A Tribute to Entrepreneurship

25^th June 2006

The Malta Independent on Sunday

A tribute is due to Winston Zahra Jr. for not mincing his words about the poor performance of the Minister for Tourism and the Head of MTA who keep acting as if all is well and in order when in fact our bread and butter industry is slipping from bad to worse.

Those who earn their spurs in the private sector know that there is space no between success or failure. You either deliver or you don’t. Those in charge of our tourism are not delivering even on their own set targets, quite apart from the fact that such targets are probably irrelevant.

Frankly I think tourism is too important for it to be left in the hands of politicians and their politically appointed acolytes. They seem to have no idea of what it takes to truly turn round this basic industry where we have natural advantages to compete. Even the signals being given by the market, clear as they may be, seem to be escaping them as they continue to play the tourist numbers game which is irrelevant at worst and tangemtial at best for the true cure of the tourism malady.

This is an industry where our best entrepreneurs have invested their huge millions to make it work. They have put their money where they mouth is and unlike Ministers and civil servants lack of success would burn holes in their pockets. They just cannot afford and to fail and consequently work their guts out to ensure that they remain at the refreshing end of the industry rather than at the discount end which the number game played by politicians for their short term ambitions anchor us in mediocrity.

The fact that five star hotels are showing growth when all the rest are struggling shows that only those that invest to keep their product fresh can win in a game which is being played by many other countries offering formidable competition.

The Zahras have invested in several outfits the latest being the Golden Sands. Tribute is also due to the Decesares who invested to give us Inter-Continental and the Pisanis of Corinthia who gave us their own brand which they are building at international level through selective investments in emerging economies.

But probably the biggest tribute is due to George Fenech and his family owner of Tumas Group and Charles Polidano of Caqnu fame. These are the people who seem to attract the most ire from those who are prepared to accept anything but success.

When George Fenech was seeking administrative approval for Portomaso project, including the Hilton Hotel and the Business Tower and the Convention Centre, he was made to look like the biggest villain in town. The offensive screams of protest in that MEPA public hearing still ring in my ears. For developing land he in any event owned till 2114 he was made to look like a speculator using public property for personal gain. Who remembers the hunger strikes organised outside Castille or the personal obstruction of pseudo environmentalists chaining themselves to earth-moving equipment on site? I am sure they had no idea what they were protesting about.

Today that Portomaso is a completed reality, providing a sample of what we could be if we can raise the whole island to comparable standards whilst preserving the historical treasures we are abundantly endowed with, no one seems to doubt the wisdom and the vision of those who inspired this investment.

Investing in five star hotel project is no piece of cake. It is not for those seeking the quick buck like the many who convert old buildings into concrete boxes for quick resale. The payback is long and arduous and depends on continuous investment and efficient organisation in all its dimensions, from marketing to operations.

Caqnu Polidano has invested beyond comparison to have a large contracting organisation capable of handling mega projects. He also poured money into his own investment projects including the newest St Julians Meriden and other diverse interest from cinema to wine-making. All this is not for the faint-hearted or for those who expect quick return for their money.

Whilst foreign investors were offered for free priceless land in order to construct hotel projects, which in many cases they failed to do and cashed in a quick profit by selling out to Maltese investors as in the case of the land over which the Zahra’s built the Julians Radisson, Polidano and Fenech were made to pay top prices to acquire public land for hotels they built in Gozo and Marfa.

Clearly entrepreneurs don’t invest for the love of their neighbour. They do it for profit, plain and simple. Unless they can see good profit at the end of the line they would not do it and if they do it they would not be around for long as in business the alternative to success is failure.

Being a nation of traders rather than producers, with a strong inbuilt trait for a quick buck and fast turnaround, such investors who can eye quality and invest for the long term are a rare species who deserve all our encouragement and appreciation. Branding Caqnu Polidano as baron is confusing true entrepreneurs who succeed in spite of the obstructions, with those who create bureaucracy to slow down our true entrepreneurs and force them to beg for what should be easily accessible.

