Friday, 25 February 2005

Beg Steal or Borrow

The Malta Independent - Friday Wisdom

This is what most of us have had to go through in these first seven weeks of the new year in order to attend to our basic needs of cooking our food and warming our houses. Personally, I had three empty gas cylinders stolen from my front door, I had to beg for these to be replaced and when begging still did not work, I had to borrow from friends and relatives who, in biblical spirit, were prepared to share the little they had.

It is quite cavalier for Minister Gatt to demand a public apology from Enemalta for failing so miserably to honour its duties versus the Maltese people who entrusted it with a monopoly for the procurement and distribution of domestic energy requirements. There is no doubt that we deserve an apology for having been constrained, in this age of on-line procurement, to have to beg, steal or borrow in order to satisfy our most basic needs.

However, the apology has to come not just from Enemalta. It must also come from its political masters who are usually quick to take credit for any project conducted by such corporations and who never shied away from unveiling endless numbers of marble plaques whenever a photo opportunity presented itself.

In demanding a public apology from Enemalta, Minister Gatt should have offered his government’s own apology for failing us so dearly. Brushing off responsibility on rigid work practices and other internal corporate inefficiencies does not suit a government which has been in office for nearly 18 consecutive years and which has spent huge millions to accommodate the country’s energy needs.

Why were not such work practice overhauled at the same time as the fixed investments were being made? Is this not what management and leadership is all about? It is not just about authorising and implementing capital investment in plant and equipment but it is also about upgrading the application of human resources to ensure that the plant and machinery perform an outturn at optimum levels to justify the financial investment.

This issue leads me to muse over the privatisations we have had these last 18 years since a new nationalist government, elected in 1987, made privatisation a key economic policy to spur economic development.

In reality we have not used privatisation to spur development through increased efficiency. Instead we have mostly resorted to privatisations as a funding exercise. Labour quarters often claim that in 1987 they not only left a debt-free administration but they left some Lm400 million in reserves. They are both wrong and right.

They are wrong because in making such a claim, they generally refer to the foreign reserves held by the Central Bank which is obviously not government’s property but are assets safeguarding the value of our money supply. However, they are also indirectly right if by “reserves” they mean the patrimony of state-owned organisations that have since been privatised (
Lombard, Mid-Med, Freeport, Lotto) partly privatised (Bank of Valletta, Maltacom, MIA) or are on the way to being privatised.

We have privatised the banking sector which was already largely quite efficient. Funding-wise this was quite meaningful, but in so far as economic efficiency is concerned, such privatisations did nothing if not reduce competition on the market. And without true competition there can be no true underlying economic gains.

When Midland Bank was given a full licence to compete with Bank of Valletta, Mid-Med and the smaller APS and Lombard, competition started being felt and local banks had to review their operations and pull up their socks to meet increased competition. When Mid-Med was sold to Midland Bank/HSBC, an important player disappeared from the market and instead of increasing competition, it was effectively reduced. The result is that while the banks are thriving as they make fatter margins thanks to scarce competition, the economy is floundering as it is not finding the necessary responsiveness to finance innovation that normally comes from capital-deficient SMEs.

In general, where we have privatised we have killed competition or sustained an existent monopoly that was transferred from public to private hands. This happened in the case of Maltapost, MIA, the
Freeport and the Lotto.

What we should be doing is privatising not primarily with a funding objective but with the objective of adding competition and efficiency throughout the economy. The government should be reviewing all those functions which can be performed by the private sector in a truly competitive environment and ensure that these are transferred out on the market. This would save money for the government and would give a better deal to the consumer, who presently still has to face the arrogance of monopoly suppliers irrespective of whether they are in public or private ownership.

And while we are at it, we should also review the rigidities that still strap our economy and give a very raw deal to the consumer. Let me cite just two examples. Why should we not liberalise shop opening hours? Once we have labour legislation protecting basic working conditions, why limit the freedom of shop-owners to give a better service to consumers by competing also on the basis of quality of service delivery through different opening hours?

Another case. What competition is there to switch bankers for borrowing requirements if this means signing expensive contract deeds re hypothecs and mortgages? Why does the financial regulator not set up a central organisation, similar to the Companies Registry, which would be the beneficiary of all hypothecs and mortgages and then pass on such benefits to the lending institution, thus simplifying switching of borrowing from bank to bank by avoiding the need to sign expensive deeds to cancel the old hypothecs and create new once in favour of the new bank?

There is so much we can do to upgrade the consumer’s quality of life, rather than constrain him/her to beg steal or borrow for gas supplies.

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