConsumptionWater & Electricity Cost per CompanyAverage Cost per Compnay600005000040000300002000010000Food & BeveragesTobacooTextilesClothesLeatherWoodPaperPrinting & PublisingCoke, Petroleum & ChemicalsPlastic & Rubber ProductsOther non M etallic M ineralsBasic MetalsFabricated M etal ProductsM achinery & EquipmentOffice MachineryElectrical M achineryM edical & Precision Equipment0Type of <strong>Industry</strong> 1Car <strong>Industry</strong>Other Transport EquipmentFurniture, M anufacturing N.E.C.Construction<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 79
Electricity & Water Consumption in the manufacturing industry: 1998 38Type of <strong>Industry</strong> Value Lm No. of CompaniesAverage Costper company15 Food & Beverages 1,518,815 584 3059.65954916 Tobacco 44,812 2 2636017 Textiles 18,081 72 295.441176518 Clothes 49,703 165 354.388591819 Leather 24,911 29 1010.58823520 Wood 11,454 135 99.8169934621 Paper 37,315 27 1625.92592622 Printing & Publishing 303,254 315 1132.60130723/24 Coke, Petroleum & Chemicals 917,508 94 11483.2040125 Plastic & Rubber Products 890,945 60 17469.509826 Other non Metallic Minerals 91,722 224 481.733193327 Basic Metals 61,826 22 3306.20320928 Fabricated Metal Products 36,574 592 72.6828298929 Machinery & Equipment 182,025 58 3692.19066930 Office Machinery 4,722 7 793.613445431 Electrical Machinery 1,711,543 42 47942.3809533 Medical & Precision Equipment 260,976 33 9303.95721934 Car <strong>Industry</strong> 7,759 16 570.514705935 Other Transport Equipment 285,119 69 4861.36402436 Furniture, Manufacturing N.E.C. 314,844 1310 282.751683945 Construction 90,156 4196 25.27785566The above table provides an indication of water and electricity consumption by sector. Consumptionby employee is difficult to obtain given that the National Statistics Office classified companies byNACE whilst the Employment and Training Corporation classifies companies by ISIC. The alignmentof data across the whole economy is desired. Another limitation lies with the combined values ofelectricity and water disabling segregation. It must be borne in mind that the following rates are notindicative of a typical consumption by sector since the presence of large operations significantlydistort figures. The cost of water and electricity by square metre could not be worked out. NACE 32has been left out most probably because of the impact of ST Microelectronics.As outlined in the table above, the electrical machinery sector (NACE 31) has the highestconsumption per company with a staggering average cost of water and electricity of Lm47,942 percompany. It stands to reason that a major operant in the sector would significantly skew the figuresupwards. The tobacco sector follows with Lm 26,360 per company. Plastic and rubber sector is also asignificant consumer of electricity and water with an average cost per company of Lm 17,469. This isfollowed by the production of chemicals (NACE 23/24) whereby the average cost per company standsat Lm11,483. At Lm9303 per company, the medical and precision equipment sector (NACE 33)exceeds the average cost by sector in manufacturing which stands at Lm6710.39.The furniture, other non-metallic, textiles, office machinery and fabricated metal sectors feature as lowon consumption . The construction industry is the lowest consumer with Lm 25 per company.38Data is based on all companies in manufacturing which stand at 3807 enterprises. The response rate to this survey stands ataround 85%-90%. For the calculation of average electricity and water costs by company, a response rate of 85% has beenassumed. Major operants significantly distort the average.39Takes into account the average <strong>for</strong> all sectors excluding NACE 45 which is construction and which would unrealistically skewfigures downwards.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 80
13. Waste GenerationWaste Generated 1996-20001996 1997 1998 1999 2000Municipal 84,526 98,859 123,531 137,054 130,877Debris Material 1,036,304 817,151 692,053 956,372 1,192,223Commercial/Industrial 31,223 41,657 31,408 31,324 32,314Mixed trade/municipal 0 42,242 32,703 32,362 41,606Mixed 0 17,162 14,408 16,591 14,190Special waste 0 0 0 228 419Total 1,120,830 1,017,071 894,103 1,173,931 1,411,629Source: National Statistics OfficeWaste Generated 1996-20001,400,0001,200,0001,000,000800,000600,000400,000200,000199619971998199920000MunicalDebris MaterialCommerical/IndustrialMixed trade/municipalMixedSpecial wasteWaste generation in <strong>Malta</strong> has long become one of the major constraints in adhering to environmentalregulations resulting in the mushrooming of unsightly landfills. When analysing waste generationfigures, it is evident that commercial/ Industrial Waste is not significant when compared to wastegenerated from consumer activity. A hefty 84% of total waste is generated from Debris Material.Indeed, commercial and Industrial activity contributes to the generation of this category of wastethrough the construction of factories.In an attempt to decrease the generation of such waste and encourage recycling, <strong>gov</strong>ernment hasrecently increased the fees charged <strong>for</strong> the disposal of inert and construction waste by Lm 0.31 centsper tonne to Lm 1.09. It is expected that this rate will be further increased to Lm 1.40 by next Januaryfinally eliminating <strong>gov</strong>ernment subsidies. The only subsidies that will remain are those on thedisposal of household waste.As outlined by the Head of <strong>Strategy</strong> and Development at Wasteserv, the way <strong>for</strong>ward is theelimination of such subsidies to encourage households to generate less waste and recycle.The long term solution to the waste problem lies precisely in controlling the generation of waste atsource rather than providing a solution <strong>for</strong> storing it.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 81
14. Stakeholder AnalysisIntroductionThe <strong>for</strong>egoing analysis has provided a quantitative overview of the main issues affecting thecompetitiveness of <strong>Malta</strong> in the international arena. Such in<strong>for</strong>mation was primarily collected throughdesk research synthesising and consolidating in<strong>for</strong>mation that was already available in a scatteredway across most <strong>gov</strong>ernment agency. In particular, the <strong>for</strong>egoing analysis has presented an overviewof <strong>Malta</strong>’s economic per<strong>for</strong>mance over time and how this compares to that resulting internationally.The analysis has also presented an overview of <strong>Malta</strong>’s main limiting resources and how these arecurrently being deployed. Such an analysis presents an opportunity to evaluate the usage of currentlimited resources and reallocate these to revamp areas of weakness that are identified whenbenchmarking <strong>Malta</strong>’s per<strong>for</strong>mance against that of other countries through the Lisbon Indicators.Key StakeholdersNotwithstanding such in-depth analysis, it is felt that this should be supported by feedback providedby key stakeholders who have a first hand experience of problems and opportunities presented whenoperating from <strong>Malta</strong>. There are three key categories of stakeholders which have been consulted inthe process. These include:- Related Government Departments and Entities: These include all those entities which arein some way or other involved in the process of regulating and /or providing support toenterprise in the process;- Enterprise: These include all those entities which carry out some <strong>for</strong>m of economic activity in<strong>Malta</strong>. Entities have been selected from an appropriate mix of industries comprising bothManufacturing and Services to reflect the need <strong>for</strong> extending services provided by <strong>Malta</strong>Enterprise to a wider population of enterprise;- Unions: These include all those entities which have the power to influence behaviours andactions of specific social groups in the economy. Unions consulted include a spectrum o<strong>for</strong>ganisations representing employers and employees;- Internals: These include key members of staff who have been consulted because of theirexpert knowledge in a specific field relating to