The chivalrous quest of robotics and AI

Author: George Mangion
Published on Business Today 9th May 2019

One may be intrigued by the incidence of the heightened tempo in party propaganda embracing the upcoming MEP and Local Councils elections by political parties.

The administration is in a race to announce new projects to please voters. The latest fad seems to be promising to build more social housing – and of course government has given the green light for the Gozo tunnel.

Party apologists find comfort and prosper in hailing the administration for promising so many ambitious projects. Definitely others equally made hay while the sun shine under the patronage of the pro-business attitude of the Planning Authority.

On to the subject of robotics and artificial intelligence (AI). This has become the flavour of the month and finds the wholehearted support of government which, for the second time, is sponsoring a mega blockchain and AI conference this month.

This is an initiative in the right direction and has led to other events which are being organised concurrently by the private sector.

PKF had put its shoulders to the wheel when, three years ago, it hosted an international event at the Microsoft Innovation Centre, Skyparks Gudja. The event styled “Blueprint for Innovation” saw an expert lineup of speakers. These included Gor Sargsyan, MD , Qbiticlogic  International Atlanta USA based in Silicon Valley, Stas Gayshan MD, CIC Boston US, Jeffrey Pullicino Orlando Chairman MCST, Joe Woods MD, Creolabs, Netrefer CEO, Kenneth Farrugia ,President FinanceMalta, Ing Joe Sammut CEO LifeSciences Park, top speakers from MCAST and University while the parliamentary secretary Silvio Schembri responsible for Innovation at OPM gave the opening speech.

Media comments were positive as all agreed that the island needs to do more to boost its contribution to R&D which based as a percentage of GDP is one of the lowest in the EU and in this context, the government in its 2019 budget is pledging to open the taps for more investment.

The good news is that for the MEP and local council elections all political parties are promising to increase investment in innovation and related Blockchain subjects.

Alas, we heard it so many times by the public sector that it plans to support an innovation and business accelerator centre of caliber. It seems that the spirit is willing but the body is weak yet the private sector is slowly moving to fill the gap.

It professes to be a true catalyst to anchor existing research within the diverse manufacturing community and to attract new ones.

There is so much at risk for our country in its quest to harness the best brains in the fields of digital research and AI.

The nonchalant attitude of maintaining the status quo – saying “if it is not broken then do not change it” – is deceptive.

The trajectory of new technologies can be enigmatic. They start off from an initial idea, which is often outlandish or somewhat crazy, going through a series of milestones in laboratories, and finally making the leap from laboratories to the real world.

One may ask-what are the potential new technologies being researched and studied locally and how would these be applied in to improve the competiveness of our manufacturing and services economy.

Three years ago, the author pioneered a familiarisation trip visiting Massachusetts Institute of Technology (MIT) in Boston, USA to explore links to promote Malta as a potential business accelerator and/or life sciences hub for innovators, inventors and entrepreneurs.

It is interesting to note that the Massachusetts Institute of Technology (MIT) is a private research university in Cambridge, Massachusetts founded in 1861 –  built in response to the increasing industrialisation of the United States.  The uniqueness of MIT is in its appetite for problem-solving – especially those intratable technical problems whose solutions make a tangible difference.

Be that as it may, while not taking giant steps yet within our limitations, one cannot but admire the world-class research ongoing in the Department of Physics at the University of Malta. A senior lecturer in quantum mechanics in the Department of Physics at the University of Malta is coordinating a pioneering project which involves group research.

The local team is concerned with developing the basis for a new kind of technology – machine learning which brings with it a substantial challenge.

What is machine learning and how does this science integrate with the latest craze of Artificial intelligence and its sister technology concerning driver-less cars?

Machine learning frequently involves solving problems of manipulating and classifying large numbers of vectors in high-dimensional spaces. Classical algorithms for solving such problems typically take time involving a number of vectors within the dimension of space.

Naturally with the advent of cheaper processors and huge data memory banks one can use super computers to manage data running at exponential speed. These so-called quantum computers are essential to manipulate high-dimensional vectors so common in clusters.

There are many applications which benefit from quantum learning using algorithms which lead to input-output relationships. This is important for tasks such as image and speech recognition or strategy optimisation, with growing applications in the IT industry and of course it is used to interpret real-time images relayed from multiple car sensors so prevalent in driver-less technology.

Ideas range from running computationally costly algorithms or their subroutines efficiently on a quantum computer to efficient translation of mathematical exercises involving various topics being researched.

Another application is in problem solving. Computers really took off only after it became possible to build not just single transistors but chips containing many of them, up to billions in the latest fast processors.

The limiting factor is their electricity consumption and heat generation so experimentation has started to use light as a source for running processors. This platform can be applied to improve devices across the board.

In the future, it will create a means for computers to work directly with light, which will run systems that are more efficient and use less power. One foreseen application is to create motion sensors so accurate that they could help us navigate underground, for example in digging long tunnels or underwater, where GPS signals are unavailable.

These technologies, which could disrupt markets and generate economic growth are merely the tip of the iceberg.

Understanding the inherent complexity of the quantum world, the ramifications how the laws of physics can disrupt information and its ability to adapt mathematical norms developed in quantum theory can place the island in a competitive stance where researchers are appreciated as creators of a bright future.

 

George Mangion

Author: George Mangion
Published on Business Today 9th May 2019
Get in touch: info@pkfmalta.com | +356 21 493 041

Lok Sabha – 2019 Elections in India

Author: James Camilleri
Published on Malta Chamber 1st May 2019

The government in India is currently occupied by the Bharatiya Janata Party (BJP) and Prime Minister Narendra Modi. In 2014, the Hindu BJP made a sweeping victory at the election polls and general elections are being held between the 11th April and 19th May. India adopts the Westminster-style model first-past-the-post electoral system – one in which voters indicate on a ballot the candidate of their choice, and the candidate with the most votes wins. Given this fact and other elements besides, it is improbable an individual party on its own can amass the required majority to form a government. The Indian National Congress (Congress) is the main opposition party and a case in point both the BJP and the Congress have well-established coalitions: the National Democratic Alliance (NDA) for the former and the United Progressive Alliance (UPA) for the latter. The party with the majority of seats is entitled to appoint the prime minister.

