Business as usual… for now
The Economist Intelligence Unit speaks of a “deepening political crisis resulting in an almost complete legislative paralysis” - but what do Maltese entrepreneurs think?
9 July 2012, 12:00am
In the midst of a recession and a politically unstable backdrop, the majority of entrepreneurs interviewed by MaltaToday felt that ‘paralysis’ was too strong a word.
However, they admitted that although their businesses aren’t suffering at the moment, the situation could easily take a turn for the worse if the situation showed no sign of improvement.
When interviewed by MaltaToday back in March, a number of entrepreneurs felt that the worst scenario would have been an election in the midst of summer, as this would have a marked impact on the tourism sector, which is fundamental for our economy.
Recently, the Economist Intelligence Unit said that tough fiscal measures will be required by whoever wins the next general elections, as important, politically sensitive reforms – such as pensions and healthcare – are unlikely to be tackled until after the election.
The clear warning was spelt out by the EIU in its report for June, which referred to Prime Minister Lawrence Gonzi’s ‘fragile one-seat majority’ while adding that the PM faces a ‘deepening political crisis which has resulted in an almost complete legislative paralysis’.
The EIU report warned of fiscal slippage in 2012 in view of the electoral cycle and weaker economic environment, adding that a huge improvement in public finances will be needed in the coming months if government is to get back on track with its Stability Programme.
“So far, investors have remained fairly sanguine, as 10-year government bond yields have averaged around 4.25% since the beginning of 2012 – substantially below yields for the financially distressed countries of the eurozone – however, as has happened elsewhere in recent months, notably in Italy, Spain and Cyprus, sentiment can shift quite rapidly,” the EIU warned.
Claudine Cassar, Managing Director, Alert Group
“I feel that the word ‘paralysis’ is a rather strong term, however there is no doubt that the uncertainty is contributing to a general slowdown. At the moment the country is facing a recession and is in the midst of a number of countries experiencing financial turmoil – something that is undoubtedly affecting our economy.
“The political scenario is not helping. What we need at the moment is strong leadership to guide us through these difficult times, but instead we are getting infighting and squabbling.
“The situation needs to be resolved. This can either be through a reconciliation within the PN – which is admittedly rather difficult to achieve at this stage – or by calling an early election.”
Michael Grech, Managing Director, Michael Grech Financial Investment Services
“I wouldn’t say that the current political situation is creating a paralysis in business. However, it is definitely not helping businesses in the current economic turmoil that we are going through.
“Politicians need to acknowledge and respect the fact that businessmen need a smooth and clear road ahead in order to be able to generate employment and create wealth. The bickering between the political parties definitely does not help us business people in achieving such goals.
“Furthermore, politicians should put aside their partisan politics and concentrate on the great challenges ahead of us. We should not live on the assumption that this crisis is not going to effect us. At the moment of writing, the ECB has again lowered interest rates to a record low of 0.75%, as was generally expected and yet the EU and the rest of the world are still worried stiff of the prospects facing it in the next few months and years.
“At times like these, political parties should grow closer to each other for the sake of the common good of the nation. After all, what we are facing is actually a war on a global basis. The only difference this time is that there are no bullets or bombs involved. But it’s still is a killer.”
Tony Zahra, Malta Hotels and Restaurants Association President, and CEO, Alpine Holdings Ltd
“Looking around Europe, in a large number of countries we see problems which are much larger than Malta’s political problem and which require much more resources and time to resolve then Malta’s current political problem.
“Indeed, we can perhaps be ‘lucky’ to say that what we ‘only’ have a political problem in Malta. What one needs to ensure is that the problem does not spill over and become a fiscal and/or stability problem.
“The country could, for a time, continue being run by technocrats with the political class focused elsewhere, however one cannot be focused on issues not connected with the economy and the outside environment for too long, as this will eventually impact the economy, and in the difficult economic climate our European partners find themselves in at present our time is limited before the economic impact starts being felt.
“Hopefully, the present political problem will be resolved soon and we can look at our political leaders’ clear signals that they can lead the ship of state through the storms that are engulfing some of our trading partners in Europe.
“This is the time for all in Malta to pull the same rope to ensure we sail through this difficult period without damage to our assets.”
Steven Calascione, Director, FX Group Capital (Malta)
“I strongly disagree with this assessment. When you consider the political and economic turmoil in the global economy, Malta still represents one of the safest jurisdictions, both in terms of business continuity and systemic risk.
“Our banks have been rated as one of the most robust anywhere. Malta’s size makes it much easier to respond to both economic stimuli and threats.
“Both the government and the Opposition need to continue working closely together. Contrary to what is reported in some sections of the press, all the evidence suggests that parliament is a well-oiled machine, with both sides working more closely than ever for the common good.
“One would of course encourage both sides to continue building on these solid foundations.
“One area that can be improved is our responsiveness to changes in the financial services market. Government has already taken up suggestions offered by the experts in this field, that is, to be responsive in our legislation, to market demands in financial services. This is our growth area. We are moving inexorably towards the ‘Luxembourg model’, to coin a phrase.
“There’s no real need to reinvent the wheel. I think our legislators have understood the situation and I believe we are on the cusp of a interesting and challenging growth phase that will redefine Malta in the 21st century. We seem to be fully aware of the fact that balance is an important part of any equation.”
Tancred Tabone, President, Malta Chamber of Commerce Enterprise and Industry, and Group Managing Director, Forestals
“In this context, I have appealed personally to our political leaders to act in due regard of Malta’s competitiveness and refrain from making any unsustainable promises between now and the election.
“But this is Malta, after all… with its tribal politics, which seems to filter its way down and across all levels of business. The solution has to be to either go for early election or for the two sides to collaborate in taking the current legislation to its natural end whatever the ultimate result.
“All this cannot be good, especially in the current macro situation in Europe and beyond.”
George Mangion, partner at PKF Malta
“Prima facie, I do not think that the current political situation is creating a paralysis across the entire economical sectors of the island. Having said that, the weakest members of the economy – i.e., the SME’s are benefiting from a general affluence evident in a higher domestic cycle of business opportunities possibly as a result of EU-assisted projects which this year seem to have been a very predominant factor in keeping the unemployment level below EU records.
“On the other hand, certain sectors such as high end of the property sales may be negatively affected to some extent. Protecting our real estate industry which employs –directly and indirectly – thousands of workers, is paramount. It is not proven that political uncertainty is scaring away investment in Malta, neither will the GDP plummet if Labour is elected.
“Certainly, as stated by the Employers Association, it is important that the party in power focuses more on domestic economy (typically pension shortfall, high energy cost, ecological problems, poor road infrastructure ,lack of meritocracy in political appointments) and much less on the internal problems that surfaced when the PN lost two motions in parliamentary.