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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

George Mangion

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

Online gaming in Germany – a legal minefield

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

George Mangion

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

AI invasion – is Malta ready?

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

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

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

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

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

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

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

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

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

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

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

George Mangion

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

Artificial Intelligence: ignore at your own risk

Author: George Mangion
Published on Malta Today 21st March 2019

The advent of Artificial Intelligence is entering the economic stage through the back-door but many feel that it is so powerful that we can only ignore its influence at our own peril. It is no minnow.

Experts predict that it in ten years it will underpin $15.7 trillion of global economic growth. Some fear it will wreck job opportunities and create mass unemployment in certain sectors yet others are less sanguine and think that it simply transforms current jobs and create new ones.

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 feel sympathetic towards the need for workers to develop new skills, but mass education is the remit of national governments and should not come about at the employer’s expense.

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

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

This may become a threat to privacy. A corollary of AI is machine learning. One can explain this as autonomous learning capacity which empowers a machine to learn by its own without being explicitly programmed. It is a subset of AI, that provides the underlying system with the ability to automatically learn and improve from experience.

Today, many US firms are competing to provide AI-enhanced tools to companies. As can be expected, millions are invested to develop new technologies and companies that achieve a major breakthrough in artificial intelligence could easily race ahead of rivals and toughen global competition.

More likely, in the years ahead AI might contribute to the rise of monopolies in industries outside the tech sector where there used to be dynamic markets, eventually stifling innovation and consumer choice. The fear is that smart computer programs will eliminate millions of

jobs, condemning a generation to minimum-wage drudgery or enforced idleness. Never mind the robots, fear the software.

But real-life experience has shown otherwise. For example, the arrival of automated teller machines (ATMs) spared bank employees the job of handling out cash and freed them to offer financial advice to customers.

Obviously, some jobs could be made a lot easier by AI. One example is taxi drivers. Some fear that taxi drivers will be replaced by autonomous vehicles. But in future taxis will still be manned particularly when needed in town to manoeuvre around busy streets which is far harder than driving long distances down the motorway. Interesting advances powered by AI are happening across many medical areas.

Other potential uses of AI, is to detect cyberattacks, or coordinate fleets of drones, in hospitals and where many people congregate it is useful for mass surveillance through facial recognition. Furthermore, increased automation gives more physical control to digital systems, which in turn makes cyberattacks even more dangerous.

Regulation is needed to ensure that AI engineers are employing best practices in fighting cybersecurity and limiting the intrusion of cyber thieves especially in banks and sensitive data centres.

The fusion of AI and Blockchain systems will further enlarge the arsenal with tools for fighting cybercrime and make DLT databases tamper proof. To give an example, when any, say transaction, is recorded on blockchain, that transaction is made known throughout the chain connecting users’ to each other.

Therefore, it is not possible to tamper with a blockchain, which is why trust is built into the system rather than guaranteed by a ‘central owner’ of the data. Thus, this powerful technology is silently ushering the fourth industrial revolution. It will allow individuals to regain control of their own data, such as medical health or education

records, and use it in ways that would not have been possible in the past. Blockchain and DLT technology will improve the tracking of intellectual property rights, as well as strengthen the concept of ownership in the digital sphere.

Having discussed briefly the uses of AI, one may ask if and how can tiny Malta ever partake of this success story. The answer is blowing in the wind as it so happens that Prime Minister Joseph Muscat has called for a global framework for regulating research into, and the development of, artificial intelligence technologies when last year he addressed a top conference in Shanghai China.

AI, the internet of things and a best-in-class regulatory framework are now high on the government’s agenda, following the successful introduction of the world’s first comprehensive set of blockchain laws last year.

Castille is smelling the coffee and the penny has dropped to lay the foundations for a digital innovation hub. The fly in the ointment is having superlative technical facilities to train a workforce with the right skills. It is a tall order, since millions are needed to train a workforce proficient in AI.

But it is never too late to start. Government recently announced the funding of a scholarship bourse for post-graduate degrees, as well as hosting a lab to encourage the exploration of emerging technologies.

One looks forward with courage to the next Delta Summit this year sponsored by the government with the hope that it will attract tech-evangelists and AI engineers to help us build a local ecosystem. One augurs this fulfils the vision of the prime minister and hallmarks his legacy at a time when he is rumoured to be contemplating his exit from the political stage.

