Business Observer October 26 2017

INTERVIEW

Issue 79

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October 26, 2017

Distributed with Times of Malta

Freedom of speech?

The front page of The Business Observer is typically not taken up by an editorial column, but the tragic and brutal assassination of journalist Daphne Caruana Galizia cannot go by unremarked. First and foremost, we would like to extend our deepest condolences to this brave and brilliant woman’s family and friends. This murder is a watershed moment in Malta’s more recent history; it stunned the island into shock and turned the eyes of the world upon us, breaking down our picture-perfect façade as an oasis of peace among our often turbulent Mediterranean neighbours, and leading many to question, “What’s really going on here?”

We’ve used this editorial many times over the past year to question whether the country’s institutions are still functioning as they should, because like it or not, having a proper, functioning democracy in place is paramount if Malta is to continue to function as a real, fully-fledged, independent EU state and to move forward as a sophisticated and modern island state with an unprecedented buoyant economy. We’ve stated numerous times, as scandal after scandal unfolded, that what has happened and is happening in the country over the past few years has to come to an end; that while we fully respect the democratic verdict and outcome of last June’s general election, this should not be interpreted as an endorsement for further encroachment on Malta’s most fundamental institutions and on our basic fundamental rights. But, here we are, now facing an unprecedented crisis situation that is far more serious than the Panama Papers and the Pilatus Bank and financial services revelations that are in themselves very damaging and serious in their own right – and the world is now watching us to assess how tiny Malta is going to get out of this mess and at what price.

Mrs Caruana Galizia’s vicious killing has been described as an attack on freedom of speech. It certainly is. And there is more than one angle to this tragic story. The ‘anything goes’, laissez-faire mentality that has taken over in Malta over the past few years – from the way people approach hunting regulations, to how basic civic duties are regarded, and to how people are approaching development and planning permits – has cultivated a culture that everyone can do whatever they please without fear of facing real consequences or justice. Yet another worrying perspective is the bare fact that the country’s institutions including the police force and that of

Our first interview with Adrian Delia was meant to focus on the Opposition’s reaction to the Budget announced the week before; but everything changed the afternoon of Monday 16th. see pages 3, 5 >

ANALYSIS While it remains a desirable location for the vast majority of investors who are here already, is Malta losing some of its momentum? see pages 6, 9 >

the Attorney General haven’t been functioning properly over the past years and are failing to carry out proper investigations and take action against serious allegations of money laundering involving senior people, also in Government. The police have also failed to provide adequate protection to Mrs Caruana Galizia, even if she didn’t want any, when it was clear that her life could be in danger.

The other obvious angle is the police force’s ability – or rather inability – to fight serious crime in general. This is not a problem that was necessarily created during this Government’s tenure – the issue goes beyond political intervention but concerns the ability, the resources and the infrastructure within the force to tackle crime. At a time of economic prosperity and budget surplus, the Government should have invested heavily in the police force as it is clearly not in a state to do its job properly. Besides the numerous criminals killing each other in cold blood, there have been countless ordinary people and people in business who have been violently killed, with their murderers never brought to justice. A leading businessman who owned a prominent five-star hotel in Gozo was murdered in Valletta in 2010 through what appeared to be a commissioned crime; another businessman who owned a travel agency and a limousine-hire business was slaughtered in his home (in what on paper did not look like the most sophisticated crime on

earth to solve); the owner of one of Malta’s leading bathroom showrooms was killed in a car explosion very recently; and the police have simply failed to solve any of these murders. Six car bomb killings took place in tiny Malta, and no culprits were identified and the police seem to be none the wiser about the motives and the possible organised crime behind them. There is a pressing and urgent need for a complete overhaul of the police force, and equally, to get foreign experts on board for the long haul to assist in a rebuilding exercise of the entire structure, modus operandi and resources needed within the police force.

Mrs Caruana Galizia’s portentous last words on her blog were “The situation is desperate”. We cannot continue to close our eyes to the gravity of the situation and carry on with our businessas-usual mentality, when it risks collapsing at any moment. We have to take a cold hard look at what’s really going on just beneath the glossy surface, and perform immediate and long-term surgery to try to fix what we have left. The rot has set in very deeply, and there are doubts as to whether we have the tools, the skills or the will to remedy the deteriorating situation. But if the authorities think that a PR blitz using the ‘FBI’ and a potential ‘€1 million reward’ to solve Mrs Caruana Galizia’s assassination as props on the local and international stage are enough to solve this crisis, they are mistaken. And the situation will get worse. It will only be a matter of time.

ANALYSIS Which aspects of Malta’s economy and industry should have been given more prominence during Budget 2018? see pages 13, 14 >

STOCK MARKET REVIEW Could a repeat of October 1987, the stock market’s Black Monday, be looming on the horizon? see pages 24, 25 >

e Business OBSERVER

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INTERVIEW

Adrian Delia: “What happened changed everything” Rebecca Anastasi This was supposed to be an interview like many others before it. Initially booked for the morning of Tuesday 17th October, it was meant to focus on the Opposition’s reaction to the Budgetary measures announced by the Minister of Finance the week before. As it happens, it was also meant to be our first interview with the new Leader of the Opposition.

But everything changed on the afternoon of Monday 16th, the day when journalist Daphne Caruana Galizia was murdered by a car bomb.

By the time we had reset the appointment with Opposition Leader Dr Delia, there were other priorities and more urgent matters to contend with: the tragedy which engulfed a family and the island, the international maelstrom, and the search for justice.

The interview which follows are Dr Delia’s immediate reactions to The Business Observer following Black Monday.

“What happened three days ago changed everything,” Dr Delia told us in his office at the PN headquarters. “One day in the history, not of the party, but of the country, changed everything: how we look at things, how we plan, how we deal with people, who to meet, what to say. This post-tragedy event is literally reacting hour by hour, feeling first shock, then anger, then slowly, slowly, that turns into determination to try and get everything back to normal, whether you’re talking about country, party or personal lives. And what could have possibly been a challenging experience turned into one of a sense of history, a sense of scope.

Why am I here at all?”

This interview was conducted the day after the Police Commissioner gave his much-criticised press conference. Asked for his reaction on the response following the murder, Dr Delia focused on his disbelief.

“Tragic. Watching our TV screens and instead of getting some kind of comfort, and I’m not even talking about politics here, I’m talking about us, as citizens, there was a

OPPOSITION LEADER ADRIAN DELIA.

sense of disbelief in what you are watching.

After three days, you hear the first word which should give you some comfort, some sense of safety, some reassurance; I would have expected somebody to come out there and say ‘this is a tragedy; nobody was prepared for something like this, but we are Continued on page 5

“We need to convince these businesses that there is an opportunity here for Malta to get back on the right track, not only economically, but morally and at an institutional level.”

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INTERVIEW

“Government is running out of time” Continued from page 3 going to react cautiously, where we ascertain that justice is done. We are also going to give comfort to everyone out there that you’re safe.’ Instead, we got a sense of ‘wow, is this the best we have? Are these the people who are going to protect us?’”

He pointed to Government’s reaction.

“Government needs to show that in times like these, timeliness is of the essence. At least give us a sign. At least. I expected the Commissioner of Police to say, ‘I have failed, I am not up to this’. We were not expecting to make a judgement call according to whether he is a good man, or a dishonest man. It had nothing to do with this. It seems he was interested in giving us those kinds of reassurances. He needed to reassure us that either he is in control or he is not; either he is in charge or he isn’t. With regard to the Office of the Attorney General – again not a judgement on persons but on the institutions, on the Office – did we get any reassurances? Did we even get any statements? Did we get Government to give us some type of comfort? Government needs to act fast. It is running out of time. And now it’s not just us watching the clock; it’s the whole world which is watching, minute by minute.”

Considering the negative spotlight Malta, its institutions, and its politicians have been under internationally, does he think businesses will start to leave Malta, and what can be done to prevent this? “I hope they will not. I will work every day so they will not and it’s a question of finding balance.

We need to convince these businesses that there is an opportunity here for Malta to get back on the right track, not only economically, but morally and at an institutional level. We need to be cautious, prudent, think ahead, give comfort that we can get this back to normality.”

But in concrete terms, what can be done?

“Government is in charge so it has to start from Government immediately; it has to show signs of acknowledgement, that something is happening, and that’s overdue. And if Government takes that lead, there need not be a change in who is in power. Because

“We have to start by good governance before getting down to the sectoral due diligence.

