End of silly season heightens an expectation of a COVID vaccine

Posted on September 3, 2020January 19, 2021 by Colette Mangion

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

New Worldwide Tax Guide Published By PKF International Out Now

Posted on September 2, 2020January 19, 2021 by Colette Mangion

2nd September 2020

https://www.maltachamber.org.mt/en/new-worldwide-tax-guide-published-by-pkf-international-out-now

The guide for 2020/2021 includes details on the taxation and business regulation regimes of 146 jurisdictions, including Malta

tax

The new Worldwide Tax Guide 2020/2021 has been published by PKF International, giving detailed reports on the taxation and business regulation regimes of 146 jurisdictions including Malta.

Each country report outlines the major taxes applicable to businesses, plus the country’s personal tax regime, with key points compiled by PKF experts in each region. PKF International is a global network of accountancy firms – which includes the Malta outfit, PKF Malta.

“Given that a country’s tax regime is always a key factor for any business considering moving into new markets, this guide helps to answer accountancy professionals’ and international businesses’ most pressing questions when looking to expand or set up in a new jurisdiction, including around corporate tax rates, incentives for overseas businesses, whether there are double tax treaties in place, and how foreign source income might be taxed,” he said.

A statement announcing the publication said that the production of the Worldwide Tax Guide is “a huge team effort” and the result of the work of tax experts within PKF member firms across the globe. These provide the information on their respective country’s taxes, which is then included in the publication.

“This edition of the PKF Worldwide Tax Guide is even more sought after due to the current socio-economic climate we are living in, during these times of the COVID-19 pandemic, and the importance of knowledge in making good business decisions. In addition, the guide provides a very good and detailed section related to tax in Malta, which is beneficial to its readers in Malta and abroad,” said Mr Mangion.

For a copy of the Worldwide Tax Guide 2020/21, contact PKF Malta on info@pkfmalta.com, +356 2149 3041 or visit PKF Malta’s official website.

One hopes for a rainbow once the storm subsides

Posted on August 27, 2020January 19, 2021 by Colette Mangion

Author: George Mangion
Published on Business Today 27 August 2020

Back home, we are still waiting for the resolution of the ill-fated deal which the State has also suffered heavy losses from signing the Vitals Health scheme (mysteriously waived to Steward Healthcare US) which was a PPI intended to run and renovate three major public hospitals.

Dark clouds overshadow our reputation as a top financial services sector amid challenges coming out of allegations of corruption and cronyism which recently culminated in the resignations of two government ministers, Attorney General, Police Commissioner and the Chief of Staff.

The constituted bodies joined in a chorus to condemn the damage inflicted from allegations – some even pointing to a potential link to criminals within a political class masterminding the assassination of journalist Daphne Caruana Galizia, who heavily criticised eminent members of government and other political plutocrats. The journalist was vigilant in her regular contributions exposing alleged tales of corruption and sleaze in top circles.

Before the brutal assassination three years ago, her investigative skills led to the sensational scoop about the Pilatus bank (audited by KPMG) money-laundering allegations and the two secret Panama companies registered by Nexia BT for the Prime Minister’s Chief of Staff and the Tourism minister. It is openly known that Nexia BT gained prominence within Castile circles acting as personal advisers.

At that time, the Opposition party demanded resignations but only after acute civil protests did some follow. In the midst of this acute uncertainty, one hopes that the controversy will quickly resolve itself and closure is reached to the satisfaction of all bystanders who are concerned about the rule of law and justice.

People of goodwill pray for an immediate return of business as usual and that political serenity returns to the island. It goes without saying that achieving exemplary economic results will not be guaranteed in the near future until normality returns. Not surprisingly, the business community augurs that no effort is spared by the political class for an honourable solution and justice is seen to be served in apprehending the mastermind(s) behind the macabre killing of Caruana Galizia.

In the meantime, the majority wish to continue unfazed in their daily life and each in their way pray for a quick resumption of calm after the storm. The people are fed up hearing both political parties bickering. The COVID pandemic has destabilized our tourism sector and the second wave seems to resurrect fears of another prolonged shutdown.

As always, it is not all doom and gloom. The untiring efforts of Malta Enterprise in its mission to pay for furloughed workers was well administered. Trade Malta has gone dormant due to travel restrictions yet in the past it tried hard to organize business delegations to attract new industries. This includes aviation, oil rig repairs, medical cannabis, Blockchain, A.I, Fintech, generic pharmaceuticals and high-security currency printing. Massive strides are being made in technical services such as repair and maintenance of complex aircraft engines.

Lufthansa Technic is reported to have invested last year a substantial sum to build additional hangars to expand its aircraft repairs facilities. It appears that as if by stealth, the economy is undergoing a nose dive due to the second wave of COVID infections which so far has exceeded in numbers the first lockdown which ended successfully last May.

Be that as it may, we are trying to upgrade productivity and the 2021 budget will be a tough nut to present as the surplus has been eaten up by various recovery funds. The Chamber of Commerce has presented a study on how the economy can sail through such difficult times. Among other suggestions, it called for a reduction in travel and hospitality vat rates and an extension of the furlough scheme until an effective vaccine is developed.

The opposition also extended its scheme of subsidies but few think that the state coffers can afford them. Mirages of better times touted as “AqwaZmien” make us feel nostalgic. At this junction, many ask how much of the exemplary growth of 6% in GDP recorded last year was due to exports of goods or was it artificially based predominantly on a hike in domestic consumption. The answer is that it was the latter which contributed to the lion share of GDP growth.

Such prosperity was headed by the finance ministry which took a serendipitous switch to Keynesian policy. This saw heavy funds allocated to large road infrastructural projects, higher welfare subsidies apart from sponsoring a private unitive to install a new electricity plant running on LNG. The feelgood factor encouraged unprecedented capital investment by the private sector in luxury construction projects.