The federal union of India is composed of 29 states as well as seven union territories. Each state has a number of parliamentary seats assigned in the lower house of Parliament, called Lok Sabah, depending on the size of the state. The top ten primary states by parliamentary weight are, in descending order: Uttar Pradesh (80 seats), Maharashtra (48), West Bengal (42), Bihar (40), Tamil Nadu (39), Madhya Pradesh (29), Karnataka (28), Gujarat (26), Andhra Pradesh (25), and Rajasthan (25). It is understandable that general elections in a country the size of India are divided into phases – the estimated number of eligible voters is close to 900 million. In total there are seven voting phases: Phase 1 on the 11th April; Phase 2 – 18th April; Phase 3 – 23rd April; Phase 4 – 29th April; Phase 5 – 6th May; Phase 6 – 12th May; and Phase 7 – 19th May.

Employment is a theme that commonly surfaces during election time. India has a fast-growing economy but still not fast enough to keep the ever-expanding population close to full employment. Presently, around one million Indians every month reach the age of 18 and the consequence is that unemployment has been constantly on the rise. On another note, 70 per cent of the population earn their living directly or indirectly from agriculture and there has been a steady decrease in the prices of staple foods, this having a negative effect on farmers’ income.

In November 2016, an effort by the government to replace the old currency notes with new ones resulted in various unforeseen teething issues, particularly the fact the new notes had a different size so did not fit into ATMs, leading to recalibration delays – this in turn causing the deadlock of economic activity considering it is predominantly a cash-based society. Small businesses were especially harmed by this blunder. Yet another expedition of the foreclosing legislature that is bound to leave voters questioning whether the incumbent parliamentary majority deserves another term is the unification process of the Indian states into a single goods and services tax market. This debuted in a blunder-riddled fashion and businesses were clearly not pleased at all.

Anyone who knows enough about India will appreciate what hidden gems lie within the rubble of this country. Add to this the fact it is an emerging market with unlocked potential, arguably second only to the African continent, and the result is an electoral campaign worthy of the same international coverage as is afforded to the overbearing United States. Rumours about corruption are unfortunately rampant but it is hoped the party, or coalition, with the best vision will win at the polls.

Author: James Camilleri
Junior Legal Assistant, PKF Malta
Published on Malta Chamber on Wednesday 1st May 2019.

Evaluating Malta’s economic revival

Author: George Mangion
Published on Business Today 2nd May 2019

With only a few weeks to go for the European and local council elections, the government is doing its best to showcase its economic performance.

The Central Bank of Malta report lauds the administration for its stellar performance and provides statistics to back this assertion.

It’s main line of contention is the achievement of a modest surplus which has surfaced in the past three years compared with chronic deficits in the previous 30 years.

This surplus peaked in 2017 at €387.2 and has slowed down to €250.8 in 2018. The surplus is calculated as the difference between total revenue €4,783.2 million and expenditure €4,532.4 million of General Government.

One may laud the administration in its policy of fiscal control which over the past six years has seen debt as a share of gross domestic product continue to decline. This peaked at 72% in 2012 and has now eased to 46%.

One needs to explain that according to the Maastricht Treaty, the gross nominal consolidated debt should not exceed 60% of GDP otherwise an excessive deficit mechanism status will be triggered and laggards have to suffer punitive fines until the situation is regularised.

In September 2018, the stock of general government debt amounted to €5,512.0 million, down by €234.8 million when compared with June 2018. This was largely due to a €233.1 million decrease in the stock of long-term securities.

Comparing 2018 over 2017, total revenue increased by €353.8 million, while total expenditure increased by €490.2 million. One notes that the decrease in general government debt was more pronounced than the surplus recorded in 2018 which as stated earlier had decreased from the record level achieved in 2017.

In order to arrive at the General Government sector’s positive balance for 2018, adjustments are made to the balance of the Government’s Consolidated Fund which in fact registered a deficit of €70.2 million – a decrease over the surplus of €182.7 million recorded in 2017.

One can explain this situation as follows.

This positive change is attributed to the accrual basis of accounting demanded under the Brussels rule, in which case accounting for the full proceeds (not the statutory 30% portion) from Investment and Passport scheme.

Obviously, this is a contributing factor which one expects to be of a temporary nature given the constant pressure from the Opposition to stop it.

Having briefly visited the salient economic achievements of our economy, one may ask how this growth compares with other countries which have also leaped ahead of the curve.

The first champion in the group of ex-Communist countries is Poland. It is the 8th biggest economy in the European Union. The country’s industrial base combines coal, textile, chemical, machinery, iron, and steel sectors and has expanded more recently to include fertilisers, petrochemicals, machine tools, electrical machinery, electronics, cars and shipbuilding.

Since 1989, it has increased its GDP per capita by almost 150%, more than any other country on the continent. Since 1995, it has also become the fastest-growing large economy in the world beating even the Asian tigers such as South Korea, Singapore and Taiwan.

Poland’s ongoing GDP growth performance is reaching 5% in 2018 and a projected 3.5-4% growth in 2019 and 2020. Other economic athletes are Czechia and Slovakia. These pose an unsmiling challenge to Malta’s own performance.

In fact, only 1.5% of young employed Czechs and 3.8% of young employed Slovaks were at risk of poverty in 2017.  In the Czechia, the at-risk-of-poverty rate among young employed people reached a peak of 5.2% in 2012, and the following year in Slovakia (6.1%).  As of January 2019, the unemployment rate in the Czechia was the lowest in the EU at 1.9%.

This compares with the rate in Malta of 3.5% in the fourth quarter of 2018.  One is surprised to read that Norway’s unemployment rate matches that of Malta at 3.8% but hit a record low of 2.4% in 2007.

An Asian champion is Singapore. This country is reputed to thrive on latest innovation and regularly funds start-ups and its SME’s to reach higher rates of economic success. It is no exaggeration, that its stellar growth is the envy of many EU countries and Malta could do well to learn some lessons from its commercial acumen.

