This week it was all fanfare on Net TV, as it showed an ebullient Prime Minister proudly promoting Malta’s wares showcased at the prestigious Harrods department store in London. He also addressed a business breakfast attended by a number of British investors at the Libyan-owned Corinthia Hotel in an initiative taken by the High Commissioner in London who assembled 50 members of the Malta Business Network.
In his presentation, the Prime Minister touched on the island’s bullish trend in employment which, according to Net TV, has exceeded the expectations of other EU countries, not forgetting the stellar growth in Gross Domestic Product (GDP) in real terms registered last year. This was something to write home about. Citing the National Statistics Office, it is encouraging to see that last year’s GDP amounted to €6.4 billion, an increase of 4.4 per cent over 2010. More easy reading included a fall in gross value added, real exports edging up and real imports falling. Against the backdrop of a faster growth rate in the previous three quarters, official records show that GDP growth for the last quarter stood at 1.8 per cent at current prices and -0.1 per cent in real terms.
However, not everything in the garden is rosy as the property sector, which contributed €341 million in gross value added last year, is expected to face tougher times, particularly at the luxury end of the market. Dr Gonzi pointed out that, in 2008, the construction sector was responsible for 4.8 per cent of industry’s gross value added to the economy. This fell to four per cent last year after experiencing a consistent year-on-year decline. The construction industry is definitely facing a downturn. As an important contributor to the GDP, it employs a significant number of workers, both directly and indirectly, particularly as this is a small island where land is scarce and planning permission is always a hotly contested issue. In fact, construction contributed €219 million in value added to the economy last year, down from €245 million in 2008. The negative economic impact of a slowdown in the construction sector may be much higher if manufacturing sectors that depend on the industry are taken into account. However, the government is proactive and last year launched a new High Net Worth Individual scheme to attract non-residents who are expected to revive the upper end of the property market since they will be expected to buy more expensive properties, once the scheme becomes fully operational and properly marketed.
Naturally, the hot topic at the Business Network was the emerging business opportunities in Libya, a country that only a few months ago was in the throes of civil war and is now slowly rebuilding its broken infrastructure, apart from taking immediate steps to mobilise its damaged oil-producing/refining capabilities to return to pre-war levels.
Dr Gonzi was reported elsewhere in the media as saying that business in Libya can also be facilitated through Malta’s proximity and close and friendly relations with the country. He pointed out that Malta provided a good base for travelling to and from Libya, with easy flight connections, and that a good quality of life can be enjoyed here. He cautioned against any get-quick-rich schemes to exploit the nascent Libyan business opportunities, but said that, for serious investors, Libya would prove to be a dependable partner now opening up to the wider benefits of an Islamic democracy.
Another topic was the success registered in Malta in the face of the 2008 global economic downturn and the various intelligent schemes used to inject direct assistance to people who were struggling because of the recession, thus saving employment and ensuring a reasonable continuity of business. Such direct stimulus packages had been cleverly targeted to encourage retooling and general retraining of the workforce for alternative business opportunities. This has contributed to an unemployment rate that that is one of the lowest in Europe and has guaranteed the sustainability of the island’s exports without burdening the public sector with redundant workers taken on from the private industry, as has been the case in certain East European countries.
To some, Dr Gonzi may have sounded too much like a song-and-dance salesman when facing seasoned British industrialists who are labouring under the tough economic conditions prevailing in their country. We all know that the economy has shrunk and as a result it is now smaller than that of Brazil, while unemployment levels, particularly among the young, are high and match those of Spain. Perhaps the rosy picture painted by Dr Gonzi was too over the top and sounded more like empty rhetoric from a politician whose party has just suffered a drubbing in local council elections rather than a clinical assessment of the business factors one ought to consider when choosing Malta as a domicile for relocating a business. But it is not easy for an experienced politician like Dr Gonzi to give a clinical version of business factors, as advisers at the Treasury set his speeches. The editor of The Business Weekly reported that this was evident by the fact that there were no immediate questions after his speech, and it had to be a question from the Malta High Commissioner that started the flow of questions.
The Prime Minister was asked whether he would put a cap on the growth of the financial services sector, to which he replied that rather than capping growth, he wanted to ensure diversification and growth in other sectors. One innovative aspect of his government’s plan was the building of a life sciences park, similar to that of MIT in Massachusetts USA. This is to be commended and no stone should be left unturned in hiring a professional team of administrators to run this project (possibly not the usual coterie of politically-appointed acolytes). It came as no surprise that the audience was reminded of the grand project of SmartCity, begun in 2007, which promised to open the floodgates for ICT companies and make the island a mini Silicon Valley in the Med. This has progressed but not at the rate expected, due to the economic recession.
Asked about energy, Dr Gonzi said Malta’s plan was to have a power station extension run on oil that could “easily” be converted to gas. Speaking of energy, it is ironic that yesterday Ireland celebrated St Patrick’s Day with the announcement of a major oil discovery off the Irish coast. Malta is surrounded by the oil-drilling activities of its neighbours but there is not a drop of its own oil in sight. Many promises of joint oil exploration with Italy, Tunisia or Libya have not yet materialised and when asked about this at the London event, the Prime Minister handled the matter lightly. He was quoted as saying that, in his opinion, “the best oil well is the human brain”. He said oil wells could be emptied but investment in knowledge gets the best results. So while exploration would continue, “the government would remain focused on investing in human resources”. Naturally this is a conservative opinion that reflects the thinking of a prudent politician who is careful not to be accused of fanning the fires with speculative hopes at a time when the island is shortly expected to go to the polls.
To conclude, Dr Gonzi must be congratulated for his initiative to promote the island at such an important venue, where top investors were given the opportunity to assess our potential. It is true that they needed to ignore the political rhetoric and separate the wheat from the chaff, but in the end they must have appreciated the sound business orientation that Malta has to offer.
It is to be hoped that Malta Enterprise, as a focused development agency, takes more initiatives this year as this can be of immense help to Malta in overcoming the stiff competition when it comes to attracting scarce investment in the coming years. Let us hope Malta Enterprise succeeds in raising the bar.
Mr Mangion is a partner in PKF Malta an audit and business advisory firm
[email protected]