Business Observer, 12th December 2018

ANALYSIS

Issue 93

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Distributed with Times of Malta

December 12, 2018

HR will remain a key challenge for Malta in 2019

With 2019 around the corner, leading Maltese politicians and businesspeople took the opportunity to reflect on the challenges and opportunities of the coming year. see pages 3, 4, 7 >

Marie-Claire Grima Malta’s human resources (HR) problem – namely the challenge faced by businesses across all industries of finding enough qualified or skilled people to fill their vacancies – remains one of the most urgent hurdles for the country to overcome if it wants to maintain its current rapid rate of economic growth, according to leading businesspeople and politicians.

In recent years, Malta had managed to tackle – at least partly – its problem of shortage of workers as a result of the influx of migrants from countries where unemployment is high, who moved here to seek employment in fields which were short on personnel, including hospitality and construction.

However, many of these countries’ economies have turned the corner since the financial crisis a decade ago, and this could reduce the much-needed flow of foreign workers to a trickle. Indeed, JobsPlus CEO Clyde Caruana recently sounded the alarm that Malta’s challenge to attract a steady stream of foreign talent was becoming ever more difficult, as a number of European countries were witnessing economic recovery and job creation.

Many other prominent figures have highlighted the recurrent issue of HR shortages in their end-of-year reflections. In comments to Economic Vision (EV), the annual edition of The Commercial Courier published this month – the official publication of the Malta Chamber of Com-

NEWS As the year draws to a close, what legacy will Valletta 2018 leave on the capital city in the long-term? see pages 9, 10 >

NEWS

merce, Enterprise and Industry – Prime Minister Joseph Muscat and Opposition Leader Adrian Delia both underlined the challenge of finding adequate human resources for businesses which wanted to expand. Dr Muscat said that this was a challenge that the Government understood and was working with stakeholders to solve, while Dr Delia said that Malta’s economic growth and human resource development needed to be better aligned.

The President of the Malta Chamber, Frank V. Farrugia, stated that Malta’s future success lies in IT and technology-based industries. However, he insisted that graduates needed to be well-

versed in STEM subjects, adding that it is ‘absurd’ that so many jobs on the local market are not being taken up by Maltese nationals, considering the hefty budget allocated to education.

Furthermore, Finance Minister Edward Scicluna reiterated a word of caution, saying that the economy shouldn’t be ‘fanned excessively’ as resources – particularly human resources – needed to be able to catch up, while economist Gordon Cordina cautioned that investment in human capital was more necessary than ever before “to resolve the emerging tensions between population expansion and the need for economic growth.”

Finally, in the manufacturing field, Marisa Xuereb, Managing Director of Raesch Quarz (Malta) Ltd told EV bluntly that the shortage of manpower was being worsened by a mismatch between skills and competences and salary expectations, “as well as a deteriorating work ethic.” Warning that automation was not always an option in the manufacturing industry, she said that such issues made Malta less competitive than other countries at a similar level of development, and had to be addressed urgently.

Read the full feature on pages 3, 4 and 7

Gozo is set to enjoy more interest from investors and entrepreneurs in 2019, amid mounting support for the Malta-Gozo tunnel project. see page 15 >

STOCK MARKET REVIEW Examining the themes that are likely to have the greatest impact on the performance of major asset classes over the next 12 months. see pages 22, 23 >

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December 12, 2018

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ANALYSIS

2019 – a vision of Malta’s future economy and save the day before it is too late, because there is too much at risk – our good name, our pride, our Malta.”

With 2019 right on the doorstep, a number of leading Maltese politicians and businesspeople provided their reflections on what challenges and opportunities the year ahead will bring.

DR JOSEPH MUSCAT, PRIME MINISTER AND LABOUR PARTY LEADER “Our business landscape has proven itself time and again fertile ground for business seeking to set down roots and flourish. Malta certainly is not looking to switch off its engine in this high time. On the contrary, our foot remains on the accelerator, as we blaze new paths towards opportunities that present themselves through innovation and technological breakthroughs.

2019 will be the year in which Malta will make inroads in Artificial Intelligence (AI).

We cannot let fear or Luddism hold us back from exploring the huge potential which AI can offer to a small island like ours.

One major challenge for further business expansion is finding the adequate human resources. This is a challenge which this Government clearly understands, and is working hand-in-hand with all the stakeholders to find the appropriate problem-solving channels. Another challenge is bureaucracy, even though we have seen considerable improvement over the past years. In the last five years, the Public Service has implemented over 600 simplification measures.

We will kick off 2019 with a feel-good factor running through the country. This is thanks to you, hardworking individuals who dedicate your lives to your businesses, employing many people, and giving many families an opportunity to live their life more comfortably.”

DR ADRIAN DELIA, OPPOSITION AND NATIONALIST PARTY LEADER “The economic vision of the Nationalist Party is based on two complementing and inseparable notions. The first is that eco-

nomic growth in Malta needs to be fuelled by sustainable industries. Sustainability comes from using the country’s resources intelligently which, in our case, are our human resources and our land, wind, sea and sun.

We need to match our economic growth with human resource development in a manner that gives everyone the opportunity to operate at the best of his and her game.

The second pillar of our economic vision is that the benefits of economic growth should cascade in an equitable manner throughout the whole of society, rather than trickle down. Our economy is working very well for property owners but less so for those looking to buy or rent property. It is working well for foreigners who have the skills required to take the best jobs in iGaming and financial services but less so for

those leaving the education system without having obtained any qualifications. The economy is working well for consultants and people in highly-paid positions of trust but less so for the pensioners who are struggling to make ends meet.

The Opposition published its pre-Budget document in which we analysed the country’s economic and financial performance. Our document puts forward proposals on how to tackle the shortcomings and challenges which we identified. We also called for concrete action in protecting Malta’s reputation.