the strategy and hence vital <strong>for</strong> shaping thefinal strategic direction of the company.A number of organisations and entities and individuals consulted during the process. What follows isan account of our main findings. The findings are analysed as follows:- Availability and Skill of Human Resources;- Operational Limitations, Costs and Constraints;- Research and Innovation;- Suitability of Incentives.Availability and Skill of Human ResourcesMost respondents cited two main areas of weaknesses that they considered that are sorely lacking inthe Maltese Work<strong>for</strong>ce in general. First although a range of high calibre managers can be found atthe top levels of organisations, middle managers and supervisors are very hard to find. Secondly,there is an apparent lack of technical people that could be used on the production line. This inevitableplaces an increasing pressure on wages. <strong>Malta</strong> cannot any longer be considered as a low costdestination with labours costs reaching rapidly levels of industrialised countries. One company citedthat labours costs have become so expensive that they have opted <strong>for</strong> increased automation.Finally, entry level engineers where cited as being too theoretical in their initial career stages lackingsignificantly practical experience and expecting exorbitant wages from the start.Some respondent have argued that <strong>Malta</strong> Enterprise must be prudent in its Investment Promotion<strong>Strategy</strong>. In particular these respondents have commented that they are finding it difficult to recruit<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 82
appropriate staff in a number of grades (especially in the IT and Pharmaceutical fields) and thesituation would be further aggravated should other companies set up in <strong>Malta</strong> unless this is supportedby an additional investment in the education with a subsequent increase in labour supply that isqualified in the required areas. One respondent commented in the widespread amateurish approachof human resources commonly deployed in developing IT systems in a number of firms.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 83
15. The Segmentation ProcessThe <strong>Malta</strong> Enterprise Corporation Act stipulates that <strong>Malta</strong> Enterprise is responsible <strong>for</strong> a host ofactivities required <strong>for</strong> the purpose of developing Enterprise in <strong>Malta</strong>. This is unlike the case of mostauthorities set up by act of parliament such as the MFSA and MTA. The law in this case providesautonomy <strong>for</strong> <strong>Malta</strong> Enterprise to develop its own priorities provided that these ultimately contributetowards the final outcome of developing enterprise in <strong>Malta</strong>. This study seeks to identify what type ofsectors and potentially what sub-sectors should <strong>Malta</strong> Enterprise be targeting to achieve the pre-setobjective by law. Given the limited resources, <strong>Malta</strong> Enterprise is faced with very difficult trade offsand different positions in the economy.In this respect, there are three main focal areas which <strong>Malta</strong> Enterprise may need to consider:An Offensive/Aggressive Position: Focus on sectors which present the best potential <strong>for</strong>development of the island: Such a position will place an increasing emphasis on internationalbusiness and expanding Maltese Presence in the international scene. Weak industries under thisscenario take on a back seat. The emphasis is on increasing employment;A Defensive Position: Focus on sectors which are very weak and help them restructure to keep upwith competition. These will typically be industries which are locally oriented which have enjoyedprotectionist measures but have been now liberalised and have to play on a level playing field againstcompetitors from abroad entering the local market. The assumption under this strategy is that strongsectors of the economy are capable of taking care of themselves and compete effectiveness in themarket place without <strong>gov</strong>ernment assistance;A Hybrid Position: Focus both on sectors which are very weak by helping them restructure and onsectors that have high potential by encouraging international business in these areas. This strategycan be adjusted to either a pre-dominantly offensive or to a pre-dominantly defensive orientationdepending on the mixture of sector chosen <strong>for</strong> the purpose.Taking a pure Offensive/Aggressive position <strong>for</strong> high-value adding sectors only may not be a viablestrategy in the short term because of the employment in the other sectors. Besides an increasingemphasis on higher value added activities takes some time to achieve. The traditional competitiveadvantage of <strong>Malta</strong> as a low cost base is being eroded with traditional industries facing theconsequences. Employment in industries such as textiles, wearing and apparel, leather, furniture,building materials and various others have been threatened either directly through plant relocations orindirectly by reduction in local demand <strong>for</strong> locally made products to imported products following tradeliberalisation. Such industries are typically characterised with unskilled labour. By pursuing anOffensive/Aggressive <strong>Strategy</strong>, a gap between the demand and supply of the employment marketmay give rise to frictional unemployment at least in the short term.A defensive strategy on the other hand, slows down the erosion process of traditional industries, butthis is effective only in the very short term. A defensive strategy ignores the principle of sustainabledevelopment and helps enterprises survive only artificially because survival would remain contingenton assistance because unless such industries turnaround their operations to higher value addedactivities, these cannot compete with other low cost destinations.In light of the above, it is believed that a mixed position strategy may be the most viable means ofmeeting the short term and long term needs of the economy. This document recognises the fact thatdeveloping a cluster is a long term process and until such time these are developed, traditionalindustries should be sustained to survive at least during the transition.So it is proposed that national ef<strong>for</strong>ts are focused on those industries which have high potential <strong>for</strong>cluster development to dampen the effects of industries which face eroding competition.The distinction between the cluster development and ramping down support <strong>for</strong> uncompetitive sectorscan be made through a process of segmentation. The segmentation process takes on three mainlevels as follows:<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 84
Level One: Segmentation by Production/Service Capability: The initial segmentation processlooks at what current capabilities and competencies exist in <strong>Malta</strong> and to what extent do thesecontribute to the economy in general. Such segmentation adopts the view that sectors to be selectedshould continue to build on what <strong>Malta</strong> does well rather than re-invent the wheel especially in theshort to medium term. Hence in<strong>for</strong>mation is compiled on the basis of NACE codes and these areanalysed through the adoption of a number of matrices. However, it is also recognised that although<strong>Malta</strong> does not have an existing capability in a number of sectors these may be beneficial to developin the long term particularly since such sectors would be growing at a very fast pace in theinternational scene. At this level of analysis there<strong>for</strong>e, potential sectors <strong>for</strong> development and sectorsat risk which may need support <strong>for</strong> restructuring will be identified and alternative strategies <strong>for</strong>development in each case will be provided.Level Two: Linking Clusters: At the second stage of the segmentation process, NACE codesdemonstrating to have a high potential <strong>for</strong> future development will be reconfigured and amalgamatedinto clusters representing a potential value chain of activities. Hence each cluster will be assignedwith an array of