Issue link: https://maltatoday.uberflip.com/i/292371
14 Business Today T he man on the street is becoming more familiar with surveys based on sta- tistical analysis and these are slowly gaining cred- ibility, particularly if the information originates from a trusted source. This acquired credibility flies in the face of critics who sarcastically belittle the value of scientific data, dismissing it as lies, damn lies and statistics. PKF is currently working on a number of sectors including topics concerning social affairs, direct taxation, social housing and the business sector in general. Let us start discussing social issues, in particular the recent phenomena of irregular migrants. Here one appreciates that civil war, political and economic persecution and poor living conditions could be some of the reasons why hundreds of irregular immigrants are visiting our shores. This is a major issue currently affecting our islands so PKF Malta decided to design and execute an innovative statistical study to help gauge and analyse the perception of the Maltese society towards these asylum seekers (henceforth referred to as immigrants). Experts designed a questionnaire with a major focus on the overarching influence of the media and the main reasons why refugees flee their home country, finally assessing the level of acceptance (if any) by society and measuring the value of their contribution towards the economy. When defining the 'media', it helps to quote Malcolm X, an African- American Muslim minister and a human rights activist who described it as "The most powerful entity on Earth. The media has the power to make the innocent guilty and the guilty innocent, and that is powerful because it controls the minds of the masses". Our study aims to highlight the contribution that immigrants can give and discover whether the authorities are creating opportunities for immigrants to maximize their potential. Our pilot study, when completed, will show the percentage of respondents who believe that immigrants can be a useful human resource. An interesting fact that must not go unnoticed is that through their contribution, immigrants are creating competition among job seekers hence improving the competitiveness of our economy. All the questions within our study were designed in such a way as to explore existent relationships and address other sociological issues. A scientific sample involves interviewing about 500 Maltese residents and aims to achieve a confidence level of 95% with a margin of error of 4.38%. Respondents are randomly selected from all the districts in Malta, composed of different age groups and gender. Initially, the study aimed to interview immigrants residing in open centres and in private residences, however due to logistical complications, it was agreed that it's best to focus in the interim on the perception by locals until the authorities decide to issue the necessary permits to approach immigrants. The aim of this ambitious study is to help in eliminating any deeply rooted misconceptions in the anthropological field while at the same time having educational attributes. PKF is running another study in parallel to measure the multiplier effect gained by the hospitality industry if VAT on accommodation is reduced. In 2011, the VAT on accommodation increased from 5% to 7%, a measure that yielded extra revenue that however received negative backlash from MHRA, the hotels and restaurants association. With the assistance of experts in the field of statistical modeling, PKF developed a study consisting of based modeling of data and analysis of empirical data collected through a one-on-one survey with a random selection of hotels. A statistically sound regression model was formulated to fit the data up to 2012 for prediction purposes. These forecasts were then used to compare the Gross Value Added (GVA) of hotels of different classifications and respective revenue based on two rates of 5% and 7%. It resulted that the diminution in revenue was much less when compared with the gain earned by hotels (and the economy in general) through improved GVA, given that the VAT rate reverted to its original 5% rate. This intensive study is currently undergoing updates so as to reflect the latest 2013 figures. The final part of this study involved the design of a questionnaire, distributed to 32 hotels of different classifications, to calculate how negatively the increase in VAT rate affected marketing of bed nights. Quoting the first study, it is surprising to note how the majority of hotel owners replied that if authorities can be persuaded to decrease VAT, they would not reduce room rates but with the extra revenue be able to update facilities, create jobs and attract more tourists through amenities of a higher quality. Another topic, which is interesting and needs further study, is the problem of social housing in Malta. For those who are unfamiliar with the term, social housing is a term used in the promotion of housing tenements for rent or for sale either by the state, non-profit-making organizations, or a combination of the two, usually with the end goal of facilitating access to affordable housing in the lower- income earning demographic of a given population. Effective solutions to solve or mitigate housing programs are not a novel concept exclusive to Malta and we can see many examples around the world. In Europe, one can highlight the case of the Netherlands where in many cities such as Amsterdam, The Hague, Rotterdam and Utrecht, social housing is a statistic that approaches or even exceeds 50%. These types of habitats are known there as 'huurwoningen sociale', literally translated 'social rental housing'. Another successful example in Europe is Catalonia in Spain. Here there is a program for the housing rights of 2009-2012, in which the public housing policy and promotion of the rehabilitation of buildings is encouraged. The opposition leader in the UK, Ed Miliband wants to reach his ambitious target of 200,000 homes by inducing a major expansion of council housing once elected to government. His party has promised to "simplify rules surrounding the Housing Revenue Account to give local authorities more flexibility in how existing public funding is spent". It is good to read that the Chartered Institute of Housing estimates that raising the caps by £7bn could enable the construction of 60,000 homes over the next five years, creating 23,500 jobs and adding £5.6bn to the British economy. Is the opposition leader in UK trying to copy the example of France, where their owners construct more than half of new homes? Miliband will call for a "self-build" revolution to reduce the dominance of the big four developers and to help expand supply in areas where there are most shortages. Crossing continents, we can also highlight the success had by social housing programs in the case of Minha Casa Minha Vida in Brazil. This program offers various facilities such as discounts, bank loans, allowances as well as reductions in the value of mortgage insurance. Through these incentives lower- income families are given the possibility to become homeowners, a status desired by most. Despite the program not having been without its own share of corruption, which saw scandals permeate the program, the venture has been a megalithic success with upwards of 1.4 million homes having been built. The Minha Casa Minha Vida program aims to complete the second phase, 2 million houses and apartments, by 2014. The program is for families who have a gross income of up to R$ 5,000.00 (1517.90 €). The program offers facilities such as discounts, allowances and reduction in the value of mortgage insurance. If the family has a gross income greater than R $ 5,000.00, they can buy property financed and even use their FGTS, but not participate in the Minha Casa Minha Vida. The result was more income available for workers and such development in Brazil is slowly eradicating the "favelas" or slum areas. The family income is calculated by taking the sum of the gross income shown informally or, formally, of all persons in a family and if approved, a bank loan is awarded guaranteed by the government at heavily subsidized rates. Observers agree that the existing social unrest, due to unaffordable housing in Brasil, can be mitigated as the lower classes will benefit from subsidies and special rates giving families help to purchase their first property. True to the socialist creed, the present government is preaching that every citizen has the right to have his own house, so it is making available ready-built properties of modest size. Enjoying full amenities constructed in rural areas, the Minha Casa Minha Vida Scheme has now financed hundreds of properties. In conclusion PKF will continue to invest time and resources to improve services to its clients as it aims to continue to publish empirical studies free of charge to authorities. Lynsey Schembri is a senior statistician with PKF. lschembri@pkfmalta.com 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, 9 APRIL 2014 Surveys - lighting a candle in the dark Lynsey Schembri Matthew Kassar New Places New Places " New Places " 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 matthewkassar.com