[WATCH] Abigail Agius Mamo: ‘No intervention in a healthy, free and competitive market’

Business organisations were not too happy with the price stability scheme government pushed onto retailers and importers to bring down the price of some foods. 

The Chamber of SMEs was among those that called out what they described as government meddling with the free market. But the same organisation supported government ‘meddling’ in the energy sector through hefty subsidies to keep electricity prices stable. 

When I put this apparent contradiction to Abigail Agius Mamo, CEO of the Chamber of SMEs, she draws a clear distinction between the two sectors. 

Sitting in the boardroom of the Chamber’s Floriana office, she tells me the food sector is rife with competition and rather than fix prices for a few products, government should have adopted other strategies to counter inflation. The Chamber has suggested cutting VAT to 15% on all products and services and the removal of excise tax on personal care products, water and non-alcoholic beverages. 

“By cutting VAT, government would still collect the revenue it used to before inflation peaked and it would have a broader impact on lowering consumer prices,” she says. 

As for the energy sector, Agius Mamo justifies government intervention on the basis that there is no competition in the sector. Malta has only one energy supplier – the state-owned firm Enemalta. 

Agius Mamo argues the subsidies on energy and fuel are crucial for businesses to remain competitive. 

She is unfazed when I point out that government is facing increased international pressure from the likes of the IMF and the European Commission to phase out these subsidies. 

“When these organisations come to Malta they think with the mentality of a large country where multiple sources of energy exist,” she tells me. 

However, she says the recommendations made by foreign organisations are based on the need to ensure public finances are strong. “This is not something we can ignore but international oil prices have been falling and the stress on public finances from these subsidies is now less than it was several months ago,” she adds. 

Agius Mamo believes the extension of the emissions trading scheme to the shipping sector last January is bad news for Malta. For her it is not just a question of added costs on imports and exports as a result of the carbon surcharge but also hits at Malta’s trade connectivity. 

Ships can opt to bypass Malta and head instead to north African ports where they are not subjected to ETS, she warns. Malta can lose important sea connections and experience reduced frequency in ports of call that could lead to shortages.

The following is an excerpt from the interview. 

Watch the full interview also on Facebook and Spotify

A survey you carried out among members lists inflation as their topmost concern. This week, a price stability agreement came into force between the government and major supermarkets and importers to address that aspect of inflation that has hit families hard. Yet you disagreed with this agreement. How do you reconcile this position with your members’ concerns about inflation when this nine-month agreement will lead to lower and stable prices? 

Inflation is a big national problem and businesses and people are expecting government to do something about it. Businesses are ‘citizens’ as well and are impacted by the same things that affect people… every expense businesses make has become costlier because of inflation. But inflation is not just about food. Government is only addressing a small part of the food component with this agreement but there are 10 other components that determine how inflation is calculated such as housing and rents, clothes, entertainment and other categories. Inflation is a big problem because Malta imports most of its goods. We are not against government addressing inflation; on the contrary, we proposed several measures that will help tackle inflation…

In comments, you released to the media, you said the Chamber is against government meddling in the free market. Why? 

In a free market that works well, and we have competition across the board… the government should only intervene when something is wrong with the market. When announcing the agreement last month, the government said it was not reacting to profiteering because none was found. It said this was an idea proposed to supermarkets and importers to take on board as a form of corporate social responsibility but really and truly what government did was introduce price-fixing. The website set up as part of this agreement contains products with recommended prices. In a healthy competitive market, you can find that product being sold for less or more because there are different business models. As a matter of principle, we cannot agree with government intervention in a healthy, free and competitive market.

For almost two years now the government has intervened in the market with hefty subsidies to keep energy and fuel prices stable. This is costing the country €350 million and all families and businesses are benefitting without distinction. In this case, you did not argue against government intervention. On the contrary, you said it was important for businesses. I cannot understand why one intervention is wrong and the other not. 

In the food sector competition is strong. In the energy sector, there is only one electricity provider. We do not have multiple energy providers like other countries. Additionally, there is also only one source of fuel importation [for the power stations] and government intervened on that one source not to pass on the higher prices to the consumer. Government addressed that single source at importation stage… although we disagreed with the food price stability mechanism we never went up to government and rubbished it. We always showed willingness to cooperate but called for a framework that made sense...

Despite the misgivings you have, scores of members have joined the stability scheme and from the original 200 outlets slated to participate in it, these increased to 400 by 1 February when it came into force. 

We know what happened. When government managed to reach an agreement with some of the big operators, the others had no other choice. Competition is so fierce in this sector that the moment someone reduces prices competitors try to match them. So, the moment government said the scheme will be public with a website showing the products and their prices and listing the participating shops, they had no option but to join the scheme… we never told members not to participate but argued that the framework should make sense… we asked for a level playing between large businesses, which are also our members, and the smaller players in terms of visibility… Some of the mechanics are also wrong since the consumer will see the price of a product and expect it to be the same in all shops when this is not the case since it depends on whether the supplier is part of the scheme or not. There are certain things that could have been done better had we worked together.

 What are you expecting government to do to tackle inflation? 

A major proposal is a reduction in VAT from 18% to 15.5% on all goods and services. The calculation we made was that this reduction in VAT would still allow the government to collect as much revenue as it used to before inflation started to peak. Given that VAT is a percentage-based tax, higher product prices meant that government was collecting more tax money. By cutting VAT, government would still collect the revenue it used to before inflation peaked and it would have a broader impact on lowering consumer prices.

What guarantee is there that the VAT reduction would be passed on completely to the consumer and not siphoned off as retained profits by businesses? 

If we have a limited number of operators, which we don’t, I can see this scenario developing. There may be a few short-sighted operators that decide to do as you suggest but competition is so fierce that I am sure they will take the opportunity to pass on the savings to their clients.