Author: George Mangion
Published on The Malta Independent 3 September 2020

Sadly, what goes up can come tumbling down and the first case of COVID 19 infection in mid-March has seen the health authorities giving the order to force a national lockdown.

One appreciates how the unexpected resignation of Joseph Muscat as prime minister amid unbridled adulation by the party faithful gave way to a young incumbent in mid-January. An air of expectancy over the talents of the elected leader took everyone by surprise and as the new prime minister promised everything to all but trust his word, he assured us of a return to normality.

Little did he know that concurrently in Wuhan China, saw the incubation of a deadly Coronavirus that within nine months infected millions. Back to the incumbent enamoured with a characteristic smile, he appeared on party media radiating a prophecy that the good times will continue. He was so gung-ho about economic growth (unaware of the potential strength of the virus) and nothing will stop the jingoistic party where everyone enjoyed the fruits of full employment.

Can we ever doubt that the wellbeing during the early days of this year (remember the slogan – l-aqwa zmien) was palpable, yet marred by the macabre assassination of a blogger who before her brutal death was poised to reveal more corrupt practices (such as Electrogas -audited by PWC). Party apologists reminded us of the legacy bequeathed by the disgraced Joseph Muscat during his seven years at the helm. His prowess led to a break from the past when annual deficits were de riguer. Hail the three-year surplus (about 1.2% of GDP) and the fact that during his tenure the economy more than doubled in strength. This is no mean feat, as one only needs to look to the early fifties to see the remarkable transformation of the economy.

Our political leaders have since independence crafted a smart transition from a fortress economy, to a market-oriented economy. The EU membership in 2004, set the scene for the deepening of Malta’s trade integration with its immediate economic neighbourhood. It is no exaggeration to state that we have indeed made full use

George Mangion is a senior partner of an audit and consultancy firm and has over 25 years of experience in accounting, taxation, financial and consultancy services. His efforts have seen PKF being instrumental in establishing many companies in Malta and ensured PKF become one of the foremost professional financial service providers on the Island

The end of silly season heightens an expectation of a COVID vaccine of our limited size albeit good geographical location in the centre of the Med.

Our strategic position and excellent harbour facilities have helped us to trade and attract jobs for many years, increasing brisk business which bolstered the national economy and since the eighteen century started the road for transhipment of goods from third countries (eg importing cotton on a large scale and exporting it).

Destiny has landed the island in becoming a British colony (some say protectorate) and as the British Empire had great aspirations to control the central Mediterranean, so they maintained a strong naval and air-force base in Malta. They spent millions in expanding a naval dockyard together with improving berthing facilities. All this had secured employment for many.

As the island became less dependent on HMS, it started to orient itself towards commercial facilities such as the expansion of commercial drydocks and slowly oriented itself to build factory estates to attract manufacturing firms set for export.

Next on the agenda was the build-up of services such as a tourist industry by granting ten-year tax holidays and cheap seafront sites to various local investors (eg Salina Bay Hotel, Hilton – later Portomaso, Ramla Bay Hotel cum-timeshare complex, Salina Bay Hotel, Les Lapins Hotel etc). To sustain this plan, there has been solid attempts to improve the infrastructure especially in the provision of steady electricity to match growing demand.

During the Gonzi administration, we survived the 2007/13 austerity period and afterwards with the election of Joseph Muscat and his team at Castille, we proudly believed the motto that we had “Finanzi Fis Sod”. The fly in the ointment is that while domestic consumption has grown steadily yet exports plateaued as domestic consumption exploded.

A Keynesian touch put the cream on our pudding as EU funds were “money no problem” for large-scale roads infrastructure and a race to the bottom for the mighty developers who found smiles coming all the way when applying for permits. The services sector composed of financial services, gaming, tourism, film-making, Fintech and aviation adds to a healthy cocktail of industries – mostly spurned by Malta Enterprise.

Sadly, what goes up can come tumbling down and the first case of COVID 19 infection in mid-March has seen the health authorities giving the order to force a national lockdown. The brakes on the economy were quickly evident as the national deficit for the six months to June exceeded €900k.

An expensive furlong scheme to selected industries was started in April and extended to the end of this month. Certainly, the omens on other EU economies are not favourable. Starting with Germany, it showed an economy that is shrinking with interest rates that are negative all the way from overnight deposits to 30-year bonds. Closer to us – Italy is facing acute turbulence. Slower growth spells big trouble for populist-led Italy, where huge amounts of government money are swallowed up each year to help pay down about two trillion euros in public debt.

In America, the safe-haven dollar is up against many other currencies. Gold is at a seven-year high. Compounded with trouble from new geopolitical escalations in global trade (such as the US/China trade war), the intensification of geopolitical uncertainties and increasing protectionism – these do limit economic growth given Malta’s open economy. As stated earlier, export performance in goods has been reaching a plateau scenario, reflecting a stronger emphasis on services.

As can be expected High Street banks have reported weak results during the first six months of the year and they all blame COVID 19 as the culprit.

Be that as it may, the smile over the face of the Prime Minister has not wavered and he keeps trying to upgrade productivity and promises that the 2021 budget will reflect a recovery plan anchored on the hope of an effective vaccine. The Chamber of Commerce has presented a study on how in its opinion the economy can sail through such difficult times.

Among a number of suggestions, it called for a reduction in travel and hospitality vat rates and an extension of the furlough scheme until an effective vaccine is developed. To conclude, we as a small nation have survived tougher obstacles in the past and always endeavoured to face our collective challenges with dignity and perseverance.

Three cheers for the scientists who are actively testing a vaccine that secures our race a bright horizon.

Author: George Mangion
Published on The Malta Independent 3 September 2020
Get in touch: info@pkfmalta.com