Editorial | COVID investment, and inflation

Coupled with the higher energy prices from the resumption of economic activity, it is a hard slog on the international market. And it is nothing different from what Malta is experiencing now


In an environment of persistent zero-interest rate markets, there is no doubt that a concerted national effort needs to be made to further push consumers to better saving practices as well as investment choices.

As the market well shows, recent bond issues and IPOs, many of them over-subscribed, underline the thirst for secure and meaningful investments for the billions held in savings accounts in Malta.

Many are the retail investors who are seeking better returns on their earnings, a factor that informs the popularity of bonds and government stocks in Malta. Yet what is missing is a proper educational campaign that allows these retail customers to put their liquidity to better use.

There is no doubt that a new kind of investment appetite could be instrumental in supporting a wider range of business activities in Malta. Yet so far the public is accustomed to traditionally larger companies issued multi-million financing offers. For example, International Hotel Investments plc issued an €80m 10-year bond issue at an interest rate of 3.65%. This was the joint largest-ever local corporate bond together with Hili Finance Company debt funding of 2019 to finance the acquisition of the Comino hotel and bungalows. With its strategic geographical positioning, the Hili IPO is backed by the group’s stable business model that can offer value in the long-term to sharehoders.

Yet retail customers must be guided how to invest wisely in such instruments as well as other banking products that puts their money to good use and avoid the inflationary effects on their inactive bank accounts. And that means that a variety of financial instruments must be provided for consumers to direct their savings elsewhere.

Will COVID inflation persist?

The hospitality sector was one of the worst hit sectors from the COVID-19 pandemic. Due to the restrictions worldwide, travel and tourism came to an abrupt halt in Q1 2020 leading to a severe downturn in the hospitality and related sectors.

As an example, the financial impact on the IHI Group was similar to that of many operators in the sector. In 2020, IHI’s overall revenue declined to €91.9m compared to €268.3m in 2019, with the EBITDA shrinking from a positive record level of €69.8m in 2019 to a negative €3.75m.

IHI is also divesting itself of assets in secondary markets, to sell properties already highlighted prior to the outbreak of the pandemic, helping the hospitality giant to shore up cash resources should the hospitality sector take longer than expected to recover. At a local level, the F&B sector is still afflicted by staff shortages from the exodus of foreign workers during the pandemic, forcing restaurants to operate on four-day weeks or branch out on a takeaway system to reduce costs while operating with lower levels of staff.

The effects of COVID in 2020 takes us to the disruption of supply chains that in turn led to a significant rise in production costs. The hope is that this rise in costs subsides soon, but is the inflationary effect more than a temporary issue?

Reports from the international market abound with news of multinationals passing on their costs to consumers. McDonalds hiked menu prices to offset wage increases; Amazon earnings were heavily impacted by supply chain costs; Volkswagen will still be reeling from a semi-conductor shortage throughout 2022. Ahold Delhaize CFO Natalie Knight siad that although she is confident of the Belgian-Dutch grocer’s strategy to deal with such pressures, inflation is picking up and that rising consumer prices will continue through the fourth quarter. And Siemens CEO Christian Bruch said the energy industry in particular will need to improve its management of shortages, given the increased demand for raw materials needed for the promised transition toward renewables.

The Bank of England expects consumer price inflation to top out at 5% before moderating in 2023, with labour shortages and wage pressures becoming a daily reality. Coupled with the higher energy prices from the resumption of economic activity, it is a hard slog on the international market. And it is nothing different from what Malta is experiencing now.

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