Issue link: https://maltatoday.uberflip.com/i/1475889
8 NEWS 11.08.2022 Riding on a tiger carries with it grave dangers George Mangion George Mangion is a senior partner at PKF, an audit and consultancy firm, and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have made PKF instrumental in establishing many companies in Malta and established PKF as a leading professional financial service provider on the Island A recent survey shows eurozone business activity has unexpect- edly contracted last month due to a slowdown in manufacturing, and ser- vices sector growth coming to a near halt. Accelerating cost increases forced British consumers to tighten their belts. Why is this relevant? Just consider that the UK is a major trading partner for Malta. e Bank of England (BoE) said it was being forced to take aggres- sive action due to a new forecast that sees inflation rise to over 13 per cent by the fourth quarter of this year, largely due to another big increase in regulat- ed household energy prices. e bank also confirmed its expectations that the economy will start contracting later this year. In more grim news, the BoE predicted the UK economy would enter a painful recession that will last until late 2023. is is a sober thought since the high- est percentage of tourists still originate from UK and as the recession next year will eat into their spending power, ex- pect that MTA will net in more of the lower-spending variety. Back home, a vast majority of business leaders are also expected to raise pric- es of their products and services in the year ahead to offset their costs, accord- ing to the Q2 Vistage CEO Confidence Index 2022 issued in collaboration with the Malta Chamber. e report showed higher costs for raw materials and inputs were reported by 65 per cent of the respondents while 78 per cent reported increased prices from vendors. On the employment scene, most em- ployers particularly in the hospitality, retail and light manufacturing sectors are facing a labour shortage. e minis- ter for the economy and industry claims the furlough scheme has during the pandemic saved 50% of the non-state working population (100,000 workers). So, it stands to reason to ask why such an acute shortage when jobs were saved? Where have the workers gone? Particularly among the lower skilled cohort they seem to have been riding on a tiger only to end up eaten by it (as the story goes). Can we accept the un- palatable truth that Malta faces a skills mismatch. In this context, how much do econom- ic operators and the education system appreciate that a number of jobs which we have today will become redundant in the early future as digitalization era takes over? Is it a sign of times that last "O" level maths exam results featured only 20% of students who passed. e endless diatribe about reforming the education system comes up every year and it is our "elephant in the room". Do economic operators and the educa- tion system appreciate that to perform certain knowledge-based jobs, one does not necessarily require an academic de- gree as knowledge which is obtained through experience such as structured apprenticeships. e unions suggest that to solve this worker shortage there has to be some improvement in wages to encourage job mobility. e public sector, either directly or indirectly through contract- ed services, has absorbed a significant number of persons (now employing around 25% of registered workers). is has had a crowding-out effect of the private sector. As can be expected, with the onset of Covid-19 last March 2020, most businesses, schools, airport closed shop and a considerable number of foreigners went back to their country and have not returned. Some employers are hoarding labour in that they are hanging on to their people, even though they cannot jus- tify it financially, because of the fear they would not find employees should they need more workers. Even firms of lawyers, engineers, medical clinics and auditors are facing shortages and are having to start poaching staff in an at- tempt to maintain headcount. Others are improving salary perks to retain quality staff. In the hospitality sector most serv- ing staff are foreigners (the majority are students employed for the summer months) while meal delivery services are exclusively manned by Indian, Pa- kistani or Bangladesh motorcycle cou- riers frantically following GPS instruc- tions on mobiles to deliver meals in the shortest time possible to elk a decent fee to earn a living. About 300 drivers went out on strike this month. It is believed that the ac- tion stems from discontent over a drop in how much money the couriers were making for carrying out deliveries when compared with the last few months. Drivers are not given employee rights, and must give up to 50 per cent of their income from deliveries to the agencies that employ them, whilst the latter con- sistently lowers the delivery rates. Workers often make less than the min- imum wage, often receiving just €2.60 every hour, as they are paid €2.60 per delivery. Moviment Graffitti called the conduct of such employment agencies "tantamount to modern slavery," with "workers drained by a system where they must do enough deliveries to reach the targets set by the agencies, whilst getting increasingly meagre pay for every delivery". Another hot tomato is the transfer of about 600 Air Malta surplus employees to be sourced a government job with same salary conditions. Finance Min- ister Caruana has admitted that some 600 staff employed by the national air- line will be dumped onto the taxpayer's payroll at an additional cost of some €15 million a year. In fact, 577 employees applied for the generous Voluntary Em- ployment Transfer Scheme (VETS), an- nounced by the government in January, as part of the latest restructuring exer- cise at the bankrupt national airline. Of these employees so far only 88 were given jobs at levels that match other government grades. In this trans- fer, such employees earn more than equivalent government scales because their basic pay was pegged to what they earned at Air Malta, including overtime and allowances. Obviously, a generous early retirement scheme has not attract- ed the attention of the rest of selected employees and one hopes that by end of October, an honourable solution is found to quell unrest in the troubled airline. One hopes that permission to grant another tranche of state aid is approved by Brussels to bail out Air Malta. It is registering millions of euros in losses every month. Naturally, as stated earlier, our infla- tion at under 7% has touched freight costs and prices of imported construc- tion materials (particularly steel, ce- ment) have seen prices quadruple. is is fuelling house prices where a three bedroom (145 square me- tres) apartment in a finished and unfur- nished state are fetching over €320,000 in towns and villages. With a ten per- cent deposit and a 90% mortgage young couples will spend their lifetime pay- ing the bank. Upper market rents have tumbled due to lack of new entrants to the market from high rollers yet some think they will soon start to rise, too. And that is why economies that are riding on the back of a tiger need to change, climb down and face the music.