Covid-19: a Damocles sword poised over our heads

Author: George Mangion
Published on Malta BusinessToday 2 April 2020

Covid-19: a Damocles sword poised over our headsIn the meantime, the Damocles sword has sadly fallen on China. Clients of the Chinese export companies are gone, which is confirmed by many Western companies, as they report a lot of cancelled orders.

Comments about the Sars-Cov 2 virus have now become mainstream and there is very little one can add to the stark fact that Mother nature seems to chastise us (once every 100 years) with a global pandemic.

Obviously, for a tiny island which – during the past seven years was savouring the fruits of a balanced budget with a surplus and low unemployment – there were never any fears that a calamity was on the horizon. We have been constantly assured that Malta was basking in the glow of a cloud with an enormous silver lining led by a team of hardworking politicians in Castille.

We were reminded, every day of the dwindling number of unemployed and the generosity of the latest budget which sprayed pennies from the Castille chest to increase welfare benefits, top-up the minimum wage and reduce the number of families which annually fall in the poverty trap. It was “l-Aqwa Zmien” for all.

On the seventh of March, the sad news about the epidemic started to hit the local headlines, albeit people in China and South Korean started feeling the pain much earlier. The penny dropped as this never-ending nightmare started to intrude upon reality: there a great possibility for a huge loss of lives.

With alacrity came the message that the global economy was grinding to a halt.

Humanity is faced with a worldwide business lockdown and possible recession. Politicians across Europe have reacted compellingly to put money on the table so as to help the unemployed and shore up businesses – particularly those of public interest.

The seriousness of the matter can be gauged by reading circulars from accountancy bodies urging their members to consider the friability of clients when eventually reporting for the 2019 financial results.  Directors now have to ascertain if there is a risk that the respective entity will be facing a complete showdown of its activities.

Accountants and auditors are expected to be diligent when signing 2019 financial statements to comment on the appropriateness of the going concern assumption for the twelve months following the period end – ie end of 2020. Based on this risk assessment, auditors are to weigh the probabilities of their client surviving the pandemic and or otherwise in a worst-case scenario, to either qualify the audit report or place an emphasis on matter, plus the inclusion of a key audit matter.

Let us for a moment, examine the plight of the hotel and entertainment sector in Malta. Both have a huge workforce and saving jobs would also be critical from a socio-economic point of view. The mini-budget is offering a monthly subsidy of €800 for a select group of firms that retain workers. This is pennies from heaven but given that the average pay of workers is €1,650, this means that employers have to meet the balance from their resources – not easy when rooms and bars are empty.

These conditions are further impacted by debt which the hospitality sector has on books for building and upgrading the hotels. Malta stands to lose out on an estimated €3 billion in tourist expenditure due to the outbreak, which would send shockwaves through the entire economy since the loss of multiplier is enormous.

Experts contend that as an optimistic forecast, the islands will not see tourist arrivals beginning to recover until December. Pessimists forecast the tourism drought will stretch till the summer of 2021. Both the hotel, restaurants, and the manufacturing sectors are fearful that if not enough support is brought in quickly by the state they could find it difficult to sustain a comeback.

As a gesture of goodwill, some hotels have started giving rooms to the administration. This scheme is at a fixed cost for hundreds of persons who have been asked to be in self-quarantine by the administration for two weeks. Equally egalitarian, is a call to property owners from the Ministry for Health to offer accommodation to healthcare professionals free of charge’ or at a reduced cost.

Ideally, such accommodation will be temporarily used by professionals who opt not to return to their family home after work due to being exposed to Covid-19, so as not to put their families at risk. Be that as it may, the entire island is being cautioned to observe social distancing and only venture out for work or urgent visits to hospitals, buying of essentials, and to avoid crowds.

With everyone stuck at home and behind their video devices, there’s been an opening of the aperture for the digital content particularly for the thousand-odd teachers/lecturers who are busy designing online papers for students cocooned at home. This is a new social phenomenon that shows the extent that teaching practice has changed and teachers must now quickly convert to using the digital media, something which came as a sudden obligation.