We need to ascertain the robustness of the authorities themselves.”

we need to respect the democratic process, which a few months ago gave a resounding endorsement to this Government, so the legitimacy of the Government itself should not be questioned at this stage. But the leadership, the Prime Minister, has to shoulder the responsibility, and we also mentioned the AG and the Police Commissioner. And the institutions, then agreeing to be chosen at a two-thirds representation majority of parliament to give the comfort to the people that the institutions are being structured as a representation of the Maltese and not politically, in terms of partisanship. If that’s the case, the Opposition will be there to actually help, to be participative in whatever needs to be done to get back on track.”

International reports and sources have also questioned the legality and viability of

operators within various sectors which have grown in Malta over the past few years. We asked him about due diligence, even in sectoral terms.

“We have to start by good governance before getting down to the sectoral due diligence. We need to ascertain the robustness of the authorities themselves. If we had to look at flagrant examples of what should not be done, let’s all look at Pilatus Bank. It’s a picture, a film being run in front of our eyes on TV of how things cannot be done in a country which five years ago was becoming a hub of excellence in the financial world. That is the best example I can give you of how we should not be acting. So, Government has a tall order it needs to abide with, if it wants to mend the irreparable harm that

it has now wrought on our country. We need to be very careful. We need to show that we are taking action – and again I need to go back to this timely manner – because as soon as we do nothing, we are doing a lot by omission. The responsibilities of Government are becoming heavier than before.”

Dr Delia also puts forward the Opposition’s role. “From our end we will keep on insisting on putting our institutions first, seeking justice first. That’s not a partisan stance, not an antagonistic stance.

It reflects the seriousness our country finds itself in. I hope our Government does the same. If that happens, then we can start working together, giving a sense of peace, a sense of normality, back to our country.”

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ANALYSIS

Labour market challenges among top concerns affecting Malta’s competitiveness Martina Said Malta has improved its ranking in the World Economic Forum’s Global Competitiveness Index 2016-2017 by three places, from 40th to 37th place out of 137 countries, ahead of Italy, Croatia and Portugal. While the news has been welcomed by the local business community, Malta’s shortcomings are also there for all to see in the report.

The publication assesses each country on 12 main pillars, and Malta did particularly well in the areas of health and primary education (11th) and labour market efficiency (29th). Despite the positive assessment, however, among the most problematic factors for doing business with Malta highlighted by the index are inefficient government bureaucracy, insufficient capacity to innovate, inadequate supply of infrastructure, access to financing, an inadequately educated workforce, poor work ethic in national labour force, and corruption.

The findings were echoed in EY’s Malta Attractiveness Survey for 2017. Presented yesterday during EY’s Annual Attractiveness Event, Malta’s largest business and investment forum attracting over 700 public and private sector leaders and international investors, the survey was overall positive about Malta, but also showed where cracks were emerging. The findings showed that while almost 80 per cent of current investors surveyed still believed that Malta was an attractive investment location, and that confidence in Malta as a start-up location was growing, largely in iGaming, FinTech and digital business, Malta’s workforce – or lack thereof – is becoming a limitation. “With rampant eco-

nomic growth, the capacity to find the required skills locally is now less than 40 per cent, causing inevitable bottlenecks and missed opportunities,” said Ronald Attard, Managing Partner at EY, during the introductory speech at the seminar.

The survey also found that R&D, transport and logistics remained Malta’s weakest links, and that the transparency and stability of Malta’s political, legal and regulatory environment – “once among our flagships” – now ranked, regrettably, towards the lower end of the scale. Additionally, Malta’s ability to keep pace with global regulatory changes, while still ranked positively overall, was losing some of its momentum, with the exception of the

iGaming industry. “It is very encouraging to observe the Government’s take-up of [blockchain] and its increasing interest in [Fintech],” Mr Attard said. “But we need to act faster as other jurisdictions are cottoning on to the idea.

Let’s face it, Malta could have been a FinTech capital by now.”

Kevin J. Borg, Director General at the Malta Chamber of Commerce, Enterprise and Industry, stated that the Malta Chamber had voiced its concern on these issues numerous times in the past, advocating for a number of solutions that would address these challenges, and others. “In the case of labour market matters, the Chamber spoke about the labour gap that exists in the market and

how this is the result of a resilient economy and an unemployment rate that is close to the so-called ‘natural rate’. This is causing businesses to resort to acquiring human resources from each other, which is undesirable and costly, or from outside the country. When Maltese employers reach out beyond the European Union for recruitment purposes, they are faced with bureaucratic issues which the Chamber is actively intervening with the authorities to solve.”

The Malta Chamber is also concerned about the skills students are acquiring from their educational experience. “The country’s educational system is propagating a widening skills gap which is ill-preparing younger genera-

“While almost 80 per cent of current investors surveyed still believed that Malta was an attractive investment location, and that confidence in Malta as a startup location was growing, largely in iGaming, FinTech and digital business, Malta’s workforce – or lack thereof – is becoming a limitation.” tions for tomorrow’s economy. A tweaked stipend system must also be taken into consideration, encouraging students to take up careers that the country needs,” he continued. “Work-based learning and career guidance will also contribute in this sense, and here, once again, the Chamber is championing concrete initiatives for sustainable solutions.”

Continued on page 9

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ANALYSIS

Is Malta losing some of its momentum?

Continued from page 6 Kenneth Farrugia, Chairman of Finance Malta, asserted that the sustained economic growth that Malta is experiencing brings with it various challenges.

“There are of course a number of factors that have been duly weighted to derive Malta’s ranking. For example, the supply/demand imbalance of skilled labour is the result of Malta’s record economic growth, which has brought about the demand for labour which is exceeding the domestic supply. Various initiatives by successive Governments have been undertaken in this regard, but this begs the question – can we do more to manage this imbalance? The answer is yes,” said Mr Farrugia.

“Initiatives such as the introduction of visa schemes targeting certain skill sets to attract the required labour to Malta, the introduction of research and development incentives for the industry to enhance investment by corporates in this space, facilitating crowdfunding structures to enable entrepreneurs to seek

financing for their innovative projects, and stronger anti-corruption measures alongside those already in place should be among a host of other initiatives.”

Helga Ellul, CEO of consultancy company Advise Ltd, stated that Malta’s top priority for it to remain competitive is its human resources. “We all know that we do not have enough people to fill the needs of our industries and neither do we have the right skills. We need to import labour from abroad – but is there a proper plan from Government in this regard? I feel that businesses have to involve themselves much more in the education and formation of our young people, and Government needs to be open to this involvement. Also, are we using our available resources enough? Malta’s retirement age is in the early sixties, and we should encourage early retirees with a wealth of experience to help pass on the necessary ‘storytelling’, i.e. experiences, to our youngsters, to introduce them to the world of work. These are idle resources that we are not using, but rather disregarding.”

Mr Attard concluded his speech by saying that Malta could look forward to the future with optimism, as long as it had “the courage, foresight and polit-

ical will to move along with a changing world. We have already proven that we can forge ahead of others, to punch way above our weight – in gaming and finan-

cial services, for instance. If we think without the box and bank on our strengths, we can do the same in other sectors. Again, and again.”

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e Business Observer is Malta’s leading business newspaper distributed with Times of Malta every month.

Editorial Coordinator Marie-Claire Grima

NEWS

Publishers Allied Newspapers Ltd. Content House Group Ltd.

Bridging the STEM skills gap Jo Caruana The skills gap has become a problem. Now, more than ever, employers and employees are having to face the fact that particular industry skills are hard to find – and the EU is trying to do something about it. In fact, the Union’s 2020 growth strategy plan is working to ensure that the labour supply is equipped with the right skills across a plethora of sectors.

The matter was addressed at a recent conference organised by the Malta Business Bureau and the University of Malta, where a Malta Chamber study was presented, showing the clear demand for workers in different industries, especially in sectors related to Science, Technology, Engineering and Mathematics (STEM). This demand is expected to increase, making STEM skills essential to sustained economic growth.

Yet there is still low interest in STEM-related subjects. Speaking at the conference, Prof. Joseph Cilia said he believes the STEM sector to be perhaps one of the most challenging and dynamic sectors when it comes to the ever-changing skills-set required at the place of work. “New technologies and new ways of working generate the expectation that workers must remain as upto-date as possible,” he said.

Despite the challenge, Prof. Cilia went on to explain that there are many ways that Malta can start bridging the gap. “Younger students must be further exposed to the STEM world in a fun and interesting manner. Schools should encourage the development of skills that are very im-

MBB CEO JOE TANTI AND PROF. JOSEPH CILIA

portant to the STEM sector, such as having an inquisitive and curious mind, being creative and persistent, and developing critical thinking and problem-solving skills.”

