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There has been a new resurgence of economic optimism lately. Whether it is deep-rooted or just cosmetic one cannot tell for certain, because there is so much flak in the air particularly on the eve of critical eye-opener council elections.
At a business level there seems to be a feeling that we turned the corner and at least there is no storm warnings ahead. The signs may be ephemeral and not robust for the manufacturing sectors but others such as the financial services and construction are quietly booming. Just have a look around the retail sector and there seems to be a renaissance of larger scale supermarkets. Ever since the demise of the ill-fated Price Club which went belly up, leaving 400 jobless, there seem to be a splurge of investment in mega shopping malls. This cannot but reflect the confidence of domestic retailing and the improved spending power of consumers. Any investor pumping millions of liri in building shopping malls must share a long term vision of our internal market.
They must be visionaries planning both for profit and sustained growth in a sector where margins are low and competition is cutthroat. A positive feeling is also manifested in the luxury property sectors. Just walk around most of the villages and towns and admire the new buildings that are sprouting. In the Sliema/St Julians area, multiple developments are in progress and while their prices are not cheap, estate agents are not keeping up with sales enquiries in spite of a hike in property tax.
There is no tangible evidence to suggest that the property bubble will burst. Just note the millions paid for derelict land at Pender Place in St Julians. There is also a sustained demand for quality offices to house upmarket new foreign companies that are keeping the Registrar of Companies laughing all the way to the bank. For example, in the pharmaceutical sector, men in white coats have been lured to expand as a result of government direct assistance in their R & D programmes. Most of the innovation in pharmaceuticals these days is coming from small new firms, even though traditionally, innovation, which is the backbone of the industry, has been low.
Another quiet revolution is taking shape in the creation of a ‘knowledge worker’ regime within the state enterprises. Central to the thinking about how state agencies should be restructured for the 21st century is the concept that innovation and growth depends on the inculcating a knowledge-based workers’ mentality.
According to the Economist, Lowell Bryan and Claudia Joyce at McKinsey say knowledge workers represent a large and growing percentage of the global corporations. In some industries such as those booming in Malta, namely financial services, media and pharmaceuticals, they think that their share may be already as high as 25 per cent. In many ways technology is already helping to attract FDI, particularly the recent accord that Dr Gatt, the minister for state enterprises, has secured with Bill Gates, founder of Microsoft.
Companies need to invest huge sums in development of ‘knowledge management’ such as the expansion of their internal databases and proliferation of internet. As can be expected, we need to nurture this growth factor which can be termed as a vibrant undercurrent that is sustaining a steady flow of transfer of technology. Once state employees assisted by the Management System Unit are trained to acquire new skills, these values are inculcated into a better decision-making machinery. When government departments shed unnecessary red tape and become more self-motivated by reducing ministerial intervention, Malta wakes up to a better infrastructure of dramatically improved decision makers.
All this is easier said than done but the wheels of change are grinding, albeit slowly. The speedy and efficient way that Malta Enterprise is tackling the promotion of the island’s incentives for FDI, needs to be encouraged now thanks to its recently appointed business-oriented chairman.
The announced introduction of a Lm 4 million venture fund in the 2005 budget, although delayed, would be welcome at anytime. All this goes to show that political stability and EU membership has opened the floodgates for growth. This proves the doomsayers wrong that the economic forecast is bleak. Confidence will blossom once politicians start taking a hands-off stance on industry by reducing excessive regulation. Some encouragement to reduce tax burden on business is overdue and according to parliamentary secretary Tonio Fenech, the set-up of a no frills tax force to study and recommend new schemes is welcome. In his opinion, this task force is not another smokescreen for window-dressing the malady of a complex tax code. Decisive action is paramount: no more procrastination.
We all know that the ex-Communist countries have reduced corporate taxes apart from granting improved concessions to attract overseas investment. Naturally, each member state is trying hard to attract inward investment. Those that succeed such as the classical rags-to-riches Dublin experience draw the envy of other laggards. In this context the idea to introduce fresh tax incentives in Malta cannot go unheeded.
While the corporate tax rate in Malta is relatively high at 35 per cent, that of the new member states does not exceed half of this amount on average. To quote an example Slovakia has imposed a 19 per cent flat tax in order to attract business and create more jobs. But not all is doom and gloom.
Addressing a party event in Kalkara, the prime minister Dr Gonzi told activists that there was growing interest from an “industry” which creates a substantial number of jobs. Taking a positive stance over economic results, one notes that Government has systematically tackled head-on problem enterprises. The planned liberalisation of the energy sector and the appointment of a new CEO at Enemalta talks wonders of the determined resolve to wield out past work ethics. The reform continues and one is pleased to notice better communication facilities within the state service providers are placing more faith in videoconferencing and wider use of intranets. But why should a country suffer so much while state companies are subjected to the long and painful process of restructuring?
The answer might be in the political uncertainty and resulting stagnation that gripped the country in the late 90s in the run-up to the EU referendum.
Government was so careful not to upset the apple cart while the razor thin majority was being massaged to vote in favour of accession. The price of delayed restructuring is being paid now but the strategy to gain EU accession has worked and is starting to bear fruit. EU directives talk of popular and efficient ways to improve accountability. They recommend us to flatten the public sector hierarchy. Some pundits worry that there is a dearth of people in the service with enough management experience needed to run a knowledge-based service. Young qualified members within the public sector are de-motivated and frustrated by the fewer opportunities for promotion and career development. Some managers feel stifled by the lack of ‘profit-motive’ that drives their counterparts in industry.
This is mostly prevalent in the healthcare sector where due to the unnerving delays in the completion and commissioning of Mater Dei hospital, the future for improved working conditions looks elusive.
Knowledge workers in the government health sector are clamouring for better job prospects and higher self esteem for a fuller use of their talents. Keeping the doors open to migrate to better paid jobs in the private sector is resulting in a brain drain. This is lamented as the public sector which consumes a third of GDP in resources needs more knowledge workers teeming with bright ideas. But while change management is slow and intermittent we can observe positive signs.
Yet in spite of such drawbacks, according to the prime minister’s latest prognosis, the country is getting healthier economically. Naturally, only by pruning the dead wood can the tree sprout better fruit. It is an elusive problem common with most accession countries, yet we need to bite the bullet to create more jobs in their thousands. Definitely in the near future, one expects a number of improved opportunities in an enlarged EU community but these are not so immediately apparent to the man in the street. Let us hope that the windfall allocation of EU funding will be a harbinger of a brighter future in our objective of creating a knowledge-based society.
gmm@pkfmalta.com
The writer is a partner in PKFMalta, an audit and business adviser’s firm
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