Singapore’s seasonally adjusted unemployment rate stood at 2.2% in the first quarter 2019. It remained the highest jobless rate since the second quarter of 2017, amid signs of external economic headwinds and uncertainties in 2019.

Moving on, we meet the success of Japan where its jobless rate increased to 2.5% in March 2019 from a five-month low of 2.3%.

Having seen the picture of economic successes registered by competing countries, one cannot rest on our laurels even though it appears that Malta has started the righteous path to a stable recovery.

Our industry is still suffering from low technology and the country needs to double its contribution towards innovation and training of its workers to meet the exigencies of the so-called 4th industrial revolution.  Having said that, one lauds the government’s debt strategy. This ensures that the financing needs of the public sector are met at the lowest possible costs and that its debt service payment obligations are met in a timely manner.

The other positive aspect is that the debt levels (mostly local government stocks and bonds) remain sustainable while simultaneously minimising interest rate risk.

The cost of servicing debt is gradually diminishing yet one cannot overlook the fact that there is no sinking fund to repay such bonds. Reducing debt by a primary surplus, depends solely on the turnout of higher exports and the continued flow of proceeds from the IIP scheme. Quoting the Central Bank reports, it states that both components are expected to mitigate the upward pressure that interest expenditure once the build-up of debt recedes.

One appreciates the pressure on government to think out of the box in order to maintain economic growth and achieve its social responsibility to improve the well-being of citizens. More funding is needed to provide affordable social houses given the recent meteoric rise of property prices (this exceeds that of Hong Kong) and government aid to address the creeping cost of living for the low-income groups and pensioners.

Otherwise, the isle of milk and honey can aspire to move forward to meet its quest in reaching the top position as one of the gifted economic achievers.

 

George Mangion

Author: George Mangion
Published on Business Today 2nd May 2019
Get in touch: info@pkfmalta.com | +356 21 493 041

Land reclamation could make Malta a Singapore in the Med

Author: George Mangion
Published on Business Today 25th April 2019

During a business trip to Singapore, I was fascinated by its success in many sectors notwithstanding the fact that it possesses no mineral wealth.

Singapore is roughly twice the size of Malta but houses over five million citizens in a densely-populated area. It comes as no surprise that over the past decades Singapore has invested heavily in land reclamation, including a massive freeport and an international airport.

Malta is contemplating using the massive tonnage of debris generated from the Gozo tunnel to a practical use. The controversial topic has recently hit the deadlines after parliament unanimously approved (except for the two PD MPs) to go ahead with the tunnel project.

As can be expected, the subject is highly contested by environmentalists and NGOs who argue against land reclamation because it will upset the ecological, scientific and archaeological habitat.

It follows that due to Malta’s size, its growing population density and unique island biodiversity any political announcement to encourage land reclamation are welcomed by property magnates.

Others claim capital for such a mammoth project should be diverted to solve the dire problem of lack of social housing.

This bone of contention is counter balanced by the suggestion towards re-use of abandoned dwellings to accommodate social housing for the elderly and potential redevelopment of some of these dwellings which are old and unfit for habitation. Of course, this is already done by the Housing Authority that is inviting developers to come forward and enter a joint venture to finance the development costs to rehabilitate derelict houses.

This is a noble cause but in the meantime, there is nothing to stop us from utilising the resource of abundant debris resulting from either tunnelling or building a metro.

It is no exaggeration to say that Malta as an island with relatively soft rock has suffered continuous erosion by mother nature over the millennia.

Being contrite, we must admit that with a third of the island covered with concrete we can enjoy more elbow room for ample spatial living.

The Planning Authority commissioned independent consultants to carry out two major studies on land reclamation. One dates back to 2005 that explored the idea of disposing construction waste at sea, and another completed in 2007 exploring the feasibility of land reclamation at two specific areas.

It remains a mystery why the PA had in the past discouraged the environmental and economic feasibility of land reclamation within our coastal zone. To quote an ideal site, we can mention the coastline near Qalet Marku.

Here, one assumes that building debris from both the City Centre (DB) project and the Gozo tunnel can be deployed to form a cluster of islands.

Unofficially, we heard that ERA maintains that the coastline at Xagħjra is a preferred site since at Qalet Marku there are more environmental objections. Naturally, the construction lobby is very much in favour of sustainable work linked to large scale land reclamation work, which on its own can secure jobs.

The Prime Minister is encouraging the private sector to come forward with ideas and this is welcome. Any large-scale reclamation will inevitably stimulate the regeneration of key areas but designs have to be sensitive to aesthetic value and historical significance.
Ideally, the area coincides with functional considerations of a busy tourist centre. Perhaps that is why the Xagħjra coastline was chosen.

This means linking it to Smart City with a modern promenade, supporting multifarious commercial, cultural and recreation activities, albeit residents are vociferous in their protests against such a plan.

But we must reflect on how Malta created a thriving cruise liner industry in Valletta and the Cottonera jetties – both construed on reclaimed land.

In an ideal world, environmentalists need to tone down their opposition and carefully weigh the advantages of better paid jobs benefitting from a heavy investment to reclaim land from the sea. Certainly, land reclamation is not new to the Maltese islands and here I can mention with pride the success of Marsa Sports Grounds built entirely on reclaimed land, the sea originally reaching inland as far as Qormi since ancient times.

Turning to Msida, one can point to another prime example of a major land reclamation project while not forgetting the massive Freeport terminals in Birżebbuġa and the platform on which the Delimara power station stands.

Moving on to the advantages of reclamation, one remembers with nostalgia how reclamation changed the logistics at Msida. Originally when the parish church was built it was facing the sea. Really and truly, there will always be a price to pay when inert waste, usually from construction and demolition sources, is used for land reclamation. The hardest hit, from a purely environmental standpoint, is obviously the seabed, which not only loses its integrity in terms of physical characteristics but any biodiversity thriving on a particular site can be wiped out altogether.

The obvious collateral damage to the Posidonia meadows (seagrass) that lie over large tracts of seabed at various depths around the coastline merits serious consideration as the ecological significance of such meadows is well known in terms of stabilising the seabed and serving as nurture grounds for an immense variety of fish species and other marine organisms. Also, any excessive dumping of inert waste at sea to build retaining walls for land extensions is aesthetically unpleasing as it disturbs the water column by contributing to turbidity.

