Friday, 26 March 2004

A National Precedent

The Malta Independent 

If the first two decisions taken by the new Prime Minister are an indication of things to come, then the prospect of seeing a breadth of fresh air on the local political scene is still born.

The new cabinet shows that Dr Gonzi chose a minimalist approach with the only novel feature being the Prime Minister`s direct responsibility for the Budget/Finance portfolio. If this is meant to reflect the determination to disperse the budget discipline across all ministries so that restoration of sanity to public finance becomes a priority for the whole cabinet, then it is a good sign.  But the minimal changes in the allocation of portfolios in other Ministries denies the fresh perceptions, free from inbuilt personal prejudices about `the way we do things around here`, that are needed if budget priority is to be given practical effect at ground zero.

One could generously give Dr Gonzi the benefit of the doubt and interpret his decision in the context of planning to root his authority over the executive before going for deeper changes. Consequently one may optimistically hope that this week`s cabinet composition and portfolio allocation is just a stage in a longer journey of changes which will deliver more and better on the way.

The same generosity is not possible in interpreting Dr Gonzi`s second decision of nominating Dr Fenech Adami to be the next President of the Republic when Prof Demarco steps down next week.

The role of the President, whilst having very limited executive authority, carries high moral responsibilities. The person occupying such role should be perceived as a unifying force capable of using moral suasion to lift national issues above the political battleground` and capable of brokering national consensus through his knowledge, experience, charisma and general acceptability.

The government, having total control over the executive and over parliament, and in the context of needing co-operation from a broad spectrum of society, including the left of the political scene, for the formulation and execution of the social pact for economic re-structuring, should have made a gesture in giving the Opposition a fair influence over the choice of the President.` This would at least have reciprocated Labour government`s gesture when in the 1996-1998 legislation they kept PN nominated Ugo Mifsud Bonnici as President.

The PN had greatly benefited from such Labour`s indulgence when in 1998 President Mifsud Bonnici did not have the credentials to broker a peace deal between Mintoff and Sant and made little visible effort to preserve the electoral mandate which Labour had won in 1996.   I am positive that a Labour chosen President would have shown more energy in using the stature of his Office to avoid an early election.

However the new PN government Gonzi style, in deciding about the next President, not only has not considered it appropriate to make such a worthwhile opening to Labour in the national interest of achieving a consensus on the so much aspired social pact, but added insult to injury when presenting Labour with a choice between Fenech Adami or Fenech Adami as the next President. If this one name suggestion take it or leave attitude is Dr Gonzi`s definition of what true consultation with the opposition should be, then prospect of up-grading the quality of local politics is zilch.

An outgoing Prime Minister 17 years in office can never within a short space of a couple of weeks have the credentials of being perceived by the opposition as a unifying force fitting the role of President. Much less fitting for the Presidential post is a person who sought an electoral mandate as a Prime Minister and gave up such 5 year mandate before the first year is out forcing on us a situation where we have a Prime Minister chosen by the Party rather than by the people.

Frankly the perception is just one of political musical chairs where change is a mere perception but the dynamics are still working for preservation of the status quo.   

Sunday, 21 March 2004

Choosing the President

The Malta Independent on Sunday 

It is widely expected that tomorrow or in the next few days Dr Fenech Adami will resign as Prime Minister and relinquish his parliamentary seat to make space for PN Leader Dr Gonzi to be anointed as the new Prime Minister and the first Prime Minister of Malta as an EU member.

All indications are that Dr Fenech Adami will then be voted by Parliament as the new President of the Republic once Prof Demarco term ends in the first week of April.

I think that Dr Fenech Adami deserves to be nominated as President of the Republic but not as the next President. God`s grace will give him time and strength to miss a turn and become a President in five year`s time and this if the government and opposition can agree to nominate the next two Presidents by parliamentary consensus.

There are three reasons why I think it is proper for Dr Fenech Adami to take a five year break.` Firstly I think that he showed disrespect to the mandate which was given to him by the electorate less than 12 months ago when he was elected as Prime Minister for a full five year term. Knowing the importance which the personality of the party leader has on the floating voters who generally decide which way elections go, I cannot help feeling that Dr Fenech Adami dented his democratic credentials by not declaring a priori that he did not mean to serve the term or by at least staying for the first half of the term.

