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Network News • 22-07-2021

Recovery and Resilience Fund – a treasure chest

Author: George Mangion - Senior Partner, PKF Malta
Published on The Malta Independent on Thursday, 22 July 2021

Party apologists wax lyrical about the extra funds promised to Malta by the EU to make up for losses suffered during the 16-month pandemic.

This fund is aptly named the Recovery and Resilience Facility (RRF), which is at the heart of NextGenerationEU. Globally, it will provide circa €800bn to support investments and reforms across the EU partly in grants and loans. The RRF is designed to help EU members recover from the economic and social impact of the Covid-19 crisis.

Many hope that it will play a crucial role in helping Europe to emerge stronger out of the euro crisis and secure green and digital transitions. The entire group of 27 members were requested to submit proposals (not later than the end of April) to the Commission, laying out detailed projects on how they intend to spend such funds.

As a general rule, such schemes in the RRF plan need to cover the entire framework of five years until 2026. Each proposal in a recovery and resilience plan has to respect the “do no significant harm” principle.

Structural reforms are a key component of the recovery strategy, essential for the efficient and effective implementation of investments. These must provide a supportive business and administrative environment. What are the six guidelines that govern the type of eligible criteria?

These are:
(i) climate change mitigation;
(ii) climate change adaptation;
(iii) water and marine resources;
(iv) the circular economy;
(v) pollution prevention and control and
(vi) biodiversity and ecosystems.

This obligation applies to all reforms and investments and is not limited to green measures. Simply put, one can refer to five of the seven European flagship areas. The RRF treasure chest amounts to €312.5bn in grants and €360bn in loans. The next question is how will the allocation of grants and loans be determined?

The allocation key will take into account:

  • the member state’s population
  • the inverse of its GDP per capita
  • its average unemployment rate over the past five years (2015-2019), compared to the EU average

Let us examine the criteria used to build up Malta’s own filling of the proposal (it was filled this month beyond the closing date). This includes 17 major investments in six areas with an overall target to prioritise the green economy and digitalisation. In brief, although the proposal has not been made public by the government, the media was informed that there will be the setting up of a pilot near-carbon-neutral school, a new ITS campus to host a centre for Vocational Education Excellence, the digitalisation of the Justice system and new ferry landing spots in St Paul’s Bay and Buġibba.

More information will be made public on how investments will aim to promote the circular economy. In brief, they will include de-carbonisation and digitising the Merchant Shipping Directorate within Transport Malta. More digitalisation means investing in the deployment of 5G and Gigabit connectivity, developing digital skills through reforms in education systems and increasing the availability and efficiency of public services using new digital tools.

It goes without saying, that better connectivity is an essential prerequisite for the digital transition by guaranteeing ubiquitous internet access and seamless availability of digital services. The commercial community currently makes the best use of bandwidth and any future improvement to 5G will be indispensable for everyday activities – economic, social or cultural.

More education is necessary to allay citizen concerns on the environmental and/or health impact of infrastructure deployment (for example in the case of 5G). Can we omit to mention, the chronic problem for start-ups and SMEs in having poor access to banks when developing future applications and services supported by 5G networks?

It goes without saying that a revolution of the Internet of Things can only become reality with the availability of very high capacity networks, in particular, 5G and fibre (for example, Fibre to the Premises FTTP) networks both in urban and rural areas. This will generate important spill-over effects across society and the invigorated economy, by providing the necessary infrastructure to handle emerging and future processes and applications.

On the subject of IT personnel, Identity Malta is currently trying to attract talented digital nomads to reside and work from towns, villages and beaches. This is an uphill climb given that public bandwidth is comparatively slow and is sometimes intermittent. Talented nomads are attracted to countries with high-speed bandwidth and a reasonable cost of living. The generous speed of 5G provides the industry with new opportunities makes rural areas more attractive for businesses and inspires young generations.

Be that as it may, having been grey-listed by FATF, the island now more than ever needs to aspire in going digital. It is no consolation that party apologists are hopeful that the grey-listing stigma may be rectified by next October, on the contrary pragmatists think otherwise.

At the same time, Mita can exploit improved bandwidth to create short-term employment and design up-skilling opportunities in the digital community. Malta can be crowned as a pioneer in the Med to nurture an accelerated roll-out of 5G networks by developing investment-friendly spectrum authorisation processes. Can MCA promote wider area coverage, impose levels of spectrum fees that support its efficient use as well as introduce uniform conditions for cross-border industrial use?

For a moment, let us put aside the windfall from the RRF facility (tranches may be spread over four years) and collectively focus on how to generate new wealth to offset government debt – now reaching €8bn.

Hypothetically, if the surge of the Delta variant continues to mutate at break-neck speed, then we need to continue keeping social distance, avoid mass gatherings, perhaps slow down the intake of unvaccinated arrivals. Preferably we all take a booster jab. For this reason, and many others, we must be diligent to properly administer the RRP windfall.

Even if milestones and targets have been fulfilled, where the Commission finds serious irregularities, double funding or a serious breach of obligations, resulting from the financing agreements, it expects member states to nip it in the bud. God forgive our past sins in washing our culpable hands during the Panama Papers debacle when top Cabinet members caught with tax shelters were not removed.

In conclusion, the Recovery and Resilience Facility is like pennies from heaven and we must play by the rules of the game to qualify for the maximum benefit of this once-in-a-lifetime opportunity to smooth the financial pains caused by the pandemic.

Author: George Mangion - Senior Partner, PKF Malta
Published on The Malta Independent on Thursday, 22 July 2021
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