Ecologists warn us that such dumping takes ages to eventually settle down as sediment on the seafloor and it lowers the photosynthetic capabilities of aquatic species in that particular site to the detriment of the marine ecosystem as a whole. Another concern is the toxic element inherent in unsorted waste such as heavy metals, burnt oil or other chemical species that could be absorbed by the marine ecosystem and in the process, go to contaminate food chains.

The implications in terms of the resultant particulate matter levels in ambient air, for example, white and black dusts as a result of heavy machinery to move material is not to be under estimated.

Now that the government is waiting for completion of scientific studies before issuing tenders for the Gozo tunnel project there is some speculation where the millions be sourced.

The tunnel is certainly a controversial topic that has long grasped the imagination of politicians and will eventually challenge structural engineers to design a commercially sustainable link. If we optimise the resource out of future development projects and use them wisely as land extensions, then that will be the day when Malta may rise as a Phoenix out of the water and share the success of a novel Singapore in the Med.

George Mangion

Author: George Mangion
Published on Business Today 25th April 2019
Get in touch: info@pkfmalta.com | +356 21 493 041

Our algorithmic venture into AI

Author: George Mangion
Published on Business Today 18th April 2019

It was Prime Minister Joseph Muscat, at a speech he gave last year at the Delta summit, who talked about a vision to regulate Artificial Intelligence (AI), the internet of things (IOT) in an all-encompassing regulatory framework.

In his mind set, Malta just about climbed the slippery slopes of blockchain, and is now in an adventurous mode to tackle the next mountain of AI.

Undoubtedly, a technology that USA tech giants pour billions of dollars annually into for research and development purposes.

It is an open secret that government is keen to be seen helping innovation and would like to see Malta becoming a jurisdiction that attracts talent from all over the world.

Artificial intelligence and robotics are two ‘overnight successes’ in advanced economies that have been decades in the making, and their intersection will soon change a multitude of industries.

The evolution of smarter AI and more versatile robotics has helped both technologies to push past repetitive tasks to take on adaptive and more intelligent applications. In the coming years, the result will be nothing short of a revolutionary paradigm shift.

AI technologies will continue disrupting beyond 2019 and become even more widely available due to affordable cloud computing and big data explosion.

The gargantuan task was taken on board by Silvio Schembri, Malta’s junior minister for the digital economy and innovation.

At a recent press conference in Singapore, he revealed the country’s plans for the government’s new task force in an ambitious mission to become one of the world’s leading AI nations.

How can Malta gain from the wave of popularity that is gripping the ubiquitous sector of robotics?

The answer is found in the impending age of smarter robotics. These will certainly have a profound impact on traditional manufacturing; for instance, our health sector will soon make use of robotics to allocate medicines to patients and assist in useful operations taking place in the operating theatre.

AI thrives best by combining large amounts of data sets with fast, iterative processing and intelligent algorithms. This allows the AI software to learn automatically from patterns or features in that vast data set.

It is trendy to read on latest AI topics in the mainstream news. It is no exaggeration that AI has become a catch-all media term that refers to any computer programme that automatically does something.

Many people make referrals to AI without actually knowing what it really means. There is often a public debate on whether it is an evil or a panacea for humanity. Put simply, one may explain that in Malta this technology will in the near future spearhead novelties in the manufacturing sectors and create interesting scenarios in areas of productivity, safety, service, transportation, land registration and police records.

More will be revealed in the near future, when driver-less cars will become fully functional and slowly enter into the mainstream.

Autonomously driven cars and drones are both forms of advanced robotics, and they will pave the way for more specialised services that will speed productivity. They will impact every area of our lives.

As was the case of the internet revolution, some of the originalities will happen in a gradual, evolutionary way; albeit some will happen in a sudden, revolutionary manner.

To delve deeper into the subject matter, one may mention that apart from AI there is its cousin – Machine Learning (ML), and its sibling – Deep Learning (DL).  One may actually think they are all of the same stable but in fact they are different.

AI and the Internet of Things (IOT) are inextricably intertwined, with several technological advances all converging at once to set the foundation for an AI and IoT paroxysm. AI involves machines that can perform tasks that are characteristic of human intelligence. Typically, it includes things like planning, understanding language, recognising objects and sounds, learning, and problem solving. It goes without saying that the learning process involves feeding huge amounts of data to the algorithm and allowing the algorithm to adjust itself and improve.

To give a simple example, machine learning has been used to make drastic improvements to computer vision (the ability of a machine to recognise an object in an image or video).  In order to achieve this, the process may involve gathering hundreds of thousands or even millions of pictures and then have humans tag them.

For example, the humans might tag pictures that have a cat in them versus those that do not. Then, the algorithm tries to build a model that can accurately tag a picture as containing a cat or not as well as a human. In its simplicity, one may then conclude that once the accuracy level is high enough, the machine has now “learned” what a cat looks like.

Deep learning processes are one of many approaches to machine learning. It was originally inspired by the structure and function of the brain, namely the interconnecting of many neurons.

PKF Malta has taken the initiative to launch a training lab called the The Bit-Pod concept. This is a meeting place for informal discussions among practitioners, engineers and IT enthusiasts to network where they can informally discuss topics on the cosmic subject of this technology.

This is a non-profit organisation, intended to help connect entrepreneurs (mainly start-ups) to people, programming engineers, and other enthusiasts across the AI, blockchain and robotic fields. Whether you are looking to connect, learn, share, or work, Bit-Pod offers a selection of opportunities to network with other start-ups helping you scale the slippery slopes of early stage development.

It is undoubtedly true, that in other countries such initiatives are automatically sponsored by government agencies. The champion is Israel, which habitually offers financial and logistical help to nurture growth among start-ups. Regardless, the private sector in Malta is ready to give its share to develop this ambitious niche that will place Malta among the front runners in technical innovation.

Mastering this objective helps Malta to fulfil its mission to establish a national artificial intelligence stratagem.  Do not miss booking your place at the tech crowd converging in Malta for the Innovation Summit to be held next month.