Indeed, one acknowledges the advantages of a paradigm shift in Malta Enterprise policy to help attract more business. One smart move is to provide custom-built factories. The recent building of more custom-made factories such as the extension of PlayMobil, Lufthansa engineering and Crane Currency speaks volumes on this positive aspect. It goes without saying that modern large-scale manufacturing survives competition due to the use of robots and automation.

Malta Enterprise helps directly in reviving manufacturing prowess as the sector is seen to be more resilient to the fledgeling financial services sector (lately underwater due to adverse MoneyVal comments).

This begs the question – whether the government, which in the past has misfired on its PPI policy (eg VHL hospital deal, Montenegro wind farm, and American University project) is working?

Should the government continue to attract interest from international public institutions/utilities by entering into Public Private Partnerships (PPI)? Taking a leaf from the financial loss suffered in the UK when we read about the collapse of Carillion (the second-largest contractor and health services provider) which entered into a public private initiative scheme – regrettably propelling it into a legacy of debt.

This PPI strategy was popular in Britain to attract fat investors to run big–spender departments such as roads construction, healthcare and schools. This policy was in vogue at a time when over-crowded public hospitals in the UK necessitated huge expenditure when austerity measures were de rigueur. The smart antidote by the Conservatives was not to burden the country with debt needed to manage new hospitals but to subcontract such onerous projects to the private sector.

As can be expected due to creeping inflation in medicines, health services in the UK which were procured at cutthroat prices saw the private sector sweat under rising costs. Such losses could not be relieved due to fixed-rate contracts. This measure sent Carillion penniless running to the liquidator’s arms.

On a positive note, we hope that the 2021 budget will show us the path to recovery – a Herculean task for sure.

Author: George Mangion
Published on Business Today 27 August 2020
Get in touch: info@pkfmalta.com

Drafting a COVID recovery – free markets, government intervention, monetarism or bust?

Posted on August 26, 2020January 19, 2021 by Colette Mangion

Author: George Mangion
Published on The Malta Independent 26 August 2020

On 7 March Malta woke up to the first case of COVID-19 and a few weeks later, the health authorities reacted efficiently by imposing national wide orders for social distancing and wearing face masks, imposing lockdown of many sectors, the closure of all sea and airports: the latter opened (some say rather hastily) to welcome visitors in mid-July.

Businesses operating within the tourism and designated retail sectors came to a complete standstill. In a panic move to safeguard jobs, the government-financed a furlough scheme. Lobbyists assured it will be sufficient to fight the first wave and driving the “R factor” below one. Cavalier attempts were drafted to help firms improve access to credit by issuing free guarantees to retail banks from a State development bank when the former lend to firms in distress.

The take-up was modest, so the question on everybody’s lips is: what is the best medicine to administer to the patient? Lately, much to the chagrin of many, who made untold sacrifices during the rigid three-month lockdown, the island’s health defences were breached (due to political rhetoric “let us enjoy summer” brandishing rave parties hubris) and, as predicted Malta has been hit with a second pandemic. Most EU countries are greylisting it as a risky tourist destination.

Nobody can bring the genie out of the bottle, so let us briefly review how since the post-war period, successive governments experimented with various economic remedies. This debate on free markets dates back to 1776 and since then no consensus was reached as to which strand of economic thought is most efficacious.

One of the biggest advocates for a market rule model was the 18Th-century economist, Adam Smith. In his seminal treatise, The Wealth of Nations, Smith argues that having everyone act in their own self-interest leads to an optimal outcome. In other words, Smith proposed that by giving everyone freedom to produce and exchange goods as they please (free trade) and opening the markets up to domestic and foreign competition, people’s natural self-interest would promote greater prosperity than with stringent government regulations.

This free-market doctrine implies that in the absence of government intervention and with everyone acting selfishly, the market would eventually reach equilibrium on its own, as if by an “invisible hand”. Another argument emphasised by advocates of free markets is personal freedom. Government intervention is likely to take away some of the freedom that citizens enjoy in terms of what and how much to consume. Economists argue that under this regime, producers are incentivised to produce what consumers want at a reasonable and affordable price as if guided by the invisible hand.

Moving on, modern markets follow a capitalism economic system, simply put that private individuals own capital goods such that production is based solely on the markets’ supply and demand rather than through central planning, so popular in totalitarian regimes. Almost all of today’s economies feature elements of “free trade” laced with a varying degree of government intervention. The justification for government intervention is that free markets do not always lead to an optimal and efficient outcome, so intervention is de rigueur.

Typically, government intervention can improve society’s welfare when there are market frailties, for example, monopolies, oligopolies, cartels, externalities, and the abuse of common property rights. Hot on the heels of the chaos bequeathed at the end of the Second World War, one reads about the dominance of a British economist John Maynard Keynes. Keynes advocated an expansionary fiscal policy to stimulate aggregate demand and hence pull the global economy out of the depression. More specifically, Keynes argued that in order for an economy to improve its conditions, greater government expenditure (direct injections to the economy) is required while simultaneously reducing the leakages within the economy by reducing taxes.

With lower taxes and greater government expenditure, the money supply within the economy increases. As the money in circulation increases, households and firms are able to spend and invest more money, hence stimulate aggregate demand. Likewise, one observes how this was the motor that fuelled the exemplary GDP growth in Malta, which in 2018 alone exceeded 7% (the highest in the Eurozone). Many recall, how rapid expansion of aggregate demand since 2013, was a consequence of an explosion in residence permits issued to expatriate staff (apart from the millions collected from the sale of passports and a runaway property bubble).