If society ought to demand something from tourist entrepreneurs it is for them to search and appoint a CEO for our Toursim Authoirty who can truly engineer a turnaround over the medium term. No quick fixes, no numbers game, but plain and simple restructuring starting from product development, going to product packaging, to brand building, to effective marketing and finishing up with sales to clients who can perceive full value in our offerings and will pay a price that will permit us to make a profit to be reinvested to keep our tourist product fresh and bubbly.

It would have to be a CEO who cares nothing about his Minister’s demand to produce instant success and understands that brands can only be built on products packed with value and quality. Trying to build brands before achieving the necessary quality standard can only lead to the simple truism that effective marketing kills a bad product faster than bad advertising. Before we aim for the numbers we have to aim for all round leap of quality in our tourist products outside the walls of our top hotels.

The numbers then will take care of themselves and the brand will be built through effective marketing strategy but more importantly through the daily delivery of our promise which will lead to satisfied clients and word of mouth recommendations which will build the soft aura surrounding hard branding.

Those Holidays Again

23^rd June 2006

The Malta Independent - Friday Wisdom

Half measures lead to convoluted results. And this is exactly what is happening with the public holidays issue that has been brought to the surface by the ILO ruling.

May be some background would not be out of place for those who suffer from short memories.

In the ‘bad’ old Mintoff days when government had the guts to take unpleasant decisions in order to protect competitiveness a Labour administration had knocked off a handful of public holidays in compensation for legislating a four week vacation leave for all.

It was a bold decision which displeased the Church authorities as many of the abolished public holidays had religious motives and displeased workers in the public sector who had gained privileges for extended leave entitlement, sometimes exceeding six weeks. It was pretty neutral for private sector employees who gained in annual vacation leave what they lost in public holiday entitlements.

The productive sector obviously welcomed this bold move in that it rebalanced the excess privileges of public sector employees in comparison to their brethren in the private sector and eliminated wasteful mid-week stoppages that cause severe disruption to efficient production.

The system had set in and the political price for such unpleasant but necessary step had been paid. Serious politicians should never, in the national interest, play for the political gallery in promising reversal of hard earned concessions that provide instant political acclamation at the expense of long term prejudice to competitiveness.

But this is exactly what a new PN administration did in 1987. It re-instated most of the public holidays that were ‘taken away’ and to compromise further our competitiveness added an additional week of vacation holidays in graduated steps over a five-year period.

The serious shock to our competitiveness came out as time unfolded in the longer term as the economic growth slowed down and whatever growth remained was mainly consumption driven (extra holidays lead to more consumption) rather then the more sustainable production driven.

The Gonzi administration, partly because a new man at the helm permits himself the luxury to revise old habits and partly under the external discipline of EU membership, acknowledged that we were taking too many holidays to remain competitive with the rest of the EU, indeed the rest of the world.

But not having the same determination of the ‘old’ Mintoff habits of calling a spade a spade, rather than doing the obvious and simple thing of scratching off a few public holidays, nibbled at the problem by declaring that for public holidays that fall on a weekend no extra day leave in lieu will be granted. The law of averages dictates that this would add 4 working days to a normal year.

This roundabout way of doing things meant that the government was nullifying by legislation specific collective agreements signed between Unions and Employers providing for such extra days of leave. It this interference of annulling by legislation what was agreed at industry level through free collective bargaining that was condemned by the ILO. The right of government to decide on the number of public holidays has not in any way been disputed.

The second half of the legislature is never a time for government to take bold moves. If the issue was tackled as it should have been tackled two years ago by now the matter would be dead and buried. But because half measures were adopted the issue keeps coming back for reconsideration at a time when government’s room for manoeuvring is getting more limited by the day.

The need for the MCESD to be re-invented in underlined by its inability to broker a consensus over such rather small matter. Is it possible that we cannot understand that we do not afford the luxury of celebrating each year five national holidays. Can’t we come to an agreement to celebrate one national holiday each year by rotation (thus avoiding the political rigidities of choosing the national day) and celebrate the other four on the nearest weekend. After all nationhood is an evolving process and no one day symbolises the whole process.

Evaluating Membership

16^th June 2006

The Malta Independent - Friday Wisdom

Our political leaders crossed swords this week debating whether two years down the road EU membership has been a positive experience. Not surprising you might add, as our political leaders tend to disagree on most issues, even trivial ones, and therefore cannot be expected to make a fair evaluation of EU membership from a common vantage point.