This is the intangible asset, the intangible resource, which sadly is fast becoming a liability. Government has, to date, dragged its feet, refusing to even admit that a problem exists.

One hopes that concrete steps are taken to shore up the independence of our institutions

FRANK V. FARRUGIA, PRESIDENT, MALTA CHAMBER OF COMMERCE, ENTERPRISE AND INDUSTRY “The economic momentum gained in 2018 will be sustained, and the future for Malta and its continued success lies in IT and technology-based industries. However, in order to shine in this industry, we need to go back to our education system, and ensure that school-leaving students are well-versed in subjects such as mathematics and sciences; for them to be competent in the fields of Artificial Intelligence, robotics, iGaming, medicine and more. There is a shortage of people, as well as a skills gap, and considering the amount of money spent on education, it is absurd that a vast number of jobs on the local market and across various sectors are not being taken up by Maltese nationals.

Some sectors are in dire need of an upgrade. One such sector is tourism – we need to do so much more here to improve our package. We cannot accept littered streets, damaged pavements and a general sense of neglect, where people get away with doing whatever they please. We need discipline and we need cleanliness.

The Malta Chamber is currently in the process of mapping out its second Economic Vision 2022-2028, with the aim of releasing it by the second quarter of next year. This supports our call on Government to have a longterm economic forecast with complementary financial planning and budgets. We will be reviewing what was achieved by the first phase of Economic Vision 2014-2020, as well as what still needs to be achieved, what needs to be changed, what is still valid, and the direction that we want to see Malta take over the next 10 years.”

Continued on page 4

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| December 12, 2018

ANALYSIS

Strengthening success and maintaining achievements Continued from page 3 DR MARIO VELLA, CENTRAL BANK GOVERNOR “The Central Bank of Malta projects that economic growth in Malta will continue to be robust. Last year we had forecast that in 2019, real GDP growth would be 4.5 per cent.

We now think it will be closer to 5 per cent.

This upward revision reflects the unanticipated strength of domestic demand during 2018. Our economy has experienced a more rapid expansion of disposable income, fuelled by a stronger-than-expected rise in employment. Malta’s employment rate has, indeed, been surprising and it now exceeds the EU average when, just a few years ago, we were one of the laggards.

We believe that this largely reflects the positive impact of structural reforms which have increased greatly the incentives to work.

Moreover, we have benefitted from a considerable availability of overseas talent. This has undoubtedly helped Maltese firms to expand more rapidly as they could access skills which were otherwise not present in our labour market. Moreover, while wages have risen, they have remained competitive as demand for labour could be accommodated.

We believe that these trends will continue over the coming years, though the pace of economic growth will converge to more moderate rates, of closer to 3.5 per cent per annum. During 2019, as policy-makers, we have to seek new avenues for Malta’s continued economic expansion.”

PROF. EDWARD SCICLUNA, MINISTER FOR FINANCE “There is no doubt that Malta’s infrastructure needs to catch up with our fast-moving economy. Our island’s level of development and income deserve modern infrastructure and we need to get rid of any bottlenecks that may exist. That’s where our attention is at the moment, because we are aware that we are cruising along and that we don’t want to meet any mishaps when it comes to maintaining that speed. But everything we are doing is being achieved within our capacity

as a nation; the surplus shows that the Government is living within its means.

Malta must continue to strengthen its success, while also protecting the reasons why foreign companies are attracted to our shores.

It is crucial not to spoil what we have obtained. The first five years were the hard part; now it should get easier, but we have to maintain what we’ve built. We mustn’t become overconfident and make mistakes. You can never ignore growth, but we don’t want to start fanning the economy excessively because resources need to be able to catch up – especially when it comes to human resources.

Malta isn’t yet a mature economy. So, in order for it to converge with more developed economies, growth needs to be faster than the wider average. We are planning for convergence to take place in a number of years’ time. We are also placing our focus on some very up-and-coming areas which will enable Malta to be ahead of the game – just like we are doing with blockchain at the moment. Our island was shown to be one of the first – if not the first – country to create a regulatory framework for blockchain and related services, and we have thrived in this aspect. The seeds are there, and big companies have said they are very happy doing business with Malta and from Malta; this is a significant point for us to have reached.”

DR GORDON CORDINA, ECONOMIST “In a context of increased uncertainty in global economies for the coming few years, Malta’s performance remains one of the best across the EU, with projections for 2019 indicating a robust growth in activity and employment, as well as continuing improvements in the fiscal position.

To ensure the durability of this performance into the medium term and the resilience of the economy against outside shocks, we need to continue to enhance the productive capacity and the competitiveness of our economy, and certainly not rest on our laurels. Investment in productive assets and infrastructure is driven by private initiative, and this is to be reinforced

by EU-funded projects, especially over the

coming two to three years. Investment in human capital is needed more than ever to resolve the emerging tensions between population expansion and the need for economic growth, wherein the economy must rely on the attraction of skills from abroad and the development of local talent. Actions to improve quality of life against growth-induced stresses are also essential to continue to attract economic and investment activity. Likewise, the country needs to increasingly address the need to resolve pressures on poverty and inequality that are typically induced by rapid economic growth.

The economy is expected to continue growing without requiring massive new interventions from the fiscal budget. This is not to say that the economy is not facing challenges to growth, particularly in providing sufficient capacity to meet demand, be it in tourism, industrial working spaces and human capital. The Government’s commitment for Malta to become a hub of disruptive technologies is important to wean the economy off advantages whose long-term durability could be in question, including those based on tax competitiveness.”