These contributed in no small way to a higher consumption generating unprecedented levels of economic activity, boosting output to meet the new higher demand. As employment levels grow, people’s disposable income increases, to further lift one’s consumption and stimulate more affluence (albeit an artificial one).

In short, in the post-COVID slump, our political leaders can take a leaf from Keynes theory to reduce consumption taxes, invest more in much-needed infrastructure projects, and spurned with EU recovery stimulus funds, bet on quality tourism. Start by trimming down excess bed stock and non-performing property loans (an albatross around the neck of banks). Moving on, we notice how Keynes’ philosophy dominated the first half of the 20^th century, which was then superseded by the economic theories proposed by Milton Friedman. Friedman developed a “Monetarism” theory.

One may remark that this theory proved successful for the short term but post the 2007/9 crisis, it lost its shine when the globe is facing an acute slowdown. Since the global recession of 2007/9, after the ploughing in of massive TARP rescue funds in the USA, the global economy took an unusual pattern. It manifested anaemic growth with an unusual cocktail of low unemployment, low inflation, and low-interest rates. This turned the creed of the classical economist upside down and led to a massive drive by central banks to indulge in Quantitative Easing to calm the waters.

Back to Malta and a sure-fire solution is not easy but certainly surgery is better than tinkering with palliative care. Both tourism and credit institutions have reported weak results. A maverick elixir will see the government set up an SPV, which can buy non-performing assets, such as those hotels and non-performing loans, including any collateral assets and over a period of five to 10 years manage such a toxic portfolio until an equilibrium level is reached. Certain hotels saddled with a dismal ROI can be acquired by the Fund and acreage transformed in recreational parks or erecting more affordable social houses, thus embellishing the island and rendering social value to society. Alternatively, a piece meal solution by populist tinsel will simply squander millions and administer a band-aid plaster when only surgery has the magic cure.

Author: George Mangion
Published on The Malta Independent 26 August 2020
Get in touch: info@pkfmalta.com

The fate of the furloughed force

Posted on August 5, 2020January 19, 2021 by Colette Mangion

Author: George Mangion
Published on The Malta Independent 5 August 2020

What is the term furlough? This is a term, few of us were aware of until the Coronavirus lockdown, but it has recently become a lifeline for many people and businesses. The logic of furlough – keeping workers attached to their employer through this crisis so the business can restart operations rapidly when it’s over – carries strong political support.

The scheme is preferable to mass redundancies now and attempted re-employment later. The argument goes that keeping workers linked to their employers by way of a wage subsidy gives a measure of continuity. Otherwise, if the company sacks its workers, it often loses the skills and knowledge of that particular worker, who is matched to that specific firm.

Politicians will argue that lay-offs could slow down any expected and potential economic recovery, since rehiring and training workers in the private sector may be substantially costly. This is particularly true for workers who have acquired job-specific skills. In their case, it may be beneficial for firms not to let them go but retain them on their books and with the help of Malta Enterprise pay them a reduced wage.

In theory, this looks logical but in practice firms, which are under lockdown, face other problems of cash flows resulting from ongoing weak demand for their products or services. Obviously, any cash reserves in companies will quickly dry up if when returning to normality they discover that demand for their products or services has diminished.

Banks are not likely to fund such companies seeing them as bad risks unless backed by a no-frills government scheme or a central bank makes good collateral for such risky lending. Another major problem for local companies in wholesale, retail, and services for the domestic market is that the feel-good factor among consumers is low.

Obviously in Malta, even though the government started last month issuing free cash vouchers to all residents, in an altruistic effort to boost demand, so far it failed as the spirit is willing but the body is weak. Furloughed workers are by their nature risk-averse and trim down consumption patterns to bare essentials. This creates a dominos effort on domestic demand and slows down commerce. They don’t know when they will be able to restart operations as the supplement scheme ends in September.

In the case of hotels, food services, and kindred activities they are rather disappointed at the low turnout of visiting tourists when the ports were re-opened on 15 July. They expected 10 times more in arrivals and are doubtful if the marketing drive by the Malta Tourism Authority to attract mass foreign youth parties will do the trick. What is helpful is the decision by Malta Enterprise that is adjusting the wage supplement parameters in an effort to continue supporting the hardest-hit sectors and provide a tapering of aid to all other activities during this regeneration period.

Simply put, selected businesses that are adversely impacted by the economic repercussions of the COVID-19 pandemic (or had to suspend operations ordered by the Superintendent of Public Health temporarily) are entitled to up to a wage of €800 for full-time employees and €500 for part-time employees. The basic gross of €800 per month for a full-time employee can be topped up by €400 by the employers to fight redundancies and furloughs. Observers point to a disruption of major supply chains and weakening of aggregate demand through individuals’ lower consumption patterns.

On the bright side, the good news is that the unemployed force did not skyrocket after the three months of the lockdown. Party apologists wax lyrical that the Malta Enterprise scheme provides a welcome boost to bolster cash flows and, therefore, to ratchet aggregate demand, thus helping to sustain national income and employment levels.

What happens when the tap is turned off at the end of September? Unfortunately, with the dismally low rate of tourist arrivals, there is reduced scope to keep hotels and restaurants and most Valletta souvenir shops open. Some major hotels are considering closing for the rest of the season and reopen in Easter next year when they hope the golden era returns.

Business lobby groups have raised the alarm over a potential wave of redundancies when the scheme ends. The dilemma for many businesses is that they do not know what will be the state of demand for their goods and services in the coming winter months. Many suspects that it will not be as strong as it was prior to the lockdown.

If that is the case, they may feel the need to reduce their workforce especially if, God forbids, there will be another surge of COVID-19 infections that will trigger a second lockdown. This is happening in Israel as they have been somewhat careless about the handling of the pandemic and have locked down for too short a period. Now, they are faced with shortages of hospital beds and ventilators due to the galloping number of victims.

