‘Question is to which extent government can sustain such massive expenditure’ – MEA Director

Last Updated on Thursday, 17 December, 2020 at 9:43 am by Andre Camilleri

Dayna Camilleri Clarke spoke with Malta Employers’ Association Director Joseph Farrugia to gain a clearer picture of what the entity is experiencing concerning Covid-19.

The principal purpose of the association is the regulation of relations between employers, workers and trade unions.

From what you have seen this year, which sectors have done well given the circumstances and which have suffered the most?
The majority of economic sectors and enterprises within these sectors were adversely affected by the pandemic for various reasons. The main one is restrictions in activity, namely travel, which has crippled the tourism industry during the past ten months. Another reason is a fall in domestic demand due to a reduction in many employees’ disposable income, coupled with the fact that even where income was not affected, many took a more precautionary approach towards their spending. As many investment projects were placed on hold, demand for capital goods also declined, which in turn had an impact on employees’ hours of work and consequently their income. Many exporting companies were also affected by a drop in orders.

Another factor that had an impact on many businesses was employee absence due to quarantine conditions among employees, vulnerable people who could not go to work and employees who took parental leave to look after children or close relatives. Indeed, research conducted by the MEA revealed that some enterprises had full order books but experienced a slowdown due to increased absenteeism.    

However, even in this gloomy scenario, some enterprises did reasonably well. Home entertainment, delivery systems and online shopping saw a marked increase. Even within sectors, changes in consumer behaviour saw a decline in some activities which were compensated by others. In iGaming, for example, the cancellation of many sports events affected sports betting, but gaming companies have reported an increase in casino-related gaming. The retailing business was also affected by shifts in consumer patterns where clothing retail outlets suffered more than businesses selling electronic appliances. In some cases, the impact was also regional. Catering outlets in Valletta witnessed a sharper decline in business than restaurants in most other areas.  

Does the MEA believe the government is doing enough to support businesses?
After discussions with the social partners, the government took various measures to shore up the economy, focusing mainly on job retention and assisting companies facing liquidity issues. These were supported by sector-specific interventions such as the voucher scheme. The wage supplement has kept thousands of employees in their jobs, albeit at reduced income. It can be argued that the supplement would still have been issued if these employees lost their jobs through unemployment benefits. Yet, as experienced in previous crises has shown, keeping people in their employment has psychological benefits and enables companies to hit the ground running and recover faster once the crisis subsides. Idle time is used by quite a few companies to upskill the labour force.

The government’s mistake was to open the gates for mass events prematurely and was too upbeat about early recovery and solution to the crisis. On the other hand, extending the wage supplement until March 2021 will avoid a spike in redundancies. The question is the extent to which government can sustain such massive expenditure to maintain these schemes until the economic devastation brought about by Covid-19 subsides.   

What will the recovery look like?
We hear a lot about the “new normal” and Covid-19 will leave a socio-economic impact that will extend for years. Work organisation, for example, remote working will increase, consumer behaviour will change, as in the shift to online purchasing. Recovery will vary among sectors and enterprises. Tourism, for example, may take a few years to reach pre-Covid levels of activity. This may affect Malta badly as our economy is more exposed to tourism-related activities than many other countries.

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