relevant NACE Codes. In this case, clusters will have a market orientation in contrastto a production/service orientation as exemplified in the level one segmentation. More specificallyclusters in their entirety will be evaluated against international market trends and the most lucrativeclusters will be identified to enter the third phase of segmentation;Level Three: Sub-Sector Segmentation: Having identified the main clusters <strong>for</strong> development, thisprocess will dissect the cluster into sub-components (using 3 and 4 digit NACE codes) and willsubsequently compare the local per<strong>for</strong>mance to that of the international market in general. It isimportant to stress at this stage however that such a process is only preliminary and may have to berevisited once individual cluster strategies are developed.High Level Offensive Strategies will be delineated across all the levels of the Segmentation processas part of a long term ef<strong>for</strong>t. However sectors requiring defensive strategies will not be processed inthe second and third level segmentation since these would not constitute the basis <strong>for</strong> developingclusters. The following sectors highlight our findings under each of the three levels of segmentationcarried out.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 85
Executive Summary and Recommendations of theNational <strong>Strategy</strong> <strong>for</strong> Research and Innovation: <strong>2007</strong> - <strong>2010</strong>Appendix D<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 86
The National <strong>Strategy</strong> <strong>for</strong> Research and Innovation (<strong>2007</strong>-<strong>2010</strong>) is deliberately entitled ‘Building andSustaining the Research and Innovation (R&I) Enabling Framework’. The establishment of an R&Iframework in <strong>Malta</strong> has to date to a large part been neglected. International benchmarks issued bythe EU, the World Economic Forum, and other international organisations of stature – that influencedecisions made by major international enterprises and entrepreneurs - show that <strong>Malta</strong> is, with theexception of ICT, not only not improving but regressing in terms of its competitiveness and thesupporting role played by R&I in this regard.Economic theory and reality have shown time and again that states have progressed and declined intandem with their ability to innovate and to render economic growth spin-offs from such innovation.The impression garnered about <strong>Malta</strong>’s policy direction to R&I is that the financial planners at both anational and enterprise level have traditionally considered the financing of the enabling environmentto engender R&I growth as well as R&I itself as a cost rather than an investment.Some argue that <strong>Malta</strong> can never assume an aggressive R&I capacity – whether indigenous or<strong>for</strong>eign directed. The reasons why this is not possible vary from size to the predominance of microenterprises. This <strong>Strategy</strong> argues that such arguments are wrong. Singapore, an island state facinga host of similar characteristics as <strong>Malta</strong>, is an example of R&I success that <strong>Malta</strong> can and shouldemulate. Singapore’s success has not been by default. It has been attained by sustained vision,leadership and resources.It is pertinent to underline that <strong>Malta</strong> has its success stories. Two that stand out are the In<strong>for</strong>mation,Communication and Technology (ICT) and financial services sectors respectively. Both were ‘greenfield’ site less than 15 years ago – with no vision, no enabling legislation, no resource capacity, noinfrastructure. Today they stand amongst the most vibrant of the micro-economic sectors of oureconomy. They are established as excellent centres of repute by international players. Both continueto enjoy excellent prospects <strong>for</strong> growth.Moreover, with very limited financial support, <strong>Malta</strong> managed to secure Euro 3 million and Euro 9million in funding from the EU Fifth and Sixth Framework Programmes respectively. This is aremarkable per<strong>for</strong>mance; particularly so give the limited investment made.The <strong>Malta</strong> Council <strong>for</strong> Science and Technology (MCST) is strongly of the view that the successattained in the ICT and financial services sectors respectively can be replicated in R&I. MCST’s beliefstems from the knowledge that where and when a vision has been set, the enabling frameworksintroduced, political championing secured, consistency in vision maintained, aggression andsustained leadership provided, and resources made available, success has, invariably, ensued.This <strong>Strategy</strong> presents a vision <strong>for</strong> R&I in <strong>Malta</strong> as well as a set of underpinning strategic principles.The R&I vision that it proposes <strong>for</strong> <strong>2007</strong> – <strong>2010</strong> is:“Research and Innovation at the heart of the Maltese economy to support valueaddedgrowth and wealth.”In essence, this Vision places R&I as a fundamental pivot / driver of our economy. It recognises thatif <strong>Malta</strong> aspires to be a knowledge economy it can only do so if it truly grafts R&I within its economicand supporting institutional fabric. It also establishes that R&I are not end goals in themselves – thatis, motivated by blue sky research. Rather, within the constraints of resources, R&I are criticalcatalysts upon which growth and wealth are highly dependent – which in turn demands a primaryfocus towards business driven and applied R&I.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 87
The <strong>Strategy</strong> is underpinned by the following strategic principles:(i)Addressing National IssuesThe Government must leverage State R&I funding to address pressing national prioritiesrelating to water, energy and the environment.(ii)Focusing on Selected Areas of Economic Per<strong>for</strong>manceGovernment must focus its resources, energies and abilities towards a select number of valueaddedeconomic sectors in order to obtain value-added R&I.(iii)Enabling SMEs to InnovateThe appropriate supporting framework must be put into place at the earliest to enable SMEs toinnovate and flourish.(iv)Exporting Locally Generated R&IGovernment should facilitate the establishment of an enabling plat<strong>for</strong>m that will allow Malteseenterprises in partnership with overseas institutions and business to enhance imported knowhowand technology <strong>for</strong> exportation in the Southern Mediterranean region.(v)Expanding <strong>Malta</strong>’s Science, Engineering and Technology Human Capital BaseThe Government’s mainstream strategic objective is to establish the appropriate plat<strong>for</strong>msbringing together parents, knowledge institutions and professions, and students to expand thescience, engineering and technology human capital base.(vi)Establishing the Nexus between the Knowledge Institutions and BusinessThe appropriate mechanisms <strong>for</strong> a business-to-academia nexus is paramount in order that R&Iflourishes.(vii)Developing a National Pro-Innovation Culture Supportive of Invention, Risk-Taking andEntrepreneurshipThe Government together with key stakeholders should assume a leading role in inculcating aculture that is supportive of invention, risk-taking and entrepreneurship.This <strong>Strategy</strong> strongly argues that <strong>for</strong> R&I to flourish fundamental and critical enabling frameworksmust be put into place. The <strong>Strategy</strong> sets out the following recommendations:01. The MCST, in consultation with the appropriate stakeholders, is to carry out every three yearsa science and technology horizon scanning exercise with a minimum ten year time horizon.02. Government financing and State intervention over the period of this <strong>Strategy</strong> should focus onthe following areas; designated as plat<strong>for</strong>ms of strategic importance (PSI).Environment and energy resources:ICT:with focus on solar, wind, and bio energy togetherwith energy efficiency technologies, as well as water,desalination, waste rehabilitation technologies, soiland marine management.with focus on software development related tobridging technologies in security, hardware,telecommunications, health, marine and specialisedapplications.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 88