To objective observers the evaluation cannot produce a black or white answer. There is no doubt government had over-promised in depicting EU membership as a panacea for our ills, as instant as our morning coffee. Over-promising naturally leads to under-delivery. Judged on this basis there is no doubt that many feel disappointed with their first hand experience of EU membership. It has not been as fruitful as they were made to expect.

Consequently in absolute terms it is perhaps easy to write off EU membership as a disappointment. We did not get the inflow of foreign direct investment experienced by other new EU members where for example Slovakia is being branded as the new Detroit for auto manufacturing. Job creation is as slow as it was before membership, inflation is somewhat higher and the oppression of high oil prices has eroded our standard of living. Though in reality oil price oppression has nothing to do with our being in or out of the EU, it is quite unavoidable that in their assessment of post-membership experience people fail to distinguish between variables directly related to membership and others that have nothing to do with it. Everything tends to get packaged.

It would be unfair to make such rash assessments. EU membership has never been for the short-term. While government has no doubt exaggerated the instance of accruing benefits, this is not the same as saying that for the long term the benefits being enjoyed by others who seem to have been better prepared, should not accrue to us as well.

Really it depends on us and on none other. The truth is that we approached membership with an uncompetitive economy, with a chronic fiscal deficit and institutionalised rigidities which were depriving our economy from the flexibility it needs to grasp opportunities and make the most of the new realities of membership.

For sober analysts whose judgement is based on the long term rather than quick fix short term solutions EU membership can be considered as a positive experience if for nothing else, for the fact that it is forcing on us the discipline to address issues which have long been neglected.

Finally we seem really coming to terms with reducing the fiscal deficit to sustainable levels from the over-blown level it has been since 1996. We lost eight years looking and turning the problem upside down without addressing it at its source i.e. by cutting expenditure rather than raising taxes.

The discipline of EU membership and the consequent obligation to shape up for the Euro, has forced us start doing what needs to be done.

We are finally freeing the economy from monopolistic rigidities in our transport sector. We have started with the lubricating rigid port systems that do not sit well with the competitive pressures of globalisation, and I hope we can extend this to other inland transport segments including passenger transport.

Without the discipline of EU membership I doubt if our politicians would have had the will to take such measures which whilst pleasing to central bankers, economists, rating agencies and armchair critics, are not at all popular with the electorate. They are even less palatable it they have to be executed simultaneously with oppressive measures reflecting the wealth transfer we are being constrained to suffer through the astronomic energy prices.

For me whilst the jury on our experience of EU membership is still out when judged in absolute terms, which is well understandable as this is a long term project which should be judged by long term results which depend on us, on our good sense, wisdom, prudence and determination. In relative terms, benchmarked to where we would have been today without EU membership, I have no doubt that membership has been a positive experience.

Now this is hard to prove as it is just impossible to state with precision where we would have been today if we had opted for non-membership. It is impossible to prove that had we opted for Dr Sant’s Partnership the EU would have went out of their way to negotiate a specific deal to suit our circumstances or would have put us on the back burner, whilst they focus their attention on integrating new members and preparing candidates, including Turkey for membership.

From someone who had argued the superiority of Partnership over Membership in quite emphatic terms this might look like flip-flopping. It is not. I have consistently argued that Partnership’s theoretical superiority could only be translated into practical advantages if we had the self - discipline attributes of the Swiss and leadership qualities in the best of Mintoff terms. Events since 2003 have more than convinced me that we fail on both counts. We have no Swiss type self -discipline (would we vote in a referendum for working a 44 rather than 40 hour week?) and we certainly have no strong political leadership in the degree needed to make Partnership work.

We need external discipline to save us from ourselves and this is the best we are getting from EU membership. For all I know this lack of discipline trait in our genes and our dissatisfaction with the EU’s external discipline could work to Dr. Sant’s favour come next elections. I do not however understand what room for manoeuvrability there is for whoever is elected but to press ahead with the much needed re-structuring, painfdul as it may be, to render our economy flexible and competitive to make the most of EU membership.