Thousands of people/clients are staying connected, spreading both information and positivity through live, short, and long-form content, and it’s been inspiring to see how the island has managed to cope. But the same cannot be said about the film industry.

While more traditional mediums are feeling the acute impact of social distancing – film and TV productions are being shut down and they do not qualify for the €800 monthly subsidy. In this time of struggle, there are leadership lessons to be learned from bad situations, and strong leaders know that opportunity and innovation lie at the heart of any disruption or dramatic change.

When this crisis is over, many of the above-mentioned lessons might become standard business practices, so it’s worth taking notes on the many insights about how the pandemic has forced us to amend our lives. What was previously unthinkable in the workplace such as working from home, is now possible, and has highlighted the resilience of the human spirit.

The silver lining is China. There, people are back at work and nostalgically their daily life routines have returned as well. Even the travel ban in the Hubei province has been partially lifted. To conclude, the rosy picture is fine to kick-off with, as it proves that Covid-19 can be beaten, at least on the surface. For many individuals around the world, including investors in the financial markets, it might be significant to view China as “cured”, because it will initiate some hope about life in the future on the other side of the virus outbreak.

This alone can restore certain confidence among consumers, investors, etc. In the meantime, the Damocles sword has sadly fallen on China. Clients of the Chinese export companies are gone, which is confirmed by many Western companies, as they report a lot of cancelled orders.

Concurrently, the economies in Europe and the US face a slowdown and some businesses might never open again.

George Mangion

 

Author: George Mangion
Published on Malta BusinessToday 2 April 2020
Get in touch: info@pkfmalta.com

COVID-19 lockdown: Will Brexit end without a trade deal?

Author: George Mangion
Published on Malta BusinessToday 30 April 2020

Will Brexit end without a trade dealWithout wanting to sound biased in favour of the EU, one must admit that London’s role as a world finance leader could also be in jeopardy. We hail the recovery of UK prime minister Boris Johnson, who was recently released from hospital after a three-week convalescing period following his Corona virus infection. He proudly resumed meetings with top ministers and advisers at 10 Downing Street while thousands of UK citizens were facing the brunt of being locked down during the past eight weeks of the pandemic.

The UK’s economy was badly hit by the lockdown and its health authorities are battling the consequences of infections, amid even stricter orders for citizens to maintain social distancing. Measures were taken not only to protect the health of the most vulnerable communities, but also their quality of life more broadly – including their financial security, mental health, access to resources, and social relationships. Even so, the economic and social disruption is clearly visible.

The streets of London, so ever fully populated by Londoners and tourists alike – are now bare and gloomy. Elderly citizens and other vulnerable persons are cocooned at home with only limited scope for venturing out except for buying essential goods or visits to doctors. All airports are closed except for airlines delivering essential cargo and many fear the slowdown will proceed to become a full-blown recession unless a vaccine is quickly developed. Scientists, all predict that a fully tested vaccine which can be produced by the millions and distributed globally will take another year to surface.

This unexpected calamity has exasperated the country with a double whammy of a recession combined with the possibility of a no-deal Brexit. Brexit will undoubtedly bring long-term systemic changes to the UK economy, politics and society, and there continues to be uncertainty about how leaving the EU might affect the lives of the UK’s inhabitants. Ideally, a full equalities impact assessment is conducted examining the potential legal and socioeconomic effects of Brexit on different groups of people.

The concern seems to be that the economic costs of abruptly withdrawing from the European Union without a trade deal might be buried by Boris Johnson beneath the damage wreaked by the coronavirus. Can this strategy be resisted and normality maintained since it goes without saying that vulnerable groups will be affected?  Undoubtedly, there will be unintended consequences. The poisoned cocktail of Brexit and the coronavirus in the UK will probably affect badly the lower working classes and the disadvantaged, albeit to a different extent. Indeed, Brexit without a trade deal is likely to exacerbate some of the deleterious effects of the virus. It can be argued that leaving the EU without a deal will make it more difficult to fight the aftermath of a pandemic.

