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Network News • 21-10-2021

Kicking the can down the road

Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 21st October 2021

PKF has been active down the years to promote Malta overseas and did make use of opportunities pre-Covid to visit international business centres (see picture of meeting in Zurich with the A.I. and CV labs sector). 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.

In contrast, Castille showed open arms for attracting Electrogas, a US Crane Currency Printing outfit, Vitals Health Care, Montenegro wind farms, Pilatus, Nemea and Sata banks, Sadeen American University, etc but PKF’s initiative was given a miss.

One hopes that better prospects await this sector of research and innovation when the election is over and the government will allocate sufficient funds to nurture it.  In the meantime, one cannot but laud the hon Silvio Schembri minister for the economy and industry on his drive to launch “The Malta Economic Vision 2031”.

This visionary roadmap 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 identifies five pillars of wisdom which make up essential ingredients for a holistic plan. The energetic minister is hopeful that the non-partisan document will lead us to Nirvana in 2031 - one that embraces a fail-safe formula to trailblaze a future record-breaking journey.

Brave words are used by Mimcol which is piloting this project. In a nutshell, it waxes lyrical about this panacea which will jettison us from a post-pandemic crisis and morph us smoothly into a dynamic and economically strong, socially inclusive, and environmentally conscious nation. One augurs Mimcol well in its quest to draft this latter-day Magna Carta. It guides contributors by defining a Sustainable Economic Growth plan being one 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.

The unprecedented disruption caused by the virus continues to wreak havoc on economies across the globe.  While some hubris concerning the economic damage may have pushed Malta to dig deeper in the State coffers which as a consequence it borrowed €1.5 billion to fund recovery of hospitality sector while giving a cash stimulus to ailing companies.

Still, there is no denying that as the health and human toll slows and a milder Covid pandemic ensues this winter, the economic damage is evident. Many agree that it represents the largest economic shock the world has experienced in decades. In Malta, nostalgically we recall how the splurge in domestic demand that fired the surplus years during the “L’Aqwa Zmien” moniker has suddenly disappeared and badly hit the lower-income and pensioners cohorts.

A recent survey by EY shows a negative picture for Malta in its quest to attract FDI. Quoting, Ronald Attard, EY’s Country Managing Partner, he said that the results of the survey come as a warning.  In his words, he remarked that a significant part of international investors interviewed are telling us that Malta is currently unattractive for Foreign Direct Investment.

Malta’s greylisting played a part in shaping this perception when last June, Malta was put on the grey list of the anti-money laundering watchdog - the Financial Action Task Force (FATF). Back to the Economic Vision 2031 topic, it goes without saying that to achieve a broad-based recovery, companies and policy makers will 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 expansive consumption.

Many party apologists wax poetically about the promises in Budget 2022 to join the digital and the Green revolution. Most predict the incidence of 5G broadband will increase productivity in the private sector to be matched by better working conditions. Post Budget commentaries all point that the ten-year Economic plan cannot flourish unless business leaders and policy makers solve current worker shortages.

This can be resolved by weaning the red tape at Identity Malta when registering work permits for foreign workers. With hindsight, apologists remind us of Joseph Muscat’s elusive Midas touch that temporarily turned pre-2013 annual government deficits into respectable surpluses. This recovery was attributed by economists to have resulted due to a smart mix of sporadic liquidity oozing from the IIP scheme (selling passports by Henley & Partners), a rampant construction spree and an uptick in foreign workers. All three factors fuelled a spike in demand.

Definitely, the 2031 Economic Revival plan cannot risk taking the same route. Certainly, enabling a sustained rebound in consumer spending will require stepping up retraining opportunities for workers displaced by the ailing hospitality, Air Malta, retail and English language sectors.

It is advisable to avoid a two-speed recovery - one that widens inequality while delivering tepid growth. Naturally, probity guides us to start owning our €8 billion debt, while concurrently have spare cash to fund education, healthcare, national security, welfare benefits.

In conclusion, although fatalism will not help us overcome the Covid challenge, overconfidence during this election mode must also be kept in check.  If we kick the can down the road, it may delude us in thinking that the problem will go away or even better that an enlightened electorate will choose a redeemer to navigate our ship of state.

Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 21st October 2021
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