Opinion - George M. Mangion | Wednesday, 11 June 2008

The tug of war started

The newly elected Labour leader’s clever way to silence the doom-mongers was to openly welcome lost sheep and the warring left wing intellectuals. Quoting Lino Spiteri, he summed up very succinctly that the new leader is in for a hard slog. Shooting from the hip, Dr Muscat lost no time to warn his political adversary to fulfill each and every of the 350 plus pre-election promises. But he also alluded to an earthquake approach, as he needs a nuclear devise to shape up the distorted tectonic plates of his party administration. Not surprisingly, the PN had its guns aimed at another favorite leader, whereas a lot of Jeremiahs kept looking into inexperience and lack of political clout that comes with a young incumbent. Now that a primo inter pares in opposition party has been elected let the hard games start. The last election’s post mortem report had suggested that the wrong mix of doom and boom had been used. It should have been 70 per cent positive looking and 30 per cent raising hell on matters such as alleged sleaze and corruption. There were no hidden surprises in the new leader’s maiden speech other than the emphasis on nurturing the tattered family of lost voters. He asked if the economy is perked to start firing on all cylinders now that the euphoria of spin, smoke and mirrors of the election campaign is over. The answer is blowing in the wind. Observers are saying that in the run-up to election the PN focused on a number of reforms but the main theme was the subject of the family’s importance in today’s society. Closely linked to family is education. Lo and behold, only three months ago voters feasted their imagination on a vision of a new MCAST; building an extension costing €116 million over a few years. This was the cosa belli in the PN’s armory of incentives to perk up the standards of technical education. Party apologists have lauded it as a crystal clear vision of a prime minister who rides triumphantly over three election wins in succession. Yes, the vision was graphically described by some as a phoenix out of the ashes of the old MCAST institution. A lot depends on how we can maximize the opportunities that a high level of education can bring to this fair isle sans natural resources.
Can this vision be the same wine in new bottles or does it bring a new broom which sweeps out the stables clean? Will MCAST succeed to produce technical students in sufficient numbers to act as a complementary income generator to manufacturing where recruitment is becoming more difficult? The answer is not easy to foretell. Ideally the much delayed reform of the bloated civil service is taken on board. With a younger set of ministers, can the GonziPN team achieve in the next five years a clean sweep of the stables? Now with one seat majority the future looks more daunting but we cannot concede to cease pruning excess public expenditure.
Why has the carrot and stick technique repeatedly failed to sufficiently jack up productivity and value for money in public service over the past decades? Even Mintoff’s dirigisme regime found this a hard nut to crack in the seventies. Here one reads in PN’s budget speeches that ‘it will continue to be our main objective to eradicate the injustice whereby two standards exist today in the management ethics and in the work practices in the public and the private sector.’ Certainly we heard this many times in the past decade and a sense of déjà vu has set in amongst financial analysts. Can we try again in the 2009 budget?
It is a Herculean task to untangle the bureaucratic structure and jettison ingrained work practices inherited from Colonial times.
On a positive note our GDP growth last year reached an improved figure of 3.8 per cent whereas we managed to pass our Euro changeover test with flying colours. Pundits are already speculating on how hard it is for the new Labour leader to outperform Dr Gonzi in a five year legislature when the goodies from EU will materialize.
It is true that there is already a feel good factor amply manifested by the resignation of Mr Claudio Grech as the right hand man in Dr Gatt’s private secretariat and his appointment as the CEO of SmartCity, $300 million investment by the Gulf Arabs.
Back to the subject of the cost-cutting measure-can the solution to silence the doom-mongers lay in a metaphorical slashing of the twin devils, i.e. high oil and skyrocketing food prices? I am sure this helps but there is more to do.
Certainly restructuring and improving competitiveness is a must. It goes without saying that talks of enhancing competitiveness is only possible if coupled with a strong pace of research, superior training facilities combined with innovation. Everyone agrees that this is the chief motor which creates sustainable jobs.
Fine, but talking about improving our competitiveness index is futile unless we start reducing red tape and some of government induced costs. Our competitiveness in the tourism sector seems to have improved.
Lately we saw an encouraging improvement in arrivals linked to higher turnover registered by Air Malta, low-cost airlines and increased cruise liner traffic. On the job front there is an overflow of vacancies in the ICT sector and in qualified accountants, auditors and managers as evidenced by many adverts in newspapers. But there is more to do in order to help skilled and unskilled job seekers.
On the manufacturing scene, ST Microelectronics that has moved 20 per cent of its production facilities to a lower cost country and lost over $55 million due to the higher labour costs. Talks seem on the way with the government to try and bail out the company which sustains 2200 highly paid and well trained workers. But more will be revealed when such talks are brought to conclusion to the stakeholders. Dr Muscat has called for a common front not to close the Kirkop plant. Maybe this is easier said than done and a lot depends on the quantum of investment aid being requested by the management.
At a macro level, more needs to be done so that we manage to reverse our structural deficit into a surplus and start trimming down our national debt. True, Dr Gonzi has toiled and worked hard to achieve a lower structural deficit. The improved economy is reflected in the successful strategy for the adoption of the Euro and the meeting tough Maastricht criteria. Can we stop now because the election has returned a party who lost its five-seat majority?
No – this is not an option. Slowly but surely the nation must brace its self for tough reforms to be able to speed our recovery process. The writing is clear on the wall that we must promptly produce budget surpluses.
The Central Bank governor has repeatedly warned us to accelerate fiscal discipline. True, the Euro has already opened the gates for new foreign investment. Many contend that the joining the Euro and following the stability and growth pact would be a strong leash on local politicians to rein in expenditure, reduce costs and lower inflation rate. Banks will of course see a drop in their bonanza profits particularly on foreign transaction gains. Hopefully they will pass the reduced cost of borrowing and minimize credit card charges to consumers.
On the other hand replacing the Lm with the Euro also carries the other positive effect of eliminating shocks, such as those resulting from speculative or systemic emerging market financial contagion.
To conclude, both political leaders remind us that they always take heed of the national interest and brace themselves for the rough days ahead. After we ride the storm, an economy once recovered will itself generate a sustainable future in economic, environmental terms for a healthier nation.

George M. Mangion
The writer is a partner with PKFMALTA an audit and business advisory firm.
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