The Malta Independent 27 February 2021, Saturday

Government measures will encourage growth, not cost minimisation after March - Schembri

Albert Galea Sunday, 24 January 2021, 08:45 Last update: about 2 months ago

After the end of March, the government is planning to implement measures which encourage economic growth and operational improvement, rather than being limited to cost minimisation for businesses, Economy Minister Silvio Schembri told this newspaper in an interview.

Interviewed by The Malta Independent on Sunday, Schembri said that the measures implemented by the government over the past year in order to minimise costs for businesses will shift to measures which will encourage operational improvement as of the end of March.

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“The help must now be to increase growth and to guarantee that the operation continues to move forward. The thought of cost minimisation has to stop”, Schembri said.

Schembri was quizzed over various points pertaining to the government, the economy, and its response to the Covid-19 pandemic, which continues to be a present feature in everyday life.

A point which the government took heavy criticism for was its handling of the first reopening of the economy last summer. At that point with new cases at zero on a daily basis, the government took the decision to practically revert to full normality. This lasted till mid-July when several clusters emerged as a result of mass events. The number of new cases being found hasn’t decreased since then.

The question now is on how the government plans to handle the reopening of Malta’s economy when the time for it inevitably comes.

Schembri was asked this very question, to which he first started by noting that one must not forget that the pandemic was an unprecedented event which put a stop to all activity.

“This was something that we had never experienced globally, so we didn’t have a manual we could look to for guidance”, he explained.  As a result, he added, the government had to take decisions on a day-by-day basis and react to the circumstances as best they could.

Schembri fell back on the line consistently followed by the government, reminding that if the government had opted for a full lockdown, it would have resulted in a “catastrophe”, which would have left thousands unemployed and the work market decimated. He also noted calls to completely shut down Malta’s airport, saying that had the government opted to do this it would have resulted in the loss of essential supplies and the loss of important aviation slots too. Case in point, he said, was that Air Malta continued to fly to Rome twice a week to import, amongst other things, important medicine for cancer patients.

Schembri admitted that the bulk of the criticism that the government had faced was on the matter of mass events, but noted that if one looks at the decisions taken every day one can see that almost a year later Malta is a country which is living a relatively normal life when compared to other countries, whose people are locked at home “as if it’s a prison” and still have health systems which are collapsing.

He said that when considering that Malta has the lowest level of unemployment in the EU, then it means that the government’s economic measures have worked.

The major challenge now, Schembri continued, is from March onwards.

Going into this period, Schembri said that flexibility is key. An example of this, he said, is the changes to the Covid-19 wage supplement, and also the delay of the publication of the vouchers.

With regards to the latter, Schembri said that the initial plan was to publish the vouchers in mid-January, however given the increase in the number of cases, he said that he felt that it was not the moment to “give the message that mid-January should be a free-for-all” – even if, he said, the situation is still under control because the country’s hospitals are coping.

Asked about the vouchers scheme, the second round of which has been delayed, Schembri said that the plan is for them to be issued when bars and clubs are allowed to re-open, but at the same time noted that once both they and the health authorities are content, the system is ready to go and can be up and running within a few days.

He concluded that if one sees things from a wide perspective, then the government had “in the absolute majority managed to strike a balance” between health and the economy.

Government economic measures will encourage revenue generation, not cost minimisation after the end of March, but wage supplement may be extended - Schembri

The pandemic has no doubt left a seismic economic effect on the world. Continually revised economic forecasts by key stakeholders, such as the World Bank, have spoken of double-figure decreases to countries’ GDPs and of an impending recession. Schembri was asked how this global situation is likely to affect Malta.

“The fact that we have a diversified economy as a country helped us to be resilient. Yes, tourism is an important economic pillar, but it is not the only one”, he began.

There have been certain sectors where Malta has actually registered growth. Digital economy is one such sector, while certain high-value added manufacturing industries – such as the pharmaceutical and security printing (which deals with the printing of currency amongst other things) industries – have also done well.

Schembri noted how the government had issued a written guarantee to one particular pharmaceutical company in order to ensure that they would be considered as essential workers in the case of any lockdown – a guarantee which allowed them to apply for, and win, an international tender. This meant that the company has now employed another 180 people, the Economy Minister pointed out. The same such guarantee had resulted in the same exact outcome in the case of a security printing company, he said, which allowed them to employ another 50 people.

This is not to say that all industries had success during the pandemic. “Tourism suffered without a doubt, as did the entertainment and mass event industry; but the fact that our country has a diversified economy means that we had enough of a cushion to be able to absorb the shocks”, Schembri said.

Asked about how many companies had shut up shop as a result of the pandemic, Schembri said that the amount was minimal. He said that with the liquidity measures implemented by the government, many companies which were facing difficulties had been saved. There were some companies which had structural problems before Covid-19, he said, and unfortunately the pandemic proved to be their death knell.