Back to Malta – it is known that in the early 1980s we suffered chronic high unemployment. This had applied the brakes on the economy. Upon reflection, it is not a moment too soon that the Commission last week agreed to a massive €750bn recovery plan. Such a positive agreement is expected to result in productive capital being regenerated, while the long-term productivity of the economy is pushed upwards.

On the dark side, they need to glance within the context of tax policies. In other words, Malta Enterprise’s cost to support such a furlough scheme, in combination with the deferring of the majority of income tax payments and the declared tax holidays for businesses in various sectors of the economy, is expected to incur a substantial increase in budget deficits, with further repercussions for public debt levels.

Such debts clamour for additional tax burdens in years to come. Critics question whether the expensive furlough scheme was money wasted should there be a second severe wave of infections (like what is happening in China, Spain, and Australia). Have we kept zombie companies, such as hotels, resellers, self-employed, etc. alive and paying people whose current positions may not be needed again? As the scheme tapers off before ending in September, redundancy is back on the cards.

No marketing effort should, therefore, be spared by the MTA so that recovery is hastened. It goes without saying that the millions paid to furloughed workers and the issue of free cash vouchers by the state was a palliative and not a permanent cure.

Such money went to temporarily suppress the queue of the jobless but did not solve the lack of domestic demand. The lyric of the furlough workers wafts gently in the waning rays of the winter sun.

Author: George Mangion
Published on The Malta Independent 5 August 2020
Get in touch: info@pkfmalta.com

A watershed of EU funds over the next seven years

Posted on July 23, 2020January 19, 2021 by Colette Mangion

Author: George Mangion
Published on Business Today 23 July 2020

This time, the majority of Malta’s allocation will come in the form of cohesion funds, which are EU funds intended to reduce economic disparities between regions. Prime minister Robert Abela reported from Brussels with great aplomb announcing that Malta is set to receive about €2.4 billion in aid over the next seven years. Such positive news came after a tiresome four-day summit, where the 27 EU countries agreed on an unprecedented €1.8 trillion budget. This is a historical occasion given the opposition of the so-called “frugal four members” who opposed the granting of €500 billion (part of a €750 billion COVID-19 economic recovery fund) in direct grants to help ailing economies such as Italy, Spain, and southern Med countries.

The allocation combines just over €1.9 billion in funding allocated to Malta from the EU’s core budget – its multiannual financial framework, as well as €327 million granted as part of a coronavirus stimulus package. As a parenthesis, last month Prof Scicluna warned against the use of the grants saying they may come with conditions to be imposed on Malta to accept a tax harmonization scheme which will cripple its attraction as a friendly tax domicile.

Let us give some background to this triumphal scoop by prime minister Robert Abela. During the EU’s previous budget round, for the 2014-2020 period, Malta was allocated €1.1 billion through the EU’s budget.

This time, the majority of Malta’s allocation will come in the form of cohesion funds, which are EU funds intended to reduce economic disparities between regions. Malta stands to receive €934 million in such funding and €191 million in funding for agriculture. It is interesting to observe that €101 million of this combined cohesion policy and agriculture allocation are from the COVID-19 recovery package.

On strategic investments, research and innovation, and the environment, the funds reach €162 million, of which €16 million are from the post-virus stimulus package. With hindsight, one recalls that Dr. Gonzi, the Prime Minister who was re-elected in the 2008 election, was ebullient announcing then that in the 2006-2013 budget period, Malta had benefitted from almost €1 billion.

At that time Malta’s GDP exceeded the EU 75% average, possibly resulting from the admission of poorer countries which revised the average downwards – to Malta’s detriment. The good news of the €2.4 billion EU allocation over the next seven years has to be seen in the background of a €2 billion extra borrowing to finance various recovery schemes.

Debt may reach 60% of GDP by the end of the year (up from about 47%). The constituted parties criticised the government saying that the recovery packet paying an €800 (less 10% FSS) monthly for each furloughed worker was a short-term measure especially for hotels, restaurants, and a few other sectors. The entire economy was hard hit by the four-month lockdown ordered by the health superintendent.

Ponder on the stark fact that such sectors faced zero revenue during the lockdown and most retained their workers on condition that they top-up salaries by €400 to the €800 received as a wage supplement. This has temporarily restrained the jobless queue (aid expected to end by September) otherwise about 20,000 are technically idle by end of September.

MHRA had cautioned government that unless the seaports and airport are immediately opened for business, then the 9,000 full-time workers (and 7000 part-timers) in hotels will face dismissal. The rushed decision to open for visitors is a risky one considering that the second wave of COVID infections had gripped certain European countries.

It is no surprise that the perennial question of safety first at the cost of economic survival was a ranging topic on social media. The opening of the airport on 1st July, alas resulted in only a trickle of visitors (mainly on low-cost airlines) and reality has dawned on us that the return to pre-COVID conditions will take years to be reached.

A recent Deloitte study, (commissioned by MHRA) shows inter alia that the drop in hotel revenue in 2020 due to the sharp decrease in guest booking might leave some hotels facing a wipe-out when it comes to cash generation. Deloitte advised that the sector needs the right corrective action to ensure the tourism industry is in a position to rebound when the pandemic is over.

Deloitte’s Financial Advisory and Hospitality Sector Leader, in its survey had analysed international consumer sentiment survey data in Med countries to discover that one cannot realistically expect an accelerated recovery of global tourism trends. In summary, some of the more important observations include that 65% of international hoteliers believe that they would not achieve pre-COVID levels of business before 2023.

A possible five-year hiatus is a dire picture for the local hotels and restaurant sector which has been painstakingly built over the past 50 years. Now with more EU funds at our disposal, we may sit back and rethink a permanent remedy to the fallacy that over the years, we went for the quantity not quality.