Initiatives are already being put in place to help. “For instance, the Ministry of Education and Employment has been geared towards providing a valid quality career option for all students. On a completely different level, through Jobsplus, the Government has also made EU funding available for employers to up-skill and retrain their employees as necessary while retaining them in employment. This helps towards keeping the labour force more employable, more up-to-date and able to meet the demands of newer technologies,” said Prof. Cilia.

“Rather than solely focusing on the supply of STEM skills, one should also assess the role of

businesses in the face of this Europe-wide skills gap,” said MBB CEO Joe Tanti. “Businesses should be willing to offer apprenticeships, give lectures or invite students to visit their premises.

These are all vital steps to ensure that, on the one hand, students obtain first-hand experience of their prospective careers, while, on the other hand, employers obtain immediate access to a pool of skills which are highly in demand. All in all, STEM subjects need to be given an image overhaul in order to encourage more people to join the sector. Without taking this important step, STEM will remain a challenge, hampering economic growth and holding back a workforce eager to be productive.”

Mr Tanti highlighted that, internationally, there have been a number of positive examples to show how STEM-style thinking works. “In Austria, for instance, the SPICI (Success Stories about Professions in Cool Industries) project involves scientists and engineers who visit students to ‘story tell’ about how they use science at their workplace. In parallel to this, students have the opportunity to visit the companies and carry out hands-on experiments. This helps the team to develop novel lecturing material combining theoretical background knowledge and realworld challenges faced by the industry.”

Prof. Cilia concluded that, besides it being necessary to ensure that laboratories are of the highest standard, incentives must also be created for students to further their studies in STEM subjects. “We also need to change ‘System of Knowledge’ to the ‘application of STEM’,” he concluded.

Advertising Enquiries Tel: 2132 0713 Email: info@contenthouse.com.mt Advertising Sales Petra Borg Urso Brand Manager Advertising Sales Coordinators Lindsey Napier Marvic Cutajar

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BUSINESS OPINION

e inevitability of electric vehicles

Neville Zammit Following announcements by different countries, including France and the UK, committing to ban the sale of new petrol and diesel cars by 2040, Government has shown interest in adopting a similar ultimatum, with Prime Minister Joseph Muscat saying in September that a consultation on this issue will be launched shortly.

These are fuzzy commitments at best, given the unpredictability of the future that far-off, and the fact that public office will change hands multiple times before we reach that day.

Dr Muscat’s statement last month, however, was substantiated in this month’s budget. On top of the €5,000-€8,000 grant, starting next year, any car capable of travelling for a minimum 80km on battery power will be exempt from tax registration.

Registration of such vehicles is

usually around €2,000-€3,000, depending on the value and the size. This effectively brings the total potential electric vehicle (EV) purchase incentive to more than €10,000, one of the highest grants around the world, on par with some states in the US and cities in Scandinavia.

This may be considered a marginal financial incentive increase; however, it is already on top of a substantial grant, and not tied to demanding restrictions. This may in fact open the doors for used car dealers to start importing older EVs, like the Nissan Leaf, which would not be eligible for the grant but eligible for tax exemption.

Dealers can make life easier in purchasing one’s first EV and may prove instrumental in the take-up of this technology.

New EV models have ranges of over 150km and in Malta one rarely has to travel for more than 30-50km daily. Looking at battery

technology progress, it’s very probable that this average 150km range can be doubled in just a matter of a few years. Also, one must bear in mind that there are 100 charging stations already scattered around the island and one is never more than 5-10km away from one. The number of these is set to go up to 300 by 2018.

Destination charging, which involves charging stations at work, supermarkets and other communal places, would alleviate any range anxiety. Grants are already in place to incentivise businesses to introduce this in Malta. Furthermore, the proportion of dwellings in Malta that have access to at least one garage is close to 50 per cent, which means that most households can comfortably charge at their convenience at night.

A simple idea, still to be implemented, is the yielding of electricity use tariff rates. Usage rates

at night are cheaper in many other developed countries.

A common criticism of EV has to do with their batteries and what to do with them once they run out.

However, batteries are recyclable, and regardless of logistical problems involved in disposal at their end of life, they are still infinitely more desirable when compared to traditional fuel which is dissipated in gas form as highly dangerous urban pollution. Fossil fuel is nonrenewable and none of it is captured back for recycle/reuse.

Furthermore, having a power station supplying electricity is hugely more efficient than having every car engine producing its own power from a small fuel tank. Monitoring, controlling and managing air quality is also made incredibly easier with a single source of pollution.

Power generation throughout the world is already shifting from coal and oil fuels, to more renewable and cleaner energy

“During the next five to 20 years, the share of gas, wind, solar, nuclear and other green energy sources will continue to grow and eclipse fossil fuels.”

sources. During the next five to 20 years, the share of gas, wind, solar, nuclear and other green energy sources will continue to grow and eclipse fossil fuels. The planet as a whole will benefit in terms of less global warming and reduced incidence of respiratory problems within the population.

Such a modal shift will not happen overnight. Were we ever ready to switch from horse-drawn carriages to cars? Slowly, but steadily we will get there and the Government looks committed to increase the charging stations, incentivising EV buying and using cleaner fuels for power generation.

I believe Dr Muscat’s statement considering a phasing out of combustion cars serves more as a prediction than a policy proposal. The Government, acknowledging the global trends in the transport sector is trying to guide people and businesses to plan accordingly. The rate of EV adoption in Europe and pledges by many car makers (Volvo, Mercedes, Jaguar Landrover, Volkswagen) to electrify all their new cars within the next five to 20 years, makes the eventual cut-off year in Malta more of an inevitability than a deadline.

Visit EVMALTA on Facebook to find out more.

Neville Zammit holds an MSc in Environmental Economics.

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ANALYSIS

Where could Budget 2018 have been stronger?

Marie-Claire Grima The measures proposed in the Budget for 2018 were by and large sound, keeping in line with the Government’s pro-business strategy.

However, there’s always room for improvement, and several aspects of Malta’s economic progress and sustainability went undiscussed.

Perhaps the most obvious of these was in the employment sector.

Malta’s state of ‘full-employment’ has created significant challenges for the private sector to fill its vacancies, both in terms of quantity and quality. The Malta Chamber of Commerce and numerous industry bodies, including the Malta Employers’ Association (MEA) and the Malta Chamber of SMEs (GRTU) had emphasised that the work-permit application process should become more efficient in order to facilitate the employment of nonMaltese employees. The Chamber also proposed the setting up of additional fast-track processing schemes. While in the Budget speech, Finance Minister Edward Scicluna pledged that investment would be made on upskilling the workforce, and investing in “education, both academic and vocational, even more so in the latter”, none of the measures proposed by industry bodies to provide an immediate solution were taken up.

Tourism was acknowledged as an important sector to Malta’s economy – and rightly so. Measures to improve the sector included plans for the expansion of the Grand Harbour for cruise liners; setting up a new agency to improve the ‘general look’ of the country, and regenerating areas that have fallen into disrepair, including lower Valletta, Birzebbuga and Marsaxlokk. However, it would have been prudent to introduce

more measures that would help strengthen the industry, including the improvement of tourism zones beyond the Valletta Waterfront; putting an emphasis on cleanliness and a general ‘greening’ of the environment; introducing mitigating measures to limit the negative impact on tourism of the ever-rampant construction industry; decreasing administrative burdens on work and study visas, and increasing enforcement on travel operators.

An aspect closely related to tourism is the fate of Air Malta.

Government stated that it is committed to restructuring Air Malta and returning it to profit, but details of this plan are unknown. “All options are still open and Government will only agree to a plan that is advantageous for Air Malta and for the country,” Prof. Scicluna said in the Budget speech, which doesn’t quite shed any light on what will happen to the airline in the immediate future. This is a cause for concern for travel operators to book advanced bookings – this is certainly true in light of the sudden collapse of Monarch Airlines in the UK early in October, which left 110,000 stranded and up to 750,000 future bookings cancelled without a word of warning.

The Budget speech included glowing reports on the transformation of Enemalta, following the €80 million invested in the energy company, and another upgrade by the credit rating agencies. However, despite positive financial results for Enemalta and the roaring pace of the economy, Malta will remain the only European country in which domestic energy rates are cheaper than commercial energy rates – over 40 per cent higher than the EU average.

