The free market must also be fair | Abigail Mamo

Christmas may be the season of joy and good cheer; but in Malta as everywhere else, it is also very much a season for shopping, eating (and drinking) out, and spending money. In a country where the vast majority of businesses are small and medium enterprises, with a high percentage of retail operators and a densely competitive entertainment and leisure sector...  we should not be surprised that ‘the Christmas season’ has also become a gauge with which to measure Malta’s economic health as a whole.

At this time of year, it is traditional for news outlets to interview shopkeepers on their expected (and later, actual) sales; just as tourism broadly relies on the summer months, for retailers it is Christmas that can make or break the financial year.

This makes it a busy time of the year for the Small Business Chamber, which represents the bulk of Malta’s small and micro retailers (in fact it still uses its earlier abbreviation, GRTU: ‘General Retailers and Traders’ Union’). But as its CEO Abigail Mamo soon confirms, this Christmas has been busier than others. Immediately after this interview, Mamo will be joining other GRTU officials for a walkabout in Paceville: Malta’s largest entertainment district, mostly composed of small clubs and bars.

This is not an ordinary Christmas pub-crawl: the GRTU has voiced serious concern with the Paceville regeneration ‘masterplan’ unveiled last month, and will be touring the most vulnerable businesses. The plan itself has since been sent back to the drawing board, and a second draft is now in the pipeline. What sort of second draft is the GRTU expecting to see?

“We are expecting that, if this was a sincere consultation exercise, the second draft should reflect the concerns that have been raised,” Abigail Mamo begins in the boardroom of the GRTU’s Valletta offices. “I do imagine that whenever there is consultation, they take stock of suggestions coming in. It is not necessary that they take 100% of the proposals into consideration. There still has to be a masterplan, and maybe some ideas might not fit in. But we did see a number of shortcomings in this project. I don’t think the shortcomings were small; some of them were glaring. What we expect is that these, at least will be taken into consideration. And that is what has been promised...”

Much of the controversy had to do with a perceived threat to many established businesses in the area. At a glance, the plan seemed to focus on attracting new investments and redesigning Paceville around them: even suggesting that private land could be taken up to accommodate the new (competing) industries. The details may change, but the overall thrust of the revised plan promises to be the same: with or without expropriation, Paceville seems destined to grow and change in character... a bigger playground for bigger players.

Is the GRTU concerned that smaller players may be left with no room? 

“That is what would happen if they went through with the original masterplan. We are not against improving Paceville, and generating opportunities for new investment. But Paceville should not go backwards, and undo what already has been done... remove everyone that has been established there, who made Paceville what it is today. Like it or hate it, Paceville is very popular. Business is very good there. We can’t just go and wipe the slate clean to create space for new investment. We believe new investment can be generated... and yes, Paceville does need a masterplan. But things have to be co-ordinated. What do we expect from these businesses: to just hit the pause button, and then see what investment opportunities might arise? These businesses have invested millions...”

Mamo invites me to consider the difficulties in investing, operating and growing in such a competitive market. “Paceville is not an area celebrated for the traditional business model. To compete in that environment, you have to always be innovative. You have to constantly make your product more interesting. These investments have not been there 20, 30 years. They are mostly very recent, and ongoing.

“Some of the operators have bought land with the intention of making big investments. What should they do, if the areas they have bought are marked for expropriation, and have been devalued? We are very much in favour of investment, and will never speak against it. But you have to take stock of what there is today, to acknowledge that what we already have is working, and incorporate it as best as possible. We are not saying that the masterplan must incorporate them all 100%: some might even choose to let their business go. But the strong players who have invested a lot there... they’re still small businesses.  Their investments are doing well. We expect them to be incorporated...”

But how small are they, really? Reality is that Paceville has always been slanted in favour of big players anyway. Time and again we see smaller establishments bought out and incorporated into existing chains. Doesn’t this mean that the difficulties envisaged in the masterplan already exist?

“Even the big players are SMEs. Most of them are below 250 employees, which is the definition of an SME...”

That’s still quite big, though...

“For Malta it is big, yes. But we still have to look at the European dimension. Paceville is difficult not only because you have to be a big operation to compete; but even because of how businesses operate there. For a small establishment, a family-owned business, one major problem concerns the hours you need to put in. The biggest difficulty they face is finding people to work. People don’t want to work in Paceville – because it’s Paceville – and they don’t want to work those hours. This is why you end up with certain bigger establishments: they have a structure in place, they can employ people on shifts. It’s a sort of necessity. But there are still some very small operators. Paceville isn’t just about bars and clubs. There is E-Cabs, for instance; Stylish Bathrooms... There is a very small sushi bar just next to E-Cabs, I believe. A tiny operation, just started... we cannot ignore the very small.” 

Can such tiny businesses realistically survive, though? It’s not just about Paceville: everywhere you look, smaller businesses are being muscled out of the way. The corner grocery is giving way to Lidl and Pavi, small bookshops turn into Agenda outlets... the movement is all towards big names, big corporations, etc.