George Mangion

Author: George Mangion
Published on Business Today 18th April 2019
Get in touch: info@pkfmalta.com | +356 21 493 041

Pushing our fate with Greco, Moneyval, IMF and Venice Commission reports

Author: George Mangion
Published on Business Today 11th April 2019

A dark cloud floats over the island. One may blame climate change and hope it will pass away to let in the sunshine. Realistically, we know that living in hope is a chancy habit so let us collectively take the bull by the horns and start analysing the above-mentioned reports issued by international institutions.

Why did they hit us this year as if the administration does not merit some reprieve given that the economy has manifested an exemplary performance? For some time, since the Pilatus bank saga, one reads about critics pointing to a reform of FIAU and MFSA.

It is true that EU countries have not escaped the incidence of financial scandals such as the Russian monies laundered through Danske bank with a number of branches in Estonia, yet in Malta practitioners pride themselves that the regulatory net has always been effective to keep out the bad wolf.

Recent reports such as Greco, Moneyval (still in the interim stages) the IMF and the Venice Commission have tightened the noose on the administration to stem the leaks. While as a country our demeanours are spotted and sometimes over-amplified in Brussels, yet one must admit that the closure of three local banks last year has taken its toll on public opinion.

Practitioners are still feeling the cold blast of negative publicity. Moving on, femme fatale was the passport scheme. This was criticised at European level where media sources reported on the adverse comments by the Chairman of the PANA Committee who claimed that the IIP should be stopped.

Last year, the European Commission was reported stating that passport buyers must have a clear and permanent link to host countries. But the prime minister, showered positive comments on the IIP scheme whenever he was addressing delegates at various global events organised by the sole concessionaire – Henley & Partners.

He proudly announced the due diligence structure as administered by the government to classify as the gold standard. More comfort was showered by the General Counsel for Thomson Reuters attesting that the scheme is a textbook example of how to conduct effective and reliable due diligence.

Today, there are approximately a hundred countries offering investment migration programmes. Quoting Bruno Lecuyer chief executive of Investment Migration Council, he reminds critics of investment migration schemes that IMC has been diligent in establishing a code of ethics and professional standards for its members.

An initiative was launched four years ago to create a culture of professional excellence and some governments (Malta included) are also taking it onboard. Yet the excitement for the finance minister does not stop here since the recent publication of the IMF report has tinged some raw nerves. The report goes to recommend a number of steps to help ensure a sustained future growth.

Among such recommendations, one finds the standard advice urging government to improve support to start-ups. These are finding access to credit being hindered by red tape and the perennial demand by banks for tangible collateral. Equally important, is the need to improve training of the labour force to be able to attract more international companies to Malta.

Perhaps, an ideal way to improve the quality of the local talent is by setting up an innovation hub of international repute supported by venture capital. One cannot omit to caution against the breakneck speed that gripped the imagination of construction and property developers with an unprecedented increase of 24% in property prices.

Top estate agents never had it so good with some employing over 400 full-time property negotiators on generous commission basis. Naturally, when a property mismatch occurs this always leads to a bust – and without exception politicians rushed cap in hand to IMF. To mitigate this potential calamity happening in Malta, the IMF report notes that while local banks are adequately capitalised yet it calls for more prudence in lending and a programmed reduction in non-performing loans.

Again, it recommends an extra effort by government agencies to cut red tape and effectively support start-ups. The culture concerning the adulation of mega business appears grand on the political bandwagon yet it pays to create a culture that small can also be beautiful. Another topic, in the IMF report is the need for more social housing. There is a waiting list of 3,500 families seeking decent habitation.

This human malady is partly caused by the onset of gentrification which forces house prices to escalate. It is no surprise, that low-income workers cannot afford the rents on offer. For vulnerable households, the IMF recommends more rent subsidies granted by the State to deserving families and the acceleration of investment in affordable accommodation by Housing Authority.

Sadly, it does not rain, it pours and last week saw the publication of the Council of Europe’s Group of States against Corruption (GRECO). This is an evaluation based on an expert assessment of local institutions and the measurement of their effectiveness concluded last October 2018. Some comments are not entirely salubrious. While progress was made on a reform of a number of institutions yet the experts did not mince words saying inter alia that Malta “clearly lacks an overall strategy and coherent risk-based approach when it comes to integrity standards for government officials”.

Furthermore, the Greco report stated that “a system of sanctions is also clearly lacking” adding in their opinion that the criminal justice system was at risk of paralysis and that a redistribution of responsibilities between the Attorney General’s Office, the Police and the inquiring magistrates was required to avoid this situation.

The fly in the ointment was the remark that “certain institutions have also turned out to have no real added value after 30 years of existence, such as the Permanent Commission against Corruption”.

On a positive note, it reported that for a country of Malta’s size, it had an “impressive arsenal of public institutions involved in checks and balance”. Another smart move was the appointment last year of Dr George Hyzler as a Commissioner responsible for Standards in Public Office. Party apologists point that most of the recommendations by GRECO are on the same lines of the Venice Commission’s opinion and that weaknesses are already being addressed.

This can be seen on the action taken by the Tax Compliance Unit since the publication of Panama Papers in 2016/7 to try recovering taxes on undeclared earnings in tax havens.

This exercise yielded a princely sum of €9 million involving the audit of 237 taxpayers.

In conclusion, not everything is doom and gloom and one must congratulate government for creating financial stability, a reduction in public debt, a remarkable 6.5% increase in GDP, jobs for all, a community where 80% are property owners and instilling a general feel-good factor.

George Mangion

Author: George Mangion
Published on Business Today 11th April 2019
Get in touch: info@pkfmalta.com | +356 21 493 041

Malta in a race to catch up on renewable energy

Author: George Mangion
Published on Business Today 4th April 2019

Can we be sure that the constant barrage in the media to combat climate change is not another hoax like the millennium bug?

Tree huggers tell us climate change is a process which may be caused by a number of factors including natural, but it can include geologic, oceanographic and atmospheric events.