Furthermore, when it comes to renewable energy, by the end of

FINANCE MINISTER EDWARD SCICLUNA. PHOTO: JASON BORG, DOI

“Despite positive financial results for Enemalta and the roaring pace of the economy, Malta will remain the only European country in which domestic energy rates are cheaper than commercial energy rates – over 40 per cent higher than the EU average.” this year, Malta is expected to have reached the five per cent mark – half the goal of 10 per cent which we must reach by 2020. While the setting up of the Energy and Water Agency is a step in the right direction, progress has been slow, and the fact that there are just two years to catch up is cause for alarm.

Finally, while there were increases to both contributory and

non-contributory pensions of €2 per week, and maximum non-taxable pension income increased by €200, to €13,200, little was done to tackle the threat that the current state pension system poses to the sustainability of public finances in the long-term. Malta has made no moves to implement voluntary second pillar pensions and incentives for employers and employees to enroll in such a system

for many years, which would greatly dampen the over-reliance on state pensions.

“At a high level, the Budget aimed to strengthen and build upon those areas that were functioning, whilst gearing additional Government expenditure to address areas under strain. This is meant to be achieved by redistributing wealth to those in need and setting out a plan for continued incremental step improvements in all other areas with a special emphasis on the adoption of Blockchain technology, the enabling technology behind Fintech,” said Tonio Zarb, Senior Partner at KPMG. “This carries major weight, as with Fintech, financial services are not only becoming more clientcentric, generating enhanced value for money in financial services, but also because Fintech promises to usher in a new era, leading to lower transaction costs and unContinued on page 14

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ANALYSIS

Focusing on enablers of growth Continued from page 13 precedented speed of innovation.

Of particular interest is the conscious decision, to not restrict focus solely on direct business incentives (which are still important), but to also focus on enablers of growth, such as infrastructure.

From a demand side perspective, businesses would be also expected to benefit from this Budget’s thrust to redistribute income, which drives consumption.”

“The fiscal stance adopted was primarily meant to steer further a positive economic sentiment characterised by robust economic activity and a projected fiscal surplus,” said Christopher Pace, Head of Economic Advisory at Deloitte Malta.

“This environment is expected to provide further continuity to businesses and it will be easier for investors to go ahead with their investment plans in search of higher earnings. One would therefore expect an even stronger B2B activity, and further demand for office space and related commercial construction tax neutral activity.

Considering that it is a tax neutral budget, businesses will be in better position to grasp export opportuni-

ties especially in value-added manufacturing, professional services and tourism-related activities.”

“The introduction of VAT grouping provisions is definitely a positive initiative and seems to have been very well received by the business community, particularly that from the financial services and gaming sectors. With respect to small undertakings, the increase in the VAT exemption registration threshold is also a positive measure and one which is aligned to the increased threshold on which the reduced income tax rate on part time income is applicable,” added David Ferry, Senior Partner at PwC. “One area of concern that does not seem to have been addressed is the limitation of the availability of investment aid to large enterprises involved in qualifying industrial activities. Moreover, given the strains on the infrastructure, measures supporting the logistics and distribution sectors would also have been appropriate. Furthermore, one would have hoped that, particularly in the light of the current positive economic climate, measures supporting the recently-introduced Voluntary Occupational Pension Scheme, such as increased

tax credits for employers, would have been announced.”

KPMG’s Mr Zarb stated that in the short to medium-term, businesses would be expected to benefit from a number of fiscal measures, including for instance, the increase in the VAT-exempt turnover threshold, and the introduction of VAT grouping for regulated financial services and the gaming industry. “In terms of Government assistance, the MicroInvest Scheme is also a bonus for qualifying entities. However, it is the long-term vision of embracing disruptive technology, such as Blockchain, which potentially, is the most exciting for businesses,” he said. “If exploited well, the benefits arising out of the exploitation of technology have the potential to reconfigure the current economic model. On this front, businesses staying ahead of the game and sub-

sequently acting in a timely manner to mitigate any risks and tap opportunities can yield tangible results.

Given the importance of, and growing demand in the financial services industry, both as an end-user service and as a business enabler for other industries, intensive efforts to enhance capacity and bolster the financial infrastructure would have been welcome. This is especially true within the context of increased potential AML and CFT risk associated with such industries.”

Deloitte’s Mr Pace affirmed that the decision to extend the MicroInvest and BusinessStart schemes to undertakings which employ not more than 50 full-time employees is expected to be one of the more effective measures. “Furthermore, the reduction in VAT threshold for small enterprises, increased to €20k from the current €14k is considered to be

“Malta has made no moves to implement voluntary second pillar pensions and incentives for employers and employees.”

a complementary measure. Sole traders and SMEs are the backbone of Malta’s economic success, and incentives to sustain them are considered to be an investment in the country’s future potential output and growth,” he continued. “Similarly, a number of policy measures aimed to alleviate congestion and external costs are considered to be positive. Although a number of capital investment initiatives were announced, one would have hoped for details of a more comprehensive and long-term plan to address pressing infrastructural issues which are potential bottlenecks to future business growth. It would have been better if more detailed plans were provided regarding traffic congestion, waste management and labour supply-related requirements, such as affordable rental accommodation and schools for foreigners. It is worth mentioning that foreign workers proved to be a positive supply side shock in the economy and the country needs to sustain it. This calls for the urgent need of a ‘National Master Plan’, which needs to be multifaceted and portrays a vision on Malta’s holistic infrastructure requirements for the coming decade or two.”

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Weighing risks against financial appetite Sarah Micallef Fresh from his studies at the Università degli Studi di Siena and the University of Ljubljana, where he obtained his Masters of Science, and a brief but intense internship at Monte Dei Paschi Di Siena, Giulio Puglisi, Risk Analyst at FXDD, embarked on his financial services career in Malta in 2014.

“I knew that Malta was a high interest spot for the financial services industry, so I researched financial investment companies that could satisfy my hunger for financial markets,” he said, before he set his sights on FXDD. “FXDD was one of the first to stand out, since it’s well known within the forex industry and had its headquarters in New York.”

Starting out as a Sales Associate in January 2015, Mr Puglisi soon graduated to the Risk Department. “My experience within the Sales Department strengthened my communication skills and instilled a customer-oriented perspective. The Risk Department has since tested my financial knowledge and put me into close contact with the operational side of the business,” he affirmed.

FXDD offers a large range of financial products and services with a high level of customer support geared towards a variety of customers. “From simple trading accounts and prop trading to liquidity and ad-

GIULIO PUGLISI, RISK ANALYST AT FXDD. PHOTOS: JAN ZAMMIT

vanced technology for brokers, FXDD provides access to most foreign exchange market (forex) instruments. In fact, by owning an account with FXDD, you can trade in more than 50 currency pairs, precious metals, 13 above the major indexes and American stock market,” said Mr Puglisi.

Garnering from his experience within both the sales and risk departments within FXDD, I asked, what makes online forex investment attractive? “Of all the features that make forex attractive, there is one that has been notoriously advertised: getting rich fast.

As with every financial activity, one must know what the risks are and weigh them against their financial appetite,” he said, maintaining, “my view is that trading in forex gives customers the chance to get acquainted with socio-economic and political news worldwide, and its impact on the financial markets. By reading and following the news, I have found that you can build your own projections related to future events and can trade independently at a low cost.”

“You could say that I am simplistic,” he continued, “and I would agree, but financial markets are often advertised as being too complicated for the man on the street, and it is not the case. I believe that everyone has the ability to manage their own capital with a little knowledge about market events, and this is what makes for the most attractive feature within forex investment.”

Turning his attention to FXDD, I asked, where does the company’s strength lie?

“Trading in forex gives customers the chance to get acquainted with socio-economic and political news worldwide, and its impact on the financial markets.”

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With the forex industry going through a growth spurt, he explained, the situation has led to a number of new brokers entering the markets. “Competitiveness is always positive within the financial markets because although it does tend to decrease prices within the industry, reducing profitability for brokers, it spreads knowledge on financial markets,” he said, with a caveat. “Many of these competitors are unregulated. FXDD’s strength lies in the fact that it is regulated within the European Union. In Malta, it is regulated by the Malta Financial Services Authority (MFSA), which is a well-recognised entity around Europe.

By holding a Category Three for Investment Services, FXDD guarantees security and professionality.”

Moving on to the local landscape, Mr Puglisi gave his assessment on the industry in Malta and its progression. “Honestly speaking, developments within the forex industry in Malta have been slow.

This is mainly due to our main competitors, the UK and Cyprus. Now that the UK is in the process of leaving the EU however, there could be interesting developments for Malta. We have to wait and see how things unfold in the wake of Brexit,” he maintained.

