A tale of two uncertainties
In the lead up to Maltas referendum on EU membership, Finance
Minister John Dalli speaks about the issues of uncertainty that were
affecting the Maltese economy at the time:
He explained, "The main issue affecting the economy is uncertainty,
which is affecting us on both the national and international level.
We all know what is happening around us on the international level,
which is creating levels of uncertainty both internally and on the international
market - the international market that buys our products and from which
our important tourism market is derived. This uncertainty has had and
will continue to have a negative effect on our economy, very much in
line with the toll it is taking on all other economies worldwide.
"This lack of certainty will also have a cascading effect, not
only through the first line reactions such as people being reluctant
to travel. But as tourism in general collapses and other economies suffer
negative economic effect, these economic effects will fuel further economic
negativity. Therefore we all hope that this negativity will be resolved
as soon as possible.
The other main issue affecting confidence levels is, however,
home grown and, of course, centres around the electorates indecision
Dalli explains, "I believe the decision the Maltese people will
be taking on 12 April will be a decision of whether on 13 April we will
be certain of where we are. The Prime Minister will sign the European
treaty on 16 April and the Maltese people and those interested in Malta
- be they investors, visitors or others - will know what the playing
field is, where Malta is going and by which rules Malta will be playing.
This scenario leads to certainty.
"Alternatively there will be uncertainty. We will have a situation
in which we will have a Prime Minister who will be absent in Athens
on 16 April. This will give a totally negative impression. Our credibility
will suffer greatly and Malta would become a country with which one
is wary of dealing with.
"In this scenario we are promised that we would have four more
years of negotiations with the European Union, on what we dont
know, but this process of negotiations is a guaranteed four years of
uncertainty. That is what the economy could be ultimately facing."
He adds, "The country could not handle any further uncertainty
and I believe this is why the effect on Malta, as proven by all economists,
if the country were to go Labours way, would be a deflation of
growth as investments disappear.
"In this scenario I believe that productivity would decrease as
jobs would not be forthcoming. In an economy, as everyone knows, it
isnt simply a question of creating new jobs, but it is a question
of creating jobs to replace redundancies that arise from time to time.
Like all natural things, enterprises die - factories and services companies
close and workers become redundant. Now imagine a situation in which
we are not even generating the jobs to maintain existing job levels.
So what is needed is job generation - not just the creation of new employment
but also the replacement of lost jobs."
of the obelisk
The Maltacom Groups annual figures for 2002 proved government
monoliths let out to play free can become profitable. Here Group CEO
Stephen Muscat speaks about where the Group is heading.
"We are now looking towards the future with great optimism. We
are not only a fixed-line operator now, but we also offer various telecommunications
services, and these have also expanded greatly within the last three
"Go Mobile, our mobile company, now has more than 113,000 subscribers.
Our ADSL operation Datastream has around 13,000 customers. There has
also been a shift in the mentality towards pre-paid fixed-line telephony
with our Easyine services. We have entered new markets which we had
not envisaged five years ago.
"The areas being exploited now are based on infrastructure, starting
with the network of underground fibre-optics, which should provide more
bandwidth for all users. The internet is also a major area in which
we expect greater activity, and our companies are now also writing computer
software and designing web pages."
The Maltacom group was then, and presumably still is, preparing to actively
participate in foreign markets with the onset of EU accession, that
should also see the threat of foreign companies laying foot on the island.
The group already attempted an international offer for a company operating
in the Channel Islands. After following closely the companys performance,
the local Channel authorities suspended the bidding and entered into
direct discussions with another company and sell it totally.
"We were also participating in the sale of part of an Icelandic
telecom company but this was suspended by the Icelandic government.
Currently we are analysing another company right now where to further
Two of Maltas foremost economists have a plan. Getting the
country back on its feet. The Malta Financial and Business Times spoke
to Prof Lino Briguglio and Gordon Cordina.
The countrys financial state is in ailing condition. Briguglio
and Cordina have outlined decade-long rants on government inefficiency,
investment attraction, welfare, and state expenditure. And they also
proposed solutions. The question is, who much will pour out from their
conference onto the decision-makers:
"Malta depends on exports, and we shall be the most export-dependant
country in Europe, so you have toe competitive," starts Prof Briguglio.
Cordina says theres no other road: "We spent ten years on
import-substitution which did not work, another ten of fiscal expansion.
The only road we are seeing is integration in the global economy, and
that was the real question for EU membership, to have access to a greater
Briguglio and Cordina are taking the EU debate a step further. Now that
Malta is practically in, the country has to look to achieve that competitive
edge in terms of supply and other competitors.
"We have a lot of pockets of exports," Briguglio says. "For
example, we depend a lot on printing material export. We produce currency
notes for a lot of countries, and we are also very competitive in the
field of plastics and electronics.
"So out of every Lm100 we sell, 50 per cent are purchased by residents
and the other half by non-residents, including tourists, and therefore
these are exports."
However, Cordina reminds, for every Lm50 sold to non-residents, the
island imports Lm60, "and that is where the real problem for the
Maltese islands lies. We cannot continue year in, year out with this
deficit until all our reserves are cleaned out. We have had capital
inflows such as privatisation, FDI, and re-investment finance this deficit,
but this is unsustainable. This is usually the beginning of the road
towards a financial crisis. We have to be more competitive in order
to resolve this balance of payments problem."
This is why we have to adhere to the Single European Currency, the economists
"We import and export a lot from and to Europe. If we have exchange
rate volatility that will contribute to further risks for business,
impeding business or increasing costs when hedging against that risk,"
"A concrete advantage is that when we shall adhere to the euro,
we will see our interest rates decrease by half to one percentage point.
Since the Maltese lira is a small currency, we always have to offer
an interest rate premiums. That premium can end once we enter the eurozone
to the benefit of our countrys producers.
"When the euro was created Maltese tourism suffered two blows.
One of them was that Spain, Portugal and Greece no longer had exchange
rate instability. The second was that their interest rates decreased
greatly compared to Maltas. So many of our hoteliers changed their
operative currency to euro, but they were also risking that if the euro
appreciates their repayments would increase, which is what is happening
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