Interview | Sunday, 25 October 2009

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Addressing the great Maltese anomaly

At a time of economic recession, Malta is the only European member state to suffer from high inflation. Workers by right expect adequate compensation through COLA, however, the record €6.06 increase per week is expected to have serious implications for jobs, while many accuse inflation was government-induced. Joseph Farrugia, Director General at MEA, stresses the risks and possible solutions before government decides his budget for 2010

When Prime Minister Lawrence Gonzi this week re-launched his invitation to the social partners to consider rekindling a fresh attempt to forge a social pact, he had just read the details of a fiery press conference given by Helga Ellul, President of the Malta Chamber of Commerce, Enterprise and Industry (MCCEI).
The eloquent German-Maltese industrialist – who spoke on behalf of her members – made it clear that the MCCEI was rejecting the €6.06 COLA increase to workers, and defined the MCESD pre-budget proposals prepared by Economist Gordon Cordina as “unsustainable.” She also gave a stark warning to government that “hundreds of jobs” would be lost.
So five years on, when unions, employers and the government were reportedly “one inch away” from reaching an agreement on a social pact, what is the scenario?
Thick grey clouds are looming over the supposed November 9 deadline for Budget day as government tries to fix the rift between the social partners.
Sitting at the head of his boardroom table, Malta Employers Association (MEA) Director General Joe Farrugia says that although remote, a social pact is still a possibility.
“I don’t see it possible in the near future, however if we restart any talks on a social pact, we must achieve a level playing field and also obtain a fair commitment by the political parties,” Joe Farrugia says, adding that political parties have contributed to the failings of the sustainability of many aspects of the Maltese economy, mainly by “competitively upping the stakes” through their electoral promises and dishing out millions of euros in benefits to all.
“I expect the political parties to do their part and be courageous, face the people and tell them what is affordable and what isn’t, rather than promise pies in the sky,” he insisted.
Farrugia may have a capitalist’s view of things, but he stresses that, from a social and economic point of view, there is no way any Maltese could boast of living in a “sustainable” nation.
“We don’t realise that we are living in a bubble that could burst at any time,” he warns, curious as to how a country with an economy in recession can expect to put further pressures on businesses with an across-the-board measure that imposes a cost of living increase compensation of €6.06 per week to every worker.
With inflation surpassing the 4% mark during 2009, workers expect to be compensated for what they have incurred, and while Joe Farrugia justly recognizes this right, he also insists on his unsurpassable “red lines.”
First of all, he says, “this country is in recession. Secondly, to get out of the recession we must be competitive, and we can only face this by improving our productivity and aim for higher value-added.”
Farrugia stresses that the name of the game is that all social partners – including governments – work to bring the economy back on track towards growth.
“So if my productivity is linked to costs, efficiency and efficiencies, how can businesses face the recession with an across-the-board measure that will definitely jeopardize hundreds of jobs?” he asks.
“We never asked for a wage freeze, and I’m not intending to do so, but what MEA is asking government is to address the issue with courage and shoulder part of the costly burden.”
But the Finance Minister has already said that he doesn’t have the money for such a move, while trade unions argue that, should government do such a thing, it would be forking out tax payers’ money. Isn’t this an odd situation?
“I don’t see it that way, because the workers will still be compensated just the same, and their workplace could be better safeguarded against the possibility of redundancy,” Farrugia replies, while adding that it is definitely a very difficult moment to tackle, whichever way one looks at it.
He qualifies MEA’s proposal by explaining that government is being asked to shoulder €2.43 and to intervene on specific sectors that are indeed in troubled waters and at high risk of closure.
“Tourism is a sector that is particularly vulnernable at this time, and government could intervene there, as also with specific sectors in manufacturing,” he explained.
Farrugia acknowledges the fact that not all companies are facing the same situation, which is why government could begin by focusing on the vulnerable sectors.
“In the i-gaming sector, salaries are high and COLA, whether it turns out to be high or low, won’t make any difference to them. The same goes for banks and other high-profit making companies. Why should I expect government to subsidize COLA to these sectors?”
Although the MEA has asked for government to shoulder part of the record COLA increase as a one-off measure, Farrugia also expresses his preoccupation for a developing “repeated-scenario”, as the Prime Minister has already hinted that utility tariffs could rise once again, given the increase in the price of oil.
So a one-off could in fact transpire not to be so.
Inflation has been intrinsically linked to the rise in the water and electricity tariffs, although other factors are also considered as major contributors, such as the anomalies in prices for food, medicines, fresh fruit and vegetables, and meat products.
Farrugia agrees with Labour leader Joseph Muscat’s call to government to cap any utility tariffs hikes in a bid to allow business and households alike to be able to forecast expenditure.