Secondly I feel that the election of Dr Fenech Adami as President would raise inevitable implications that it is quid pro quo with his successor for the implied help extended in getting him to the post in preference to the two other contenders who did not raise enough sparkle in Dr Fenech Adami`s eyes.` Such implications, for the sake of Dr Gonzi to be perceived as an effective Prime Minister, should be avoided.

Thirdly I feel that with the PN being in power for over 20 years, almost continuously, it is high time for the strong Labour minority to be offered a gesture to show that it is still considered as part of society by giving Labour` a meaningful say in the choice of the next President. This particularly at a time when the only real effective way forward for the country is through the forging of a social pact that would need the endorsement of the centre left of Malta`s political and union spectrum.

Consequently I feel that it is very much in the national interest for the next President to be chosen either from outside the political sphere or from the left of Maltese politics provided of course he or she is also acceptable to the right and is perceived by the centre liberals as a worthy national figure.

In search of worthy candidates that can meet these criteria I permit myself the indulgence of naming three candidates for potential consideration. In choosing them I exclude all those who are still or have recently been involved in active politics and those that are still outside the venerable pension age on the basis that the post of President needs the maturity that only the third age could bestow.

If we revert to origin and choose as next President a person outside the political sphere, as was indeed the first nominee in the figure of Sir Anthony Mamo, then my choice is clear in the person of Mr Joseph Sammut the Ombudsman. He has proved over a long period of time that he can serve the country faithfully both as a civil servant, climbing up the ranks to the highest post and always earning the trust of the government irrespective of its colours or credentials, as an Ambassador and most recently as the first and so far the only Ombudsman.

In truth it is in this last role that he proved having the credentials for the highest post in the country. The post of the Ombudsman is a very delicate one giving the ordinary citizen some sort of protection against the power of big government and its bureaucracy. The fact that Mr Sammut has been proved time and time again through credible research as the person in office carrying the highest trust of the ordinary citizen, speaks volumes for the dedication with which he has carried his duties and for the unswerving allegiance to defend his mission even at the expense of pulling the ire or displeasure of the executive.

From the left side of Maltese politics the candidates have to be eminently respectable outside their political field, no longer active in party politics, and with a strong track record of high and strong character of keeping allegiance to Labour through their parliamentary vote but showing the courage and high morale to criticise openly where they disagreed with party policies. The person`s c.v. should prove the facility with which he could detach himself/herself from politics proving that he perceived politics as a means to serve and not as a means to obtain and retain power above all other considerations.

In this category I put forward the names of Dr J Micallef Stafrace and Mr Lino Spiteri both victims of the political and religious intolerance of the sixties and both free from guilt of Labour`s excesses of the eighties.  

Friday, 19 March 2004

An Orange Lesson

The Malta Independent 

The Board of Directors of Maltacom has been informed by the Government of Malta that it intends to sell its majority shareholding in the Company” said a terse company announcement dated 11th March 2004.

Just as international equity markets were being shocked by the uncertainty propagated by the Madrid bombing this simple announcement, which in reality said nothing new (the Minister had announced government’s intentions to privatise Maltacom in the November 2003 Budget speech), gave a strong impetus to equity prices on the Malta Stock Exchange. Maltacom’s share price gained 25% in the four trading days following this announcement and generally pulled the overall equity market in a positive direction.

Equity prices are meant to be fixed by transparent, efficient and well regulated capital markets and the priority of government as vendor, Maltacom as the subject matter, and the Malta Stock Exchange as the provider of the medium for capital market making, is to ensure the orderly distribution of price sensitive information to the public.

The course of action taken is therefore correct and commendable. It contrasts with the way the Mid-Med share sale to HSBC was concluded shrouded in mystery with the market in such shares suspended for nearly two whole months for no valid reason. It confirms the absurdity of the claim made at the time that because Mid-Med Bank shares were quoted on the Exchange one could not conduct a transparent bidding process as it would have de-stabilised the market.

The Maltacom experience shows that this is not so and the fact that the market is driving the price up is both recognition that the price was substantially undervalued when the uncertainty regarding the negative impact on Maltacom’s profits through loss of monopoly on fixed line and overseas phone business drove the share price unrealistically low, as well as the fact that extracted out of government’s control Maltacom can deliver better value to its shareholders. This market function will in turn enable the Government to obtain a better price for the state asset being sold.

Yet I cannot but help thinking that in proceeding to privatise Maltacom lock, stock and barrel one is putting the cart before the horse in a way which does not help to maximise the true value of Maltacom’s underlying assets.