The UK left the European Union on 31 January 2020. However, after three and a half years of debate since the 2016 referendum, there remains a lack of clarity about the UK’s future relationship with the EU. Some observers predict that at the end of negotiations it will obtain a Canada-style FTA, plus side deals on fisheries, data, judicial cooperation, transport, and energy. Back to the virus syndrome, it is noted that the UK will not seek to maintain membership of the European Centre for Disease Prevention and Control (ECDP), which oversees the surveillance of communicable diseases, including coronaviruses. Also departed is the European Medical Agency being relocated in Europe.

It boasts a centralised procedure for licensing new drugs; or the EU Clinical Trials Register which is another casualty under Brexit. The UK left the EU at the end of January and is now excluded from EU decision-making – and any collective support packages, for instance, the EU’s Coronavirus Response Investment Initiative – on the pandemic. The British government has stated that it does not plan to take the option to extend the transition period by up to two years. To keep to its promise, the government announced that negotiations on the future UK-EU relationship will continue, but they would be conducted online due to the coronavirus.

One cannot but lament the loss of some EU nationals working in the health and social care sector since Brexit, at a time when they are most needed. Readers may ask – why is there so much fuss about the UK leaving without a deal? For a start, the consequences of an economic divorce will most probably leave some disadvantaged people with less financial and social resilience, therefore, more vulnerable to both Brexit and the coronavirus.

Time will tell if the Chancellor’s financial package to fight the outbreak will be sufficient to meet people’s core needs. Last week, the European Union’s chief negotiator, Michel Barnier, said progress in four areas of discussion had been “disappointing”, while a British statement said, “limited progress was made in bridging the gaps between us and the E.U”. One can never be fooled that having eight months till the end of the year is sufficient time to reach a trade deal on complex issues which took over 40 years in the making.  To be realistic, it is pushing it when Boris Johnson reiterates that there will be no extension beyond the end of the year.

There are complex matters to be negotiated starting on the critical issues of aviation to fisheries, new customs posts at the border and a new immigration system. Little can be more vexatious than agreeing on how best to set up new border checks for both exports and imports. This could result in higher prices, border backlogs and delays, and even shortages of staples, such as food and medicine. When the prospect of a no-deal arose last year, some British companies and citizens began stockpiling goods. Thankfully, one major hurdle was solved that in case of a no-deal this will not lead to a so-called hard border between Northern Ireland and the Republic of Ireland, but rather to customs checks on goods traversing the Irish Sea.

Last year, saw several international firms which shifted their investments from the UK to elsewhere in the EU. Aerospace giant Airbus is a prominent example, pointing towards a policy of directing funds and jobs away from the UK if there is no trade deal. Such moves could put tens of thousands of British jobs at risk. Without wanting to sound biased in favour of the EU, one must admit that London’s role as a world finance leader could also be in jeopardy. Previously, as a full EU member, the UK’s financial services provided 11 per cent of tax revenue; 44 per cent of exports go to the EU.

If the majority of economic forecasts are correct and the UK’s economy suffers post-a no-deal Brexit, the negative effect will have an impact on all those groups represented in the low-income bracket (i.e. ethnic minorities, the disabled, refugees and asylum seekers, people who are precarious workers) who rely more on public services and benefits and have less disposable income and spending power. For those living in poverty or homeless, or suffering job losses, these impacts will also be deeply felt.

One augurs that Boris Johnson takes the bull by the horns and prioritizes the immediate damages inflicted by the pandemic and in a pragmatic manner seeks an extension so as to be adequately poised to resolve the tangled web of Brexit.