Value-Added Manufacturing andServices:Health-Biotech:with focus on building SMEs as cluster elements invalue-added manufacturing and services provision.with focus on human genetics, bio-in<strong>for</strong>matics <strong>for</strong>support of clinical trials including pharmacogeneticones and bio-technology <strong>for</strong> transition of genericpharma.03. The designated Plat<strong>for</strong>ms of Strategic Importance constitute a fundamentall component of anewly set-up R&I National Investment Programme.04. In order to secure the appropriate progress in the designated plat<strong>for</strong>ms of strategicimportance, MCST together with experts from industry and academia develop a strategic plan<strong>for</strong> each of the identified plat<strong>for</strong>ms.05. Whilst focus of State financing and intervention should not be diluted from the designatedplat<strong>for</strong>ms of strategic importance, flexibility should be retained in both planning and inresponding to arising opportunities.06. In order to spur and sustain R&I in emerging science and technology areas outside thedesignated plat<strong>for</strong>ms of strategic importance it is proposed that the R&I National InvestmentProgramme provides appropriate financing.07. MCST, ME and the Ministry <strong>for</strong> Competitiveness and Communications are to be accountable<strong>for</strong>, within their respective portfolios, meeting the strategic objectives of this <strong>Strategy</strong> and theapplication of flexibility must be consistent with the vision and strategic principles established.08. MCST has presented <strong>for</strong> the Government of <strong>Malta</strong>’s consideration a business plan <strong>for</strong> thesetting up of an institutional framework to take the European-Mediterranean R&I concept<strong>for</strong>ward and a decision on the way <strong>for</strong>ward should be <strong>for</strong>thcoming in the near future.Government positively endorses the recommendations presented in the EUROMedITIBusiness Plan, appropriate financing will be provided through the R&I National InvestmentProgramme.09. The Office of the Prime Minister will be the lead political champion <strong>for</strong> the implementation ofthe National <strong>Strategy</strong> <strong>for</strong> Research and Innovation.10. MCST will be the lead administrative entity entrusted with the responsibility to implement theNational <strong>Strategy</strong> <strong>for</strong> Research and Innovation and will work with related entities to ensurejoined-up activity of actions taken.11. In order to boost its resources and funds, MCST is to issue a tender <strong>for</strong> local experts andprofessionals resources as well as adopt a policy of paying a percentage award fee <strong>for</strong> privatesector firms that secure funding from international programmes – with MCST participation tobe primarily based in designated plat<strong>for</strong>ms of strategic importance as well as in emergingtechnologies as relevant.12. MCST’s operating capital is increased on the 2006 budget by Lm72,000 in <strong>2007</strong>, Lm172,000in 2008, Lm192,000 in 2009 and Lm212,000 in <strong>2010</strong> order to build the critical mass requiredto manage implementation of this <strong>Strategy</strong>.13. MEYE is to invest in the necessary resources to establish an infrastructure and critical massto own and champion science popularisation.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 89
14. The University of <strong>Malta</strong> should seek to rationalise, consolidate as well as re-orientatedepartments and institutes to become Research Institutes of Excellence in the designatedplat<strong>for</strong>ms of strategic importance.15. The pedigree of the University of <strong>Malta</strong> is strongly dependent on its research abilities andcompetencies and thus the leadership of the University should seek to ensure that itsResearch Fund becomes an aggressive feature of its financial management structure withfinancing to be sought from business, international programmes, and its revenue streams.16. The R&I National Investment programme is to act as a leverage to reward those departmentsand institutes within the University of <strong>Malta</strong> that secure international as well as local industry /business funding <strong>for</strong> their research activities.17. The University of <strong>Malta</strong> should consider to enter into a Campus arrangement in thedesignated plat<strong>for</strong>ms of strategic importance with Universities or Institutes of internationalrepute in order to strengthen its research facilities as well as provide joint under-graduate andpost-graduate programmes.18. The University of <strong>Malta</strong> should seek to reach a level of excellence in the designated plat<strong>for</strong>msof strategic importance that will allow it to attract Masters, MPhil and PhD <strong>for</strong>eign studentsboth from the Mediterranean region and elsewhere.19. The University of <strong>Malta</strong> should seek to establish an Alumni Network in the SET disciplines tostrengthen both its international as well as local networking abilities.20. By June <strong>2007</strong> the Government should explore the possibility of converting the PlantBiotechnology Centre and the <strong>Malta</strong> Centre <strong>for</strong> Fisheries Sciences into ‘public private’business and research centres with private sector management behaviour.21. NSO by end of 2008 introduces on-line facilities <strong>for</strong> the submission of R&I data by therelevant stakeholders.22. The Roads Division (ADT), the Department of Building and Construction, the Department ofAgriculture, the Department of Fisheries, the Department of Health, the Water ServicesCorporation, the Enemalta Corporation, MITTS Ltd and <strong>Malta</strong> National Library are by financialyear <strong>2007</strong> to introduce a R&I strategy as part of their Business and Financial Plan, andallocate a minimum of 0.25% of their turnover or budget (whichever is the greater) in R&I,primarily oriented towards improving efficiency and reducing cost of ownership.23. MCST is to assist the departments and entities proposed in Recommendation 22 to draw upR&I strategies, and subsequent to 2008 to undertake a rolling programme of external scrutiny.24. MCST is to work with the University of <strong>Malta</strong> (and if so necessary other institutions) tointroduce a programme <strong>for</strong> science and technology management which, as a first step, is tobuild the appropriate capacity in the entities and departments proposed in RecommendationNo 22.25. MCST and the Departments of Contracts should by end <strong>2007</strong> introduce transparentmechanisms to reward R&I through public procurement.26. MCST should, with the relevant owners, draw up and maintain an inventory of equipment heldin public laboratories (including those of the University of <strong>Malta</strong>) and adopt a consolidatedprocurement and negotiation process to capitalise on the increased economies of scale.27. A strategy is designed and implemented to establish a public laboratories’ cluster which inturn is aggressively marketed to the private sector.28. The strategy must be business driven based on a thorough evaluation of the testing required<strong>for</strong> national needs, international obligations as well as in supporting enterprise and industry.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 90