“The tourism sector of course has needed a lot of help, but that help cannot remain simply in the form of cutting the expense of salaries. The help must now be to increase growth and to guarantee that the operation continues to move forward. The thought of cost minimisation has to stop. That has served its scope; now we need to go for operational measures which will look to generate revenue”, Schembri explained.

Elaborating on this, Schembri said that it doesn’t mean that as of 1 April, the government will revert to a situation where it’s as if there was no pandemic – but he said that the mindset needs to change from a self-preservation mode to that of a normal everyday life, which is based on investment in order to grow one’s operations.

Asked about the tourism sector, which MHRA President Tony Zahra told The Malta Business Weekly earlier this week will still be facing struggles throughout summer, in particular in this regard, Schembri said that discussions on things such as the wage supplement are still ongoing, and that – as the Prime Minister has already said – if the best use of the state’s resources is to extend the wage supplement further, then it will be extended.

“If the best way forward is to extend the wage supplement, then let it be so; but ideally – and this is our line of thought – measures from the end of March onwards should emphasise improving one’s operations so that we don’t go back to the same manner of doing things we had before the pandemic”, Schembri said.

He said that in the economic situation the country was in before the pandemic, one could make a profit by doing practically nothing. “This is now the time to stop and think about how we do things”, he added.

This also applies at a government level, he said. However, Schembri rejected suggestions that the government’s economic model was not a good one; “It’s so good that in the biggest economic crisis that the world has faced, it kept going. Had it not been a good model to follow, then the economy would have collapsed immediately.”

Things perhaps need to change internally at a micro-level, Schembri admitted, but the model itself does not need to be changed.

Political stability key to attracting foreign investment, Schembri says as he defends government credentials on new economic niches

Key parts of the country’s economy are the attraction of investment from abroad – what’s known as Foreign Direct Investment – and the creation of new economic niches.

Asked about the former point and how the pandemic has affected how much investment comes into the country from abroad, Schembri said that, surprisingly, there hadn’t been any major difference in this regard and that the appetite for investment remained very much present during the pandemic – to the point that there were around 50 direct investments in the country from abroad from March till the end of 2020.

He said that there are several reasons behind this. Firstly, the pandemic has brought challenges for companies which are based in Europe but have bases in Africa or Asia, and it has made them more inclined to move their operations closer to home.

“In this sense, Malta will benefit a lot due to its connectivity, which is something we need to work on again once the pandemic is over”, he said.

The government’s handling of the pandemic – both in terms of the health situation and in terms of the economic situation – is also a key part of attracting more business to the island, Schembri said, as is the political instability that the country has.

“Besides our tax system, our fluency in the English language, our workforce and our investment in technology, our political stability – the fact that an election is followed by a government which generally lasts a full five years in office – is a major attraction as well”, Schembri said.

He compared this with the situation in, for example, Italy – where an election is held practically every two years. He noted that such a scenario can never give peace of mind to an investor, as they can arrive in the country under a particular policy, and by the time they have set up, the government – and the said policy – may have changed.

Moving on to the creation of new economic niches, Schembri rejected criticism that the government hasn’t been particularly successful in this regard.

“Take blockchain for instance. This is a brand new technology which we started working on two years ago. If you looked at the gaming industry two years after it started, then you could say that it was a failure. If you look at it now, you can only say that it was a success”, he said.

He noted that what the government had done on blockchain was now being discussed to be implemented at EU level, and the framework used by the Maltese authorities was being adopted for use by BaFin – Germany’s financial services’ authority.

Turning to new economic niches that the government is looking to attract, Schembri said that the ‘Blockchain Island’ programme is still ongoing. The medical cannabis industry is another one which is reaching an interesting stage; one applicant has already been granted a license, and a “nice number” of companies are close to getting a license as well.

He added that there are other areas where the government isn’t looking at brand-new niches per se, but more at upgrading the industries that already exist.

The gaming industry is one such example. In 2018, the government launched a video game development strategy which, while brand new, would work hand-in-hand with the gaming industry in order to attract companies which actually develop video games.

He said that Malta already hosts an A-rated company, which would spend some 50 million for the development of one game, and that the country has also engaged with ESL – one of the leaders in the e-sports industry, whose finals get more viewership than the FIFA World Cup do. In this regard, Schembri said that video game development accounted for 0.1% of the country’s GDP and 200 jobs in 2018 – and that the target ten years from then is for it to account for 10% of the GDP and 3,000 jobs.

“One thing ties to another – hence creating an eco-system”, he explained. “Diversification is born out of this eco-system, and so when one sector of our economy suffers due to a crisis, then the others can make up for it.”

 

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