George Mangion

 

Author: George Mangion
Published on Malta BusinessToday 30 April 2020
Get in touch: info@pkfmalta.com

Covid-19 Measures – Follow the latest Government updates and measures

Covid-19 Measures - Follow the latest Government updates and measures

Covid-19 Government Measures
In light of the global health crisis the world is facing, the Maltese Government has introduced a number of measures aimed at alleviating the unprecedented difficulties which are being faced by private businesses and households alike. To assist you in understanding how these measures can be of benefit to you and your business, we briefly highlight the most notable measures in our official summary document. Follow the latest Government updates and measures: here

Malta Gaming Authority
We have updated our Covid-19 Measures document with the latest updates from the Malta Gaming Authority.
Read the document in the link below: https://issuu.com/pkfmalta4/docs/covid_19_measures

PKF Malta
In view of the COVID-19 virus outbreak, kindly be informed that as from Monday 16th of March 2020, our offices will be temporarily closed. Our staff will be working remotely and can be reached via email. Our company services will continue as normal to limit unnecessary disruption. This is in order to safeguard the health and well-being of the staff, clients, and any third parties. #stopthespread

Malta’s Position on Medical Cannabis in 2020

Author: Jurgen Dalli
Published on:  13/04/2020 on PKF Malta website

Cannabis has undergone a normalizing process given its wide adoption, social tolerance and generally speaking a broader cultural acceptance; going from being branded as a gateway drug to being used as a therapeutic alternative to conventional medicine. However, one ought not to forget that recreational use of cannabis is illegal, giving rise to several sanctions.

Therefore, normification is more appropriate than normalization, given the barriers cannabis still faces. Drug stores are now providing medicinal cannabis to aid ailments and infirmities, and although not curative, cannabis eases and alleviates the sufferings patients go through.

Given the ever-expanding medicinal capabilities present today, Malta has followed suit pioneering countries such as Canada, and in March of 2018 has officially legalized medicinal cannabis. The Maltese government has adopted the ‘Production of Cannabis for Medicinal Use Act 2018’; an all-encompassing Act regulating which entities are eligible to distribute and grow the plant, the process through which interested parties have to go through to be able to distribute cannabis and the manner in which medical practitioners are to prescribe cannabis to their patients.

This legislation does not authorize the production of cannabis unless and until an acknowledged licence has been obtained. This obviously does not permit the harvesting or selling of cannabis for recreational purposes, leaving such activities illicit and illegal. To obtain the aforementioned licence, entities are required to obtain a letter of intent from the Malta Enterprise. In order to apply for the letter of intent, the applicant must submit all required documents, due diligence documentation and relevant authorizations from other entities.

The applicant must be in possession of the relevant qualifications in line with the Mutual Recognition Qualification Act and any other additional request from the Authority or Malta Enterprise. There must be conformity with any relevant international obligations resulting from any treaty that Malta may be a party to and that production of medicinal products corresponds to the criteria in the Medicines Act.

Refused applicants can appeal with the Licensing Appeals Board given; factual errors, material procedural errors, and errors of law and material illegality; including both unreasonableness and lack of proportionality.  Grounds of appeal are similar to those pertinent to Article 469A of the Code of Organisation and Civil Procedure, leading to Judicial Review.

A fee of €35,000 has been attached to the application and an equivalent annual fee has to be paid. Furthermore, entities are required to pay €1/unit product transacted, in fulfillment of research and education to be undertaken by the Medicines Authority.

The attainment of medicinal cannabis is possible through any Maltese doctor registered with Malta’s Medical Council and the acquisition of a prescription, however, medicinal cannabis may not be used as a first-line treatment, and doctors ought to prove that other alternatives were tried prior to prescribing cannabis. Upon adherence, the patient may then request a Drug Control Card; issued by Malta’s Superintendent of Public Health. This card coupled with an authentic prescription will enable patients to purchase non-smoke-able forms of medical cannabis directly from drug stores.