The rates charged at top hotels in Malta are still competitive but at their level, they cannot sustain the requisite quality so the image of a “sun, sea and cheap beer” island has been exacerbated by the sponsoring of low-cost airlines. The mantra “go for quality, not quantity” has also been the battle cry of ecologists who oppose the idea of 3 million airline passenger plus another one million cruise liner arrivals which up to last year were clogging our roads and contributing to unprecedented air and noise pollution.

The MHRA, also called for more embellishment on the island to attract better-paying tourists. The solution is ephemeral. Unless a root and branch overhaul is made of hotels and other restaurant amenities which are under-performing then we continue to dig our own hole-deeper. Ideally, we take a leaf from the Irish solution to their problem of a collapsed property sector which in 2007 sent its main banks to the bankruptcy register.

In September 2008, Dublin made a decision to offer a blanket guarantee to its banks, tying the solvency of the state to the health of Ireland’s financial and property sectors. When the crisis gathered pace the government was forced to inject €64bn into its main lenders, eventually forcing the country into an EU and International Monetary Fund bailout.

A brilliant solution was to set up an SPV – special purpose vehicle – to buy and manage the debts. Likewise, a Malta administration (with private shareholders) can set up an SPV (or a Foundation) to acquire at current market values selected under-performing hotel properties and restaurants.

Over a five-year scenario, these assets will be acquired by the SPV, pulled down and public gardens and/or social housing facilities will be built – thus trimming a surplus low-performing bed stock. The SPV can make use of the COVID recovery funds just announced in Brussels to help pave the way to reform our holiday resort industry (balance funded by MDB).

Pray, let us go for quality, clean air and upgrade the island’s credentials.

Author: George Mangion
Published on Business Today 23 July 2020
Get in touch: info@pkfmalta.com

PKF Malta unveils the concept of the bitpod

Posted on June 23, 2020January 19, 2021 by Colette Mangion

Author: George Mangion
Published on Malta Independent 23 June 2020

An 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. Many fear that AI will offer even better tools for businesses to monitor consumers and employees, both online and in the physical world. The McKinsey Global Institute reckons that by 2030 up to 375m people or 14% of the global workforce, could have their jobs automated away. Bosses will need to decide whether they are prepared to offer and pay for retraining and whether they will give time off for it. Many companies say they are all for workers developing new skills, but not at the employer’s expense.

One may question: how can Malta gain from the wave of popularity that is gripping the ubiquitous sector of AI and 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 sets. It is trendy to read the latest AI topics in mainstream news. It is no exaggeration that, AI has become a catch-all media term that refers to any computer program that automatically does something. Many people make reference 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. In hindsight, we note how Malta started two years ago started to toy with the novelty of the Blockchain technology-one that gave birth and support to virtual currencies. It passed a number of laws to regulate the blockchain and its derivative services.

It is all a matter of trust while the government spared no expense to sponsor mega conferences two years ago. How can we square the circle? Mindful of the legal and technical minefields that lay ahead the government formed a committee of experts to help design and draft parameters leading to a safe framework and good governance in the field of Artificial Intelligence. It is an open secret, that our 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. This a noble thought, but in truth one cannot compete on cutting edge research – by simply reciting Hail Marys. Applied research costs millions. Artificial intelligence and robotics are two “overnight successes” 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 revolutionary paradigm shifts. The impending age of smarter robotics will certainly have a profound impact on traditional manufacturing; for instance, the health sector in Malta will soon make use of robotics to allocate medicines to patients and assist in useful operations taking place in the operating theatre. This initiative, will spearhead other uses in the manufacturing sectors and create interesting scenarios in areas of productivity, safety, service, transportation, land registration, and police records.

More will be revealed 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 specialized services that will speed productivity. They will impact every area of our lives. As was the case of the internet revolution, some of the novelties will happen in a gradual, evolutionary way; but some will leapfrog in a sudden, revolutionary manner. Back to virtual currencies and the advent of blockchain, we can predict that once a vaccine becomes mainstream as a panacea for Covid19 infections then if we play our cards well (and MoneyVal concluding report is favourable) – Fintech will be attracted to Malta.

One hopes that no effort is spared by the authorities to attract banks that are friendly to virtual currencies since, at present, banks in Malta do not support Bitcoin although last year the Hon Silvio Schembri assured all and sundry that efforts are in the pipeline to attract newcomers. So far, more than two dozen VFN agents have been appointed, so one hopes that banks will soon start rolling out the red carpet. It is good to note, that PKF Malta has committed itself to make an investment towards embracing Blockchain in Malta. The investment will be made in developing bitpod, which will function as a quasi-lab, to comprise a live project dedicated to fuelling research and development with a special accent on the emerging fusion between technology and the financial world.

Commenting about DLT and PKF’s commitment to invest in this technology, the writer is of the opinion that “Distributed ledger technology and virtual financial assets will play an important role in the V.R. experiment. The bitpod experiment will include a technical publication showing a compilation of the findings, observations, conclusions, and results. In addition to the bitpod facility, complementary bitpod sessions will showcase a series of working sessions in a casual format, once again aimed at provoking thought, ideas, and novel discussion with local as well as international patronage.

In conclusion, PKF commends the good work and foresight being manifested by the Government as it encourages the private sector, to follow suit in this remarkable journey that promises to leave an indelible mark on our economy. As a nation, regrettably, we rank last in the list of EU countries where spend on innovation is concerned. Perhaps now with a €750 billion post-Covid 19 rescue package (currently being discussed in Brussels), one hopes that the purse strings will open. Malta qualifies for allocation of one billion euro and the EU wants this fund to target green ventures, agriculture, and environment objectives.