One of Maltacom’s shining stars is its investment in the wholly owned subsidiary operating the Go Mobile brand. The value of such investment is still shown in Maltacom’s books at original cost and does not reflect either the current performance of Go Mobile nor its future potential.

It would be far more sensible and in the national interest if before proceeding to privatise Maltacom as a parent organisation for the whole Group, one should proceed to privatise through an IPO a substantial minority shareholding in the Go Mobile subsidiary.

This will not only broaden and deepen Maltese equity markets but would put a commercially quoted price on Maltacom’s investment in Go Mobile which will in turn enable the Government to obtain fair value for its remaining 60% of Maltacom.

Such a move would also have a strategic sense from a national point of view. Selling Maltcom as a holding company would give the strategic acquirer full control over the wholly owned subsidiaries and consequently on Go Mobile.

By privatising part of Go Mobile before disposing of government’s stake in Maltacom, one would ensure that Go Mobile operations would remain subject to minority shareholding control just the same way HSBC Malta still has to give proper account of its performance to the 30% private shareholders. It is in the national interest that this will be so especially as the way technology is driving the telecom business some of the Mobile subsidiaries are becoming larger then their parent. Just consider Orange and France Telecom. 

Friday, 12 March 2004

KM`s Olympic Route

The Malta Independent  

Since Austin Gatt has taken responsibility for State investments under his ministerial portfolio he has been making matter of fact hard assessments on the pitiful state of the commercial companies where the State still has a controlling interest. The problems however remain largely unaddressed as Minister Gatt is perceived by those who hold vested interest in maintaining the status quo as a small island in a large of sea of public management irresponsibility. They probably believe that Minister Gatt cannot detach himself form the collective guilt of his cabinet for the present state, and will, as hitherto, eventually have to settle for an expensive fudge which will leave matters substantially unchanged.

This week however we have been talking serious numbers. Government is being constrained to recapitalise Air Malta (KM) to the tune of Lm30 million to make up for the Azzurra Air misadventure and to account for operational losses which KM has been incurring since 2000/2001. Minister Gatt speaks like a virgin just appearing on the scene free from the guilt of the bordello performed by his predecessors. This week he announced that government will undertake the recapitalisation of KM if the Unions and Management agree on a company pact involving substantial operational cost cuts through new and efficient work practices. We have been told that KM failed to undertake the structural measures that most airlines were constrained to adopt after the 9/11 blow to the airline industry and I would add that KM probably holds the record of being the only traditional airline that increased its workforce after 9/11.

25th February 2002, 5 months after 9/11, I had penned and published a contribution on the challenges facing KM of which here follows an extract:

”May I share with you this quote I found in Bloomberg Financial News on 18th February 2002 spelling the problems with Olympic, the Greek National Airline

Greece is renewing its attempt to sell Olympic after Sabena SA and Swissair stopped flying as losses worsened after passenger traffic dropped following Sept. 11 attacks on the US. The Greek government plans to eliminate jobs and implement other cost cutting measures to help attract a buyer
The sole bidder, a venture between Greek millionaire Vardinayiannis and Olympic’s pilots association, that had offered to buy 51% of the airline after previous efforts to sell stake to British Airways and Axon Airlines collapsed, failed to finance its 102 million euro offer by the set deadline.
Greece has tried several times over the past decade to turnaround Olympic as it spent more than $2 billion to keep the airline afloat. Each time it backtracked because of union opposition to cuts in staff and employee benefits. EU regulations prohibit further subsidies.

To become profitable the airline must eliminate many of its unprofitable routes and discharge half its staff. A succession of Greek governments has contributed to Olympic’s losses by forcing it to hire workers to win votes and giving labour unions a veto over some management decisions

This is a warning signal of what Air Malta will have to go through unless management pulls its act together and is allowed to the do so by government in the national interest irrespective of the blushes that may be suffered by the party in government.

Malta is a monument to the successful re-structuring carried out by Labour’s two governments of the seventies. Over the years Air Malta achieved its dual purpose to become a pillar of growth for Malta’s tourist industry and also to be profitable in its own right.

All this until the nationalist dreamt of a new role for Air
Malta, that of becoming a regional operator with Malta as a hub for the region. It was a pipe dream project which loaded Air Malta with a equipment configurations based on the RJ’s totally unsuitable for Air Malta’s plain vanilla mission to sustain tourism. It also forced Air Malta to make a massive investment in an Italian regional airline AZZURRA which has absorbed a lot of time, money and human resources but still have to discover what profitable operations are all about.

