The Maltese Economy – Think reconstruction not recovery

The Maltese Economy - Think Reconstruction Not Recovery

The Maltese Economy

If we want to have a sustainable society, the government must have the courage to understand that this is not about preserving pre-crisis economic structures.

After the downturn in the past few weeks, as most of the population retreated in its shell and abruptly stopped a number of activities, which had kept economic activity afloat, there is now a lot of talk about recovery.

All eyes are turned on the government to unveil the programme envisaged for the recovery.

Where is the government seeing this recovery taking the country? I will not comment until we are informed of the government’s programme.

I would like to exchange some thoughts about what I believe should be the direction, the trust and the objective of this exercise.

To begin with, I believe that we should talk about reconstruction rather than recovery. This will put us into the correct mindset that we need to bounce forward rather than end back in the status quo that we had before.

We need to bounce forward to a society where there is a fair and inclusive activity for all. A society where there is the incentive and the operational ease for each individual to reach his potential and create wealth. A society that ensures the fair distribution of the created wealth to ensure that there is no poverty, there is good health and wellbeing, quality education and where all citizens are treated equally irrespective of gender.

A more comprehensive strategy for the future needs to be designed, structured around equity rather than maximised economic returns; and in full understanding of how fiscal support should be structured to ensure that:

  • It does not undermine the future sustainability of government finance.
  • It does not threaten social cohesion.
  • It is implemented cautiously so it will not jeopardise environmental objectives.

It is expected that when people start releasing themselves from mostly self-imposed quarantine, they will not be returning to their past habits. Their purchasing power will be lower and their habits would have changed. For example, more people would be working from home, more people will be careful to expose themselves and their families in public places. This will change consumption patterns which will have a domino effect on manufacturing and the service industry.

In Malta, we import most of what we consume, therefore the resulting change will not be felt as much.

When I was building the Maltese economy from the ravages of bankrupt socialist doctrine, I based myself on the belief that our main resource is our people (man hours). That is why I was averse to the wasted productive capacity in non or low-productive public employment. That is what gave the impetus to transform our economy from low-paid jobs in the clothing industry, to higher added value and better paid jobs in technological manufacturing and the service industry. Any restructuring plan, to my mind, has to concentrate on economic activities that are expected to be viable in the changed circumstance that will face us post-crisis. The government needs to focus public resources on those activities with business models that are expected to be viable in the future and on financing the promising start-ups.

The Government must have the courage to be forward looking and should not be about preserving pre-crisis economic structures. It needs courage to let some firms fall and concentrate on building strong forward-looking firms, with financial viability proven in the past and that have business models that are expected to be viable in the new Maltese economy. We had this courage when we transformed this country in the nineties.

Most importantly, our Government must keep the citizens in mind. Healthy balance sheets, maximised profits and comfortable liquidity should not be the only objective. The Social sustainability and the well being of the population must take precedence.

As I suggest:

  • Temporarily suspend VAT on activities in the hospitality sector, accommodation, restaurants and related services.
  • The property sector has been impaired as an economic pillar of the Maltese economy. It is now relying on imported supplies and even labour, lowering the local added value coefficient of the sector, with economic benefit only to the developers. This misconceived and introverted policy must be revised.
  • Make a real effort to reduce bureaucracy even if it means standing up to European bureaucrats.
  • Insist on making banking available and stop the slide back to a cash economy. Money laundering must be annihilated but it is wrong to consider everyone as a criminal, with due diligence officers ticking checkboxes on increasingly long forms.
  • Control the grab-instinct that afflicts some of our operators. Ensure that any public funds are used for the purpose they are given. Ensure that the sensible permission for restaurants to extend the area that they occupy in public areas to maintain proper distancing does not become permanent.

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