One hopes for a rainbow once the storm subsides

Dark clouds overshadow our reputation as a top financial services sector amid challenges coming out of allegations of corruption and cronyism which recently culminated in the resignations of two government ministers, Attorney General, Police Commissioner and the Chief of Staff.

The constituted bodies joined in a chorus to condemn the damage inflicted from allegations - some even pointing to a potential link to criminals within a political class masterminding the assassination of journalist Daphne Caruana Galizia, who heavily criticised eminent members of government and other political plutocrats. The journalist was vigilant in her regular contributions exposing alleged tales of corruption and sleaze in top circles.

Before the brutal assassination three years ago, her investigative skills led to the sensational scoop about the Pilatus bank (audited by KPMG) money laundering allegations and the two secret Panama companies registered by Nexia BT for the Prime Minister’s Chief of Staff and the Tourism minister. It is openly known that Nexia BT gained prominence within Castile circles acting as personal advisers.

At that time, the Opposition party demanded resignations but only after acute civil protests did some follow. In the midst of this acute uncertainty, one hopes that the controversy will quickly resolve itself and closure is reached to the satisfaction of all bystanders who are concerned about the rule of law and justice.

People of goodwill pray for an immediate return of business as usual and that political serenity returns to the island. It goes without saying that achieving exemplary economic results will not be guaranteed in the near future until normality returns. Not surprisingly, the business community augurs that no effort is spared by the political class for an honourable solution and justice is seen to be served in apprehending the mastermind(s) behind the macabre killing of Caruana Galizia.

In the meantime, the majority wish to continue unfazed in their daily life and each in their way pray for quick resumption of calm after the storm. The people are fed up hearing both political parties bickering. The Covid pandemic has destabilized our tourism sector and the second wave seems to resurrect fears of another prolonged shutdown.

As always, it is not all doom and gloom. The untiring efforts of Malta Enterprise in its mission to pay for furloughed workers was well administered. Trade Malta has gone dormant due to travel restrictions yet in the past it tried hard to organize business delegations to attract new industries. This includes aviation, oil rig repairs, medical cannabis, Blockchain, A.I, Fintech, generic pharmaceuticals and high security currency printing. Massive strides are being made in technical services such as repair and maintenance of complex aircraft engines.

Lufthansa Technic is reported to have invested last year a substantial sum to build additional hangars to expand its aircraft repairs facilities. It appears that as if by stealth, the economy is undergoing a nose dive due to the second wave of Covid infections which so far has exceeded in numbers the first lockdown which ended successfully last May.

Be that as it may, we are trying to upgrade productivity and the 2021 budget will be a tough nut to present as the surplus has been eaten up by various recovery funds. The Chamber of Commerce has presented a study on how the economy can sail through such difficult times. Among other suggestions, it called for a reduction in travel and hospitality vat rates and an extension of the furlough scheme until an effective vaccine is developed.

The opposition also extended its scheme of subsidies but few think that the state coffers can afford them. Mirages of better times touted as “AqwaZmien” make us feel nostalgic. At this junction, many ask how much of the exemplary growth of 6% in GDP recorded last year was due to exports of goods or was it artificially based predominantly on a hike in domestic consumption. The answer is that it was the latter which contributed to the lion share of GDP growth.

Such prosperity was headed by the finance ministry which took a serendipitous switch to a Keynesian policy. This saw heavy funds allocated to large road infrastructural projects, higher welfare subsidies apart from sponsoring a private unitive to install a new electricity plant running on LNG. The feelgood factor encouraged unprecedented capital investment by the private sector in luxury construction projects.

Indeed, one acknowledges the advantages of a paradigm shift in Malta Enterprise policy to help attract more business. One smart move is to provide custom built factories. The recent building of more custom-made factories such as the extension of PlayMobil, Lufthansa engineering and Crane Currency speaks volumes on this positive aspect. It goes without saying that modern large-scale manufacturing survives competition due to the use of robots and automation.

Malta Enterprise helps directly in reviving manufacturing prowess as the sector is seen to be more resilient to the fledgling financial services sector (lately under water due to adverse MoneyVal comments).

This begs the question - whether the government, which in the past has misfired on its PPI policy (eg VHL hospital deal, Montenegro wind farm, and American University project) is working?

Should government continue to attract interest from international public institutions/utilities by entering into Public Private Partnerships (PPI)? Taking a leaf from the financial loss suffered in the UK when we read about the collapse of Carillion (the second largest contractor and health services provider) which entered into a private public initiative schemes - regrettably propelling it into a legacy of a debt.

This PPI strategy was popular in Britain to attract fat investors to run big–spender departments such as roads construction, healthcare and schools. This policy was in vogue at a time when over-crowded public hospitals in the UK necessitated huge expenditure when austerity measures were de rigueur. The smart antidote by the Conservatives was not to burden the country with debt needed to manage new hospitals but to subcontract such onerous projects to the private sector.

As can be expected due to creeping inflation in medicines, health services in the UK which were procured at cutthroat prices saw the private sector sweat under rising costs. Such losses could not be relieved due to fixed rate contracts. This measure sent Carillion penniless running to the liquidator’s arms.

Back home, we are still waiting for the resolution of the ill-fated deal which the State has also suffered heavy losses from signing the Vitals Health scheme (mysteriously waived to Steward Healthcare US) which was a PPI intended to run and renovate three major public hospitals.

On a positive note, we hope that the 2021 budget will show us the path to recovery - a Herculean task for sure.