29. It is imperative that by <strong>2010</strong> at least 50% of the public laboratories within the designatedcluster attain international accreditation so that tests carried out have the necessary seal tobe applied locally.30. MCST will compile a Strategic Roadmap on National Research Facilities based on the ESFRIcriteria. The Roadmap will establish the necessary direction that ensures that <strong>Malta</strong> achievesa research infrastructure in the designated PSIs competitive enough to allow rapid growth inS&T.31. Whilst the <strong>Industry</strong> <strong>Strategy</strong> currently being drafted will put <strong>for</strong>ward specific recommendations<strong>for</strong> R&I incentives, it is imperative that MCST, ME and the Ministry <strong>for</strong> Competitiveness andCommunications work together on an on-going basis so that the Government introduces theright incentives at the right time in order to promulgate R&I in the private sector.32. The R&I NIP will provide appropriate financing directed to underwrite collateral <strong>for</strong> SMEsstart-ups in the designated plat<strong>for</strong>ms of strategic importance.33. The Government sets up together with the local financial institutions and the EuropeanInvestment Bank venture capital funds in the designated plat<strong>for</strong>ms of strategic importance.34. The Government should encourage entrepreneurs to diversify their investment portfolio intoVenture Capital Funds and Business Angels Schemes by providing R&I tax incentives.35. MCST and MFSA to jointly review initiatives introduced overseas on accessing Second PillarPension funds <strong>for</strong> R&I investment to determine whether this is a feasible option <strong>for</strong> <strong>Malta</strong>.36. MCST launches by the end of 2006 an Applied Research Scheme under the R&I NationalInvestment Programme directed to provide an annual grant of Lm5,500 <strong>for</strong> each AppliedResearch Analyst undertaking Masters, MPhil and PhD studies.37. The University of <strong>Malta</strong> by <strong>2007</strong> should seek to introduce an IP policy that is based on theprinciples recommended in this <strong>Strategy</strong>.38. The University of <strong>Malta</strong> should by 2008 seek to establish an effective Technology TransferOffice to provide advice and assistance to university staff and students interested in setting upspin-offs, and to act as a broker bringing together financiers, business incubation centres, andothers relevant to the establishment of such spin-offs.39. MCST in conjunction with ME in 2006 initiates the establishment of a vibrant network thatbrings together local industry, academia, <strong>gov</strong>ernment and international players in thedesignated plat<strong>for</strong>ms of strategic importance <strong>for</strong> participation in EU and other internationalR&I funding programmes.40. The R&I National Investments Programme will provide appropriate co-funding financialsupport <strong>for</strong> joint local industry-academia-<strong>gov</strong>ernment business driven research in thedesignated plat<strong>for</strong>ms of strategic importance that will benefit from EU and other internationalR&I funding programmes.41. The National Commission <strong>for</strong> Higher Education establishes an institutional and permanentmechanism that will ensure that knowledge suppliers provide the knowledge needs thatindustry requires at the right time, to the right levels, and with the right skills set.42. The National Commission <strong>for</strong> Higher Education should secure permanent liaison with MCSTto ensure that the focus provided by means of National Planning <strong>for</strong> R&I as well as theproposed ten year horizon SET planning are integrated in the planning and implementation ofthe development of the SET human resource capital base.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 91
43. Large local enterprises should be incentivised to include R&I in their corporate socialresponsibility portfolio by appropriate taxation instruments.44. MCST is to take an active role to tirelessly and courageously influence the shape and focus ofthe educational system across all its tiers so that it instils in Maltese children creativity,innovation and risk-taking.45 The following measures are introduced to engender SET entrepreneurialship:(i)(ii)Enterpreneurship should constitute, at least, at secondary level a <strong>for</strong>mal component ofthe extra-curriculum activity, and at the higher education level a <strong>for</strong>mal part of eachSET discipline.MCST in <strong>2007</strong> establishes a Student SET Entrepreneurial Fund that will be directed tofund innovative research and ideas of higher education students up to BusinessIncubation Level.(iii) MCST from 2006 will provide consultancy support <strong>for</strong> participants in the YoungEnterprise Competition who select a SET product or service.46. MCST together with MEYE should between <strong>2007</strong> and 2008 commission an independentreview to assess how S&T disciplines are taught at pre-primary, primary and secondary levelsof education and benchmark such education with countries enjoying a high level of success inS&T such as Finland and submit recommendations accordingly.47. A twenty-year science popularisation strategy based on the prongs proposed is drawn up byMEYE in tandem with the Office of the Prime Minister, as the Ministry responsible <strong>for</strong> R&I <strong>for</strong>launching in 2008 in order to permanently etch S&T on the culture and psyche of the Maltesepeople.48. MCST with immediate effect assumes the role of official sponsorship to the National TravelStudents Foundation in the management of the Young Scientists Competition in order to (a)support the aggressive marketing of the Young Scientists Competition; (b) support thesuccessful winner in the European Young Scientists Competition; and (c) provide financialsupport to business incubation of the successful winner’s solution if it meets criteria relating tobusiness driven R&I within the designated plat<strong>for</strong>ms of strategic importance.49. MCST together with MEYE and NSTF in <strong>2007</strong> launches an annual Science, TechnologyDesign and Mathematics National Competition directed at Forms 1 and 5 of the secondarylevel of education in public, private and church schools; with prizes to be:(i)(ii)(iii)A national award of Competence to the successful school and students.A science trip overseas to the successful schools and students and Lm500 andLm1,500 <strong>for</strong> research material to the students successful in the individual and teamcompetitions respectively.The award of Lm2,500 to the successful schools in the individual and teamcompetitions respectively <strong>for</strong> investment in S&T educational material and equipment.50. The University of <strong>Malta</strong> should seek to initiate a process to introduce by 2008 in SETdisciplines conversion courses on both a full and part-time basis at post-graduate Diplomaand Masters level respectively.51. MCST, in order to incentivise full-time studies at Masters, MPhil, and PhD levels in thedesignated plat<strong>for</strong>ms of strategic importance, will through the R&I National InvestmentProgramme provide students with an annual bursary of Lm5,500 subject to the conditionsthat: (a) the research has an applied bias; and (b) the student puts in set hours as anAcademic Research Assistant during the course of studies.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 92
52. An Inter-ministerial Working Group stewarded by the Office of the Prime Minister should beset-up to examine issues, which include social security taxation, the legal status ofresearchers, conditions of acceptance of third-country researchers so as to eliminate thebarriers to researcher mobility.MCST will actively participate in EU mobility <strong>for</strong>ums, promoting inward and outward researchmobility in order to place <strong>Malta</strong> firmly in the Mediterranean map of S&T. The <strong>Malta</strong> TourismAuthority, in conjunction with MCST, will promote <strong>Malta</strong> as a destination <strong>for</strong> S&T research,enabling an inward flow of researchers.53. The Federation of Industries particularly as well as other employer constituted bodies shouldwork with the University of <strong>Malta</strong> to identify critical specialised SET management programmesat post-graduate level and provide financial support to the University in the delivery of suchprogrammes.54. Appropriate financing will be provided through the R&I National Investment Programme sothat a holistic approach to the building and sustaining of the R&I enabling framework includesS&T education research.55. The retention of the development of the SET human capital that will arise as a result of therecommendations of this <strong>Strategy</strong> is critical so