George Mangion

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

The Evolution of Malta’s Rental Market

Author: James Camilleri
Published on Malta Chamber 4th March 2019

Contrary to what is being experienced in this decade, in the previous century, rent regulation in Malta was terribly rigid, creating other types of problems. During the Second World War, various legislative enactments were targeted at the dire situations of a population devastated by hardship. However, these pieces of legislation remained in place even after the conflict between nations subsided. This inertia of the lawmaker made relations between landlords and tenants very problematic and handicapped the rental market.

The Maltese population generally leans towards home-ownership, and though this may be influenced by several factors, the lack of adequate regulation of the rental market is bound to be a contributing factor. The present rental market is a knot the Government needs urgently to unravel, and yet previous experience has proved that it is a minefield no legislator can lightly tread through.

The Parliamentary Secretariat for Social Accommodation within the Ministry for the Family, Children’s Rights and Social Solidarity had issued a White Paper Consultation ‘Renting As A Housing Alternative’ from 15th October to 30th November 2018. The amendments being proposed included the establishment of a period of one year as the minimum length of a residential lease and duty of landlords to give a suitable notice period of their intention not to renew a lease. The deposit requested on the signing of lease agreements is another currently unregulated area of the rental market that would benefit from legislative intervention. This, in fact, is an element of property leasing that is causing instances of abuse both from the side of landlords and from tenants.

Revising the rate of rent within a lease period is yet another cause for contention between landlord and tenant, as landlords wish to be able to periodically revise the rate of rent to be close to the market value, whereas tenants are reluctant to see the rate of rent increase. This in turn leads to landlords offering short leases rather than longer ones. It is hoped the proposed registration of lease agreements will have the desired effect of ensuring there is a check on the agreements’ compliance with new regulations, possibly avoiding the risk of tax evasion experienced in the past.

It is the lower income-earning tenants or would-be tenants that are facing the worst cases of strife, for example, by being outbid by groups of eight or more foreigners who are unwittingly capable of sharing an apartment intended for two or three persons. The harsh reality is that people who cannot cope with the recent property market price hikes are being pushed into the dreaded state of homelessness. The White Paper mentioned above envisions the setting up of a department for overlooking the rental market falling under the Housing Authority. In essence, a rental contract would need to be registered with this department, including a form from utility billing company ARMS indicating who the tenants on the contract are. As already mentioned, the deposit at the point of contracting is a possible cause for contention and the White Paper sees this amount being declared along with the said registration. Registration of a rental contract will be the responsibility of the landlord, although a tenant may register the rental contract should the landlord fail to do so.

The changes in social and economic realities being witnessed are creating tensions in the property market that should have been tackled by the legislator many years ago. But it is useless pointing fingers at previous legislatures. The present Government needs to urgently intervene, while keeping in mind the mistakes made by post-war legislators, where over-regulation lead to stifling of the market.

Author: James Camilleri
Junior Legal Assistant, PKF Malta
Published on Malta Chamber on Monday 4th March 2019.

PKF greets a land reclamation dream

Author: George Mangion
Published on Malta Today 21 December 2018

During a business trip to Singapore, I was fascinated by success in many sectors notwithstanding the fact that the country possesses no mineral wealth. Singapore is roughly twice the size of Malta but houses over six million citizens in a densely populated area. Singapore has a GDP per capita of $93,900, while in Malta, the GDP per capita is nearly half.

It comes as no surprise that over past decades Singapore has invested heavily in land reclamation including a massive Freeport and construction of international airports. So finally, Malta is contemplating going the same route by using the massive tonnage of debris expected to be generated from the Gozo tunnel towards land reclamation.

As can be expected, the subject of land reclamation is resisted by environmentalists and NGOs who militate against it saying such measures will upset the ecological, scientific and archaeological habitat amid other cultural values. Meanwhile, it follows that due to Malta’s size, its growing population density and burgeoning tourist sector any political announcements to encourage land reclamation are welcomed by property magnates.

Others claim top priority should be given to social housing. Of course, this is what the Housing Authority is doing – that is inviting developers to come forward to form a joint venture to finance the redevelopment and rehabilitation of derelict or vacant houses.

This is a noble cause but in the meantime, in my opinion, there is nothing to stop us from attracting new investment to emulate Singapore’s success in land reclamation. Let us stop and ponder how Malta and its geology as an island with relatively soft rock have over millennia suffered continuous erosion by mother nature.

