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Network News • 10-07-2022

Kicking the can down the road

Author: George Mangion - Senior Partner PKF Malta
Published on Malta independent: 10th July 2022

PKF has been active down the years to promote Malta overseas and make use of opportunities by visiting international business centres.

Other adventures included the vision to travel to the USA and meet business promoters in M.I.T and Silicon Valley to activate the concept of venture capital and business angels in Malta. As mentioned in the Bible, some seeds were sown on fertile land and gave fruit while others fell on barren rocks and withered.  With hindsight, Malta paid us lip service when PKF was instrumental to attract an internationally acclaimed US business accelerator willing to start an international hub for start-ups.

In contrast, Castille offered open arms when courting investors from Autobuses de Leon, Electrogas, a US Crane Currency Printing outfit, Vitals Health Care, Montenegro wind farms, Pilatus, Nemea & Sata Banks and Sadeen American University but PKF's initiative was surreptitiously given a miss. One hopes that better prospects await this sector of research and innovation now that the Abela administration has won the election with a watershed 39,400 vote majority. In the meantime, one cannot but laud Silvio Schembri, minister for the economy and industry on his pre-election roadmap to launch The Malta Economic Vision 2031.

This visionary document is based on various public consultations to reshape the country's economic model. At best it aims to achieve inclusive and sustainable growth for the long-term. It guides contributors by defining a Sustainable Economic Growth plan focused on delivering quality-of-life improvements and increased resilience. It encapsulates four sub sectors which are the quintessential building blocks of a holistic plan.

The essential catalysts in the Petri dish comprise High Quality Infrastructure and Investment, Education and Employment, Environment, High Standards of Accountability and Governance and Rule of Law. With some hubris concerning the economic recovery may have pushed Malta to dig deeper in the State coffers which caused it to borrow locally an extra €1.9bn to fund recovery of hospitality and other sectors while giving a cash stimulus to ailing companies. Still, there is no denying that reported Covid infections increased at an alarming rate once all health precautions were lifted, while youths mingle in their thousands blowing caution to the wind at MTA-sponsored song and dance festivals.

Many agree that while the MTA continuously strives to increase visitors by promoting an image of a fun-loving Ibiza-style atmosphere ---- with medieval Valletta now being dressed up as a wine-loving city with music blaring from bars beyond the midnight hour. But it is not all doom and gloom, as we nostalgically recall how the splurge in domestic demand fired the GDP with cash surpluses in the golden years  2015/2019 during the L'Aqwa Zmien moniker.

With hindsight, apologists remind us of Joseph Muscat's elusive Midas touch that succeeded to double GDP, find adequate supply of foreign workers and triple PA permits to the construction industry leading them to flood the island with tower cranes busy erecting concrete behemoths and new builds. This recovery was generously helped by a smart mix of sporadic liquidity oozing from the IIP scheme (selling passports by concessionaire Henley & Partners). All these factors fueled a spike in demand until scandals in anti-money laundering and sleaze led us to be unceremoniously tarnished with a broad brush and greylisted by the Financial Action Task Force. It was thanks to the good work of an enforcement team, led by the erstwhile Alfred Camilleri (permanent secretary at the Ministry of Finance), that fortuitously managed to get us off the list last month.

Back to the Economic Vision 2031 topic. It goes without saying that to achieve a broad-based recovery, companies and policymakers need to move with the same alacrity they used to respond to constraints imposed by Covid-19 and, in doing so, enable higher productivity growth, better jobs and expand exports. All the hubris suddenly disappeared and now food inflation and the high cost of renting are badly hitting the lower-income and pensioner cohorts. Many party apologists wax poetically about the affluence in a lucrative Budget 2022/3 (graced by a 1,000 promises in the PL manifesto) to join the digital and the Green revolution. Reality speaks now of the Ukrainian war.

All indicators point that our 10-year economic plan cannot flourish unless business leaders and policymakers solve current worker shortages. This can be partly resolved by weaning the red tape at Identity Malta when registering work permits for foreign workers and improving minimum wage rates offered to third country nationals. Definitely, the 2031 Economic Revival plan (unless radically revised) needs to take stock of the vastly changed economic indicators. Another worry is the temporary rationing of certain foodstuffs. Bargain supermarket Lidl has put a limit on the number of basic items customers can purchase, as importers warn the war in Ukraine is impacting supply chains. As the scarcity of sunflower oil, produced in Ukraine, is felt, currently supermarkets allow customers to buy only three one-litre bottles of cooking oil. It goes without saying, that the war in Ukraine has upset the price of wheat, cereals and animal feed.

The price of wheat has risen by almost 30% since the war broke out and 60% since last January. Wheat rose to $373 per tonne on the futures market, 30% higher than the $287 it closed at on 23 February, the day before the Russian invasion. The good news is that Finance minister Clyde Caruana is expected to allocate a further €200m over and above the first tranche of €200m earmarked as a Covid subsidy to offset inflation, fuel costs and supply chain disruptions.

In conclusion, although fatalism listed in this article will not help us overcome the post-Covid challenge, overconfidence in building a strong recovery, based on tourism schemes returning a larger number of cheap air ticket visitors is foolhardy. If, we kick the can down the road, it may delude us in thinking that the problem will go away or even better that challenges arising due to acute shortage of workers, spiralling inflation, a drop in exports and the rising number of infections from the pseudo Omicron strain will metaphorise into thin air.

Ideally we should all book a relaxing weekend holiday sipping Pina Colada cocktails on a chartered motor yacht. Please avoid switching on your smart phone.

Author: George Mangion - Senior Partner PKF Malta
Published on Malta independent: 10th July 2022
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