that the investment returns are secured <strong>for</strong> thelocal economy and the financing of Post-Doctorate Fellowships through the R&I NationalInvestments Programme is seen as an important criterion in this regard.56. Per<strong>for</strong>mance Indicators relating to (a) the SET Human Capital Base; (b) Future R&I Capacity;(c) R&I Progress and Per<strong>for</strong>mance; (d) <strong>Industry</strong>-Academia Collaboration; (e) Current R&ICapacity; (f) Imported Know-How; (g) Growth and Wealth Creation; and (h) Funding Sources<strong>for</strong> R&I in business, higher education and Government are introduced in order to allow <strong>for</strong>effective health checking of the R&I landscape in <strong>Malta</strong>.This <strong>Strategy</strong> further argues that Government intervention by means of financial instruments as wellas others is a critical leverage if an enabling framework <strong>for</strong> R&I is to be achieved. In this regard itrecommends:57. The Government is to increase its investment in the setting up of the enabling R&I frameworkto 0.75% of GDP by <strong>2010</strong>.58. The Government R&I investment is to be phased as follows:Year Lm 000 % GDP 40<strong>2007</strong> 5,500 0.302008 8,500 0.452009 11,600 0.60<strong>2010</strong> 14,800 0.7559. The current National RTDI Programme is re<strong>for</strong>med and set up as the R&I National InvestmentProgramme which will act as the main vehicle <strong>for</strong> the attainment of this <strong>Strategy</strong>.40GDP is assumed to grow by 2% p.a.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 93
60. The National R&I Investment Programme will be financed as follows:<strong>2007</strong> 2008 2009 <strong>2010</strong>Total 1,245,000 2,580,000 3,640,000 4,740,00061. Governance of the R&I National Investment Programme will reside with MCST to ensure thatit services the underpinning principles of this <strong>Strategy</strong>.62. MCST is provided with the authority to carry <strong>for</strong>ward funds allocated to the R&I NationalInvestment Programme that are not spent within the annual period.63. The R&I statistical framework is set-up by 2008, with investment by <strong>2010</strong> to consist of:- Lm100,000 <strong>for</strong> the setting up of the ICT infrastructure <strong>for</strong> on-line collation and datamanagement.- Lm38,000 to build the necessary R&I analysis basis in NSO.64. The following special initiatives budget is to be made available to MCST:OperatingBudget<strong>2007</strong>Lm2008Lm2009Lm<strong>2010</strong>Lm200,000 300,000 320,000 340,000SpecialInitiatives Budget 290,000 245,000 250,000 250,000Total 490,000 545,000 570,000 590,00065. Financing levels of other initiatives presented in this <strong>Strategy</strong> should be negotiated betweenGovernment and the appropriate initiative owners.66. A number of the initiatives proposed in this <strong>Strategy</strong> should be financed through the National<strong>Strategy</strong> Reference Programme – in so far that such recommendations meet the appropriatefinancing criteria.This <strong>Strategy</strong> presents a case <strong>for</strong> substantial increase by Government in R&I in order to establish andsustain the appropriate institutional as well as enabling framework to allow R&I to truly become anunderpinning plat<strong>for</strong>m of <strong>Malta</strong>’s economy.This is not to imply that the road to establish <strong>Malta</strong> as a R&I centre of excellence is easy and thatshort-cuts to account <strong>for</strong> decisions not made in the past will render instant results. The road tosuccess is long and hard. It requires consensus from the stakeholders including the political ones.And it demands visible and direct commitment. It requires culture shifts not only from parents,teachers and children on the importance of S&T as a career choice but also from the financialplanners on a national and enterprise level in that R&I is an investment and not a cost.Investment, however, cannot be spurious – in that it is based on hope in terms of delivery. Rather,investment must be focused – and this demands that realisable per<strong>for</strong>mance goals are set – which inturn would establish the basis <strong>for</strong> further investment.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 94
Thus a select number of indicators, deemed to be of fundamental importance <strong>for</strong> measuringper<strong>for</strong>mance are identified <strong>for</strong> which phased targets have been set. These are:Per<strong>for</strong>mance IndicatorsPer<strong>for</strong>mance Goals<strong>2007</strong> 2008 2009 <strong>2010</strong>Science, Engineering and TechnologyHuman Capital BaseResearchers per 1,000 worker 0 0 0 +2% of S&TresearcherspopulationNumber of PhD enrolments in S&T +5 persons +10 persons +15 persons +20 personsNumber of Masters / MPhil enrolments in S&T +5 persons +8 persons +8 persons +8 personsFuture RTDI CapacityUniversity enrolments in S&T 0 +5% of <strong>2007</strong>of S&Tstudentpopulation+5% of 2008of S&TstudentpopulationMCAST enrolments in S&T 0 0 +1% of S&TstudentpopulationPrivate Sector enrolments in S&T 0 +4 new Localfirms+6 new Localfirms+5% of 2009 S&Tstudent population+2% of S&T studentpopulation+8 new Local firmsR&I Progress and Per<strong>for</strong>manceExpenditure of Government on R&I 0.3% 0.45% 0.6% 0.75%Hi-Tech Start-Ups 0 +4 new Local +6 new Local +8 new Local firmsfirmsfirmsFirms successfully migrating from IncubationCentres0 +4 new Localfirms+6 new Localfirms+8 new Local firmsEuropean Mediterranean exportation ofenhanced innovation+ 4 enhancedinnovationprojects+ 8 enhancedinnovationprojects+ 16enhancedinnovationprojects+ 20 enhancedinnovation projects<strong>Industry</strong>-Academia CollaborationNumber of Collaborative initiatives +4 Initiatives +8 Initiatives +12 Initiatives +16 InitiativesCurrent R&I CapacityNumber of internationally accreditedlaboratories0 15% of PublicLabs35% of PublicLabs60% of Public LabsGrowth and Wealth CreationEmployment in S&T 0 0 +100 newpositionsFunding Sources <strong>for</strong> R&I in Business,higher education and GovernmentVenture Capital +100% on 2006target+100% on<strong>2007</strong> target+100% on2008 target+150 new positions+100% on 2009targetEU+5% on 2005 EUfinancing of S&Tstudentpopulation+20 of S&Tstudentpopulation+40% of S&Tstudentpopulation+60% of S&Tstudent population<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 95
SWOT Analysis Prepared by <strong>Malta</strong> EnterpriseAppendix E<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 96
Political, Economic, Social and Technological factors that impinge on the strategy that must bepursued by <strong>Malta</strong> to develop a sustainable competitive advantage.Political- European Union Enlargement has created amore liberalised market;- 11 th September terrorist attacks, War on Iraqand Sars have radically shaped to politicalperspective at a global level;- Libya is opening up its borders creatingtremendous opportunities <strong>for</strong> tapping tradebetween Europe and North Africa but at thesame time posing a threat <strong>for</strong> <strong>for</strong>eign directinvestment;- The Lisbon Agenda has set a target <strong>for</strong> theEuropean Union to become the largesteconomy in the world by <strong>2010</strong>;- The Monopoly in Cargo Handling is soongoing to expire with Government intending toaward a tender on a competitive basis;- The Introduction of visa’s <strong>for</strong> Libyan Nationalto come to <strong>Malta</strong> may have created somedifficulties in doing business with the Nation;- State Aid Regulation are restricting incentivesthat could be potentially provided by MaltEnterprise;- The EU has placed an Increasing Emphasison Innovation;- Government commitment to meet theMaastricht criteria by 2006 in respect of theBudget Deficit is restricting funds that couldbe potential deployed <strong>for</strong> InvestmentPromotion and Local Development;- The absence of a Double Taxation Treatywith the United States may hinder thedevelopment of potential <strong>for</strong>eign directinvestment opportunities in <strong>Malta</strong>;- The penetration of a third mobile operator inthe telecommunications market is bound toexert pressure to lower costs;- The <strong>Malta</strong> Freeport has been recentlyprivatised with tremendous opportunities <strong>for</strong>developing the international logistics sectorfurther;- Government has committed itself to reducered tape and <strong>gov</strong>ernment induces costs tofacilitate the day to day operations ofbusinesses;- Electricity prices are expected to rise due toincreased in oil prices possibly negativelyimpacting industry;- Government has committed itself to investLm40 million in Factories to improve theproduct offering <strong>for</strong> <strong>Malta</strong>.Economic- World Foreign Direct Investment Flows haveincreased in 2003 over the 2002 levels;- World Foreign Direct Investment haveexperienced a shift to services;- Some Call Centre are relocating from Indiato other destinations which have a centralEuropean Time Zone;- Most Foreign Direct Investment occursthrough merger and acquisition activity butGreenfield investment is becoming a morepopular <strong>for</strong>m;- A similar trend in International Trade hasbeen observed whereby exports of servicesare rapidly on the increase;- Telecoms and Health Sectors are by far thelargest growth areas;- The United States has recorded the largestOutflows of Foreign Direct Investment. Thiswas immediately followed by Luxembourgand the United Kingdom;- China and India have are rapidly expandingtheir economies. China is expected tobecome one of the largest economies in theWorld;- The Trend <strong>for</strong> outsourcing non-core activitiesshows substantial growth;- Oil Price have reached record levelsfluctuating between US$ 45 and US$ 55 abarrel having a significant impact onelectricity prices;- International production networks in servicesare in their infancy, and service industriesand TNCs are less transationalised thantheir manufacturing counterparts – but theymay be catching up;- Locally savings rate have decreaseddramatically to around 2% of disposableincome;- Budget Deficit is expected to be contained to3% of GDP by the year 2006;- The New Hospital Project has significantlydrained the country’s resources;- Unemployment rate remained constant witharound 7,000 people;- In spite of low interest rates, there issubstantial liquidity in Banks in the <strong>for</strong>m ofsaving with limited investment activity;<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 97
Social- The local population is ageing cratingsignificant pressures on the pension system;- Participating of Women in the work <strong>for</strong>ce isincreasing although is still compares muchlower to other European Countries;- People pursuing education at the tertiarylevel is also on the increasing although onceagain this is substantially lower than levelsachieved by other EU countries;- Government has become moreenvironmentally conscious and measuresaimed at discouraged pollution are beingdeveloped.- Accession in the European Union hasprovided locals with easier access to the jobmarket in other EU countries although it isnot envisaged that a significant movement oflabour will take place;- With house ownership through mortgagebecoming increasingly popular in <strong>Malta</strong>,disposable income <strong>for</strong> consumption hasdecreased substantially;- The Health Care system is becomingincreasingly unsustainable;- The Introduction of private pension schemesare bound to create increasing pressures onhousehold disposable income;- Acquisition of property has become a popularsource of investment in <strong>Malta</strong> as analternative to investment in commercialoperations;- The Maltese Work Force is becomingincreasingly Multi-lingual.- New Labour Law have provided <strong>for</strong> additionalrights to workers.- Speculative activity has lead to an artificialincrease in property prices in <strong>Malta</strong>;- Value Added Tax has been increased from15% to 18% having a direct bearing onconsumption.Technological- The development of the eGovernment portalhas provided a gateway <strong>for</strong> business todevelop eCommerce Opportunities;- <strong>Malta</strong> Enterprise in conjunction withGovernment is presently contemplating thepossibility of introducing an eBusinessRegistration Portal;- <strong>Malta</strong> has recorded one of the highestpenetration rates in computer and internetusage in Europe;- Liberalisation of the telecommunicationsindustry is bound to lowertelecommunications costs;- The increasing popularity of point to pointcommunication (through bandwidth) asopposed to broadcasting is radicallychanging the communications environment;- Current Web-Technology provides anenormous potential <strong>for</strong> developing innovativeways of collecting in<strong>for</strong>mation and marketing<strong>Malta</strong> as an investment and trade location;- The Introduction of a player in Interactive TVpresents tremendous opportunities <strong>for</strong>eCommerce;- Innovation has become a critical successfactor <strong>for</strong> business to develop a sustainablecompetitive advantage;- The levels of Investment in Research andDevelopment in <strong>Malta</strong> are very low. This ishowever a similar trend in most EUcountries. The 30% gap between the GrossDomestic Product of the US and that of theEU is largely attributable to the higherInvestment in Innovation engaged by the<strong>for</strong>mer.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 98
Fiscal Measures <strong>for</strong> R&D&I Currently in PlaceAppendix F<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 99
R&D Description Project not EU Funded Project partly EU FundedFundamental Research 100% 100%Industrial Research 70% 75%Pre-competitive Research 45% 50%In terms of eligible investments:Eligible InvestmentsTax CreditsProject not EU fundedProject EU fundedWages of personnel employed inR&D activitIS35% 35%Instruments and Equipment 35% 35%Land and Premises 14% 14%External Consultants andequivalent servicesExternal Consultants andequivalent services engaged in anapplication <strong>for</strong> EU fundsOverheads & other R&Dexpenses35% 35%17.5% 12.25%10.5% 10.5%<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 100
Proposed Regulatory Impact Assessment MethodologyAppendix G<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 101
Regulatory impact and compliance cost statementsPolicy proposals submitted to Cabinet that result in legislation or statutory regulations are to beaccompanied by a Regulatory Impact Assessment Statement, unless an exemption applies, whichrequires prior – positive assessment by the Better Regulations Unit. Where a proposal has BusinessCompliance Cost Implications (BCCS), a BCCS is to be incorporated into the RIS. This requirement isintended to improve the quality of regulation making and to ensure that regulatory proposals are costeffectiveand justified.Content of a Regulatory Impact StatementThe RIS should contain the following in<strong>for</strong>mation:oStatement of the nature and magnitude of the problem and the need <strong>for</strong> <strong>gov</strong>ernment action.This section should clarify that there is a clear need <strong>for</strong> policy action. In<strong>for</strong>mation should beprovided on the nature and magnitude of the problem and should identify the likely risksassociated with both intervention and non-intervention. Care should also be taken to clearlyidentify the root cause of a particular problem, rather than focus on the symptoms.oStatement of the public policy objective(s).The objective of the regulatory initiative should be specified. The objective should not bespecified so as to align with (and thus pre-justify) the particular effects of the proposedregulation. Rather, it should be specified in relation to the underlying problem. Also, wherethere is more than one public policy objective, they should be ranked in order of priority.oStatement of feasible options (regulatory and/or non-regulatory) that may constitute viablemeans <strong>for</strong> achieving the desired objective(s).This section should set out the various options (including the preferred option) that couldwholly or partly achieve the policy objective(s). Alternative options may rely on the market inconjunction with existing law, in<strong>for</strong>mation and education campaigns, market-basedinstruments (including taxes, subsidies, per<strong>for</strong>mance