STEPHEN MCCARTHY, CEO, MALTA DIGITAL INNOVATION AUTHORITY (MDIA) “By embracing DLT and in creating the legal framework within which it functions, Malta will experience a prolonged economic boom, which will result in an influx of workers. Consequently, the demand for property will increase and local infrastructure will be affected.

The influx of workers is important in an economy which is working at full employment in order to keep increasing the national output, especially in the case of innovative technology where the influx of workers will mostly be of those who are highly specialised and skilled. These professionals will also help train and instruct local workers and students.

Adopting a robust system in certifying Innovative Technology Arrangements and registering Systems Auditors and Technical Administrators will be the primary challenge,

and the MDIA plans to tackle this by making sure that all applications are seriously and meticulously assessed. With more countries embracing the technology, it will eventually create an international ecosystem in which multiple jurisdictions can collaborate.”

CHARLES BUHAGIAR, CHAIRMAN, BUILDING INDUSTRY CONSULTATIVE COUNCIL “The high influx of people migrating to Malta for work opportunities presents a challenge for the property market, since more housing units to accommodate the increase are required. We need to provide a minimum of 6,000 or 7,000 new residential units, also taking into account the requirements of the ever-growing Maltese population. The current trend is to rent property rather than buy it, so, in 2019 we will have a big challenge to see how we are going to satisfy this demand.”

“Whilst I do think that there will be some type of inflation in 2019 with regards to both the rental and sale prices of property, I do not think these will be high enough to discourage first-time buyers. I do not think the property market is reaching saturation point.

Property prices could at one time level at a certain price. I do not foresee a bubble in the coming year, let alone one that can pop.

Property is a solid investment.”

JESPER SVENSSON, CEO, BETSSON OPERATIONS “The new Gaming Act was a needed development for the industry. The previous law was drafted in 2004 and since then, the industry has changed drastically, so a number of clauses had become superfluous.

I think 2019 will be another good year for the industry, with continued growth amid further changes in industry regulations. After many years of talking and planning, the re-regulation of the Swedish gambling market is finally happening. This gaming licence opens up the Swedish market further and enables competition on more equal terms for the licence holdContinued on page 7

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ANALYSIS

Tackling Malta’s shortcomings across all areas Continued from page 4 ers, which is positive for customers, operators, the regulator and shareholders. The iGaming industry is maturing a lot, and we’re expecting more of that in the coming 12 months. All in all, I believe 2019 will bring about some interesting changes to our industry, and we’re looking forward to what’s to come.”

ALEX INCORVAJA, GENERAL MANAGER, MALTA MARRIOTT HOTEL & SPA “Here in Malta we have a fantastic tourism product, not just in regular tourism, but in business tourism also. We have a great location with connections to all of southern Europe as well as North Africa, not to mention the climate, language, culture and history. Malta is a viable destination whatever segment you look at. The fact that such huge names like the Marriott are investing in Malta shows just how much potential the country has as a tourist hub.

Locally, overtourism is already affecting us.

It may be time to start looking into controlling the intake of tourists, as the current infrastructure is certainly feeling the strain now. If we want to keep pushing for higher numbers then we definitely need to start addressing the infrastructural problems, including everything from the roads to the collection of garbage. Here in Malta we have a fantastic range of accommodation from four-star and five-star hotels to townhouse boutique hotels, but tourists don’t come just for the hotels. It is currently the case that when guests leave these hotels they quickly find areas that need improvement in terms of management.”

MARISA XUEREB, MANAGING DIRECTOR, RAESCH QUARZ (MALTA) LTD “We are facing a general shortage of manpower, exacerbated by a level of skills and competences that does not match salary expectations, particularly at the lower and middle levels, as well as a deteriorating work ethic.

This is resulting in persistent wage inflation and a decline in productivity. The high labour turnover is imposing significant recruitment and training costs, and is resulting in a relatively inexperienced workforce on production floors. The approach to training is changing and becoming more expedient, as companies are fully aware that employees may not be with them for long. This is particularly problematic in industries where specialised skills with steep learning curves are involved. In a nutshell, we generally have well-equipped but inadequately staffed production facilities.

There is a limit to the feasibility of automation in industries like ours, where it is impossible to compete on mass market products and, hence, have to focus on niche

markets where a high degree of customisation for relatively small volumes is required.

3D printing seems to be an obvious solution for small-volume production. But, when the material required needs to withstand operating temperatures over 600˚C and have the same transparency and purity as quartz glass, then 3D printing is not an option. This is the same for anyone operating in our industry, anywhere in the world. It’s those issues that render Malta less competitive than other countries at a similar level of development and these are the issues we have to address with urgency and expediency.”

Comments were originally featured in Economic Vision 2019 and adapted for this newspaper.

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NEWS

More investment opportunities, visitors and sales among positive effects of Valletta 2018 Martina Said Valletta’s year-long stint as European Capital of Culture draws to a close this weekend with final celebrations all around the capital. But, once the curtain comes down on the city and its bountiful cultural programme reaches its end, what’s next? Will businesses in the city continue to thrive? Will visitors still be drawn to Valletta as a bustling attraction? What legacy will Valletta 2018 leave on the capital city?

Frank V. Farrugia, President of the Malta Chamber of Commerce, Enterprise and Industry, said 2018, as the year Valletta was crowned European Capital of Culture, built on the successes currently being registered by the country as a whole in several other areas, no less the economy.

“The past 12 months have proven to be a veritable renaissance for the capital city, built on a multiyear regeneration plan that placed Valletta at centre-stage of a yearlong celebration,” he asserted.

“One hopes that the entire Valletta 2018 process will have found fertile ground, and establish deep roots that will continue to deliver fruit as part of a rich heritage that will survive it. The fact that Government is already committed to transforming the Valletta 2018 Foundation into a cultural agency for the city bodes well.”