Add to this the political privileges which Air
Malta has to dish out to please its political masters and inflexible union practices and you have a Maltese Olympic in the making.

Malta needs to re-discover its mission of becoming an integral and structural part of Malta’s tourist industry and must shed off and cut losses in ventures which made it wander and lose focus under the Nationalist administration.

And the tourist industry must re-invent itself to favour Air
Malta’s development by re-positioning our product to attract short stay value added tourism. With short stay tourism we can get a much better spend per bed-night and given our bed-stock Air Malta could almost double its passenger kilometres simply by having 2 guests sleeping 3 days each in a hotel bed in a week rather than one guest staying the whole week.

Unless we act I can well see Air
Malta going the Olympic route and there will be no medals to award, just pain and misery to share.”

Two years later we are exactly where I warned we would be. If this sounds like I told you so it is because it is just that.

Minister Gatt must not be left alone by the Cabinet. No Minister, no matter how capable or well-intentioned, can perform such restructuring, left unattended for far too many years, on his own. The Cabinet must first accept collective responsibility for the financial mess it has allowed KM to get itself into and then send a clear message that the restructuring being proposed as a quid pro quo for recapitalization of the company carries the unconditional approval of the whole cabinet, that there will be no more expensive fudges and that the only alternative to it would be far too drastic to contemplate.

Sunday, 7 March 2004

Business Unusual

The Malta Independent on Sunday 


The election of a new PN leader and effectively a Prime Minister to lead this country for the first four years following EU accession has been business unusual.

It is not at all usual and certainly not commendable that power transition is performed the way it has been performed.` It is almost democratically offensive for a person to present himself for electoral endorsement in the post of Prime Minister and then less than one year down the electoral term he resigns, for no unpredictable reason, to make way for a `chosen` successor.

The Prime Minister should be chosen by the people not by the Party. At the end of the day my experience is that a good part of the floating voter segment that decides on which party side the electoral scale will tip, is highly influenced by the qualities and personality of the party leader. They look both leaders in the eye and ask their conscience in whose hands they can trust their own and their families future. Quite often floating voters do not understand the intricate details of party, economic, social and environmental policies.

They simply vote for the party led by the person who radiates most confidence and stability.

As it is the electorate is being forced to be led by somebody they have not chosen. They have seen the handful of hundreds of PN conference delegates usurp their democratic right to choose the country`s Prime Minister.

This is not the way things are done in countries where there is a truly living democracy. In Spain and Greece the outgoing Prime Ministers are not presenting themselves for re-election and are supporting the new party leaders chosen before the general election to ensure that ultimately it is the people who chose their leader and not the party faithful.

In Germany and in Poland the incumbent political leaders have renounced as of now their party leadership to make space for the choice of a successor, but have indicated their intention to carry out till expiry the democratic mandate received from the electorate.

Dr. Fenech Adami has not taken a leaf out of these classic examples of how power transitions ought to be handled in full respect to the democratic rights of the electorates. Once he has chosen to contest the election and seek a mandate as Prime Minister, he should have, in the absence of clearly unforeseeable events which do not seem to be the case in the circumstances, stayed on for at least half the electoral term before handing over to his successor.

This would have given the possibility to the outgoing Prime Minister to change policy tack on the economic front and deliver the measures which have long been avoided in the interest of short term electoral popularity. An exiting Prime Minister has more freedom to take such measures in the knowledge that he need not worry about how public opinion will influence his chances of re-election.

I am making this point as a matter of principle and it does in no way reflect on the merits of the chosen leader or indeed on that of his contenders.` Indeed I think that Dr Gonzi has now been placed in a quite awkward position. He is inheriting a country that has long tried to allude itself that it can solve its economic problems by merely talking positively about them and by applying short terms palliatives by throwing tax-payers money uselessly at them.

Dr Gonzi ought to know that now that the country has practically exhausted all its debt capacity and that for good or bad we have to compete as full EU members where the pain would be far more evident than the gain in the initial years of adjustment to the new rules. He is being placed in the enviable situation where he has to conduct the re-structuring in an acute manner over a relatively short time because it was neglected in the past when the adjustment could have been better spread to avoid the acute pain. Yet Dr Gonzi is wise enough to know that without this acute re-structuring we just cannot compete and succeed as EU members.

