George M. Mangion
Last week saw a smiling Dr Gonzi leading a select delegation to the World Investment conference held in La Baule, France. The two-day event offers a dynamic base for the joint consideration of issues relating to the attractiveness and competitiveness of Europe. To this end, it brings together business leaders, academics and representatives of unions and civil society, representatives of EU member states, the European Commission and the European Parliament.
Can we say that Malta Enterprise has finally put its money where its mouth is and that such promotion leads to inward investment?
One hopes so.
We certainly need to break out from the old tired way of promoting the island, especially where manufacturing is concerned. Since the late 1980s we witnessed nearly everything imaginably going wrong with our economy. Choking taxes, a brain drain to Brussels and a low penetration of technology. A poorly educated and under-skilled workforce with a mismatch in university output of more academics than engineers & computer programmers.
There was little imagination in the policy of solving long queues of unemployed by loading more than 10,000 extra workers into a bloated civil service.
Productivity numbers show that they the island gradually lost its competitive edge due to excessive port charges and lack of innovation.
We never took the plunge like Ireland ‘s bold step to offer zero taxes in designated areas. Our free zone experience within the Freeport faced severe difficulties. As corporate taxes were never lowered so fresh investment did not pour in, while the workforce felt the bite of more indirect taxes, which blunted their edge to adopt a new flexible and agile way of thinking. Constant political feuds between the two parties fomented more division among the workforce.
Taking a leaf from the Irish book on how to succeed as an island we ought to start emulating how IDA works.
IDA is the Irish counterpart of our Malta Enterprise.
Everyone acknowledges Ireland as a diversified economy and a world leader in software and hardware development with an impressive per capita GDP of euro 39,000.
Since 1995, Ireland’s remarkable annual growth rates have seen it outpace almost any other country in the world, let alone Malta, which by sheer contrast registered a negative growth in 2003.
Ireland ‘s growth has occurred at the same time as the country has achieved the soundest public finances in the EU.
Compared to our annual deficit of 9.7% in 2003 Dublin recorded a current budget surplus of 4.6 per cent of GDP per annum, with a public debt of under 40 per cent of GDP.
Our public debt is now closer to Lm 1400 millions or 69% even though we nearly exhausted our possibilities from selling assets via privatisation. Debt accumulated over the decades as over Lm 600 million was frittered away in subsidies to shelter loss-making white elephants. Doubts arise whether we maximized potential income over disposals of our national silver such as the airport, freeport, banks and telecoms. All this did not help to make us catch up with Ireland even though we had no burning political issues such as the bloody saga over Belfast claim for independence.
Many attributed the Celtic miracle to astute political vision. They started fifteen years ago as a relatively poor agricultural based economy but throughout the decades its politicians have piloted clever tax incentives coupled with zero -based bureacracy. Currently it enjoys falling low rates of 12.5% in corporate tax which is one third of what Malta charges. It can afford rising welfare spending, as a result of its successful attraction of more inward investment. This is coupled with wage and price stability and allocation of vast sums towards improving its infrastructure. So the question arises, can our attendance at Le Baule contribute towards an improved mood in our political mindset for more business friendly attitude? Let us hope so and from Dr Gonzi’s comments it certainly was money well spent. It contrasts better than the one million liri adventure some years back spent at the ill-fated Hanover fair.
On a positive note like Dublin did in the past, Malta will in the near future benefit greatly from EU membership.
Voters are being groomed to better roads, an improved public transport and a cleaner living environment .Such desirable projects can only become reality once we make judicious use of EU structural and cohesion funds. Signing up to join the euro while the economy is on the mend is a bold task. But the chances of our own “Maltese tiger “ miracle morphing in the next few years hinges squarely on the next elections. Are we ready to elect politicians having a vision to weed out any hint of sleaze and corruption as the roots of such evil corrodes the business mood and scares away F.D.I.
Unlike Dublin, we started late to plan for improving technical education. Simply building more concrete structures by way of MCAST is not a holistic solution unless we seriously upgrade the level of trainers and recruit foreign educators in ICT.
Ireland’s secret weapon was its highly educated workforce. Instead of losing graduates and precious workforce elements, it attracts hundreds of thousands of highly qualified people to its shores, completely reversing its previous decline in population.
The only blot on the Irish copybook has been the recent rise in inflation, which, fed by fuel price rises, hit seven per cent in December 2000, and dropped to five this year. But the paradox sets in when we hear local party apologists lauding government for its successes. They claim that we do have in place a long-term focus on training and education. They sing from the same hymnbook that the economy is doing well, with unemployment being at its lowest level in the 12 years.
With a 3% growth in the GDP, a budget deficit that is reaching sustainable levels and generous incentives for residential marvels by trading of public land, the ground ahead looks markedly more positive than it did a few years back. Amongst others, trumpets were blown by the common wealth expected to be generated by private projects such as MIDI’s cluster of flats, Portomaso ‘s complex & marina, Busietta Gardens (now renamed Madliena Village), Fort Chambray, Pender Place, the Holiday Inn site and to a lesser extent the 23 villas crowning the picturesque clay cliffs in Ramla.
Is this policy not generating millions for contractors, property speculators and the banks that service their debts? This may all look very contradictory and as such, the question as to why the economy is not growing at a faster pace is a dilemma. Could it be that these projects while generating internal profits in pockets of individuals are not adding real export value? I am sure many university students debated the subject and wrote erudite essays on how to measure it.
Regrettably there is no internal debate why we are losing exports and how vitally unions stress the need for workers enhance value-adding attitudes. Simply topping government revenues from taxation can be counter productive. By contrast to Dublin, our ratings are falling behind. In Malta, like France an astounding 38% of all the tax revenues go to pay the salaries and benefits of quasi-government agencies and a bloated civil service. The Auditor General talks about poor accountability while scandals erupt in the boat & car licensing depts. Add to boot the alleged bribes to senior judges and unexplained cost overruns in major projects particularly in roads and health sector.
For that reason and no other, the crusade to stem better productivity must continue. Why is it taking so long for our elected leaders to figure that out? The conflict that we face is between the extent of support that should be provided to the agents of change and the political costs in lost votes that such reforms will bear at the next elections. Let us augur that the creative mood fostered at the Le Baule conference lightens our burden to survive the pangs of change.
The author is a partner in Pkf Malta an audit and business advisory firm: gmm@pkfmalta .com