bonds and tradable property rights) andself-regulation.oStatement of the net benefit of the proposal, including the total regulatory costs(administrative, compliance and economic costs) and benefits (including non-quantifiablebenefits) of the proposal, and other feasible options.A fundamental purpose of the RIS is to demonstrate that the benefits of the regulatoryproposal exceed the cost and that the net benefits to society are maximised. A cost / benefitanalysis is simply a systematic approach to judge whether this requirement is met.This section should provide an outline of the costs and benefits of the proposal andalternative ways of achieving the public policy objective(s). This should include economic andsocial costs and benefits, whether direct or indirect. It is important that benefits and costs arenot restricted to tangible or monetary items only. There should also be brief analysis ofdistinct alternatives (including the status quo) to the proposed regulation.The groups likely to be significantly affected by the regulatory proposal should also beseparately identified in this section. Where the proposal will have different effects on differentsub-groups, each sub-group should be identified.oStatement of consultation undertaken<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 102
The RIS should outline who was consulted in developing the regulatory proposal. On a caseby-casebasis, this may involve consultation between departments and other levels of<strong>gov</strong>ernment, stakeholder groups and the community generally.Content of a Business Compliance Cost StatementPolicy proposals that have compliance cost implications <strong>for</strong> business should include a BCCS in theRIS. If the proposal does not involve compliance costs <strong>for</strong> business, a statement should be made inthe RIS to this effect.At what stage should a RIS be prepared?In order to obtain the maximum benefit from the RIS process, a RIS should be prepared <strong>for</strong> newregulations (including amendments to existing regulations) once an administrative decision is madethat regulation may be necessary, and be<strong>for</strong>e a policy decision is made by the <strong>gov</strong>ernment to thateffect. This means the analytical framework underpinning a RIS will be used throughout the policydevelopment process.For reviews of existing regulations, the terms of reference <strong>for</strong> the review should reflect the keyelements of the RIS, with any reports using a RIS framework. This requirement ensures that the RISframework is incorporated at an early stage in regulation reviews and is used until a final RIS isprepared, prior to policy decisions being made.Should a RIS be prepared <strong>for</strong> all legislation / regulations?A RIS is required <strong>for</strong> all policy proposals submitted to Cabinet with legislative implications (leading to<strong>gov</strong>ernment Legislation and statutory regulations). The RIS is to be attached to all Cabinet papersproposing a statutory requirement unless the proposal comes within the exemptions listed below.A RIS is not required if the proposal falls within one of the following specific exemptions:o where the proposal is of a minor or organisational nature and does not substantially alterexisting arrangements;o where it deals with administrative procedures within or between Ministries and departments,and does not impact on business, consumers, or the public;o where it is required to meet an obligation under an international agreement and the regulationprimarily repeats or adopts the terms of the agreement, or part of the agreement;o where it is to give effect, in terms announced in the Budget, to a specific Budget decision,where the decision is to:- repeal, impose, or adjust a tax, fee or charge; or- confer, revoke or alter an entitlement; or- impose, revoke or alter an obligation.Length of RISA RIS should succinctly explain the objectives of <strong>gov</strong>ernment action and why the proposedregulations are the most efficient means of achieving these objectives. The length of the RIS willdepend largely on the complexity of the problem under consideration, the number of alternatives to beconsidered, and the extent of the cost benefit analysis conducted on the regulatory proposal and thealternatives. Typically, the greater the impact of a regulation, the more detailed an RIS will be.However, this does not necessarily mean a longer RIS.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 103
Business Compliance Cost Statement01. Summary of Key PointsAll policy proposals submitted to Cabinet which require a Regulatory Impact Assessment Statement(RIS) and which have compliance cost implications <strong>for</strong> business are to include a BusinessCompliance Cost Statement (BCCS) in the Regulatory Impact Statement.02. What are Compliance Costs1. Compliance costs are the administrative and paper work costs to business in meeting<strong>gov</strong>ernment requirements. They include both the administrative burdens and all othercompliance costs, such as equipment purchases, retooling, and recurrent production cost.Compliance costs are distinct from the direct costs of any <strong>gov</strong>ernment requirement, such asthe amount of tax payable.2. Compliance costs include the costs associated with identifying and understanding theregulatory requirement and may include costs associated with buying in specialist services(such as legal training, computer systems, research) to satisfy regulatory obligations (oremploying new staff generally). At a less tangible level, compliance costs can arise fromincreased liability through the establishment of new legal obligations (such as health andsafety requirements).3. The need to comply with <strong>gov</strong>ernment requirements can also have non-monetary effects suchas stress and anxiety. These effects often arise from uncertainty about obligations anddisproportionately affect smaller businesses with limited management resources who aremost susceptible to such costs.03. Principles of Business Compliance Cost Statement4. Compliance costs may arise from <strong>gov</strong>ernment interventions. However, businesses and theeconomy should not incur more compliance costs than are necessary. At the stage that newadministrative processes and measures are being designed, compliance costs should begiven due weight with other costs and benefits.5. The following principles underpin the objective of reducing compliance costs:oooooCompliance cost assessment should be an integral part of the policy developmentprocess;The reduction of compliance costs is a dynamic process which includes ongoingmonitoring of existing legislation, regulation, and rules, as well as assessment of theimpact of any substantive change to them;Recognition that compliance costs are a charge against the scarce resources of theprivate sector;Compliance requirements need to be critically assessed in terms of their absolutenecessity to achieve the objectives of the policy;Compliance cost assessment is recognised as a clear regulatory authority ordepartmental responsibility and as such should be an integral part of the regulatoryauthority or departmental management accountability.04. Content of Business Compliance Cost Statement6. The business compliance cost statement should identify:ooothe source of any compliance costs;the parties likely to be affected, by sector and size of firm;quantitative (if possible) or qualitative estimates of compliance costs (both inaggregate and upon individual firms, persons);<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 104
ooooothe longer term implications of the compliance cost <strong>for</strong> business - are they one-offcosts? Will they be reducing over time?an assessment of the risks associated with any estimates and the level of confidencethat can be placed on the compliance cost assessment;the key issues relating to compliance costs identified in consultation;any overlapping compliance requirements with other agencies; andthe steps that were taken to ensure that compliance costs were minimised.<strong>Industry</strong> <strong>Strategy</strong> <strong>for</strong> <strong>Malta</strong>: <strong>2007</strong>-<strong>2010</strong>Page 105
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