This is not a heart warming prognosis given that the expected USA/China accord towards imposed trade tariffs is only a sweetener and may not resolve the already slack pace of global trade. The EIU sees a fairly sharp slowdown in America, from 2.3% to 1.7%, as trade tensions continue to depress trade and investment. A continuation of the global slowdown in manufacturing will also drag down growth worldwide.
It goes without saying that a steam roller attitude towards a no-deal Brexit could make matters worse for Britain and its trading partners. Back to Malta we also have our own home-grown troubles. In his year-end speech, President George Vella appealed to the nation to make an effort to overcome the challenges that came to a head during the final months of 2019. In his words, he said: "We must use all the tools of democracy to make our way from the turmoil we are going through to better times."
The new year, he said, could not carry over problems from the previous year. One may add to this plea a call by MEPs who recently overwhelmingly backed a resolution in Brussels against Malta's rule of law situation. They pointed to the unsatisfactory progress regarding the investigation into Daphne Caruana Galizia's murder and disagreed with Prime Minister Joseph Muscat's decision to resign but stay in office for six weeks.
The motion was overwhelmingly supported by 581 votes and opposed by 26, with 83 abstaining. The reputational damage to the island as a financial domicile is palpable. As they say - it does not rain - it pours. The damage is exacerbated by the forced closure of three local banks. These were small private banks - Nemea, Satabank and an Iranian owned bank, Pilatus.
The recent reprimand on Bank of Valletta by the ECB over AML and governance issues did send shock waves, because this is a major bank. Since 2013, it is run by a chairman appointed by the government (the latter being its largest shareholder). The anointed chairman was the ex-managing director of RSM -the firm auditing the Labour Party. All these factors have taken their toll on the property market where already a number of cancellations were rumoured in the luxury sector.
Add this to the cold blast of negative publicity following the disclosure of secret Panama companies in 2015 registered by Nexia BT (representing a disgraced Mossack Fonseca). Angry protest groups have taken to the streets in the run-up to Christmas, baying for justice. The macabre assassination of Daphne Caruana Galizia is an attack on democracy - she wielded a poison pen in a regular blog which specialized in exposing financial crime and corruption in high places.
Another scandal of international scale concerns the use of shell companies in Malta to shield dubious billionaires in their drive to avail themselves of the favourable tax regime. A particular case involves an African princess of the dos Santos dynasty in a scheme valued at $2.2 billion by Forbes. The said princess is a dominant figure in industries such as diamonds, banking and telecommunications, usually with stakes in her own country's state corporations. Like her father José Eduardo dos Santos, who ruled Angola for 35 years, she stands accused of enriching the dos Santos dynasty at the expense of the nation.
The link with Malta was allegedly provided by Dr Buttigieg Scicluna, an ex ambassador appointed by the previous administration. He has been listed as a director on several other related firms. This story and others mentioned above have tarnished Malta and many observers point out to a concerted effort by the next prime minister to undertake a root and branch reform - palliatives are useless. Addressing the nation, caretaker PM Joseph Muscat acknowledged that the country "now needs to get back on track".
International rating agencies confirm economic fundamentals are strong so readers may sense a dichotomy, taken in the context of a country under Muscat proved to be the fastest growing economy in EU. The bone of contention is that Muscat decided not to resign at the same date as the chief of staff on 26 November but prolong his stay by six weeks ostensibly to oversee the election of a new incumbent. Vociferous civil society groups are accusing Castille of complicity in slowing down police effectiveness in the murder investigation. The recent arrest of Yorgen Fenech - as a person of interest (UBO of 17 Black, a UAE registered company, and Electrogas shareholder) having close links with the chief of staff at Castille (now also probed by police) has heightened the anger of the crowd fearing collusion. Prof. Azzopardi, a university dean, was quick to praise the role of the civil society, saying they were a key "source and resource" that would help Malta to get through the current political crisis. Such unrest has climaxed during the months of November and December and as can be expected it negatively affected domestic business.
To exacerbate matters, there have been sudden and unannounced power blackouts. Enemalta (the state-owned utility) promptly blamed such shortages on ships' anchors damaging the Sicily/Malta submarine electrical cable. Moving on, one notes how Abigail Mamo, CEO of Malta's Small and Medium Sized Enteprises said that the chamber received calls from restaurants, retailers, grocers and hairdressers complaining that premises were unable to trade after damage to electronic equipment.
Other worries concern poor trade during Black Friday. Restaurants and entertainment centres also complained on the rate that wholesale prices of food have risen at more than double the average rate of the EU over the last decade. This creeping inflation was a silent one, with a rise of 2.9% in Malta. When one digs deeper, one discovers that restaurant services and take-aways registered an increase in costs of 4.65%. Eurostat figures revealed that in 2018, the average price of food in Malta was 12% higher than the EU average. Not a moment too soon, MHRA last year commissioned a scientific survey among 64 restaurant owners sponsored by a bank. Inter alia, it discovered that over five years has seen a proliferation of 343 restaurants licensed in every corner of this tiny island.
Quoting this survey, participants reported varying results, with nearly half saying they had declining revenues when compared to the previous winter. In conclusion, stakeholders must unite to help government start a portfolio reshuffle including chiefs in major state institution. Only thus, can we consolidate checks and balances in a concerted drive to strengthen the three pillars of governance, rule of law and democracy.
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George Mangion is a senior partner of an audit and consultancy firm PKF, and has over 25 years' experience in accounting, taxation, financial and consultancy services.