Issue link: https://maltatoday.uberflip.com/i/1282646
27.08.2020 6 OPINION D ark clouds overshadow our reputation as a top financial services sector amid challenges coming out of allegations of corruption and cronyism which recently culmi- nated in the resignations of two government ministers, Attorney General, Police Commissioner and the Chief of Staff. e constituted bodies joined in a chorus to condemn the damage inflicted from allega- tions - some even pointing to a potential link to criminals with- in a political class mastermind- ing the assassination of jour- nalist Daphne Caruana Galizia, who heavily criticised eminent members of government and other political plutocrats. e 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 investiga- tive 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 Cas- tile circles acting as personal advisers. At that time, the Opposition party demanded resignations but only after acute civil pro- tests 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 satis- faction 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 sereni- ty returns to the island. It goes without saying that achieving exemplary economic results will not be guaranteed in the near future until normality re- turns. 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 ma- cabre killing of Caruana Galizia. In the meantime, the majori- ty wish to continue unfazed in their daily life and each in their way pray for quick resumption of calm after the storm. e people are fed up hearing both political parties bickering. e Covid pandemic has destabi- lized our tourism sector and the second wave seems to resur- rect fears of another prolonged shutdown. As always, it is not all doom and gloom. e untiring ef- forts 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. is includes aviation, oil rig repairs, medi- cal cannabis, Blockchain, A.I, Fintech, generic pharmaceuti- cals and high security currency printing. Massive strides are be- ing made in technical services such as repair and maintenance of complex aircraft engines. Lufthansa Technic is reported to have invested last year a sub- stantial 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 infec- tions which so far has exceeded in numbers the first lockdown which ended successfully last May. Be that as it may, we are try- ing 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. e 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 trav- el and hospitality vat rates and an extension of the furlough scheme until an effective vac- cine is developed. e 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 consump- tion. e 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. is saw heavy funds allocated to large road infrastructural projects, higher welfare subsidies apart from sponsoring a private uni- tive to install a new electricity plant running on LNG. e feelgood factor encouraged un- precedented 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 cus- tom built factories. e recent building of more custom-made factories such as the extension of PlayMobil, Lufthansa engi- neering and Crane Currency speaks volumes on this positive aspect. It goes without saying that modern large-scale manu- facturing survives competition due to the use of robots and au- tomation. Malta Enterprise helps direct- ly in reviving manufacturing prowess as the sector is seen to be more resilient to the fledg- ling financial services sector (lately under water due to ad- verse MoneyVal comments). is 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 pro- ject) is working? Should government continue to attract interest from inter- national public institutions/ utilities by entering into Pub- lic Private Partnerships (PPI)? Taking a leaf from the financial loss suffered in the UK when we read about the collapse of Caril- lion (the second largest contrac- tor and health services provid- er) which entered into a private public initiative schemes - re- grettably propelling it into a leg- acy of a debt. is PPI strategy was popular in Britain to attract fat inves- tors to run big–spender depart- ments such as roads construc- tion, healthcare and schools. is policy was in vogue at a time when over-crowded public hospitals in the UK necessitated huge expenditure when auster- ity measures were de rigueur. e smart antidote by the Con- servatives was not to burden the country with debt needed to manage new hospitals but to subcontract such onerous pro- jects 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. is measure sent Carillion penni- less running to the liquidator's arms. Back home, we are still wait- ing 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 Her- culean task for sure. One hopes for a rainbow once the storm subsides George Mangion George Mangion is a senior partner of an audit and consultancy firm, and has over 25 years experience in accounting, taxation, financial and consultancy services. His efforts have seen PKF being instrumental in establishing many companies in Malta and ensured PKF become one of the foremost professional financial service providers on the Island