Economists warn us that the pandemic had led to budget reallocations, with immediate financial support directed towards pandemic relief for expensive health products and saving unproductive jobs.
The minister in charge had openly boasted that the millions defrayed have saved over 100,000 jobs, practically half the working population. The question that follows is whether such largesse could have been audited and the amount so saved, be allocated to long-term innovation projects.
Certainly, saving jobs was a top priority for Castille, leading to an agreement with the unions of non-state employees on a generous furlough scheme. The accent was on saving jobs at all costs so the borrowed EU funds for job regeneration did come very handy. Yet, nobody questioned whether this policy had the unfortunate negative effect of condoning unproductive private jobs during the two years of Covid. Nobody reflected that the private sector could be starved from funds for innovation. It's easy to forget how, during the pandemic, exports -especially in tourism and manufacturing - plummeted, potentially affecting sectors vital to the original 10-year innovation plan (running until 2031), leading to delays in projects and investment.
This underscored the importance of sustainability and resilience, with the EU post-pandemic recovery NGEU funds prompting a stronger focus on green technologies and sustainable practices.
Many authors had taken the trouble to make the government conscious that the pandemic highlighted the risks associated with reduced global supply chains, leading Malta to focus more on building local capacities and fostering regional collaborations within the EU.
In fact, Research and Development priorities have been shifted to a lower importance and as a consequence not many multinationals walked the red carpet at Gudja arrivals. Certainly, the top priority was to address immediate health concerns and pandemic-related challenges in crowded hospitals and clinics. However, even today, the long-term goal of increasing R&D investment remains sacrosanct.
Knee jerk reactions to solving under investment in R&D has led to a perceived drop in the manufacturing database. Regrettably, our expense on R&D is the lowest in Europe. Despite such challenges, the pandemic created new opportunities for innovation, particularly in areas like healthcare, digital services and supply chain management.
Malta's 10-year plan did not sufficiently capitalise on these emerging opportunities to drive growth in the post-pandemic era. One important sector that was given lip service during the pandemic was the opportunity to replace burnt or substandard underground electricity cables. During those two years, traffic in major roads slowed down considerably but did we avail ourselves to enhanced initiatives in replacing underground cables?
The main concern was securing health levels and making sure redundancies never reach epic proportions. With this mindset, Malta's infrastructure maintenance, including the replacement of broken or substandard underground electricity cables, did face challenges due to restrictions, resource allocation, and the need to prioritise urgent pandemic health-related concerns in hospitals.
However, Enemalta, the national energy provider, did continue its upgrades at a snail pace such as to ensure the stability and reliability of the electricity grid. There were no reported power cuts during the pandemic (perhaps due to decreased demand).
A recent NAO study revealed that over the past decade, Enemalta consistently failed to fully utilise its allocated budget each year for upgrading faulty substations and replacing worn-out underground cables. Prior to the 8th June election, the energy minister calmed the faithful promising a good service by state engineers toiling in searing heat digging road surfaces. This resulted in replacing over 70 kilometres of underground cable (out of a network reaching 1,700 kilometres).
Still outages reoccurred in summer and in a kamikaze move, Enemalta hired 24 second-hand diesel generators for three years to buttress power supply. Despite ongoing investments, the grid struggled to cope with increased demand from burgeoning population growth. A total of €55m was allocated to Enemalta for improvements in 2024, with substantial funding sourced from the European Union. However, a recent ad hoc NAO's study noted concerns about under-utilisation by Enemalta of annual budgeted allocations. Many businesses, especially those in retail, hospitality and manufacturing, experienced significant operational disruptions.
Power outages halted production lines, interrupted services, and led to financial losses due to reduced productivity and increased operational costs. This was especially critical for industries that rely on continuous power, such as data centres, gaming companies, hotels and manufacturing plants. Small and medium enterprises (SMEs), which form the backbone of Malta's economy, were disproportionately affected.
Many smaller businesses do not have the resources to invest in back-up power solutions, leading to complete shutdowns during outages. This resulted in lost revenue and, in some cases, long-term financial instability. Frequent power outages led to a decline in consumer confidence and fuelled speculation of price gouging.
With businesses closed or operating at reduced capacity, and concerns over further outages, consumers were less likely to engage in enhanced retail or leisure activities, further straining the economy. Power outages impacted hotels, restaurants, and tourist attractions, resulting in a decline in the quality of the visitor experience. This questioned Malta's reputation as a safe and affordable tourist destination.
Consumers also faced increased costs, such as food spoilage due to lack of refrigeration and the need to purchase alternative power solutions like generators, adding to the economic burden. As a major contributor to Malta's economy, the tourism sector was hit hard. This, in turn, may have affected the broader economic outlook and Malta's ability to attract high quality visitors.
Enemalta's delayed response, culminating in slow grid upgrades, is palpable. Post pandemic, one may reflect with hindsight that the cost of circa €2bn to save unproductive jobs came with a stark reminder that we lost opportunities to upgrade the island's assets particularly mothballing an overhyped mass transit scheme.
Surely, in pandemic mode, the regular compensation of 100,000 furlough workers and a full complement of civil servants lovingly maintained the status quo. Prior to the 2022 elections, most voters were satiated, yet, sadly little innovation planning had occurred.
George M. Mangion is a senior partner at PKF Malta
gmm@pkfmalta.com