Finally, looking towards the future, Mr Puglisi reveals that there are exciting plans in the pipeline for FXDD, asserting, “FXDD is constantly in the process of developing new products that are interesting for customers and reflect the changes in the financial world, but I can’t disclose more for now – stay tuned!”

LICENSING STATEMENT: FXDD Malta Limited is licensed to provide investment services by the Malta Financial Services Authority. Registered Office: K2, First Floor, Forni Complex, Valletta Waterfront, Floriana FRN 1913, Malta. HIGH RISK WARNING: Foreign exchange trade carries a high level of risk that may not be suitable for all investors

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CASE STUDY

Leading the way towards automating Malta’s fuel industry Martina Said It might be difficult to remember a time when re-fuelling your car after a station’s opening hours, without the assistance of a fuel station operator, was not possible. The change from mechanical to digital and automated fuel pumps started being implemented in 1995 by Apco Limited, originally a family business since 1987 and acquired by Hili Ventures in 2014. And since then, automation spread on a national scale.

“We implemented the first steps towards digital and automated pumps with a fuel station in Marsa 22 years ago – it was the first project of its kind locally, and took us around a year to install, test and operate all the infrastructure required to make the change,” said Mark Cachia, Senior Technician – Fuel at Apco. “Previously, people would have to wait to be served by and pay the fuel station attendant within the stipulated opening hours, with the inconvenience that after hours, the station would be closed. By digitising fuel stations, they are now open 24/7, are self-service and fully automated.”

Apco Limited is a broad automation and security solutions provider for the banking, retail, hospitality, as well as fuel industries.

Benson Bosman, General Manager at Apco, asserted that “supplying payment hardware and software solutions to fuel companies is our core business for this industry, and we fully maintain and service these systems moving forward, to keep fuel stations running and operational 24/7. The industry today is far more regulated, while there is still room for growth. There remains a small number of curb-side fuel stations without outdoor payment terminals, largely due to the investment involved which is challenging for a small business.”

Card payment systems are also in the offing at local fuel stations. “All fuel stations are looking to modernise further and become more efficient. Apco is well-positioned to assist the payment system and software management of the station, as well as cash management and automation, namely

MARK CACHIA, SENIOR TECHNICIAN – FUEL AT APCO

“We implemented the first steps towards digital and automated pumps with a fuel station in Marsa 22 years ago.”

– Mark Cachia

through cash recycling systems and coin dispensers,” Mr Bosman said.

Mr Bosman and Mr Cachia went on to explain that the tailor-made software designed

by Apco specifically for the Maltese fuel market permits multiple station management, where more than one station in different localities can be managed through a central system. Apco also offers tagging control, where pump attendants use ID tags which record and lock all transactions with the swipe of a card, as well as local account packages, where fuel can be drawn using multiple cards that link to one corporate account. The latter solution is ideal for businesses with large fleets.

Mr Bosman emphasised that the quality and servicing of equipment is paramount for

stations to avoid down-time caused by technological faults, which directly affects their revenue. “If one station’s pumps aren’t working, a customer will simply move on to the next fuel station – and this is just what station owners want to avoid,” he stated. “Owners seek to have the right equipment which is modern, cost-effective, and operating around the clock to serve customers on demand. What makes Malta quite unique, however, is space limitations. Stations struggle to grow as they cannot install rows of pumps typical of the fuel stations overseas, making it even more important that the equipment they do have is effectively managed and well-maintained, in order for them to offer the best service possible to their customers.”

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“All fuel stations are looking to modernise further and become more efficient.”

– Benson Bosman In recent years, fuel stations across the islands have been upgrading their image and services to include sophisticated wash bays, coffee shops, retail shops for auto products, VRT service stations, as well as the latest technology for fuel pumps. Mr Bosman explained that it’s clear that the process of modernising the fuel industry is underway, and that the appetite for improvement is certainly there, “however, a large portion of fuel stations are small and family-run with very limited physical space for expanding – often, expanding means they’d need to relocate, and that’s not always a viable option. Another reason is due to the capital investment required to adopt the latest technology. With this in mind, Apco has developed an innovative leasing scheme to aid small businesses get their hands on the latest technology through monthly payments.”

Besides being able to equip fuel businesses with cash management solutions, payment hardware and software solutions, Apco also provides a full suite of security solutions, including 24-hour monitoring, ac-

BENSON BOSMAN, GENERAL MANAGER AT APCO

cess control systems, as well as barriers to entry and bollards.

Looking ahead to the company’s medium to long-term goals, Mr Cachia asserted that Apco is introducing the next generation of outdoor payment terminals, “including an

innovative double-sided payment terminal, with two machines working in tandem. This is both a space-saving solution and a solution for stations to have more than one payment terminal in case of technical faults.” Mr Bosman added that the company’s extensive

experience in the industry, combined with its partnership with world-class hardware brand Gilbarco and Apco’s bespoke software that addresses clients’ needs, makes the company well-positioned to partner with more leaders in this industry.

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CASE STUDY

e business of transforming business BEAT Limited – whose acronym stands for Business Excellence in Achieving Transformation – was set up in 2007, in response to a growing need in the market to help companies manage their change transition during periods of growth, and where these require assistance with the different processes, structures and systems required to make the leap. The company’s core expertise lies in the provision of integrated business process management services, as well as portfolio, programme, project and change management. “In layman’s terms, we essentially help companies to become leaner in their operations and manage their projects in accordance with time, cost and quality objectives,” explained BEAT’s CEO David Galea. “We also assist companies in prioritising and maximising the return on investment on a range of programmes.”

Since BEAT’s inception, the company has sought to become the leader in Malta in the provision of business transformation solutions, striving to help client companies reduce their total cost of operations, and become more competitive in their own sector. Between 2007 and 2012, its focus was primarily on helping companies manage change transitions. In 2013, BEAT branched out into project management and incubation – “primarily in response to the lack of proper management discipline evident in many projects which were being implemented around the island,” Mr Galea added.

BEAT also managed to penetrate the UAE market, and in 2012, the company developed an alliance

with Informa, the world’s leading player in the conference training and exhibition market. “Through this alliance, BEAT continues to provide training to an extensive suite of clients in the UAE. Our search for partners of international repute has since led to other alliances, including with TUV Nord from Italy, the Houston Intercontinental Chamber of Commerce, Prime Advantage in the UK, and Auraportal in Spain,” Mr Galea explained.

One of the strengths of BEAT is the degree and depth of experience and expertise it offers its clients, having developed a network of quality assurance specialists in a variety of sectors, with whom the company then collaborates when approaching assignments in specialist industries. “For example, when we were engaged on a project requiring the streamlining of business processes in an organisation involved in the wholesale and retail of fruit and vegetables, we engaged the services of an agricultural specialist,” said Mr Galea. “In another instance, we were engaged in the development of an automated ticketing system for a major organisation, for which we subsequently brought on board a ticketing expert to support us. In a nutshell, we combine our process expertise with industry specialist knowledge available within our network, thereby offering flexibility in our approach, whilst servicing the specific needs of the client.”

Since one of BEAT’s functions is to provide strategic alternatives for the purpose of enhancing its clients’ performance in the marketplace, it often works closely

DAVID GALEA, CEO, BEAT LIMITED. PHOTO: INIGO TAYLOR

“In layman’s terms, we essentially help companies to become leaner in their operations and manage their projects in accordance with time, cost and quality objectives.”

with companies’ management at all levels, in order to ensure that they are capable of taking on the change process forward after the job is done. In fact, the company’s innovative modus operandi in-

volves reinforcing its in-house specific process expertise by bringing on board client staff to provide the corporate cultural perspective, as well as external industry experts who are in a position to provide an

independent external outlook pertaining to the sector in which the client operates. “Moreover, although we lead and implement the various projects we undertake in conjunction with company owners and management, we also give considerable importance to the transfer of knowledge and expertise to ensure ownership and the longterm validity of our work.

We therefore provide innovative and pragmatic recommendations which will allow in-house personnel to implement and follow up on our work effectively into the future,” Mr Galea continued.

“We have found that our clients greatly appreciate the high level of innovative strategic thinking we put on the table, complemented by practical advice tailored to organisations’ financial and oper-

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CASE STUDY

ating realities. We regularly receive feedback complimenting us on our ability to manage change and to infuse the right mindsets to encourage change to take place.

Other clients have pointed out our strong technical, analytical, and yet pragmatic approach to resolving operational issues, particularly in streamlining critical processes and achieving process integration. Just as importantly, we strive to infuse a culture of change, with an emphasis on increased accountability and responsibility, which will enable client companies to continue benefitting from the outcome of the change process well after our role has come to an end.”