Mr Farrugia said that businesses in the city had the opportunity to participate in an extended programme of activities that kept punters visiting throughout the year, including during the slower months. “Opportunities of investment are evident in the number of new private projects and businesses that have set up shop in the city. The multiplier effect of such initiatives generated a groundswell

of activity, opportunity and investment,” said Mr Farrugia. “As activity in the city continues to grow though, this offers new challenges.

A balance between the commercial community and Valletta residents still remains a concern. Management of the city, that provides the necessary services and resources to businesses to carry out their daily operations unhindered while seeing to the needs of residents, remains an important goal.”

Going forward, Mr Farrugia said he hopes that, as the Foundation always claimed, “Valletta 2018 [will] be just the beginning of a new lease of life to the city, that will generate a multiplier effect of growth and well-being to all involved. As a Chamber, we are proud to have been part of this exciting journey from the very beginning, sitting on the Board of Governors of the Foundation

since 2011, housing the actual executive team of the Foundation within the Exchange Buildings, and having the Valletta 2018 flag fly proudly on our facade.”

JanKarl Farrugia, Managing Director at Hospitality Ventures International, said Valletta 2018 was always expected to leave a longterm positive legacy not just on the capital, but on Malta at large, and proved to be the catalyst of Valletta’s long-awaited regeneration.

“Five long years of local and foreign investment within the walls of the city saw the development of new infrastructural projects, the restoration of public spaces and buildings, rethinking of logistics in the city, redevelopment of private and public buildings into hospitality and catering offerings, museums and retail outlets, as well as an overhaul of the general upkeep of the city, which all led to this year, 2018,”

he asserted. “Like any business investment, the vision is always over a number of years, and similarly, the public and private sector want this to last as long as possible.”

Mr Farrugia added that 2018 was the year of investing in marketing Malta and Valletta as a destination across the globe. “The impact on tourists that stayed in Valletta or had the opportunity to visit even if just for one day, will surely have a ripple effect in terms of exposure.

Every individual that walked through the streets of Valletta is an ambassador to Malta in general, and hopefully took back with them an experience that can be shared.”

With respect to the hospitality industry which he operates in, Mr Farrugia said that Valletta 2018 created an urge for investors and operators to raise the bar in the product and service being delivered. “Unfortunately, one cannot

compare hotel guest stays to previous years. Up to five years ago, one could only find around 200 beds in Valletta, other than the large hotels on the outskirts of the city. At present, the number of beds has increased dramatically, across more than 30 to 40 boutique hotels, guest houses and serviced apartments. This has impacted the rest of local business in the capital, from restaurants and cafés to retail and attractions.”

The substantial boost in tourist numbers that visited or stayed in Valletta, as well as the influx of locals that have and are now frequenting the capital regularly, has been a notable opportunity as a result of Valletta 2018. “Valletta used to have no activity at all in the evenings and night, which used to affect most businesses negatively.

This is no longer the case thanks to a variety of activities happening in the city, from cultural to musical, as well as the many gastronomic options available throughout the day and night.”

Apart from enhancing the image of Valletta among locals and visitors, Valletta 2018 also presented the international travel industry with an opportunity to offer a new destination to travellers, said Mr Farrugia. “Although Malta was already a destination for travellers for decades, Valletta was just a place to visit for cultural gems, such as St John’s Co-Cathedral and various museums. Today, it is an experience to stay in Valletta and live its history.”

However, opportunities always come with challenges. “Over the last few years, the major concerns for residents due to increased numbers of visitors have been traffic, pollution and cleanliness. The Continued on page 10

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NEWS

Ensuring that Valletta 2018 is ‘an open-ended success story’ Continued from page 9 interplay of these concerns within such a small city is an ongoing challenge which has been on top of Government’s agenda to find solutions, and considerable improvement has been witnessed,” said Mr Farrugia. “Valletta’s narrow streets and few access points pose problems when multiple development works are going on. The use of trucks, cranes, and large-sized vans cause havoc and interfere with the day-to-day life and wellbeing of the city.”

As for the long-term effects of Valletta 2018, Mr Farrugia asserted that it is in the interest of stakeholders and citizens at large to care for the unique product that is Valletta.

“Business owners need to abide by the policies, rules and regulations set forth specifically for the capital, which might differ from other local-

ities due to its nature. They need to maintain their assets and the immediate areas surrounding them, work closely together in business associations to protect their investments, and communicate concerns and constructive feedback to relevant authorities and agencies,” he said. “Government has played a key role in the regeneration of the capital, and by setting up the Valletta Cultural Agency, it will ensure that Valletta 2018 is an open-ended success story for the benefit of locals and tourists who have yet to visit.”

Furthermore, Alfred Fenech, Executive Council Member of the General Retailers and Traders Union (GRTU), said that what was earned and experienced throughout this year and in the years preparing for Valletta 2018 will be “cherished, renewed and extended.” He added “many artists were given the opportunity to par-

ticipate in the Valletta 2018 programme and gained a lot from the experience, while the general public had the opportunity to enjoy a variety of cultural activities. Valletta 2018 will hopefully not stop in 2018.”

The first three months of 2018 alone recorded a significant increase in tourism in Valletta when compared to previous years, said Mr Fenech, who added that even sales in establishments were better. “Tourists were motivated by the cultural activities taking place throughout the year – I believe tourists were aware of Valletta 2018 prior to their visit to Malta.

The whole year was a success, enjoyed by restaurants, shops, hotels and other business.”

Mr Fenech said he is hopeful that the improvements made to the city will be maintained and upheld for the years to come.

“The main objective shouldn’t just be 2018, but a long-term vision for the capital. We hope that the infrastructural improvements will be monitored and main-

tained, and that the cultural and artistic events will not stop with the close of 2018, but will keep growing and improving throughout the coming years.”