This nascent concept does not only provide new-found relief to people afflicted by illnesses but also introduces a vast array of economic opportunities. Cultivation of cannabis requires a sizeable quantity of staff to allow a smooth and pacey process and the local market would flourish with the creation of revenue from the exportation of cannabis.

The problem is the serious lack of information on medicinal cannabis; patients have commented on the lack of knowledge which is expected from medical practitioners, as some medical professions are reluctant to allocate marijuana as a form of treatment. Moreover, a simple consultation tantamount to an outstanding charge of €50. In relation to this are the hefty prices of the medication, patients have shown their dismay after discovering that some medication costs as much as €17 a gram, giving rise to a number of financial concerns as people suffering from these infirmities have limited working capabilities and hence a restricted budget. In addition, medicinal cannabis is not offered at a subsidized price.

One cannot separate cannabis from its long history as an illegal substance that is heavily abused. Stigmatization is a strong deterrent for many healthcare providers and uncertainty will only hinder the flourishing of the use of cannabis. The perception of the public needs to be updated, with the introduction of more information and frank discussions about cannabis, many would benefit. Continuous educational programmes for doctors and pharmacists are a must.

Similar to the medicine continuum, the beauty industry has jumped on the bandwagon. At the moment; CBD is one of the most buzzed words one will find in the beauty spectrum. CBD oil is cropping up in an increasing number of high-end creams, oils, and even mascaras. There is a difference between hemp-derived and cannabis-derived ingredients. Hemp oils are pressed from the seed of the plant, whilst cannabis-derived ingredients come from the plant itself. Whilst cannabis-infused products may suffer some form of scrutiny, hemp-infused products are completely legal given that their THC level is negligible.

The medical cannabis business in Malta has enjoyed a strong start and hit the mark right off the bat. Since the inauguration of this new sector in our economy, more than 46 international entities have applied to start investing in the sector, exporting to their subsidiaries and other subsidiaries all over Europe and the world such as Canada. Under the new Cannabis law, entities in Malta are allowed to produce, process, import, and cultivate cannabis for purposes of research and medicine.

However, they can only do so after being granted all the necessary authorizations, approval, permits, and licenses by the Medicines Authority. By November 2019, more than 26 projects had been approved in the field of medical cannabis, accumulating a capital investment of €153 million. This is a clear indication of just how the country has progressed in the area within a short period of one year after the law was introduced.

Some of the most notable entities in this industry are MGC Pharma, Columbia Care, Alvit Les Pharma, Aurora, Wayland, Affinity, Aphria, MPXI Malta, Bortex Group, Panaxia, Supreme and Nuuvera or ASG Pharma. All these entities undertook the tests imposed upon them by MSE and were issued with a letter of intent by the same regulatory body for their impressive effort and scores.

This rigorous and demanding selection process filters the best of the best entities and allows Malta to enjoy and boast an elite group of licensed medical cannabis providers whom share the vision set up by the Government. Malta opens its doors only to those providers who are not only serious but also to those who produce a genuine product and which will not tarnish Malta’s reputation. The applications were approved on the basis that they would create 700 new full-time jobs and supplement Malta’s exports by over €900,000,000 by 2022. Matthew Lawson, founder of the Canna Consultants explained that the pharmacy industry employs more than 3,000 people making up almost 15% of all people in the manufacturing sector in Malta.

Whilst Muscat boasted of the increased investment flowing into Malta, the PM emphasizes the vigorous verification process which was being adopted across the evaluation of the incoming propositions for collaboration. Muscat emphasized: “All the applications which were submitted, have gone through a minute evaluation process and a very thorough due diligence exercise, in order to ensure that only those applications which met our criteria and shared our vision were eventually approved.” This comes as a result of Muscat’s determination to attract the ‘right kind of business’. For this reason, the Malta Enterprise is said to have refused 19 proposals at the least.

