Issue link: https://maltatoday.uberflip.com/i/288366
14 Business Today A ttending an annual gen- eral meeting of the Chamber of Commerce, the delegates were ad- dressed by Energy Minis- ter Konrad Mizzi, who spoke about the paradigm shift in reform of Enemalta... which he found to be ridden with debts, adorned with an oil procurement scan- dal allegedly perpetrated by a former president of the Chamber, while in the background it lately discovered massive tampering of meters recoding domestic and industrial consumption following the installation of new IBM designed smart meters. These episodes of abuse and corruption have continued to add to the hemorrhage of losses and add to the risk of downsizing. Mizzi had taken the bull by the horns and instituted various reforms, including attracting a major Chinese energy company which invested €320 million in Enemalta for a minority share and in a plan to switch from using heavy fuel oil to gas he issued a competitive tender which appointed an electricity contractor – Electric Gas – on a long term contract for provision of electricity itself investing around €370 million in building a gas fired non polluting plant. Mizzi briefly mentioned that upon full execution in the first year, the residents of Marsaxlokk and Birzebbugia will be relieved of about one million tons of carbon emissions. This all looks huky-dory on paper, and delegates at the Chamber dutifully applauded the government for its resourceful drive to improve the dire situation at Enemalta. Yet, the minister was asked if the proposed 25% reduction in tariffs for industry promised to start next year will be enough to make exports competitive. Facts show that the reduced rate is still higher than that enjoyed by industry in mainland Europe! All this goes to show how fragile the situation of local exporters of products and services is, considering they need to compete with foreign counterparts, when there is no level playing field (not to mention the insularity of an island in the periphery of Europe). Yet it is not all doom and gloom, and with improved controls over electricity consumption, Enemalta's future cashflow will surely improve. Reports show how in the 2013, the economy has achieved better results than was expected and this improvement has been affirmed by Standard and Poor's. Concurrently, NSO reported government deficit narrowed to €99.1 million in 2013 through an increase in government revenue of €276.4 million over added spending of €177.3 million all thanks to the guru running the finance ministry and his staff. Speculation was rife that the finance minister was a prime target to be given the golden boot to join the ranks of gilded Mandarins in Brussels – that is, appointed as the next EU Commissioner to replace the retiring incumbent Tonio Borg. Evil tongues had already started rumours about the future rich pickings (a €300 k salary plus generous pension) to be reaped by Prof. Scicluna (himself a former MEP) who will be posted to Brussels while his ministry will be reshuffled and regaled to the next anointed wannabe in the prime minister coterie of trusted friends. This did not happen, and the island could be heard uttering a deep sigh of relief. The economy needs the attention of professional management as it glides slowly out of global recession and faces new challenges to become more competitive and combat the challenge of low cost products and services from new EU members, which were previously under a command economy having formed part of the former communist bloc. Back to minister Edward Scicluna. He has toiled and laboured hard to balance the budget by keeping a tight rein on big spender departments. This culminated in a positive result, with the deficit now registering below the fabled threshold of 3% of GDP. He described these results as "the fruit of the new direction that has been adopted by an energetic government which focused on safeguarding economic stability". The government is to be congratulated for the successful consolidation strategy (as was reported by European Commission), which successfully brought the 2013 fiscal imbalance within the straight and narrow. The government deficit shrunk to €99.1 million in 2013 through an increase in government revenue of €276.4 million over added spending of €177.3 million. It goes without saying that placing our money where our mouth means taking care of those ministers who have shown their mettle to lead us to financial stability and help registering a 2.4% GDP growth – not a mean feat, as this is among the highest in eurozone. Another milestone was the Italia-Malta Programme for years 2007-2014, which is now in its final throes yet it helped foresee cooperation not only in the area of energy but also risk prevention and the management of environmental strategies, through initiatives which address the strengthening of institutional capacity. Still more good news is that the unemployment rate of 6.6% is projected to remain well