For BEAT, business optimisation is an umbrella term, grouping within its scope services such as business transformations, project incubation, and implementation. “BEAT’s Project Incubation services put our extensive experience and expertise at the service of the client to help them develop and leverage ideas into pragmatic business concepts.

These services encompass the whole cycle of this process, from concept origination, to determining the project’s technical, economic and financial feasibility, as well as its commercialisation,” Mr Galea explained.

As far as business transformations are concerned, BEAT is well aware that one rarely gets a second chance at turning a business around, and focuses on helping clients get it right the first time.

“We do this by identifying, developing and implementing those fundamental changes which will enable their organisation to interact internally and externally to cope with evolving markets. As a result, their business will benefit from improved profitability and enhanced shareholder value. Our service portfolio in this respect includes the laying out of strategic blueprints, the formulation of performance management systems, as well as the provision of organisational and business process design capabilities.”

Finally, throughout any project undertaken, BEAT are on hand to guide and support their clients in implementing measures to achieve the long-term sustainability of their organisation. “Whether our clients require hands-on support to implement and manage change, or to maximise the value and impact of their project and programme investments, we will direct our experience and expertise towards ensuring that these deliver the desired business results.”

What drove BEAT initially was a passion for excellence in helping

client companies cut down their costs and improve their operations. At the time of BEAT’s inception, Mr Galea estimates that the consulting industry in Malta was relatively immature, with a market size of around 100 million liri (around €233 million). It was a period which saw a number of largescale IT projects mushrooming around the island, and a growing acceptance of integrating ERP (Enterprise Resource Planning) solutions. At the same time, most of these projects were IT-led, and limited importance was given to the implementation of changes in the business model.

However, given the increased competition from abroad – particularly since Malta’s accession to the EU in 2004 – as well as a change in the ownership structure of companies and the handover of the operations to the younger generation, BEAT experienced “a growing acceptance of managing change as a profession,” as Mr Galea described it. “Importance also started being given to engaging outsiders to help in the shaping of new and improved processes.

Today, with technology revolutionising many businesses, the demand for process improvement and project management is set to increase significantly, and will become increasingly recognised as a

“Just as in the early 2000s technology specialists were embraced by industry, we have seen – and are likely to see in the future – a growing recognition for the need for more business process specialists.”

fundamental service. Just as in the early 2000s technology specialists were embraced by industry, we have seen – and are likely to see in the future – a growing recognition for the need for more business process specialists.”

Mr Galea’s major impetus for BEAT for the future is to expand its global scope of operations and become the most internationalised advisory firm in Malta.

“We aim to achieve this by developing our business processes in line with international best practices, by seeking international recognition such as ISO certifica-

tions, and by investing extensively in the training of our staff members, who are our strongest champions and ambassadors for growth. We are constantly striving to develop a customer-centric organisation by achieving growth, without losing that personal touch with the customer which has defined our modus operandi since day one.”

“Finally, we will continue exploiting opportunities for further partnerships and joined ventures in the international scene with a view to gain a wider reach on the global market.”

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CASE STUDY

Bank risk management under the lens The importance of managing risk effectively is top priority for Ronald Haverkorn, Executive Vice President and Chief Risk Officer at FIMBank. “Risk management is a key part of the fabric of any bank or corporate organisation. Our culture at FIMBank favours a holistic approach where risk management falls within the remit of all units and employees, not just the Risk Management Department,” he told this newspaper. “Traditionally, the role of the Risk Department is seen as one that focuses on the approval of loans and the management of credit risks. In reality, the scope of risk management extends well beyond this.”

“Over the past decade, increased emphasis has been placed on compliance, operational, market, and reputational risks. This required a greater investment not only in people, systems, controls, and procedures, but most of all, the generation of awareness and education internally. All employees are part of enterprise risk management, as defined by the traditional three lines of defence – first line relationship management and operations, second line risk management and third line internal audit.”

Mr Haverkorn, who discussed how enhanced procedures positively influence an organisation’s performance, went on to describe the external elements which may present different types of risks. “Risk is not a constant and is always changing with economic, political, regulatory, client-related, technological and other influences.

Each environment we operate in has distinct risk factors that are being assessed constantly. Naturally, we learn a lot from historical behaviour and apply this in our day-to-day decision-making processes.

That is why risk managers usually have a depth of experience in many aspects of banking, not only in risk assessment but also in relationship management, credit, operations, the market, compliance and others.”

He said that the large majority of the risk officers at FIMBank have both national and international experience, forged by long careers in banking or the financial markets – a requirement when supporting exposure in over 50 international markets, and a network of international subsidiaries and joint-ventures, spanning five continents.

RONALD HAVERKORN, EXECUTIVE VICE PRESIDENT AND CHIEF RISK OFFICER AT FIMBANK.

Mr Haverkorn then turned to enterprise risk management which “is a continuous process that is defined by holistic procedures that are well documented. This is not

the only way we manage risk. A lot comes with experience, and understanding the latest trends in our markets. It is what we are possibly not capturing in the processes

“All employees are part of enterprise risk management, as defined by the traditional three lines of defence.”

and procedures that poses challenges to risk teams. A good example is the Operational Risk Unit, which assesses incidents that occur when policy breaches happen, or when internal and external events occur that were not anticipated. If the breach is considered high risk, this will be addressed immediately, with internal controls put in place to mitigate the inherent risk. The same applies to credit risks. Certain triggers and limits, both at counterparty and portfolio level, are set, and when breached, measures are taken to bring risks back in line with the Group’s risk appetite – which

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CASE STUDY

is defined and assessed by the Board of Directors on a regular basis.”

He sought to emphasise that risk management drives many aspects of the business undertaken by FIMBank, through risk frameworks, credit approvals and/or new risk processes and procedures. “These ultimately drive the bank’s profitability, and generate an overall return to all stakeholders. I cannot emphasise the importance of our collective knowledge, starting with experience and expertise of the front line and risk teams, and supplemented by an array of monitoring and analytical tools, participation in industry events, client discussions, and in our case, a network of subsidiaries. In each of the subsidiaries we have embedded risk officers.”

Mr Haverkorn’s own personal outlook on the discipline of risk management is that it will become ever more invaluable in the future as risk continues to grow significantly more complex, and will continue to require human professionals in the driving seat. “Computer-driven ‘black box’, or artificial intelligence models in risk decisions are present in various segments. However, we do not see these replacing risk managers in the commercial and trade finance segments any time soon.”

“That being said, more risk management professionals are needed today to keep up

with the regulatory changes and the challenges presented by global developments. At FIMBank we are committed to continue investing in our risk practice, both in terms of human capital and our systems, to assure that we stay ahead of emerging risks, and protect our shareholders’ investment.”

FIMBank recently received a positive rating from Sigma Ratings, following a comprehensive risk review by the US-based specialist, which uses cutting-edge computer science to generate daily risk approximations on companies around the world and issues annual ratings on company-level financial crime risk posture. Whilst most control sub-areas were rated as ‘strong’ by Sigma in its evaluation, the overall rating places FIMBank in the upper quartile of this entity’s ‘satisfactory’ rating band. Sigma also classified FIMBank’s outlook as ‘positive’.

“We are pleased to be in a position to reap the rewards of our recent restructuring of FIMBank’s risk management framework and practices, which we adopted back in 2015. Improving financial results and solid ratings are clear signals of the right strategic path undertaken in the risk management functions and it underscores the importance of an integrated enterprise risk approach to deliver increased shareholder returns and value,” concluded Mr Haverkorn.

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STOCK MARKET REVIEW

Remembering the stock market’s ‘Black Monday’

Josef Cutajar Last week marked the 30th anniversary of ‘Black Monday’. On 19th October 1987, stock markets across the world suffered extraordinary losses amid acute levels of panic-selling. The rout started in Asian stock markets, then moved to Europe and culminated in the US. On the day, the Hang Seng Composite Index in Hong Kong dropped by just over 11 per cent.

Likewise, the FTSE 100 in the UK shed 10.8 per cent – the second sharpest one-day fall on record after the 12.2 per cent drop posted the following day on 20th October 1987. In the US, all three major indices registered their biggest percentage single-day drops of all times on 19th October 1987 as the Dow Jones Industrial Average and the S&P 500 plummeted by 22.6 per cent and 20.5 per cent respectively whilst the Nasdaq Composite ‘only’ skidded by 11.4 per cent.