Which makes it business unusual for Dr Gonzi not just in the way he is making his way to Prime Minister-ship but also in the way he has to execute his new duties. The only recent political precedent of such an experience was when Mr. Mintoff handed over to Dr KMB in December 1984 after executing three fifths of his dubious 1981 mandate.` It was not a very happy experience and KMB never sat on the PM seat again even though he sought two electoral mandates for it.

The biggest mistake Dr Gonzi can do is to consider his appointment to be business as usual. We need the unusual.` We need a true political leader who has the rare qualities of keeping a sharp sense of balance. A balance in acknowledging the problems, being realistic about them but at the same time being positive and enthusiastic about their solutions. A balance in seeking wide support for the identified solutions to the problems, but not at the expense of suffering consensus sclerosis. A balance between the ability to listen till one gets exhausted but never lose sight of the fact that a leader is expected to lead and not just to co-ordinate. A balance between preserving stability and continuity in our core values and the need to introduce a new sense of urgency in addressing the neglected problems which are silently eroding such core values.

Only time can tell whether Dr Gonzi has the attributes to turn his Party leadership into a worthwhile exercise for the whole country.` He is starting at a disadvantage because he has not been given the opportunity to seek popular endorsement for his leadership of the country. But he has to earn acceptance by proving that he means to be a state leader not a mere party leader. Certainly he deserves to be given the chance to prove himself.   

Friday, 5 March 2004

Beyond the Deliverables

The Malta Independent 

 Since the beginning of the year this weekly column have been dedicated to the exposition and explanation of 10 key points, deliverables, that in my opinion should form the basis for an emerging consensus for re-energising our economy to set it lose from the sclerosis that has set it.

My intention was to put forward a set of proposals for passing from rhetoric about the need for the formation of a national social pact, to specific measures that need to be taken for making such social pact a worthwhile exercise. It was meant to challenge the thinking of those who clamour for such social pact but who evidently are little prepared to shoulder their fair share of the burden whilst expecting others to do so. From this category none is excluded and all are included ` government, opposition, entrepreneurs and trade unions.

I make no claim that the ten deliverables represent an exhaustive exercise for conducting the restructuring that has long been talked about but conveniently avoided. Others could indeed challenge my thinking and argue against some of the deliverables and include new ones I could have missed.` Let then come forward with the arguments and the proposals. But for goodness sake let`s start doing something about it before the challenges of EU membership pass us by and we miss the opportunities that turn into additional burdens of bureaucracy that will threaten our economic survival.

The scope of the 10 deliverables I enunciated is to render our economy more competitive globally. To eliminate the barriers to flexibility in a competitive world where our small size is a big barrier to achieving economies of scale in a world where even corporate giants have to merge to maintain competitiveness. Through rendering our economy flexible and market-driven within a moderate social structure, we can make our small size a distinctive competitive feature where speed of action and ability to adjust quickly to evolving circumstances should help us steal a march on our competitors who are too big to match our flexibility.

We can never compete on the price factor alone.` We must compete on our unique qualities, our value to price ratio and the quality of our products and services.

To do this we need investment, direct and productive investments in those areas where we have the natural characteristics to compete. In a book I published in 1999 I had listed these as light manufacturing in high value added processes (the ST/Playmobil/Baxter/Methode type of operation), tourism mostly oriented to the short stay visitor with special interest (conferences, incentives, fly-cruise, event-driven), film production and location shooting, international education programmes and last but not least call centres, back office work and outsourcing mostly related to corporate and financial services.

Such investment will not come by chance. Not even if we try our earnest such investment will escape us, certainly on the scale we require it, unless we can first re-energise our economy through restructuring involving the ten deliverables.

Beyond the ten deliverables there is the promise of real productive investment, domestic and foreign, that is absolutely necessary for economic growth to return to exploitation of our real potential rather than continue with anaemic growth based on unsustainable consumption and deficits.

Many of the candidate countries joining the EU with us on 1st May 2004 are starting from a comparative backward state our economic development but they are winning the foreign investment battle that we are missing. Because our economy is not competitive we have fallen off the short list of investors who are already deciding to relocate operations from expensive EU centres to new candidate country centres. No amount of organisational restructuring of the investment promotion agency will make up for the deficiency that we are not sufficiently competitive at a macro level.

As the new Prime Minister in waiting gets ready to take his new role at Castille, it would be utterly wrong to adopt a business as usual attitude. The country needs the unusual, the sense of urgency to get along with the restructuring job before we lose the game in a definitive matter.