below the euro-area average. This is a double-edged sword. The facts show that the participation of workers, particularly that of females at 47%, remains below EU average although female participation is expected to improve through the introduction of subsidised child care centers but more incentives are needed to attract more workers to the grinding wheel. Economists predict that business investment and household consumption are forecast to strengthen in 2014/5, thus becoming the main drivers of growth with the main factor being the reduction of energy tariffs, as stated earlier, and next year there will be the electricity interconnector pipeline with Sicily which provides some arbitrage in the procurement of electricity. Can you fault a government which created in its first year a total of 5,000 new jobs and – barring some catastrophe – one expects a steady continuation of this trend in consonance with EU Economic Forecast, which is confident that there will be adequate support in employment dynamics over the forecast horizon. The European Commission economic forecasts further indicate that the economy will grow at a rate exceeding the EU average but it is cautious saying there is a tightening of bank lending to SMEs and the looming pension deficit. Another drawback is the trickle growth of the funds industry since 1994 which experts blame it on the inadequate funds for publicity and the need to attract more international banks and fund custodians. Practitioners face hurdles when introducing clients and secretly complain about the monolithic authorisation facilities at MFSA which in some cases take far too long to decide. MFSA as a super regulator is overstretched, and practitioners notice that it is not coping with deluge of EU-inspired reforms. As in the UK, it needs to split in two or three parts – i.e., placing regulation away from consumer/investor protection and moving the companies register under a separate roof. What about simplification and cutting of red tape? According to the Global Competitive Report, the most problematic factors for doing business on the island include: government bureaucracy and inadequate albeit improving infrastructure, poor access to bank financing, corruption, high tax rates, inadequately educated workforce and poor work ethic in national labour force. Some progress has been registered at the international roundtable conference organised by The Economist last month as it was mooted that the government is seriously considering a reform of technical education including the introduction of apprentices in the engineering/maritime sectors. Another fly in the ointment is the need for further reforms to balance a mismatch between demand and supply of skills, which is exacerbated by low tertiary education attainment and high early school-leaving rates. The hullabaloo raised by opponents to the Individual Investor Programme – which aims to attract talent from bona fide investors and eventually create a €1 billion euro posterity fund – is not completely dead as a recent resolution in parliament has been tabled by an enigmatic member of the Opposition to challenge the effective residence clause even though the Commission has fully endorsed the scheme under certain conditions. Moving on, one notices a remarkable improvement registered in the field of innovation and will be further improved once the building of Life Sciences park starts functioning. To comment on the tourism sector, it is encouraging to note the overarching goal of government's policy in 2013, yet regrettably we do miss the excellent work of minister Karmenu Vella (a veteran in tourism circles), who is expected to resign and be appointed EU Commissioner. His zest for the industry reaffirmed government resolve to ensure it remains a driver for sustainable development. The result for 2013 arrivals is rather welcoming although more needs to be done to make hotels sustainable possibly through fiscal advantages, particularly during the winter months. To conclude, one augurs that the economy will not suffer from temporary upsets amid an incidence of inevitable infighting among fresh-faced ministers in a reshuffled Cabinet. Injecting new blood in the administration may be a Machiavellian strategy to keep old incumbents on their toes and help fight complacency. But change for the sake of change comes with a cost. Only time will tell if the maestro at Castille will in the near future have to resort again to play a game of musical chairs. George Mangion is a partner in PKF an audit and business advisory firm gmm@pkfmalta.com maltatoday, WEDNESDAY, 2 APRIL 2014 Reshuffl es, musical chairs and fi nancial stability George Mangion Art Exhibition Open free to the public 5 - 28 April 2014 Monday to Friday from 9.00am to12.30pm & from 4.30pm to 8.00pm Saturday morning only. Messina Palace, St. Christopher Street, Valletta Supported & sponsored by Matthew Kassar New Places New Places " New Places " matthewkassar.com Edward Scicluna