Smart and not so Smart

3^rd March 2006
The Malta Independent - Friday Wisdom

The announcement made by Minister Austin Gatt about a foreign investment for the creation of SmartCity@Malta in Ricasoli, modelled on the Dubai Internet City concept and financed by the same state-owned Dubai investment company, is the best news we have had on the economic front for a decade or more.

It is absolutely a dream investment fitting perfectly within our capabilities and avoiding our disadvantage in competing for material-based industries that involve expenses of shipping in raw material and shipping out finished goods. On the foreign investment front, it is comparable to the attraction of ST Micro, but even better in that it avoids concentration on one particular corporation and could roll out much quicker than was the case with ST – which rolled out gradually to its present state over a quarter century.

Anybody who has Malta’s interest at heart cannot but be overjoyed that finally after years of drought in foreign direct investment, we seem to have hit it big in an industry of tomorrow with substantial value added that rewards Malta’s youth and others seeking re-employment.

Such investment makes restructuring that much more manageable. Because restructuring involves the closure of companies that cannot remain competitive in our evolving economic environment and their replacement by new projects based on current technologies, which can deliver value that keeps us competitive in spite of our increasing costs. Projects that are modelled on our brain rather than our brawn power. Well-done Malta Enterprise! Well-done Minister!

So what is not so smart, you are probably asking me?

To start with, I don’t think it is very smart to announce the project when negotiations with the investors are still proceeding. Clearly, the minister felt comfortable enough to present it as a fait accomplit, when in fact it is still not so. Is this not exposing us to the risk of other locations making more advantageous offers to attract the investment to their shores? And it is obvious that by going public rather prematurely, the minister has weakened his position in negotiating the outstanding issues, as the investors know that the minister would lose political capital if he does not accommodate their additional demands.

Just recently, I was involved in negotiations for sale of land in high six-figure digit to a very esteemed and financially solid organisation. The parties had shaken hands over the deal and I attended several meetings with the legal counsels of both sides to agree on the draft of the preliminary agreement and we had basically dotted all the I’s and crossed all the T’s.

Then, a simple email informing us that the organisation was reconsidering the acquisition changed what seemed a done deal into a dead end. And the prospective acquirer was a licensed credit institution (a bank in layman’s terms) where the term my word is my bond used to be sacrosanct.

Even if such suspicions are unfounded and all goes through as planned, there is another “not so smart” aspect to the wider issue of privatisation. With very little dedicated infrastructure, we have managed to attract a US$300 million investment in IT, which should attract the best names in the industry to locate their regional centres in Malta. Now, compare this to the Freeport privatisation where again we have natural advantages of location and natural harbours. There we had excellent infrastructure costing billions of dollars and an operating track record.

How can anyone explain why the privatisation process did not attract interest from the big players in the industry like Hutchinson of Hong Kong, PSA of Singapore and DB World of Dubai and we finished farming out operations to a second rate shipping line rather than a global port operator? In a recent contest to acquire P&O, DB World was forced to pay top dollar to pip out PSA in the acquisition race. Why were we not seen as an attractive prize by the big players in the industry? Could it be that the Freeport, under irresponsible Maltese management that led it to financial distress, had tied itself into unprofitable long-term capacity commitment to the second rate shipping line, which thus secured for itself a one horse race to acquire Freeport on the cheap?

If we are able to secure huge investment to start a virgin operation in IT, why were we not similarly able to secure a better deal for our Freeport where we had already investment billions over the years? The Freeport investment is too big to be brushed away under the carpet without proper explanation as to why we did not achieve anywhere near our full potential.

Not so smart is also the hike of the surcharge to 67 per cent at the same time when fuel prices at the pump have been reduced. The system makes no sense.

The shock absorber of price fluctuation should be fuel at the pump not utility bills, which lack the benefits of immediate impact and discretion of use. For the sake of social correctness, the price adjustment mechanism needs reconsideration.

Totally void of smartness was the shocking news of the passing away of Alfred Mallia, former chairman of the Malta Stock Exchange and a colleague in the profession. Alfred was the first person I had the privilege to work with when as a lad of 17, I joined Barclays Bank nearly 37 years ago. Over the years, when our paths crossed in diverse ways, we always enjoyed reminding ourselves of how different it was back then. We lost a gentleman and a fine banker. God bless his soul and condolences to his family. Till then Alf!