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

Managing Editor Marie-Claire Grima

EDITORIAL

Reflections and resolutions The end of the year is a time to reflect, and there’s no doubt that many businesses in Malta will be looking back at the year with satisfaction.

Once again, Malta has registered exceptional economic growth, proportionally the highest in the European Union, achieved yet another surplus in its fiscal budget, continued to reduce unemployment, and strengthened its position as a leader in fields such as iGaming, aviation and the nascent blockchain industry. All of these factors should add a spring to our step as we head into 2019.

Yet, there are many other issues which are casting a pallor over the economic results, such as the problem of corruption, which has become a national malaise, affecting the prospects of businesses based locally. The report recently published by the EU Greens about the cost of corruption across the EU, which said that Malta loses over €725 million each year (a staggering 8.65 per cent of GDP, and more than twice the financial surplus registered this year) to corruption, also cited a 2017 Eurostat survey, which found that more than half of respondents in Malta believed that the level of corruption had become more severe in the past three years.

Worse than that, 79 per cent believe corruption is widespread in Malta, and 66 per cent believe corruption is part of Malta’s business culture. 83 per cent of respondents said that they deemed corruption unacceptable. But if the vast majority agree that it is unacceptable, what is being done? And how can we change the culture if most of us believe that the rot has settled in? The answers aren’t easy and they require serious cooperation between the private and public sectors, as well as a good deal of soul-searching. But one thing is certain – the principles of good governance have to be dusted off and properly applied, not just to provide lip service.

Furthermore, although Malta’s present financial success cannot be disputed, one cannot help but wonder if the groundwork is being laid to maintain such positive results in the future, or if this is all just a flash in the pan. This year, it was revealed that Malta’s progress in achieving the United Nations Sustainable Development

Goal (SDG) targets had fallen eight places. These targets range from achieving full gender equality and reducing income inequality, to fighting climate change and ensuring access to affordable and reliable sustainable energy. Many of the 17 goals include measurable targets to be achieved by 2030. While Malta received a near-perfect score for eliminating poverty, it obtained the lowest score for the industry, innovation and infrastructure goal, which is certainly grim news for the country’s future business prospects. Economist Gordon Cordina warned in his end-of-year comments that the Government needs to start weaning the economy off advantages whose long-term durability could be in question, “including those based on tax competitiveness.” Investing more in innovation, infrastructure and industry with a focus on sustainability, clean energy and greater care towards our long-suffering natural and built environment would certainly be a step in the right direction.

Finally, we need to look closely at the issue of overtourism, a problem that was repeatedly flagged by tourism operators in Malta this year and that has to be dealt with without any further delay. The extremely positive tourism figures emerging this year indicate that we are heading for yet another record year in 2019, with the introduction of more new routes and connections to Malta.

However, this does not come without its disadvantages. The tourism industry remains the most important contributor to Malta’s economy, and care must be taken not to lose the very soul of the product that entices people to visit the island, as well as maintaining the quality of life for the people who are permanent residents here. While it is the prerogative of individuals to act responsibly when visiting a foreign country, the responsibility has to be shared, and tackling the problem requires a multilateral approach between tourists, airlines, holiday operators, accommodation providers, businesses and Government, as well as a rethink of the concept of responsible tourism for future generations. Now that’s a resolution that would be worth keeping.

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BUSINESS OPINION

e importance of doing business ethically

Fr David Cortis

When one talks about ethics, one is usually referring to the code of conduct that guides an individual in dealing with others. Business ethics, specifically, examine ethical problems that may arise in a business environment, in all disciplines of management such as human resource management, production, sales, marketing, and international business. Ethical behaviour is very important when dealing with any stakeholders who have a claim on and an interest in the company. Business ethics help build trust and confidence in professional relationships, and are essential for the company and its success.

With increasing numbers of consumers taking into account a company’s behaviour when buying or making use of its products or services, business ethics have

become particularly important and valuable to any enterprise. An organisation should communicate honestly and openly with the customers and understand their requirements, providing them with high quality products to build and maintain their satisfaction. But ethical behaviour can also be good for sales. If the company follows all ethical rules, it will be fully accepted, embraced, and less likely to be criticised by the community. A company with a good reputation will find it easier to do more business and gain resources from stakeholders. As a result, behaving ethically increases company profits.

Most of the businesses in Malta do their best to conduct business ethically, considering their resource constraints, offering high quality products and treating employees fairly. However, some businesses see ethics as a hindrance to their profitability, when in fact this is a short-sighted view of the meaning of a business. In Vocation of the Business Leader, by the Pontifical Council of Justice and Peace, it is noted that when businesses and market economies function properly and focus on serving the common good, they contribute greatly to the material and even the spiritual well-being of society.

When business activity is carried out justly and effectively, customers receive goods and services

at fair prices, employees engage in good work and earn a livelihood for themselves and their families, and investors earn a reasonable return.

Communities see their common resources put to good use and the overall common good is increased.

When managed well, businesses actively enhance the dignity of employees and the development of virtues, such as solidarity, practical wisdom, justice, industriousness and many others. While the family is the first school of society, businesses, like many other social institutions, continue to educate people in virtue, especially those young men and women who are emerging from their families and their educational institutions and seeking their own places in society.

Business ethics, corporate governance and social responsibility are areas of rapidly growing importance in our society. At

the University of Malta, the Master of Arts in Business Ethics brings together both economic and moral considerations in a strongly interdisciplinary approach. The main focus encompasses the social, political, legal, economic and moral aspects of how businesses are governed, in order to provide those wishing to engage with the issues of business and society, and those wishing to be involved professionally in the processes of corporate governance, with the necessary critical tools.