Author: Jurgen Dalli
Published on:  13/04/2020 on PKF Malta website

Corona pandemic gives a boost to innovation

Author: George Mangion
Published on Malta BusinessToday 20 April  2020

One expects that in the near future, the exit path from lockdowns will be shaky, but enriched with a wealth of innovation and lessons learned to survive a new world. Living on this tiny island, we are constantly reminded by political leaders how the pandemic has a few silver linings – the air outside is healthy with less traffic pollution and the quiet in the streets makes us appreciate the beauty of mother nature blossoming unhindered in the best time of the year.

These are the only tangible benefits, given that the economy is on its knees and soon, we fear the onset of petty crime and theft revealing its foul head as can be expected from the thousands of unemployed cocooned at home and a larger number of employed workers being paid a social wage of €1200 monthly – not enough to meet expenses for a family. Equally in distress are a number of self-employed professionals including lawyers (Court is closed except for emergencies), engineers, accountants, notaries, dentists seeing their lifestyle wane and business revenue dwindle by the hour.

The killer virus is reported to have originated in China possibly due to humans having close contact with infected animals or by eating exotic food. It started in the Wuhan region, where inhabitants contracted the disease and thousands were forced into quarantine. This led to partial and full shutdowns of plants and factories in China, some of which were essential in the supply chain to service prominent Western technology companies. This, in turn, caused financial hardships due to the scarcity of certain items and higher prices due to the higher cost of shipping freight caused by the imminent collapse of major airlines flying cargo.

Indeed, we started reading how thousands of Chinese who were diagnosed positive started developing light symptoms, with doctors soon noticing that the virus may be easily transmissible even at an early stage of infection. Mother nature seems intent on chastising us for our deadly abuse of the environment and contamination of the ecology with massive over-crowding in cities and unbridled factory emissions in a concerted effort to boost GDP growth. The virus is fickle in its attacks on humans. It starts as a persistent cough which at first, one may overlook. Instantly, however, those with symptoms often feel unwell and take to their beds.

Acute cases involving vulnerable persons may lead to the patient’s demise, as so far there are no proven vaccines and the number of confirmed cases has risen to close to two million worldwide. Health authorities have cautioned citizens to stay safe at home and undergo 14 days quarantine whenever they visit infected areas. They said the virus hitches a ride on droplets of saliva that come out of the respiratory tracts of infected individuals. These may be expelled during normal breathing or, more commonly, as a cough that propels them a few metres into the air. Or they may land on a surface, on which the virus particles they contain could survive for hours, or even days, and from which those particles may eventually be transferred to others who touch the surface and then touch their own face or mouth.

For the first time, we are being cautioned about the spread of a nasty virus which the common man in the street never bothered to notice – until stark reality checked in.

History reminds us how over the centuries there were plagues, pestilence, and deadly viruses that decimated whole generations. Each time a plague rules over the earth, it leaves millions of people dead. Consequently, for a period there are fewer workers to till the fields or work in factories so human labour came at a premium. Wages rose and the land was plentiful as there were fewer people to share it with, and as worker’s wages rose, so did literacy, giving rise to new thinking and freedom of thought.

Typically, in the past, it was the great plague that made citizens realize that the medical system they had previously relied on did not work to keep them alive, and this spawned the birth of modern medicine, grounded in science and innovation.

The Malthusian theory comes to mind to explain such phenomena. Malthus is a philosopher/scientist who predicted in 1798, that when the rise in population is greater than the food supply, there is a condition of disequilibrium. In his essay, he remarked that during such a period of disequilibrium, people will be subjected to wars, epidemics, famines, starvation, and other natural calamities which are named nature checks by Malthus.

Simply put, Malthus says that when humans fail to control excessive population growth, nature plays its role. The theory may not be totally valid nowadays since food supply has increased exponentially due to heavy investment in farm technology and the planting of better crops but the wrath of Mother nature manifests itself prominently in severe climate changes, hurricanes, and other natural catastrophes.