It does not exclude human-induced factors. One can generalise that a common cause for high emission of greenhouse gases results through human processes such as burning of fossil fuels.

There exists an undeniable fact pointing to the increase in carbon dioxide concentrations and other greenhouse gases, such as methane and nitrous oxide caused by daily activities – mainly due to the explosion in car ownership, more travel by sea and air, not to forget emissions from heavy industry.

Reliable sources tell us there is undeniable evidence pointing to the fact that carbon dioxide is on the increase during the past two decades.

Readers may expect this is another article extolling the benefits of clean air resulting from the ideal solution costing millions of efficient plants generating Green energy.

The truth is not many governments shed tears for the lack of success in reducing national carbon footprint which undoubtedly is contributing to climate change. Between 1990 and 2007, we have seen greenhouse gas emissions increase by almost 50%.

It’s time to start reducing such emissions in order to mitigate the effect of climate change but it is unreasonable to expect that governments get focused in this quest and dig deep into their pockets to reduce the impact of climate change.

There have been various conferences and press releases by the EU extolling the benefits of renewable energy systems and directives were proposed by committees in Brussels to propose ambitious goals for Member States to step up their investment in Green energy.

The original holy grail was that by 2020, the EU would seek to obtain 20% of its total energy consumption requirements with renewable energy sources.

As a definition renewable energy includes wind, solar, hydro-electric and tidal power as well as geothermal energy and biomass and from studies published by the EU one notes that Germany leads the pack as a country which has invested the highest amount in this sector claiming to be the world’s first major renewable energy economy (in 2010, investments total 26 billion euros).

According to official figures, some 370,000 people in Germany were employed in the renewable energy sector in 2010, and it is no surprise to discover that most companies benefiting from this sector are small and medium sized companies. Certainly, concentrations of carbon dioxide in the Mediterranean have increased along with the atmospheric distortion which is giving us colder winters and higher humidity in summers.

Evidence shows that the increase in carbon dioxide concentrations is human induced and is predominantly a result of fossil fuel burning. It is a fact that greenhouse gases when controlled can serve a useful purpose that is to absorb infrared radiation from the Sun and re-emit it in all directions.

This natural greenhouse effect, resulting in creation of water vapour and carbon dioxide functions like a shield to protect the Earth surface from harmful sun rays. Pierce the shield and the surface temperature would be intolerable.

There’s also the problem of a gradual rise in sea levels.  It is estimated that over this century, we will encounter sea-level rise of between 0.18 and 0.69m. In the case of Malta, this is of some concern due to the east coast which will be particularly hit, especially low areas such as Sliema, Gżira and Msida, among others.  It goes without saying that a sudden sea-level rise will particularly impact our economy. The plus side of climate change is our geographical location.

Malta enjoys good exposure to rays of the sun yet it has not succeeded to increase production of electricity from use of photovoltaic panels to the 10% EU threshold. One may observe that awareness in Malta of the benefits of using such technology has improved since the arrival of the Shanghai Electric with its substantial investment in Enemalta.  It converted the BWSC plant to run on LNG. The foreign investment in Electrogas generating plant now running on LNG is also a blessing.

Sadly, Malta has so far been a laggard in solar energy generation, albeit positive steps have been taken to subsidize PV installations for home use.

Why is PV technology so effective? The answer is because a solar cell is the elementary building block of the photovoltaic technology. Recently, research in PV technology has been making giant steps by testing new prototypes made of semiconductor materials, such as silicon which due to their properties makes them highly conductive and in turn scientists are discovering ingenious ways how to capture the energy of the sun and convert it in electricity through an inverter.

Simply fitting more panels on rooftops looks easy but the demographic and geographic characteristics of the island create issues of spatial planning, given that space is limited and it is densely populated. But, it is not all doom and gloom.

Having started from zero in 1995 there has been a huge leap in the number of rooftop installations to date. Official statistics indicate that PV has grown at an average yearly rate of 35% from 1995 to 2005 (1,8 kW to 40 kW) and of 63% between 2005 and 2010. Ask any architect and he will point out that spatial planning is hindered by the limitation to open areas where to fit extensive renewable energy systems (RES).

These often clash with other planning needs and for this reason large-scale RES installations are not practical in Malta.
In conclusion, can the environment minister succeed to catch up for lost time, in the race for renewable energy – and succeed to win the coveted trophy.

To achieve this, we must produce 20% of total energy sourced from non-fossil fuels by next year – one can compare this to the quest of Joshua in ancient biblical times.

It was impossible for Joshua to penetrate the fortified walls of Jericho without the help of troops shouting and loud blowing of their horns.

George Mangion

Author: George Mangion
Published on Business Today 4th April 2019
Get in touch: info@pkfmalta.com | +356 21 493 041

Online gaming in Germany – a legal minefield

Author: George Mangion
Published on Business Today 1st April 2019

One thing I can tell readers is that online gambling is popular in Germany. More importantly, not a single German has ever got in trouble by placing a bet over the internet.

Having said that, Germany is one of those places where it’s definitely illegal to host a gaming site, but the legality of just placing bets online is uncl ear. Legal battles in Germany mostly revolve around the right of operators to offer their services to the public.

The difficulty in discussing the German market is that the laws have experienced a great deal of turbulence in recent times. Adding to the confusion is the ability of each state to regulate gambling how it sees fit. Many will tell you that Germany has a mix of wide-reaching national laws regulated by more limited state laws.

Up until 2008, online gambling was unregulated in Germany. As can be expected, the laws previous to 2008, didn’t address the internet in any way. Things changed when the Interstate Treaty on Gambling was passed in 2008. This effectively banned all forms of online gambling other than sports betting and horse racing offered by state-owned monopolies.

As can be seen in this article, some forms of betting are allowed in some states while most others are banned. It was more than six years ago that I travelled to the German state of Schleswig-Holstein where at an impromptu organised conference, I enjoyed listening to a debate by experts on the topic of online licenses that were planned to be issued on an exclusive basis in this northern state.

Looking back with nostalgia, one lauds the legislative adventure pioneered by Schleswig-Holstein which led to the issue of a limited number of gaming licenses. These licenses are still valid but they are limited in scope to the territory of Schleswig-Holstein and were due to expire in 2018.