The course includes dealing with ethical concepts, theories and practice; the world of business as a world of human relationships; corporate governance; corporate social responsibility; cost-benefit analyses; ethical issues in management, finance, human resources, and marketing;

“When businesses and market economies function properly and focus on serving the common good, they contribute greatly to the material and even the spiritual well-being of society.”

the concept of work in an ethical perspective; international business ethics; business ethics in various religions, and ethical issues in the regulation of business, amongst other themes.

Our aims are to introduce students to the important ethical issues that arise in the context of business activities; foster an understanding of the social and economic environments within which such ethical issues occur; introduce students to ethical concepts and theories that can aid one’s understanding of business activities; and help students develop the necessary skills for moral reasoning in the business environment.

Learning more about business ethics and putting them into practice is of value to all business practitioners, including directors, company secretaries, compliance officers, bank officials, business academics, philosophers, lawyers, accountants, trade union officials, representatives of government, non-governmental organisations and the media, and conscientious stakeholders everywhere. The Master of Arts in Business Ethics provides yet another valuable contribution to the field of professional ethics.

Rev. Fr David Cortis is the Course Coordinator for the Master of Arts in Business Ethics at the University of Malta.

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NEWS

Gozitan businesses upbeat about island’s economic prospects Marie-Claire Grima 2019 is set to be a prosperous year for Gozo, with Government rolling out the red carpet for entrepreneurs choosing to locate across the Channel, a growing amount of interest from digital and tech companies in settling down on the island, and mounting support for the Malta-Gozo tunnel project.

The 2019 Budget, which was announced in October, extended the number of fiscal incentives which were introduced for new jobs created in the private sector in Gozo, including refunds for employers offering contracts of three years or more. It also pledged to continue work on projects such as the SME village and the experimental farm in Xewkija. Furthermore, companies investing in Gozo can continue to benefit from advantageous tax credits, up to 20 per cent more than would be afforded to companies investing in Malta.

Together with the Gozo Ministry, Malta Enterprise has also allocated €16 million for a partially EUfunded project to develop a digital hub aimed at attracting more hightech companies to Gozo, mainly for R&D purposes. Indeed, in November, Google Cloud Premium Partner Noovle became the first company approved by Malta Enterprise to be housed in the new Gozo Innovation Hub which is being developed by Malta Industrial Parks at the former Malta Dairy Products plant, with Prime Minister Joseph Muscat lauding Gozo as “the place to do business smartly.”

Furthermore, the tunnel connection between Malta and Gozo, which has now been confirmed as geographically feasible, and for which a call for tender is expected

to be published within the next six months, enjoys widespread support from residents of both islands, particularly the Gozitan side. A survey carried out earlier this year by the Gozo Business Chamber showed that 82 per cent of people living in Gozo were in favour of the tunnel, believing that it will be beneficial to the Gozitan economy and convenient for those commuting to Malta to work and study. Additionally, the second submarine fibre-optic cable which is currently scheduled for Gozo would also offer security to companies which rely heavily on international services and transactions, including gaming companies.

Gozitan businesspeople who spoke to this newspaper confirmed their optimism for business prospects in 2019. “It was a very good year for business for us,” said Michael Grech, Managing Director of investment services company Michael Grech Financial. “Profits for the year were amongst the best in the last 15 years. I think that in general, 2019 should be a positive year for most businesses in Gozo.

Most sectors of the economy are doing very well, especially the key sectors of tourism, construction and services, and the extension of the reduced stamp duty for second-home buyers in Gozo and the employees subsidy scheme will be good for business.”

“Overall 2018 was a good year for our Group, especially on the local market,” said Christian Magro, CEO of Magro Brothers Ltd, a legacy Gozitan family business which has just successfully completed its hand-over from one generation to the next. “The current positive economic outlook has brought with it an increase of people in the domestic market

and this increase has helped us expand our market share further.

Our SAVINA operations depend considerably on the tourism sector and since Gozo had a successful year in this sector, this has left a positive impact.”

Mr Magro said that he expected the extension of the job creation incentives in Gozo to have a positive effect on the economy. “Similarly, the measures taken by the authorities to increase tourism to the Maltese islands will yield a positive economic result.” Furthermore, he added, the Group has a property division, and the retention of the 2 per cent stamp duty on the purchase of property in Gozo is a positive measure that will continue to strengthen this sector. For

“Profits for the year were amongst the best in the last 15 years.” - Michael Grech, Managing Director, Michael Grech Financial both these sectors, he envisages another positive year, with plans for the Group to continue diversifying its operations and portfolio through new partnerships.

Looking ahead, Mr Magro said that 2019 will bring with it new and exciting times for the company on the local market, due to increased economic activity. When it comes

to the export markets, he’s not quite as sure. “For our European export markets, a lot depends on the outcome of the Brexit negotiations and how this will affect the surrounding markets that we offer service to. We feel that there could be new opportunities which we shall be exploring, depending on the outcome of the dealings.”

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e Malta Business OBSERVER

| December 12, 2018

TECHNOLOGY

GoTo car sharing service envisio share of Maltese corporate clien LIRAN GOLAN, CEO, GOTO MALTA.

Jo Caruana We all know this about Malta: it is a unique market. There’s no way you can compare the way things are done here to, say, the UK or Italy.

We’re small and dynamic, and customers here don’t necessarily follow the patterns of other markets overseas. It’s a fact.

That fact is something that GoTo CEO Liran Golan and his team took very seriously when considering the island as the next destination for their car sharing technology. After all, it’s a project that has already enjoyed much success in its home country of Israel, and the team was hoping to further that success while also spreading the message that car sharing can provide a very viable – and more environmentally-friendly – alternative to car ownership.