Author: George Mangion
Published on Malta Independent 23 June 2020
Get in touch: info@pkfmalta.com

Rounding up of toxic assets laid bare by the pandemic

Posted on June 16, 2020January 19, 2021 by Colette Mangion

Author: George Mangion
Published on Malta Independent 16 June 2020

Many will remember the collapse of the Irish economy in the 2008/9 global recession when all the three national banks had to be bailed out. At that time, the huge exposure of Irish banks on real estate and loans to developers resulted in a property crush.

The American term for such under-valued collateral is toxic assets and a quick decision was taken by the Irish Central Bank in 2009 to round up all debt in a moribund company called NAMA – in order to deal expeditiously with non-performing property loans acquired from Irish banks. This move was a smart way to clear the banks of devalued properties in their books which they held as collateral for loans that went bust. History seems to repeat itself.

The latest Covid19 pandemic has left its toll on the stock markets. The rout in equities is coupled with the sharp decline in the price of oil amid a collapse in demand for energy. This resulted in Saudi Arabia abandoning attempts to limit supply but instead focused on increasing its market share with the oil price tumbling by more than 30 per cent.

In Malta, during the global recession, banks did not suffer such a catastrophe since the property prices did not collapse so severely and banks were more diversified and better capitalized. This year, faced with the drop in demand, the developers association protested and lobbied with the government for assistance. It is true, the property market took a nose dive and this is reflected by the hundreds of idle property negotiators (not funded under Annex A or B wage supplement scheme). Rentals also suffered, particularly in the luxury market sector.

It is obvious that with 11,000 unemployed and many workers living hand to mouth with a minimum wage supplement there is little room for profligacy. Experts, predict a drop in money in circulation. This is expected to reach €1.5 billion in lost tourism revenue and its multiplier effect this season due to closed ports and airports. The energetic rush to open the latter for traffic by the end of June, is not expected to open the floodgates for hordes of visitors checking their TripAdvisor app for the best hotel and restaurants. This fact will be a major contributor to a fall in domestic demand brought about by the drop in tourism and the sudden repatriation of third-country nationals (TCNs). On average there are approximately 75,000 fewer persons/consumers living in Malta (including tourists and TCNs) than there were in June 2019.

NAO informs us meekly that the accommodation sector has contracted by 18% in the first quarter. To boost demand, we need to lure back TCNs and create more jobs. As a start, Identity Malta needs to expedite the extension of work permits of TCNs who are still in employment when they expire. In spite of the crisis, there is still a demand for foreign labour in areas where no Maltese employees are available. The so-called “recovery budget styled multimillion” has left an ephemeral feel-good factor but the opposition disagrees with its design saying when the demand is low, one would have expected taxes to be lowered to encourage spending. The opportunity to reduce the soaring cost of living by lowering consumption taxes (as Germany did for a transition period) was resisted. A mere 2% drop in fuel prices and a 50% cut in electricity cost for selected entities (these consist mostly of firms being paid wage supplements with their operations on hold) looked parsimonious given the severe drop in demand.

Now would have been an ideal opportunity for the government to offer tangible sums for those companies which make new investments post-Covid19 in anticipation of growth next year, with enhanced incentives channeled towards green economic activities, agriculture, and innovation. The novel idea of issuing 320,000 free vouchers of €100 each to the families is an effective way how hotels, restaurants and other shops can attract business albeit for a temporary period (vouchers mostly cashed by St Maria feast in mid-August).

It is advisable that strict measures are in place during the security printing of vouchers, so as to avoid counterfeit ones being peddled in shops and restaurants. This three-month plan is complemented by a €900 million loan guarantee fund for both small and large companies, which is underwritten by the Malta Development Bank in conjunction with a number of local commercial banks. Technically, MDB will be guaranteed 50% of the total exposure for banks. The treasury just heaped more debt by borrowing €2 billion in bonds locally.

This is a bold attempt by the government (knowing how over liquid local banks are) to kick start a new wave of company initiatives to help them finance recurrent expenditure at a time when domestic sales are down or export orders slashed. Much depends if the second virus wave does not morph into a larger swathe of infections ahead of the time when an effective vaccine is rolled out. The Malta government’s drive to oil the machinery and provide much-needed liquidity is also mirrored with similar action taken at the European level.

In fact, Europe is about to mobilize trillions of euros to bolster the region’s economy, aimed at shielding commercial banks from any second fallout from the crisis if rising unemployment chokes off the income needed to repay loans. Similar to what occurred in Ireland during the last global recession, the ECB had set up a task force to look at the idea of a “bad bank” to warehouse unpaid euro debt. Progress on the scheme had accelerated in recent weeks. The amount of debt in the eurozone that is considered unlikely to ever be fully repaid already stands at more than half a trillion euros, including credit cards, car loans, and mortgages, according to official statistics. It goes without saying that debt is set to rise as the Covid-19 outbreak squeezes borrowers and could even double to one trillion euros, weighing on already fragile banks and hindering new lending.

Malta qualifies for one billion in aid out of the war chest of €750 billion touted to be used to provide financial assistance under the auspices of the European Stability Mechanism. The concept of toxic assets in bad banks, and the ECB blueprint, could come up for discussion among central bank governors and ministers later this year. Note how, when the pandemic struck, banks in Italy and Greece, for example, were still recuperating from the fallout from the past global financial crisis more than a decade earlier.

In conclusion, Malta ushered a fourth mini-budget to take us gingerly up to September and then the future beckons. This may be an unadulterated populist way to calm the nerves of workers having been cocooned at home for the best part of four months. The fly in the ointment is that it is not a long term plan. More like “we cross the bridge when we come to it”. Surely, an important piece of advice is to avoid a ‘short-term-ist’ attitude as Malta deserves a vision on how to focus on a longer-term recovery horizon.

