Issue link: https://maltatoday.uberflip.com/i/1501912
8 OPINION 22.6.2023 Riding on a tiger carries with it 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 inflation has unexpectedly con- tracted last month due to a pick- up in manufacturing and services sectors. Accelerating cost increases forced British consumers to tighten their belts. Why is this relevant for us? Just consider that the UK is a major trading partner for Malta and one coun- try with traditionally yielding high tourist arrivals. More grim news, as the Bank of England predicted the UK economy would ease a painful recession that will last until late 2024. is is a sober thought since a good percentage of tourists still originate from the UK and this slow- down will eat into their spending power. In fact, up to the May, the average spend per tourists declined by 4.3% compared to pre-Covid. Sun and sea arrivals now spend a mere €120 daily (84% live in rent- ed apartments) while even cruise liners seafarers spend higher on day visits. On inflation, a vast majority of busi- ness leaders are forced to raise prices of products and services in the year ahead to offset their costs, according to the Vistage CEO Confidence Index 2022 issued in collaboration with the Malta Chamber. e report showed higher costs for raw materials and inputs 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, professional services, retail and light manufacturing sectors are facing a la- bour shortage. Silvio Schembri, minister for the economy and industry, claims the furlough scheme launched by him during the pandemic saved 50% of the non-state working population (100,000 workers). So, it stands to reason to ask: why is it that having beaten Covid, we are facing such an acute shortage when 100,000 jobs were saved? Where have the workers gone? Particularly among the lower skilled co- hort, they seem to have been riding on a tiger only to end up eaten by it (as the story goes). e truth is that Malta faces a skills mismatch. In this context, how much do economic operators and the education system appreciate that a number of jobs which we have today will become redun- dant in the early future as digitalization and AI takes over? Is it a sign of the times that last "O" level maths exam results fea- tured 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". For decades we heard proponents of our free education system remind us that to perform certain knowledge-based jobs, one does not necessarily require a de- gree but structured apprenticeships. e unions suggest that to solve this worker shortage there has to be some improve- ment in wages to encourage job mobility. e public sector, either directly or indi- rectly through contracted services, has absorbed a significant number of persons (now employing around 24% of registered workers). e entire state employee co- hort still work half days during four sum- mer months - when the economy bursts into action. is has had a crowding-out effect of the private sector. Some employers are hoarding labour in that they are hang- ing on to their people, even though they cannot justify it financially, because of the fear they would not find employees should they need extra workers. Even of- fices of lawyers, engineers, medical clinics and auditors are facing shortages and are having to start employing third country nationals or even poach staff in an at- tempt to maintain headcount. Others are improving salary perks to retain quality staff. In the hospitality sec- tor most serving staff are foreigners (the majority are students employed for the summer months) while meal delivery services are exclusively manned by Indi- an, Pakistani, Somali, or Bangladesh driv- ers. Most drivers are not given employee rights, and must give up to 50 per cent of their income from deliveries to the agen- cies that employ them, whilst the latter consistently lower the delivery time. Workers often make less than the mini- mum wage, earning just €3.60 every hour, as they are paid €3.60 per parcel 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 mea- gre pay for every delivery." Another hot tomato is the transfer last year of circa 600 Air Malta surplus em- ployees to other government jobs with the same salary conditions. Finance Min- ister Clyde Caruana has admitted that staff employed by the national airline will be added onto the taxpayer's payroll at an additional cost of some €15 million a year. In fact, 577 employees applied for the generous Voluntary Employment Trans- fer Scheme (VETS), announced by the government in January, as part of the lat- est restructuring exercise at the bankrupt national airline. In this transfer, transferred employees earn more than equivalent government scales because their basic pay was pegged to what they earned at Air Malta, includ- ing overtime and allowances. Obviously, a generous early retirement scheme has not attracted the attention of the rest of selected employees and one hopes that by the end of the year, a quick solution is found to quell unrest in the troubled air- line. One prays that Brussels gives permis- sion for another tranche of state aid to Air Malta (so far this has been refused) while Air Malta is haemorrhaging millions of euros in losses every month. Inflation has touched freight costs and prices of imported construction materi- als (particularly steel and cement) have seen construction prices quadruple. is is fuelling house prices where a mod- est three-bedroom (145 square metres) apartment in a partly finished state now fetches over €320,000 in towns and villag- es (no garages added). With a ten percent deposit and burdened by a 90% mortgage young couples will spend their lifetime paying the bank. Hence the story concludes that unstruc- tured economies are riding on the back of a tiger... they need to change, climb down or face the music.