From January 2012 until February 2013, the state of Schleswig-Holstein pursued its own gambling policy, which included granting online casino and sports betting licences at the same time, omitting to join the complete ban instituted by the other 15 states in the Interstate Treaty. No doubt, this unilateral move created an anomaly and it was in March 2017 when there was a collective drive by all leaders of Germany’s 16 Bundesländer to regularise the situation.

They voted to approve a new Interstate Treaty on Gambling. This had to take effect on 1st January 2018. In essence, the Interstate Treaty generally prohibits the operation and brokerage of online games of chance. The only exceptions concern sports betting, horse race betting and state lotteries.

Online casinos therefore are not currently licensable. Such restrictions were challenged under the EU law and test cases have instituted more pressure on Germany to relax its online prohibition. Slowly, this led to reforms that were initiated by the 16 Lander at the end of 2016. Unfortunately, these are referred to as minimalist reforms since they only concern sports betting.

But an over-arching condition of the Interstate legislation required the unanimous approval of each state’s legislature. The fly in the ointment was that legislators in Schleswig-Holstein voted to opt out of the treaty. In a curious twist of legislative history, Schleswig-Holstein had announced its intention to team with the state governments in North Rhine-Westphalia, Rhineland-Palatinate and Hesse on a new regulatory scheme based on its own original licensing regime. It hoped the rest of the states would eventually join.

Sadly, the horse was taken to the water but refused to drink. All this in a country with the largest economy in the EU family and it is not a surprise how online prohibition has consistently led to the industry’s growing impatience with the country’s 16 states in their failure to put together a cohesive strategy.

In fact, only three years ago, the EU ruled that Germany cannot continue to penalise or restrict unlicensed foreign operators, because it made it impossible for them to acquire licenses. The only exemption was Schleswig-Holstein, which as stated above, has challenged the rest and allowed for online casino licences to be issued.

The good news for gaming operators that went through the trouble of getting licensed in 2012/3, this empowered them to operate under a six-year license. These included real money casino games and poker to players within the state of Schleswig-Holstein until end 2018.
As things stand now, online gambling is largely outlawed across Germany with the exception of the two dozen or so operators who signed licenses to operate in Schleswig-Holstein. There are no other legal gaming sites in the 15 Bundesländer and there’s no way to obtain a valid license to offer games.

Recently talks started to pave the way for an interim solution. This agreement opens the way for the state of Hesse to start accepting applications for sports betting licences. The state of Schleswig-Holstein which had previously broken away from the inter-state treaty to set up its own online gambling licensing system which expired last year, will grant a short extension to its 23 licence holders till June 2021.

Quoting Steinkrauss (managing director of Merkur Sportwetten): “A new licensing process will take place with permits beginning in 2020 without a limit on the number, but would only be valid until June 2021, which is a quite unreasonably short time-frame.” He said that the agreement was no more than “an interim plaster rather than a long-term solution”.

The unhappy situation for foreign operators is that the status quo will prevail in Germany for the foreseeable future. Does this mean German-facing sports betting operators holding licenses in other European Union jurisdictions can continue to serve their German punters provided they pay attention to anti-money laundering responsibilities and don’t violate advertising restrictions.

One cannot but mention the deleterious effect in the media by the publishing of the so-called “Panama Papers” in November 2017. Newspapers commented on the role of various large German banks which were involved in payment transactions for private gambling operators.

The pay-out of winnings arising from supposedly unlawful gambling could be regarded as money laundry resulting out of aiding and abetting the illegal organisation of gambling. This has added more pressure on state regulators to tighten the screws on casino operators especially where AML rules are concerned.

No doubt, it will further strengthen their resolve to maintain the status quo on the uncertain licensing regime prevailing in Germany.

George Mangion

Author: George Mangion
Published on Business Today 1st April 2019
Get in touch: info@pkfmalta.com | +356 21 493 041

The Reform of MFSA and Implementation of Vision 2021

Author: George Mangion
Published on Malta Chamber 1st April 2019

One welcomes the new financial crime compliance plan Vision 2021 announced by the Malta Financial Services Authority (MFSA). This move did not come a moment too soon. It is essential that the rules of doing business within the global financial system are not only well-written but also robustly enforced.

Over the two decades that the sector was piloted by Professor Joe Bannister as chairman at MFSA, he saw the financial sector grow from a modest size in 1994, to give birth to a reputable centre of international business. During Prof. Bannister’s watch, commentators lamented that MFSA’s autonomy from the strings at Castille was paper-thin, so it comes as no surprise that the International Monetary Fund (IMF) and other international organisations are now insisting on its operational independence.

The latest move to remove dead wood from the ranks by granting early retirement is noted, since challenges that are facing the incumbent CEO (previously the Chairman and CEO of the Malta Gaming Authority) are significant. The demise of private banks such as Nemea, Sata and Pilatus last year were the fruits of past decisions, but realistically, three bad apples in the barrel does not mean that the entire domicile is beyond redemption. One welcomes the latest IMF report which has been requested by the government, as it gives a very piercing analysis of the factors which attributed to the recent shortcomings in the banking sector. However, it complimented the superlative growth in the economy, in particular, the financial sector. This contributes 11 per cent to the gross value added and also accounts for more than 10 per cent of employment.

MFSA as a single regulator employs 320 professionals. This is no small team to oversee approximately 2,300 licensed entities but MFSA envisages the scope for regulation is growing and wishes to recruit another 160 trained staff in two years’ time. With the current shortage of local professionals, this can only mean enlisting foreign experts. In the wake of international pressure, MFSA now wishes to further tighten the screws by clamping down on potential incidents that lead to the path towards money laundering and terrorist financing. The new CEO wants to be seen as a colossus fighting the infidels that penetrated the fragile fortress, leaving in their wake a stigma of AML and terrorist financings decoys. He claims that Malta needs to grow responsibly and set standards which are in line or better than those of our peers in Europe. Stoically, he embraces technology and innovation, entering the fintech space with optimism and preparedness. This is all very grand, but it needs a higher subvention from Government, possibly reaching €12 million at one go. It is a fact that the annual surplus (circa €10 milllion) posted by the Registry of Companies has always helped fund operations at MFSA with the balance repatriated to Government. This can now be ploughed back to fund the above-mentioned reform.