“Being contrite, we need more elbow room to be able to enjoy spatial living conditions”

It is true that as an over-populated island, unfortunately not blessed with natural resources such as minerals, mountains or rivers, we survived handsomely and developed our skills and productive abilities to finely balance our trade balances. Currently, with low unemployment, politicians remind us that we rank as the fastest growing economy in the EU. Being contrite, we need more elbow room to be able to enjoy spatial living conditions.

Back to the subject of land reclamation, on visiting the Planning Authority website, one reads that in the past it commissioned two major studies on the subject. One dates back to 2005, which explored the idea of disposing construction waste at sea, and another feasibility study was completed in 2007 in two specific areas.

This resistance to large scale reclamation may be due to the fact that there was no foresight about a Gozo tunnel/bridge to be commissioned, even though this was mooted in each election manifesto. Unsurprisingly, there was some sympathy from PA towards a particular site of the coastline near Qalet Marku.

If it were not for the rich habitat of seagrass, one can use building debris from both the DB project and the Gozo tunnel to create a cluster of islands. Unofficially, we heard that an ERA study prefers the site at Xaghjra since the Qalet Marku site features seagrass listed as a protected habitat by EU. Naturally, the construction lobby is very much in favour of large scale land reclamation closer to the Madliena golden mile which can yield virgin land for development.

This will inevitably reduce pressure on ODZ use but designs have to blend and respect with sensitivity the aesthetic value and historical significance of the chosen site. Ideally, the Xaghra pristine coastline coincides with a political policy to move tourism to the south. Linking the southern coastline to Smart City and embellishing it with a modern promenade will support multifarious commercial, cultural and recreation activities.

Reflect on how we created a striving cruise liner industry in Valletta and Cottonera by building new jetties – on reclaimed land. Environmentalists need to balance their opposition and carefully weigh the advantages of achieving a better standard of living away from the frenzied high-rise cacophony at Tigne and Paceville environs.

Certainly, land reclamation is not new to the Maltese islands and here I can mention with pride the privatised Freeport terminals in Birzebbuga (employing thousands) and the platform on which the Shanghai Electric power station stands. One remembers with nostalgia how reclamation improved the logistics at Msida.

Originally when the parish church was built it was facing the sea. Really and truly, there will always be an ecological price to pay. The hardest hit, from a purely environmental standpoint, is obviously the seabed. Its integrity in terms of physical characteristics is ruined due to wiping out any biodiversity thriving on a particular site.

The obvious collateral damage to the Posidonia oceanica meadows (seagrass) that lie over large tracts of seabed at shallow depths around Qalet Marku merits serious consideration. Needless to say, 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 ethnic species and other marine organisms.

Also, any illegal dumping of inert waste at sea to build retaining walls for breakwater extensions disturbs the water column, contributing to turbidity. Ecologists warn us that substantial dumping takes ages to settle down as disturbed sediment on the seafloor and unassailably 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 specks of dust produced as a result of heavy machinery to move material – cannot be underestimated.

So now that the Government is keen to issue tenders to excavate a 13-kilometre-long subsea tunnel, evil tongues will start to wax about the sensitive process how to select the preferred bidders. The tunnel is certainly a controversial topic that has long fired the ambition of savvy politicians yet also divided opinions on the justification of its massive cost just to placate a daily hustle of a few thousand commuters.

Alternatively, pundits say commissioning a fleet of fast ferries can instantly solve the connection conundrum. Lest we forget – the country is still stuck in a €6 billion debt mountain. The question, therefore, stands: Is the tunnel a ruse or is it for real? Are foreign investors interested?

If the government has the vision to build a tunnel alongside a reclamation project and triumphs by mollifying opposition from an environmentalist lobby, then that will be the day when Malta can rise like a later-day Phoenix out of the ashes. Exultantly, we deserve the title of a novel ‘Singapore in the Med’.

Merry Christmas to all readers!

George Mangion

Author: George Mangion
Published on Malta Today 21 December 2018
Get in touch: info@pkfmalta.com | +356 21 493 041

Can we gain from China’s Silk Road policy?

Author: George Mangion
Published on Malta Today 21 November 2018

Can Malta interest Chinese investment to set up an extension of their R&D initiative into Europe following the renewal of the MOU signed in Shanghai?

The recent visit by Malta Prime Minister to China saw the signing of another memorandum of undertaking. This 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. The historical trade agreement was signed in Shanghai, a city that since the fourteenth century was rapidly 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 encourages Chinese financial institutions, namely banks, insurances companies and companies operating in the Fintech sector, to establish offices in Malta. Given the recent closure of three small banks in Malta there is never a better time to strengthen our banking platform. Such business expansion by Chinese investors has already been functioning successfully in both Ireland and Luxembourg.

