31 December 2003

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A tale of two uncertainties
In the lead up to Malta’s 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 electorate’s indecision on Europe.”
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 don’t 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 Labour’s 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 isn’t 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."

Revenge of the obelisk
The Maltacom Group’s 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 years.
"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 company’s 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 our investments."

Mission competitiveness
Two of Malta’s 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 country’s 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 there’s 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 market."
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 stipulate:
"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," Cordina says.
"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 country’s 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 Malta’s. 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 now."


Continues on page 3

Copyright © Newsworks Ltd. Malta.
Editor: Saviour Balzan
The Malta Financial & Business Times, Newsworks Ltd, Vjal ir-Rihan, San Gwann
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