Joseph Muscat (see picture) last week was present at a late Friday's night meeting at Castille to present a post COVID recovery plan to his former legal consultant (now Prime Minister). This plan includes a suite of measures described as "a mini-budget" that if adopted in its entirety can be rolled out in stages over the coming months.
Many were curious to know the content of this silver bullet which potentially could save us from the pangs of a dreadful pandemic. The plan is rolled out on the basis of four scenarios and gives a prognosis which is well structured. In any case, among other things, the bearer of the Invictus tattoo is also advising Castille to announce a tax holiday on property sales and purchases intended to stimulate the housing market. On a positive note, Muscat's report predicts that the Maltese economy will go back into positive territory "in all four" scenarios. As can be expected, in the relapse scenario there will be no recovery by 2021 from the loss suffered this year. This is a sober destiny for a small island, which under the baton of Joseph Muscat up to last Christmas, was hailed as the best performing economy in the Eurozone. So, do we need Muscat's magic touch to rekindle our fortunes, once a vaccine is produced and be accessible globally?
Certainly, the lure of Keynesian economics (so loved by Muscat) to increase demand is a panacea for growth. It supports an expansionary fiscal policy. Ideally, government should start spending on infrastructure, create a stimulus (for example, lower taxes on food consumption and so on and introduce a living wage) and kick-start the Gozo tunnel with a metro link to the mainland. These will certainly drive aggregate demand based on a controlled deficit spending and loans from outside sources. It should nurture the four factors of production.
At this junction, it comes to mind the ambitious agreement entered into with China. The agreement was signed by Foreign Affairs Minister Carmelo Abela in the presence of ex-Prime Minister Joseph Muscat and He Lifeng, the chairman of the Commission for National Development and Reforms. This agreement will be providing a framework for future investments, projects and cooperation in commerce, tourism and financial services between the two countries. Malta and Italy are among the first European states with which China has made such an agreement. Critics said this was no milestone. It was a renewal of a previous one signed five years ago and encapsulates the wishes of China in its unique policy to trade and negotiate more business with other countries. Party apologists laud the historical trade agreement signed in Shanghai, a city that since the 14th century has developed into a world financial centre and now boasts of the largest container port in Asia. Malta and China agreed to strengthen bilateral cooperation in both banking and insurance, and from the China side the MoU encourages Chinese financial institutions, namely banks, insurances companies and companies operating in the Fintech sector, to establish a branch in Malta. Such an expansion in the banking sector by Chinese investors has already been functioning successfully in countries including Ireland and Luxembourg. So, Malta can think big and sharpen its tools to reform its banking infrastructure.
Other aspects, where collaboration with China can flourish, is in the logistics sector. So far, it has acted as a transportation hub and a growing intersection between East and West. Other areas to watch is blockchain, aviation, logistics, innovation and artificial intelligence where Malta started to be seen wanting to jump on the bandwagon of these technologies. Malta has often remarked positively that its vision is to embrace cutting edge technology, with Malta Enterprise taking a proactive role.
Back to the China connection and its proclaimed policy of "one belt, one road" as this comes at an opportune time when China is slowly recovering from the Coronavirus crisis and its factories are gathering momentum. It continues to invest its own version of Silicon Valley in Shenzhen located near the Pearl river delta. At this technical hub, China is pouring millions to lure talented persons to team up as start-ups aided with venture capital and subsidized laboratories looking into cutting edge robotics, AI and related technologies. Be that as it may, post pandemic Malta needs all the financial help it can get to rebuild its economy, regenerate GDP and start repaying debts.
Malta's economy has previously tasted the sweet aroma of full employment, with average salaries going higher and the quality standards of living gradually percolating to the lower echelons of society. So, it is interesting to give a little background on China's ongoing initiative to expand trade beyond its borders.
China's policy over the past centuries helped to establish the Silk Road, a network of trade routes that linked China to Central Asia and the Arab world. In 2013, China's president, Xi Jinping (see picture), proposed a plan to launch a modern equivalent, creating a network of railways, roads, pipelines and utility grids that would link China and Central Asia, West Asia, and parts of South Asia. This initiative aims to create the world's largest platform for economic cooperation, including policy coordination, trade and financing collaboration and social and cultural co-operation. To revive trade, President Xi Jinping allocated a massive sum of $900bn to fund a global initiative and one hopes that this treasure chest will be generating a positive multiplayer effect in a number of countries. In Israel, we read about Hutchison Water International as one of two companies to have reached the final stage of the tender to build the Sorek B plant, set to be the largest desalination facility in the world, alongside IDE Technologies. Hutchison is owned by Hong Kong-based holding company CK Hutchison Holdings. Other deals are in the pipeline: one in Italy which last year signed a co-operation and trade agreement with China. This begs the question - how can Malta stand to gain in this initiative? Can Malta succeed to attract Chinese investment to set up an extension of their R&D initiative into Europe following the renewal of the MoU signed in Shanghai? This is not a pipe dream. Just consider how Malta attracted substantial investment through Shanghai Electric to convert the BWSC plant to run on modern technology using LNG. Welcome: the latest news by infrastructure minister Ian Borg that tenders will be issued for commencement of a 13km long subsea tunnel. This comes at a propitious time to revive employment lost in the hospitality sector. It is rumoured to be broadly linked to an island-wide metro mass transit system. The dawn of a new normality awaits us.
George Mangion is a senior partner of an audit and consultancy firm, and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have seen that PKF Malta has been instrumental in establishing many companies in Malta and placed PKF in the forefront as professional financial service providers on the Island.