“With the Israel division working very effectively, we started to consider our options overseas,” Mr Golan explained. “After all, the technology behind it is our own and can be very easily adapted to suit new places.”

“So, when we learnt about Transport Malta’s car sharing tender, we were eager to find out more. As it turns out, we discovered the island to be an excellent candidate for car sharing.”

GoTo ran an extensive market research exercise in Malta before taking

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TECHNOLOGY

ons larger nts in 2019 the leap, which helped them to understand Malta’s challenges with regards to congestion and traffic, parking regimes, the density of the population, and the number of demographics that live and operate here.

“We learned a variety of different things about the socioeconomic groups living here, as well as the requirements of particular groups, like expats, or families with one car,” Mr Golan continued. “And we started to discover that car sharing could actually provide a very useful service to a lot of people. They would not have to buy a car, but they would still have a convenient and readily-available alternative when they didn’t want to use public transport, taxis, or other chauffer-driven options.”

Having secured the tender, Mr Golan and the team drew on their experience in Israel, where more than 7,000 people use GoTo car sharing as part of their daily commute. In fact, on average, each car within the fleet there now serves 17 people every day.

“In Malta, we have been providing the service for just over a month, and already 1,700 individuals have signed up. The fleet is making an average of 200 trips per day. At this stage, we are still honing the service to make it as perfect as can be but, generally speaking, the feedback has been very positive. About 60 per cent of our clients so far have not only tried the service,

but come back to use it again and again – even within this short period of time. It’s still too early to draw conclusions but the results are positive and the repeat business proves the service is being well-received. We can conclude that GoTo has had a very successful take-off.”

Asked about how the Israeli and Maltese markets compare, Mr Golan explained that the two share a similar mentality. “Car ownership is the status quo here, and that’s the same in Israel. Locally, it’s actually easier to reach out to larger groups of people because the island is smaller and word spreads quickly.”

Interestingly, Mr Golan said, the size of the island makes car sharing an even more effective option than it would in a larger country, because driving trips rarely last longer than 20 or 30 minutes. “The fact that we have 150 cars available across the island means drivers can be served whenever they need a vehicle, and those cars can service many people throughout the day.”

The company has also invested significantly in educating people on the benefits of car sharing, including the fact that it is more environmentally-friendly (the fleet is all electric, and encourages less reliance on car ownership), cost-effective and convenient.

“Corporate clients account for 30 per cent of our business in Israel, and we anticipate something similar here in Malta.”

Looking towards 2019, Mr Golan explained that the company’s focus is to increase its reach further among individual users, while also developing its relationship with corporate entities. “Car sharing is actually a fantastic alternative for companies that want to provide private vehicles to their employees, without them having to worry about parking issues or having cars sitting there unused for hours on end. It is very good value, can be part of the organisation’s corporate social responsibility strategy, and provides complete transparency on employee transportation. Today, corporate clients

account for 30 per cent of our business in Israel, and we anticipate something similar here in Malta.”

“Next year, we will continue dedicating time to understanding our clients and how we can serve them better, as well as looking into car sharing supply and demand. We believe that car sharing will become an important aspect of the transport eco system on the island, as part of the wider structure of car ownership and public transport. It’s an exciting process, and we are very excited by the response so far and what this will mean for the future of transport in Malta.”

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e Malta Business OBSERVER

| December 12, 2018

CASE STUDY

How Konnekt is helping clients win the war for talent Marie-Claire Grima With Malta’s economy growing at such a rapid pace, the problem of skill shortages in Malta has become extremely pronounced across all industries. Indeed, 64 per cent of respondents to this year’s EY Malta Attractiveness Survey stated that they had encountered difficulties finding or recruiting the personnel that they needed, an obstacle which often ends up hindering the company’s own growth or progress. It comes as no surprise, then, that the services of Konnekt, one of Malta’s first-ever recruitment agencies and still one of the market leaders in its field, are in such high and urgent demand.

Back in 2007, the agency was made up of just two people. “We’re now close to 40 people in the company,” said Lara Camilleri, Konnekt’s Finance and Legal Recruitment Manager. It started off as a generalist recruitment company, before setting up specialised categories in 2015 – one for IT and iGaming, and one for Finance and Legal, the department Ms Camilleri heads, whilst retaining its generalist recruitment arm. Besides recruitment, Konnekt offers clients a diverse array of ancillary solutions, including salary benchmarking, payroll services and a job board.

“When we get a new client, we meet and get to know them so that we can understand their business, and get a good feel for them,” Ms Camilleri explained. “That helps us when it comes to sourcing candidates. If we understand what the company is after, we can match them up with candidates who have the right strengths and aspirations,

LARA CAMILLERI, FINANCE AND LEGAL RECRUITMENT MANAGER, KONNEKT. PHOTOS BY INIGO TAYLOR

and who can offer the company what they’re looking for. The crux is understanding the client’s operational business and what they need in terms of recruitment, as well as what the candidate wants.”

In fact, Konnekt has often made effective placements simply on the basis of knowing the client

very well, consequently spearheading growth for the company that makes use of its services.

“Sometimes we put forward a candidate that a company doesn’t necessarily have an active vacancy for, but we consider the person to have good and relevant talent for the company in the short- to

medium-term future. I once connected a lawyer to a law firm which did not practice in the lawyer’s specific area, but I could really see a fit between them. The client was so pleased with the candidate that they actually opened up a new line of business and practice area, which was set up

and developed by the candidate we had recommended.”

Indeed, the depth of this clientcandidate-agency connection is what makes Konnekt so unique in the world of recruitment. “When we see clients who are seeking a relationship that is simply transactional, we stop the relationship right there,” Ms Camilleri said.