So why is MFSA contemplating securing the extra funding needed for a transformation to be sourced out of an increase in fees-charged to the sectors and its practitioners? MFSA has long stopped financing promotion of the sector, rightly saying it cannot be seen compromising its impartiality. This is commendable, but then the sector has to be actively promoted to compete with other jurisdictions that are constantly fine-tuning their laws and financial concessions to lure blue chip companies. Practitioners, out of a sense of duty, do not think twice to dig deep into their pockets to tour the globe and promote the island. Together we can succeed to rebuild our ranking as a top-class domicile with the help of Vision 2021.

George Mangion

Author: George Mangion
Published on Malta Chamber 1st April 2019
Get in touch: info@pkfmalta.com | +356 21 493 041

AI invasion – is Malta ready?

Author: George Mangion
Published on The Malta Independent 21st March 2019

No article this week can fail to mention the current uncertainty that is facing the British economy due to the complex political manoeuvring on an agreed deal on how best to exit the EU. Be that as it may, the Western world is also going through other major changes in the political, economic and administrative fields. The advent of Artificial Intelligence (AI) is entering the economic stage through the backdoor but many feel that it is so powerful that we can only ignore its influence at our own peril. It is no minnow. Experts predict that it in 10 years’ time it will underpin $15.7 trillion of global economic growth.

Some fear it will wreck job opportunities and create mass unemployment in certain sectors yet others are less sanguine and think that it will simply transform current jobs and create new ones. The McKinsey Global Institute reckons that by 2030 up to 375 million people, or 14 per cent of the global workforce, could have their jobs automated away. Employers will have to decide whether they are prepared to offer and pay for retraining, and whether they will give time off for it. Many companies are sympathetic to the need for workers to develop new skills, but mass education is the remit of national governments and should not come at the employer’s expense.

This is debatable because less advanced countries do not have the resources to train workers to reach the higher technical skills required once the AI revolution becomes mainstream. Technological change always causes disruption, but AI is likely to have a bigger impact than anything else since the advent of computers, and its consequences could be far more disruptive. Being both powerful and relatively cheap, it will spread faster than computers did and influence many sectors.

Another important question is how to protect privacy as AI spreads. The internet has already made it possible to track people’s digital behaviour in minute detail. There is little doubt that in the coming years, AI will offer even smarter tools for businesses to monitor consumers’ behaviours, both online and in the physical world. This could become a threat to privacy.

A corollary of AI is machine learning. One can explain this as autonomous learning capacity which empowers a machine to learn on its own without being explicitly programmed. It is a subset of AI that provides the underlying system with the ability to automatically learn and improve from experience. Today, many US firms are competing to provide AI-enhanced tools to companies.

As can be expected, millions are invested to develop new technologies and companies that achieve a major breakthrough in artificial intelligence could easily race ahead of rivals and toughen global competition. More likely, in the years ahead, is that AI might contribute to the rise of monopolies in industries outside the tech sector where there used to be dynamic markets, eventually stifling innovation and consumer choice. The fear is that smart computer programs will eliminate millions of jobs, condemning a generation to minimum wage drudgery or enforced idleness.

Never mind the robots, fear the software as real-life experience has shown otherwise. For example, the arrival of automated teller machines (ATMs) spared bank employees the job of handing out cash and freed them to offer financial advice to customers. Obviously, some jobs could be made a lot easier by AI. One example is taxi drivers. Some fear that taxi drivers will be replaced by autonomous vehicles. But in future taxis will still be manned particularly when needed in town to manoeuvre around busy streets which are far harder to drive through than driving long distances down a motorway. Interesting advances powered by AI are happening in many medical areas in hospitals.

Other potential uses of AI is to detect cyberattacks, or coordinate fleets of drones, and it is useful for mass surveillance where many people congregate as there is facial recognition. Furthermore, increased automation gives more physical control to digital systems, which in turn makes cyberattacks even more dangerous. Regulation is needed to ensure that AI engineers are employing best practices in fighting cybersecurity and limiting the intrusion of cyber thieves especially in banks and sensitive data centres.

The fusion of AI and Blockchain systems will further enlarge the arsenal with tools for fighting cybercrime and make DLT databases tamper-proof. For example, when any transaction is recorded on blockchain that transaction is made known throughout the chain connecting users to each other. Therefore, it is not possible to tamper with a blockchain, which is why trust is built into the system rather than guaranteed by a ‘central owner’ of the data.

This powerful technology is silently ushering in the fourth industrial revolution. It will allow individuals to regain control of their own data, such as medical health or education records, and use it in ways that would not have been possible in the past. Blockchain and DLT technology will improve the tracking of intellectual property rights, as well as strengthen the concept of ownership in the digital sphere. Having discussed briefly the uses of AI, how can tiny Malta ever play a part in this success story? It so happens that Prime Minister Joseph Muscat has called for a global framework for regulating research into, and the development of, artificial intelligence technologies when he addressed a top conference in Shanghai China last year. AI, the internet of things and a best-in-class regulatory framework are now high on the government’s agenda, following the successful introduction of the world’s first comprehensive set of blockchain laws last year. Castille is smelling the coffee and the penny has dropped to lay the foundations for a digital innovation hub. The fly in the ointment is having superlative technical facilities to train a workforce with the right skills. It is a tall order, since millions are needed to train a workforce proficient in AI but it is never too late to start. The government recently announced the funding of a scholarship bourse for postgraduate degrees, as well as a lab to encourage the exploration of emerging technologies. One looks forward with courage to the next Delta Summit this year sponsored by the government with the hope that it will attract tech-evangelists and AI engineers to help us build a local ecosystem. One hopes this fulfils the vision of the prime minister and hallmarks his legacy at a time when he is rumoured to be contemplating his exit from the political stage.

George Mangion

Author: George Mangion
Published on The Malta Independent 21st March 2019
Get in touch: info@pkfmalta.com | +356 21 493 041