Productivity matters

Productivity matters greatly for the wellbeing of every person in Malta. It is key to supporting high quality and rewarding jobs, and funding public services. Unlocking Malta’s productivity potential will help build a stronger more resilient economy that delivers inclusive and sustainable growth.

On February 22, the National Productivity Board launched the National Productivity Report 2021. The report, entitled Digital Malta, focuses on the role of the digital transformation as a tool that can foster productivity gains leading to improved economic outcomes and to a higher quality of life. The Report presents the outcomes of Digital Transformation Readiness Index that was rolled-out amongst a representative sample of Maltese firms to gauge their readiness to implement and reap the benefits of transformation.

The Index is aimed at shedding light on the micro foundations of digital transformation and firm readiness through twenty-two indicators across five main dimensions being governance & leadership, people & culture, capacity & capability, innovation, and technology. The results highlight very specific gaps in Malta’s digital ecosystem as well as in the readiness of companies across sectors, particularly the low-productivity ones, to truly embrace and internalise digital transformation. Based on the results, the report presents a holistic policy framework to support a digital Malta which will enable the country to achieve higher productivity. In addition, twenty-five specific recommendations are put forward across five enabling factors being talent & skills, research & innovation, financing & incentives, infrastructure & security, and policy & governance.

Despite Malta’s strong and resilient economic performance over the past few years, its productivity performance unmasks several structural economic challenges the country and specifically non-service-based sectors are facing. Malta has successfully steered its economy towards service-based sectors. This has led to the formation of two main sectoral-based clusters. The first cluster, represented by the gambling, information & communication, and other service-based sectors, presents higher-than-average productivity which generated a high-level of value-added with a leaner workforce. In contrast, the second cluster of more labour-intensive sectors has failed to generate high levels of productivity. Even when benchmarked against European countries, Malta’s non-service-based sectors are losing ground compared to other European countries highlighting reduced competitiveness and slower productivity gains. This has an impact on Malta’s national productivity and economic outcomes. Various other economic challenges exist that are structural in nature including unfavourable demographics, low educational outcomes, and fragmented ecosystems. Increasing productivity is the only way to maintain income growth and access to essential goods and services. Since the first industrial revolution, the introduction of new technologies has contributed to higher productivity in firms and in the economy. On this basis, the development and incorporation of new technologies into production processes is essential for growth.

There is no doubt that digital transformation is a key policy goal across many countries including the European Union and Malta as COVID has accelerated the push towards digital transformation. The digital agenda strongly promoted by the EU, supported by a clear strategy and generous funding mechanisms, provides a strong framework within which Malta can operate; membership of the envisaged Digital Single Market will also strengthen Malta’s competitive position. Malta’s digital readiness places it among the front-runners within the EU – Malta performed above the EU average across all five dimensions of the Commission’s Digital Economy and Society Index (DESI) in 2020 and ranked 5^th out of the 27 EU Member States. With a strong policy vision, supported by an investment package of the European Union, particularly the Resilience and Recovery Fund, Malta is well-placed to capitalise and accelerate digital transformation.

Improving productivity is not only an important economic goal, but it can improve the quality of jobs and lead to an improved quality of life. It remains an important concept that needs to be understood and analysed properly. To this end, it is also being recommended that apart from this annual report, the National Productivity Board establishes a research programme and collates supporting datasets to assess and benchmark the driving factors behind productivity differentials between firms, and particularly Maltese firms, to build a broad evidence-base for further enterprise policy intervention. One such stream of research will be to further refine the proposed Digital Transformation Readiness Index and to have an annual report which can benchmark and trace sectoral developments towards digital transformation. Organisations, sectors, and countries are reimagining, reshaping, and retooling for a new era driven by fast technology developments which are impacting our daily lives, employment, consumption behaviours, business models and production processes. Embracing digital transformation has become a matter of survival and if harnessed fully, it can lead to productivity enhancements, improved growth and employment opportunities and better economic outcomes that ultimately can lead to improved quality of life.