19 April 2006

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Business Today

Shuffling between two realities

There seem to be two perceptions of the mood in the business community; a negative one that is talked about by the individual operators and a positive one that is championed by government.
But for Parliamentary Secretary Edwin Vassallo government is not living on a different planet. Vassallo acknowledges that individual businesspersons or even particular sectors of the economy are feeling the pinch, especially with the high surcharge but he also insists that the macro view shows an economy that is growing.
“The economic cake is growing. But so have the number of people demanding a piece of that cake. Whether the cake is growing fast enough to allow us to give people a bigger portion is the challenge we face,” Vassallo says.
The Parliamentary secretary believes that government’s biggest problem is a communications one. Taking a leaf out of his family background in the retail trade, Vassallo says government needs to have good salesmen that can explain better why certain decisions are being taken.
Even the discord with the GRTU over the introduction of a hefty surcharge is a communication problem for Vassallo. Had Enemalta bureaucrats adopted an entrepreneurial spirit they would have had no problem in trusting the GRTU with their costings, Vassallo contends.

The Nationalist Party has been traditionally associated with the business class. It has this mantra of being a party that facilitates business and under whose administration the country saw a boom in commercial activity. But this notion seems to have deserted the PN of late with various people in business, including organisations like the GRTU and the MHRA heavily criticising government and blaming it for the problems businesses are facing. Where did it go wrong for the PN?
When one compares the Labour Party with the Nationalist Party, the PN remains the party that manages to create work. The PN remains an open party that encompasses within it the various fractions that make up society. The PN is and will remain better than the Labour Party in being able to instil trust in the business community which eventually leads to the creation of work.
But the PN has this inbuilt legacy that when in government, people expect it to perform at its height all the time. People continuously challenge the Nationalist government to excel more than it has. People have high expectations of the PN, something which they don’t have of the Labour Party.
People are comfortable to criticise a Nationalist government since they expect us to be better. The Labour Party does not have this legacy. Whatever happens, the Labour Party is not expected to perform better than its best.
My secretariat is currently preparing its work schedule for the coming year commencing this June and our main focus is to make government more open to business. We wish to see Malta a five star business location. People have to feel they can do business in Malta, where they can initiate a business idea, even if they move on to other European countries eventually.

But what is happening today with this barrage of criticism from traditionally PN-leaning quarters?
This is not a problem because when people criticise us it means they are expecting us to deliver and they know we can deliver. If these people were dealing with someone who does not listen, keeps his eyes closed or simply does not talk, they wouldn’t be criticising us so heavily. The barrage of criticism does not discourage me. I would start worrying if there wasn’t criticism because it means that these people have lost heart.
Different organisations have their own priorities related to their line of business but government also has its priorities. Our job is to find the right balance and we are finding that balance.
The PN, however, remains better than the MLP. It is a party for businessmen because it does not discourage entrepreneurs from going about their commercial activity. On the contrary, a Labour government would immediately send the wrong vibe to the business community. What has happened of late, given the string of victories the Labour Party had in local elections, is that people in business started feeling jittery about a prospective Labour victory in the next general election. After all, socialists will remain socialists.

The members of the Malta Hotels and Restaurants Association do not seem to have felt the jitters you are mentioning. Only last week they passed a strongly worded motion criticising government’s tourism policies and demanding quick decisive action…
That is part of the learning curve we have to go through. We are not a party that wants everyone to praise government. Criticism is healthy in a democracy. Government is suggesting a way forward in tourism while some in the industry are demanding a more aggressive approach. Government has opened its hands but before taking up the suggestions of the MHRA to open them up further, government has to see what it can afford and what other priorities it has.
Given the different way of doing business today and the faster and wider communication links we have to learn how to adapt to the situation. This is why we need to be a country open to business. We have to seek how to expand our consumer base whether, domestic consumers or foreign.
Commercial activity has increased but the next challenge is to increase the consumer base. The number of retail shops, leisure outlets and restaurants has increased. In this context I can understand the commercial argument made by the MHRA and the GRTU because we need much more consumers to sustain the increased commercial activity.
I look at their criticism in a positive way because it means commercial activity has increased.
The Labour Party was critical because hotels were closing down but they declined to comment on the number of new hotel ventures.

But it is a fact that a number of hotels have closed down…
It is true. But the number of commercial activities catering for different types of tourists have increased.
In the March local elections the PN experienced its fourth electoral defeat in a row and the Prime Minister said government was prepared to listen more to the people. When your government says it is prepared to listen, what does it mean? Does it mean you were cut off from reality, from the people, from what businesspersons are experiencing?
I wouldn’t say we were cut off from reality. As politicians we have to be able to explain better the choices government is making and why. We need to be among the people more than we have been until now to explain why certain decisions are being taken. We need to be understood better but I don’t say this as if we have the monopoly on what is right.
As a government we have a right to take decisions but also the obligation to do so. A number of important decisions are being taken on different fronts but if we do not have the ability to ‘sell’ them we would not be getting to the people. It is as if we have a big shop that is fully stocked but we do not have enough salesmen to entice people to buy those products which many a time might be new on the market.
I need to be closer to the people to be able to explain what decisions are being taken at government level. The politician needs to be a good salesman.

You are reducing the disenchantment to a problem of communication or marketing. The GRTU is accusing government of lacking transparency when it introduced the surcharge on utility bills. The GRTU laments that when it had asked to see the costings of Enemalta, the minister responsible asked them to sign a non-disclosure agreement when Enemalta should have been obliged to present its costings to the Resources Authority given it is a monopoly. The GRTU represents the vast majority of small businesses and self employed individuals who have been badly hit by the surcharge. Is this problem solely a communication problem?
It is a problem of communication and marketing. I believe the work done by Enemalta was correct and the research conducted was done properly. If we are less suspicious of each other, if we are more trusting of one another and we embrace a more entrepreneurial spirit, the problem would have fizzled out. But the bureaucrat is still suspicious and finds it hard to trust even if the studies at hand clearly pointed out that the surcharge was the only way to make up for the rising price of oil. Better communication between Enemalta and the constituted bodies would have avoided this problem.

