Competitiveness

The Malta Fiscal Advisory Council (MFAC) has recently issued its Annual report. It is a report filled with extremely interesting economic analysis. Amongst the interesting analysis provided there was a part related to Malta’s competitiveness.

Rewinding the tape a bit, RULCs is one way of identifying price competitiveness, when considering the relationship between unit labour costs and labour productivity by measuring the relative unit labour costs (RULCs). To assess the RULCs between countries, the labour productivity and unit labour costs are worked out separately for each country. A higher RULC indicates higher labour costs relative to productivity, making the country less competitive in terms of labour efficiency. Conversely, a lower RULC suggests lower labour costs relative to labour productivity, indicating higher competitiveness. When RULCs exceed 1, it indicates that labour costs per output in Malta are higher relative to its productivity compared to the other country, and vice versa.

The analysis provided by MFAC indicates that when compared to the Euro Area average, Malta’s RULC has consistently exceeded 1 indicating higher unit labour costs relative to productivity. This suggests that Malta has a larger gap between unit labour costs and labour productivity when compared to the Euro Area average. The data reveals an average RULC of 1.4 during 2000 to 2007, dropping to 1.25 in the most recent period (2020-2022) and then reaching a low of 1.16 in 2022.

The data shows that the Euro Area RULC average is better for virtually all economic sectors expect that of ‘arts, entertainment and recreation (gaming)’ and the ‘agriculture, forestry, and fishing’ sectors. Having said so, Malta’s RULCs compared to those of the EA-19 for the ‘information and communication’ and the ‘professional, scientific, technical, administration, and support service activities’ sectors exceeded 1 but considerably improved from 2013 onwards, falling below 1. Conversely, the real estate’ sector witnessed worsening in price competitiveness, with Malta’s relative competitiveness falling below 1 prior to 2012 and increasing over 1 in the following periods.

The conclusions of this analysis by MFAC where the following “Despite outperforming in sectors like the ‘arts, entertainment, and recreation’, Malta lags behind in price competitiveness in the ‘industry’ inclusive of manufacturing, wholesale and retail trade, transportation and storage, accommodation, and food service activities and financial and insurance activities sectors.”

The writing is on the wall. Malta’s needs to up its momentum on research and innovation to boost productivity and its competitiveness, whilst further encouraging businesses to invest in advanced technologies through automation, digitalisation and other efficiency-improving technologies in different sectors. We urgently need to make sure that all our national resources are primarily placed at  facilitating such advancements to make sure that Malta can enhance productivity and maintain competitiveness.