“This is important for us,” he says, while adding that government must take note of the serious difficulties businesses face when pricing their product or service if they won’t have any idea of the possible increases in water and electricity tariffs.
So how could government go about this?
According to Farrugia, a solution could be found if government and all social partners would agree on a six-month to yearly stabilizing maximum tariff.
He insists that the utility tariffs have become a major concern for all industry and businesses, and with a record COLA increase, Malta in 2010 will be led into an unnecessary and prolonged recession.
It is estimated that almost 1,000 could be facing the axe during the first six months of 2010, and these workers will be turning to government for social benefits.
Back to the possibility of a social pact. Farrugia puts all the country’s ailments into the basket and opens the challenge to all social partners to be courageous and face the people with the plain truth.
The Central Bank Governor Michael C. Bonello has long been speaking about the sustainability of many social benefits, including stipends.
“All social benefits are good, and we are proud to have them, but the question is: how affordable are they?”
Farrugia doesn’t mince his words. “Are we sure that free health care is really being given the right way? Is it being abused of? How can we get around the squandering of millions of taxpayers’ money in inefficiencies in this sector, together with others?”
“I am all for the introduction of measures that could guarantee stability and not destabilize the economy,” he says.
He argues that immediate measures are needed to safeguard jobs in the country, as the writing has long been on the wall for all to see.
“We have invested millions in education, but still we are producing many unskilled workers from our schools with all the implications they bring, while the economy is changing towards a higher value-added, and specialization.
“We have seen the liberalization of the ports, but nothing competitive has arisen from it and tariffs if not the same have increased, while monopolies still remain, and government remains the biggest employer…”
Pointing out that during 2009, government salaries have risen by €24 million during 2009 due to the coming into force of a new collective agreement, but inefficiency levels remain high, while government-induced costs keep increasing.
Confronted by findings made by economist Joe Falzon – who recently said that prices in Malta are 77% higher than the European average when compared to wages – I ask Farrugia to say how employers are asking for more productivity, rather than ensure workers are compensated better and enjoy better working conditions to increase motivation and reduce uncertainties?
“Let me put it this way. In no way are we threatening government with job losses if COLA is implemented across the board besides other measures like water and electricity, but there exists a reality where employers have no way out.
“They either increase their product or service price, thus passing the burden onto the consumer which would immediately trigger inflation, lay off workers to keep the same expense, or shut down the operation.
“Today you are either competitive or you’re out of the game…” Farrugia says.
He explains how the problem of wages intensifies when one becomes aware of the reality of Maltese salaries, which are compacted into one big sector. This makes them quite difficult to address when it comes to grant wage increases, especially across the board.
“COLA is a mechanism established 20 years ago and it has justly given a certain degree of economic stability. However, we all seem to be missing the crucial point at this moment in time: this country is in recession, and the world economy is not what it was 20 years ago.
“We are not an exclusive zone, we are part of not only the European market, but a global one, where everything revolves around competitiveness. If we lose that, then we have lost everything.”
Farrugia insists that the whole country must strive to pull its socks up before it is too late, and his worst preoccupation is that while major economies recoup from the recession and economic crash, we will be prolonging our recession and making matters worse to recover.
“Every time we suffer job losses, we have a further cost and lest we forget, we also have a hefty deficit to address. So everything is linked,” he says.
While he stresses that “so far” government is not in a straitjacket, the time to take courageous decisions is now.
“Trade unions are aware of the realities surrounding the survival of jobs, and I hail the local unions for showing responsibility in their approach to collective agreements, but I still see that they could do more to put employers’ minds at rest.”
He says that the private sector has a lot on its plate, and the worry for employers is great as their money and investment is at stake, while banks are turning on them to honour their loans and overdrafts when sales, turnover and profits are down.
“Some are in very serious difficulty, and they should be addressed, and certainly by not increasing their worry with hefty wage increases and increased government induced costs,” he said.
Joe Farrugia insists that all these troubles are easily reversible if and when all social partners – including the major political parties – agree that the country needs fixing.
“If we all pull the same rope in the real sense of national and not sectorial interest, perhaps yes, one day we could pride ourselves to be living in a country where we care.”


Name: Joseph Farrugia
Occupation: Malta Employers Association, Director General (November 2001)
Status: married to Marie-Louise Cutajar, with one daughter
Passion: Painting
Favourite artist: Jimi Hendrix
Favourite destination: Florence
Favourite dish: Paella


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