On the other hand, one may concede that the planet today is facing threats in all aspects of human existence – be this in terms of inequality in the global distribution of wealth, corrupt governments, avarice in public procurement, rapidity in depletion of natural resources, and decadence within State governance.

Notice the displacement of millions of migrants in the Middle East and in a host of other countries. But it is not all doom and gloom.

Pandemics breed innovation and accelerate change by providing an environment for launching and testing new ideas. Today’s coronavirus is already changing cultural and business norms shaking to the core those norms, we have taken for granted for decades and centuries.

One can mention two key areas where innovation has already borne fruit. Consider how intensive use of telehealth and teleconferencing facilities are becoming critical for enterprise operations to survive lockdowns during the pandemic. Remote working was already on the rise, but “working from home” is now the new normal.

This is the 2020 survival technology. It will lead to changes in the traditional workplace impacting teamwork, productivity, collaboration, human interaction, and communication. Since the coronavirus outbreak, there has also been marked investment in factory automation and remote operation that has brought forward improvements not expected for some time to come.

Anna Shedletsky, the boss of Instrumental, a firm that uses machine learning to help manufacturers improve their processes, says that in electronics manufacturing “we’re going to do five years of innovating in the next 18 months”. With more people having to work remotely, a lot of international travel could come to be seen as unnecessary, and companies may bring supply chains closer to home to avert disruptions. One expects that in the near future, the exit path from lockdowns will be shaky, but enriched with a wealth of innovation and lessons learned to survive a new world.

Some firms will emerge too weak to face the new dawn but others that embrace innovation will discern a stimulating Eldorado road leading to a pot of gold. In conclusion, the EU has allocated €500 billion to stem the tide – one hopes that some of it percolate into business accelerators to help start-ups in their quest to drink from the chalice of innovation. But this may just end up being a Utopian dream that will never materialise in a planet reigned by multi-nationals.

George Mangion

 

Author: George Mangion
Published on Malta BusinessToday 20 April  2020
Get in touch: info@pkfmalta.com

2020: A year which sets the cat among the pigeons

Author: George Mangion
Published on Malta BusinessToday 9 April 2020

a year which sets the cat among the pigeonsIn Malta, with an aging population and a growing trust gap between politicians and ordinary people, the lack of adequate investment in physical, social, and economic infrastructure is further accentuating the problems caused by the coronavirus pandemic.

With most professional staff in the financial services and banking sector working from home, now for the fourth week running, one cannot but reflect how our lives have changed dramatically listening to the regular daily sad news about the spread of the pandemic.

This fills the media waves making our subconscious feeling depressed and bereft of new inspirations. Can you blame us when none of us cocooned at home can look into a crystal ball and know exactly where we will be in the summertime? But if we will be in a bad place, we can make smart decisions not to slacken our resolve and keep up with the social distancing as advised by the health authorities.

We are witnessing how political leaders are constantly vying for attention reminding us that the sun will soon shine over the cloudy days that lie ahead of us in this Good Friday week.

Little can we empathize with how the elderly, vulnerable persons and pregnant women project their future in these dismal times. It is in the spirit of solidarity and other Christian virtues that we must support them in their temporary isolation as advised by the health authorities.

The bitter pill is the need to face the boredom of staying indoors and contemplate on their lack of mobility and human interaction. The picture they get from the media is that there is no way we can avoid drinking from the poisoned chalice of a pandemic – it comes with no known date of closure.

Recently, the unexpected happened with the entire Ħal Far open centre put under quarantine to try to contain the spread of COVID-19 after a number of migrants contracted the virus. Now, that the inevitable has happened, and the army has been called in to keep guard at the open centre, we need to ensure the response to close the entire compound is grounded in solidarity and protection.

Society needs to come together to help an estimated 1,000 residents in Hal Far who often lack basic items on a good day, let alone when they are unable to work for a quarantine period of 14 days. It is then up to our political leaders to think outside the box and in a non-partisan manner share the burden of the suffering among all and sundry.