But the surcharge is a reality. It is a major cost on businesses…
I know it is a reality. This is not a question of marketing but finding the best way to shoulder that cost. We are paying for what we are buying and we are purchasing fuel which is necessary to generate electricity. We are paying for what we are using and utilising the ‘machine’ we have at present. If that machine is leaking or not running efficiently, that is the machine we have. Should we change that machine, change all of Enemalta? Let’s do it but we are paying for what we are getting.
I was one of those who preferred the introduction of a surcharge rather than raising taxes so that people become more conscious of the electricity and water they are using. Had we financed the additional fuel costs through our taxes the impact of rising fuel prices would have remained hidden from the people, or rather unknown to them.

The fact that the surcharge changes every two months and people receive their utility bills every two months as well is creating an unstable environment where people are fearful of spending. When cabinet discussed the introduction of a surcharge, did it consider the psychological impact such a measure could have had on people?
We did understand this problem so much so that in the last budget no new taxes were introduced or increased. We knew that the surcharge on its own was hard enough on people.
Despite the introduction of the surcharge, however, the economy still grew and is expected to continue growing. The price of fuel is like a massive engine break on the performance of our economy but it still managed to grow. Whether that growth is coming from EU funds which went into road investments the fact remains that our economy grew.

People in business, the small and medium-sized companies do not share this impression of an economy that is performing well. It is as if you are on two different planets. Who is saying the truth?
We are not on two different planets but there are two truths; possibly in conflict with one another but they are two realities. I cannot deny that small enterprises are feeling the pinch. When my mother comes up to me with the utility bill for the family shop we own, that is a fact. I know what it means to try and mitigate the additional cost because of the surcharge. But as a parliamentary secretary I get an overall economic view which shows that the little growth of different individual businesses is contributing to the overall growth of the economy.
The economic cake is growing. But so have the number of people demanding a piece of that cake. Whether the cake is growing fast enough to allow us to give people a bigger portion is the challenge we face.

Are you confident that this government can stimulate the economy to grow?
I am very confident and this will be the choice we will be presenting the people with. In choosing between a prospective Labour government and a Nationalist one, I am confident that it is the PN that can lead this country to a vision whereby every citizen can live his or her life to the full. But to achieve this, our commercial activity needs to strengthen and grow. The vein that carries the blood to this country’s heart is commercial activity and it needs to be strengthened.
The surcharge does not dishearten me because it resembles the impact a person experiences when hit by a car. The biggest problem I see is that we are still a closed nation that does not look at commercial activity as the main motor of the country. How ready are we to open up to business? If the people at Enemalta, the bureaucrats were more entrepreneurial in spirit, maybe the method they adopted to ‘sell’ the exercise that justified the surcharge would have been different.
It is becoming customary for politicians to shift the blame for the various problems that crop up on to the bureaucrats. MEPA is a classic example and has become every politician’s favourite punching bag. Aren’t politicians there to decide?
Politicians are there to decide and I do not want to blame bureaucrats. But we have to evaluate whether we want to go back to the time when the politician decided everything himself. I agree with that type of system.
I believe that the politician needs to know what is happening inside out. The organisation has to be flat rather than vertical with easy access to the politician. This is why my office doors are always open because I try and make it easy for people to have access to me.
I believe in the hands on approach to politics whereby the politician can take immediate action and decide things in the quickest time possible.
But given our negative past experience of politicians who took every decision themselves, Eddie Fenech Adami had wanted a system that created a new space between politicians and the executive. This is the philosophy that led to the creation of different authorities and levels of bureaucracy.
I personally prefer the system where the politician is the factotum of everything. It allows the politician to know exactly what is happening and be with his feet on the ground.

At the beginning of the year the Prime Minister set up the Better Regulation Unit in conjunction with the GRTU to review legislation and trim bureaucracy where necessary. Is it functioning?
The unit is collecting information from the different ministries and asking them to identify procedures they can do without. The Prime Minister now has a mechanism to trim bureaucracy with. But there is also another level of action. At cabinet level we are scrutinising new regulations and procedures and literally aborting those that will shackle business before they even become law. Cabinet is acting like a salva vita, stopping new measures proposed by bureaucrats before they are allowed to shock the people.

What has become of the Ta’ Qali crafts village project?
From this project I hope that we learnt some valuable experiences. The problems that arose were primarily caused because we wanted to develop the area giving current tenants a say on the plans and the right of first refusal. Not even SmartCity will be built in that way because government is currently negotiating with current tenants at Ricasoli so that these will move out before the area passes on to the developers.
At Ta’ Qali we are currently considering tapping EU funds to develop the road infrastructure and the common areas given the approximate cost of around seven million to complete. We are also in the phase of issuing tenders.

Government is currently considering the best ways to spend the EU budgetary allocation for 2007-2013. In terms of small and medium enterprises, and the self employed are you considering particular projects for EU funding?
For SMEs the projects that would really help are those that improve the country’s general infrastructure. We need to improve our product and be a place where it is comfortable for anybody to business.

Is cabinet on the same wavelength?
Yes, including the Prime Minister. But a problem we all face is the way society has changed; where individuals are self-centred and few people bother to think of what the common good is.

Edwin Vassallo was interviewed by Kurt Sansone

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