Muscat was speaking to an audience of politicians, investors and big leaders of multinational and high-profile companies, such as Jack Yun Ma – Chairman of the Alibaba group and Microsoft co-founder Bill Gates. Muscat said that Malta is the first country in the world with legislation to regulate Blockchain. He referred to artificial intelligence and the fact that new technologies will change the labour market nature, even in Malta, as from next year robots will be assisting Maltese doctors and surgeons during operations on Maltese patients.

One may wish to reflect on how the smallest nation in the EU can ever stand up to sign such an ambitious trade agreement with China. This comes at an opportune time when China is expeditiously building 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 subsidised laboratories looking into cutting-edge robotics, AI and related technologies.

Be that as it may, Muscat proudly announced his country’s pioneering task to regulate Blockchain development and later on focus on exoteric matters related to A.I. He said “there are problems and great challenges in such a development. Malta is proposing regulations and regularisation and as a country, we will have a framework on this”. Reading The Economist, one meets with an interesting article about China’s relentless expansion in trade and manufacturing abilities.

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. The name came from one of China’s most important exports – silk. In 2013, China’s President, Xi Jinping, proposed establishing 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 baptised as “One Belt and One Road (OBOR)” comprises more than physical connections. It aims to create the world’s largest platform for economic cooperation, including policy coordination, trade and financing collaboration, and social and cultural co-operation. As a result of the global recession in 2008 many Western economies stalled and reduced orders from China.

This resulted in overcapacity in China ranging from real estate to steel and cement. Not a moment too soon, to revive trade President Xi Jinping allocated a massive sum of $900 billion to fund a global initiative and one expects that this money will be generating a positive multiplayer effect on a number of countries.

This begs the question – how can Malta with its troupe of consulting firms stand to gain in this China initiative? The potential for professional services open to hundreds of new China companies is exciting. To exploit this opportunity, PKF International had invited a number of its offices to a grand meeting in Duisburg (Germany) at the offices of PKF Fasselt Schlage to discuss strategy with their Chinese counterparts. These meetings will be inviting Chinese investors to two-day conferences in Beijing held annually to discuss business potential with consultants from various PKF offices.

A lead partner in this group is the New York office. Founded in 1891, PKF O’Connor Davies has evolved from an accounting firm to become a team of high-calibre professionals that provides a global, growing client base with comprehensive accounting, auditing, tax and specialised management advisory services at the highest level.

A welcome addition to the growing list of PKF offices in Hong Kong, Beijing and Shanghai is ZG. At the Duisburg meeting, Gengchun Yao, Chairman at ZG, expressed his satisfaction that the organisation of a China desk at each PKF office will contribute towards a successful implementation of OBOR. In his opinion, the China desk at each of the participating firms underpins a unity of purpose. As stated earlier, China is also very much active in the research and development field. Its Pearl River Delta is a melting pot for a multitude of research companies all trying to emulate the success of Silicon Valley.

This is an extension of the OBOR policy as it plans to export expertise in a number of unique products and services to face competition in the West.

Can Malta interest 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 as Malta has attracted substantial investment through Shanghai Electric thanks to the negotiation skills of energy minister Konrad Mizzi who, in collaboration with other interlocutors, succeeded to convert the ageing Delimara power station to run on modern technology using LNG.

Another unique example of OBOR put in action is China’s Ningbo Shipping Exchange. This is collaborating with the Baltic Exchange on a container index of rates between China and the Middle East, the Mediterranean, and Europe. In conclusion, can our country, albeit small and lacking indigenous materials rise to the occasion and surf gloriously over the tide to seize this opportunity?

No doubt, the drive to set up a joint research centre will help unite the collective faculties of our universities, technical institutes and medical schools to pursue cutting-edge research particularly in oncology, Artificial Intelligence, Blockchain, nanotechnology and bioscience subjects. Boldly embarking on this ambitious roadmap will shine a light to guide us along a shadowy tunnel at the end of which we can underpin GDP growth and improve our competitiveness level. Only thus can we grasp the opportunities that the Silk roadmap is offering.

George Mangion

Author: George Mangion
Published on Malta Today 21 November 2018
Get in touch: info@pkfmalta.com | +356 21 493 041