Various financial commentators argue that Black Monday was not triggered by a single event. On the other hand, the reasons for this sharp sell-off emanate from the broader macroeconomic and financial settings prevailing at the time. In the early 1980s, the residual effects of the 1979 energy crisis had pushed the US inflation rate to

double-digit figures, leading the then-Chairman of the Federal Reserve Paul Volcker to implement a tough contractionary monetary policy entailing steep rises in interest rates. At one point in June 1981, the Fed’s funds rate – i.e. the interest rate at which depository institutions lend reserve balances to each other overnight – reached an alltime high of just over 19 per cent, effectively tilting the world’s largest economy back into recession.

As Mr Volcker’s tight monetary policy started to tame inflationary pressures and leave the desired effects, economic sentiment and confidence in the US rebounded strongly. Indeed, after reaching an all-time high of nearly 11 per cent in November 1982, the unemployment rate fell steadily to 6 per cent just prior to Black Monday. Furthermore, US equity markets were experiencing a five-year long bull market. The S&P 500 was up nearly 230 per cent by August 1987, equivalent to a compound annual growth rate (CAGR) of 35 per cent per annum, whilst the Dow Jones had climbed by 250 per cent (or a CAGR of almost 37 per cent per annum) from the start of the bull market in mid-August 1982. Although some financial analysts were already warning that, in general, stock markets were looking overvalued, demand for equities was strongly supported by an influx of relatively new investors (such as pension funds and mutual funds), as well as a relatively accommodative monetary policy.

In fact, while the Fed’s fund rate had gone up to 7.29 per cent just prior to Black Monday from a nine-year low of 5.85 per cent in October 1986, this was still well below the record high of 19.1 per cent reached on June 1981.

On the other hand, however, several factors were contributing to uneasy sentiment across US stock markets. Within the US, a rising trade deficit and a softer US Dollar were fuelling expectations of higher interest rates whilst tax legislation promoting corporate mergers was being considered for abolition. Outside the US, the price of oil had collapsed amid a prolonged supply glut and lack of conformity within OPEC whilst tensions between the US and Iran spiked after the occurrence of some retaliatory skirmish missile attacks in the Persian Gulf just ahead of Black Monday.

“Today, many international financial observers question whether the present market conditions could give rise to a similar market crash as the one that happened in October 1987.”

Nonetheless, it is widely acknowledged that the main culprits behind Black Monday were very complicated ‘programme trading’ strategies. These involved com-

puters performing programmed orders when certain market conditions are met. One such trading strategy is ‘portfolio insurance’ that aimed at limiting losses aris-

ing from a falling market by decreasing the overall exposure to equities (and vice versa). Another strategy was ‘index arbitrage’ whereby software was designed to

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earn profits by exploiting discrepancies between the value of stocks in the cash market and the value of futures contracts.

The high-speed and very large trading volumes at which certain market developments took place in October 1987 went beyond anyone’s imagination and erupted in widespread chaos as market liquidity evaporated. It was indeed the darkest period for US stock markets since the Great Depression of 1929, and it was only the intervention of the Federal Reserve that ultimately brought some stability to the market that was well running out of control.

On Tuesday 20th October 1987, the Fed (headed by the new Chairman Alan Greenspan who was appointed only two months earlier) issued a short but very powerful statement affirming “its readiness to serve as a source of liquidity to support the economic and financial system”.

Soon after, the Fed also eased short-term credit conditions mainly by conducting expansive open market operations and temporarily liberalising rules governing the lending of Treasury securities from its portfolio. In the background, the Fed also supported and encouraged banks and other credit institutions to extend liquidity support to other financial market participants

(namely brokers, dealers and market makers) in order to improve overall market confidence.

The prompt response by the Federal Reserve to Black Monday not only restored proper market functioning (it took less than two years for US stock markets to surpass their previous highs) but also instilled a controversial precedent – namely the underlying belief that stock market prices are part of the central bank’s role of preserving economic stability, but only subject to preventing sharp falls in markets values rather than also averting the creation of asset bubbles (the so-called ‘Greenspan put’).

These arguments are still heatedly debated across various international financial and economic fora today as the repercussions of the 2007/08 US subprime mortgage crisis and the euro sovereign debt crisis remain fresh in central bankers’ minds and actions.

Black Monday also underscored the significance of ‘globalisation’ (a term still in early use during those times), the application of technology in investing, as well as the risks and dangers resulting from financial contagion. Furthermore, Black Monday sparked the introduction of revolutionary market mechanisms (technically known as ‘circuit breakers’) aimed at preventing rapid sell-offs by ap-

“Black Monday sparked the introduction of revolutionary market mechanisms aimed at preventing rapid sell-offs.”

plying temporary pauses in trading activity.

Black Monday was a major event in the history of stock markets worldwide. Today, financial observers question whether the present market conditions could give rise to a similar market crash as the one that happened in October 1987. In many ways, the resemblances are striking – an aging bull market, high equity valuations across a range of key metrics, low volatility, a Federal Reserve chairmanship in transition (Janet Yellen’s term expires early next

year), an uncertain oil sector, monetary policy tightening in the US and the rising popularity of new investment instruments (during the 1980s it was mutual funds; today it is exchange traded funds and, more recently, investments in cryptocurrencies and Blockchain technology) to mention a few examples. On the other hand, it is also important to highlight that today’s stock market structures and the regulation in place are very different and arguably more effective than they were 30 years ago. Nonetheless, this does not mean that sudden sharp collapses in stock markets cannot happen again. In this respect, the May 2010 ‘flash crash’ in the US and, more recently, the broad stock market sell-offs which took place during summer 2015 and in the early part of 2016 have been particularly intense moments during which the dangers and consequences resulting from the lack of fear in stock markets were widely demonstrated. However, whether the world could witness a repeat of Black Monday in the future is immaterial, as long as market participants maintain a long-term and disciplined approach to investing.

Josef Cutajar is a Research Analyst at Rizzo, Farrugia & Co (Stockbrokers) Limited.

Rizzo, Farrugia & Co. (Stockbrokers) Ltd, “Rizzo Farrugia”, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This article has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned (if applicable) before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities, if any, to which this article relates (other than executing unsolicited client orders) until such time as the recipients of this article have had a reasonable opportunity to act thereon. Rizzo Farrugia, its directors, the author of this report, other employees or Rizzo Farrugia on behalf of its clients, may have holdings in the securities herein mentioned, if any, and may at any time make purchases and/or sales in them as principal or agent, and may also have other business relationships with the company/s. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither Rizzo Farrugia, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this article. © 2017 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved

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BUSINESS UPDATES

Work smarter, not harder – automate your iGaming bonus campaigns Attracting the right type of players and continuously keeping them happy is one of the greatest challenges for any iGaming business.

Even though players are constantly on the lookout for a new and exciting brand or game, they all pay special attention to the types of bonuses and promotions on offer.

Certain campaigns such as welcome bonuses can be very useful in obtaining new players to sign up to an iGaming site. However, it is very common for such offers to attract the wrong type of players – especially the ones that simply sign up, use the welcome promotion, and then never make a deposit again.

Regular and exciting promos, such as deposit bonuses and free spins, are equally important ways to increase player retention rates and to drive up gaming revenue.

But with so many different types of players, each having their own spending habits and game preferences, it’s often difficult to come up with unique bonuses which cater to all these individuals.

This is where the AXON Gaming solution can help you optimise your bonus campaigns through player segmentation, bonus automation, and monitoring of realtime results. With AXON Gaming, operators can maximise the accuracy of a bonus campaign by defining specific rules, applicable to a specific player persona. Each time the criteria are met, bonuses and promos are automatically triggered based on a player’s profile. Learn how to optimise and automate your bonus campaigns with AXON Gaming at www.computimesoftware.com/ axon-gaming.

For more information, email on E: info@computimesoftware.com or call on T: 2149 0700.

“With AXON Gaming, operators can maximise the accuracy of a bonus campaign by defining specific rules, applicable to a specific player persona.”

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Four reasons to go ZE Imagine a city with no engine noise or vehicle pollution. Imagine a responsible, more environmentally-friendly society. This is why Renault has designed the Zero Emissions (ZE) range of electric vehicles, consisting of Twizy, Zoe and Kangoo Z.E., combining environmental responsibility with driving pleasure. The range will be completed in 2018 with the introduction of the Master Z.E. When opting for one of the ZE models, one will be benefitting from favourable running costs as low as about €0.03 per km; multiple financial incentives, such as a very low road licence of just €10 per year; a minimum of

€5,000 cost reduction provided by the Government scheme; and the reduction of your carbon footprint, keeping our environment clean of any emissions.