This is a call for common sacrifice, burden-sharing, and cohesive national policy. We have thousands of healthcare workers and other public servants putting their health and lives at risk to treat those infected both now and in the future. Can we give them a bonus in recognition of their extra duties?

We have teleworkers denying themselves not only the luxury of social life but the necessity of the company of their own families and loved ones at a time of great psychological stress in order not to risk contaminating them.

It is no comfort to hear stories of privileges enjoyed by political cronies who seem to have a grip over the state coffers to stick the snouts deeper in the country ’s trough.

The news that AirMalta has sacked all its part-time cabin crew and wants to trim off pilot salaries to €1,200 monthly is a strong message that the burden needs to be seen to be shared equally with other state employees.

This, of course, has been recommended by a sociology professor from university who suggests that a flat percentage is cut off all state employees’ salaries barring those who work in difficult environments such as the health, army, and police workforce.

Such a wage cut can be pooled into a fund to buy health equipment such as ventilators and secure alternate accommodation in hotels for the hundreds in quarantine. The noble gesture of three ministers who waived a month of salary is a gesture that should be replicated by other top salary earners in about 300 government agencies/regulators who may in a magnanimous move share the suffering of many business owners who have lost all trade since the beginning of March and face zero revenue with no reduction in operating expenses.

The government has not reduced any electricity tariffs neither taxes on fuel (even though oil prices are down to almost 35%). Business owners are making sacrifices to try and not to sack staff and to switch to working online at home. Can they succeed in keeping the commerce afloat? One cannot be so sure.

Granted that hotels, restaurants, bars, travel agents, casinos, owners of shops of non-essential goods, hairdressers, gyms, and many others cannot work remotely. There is some government aid for an effort not to terminate employees while others are making full use of leave entitlement. Typically, large hotel chains have placed their workers on a two-day routine and are trying to reduce their operating costs in the most pragmatic way.

Employees will be working from home for the first time, which means figuring out how to stay on task in a new environment that may not lend itself to productivity. But there are ways to deliver results and avoid going stir-crazy, from setting up a good workspace to the way you link to your team.

The challenge of remote working depends solely on who is managing the workers to maximize productivity, so traditional processes may not apply. Leadership practices must change for an organisation to get full value from telecommuting staff.

This means that with all good intentions and best endeavours companies admit that the teleworking performance will never match that which occurred when office routine was the norm.  Efficiency and productivity suffer in the long run.

In fact, the Economist Intelligence Unit (EIU) forecasts that the global economy will expand by a mere 2.4% in 2020. It notes that rich economies are expected to grow at roughly the same uninspiring pace as they did in 2019. A continuation of the global slowdown in manufacturing will also drag down growth worldwide.

In just two weeks, the newly unemployed in the United States are now more numerous than all the new jobless claims from 2008 to 2010 during the entire Great Recession. These unemployment figures are likely to be just the tip of the iceberg when it comes to the effects of the COVID-19 outbreak distorting economic activity.

In Malta, with an aging population and a growing trust gap between politicians and ordinary people, the lack of adequate investment in physical, social, and economic infrastructure is further accentuating the problems caused by the coronavirus pandemic.

Consider the three abrupt top ministerial resignations which have left a sour taste among the party faithful and the Opposition baying for retribution concerning a number of major political scandals that were regularly disclosed in a public blog by the assassinated journalist – Daphne Caruana Galizia.

The damage to the island’s reputation caused by such scandals as a financial domicile is palpable. The ECB’s recent reprimand to Bank of Valetta over AML and governance issues did send shock waves since this is a major bank which now, due to the Corona slowdown, is postponing its dividend payment.

In conclusion, the pandemic has galvanised the nation into strengthening the three pillars of governance, rule of law, and democracy.

George Mangion

 

Author: George Mangion
Published on Malta BusinessToday 9 April 2020
Get in touch: info@pkfmalta.com

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