Author: George Mangion
Published on Malta Independent 16 June 2020
Get in touch: info@pkfmalta.com

Eating out… at last

Posted on May 26, 2020January 19, 2021 by Colette Mangion

Author: George Mangion
Published on Malta Independent 26th May 2020

The predicament currently facing restaurant owners is a real one as they miss a champion to represent them in their quest to recoup losses faced during the three-month lockdown since the imposition of the COVID-19 health directives. This week, an ebullient prime minister announced an easing of regulations to allow restaurants to open under certain conditions. The Malta Tourism Authority promptly reported to the press that it had received some 860 calls mostly from those within the hospitality sector since the lifting of measures was announced.

Restaurateurs called to ask about various aspects of the protocols and what they need to do to become fully compliant in the shortest possible timeframe. The Chamber of Commerce insisted that businesses should be given a clear and safe direction on the way forward in a “responsible and structured manner”. In its own words, the Chamber remarked that: “At the same time the country ought to continue to give due weight to the nation’s economic needs as well as the physical and mental health of our people.” In plain words the conditions imposed for restaurants and cafeterias to open, varies for indoor and outside catering.

For indoor dining, there has to be a reduction in covers such that the maximum number of diners will be one for every four square metre with a minimum distance between seatings of two metres. This condition will reduce risks regarding transmission of infection but of course reduces the number of covers by half. Tables have to be limited to groups of not more than six diners from the same household. Other conditions include disinfection of tables and chairs after each use with menu and wine lists replaced with single-use sheets. For outdoor dining, which is the preferred option, again, same conditions for distance and family groups apply and no smoking is allowed.

As can be expected, the MTA said that it had received some 860 calls (one wonders if they tape all calls to be so confident on numbers) mostly from those within the hospitality sector since the lifting of measures was announced. No doubt, restaurateurs typically queried details of the protocols and what they need to do to comply with inspections by MTA, which started mid-week to certify the 157 eateries that accepted the conditions to start operations (but restaurants can still open in the meantime).

Certainly, state TV was lauding this as a triumph for common sense, hoping that the chance to recoup part of the income forfeited for the past two months will encourage more restaurant owners to accept to restart operations. MTA hoped this will encourage the rest of the 2,000 restaurants and cafeterias to join in the scheme. One would have to wait to see how profitable the new scheme is, given that most probably, due to reduced covers, the operational costs will be higher, while most expect the spending power of some diners to be subdued. Certainly, the heavily reduced number of patrons (especially as there are no tourists) may render the operation non-viable unless menu prices reflect a hefty markup.

One may argue that having a soft opening is better than total closure of the business since chefs and the support staff can at least become active. No study has been announced by the authorities to guide restaurant owners whether it pays to accept the conditions for a partial opening and guide them on the cost of health insurance against the incidence of risks of infection from catering staff or diners. On a positive note, Malta Enterprise stated that, in a spirit of support for the hospitality sector, it will continue to pay the “minimum wage” supplement for next month. This is welcome news, but as far as the viability of the industry is concerned it is a stop-gap solution and unless seat availability improves, then it is certainly a critical time for restaurant owners. Perhaps, this goes to prove why only about 9% accepted the offer to open.

A major issue is the cost of food, which has gone up since the outbreak of COVID-19. Quoting Eurostat, Malta last month experienced the highest monthly increase in inflation across the EU. Inflation went up by 2.9% in April when compared to March. By comparison, this sweetener occurred when last month quarry owners halted the construction industry as they refused to accept more construction waste in their sites unless the industry agrees to pay them double the rates per ton.

Within two days, an agreement was reached between the parties on condition that government lowered the VAT chargeable to 5% while quarry owners reduced their rates to an acceptable level. Can a similar solution be applied in the case of VAT chargeable on diners? A fair solution is to achieve parity in VAT rates by reducing them to match those charged in other Mediterranean countries. This article explains how taxation of catering establishments (whether it is fast food or silver service) can be improved by lowering VAT to 7%.

One hopes it will result in cheaper meals. This will match the lower rates charged by our competitors in the Med. It is no secret to note Luxembourg charges only 3% on food. Another novelty is Greece. At the peak of the Greek financial crisis, in September 2011, the VAT rate for non-alcoholic restaurant sales increased from 13% to 23%. Yet following pressure from the sector, government was persuaded to reduce it to 13% in August 2013 for a two-year experimental basis during which it transpired that more taxes were collected. Catering in all-inclusive hotels in Malta is charged at a composite VAT rate of 7%.

In the context, it is interesting to recall how three years ago, The Malta Independent on Sunday interviewed Julian Sammut about the future of the industry. He is managing a number of outlets at Kitchen Concepts Ltd, part of the giant food wholesaler and import firm Alf. Mizzi & Sons. In his candid interview, he did not mince words and elaborated on the problems then besetting the eateries. The root of the problem lies in tax evasion, both on VAT, payroll and corporate taxes while lamenting that kitchen and waiting staff from non-EU countries are engaged for long hours at low rates. Chefs, who are the fulcrum around which quality turns, demand high salaries, sometimes only partly declared. In a nutshell, restaurants located in prime sites are facing increasing rents, now linked to a drastic reduction in the seating capacity, as stated earlier and increased food costs.

These combined factors push owners to either hike up menus or conversely be tax compliant and barely cover overheads (but retain staff). Some face failure. The spectre of rising rents and licenses makes one doubt if the landlord is earning more than the catering operator, who risks so much time and energy to meet all the health and safety requirements. Now due to the COVID-19 regulations, they are facing reduced revenue but no reduction in fixed overheads. A reduction in VAT on catering will encourage more patronage during these difficult times and if the experiment works, it will save government future monthly wage supplements.

