The US banking giant Goldman Sachs has just announced a net quarterly profit of US$1.8 billion from a loss in the previous quarter. In the wake of this news, financial sector shares all over Europe rose appreciably - Barclays climbed 12.6 per cent, Commerzbank 11.5per cent and BNP 7.6 per cent. Similar progress was achieved by several other banks. Nearer home, IHI announced some splendid news, Gasan have come out with a €15 million bond issue and this Easter many local hotels did better than expected.
Actually, the first good indicators came out a couple of weeks earlier, when the World Bank announced that China’s economy would start to improve by the third quarter. If China recaptures at least some of its former export levels, somebody must be buying and for China’s economy to stabilise then the world economy at large cannot remain in freefall. Perhaps the Obama factor is kicking in. Perhaps the G20 summit started to have some effect. Whatever caused it, good news is good news and Malta - like China - depends on the spending ability of people in other countries.
If, as Obama says, there appears to be a glimmer at the end of the tunnel, then the US will start recovering. This recovery will help everybody else – Europe, China, India, Brazil and even the Arab and other oil producers. In fact rising energy prices will put some brakes on the rate of recovery but this is inevitable.
Full recovery will take time. There have been many major casualties worldwide and the ranks of the unemployed, the bankrupt and homeless will not empty overnight. In Malta, it will take even more time for progress to be registered and felt. We are tiny and totally on the receiving end. We get the overflow of the good or bad from Europe and elsewhere with a delay factor. For many more months we shall continue to suffer and grumble. This is not only because complaining is our preferred pastime but also because the suffering is real and acute.
How we survive and emerge from the crisis depends on us. Cash flow problems are adversely affecting the vast majority of our business concerns. Many who could normally operate profitably find they cannot function in a time of crisis. This is not just a Malta problem. As with human populations during a famine, the survivors are more likely to be those with excess fat than those who are lean. Those companies who had unused cash resources, property or assets they could sell off, even excess workforce they could fire or other cost cutting measures they could make, found that they could improve their survival chances much more readily than the lean and mean text book examples of what a good business should be. In Malta we tend to specialise in under capitalisation and we pride ourselves on doing everything on a shoe string. While shareholders personally may have significant reserves, directors do not believe very much in building strong company reserves. In the current situation, those who have some liquidity can pick up assets at a very good price but the majority are not liquid and are straining hard to hold their head above the water. Those businesses that flounder are gone forever and it will take time to replace them. These SMEs generate much of our wealth.
It appears therefore important that Malta should try and save what it can. If tourism makes a comeback do we want a Bugibba full of boarded up restaurants? Some who still adhere to pre-recession economic theory might say that it is not a bad thing if the recession weeds out the least desirable elements. Those entities that will disappear are more likely to be those who could maximise their market impact with the least resources. With them gone we will lose chunks of employment, even if not all of it may have been regular. Government has been quite admirable in the way it helped larger industry retain local employment but at the end of the day most of the investment saved belongs to foreign shareholders. Most of the investment in Malta’s SMEs is local. In difficult times banks are not going to become magnanimous – however local business would do well to remember how they were treated when they needed the bank with which they thought they had a valued relationship.
The recession has taught us many things. It killed Lehman Brothers and led to the takeover of Merill Lynch. Lesson number one: Experts do not exist. Lesson number two: Basic principles need to be religiously adhered to. Lesson number three: Unlimited growth is unsustainable. Lesson number four: Emerging economies, particularly China, have become very important. Lesson number five: It pays to diversify as much as possible.
A tiny economy such as Malta has the advantage that it can adapt to the new scenario much quicker than the cumbersome dinosaurs. Let us learn our lessons but let us look to the future. The recession is not over and we still have a long way to swim until we are out of it. But we need to look at the post recession scenario. We need to plan for the economic environment when energy and commodity prices will again soar. We need to ensure that on our own steam or through alliances we can ensure access to basics.
In the end, undue pessimism is always harmful. Yet we only have had some indications of positive developments and tomorrow we can have another spate of adverse news. We may not be able to be ultra optimistic. But let us try and be realistic. Let us try and peer into the future and be ready for it.