Within the range all models offer distinctive characteristics: The Renault Twizy is one of the safest quadricycles of its kind. In fact, its Renault sportdeveloped tubular frame protects you from impacts, while the four-point seatbelt and driver’s airbag have never before been seen on a vehicle that’s so agile and easy to handle.

The Renault Zoe now boasts a new ZE 40 battery which was developed by Renault with revolutionary technology. The new battery is lo-

cated under the floor to lower the centre of gravity, which has no impact on either the roominess of the car or on the boot volume. The latest news is that the Renault Zoe is now being offered with the possibility of purchasing the vehicle’s battery, which is guaranteed for five years or 100,000 km.

From a commercial vehicle aspect, the Renault Kangoo Z.E. offers cutting-edge technology,

providing the driver with realtime information, and with a real time range calculator so that you always know how much energy you are using. This is positioned behind the steering wheel, allowing the driver to keep their eyes on the road.

The latest addition to the range is the Renault Master Z.E., the electric version of the Master aimed primarily at fleets running

distribution services. The range and charging time this van offers are tailored to the needs of business customers. As a matter of fact, this van takes approximately six hours to fully charge itself with the WallBox. This model will be available on order in 2018.

For more details and a testdrive, contact the Renault Showroom, Kind’s, Mosta Road, Lija.

T: 2331 1126, 2331 1131.

HSBC Malta introduces new service for small businesses

PRIME MINISTER OF MALTA JOSEPH MUSCAT ALONGSIDE HSBC MALTA’S CEO ANDREW BEANE AND HSBC GLOBAL HEAD OF RETAIL BUSINESS BANKING MANUEL BALDASANO.

HSBC Bank Malta has launched a new service designed for small businesses, providing community banking services via the bank’s network of branches in Malta’s towns and villages, in addition to the latest digital solutions.

The service, called HSBC Fusion, brings together business banking and personal banking in one simple solution, making it easier for business owners to manage all their financial needs.

HSBC Fusion has been designed for business owners with an annual turnover of up to €1 million and borrowing needs up to €100,000. This service supports the bank’s strategy in Malta, by increasing the range of services offered to business customers in the local community.

Customers who are eligible for HSBC Fusion will have access to a new internet banking solution and mobile app that allows business and personal accounts to be managed through a single set of log-on credentials. HSBC has also introduced over 100 trained business banking professionals in branches across Malta and Gozo.

HSBC Fusion was officially launched during a customer event held at the HSBC Zabbar branch, officiated by the Prime Minister of Malta Joseph Muscat alongside HSBC Malta’s CEO Andrew Beane and HSBC Global Head of Retail Business Banking Manuel Baldasano. Attendees were welcomed by Zabbar branch manager Joe Cardona and his colleagues.

More information on hsbc.com.mt/fusion

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Exquisite taste, elegance and refined style at Vascas

Banif Bank becomes BNF Bank as it steps into the future Banif Bank (Malta) has unveiled its new brand identity as BNF Bank, in a forward-looking move that reflects its vision to grow its presence in Malta and abroad.

Speaking at a press conference, CEO and Managing Director Michael Collis said the new name, BNF Bank, evolved from the bank’s proud history. The brand brings new features that clearly denote the bank’s forward thinking and aspirations.

“Although the name and image have changed, our clients will continue to be our first priority. We are embarking on a new journey, which we believe will deliver even greater benefits to our customers,” Mr Collis said.

From a practical perspective, the new brand identity will not impact daily operations. Clients do not need to make any changes or updates to their internet banking access, and can

continue to make use of existing debit and credit cards and cheque books – which will be refreshed with the new logo once they expire.

“Our clients bank with us because we are there for them on life’s journey. Our vision is to remain a valued member of the community helping our customers to build a new future,” Mr Collis said. www.bnf.bank

Vascas Jewellers caters to a vast clientele searching for fine, quality jewellery pieces, complemented with an affordable price tag. The company itself is synonymous with exquisite taste, elegance and refined style, as well as a fivestar level of customer service. Vascas Jewellers offers clients a broad selection of items, including certified diamonds, gem-quality pearls, fashionable branded jewellery, watches, home décor, unique gifts, pre-owned luxury items, as well as wedding gifts.

At the very heart of our business foundation lies our passion for customer commitment. Vascas Jewellers aims to guarantee a shopping experience that is both valuable and personal. Our mission is rooted deeply in our overall corporate culture, whereby all our operations are based upon the values of empathy, responsibility, quality and understanding. At present, Vascas Jewellers operates from its three outlets, managed by a close-knit team who work endlessly to ensure all customer touch points reflect a vision of luxury and fine living.

Siké Jewels, is one of Vascas’ most sought-after brands that knows that beauty takes many forms.

That’s why Siké Jewels offers a variety of elegant, yet refined styles. Its top-quality selection of jewellery provides new styles to integrate into your signature look, or an opportunity to reinvent your style altogether. Vascas Malta stocks Siké Jewels in all its three outlets, which are situated in Naxxar, Sliema and Valletta. For any queries, Vascas Malta may be contacted on Facebook, as well through the website www.vascasmalta.com.mt Vascas Naxxar, 21st September Avenue, T: 2258 9200; Vascas Sliema, Bisazza Street, T: 2258 9244; Vascas Valletta, Merchants Street, T: 2258 9243.

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BUSINESS UPDATES

FIMBank achieves positive ree Palaces Festival rating from Sigma ratings 2017: e Artist As Hero

FIMBank has achieved a positive rating from Sigma Ratings following a comprehensive review by the US-based specialist.

The entity issues annual ratings on company-level financial crime risk posture, and utilises cutting-edge computer science to generate daily risk approximations on companies around the world. It has pioneered a technology-driven approach to understanding non-credit counterparty risk, evaluating inherent risk and control effectiveness data to generate financial crime vulnerability ratings.

Whilst most control sub-areas were rated as ‘strong’, the overall rating places FIMBank in the upper quartile of Sigma’s ‘satisfactory’ rating band. Sigma also classifies FIMBank’s outlook as ‘positive’.

Commenting on the bank’s recent achievement, FIMBank Group CEO Murali Subramanian stated that “Sigma’s rating is consistent with the recent affirmation of our ‘BB Rating’ and Stable Outlook by Fitch Ratings. It is the outcome of the enhanced risk management framework adopted and encourages us to invest additional time and resources to seek further progression.”

Mr Subramanian explained that over the past years, FIMBank has implemented a number of management and operational

reforms, and boosted investments aimed at improving its financial crime compliance posture across the entire group.

“This has led to a dramatic shift in culture, one which places a particular focus on financial crime risk management and compliance. In line with guidance we receive from our Board, we have continued to adopt a group-wide ‘zero tolerance’ policy on compliance failure.”

For more information about FIMBank plc, visit www.fimbank.com

‘The Artist As Hero’ is the theme of the fifth edition of the Three Palaces Festival.

Taking place from 3rd to 12th November, the festival will once again see the participation of artists of exceptional talent from around the world, who will perform within three of Malta’s historical Baroque palaces – San Anton Palace, Verdala Palace and the Grandmaster’s Palace – together with the National Museum of Archaeology in Valletta.

Andrew Von Oeyen, an American pianist, will open this year’s edition with a concert of music by great European composers at the National Museum of Archaeology. The cello ensemble of the famous Vienna Philharmonic will perform on the second day. Young audiences will also have their own special event with three morning concerts for schoolchildren at the Verdala Palace.

The Castalian String Quartet will perform on 9th November at the Grandmaster’s Palace, while Oxford’s world-class vocal ensemble, The Blenheim Singers, will celebrate composers and writers who flourished during the reigns of Elizabeth I and Elizabeth II. Meanwhile, violinist

Benjamin Baker and pianist Daniel Lebhardt, will treat the audience to works by Britten, Paganini and Elgar during their concert at San Anton Palace.

These foreign artists will be joined by equally exceptional Maltese artists, namely Nico Darmanin – a Maltese, London-based tenor, who will perform on 5th November, and Sandro Zerafa – one of the most active guitarists on the Paris jazz scene, who will perform with his jazz quartet on 8th November. The festival will come to a close with the Laefer Saxaphone Quartet, with the talented Gozitan saxophonist Philip Attard as one of its members.

More information about this year’s festival can be obtained from Arts Council Malta and from www.3palaces festival.com, while tickets can be bought from the Manoel Theatre Box Office. Ticketing information: T: 2124 6389 or www.teatrumanoel.com.mt.

The Three Palaces is organised by Festivals Malta within Arts Council Malta in collaboration with the Ministry of Justice, Culture and Local Government, and supported by MSV Life and Corinthia Palace Hotel and Spa.