“As time goes by it is always becoming more difficult. They have to keep on innovating, meeting consumer demands... only establishments of a certain size manage to do that in a certain commercial way. But small and micro businesses are finding niche opportunities; that is what they need to do. You cannot rely on numbers in such a small market capacity. You can’t predict that people will end up at your shop because they find the others full. But you can target niche clients. It happens in the clothing business; in the restaurant business. You set up a concept which is different from these commercial big franchises; you get to know your clients very well, and tailor your product for their needs. Your clients feel they are well taken care of, and are ready to pay for that. And you have a specific niche. But if you are not ready to do that, unfortunately it is a time bomb. You will have a deadline, after which you will be out of business...

But not everyone can hit on an original niche. There is a limit to how innovative a grocery can be when tailoring groceries for individual clients... 

“In cases like that their niche will not be because they have innovative products; their niche market might be between 7 and 9.30pm, or very early in the morning. They open outside ordinary working hours. That is their niche...”

This raises another competition issue affecting the GRTU’s member organisations. Small retailers used to be traditionally against extending shopping hours – in particular, to Sunday – arguing that they would not be able to compete with larger outlets. Yet now, they argue in favour of more liberalised business hours...

“It has changed. Not because they wanted to change, perhaps. Ideally, they would prefer Sundays with the family. Everybody would like to have office hours, and you need to see this in the context of families, working mothers, etc. But it had to change, especially with e-commerce. Today, you can buy anything over the internet, at your convenience... you don’t have to drive around, look for parking, rush to reach the shop before it closes... it’s all about what the customer needs. If your customer needs you to be open from 7 to 9.30pm, you need to be open at that time. You can choose not to open; and with the change of the law that will hopefully come in soon, there will be no obligation for anyone to open...”

The GRTU is currently pushing for the removal of an administrative fee for extended opening hours. “At present, the law obliges you not to open outside ordinary working hours. To do so, you have to pay 700 euros every time. It’s very difficult for a small operator to spend that amount just to open on a weekend... while for a larger supermarket chain, those 700 euros... well, they’re not ‘nothing’; it’s an extra cost. But they can absorb that cost better than the smaller shops...”

Ultimately, she argues, it is a case of unfair competition. “We carried out a survey to see what our members’ interests are. Before, it was more in favour of keeping traditional business hours. Now, it has shifted. They have come to the realisation that whoever wants to open, can still open against payment. It’s only the smaller businesses that cannot afford 700 euros, and who are forced to remain closed...”

Meanwhile, the plight of the small retailer has assumed political implications, as the Nationalist Party recently published its own plan for the sector. The proposal for a 10% tax cut was welcomed by the GRTU... but even more important than that, Mamo suggests, was the decision to concentrate on the retail sector in the first place.

“We were happy there was consultation with us before the PN’s retail document came out. We welcome a bit of focus on an economic sector which is very important in our economy – it employs around a third of the total workforce – and that it is finally given the recognition it deserves.  The economy is doing well; but the last budget focused on the distribution of wealth among society. We think that is important even when it comes to the creation of wealth. As a country we tend to focus most on successful sectors, and specific areas we want to attract to Malta. Traditional businesses, we feel, are being left a bit on their own. The retail sector has been left to its own devices, at a time when competition is difficult. When there were funds to be had, many of them excluded the retail sector. When there were opportunities, they did not target retail. It was regarded as a second-class business... as though we don’t want retail in Malta. The message they were getting is that their business is not important. So what we’re saying is that, it’s good to have economic growth – the figures at macro level are very positive – but it needs to spread across all sectors of the economy. Not just successful sectors such as gaming...”

Speaking of the gaming sector, there are other elements at work which undermine fair competition. Malta has successfully attracted several multinationals through tax incentives. So while a local business pays 35% income tax, foreign companies pay only 5%. Isn’t this, in itself, an unfair advantage?

“We have a bit of a concern. Basically, when we came out in favour of the 10% cut proposed by the PN, it was in part because it would help small businesses compete with foreign investments; and also to counter unfair competition. There is a lot of unfair competition concerning products brought in from Sicily, and lack of proper enforcement, etc. So the damage is minimised when they are paying 10%, and not the full tax.

“Yes, we do feel a bit that the country is focused on attracting new businesses – which is good – and channelling where Malta wants to go economically. But we should not do this at the expense of what we already have. Basically, we have been arguing a lot for something that would give a quality mark to Maltese products. We have issues with the craft sector in particular. It has been performing well for quite a while now; and with the regeneration of the Crafts Village in Ta’ Qali, things might hopefully improve.

“But there is a big problem: local craft is very expensive to produce, and there is nothing to show that the products are local. A lot of imports are sold as ‘local crafts’, because we do not have a quality mark that brands a product, and gives value and assurance that it was locally produced. While it is good that we attract foreign investment, we need to see what we can do to help Maltese businesses, especially the ones that have been falling back for quite a while now. How will they fare with the increased competition? Will they be elbowed out, or will they be able to compete?”

 And yet, a free market economist would argue that the government shouldn’t intervene in the market at all. Mamo however counters that for a market to be truly free, it also has to be a level playing field.

“They say it is a free market, and the market will choose. We do not believe that is the way to go about it. We believe that certain businesses that have served our country well for a long time, and have employed our people... it would be a loss for the country if they were to disappear. They have invested in Malta, Malta has invested in them. Just because we are going ahead with new investment, it doesn’t mean we have to wrap up what we had before. We should build on what we have, not rebuild from scratch.”