The End of Creativity

4^th May 2007

The Malta Independent - Friday Wisdom

The appointment of Sonny Portelli as the new chairman of the Malta Council for Economic and Social Development (MCESD) marks the end of the government’s creativity.

The captain of MCESD should be a person independent from the main camps represented by its membership, ie government, the trade unions and the business formations, commanding respect of all sides, widely versed in macro-economic matters and having access to tools with which to nudge opposing positions into a workable consensus.

Sonny Portelli does not come anywhere near to fitting this bill. Gentlemanly Portelli would have been ideal for a tourism-related macro position where he could have put to good use his vast experience in the sector as a micro operator in the industry. But citing Portelli’s performance at guiding Maltacom through the privatisation process as good credentials for the top job at MCESD is illogical and irrelevant.

Firstly, because guiding Maltacom through privatisation demanded skills incomparable to those needed to make MCESD live up to its objective of achieving the wide consensus for a common economic policy that is essential to charge the restructuring that our economy needs to render it flexible, vibrant and capable of winning in the global markets. Secondly, because saying that the Maltacom privatisation process has been a success is a gratuitous, self-serving assertion that is not borne out by the facts on the ground.

How can Maltacom’s privatisation be considered a success if its share price, hovering around Lm2 prior to the announcement of the privatisation decision, is currently still frozen around the privatisation price of Lm1.55, even after the new majority shareholders have had ample time to convince the market about the value added that they are meant to bring into the company?

To judge the success or otherwise of Maltacom’s privatisation perhaps it is best to benchmark it against another contemporary privatisation exercise and see which one delivered the best value to its shareholders. I am referring to the Bank of Valletta privatisation of the last 26 per cent equity still owned by government which in the end never materialised, much to the benefit of its shareholders.

The different styles of management at Maltacom and Bank of Valletta during the privatisation process stand out in stark contrast. The management of Bank of Valletta adopted a business as usual attitude. They stressed that the sale of a block of shares by one shareholder to another was a matter that interested incoming and outgoing shareholders but their obligation was to manage the bank in the interests of all shareholders. Consequently, direction at Bank of Valletta kept its focus on the strategic development of the bank irrespective of the outcome of the privatisation process.

The progress of the bank was reflected in the bottom line, and the figures recently announced for the half-year to March 2007 are a blow out of all reasonable expectations, proving that Bank of Valletta is more than a match for its main competitor of international fame – HSBC.

By contrast, the management of Maltacom decided to basically freeze the company during the privatisation process, with a consequent loss of focus on strategic development. This in turn is being reflected in Maltacom’s financial results, which are showing contraction without mapping out any strategic plan as to how to re-launch the company on a growth platform.

This is best typified by how much Maltacom is lagging behind in the media sector at a time when all traditional fixed line legacy telecoms are making media one of their major growth areas.

Media infrastructure services, basically pay TV services, were liberalised one year before Maltacom was obliged to give up its monopoly over fixed line telephony services. During that year, Maltacom should have focused on rolling out its own media services in order to gain a share in the market that was dominated by Melita Cable before the latter had an opportunity to use their infrastructure to enter the fixed telephony business dominated by Maltacom.

Instead of grasping this opportunity, the directors of Maltacom simply froze the business development potential of the organisation, and consequently gave Melita Cable a chance to extend its first mover advantage. They simply waited for the new owners to come in with some magic solution for the development of the company. No wonder Maltacom is now finding it much more than difficult to penetrate the media sector that is dominated by Melita, than the latter is finding it to penetrate the fixed telephony business dominated by Maltacom. It is as if the direction of Maltacom during the privatisation process was meant to advantage its competitors.

What a change from Bank of Valletta! While the performance of the Bank of Valletta share price continued to progress, in spite of the withdrawal of the privatisation initiative by the government, Maltacom’s shares plummeted even post-privatisation.

Coming back to the MCESD choice, it would have been far more logical to search for a candidate from the Central Bank, which is the only economically oriented non-partisan national organisation in possession of the monetary and moral tools to nudge opposing positions into consensus. If the current governor cannot accept that position, there are at least three former governors (Lino Spiteri, Francis Vassallo and Emanuel Ellul) who could have been chosen for the post, if given the moral support of the present governor agreeing to be briefed about discussions at the MCESD when formulating monetary policy decisions.

Putting square pegs in round holes is the hallmark of inefficiency, and is gravely discordant in an institution tasked with promoting the adoption of economic policies meant to promote competitiveness and efficiency.