Author: George Mangion
Published on Malta Independent 26th May 2020
Get in touch: info@pkfmalta.com

Thinking of a Keynes recovery plan with a China’s wink

Posted on May 19, 2020January 19, 2021 by Colette Mangion

Author: George Mangion
Published on Malta Independent 19th May 2020

Joseph Muscat (see picture) last week was present at a late Friday’s night meeting at Castille to present a post-COVID recovery plan to his former legal consultant (now Prime Minister). This plan includes a suite of measures described as “a mini-budget” that if adopted in its entirety can be rolled out in stages over the coming months.

Many were curious to know the content of this silver bullet which potentially could save us from the pangs of a dreadful pandemic. The plan is rolled out on the basis of four scenarios and gives a prognosis that is well structured. In any case, among other things, the bearer of the Invictus tattoo is also advising Castille to announce a tax holiday on property sales and purchases intended to stimulate the housing market. On a positive note, Muscat’s report predicts that the Maltese economy will go back into positive territory “in all four” scenarios.

As can be expected, in the relapse scenario there will be no recovery by 2021 from the loss suffered this year. This is a sober destiny for a small island, which under the baton of Joseph Muscat up to last Christmas, was hailed as the best-performing economy in the Eurozone. So, do we need Muscat’s magic touch to rekindle our fortunes, once a vaccine is produced and be accessible globally?

Certainly, the lure of Keynesian economics (so loved by Muscat) to increase demand is a panacea for growth. It supports an expansionary fiscal policy. Ideally, the government should start spending on infrastructure, create a stimulus (for example, lower taxes on food consumption and so on and introduce a living wage), and kick-start the Gozo tunnel with a metro link to the mainland. These will certainly drive aggregate demand based on controlled deficit spending and loans from outside sources. It should nurture the four factors of production.

At this junction, it comes to mind the ambitious agreement entered into with China. The agreement was signed by Foreign Affairs Minister Carmelo Abela in the presence of ex-Prime Minister Joseph Muscat and He Lifeng, the chairman of the Commission for National Development and Reforms. This agreement will be providing a framework for future investments, projects, and cooperation in commerce, tourism, and financial services between the two countries. Malta and Italy are among the first European states with which China has made such an agreement. Critics said this was no milestone. It was a renewal of a previous one signed five years ago and encapsulates the wishes of China in its unique policy to trade and negotiate more business with other countries. Party apologists laud the historical trade agreement signed in Shanghai, a city that since the 14th century has developed into a world financial centre and now boasts of the largest container port in Asia.

Malta and China agreed to strengthen bilateral cooperation in both banking and insurance, and from the China side the MoU encourage Chinese financial institutions, namely banks, insurance companies, and companies operating in the Fintech sector, to establish a branch in Malta. Such an expansion in the banking sector by Chinese investors has already been functioning successfully in countries including Ireland and Luxembourg. So, Malta can think big and sharpen its tools to reform its banking infrastructure.

Other aspects, where collaboration with China can flourish, is in the logistics sector. So far, it has acted as a transportation hub and a growing intersection between East and West. Other areas to watch are blockchain, aviation, logistics, innovation, and artificial intelligence where Malta started to be seen wanting to jump on the bandwagon of these technologies. Malta has often remarked positively that its vision is to embrace cutting edge technology, with Malta Enterprise taking a proactive role.

Back to the China connection and its proclaimed policy of “one belt, one road” as this comes at an opportune time when China is slowly recovering from the Coronavirus crisis and its factories are gathering momentum. It continues to invest its own version of Silicon Valley in Shenzhen located near the Pearl river delta. At this technical hub, China is pouring millions to lure talented persons to team up as start-ups aided with venture capital and subsidized laboratories looking into cutting edge robotics, AI, and related technologies. Be that as it may, post-pandemic Malta needs all the financial help it can get to rebuild its economy, regenerate GDP, and start repaying debts.

Malta’s economy has previously tasted the sweet aroma of full employment, with average salaries going higher and the quality standards of living gradually percolating to the lower echelons of society. So, it is interesting to give a little background on China’s ongoing initiative to expand trade beyond its borders.

China’s policy over the past centuries helped to establish the Silk Road, a network of trade routes that linked China to Central Asia and the Arab world. In 2013, China’s president, Xi Jinping (see picture), proposed a plan to launch a modern equivalent, creating a network of railways, roads, pipelines, and utility grids that would link China and Central Asia, West Asia, and parts of South Asia. This initiative aims to create the world’s largest platform for economic cooperation, including policy coordination, trade, and financing collaboration and social and cultural co-operation.

To revive trade, President Xi Jinping allocated a massive sum of $900bn to fund a global initiative and one hopes that this treasure chest will be generating a positive multiplayer effect in a number of countries. In Israel, we read about Hutchison Water International as one of two companies to have reached the final stage of the tender to build the Sorek B plant, set to be the largest desalination facility in the world, alongside IDE Technologies. Hutchison is owned by Hong Kong-based holding company CK Hutchison Holdings. Other deals are in the pipeline: one in Italy which last year signed a co-operation and trade agreement with China.

This begs the question – how can Malta stand to gain in this initiative? Can Malta succeed to attract Chinese investment to set up an extension of their R&D initiative into Europe following the renewal of the MoU signed in Shanghai? This is not a pipe dream. Just consider how Malta attracted substantial investment through Shanghai Electric to convert the BWSC plant to run on modern technology using LNG.

Welcome: the latest news by infrastructure minister Ian Borg that tenders will be issued for the commencement of a 13km long subsea tunnel. This comes at a propitious time to revive employment lost in the hospitality sector. It is rumoured to be broadly linked to an island-wide metro mass transit system. The dawn of new normality awaits us.

Author: George Mangion
Published on Malta Independent 19th May 2020
Get in touch: info@pkfmalta.com

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