“We want to build and maintain an advisory relationship with our clients. If they’re not responsive, not giving our candidates feedback, we halt the process.” This kind of trust allows Konnekt to be honest and transparent with clients, even when it’s difficult. “If they come to us with a vacancy, and they have unrealistic expectations – the salary is too low for the market, or the role is too broad to be handled by one person – we tell them. It’s not easy, and it can be frustrating, but it’s the right thing to do. Doing the right thing is something we live by – all this is what makes us different.”

Having a professional, straighttalking and perceptive recruitment agency on one’s side is an asset for any company in Malta, which is experiencing what Ms Camilleri described as “a war for talent”, particularly when it comes to millennial candidates. “Members of our parents’ generation used to spend 10 or more years in the same company. Some employers still expect that from their employees, but that rarely happens anymore – it’s an unrealistic expectation. Nowadays, the average lifespan of a job is less than two years, particularly for entrylevel or mid-level jobs. There’s a tremendous amount of staff turnover; in fact, data from JobsPlus states that 47 per cent of in-

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CASE STUDY

dividuals aged between 25 and 39 changed their jobs in 2017. The number of new start-ups has mushroomed, and the iGaming industry has significantly shifted the market, making it difficult for smaller companies in different industries to compete. In general, it’s a candidate-driven market, whether it’s salaries, demands, or expectations from the company.

Nowadays, we have clients who make job offers on first interview, because they won’t want to miss out on a star candidate.”

The financial services market has seen a 25 per cent growth since 2013, and in a market where competition is rife, talent is extremely valuable. Ms Camilleri emphasised the importance of handling the recruitment process with grace and courtesy, and building lasting relationships with interviewees, even if the candidate is not precisely what the company is looking for. “A candidate you refuse today can easily be one of your employees tomorrow. They may not have the experience you need for the current active vacancy, but they could be perfect for a role you may have in the future. This is why it is extremely important to handle candidates with care throughout the process. In reality, with candidates effectively being spoilt for

choice with opportunities, the employer is being ‘interviewed’ just as much as the candidate is.

So closing off an application by providing feedback in the right manner could mean that you are still the employer of choice in the near future.”

This also applies when a valuable employee is leaving the company.

“When you have an exit interview, the focus tends to be on why the candidate is leaving. While that’s important to know, you should also find out what kept them at the company, what made them love their experience working there. If they have a good exit, and if they maintained positive relationships with managers and colleagues, chances are that they may come back to the company eventually – in the industry, they’re known as ‘boomerang employees’.”

While social media may have us believe that what people want most from their workplace are inhouse breakfasts and daily smoothies – and indeed, Ms Camilleri said that some people do inquire about such perks – a much more important element for attracting and keeping employees is making them feel supported and valued at their place of work. Study leave is something that is frequently sought after, and some companies are more

“Nowadays, the average lifespan of a job is less than two years, particularly for entry-level or midlevel jobs. ere’s a tremendous amount of staff turnover.”

than happy to oblige. “That element of flexibility makes candidates feel that they’re being heard, supported and valued.”

Beyond that, Ms Camilleri added that people want to work for a company where they can spread their wings. “Most millennials want to progress. They don’t want to be stuck in the same role for a long period. They want to know what their options are, and where

they can grow, where they can be in a few years’ time.”

What has kept Ms Camilleri at Konnekt – a place of work where she herself has had the chance to grow – is the potential that recruitment has for changing someone’s life. “Sometimes you come across a candidate who’s unhappy in their present role, but you can see so much potential in them. When you find the

job that they’re looking for, they’re immensely grateful, and the client is so happy with them – it’s the most fulfilling thing.

This reality is even more amazing when you see those individuals grow within the business you would have appointed them in; it is a truly priceless feeling.

In recruitment, there’s a lot of rejection, and you need to have thick skin to handle it well, but the other aspect of it is certainly rewarding, and it makes it all worthwhile.”

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e Malta Business OBSERVER

| December 12, 2018

CASE STUDY

Online Government services make it easier for businesses to pay tax Jo Caruana In a world of paper-free options and the necessity for convenience, even our tax payments need to be submitted at lightning speed in order to keep up with the pace of business today.

In line with Government’s commitment in continuing to enhance e-services, the Office of the Commissioner for Revenue, has embarked on the provision of online services through eForms, mobile Government services (mServices) and other electronic services and applications. These forms were introduced to help users interact with the Department, to inform users about services and procedures, and to file returns, declarations and other forms.

Now, with a number of services already successfully in place online, the Office is soon to introduce the new mandatory filing of VAT returns for all companies and business operators that employ 10 or more people.

“Over the last few months, the Department has been informing, in writing, all the abovementioned businesses that they will be receiving a VAT return through the post for the last time,” explained Andrew Buhagiar, Senior Systems Analyst for the Office of the Commissioner for Revenue. “As from the next VAT period, the relative VAT form must be submitted using the online services.”

There are all sorts of reasons to use these services, with a variety of benefits for businesses including 24/7 access, efficiency and reliability, online validations, real time updates, and security and

history logs. Online services can save a business money, cut down on paperwork, and provide users with the ability to communicate and manage the business from different locations.

Mr Buhagiar went on to explain that the online VAT return system was enhanced this year to meet certain demands put forward from stakeholders. “Some

examples of this include the inputting of negative values, the concept of having the payment reference visible after submitting the VAT return, the viewing and correction of the VAT return up to the extension of seven days, and validations in Boxes 40 and 41,” he highlighted.

Of course, users will notice a number of changes to this effect.

“As from the next VAT period, the relative VAT form returns for all companies and business operators that employ 10 or more peoples must be submitted using the online services.”

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CASE STUDY

For instance, Registered Persons – people who are registered with the Office of the Commissioner for Revenue – are currently used to receiving their VAT return in the post, which used to serve as a regular reminder.

“With the VAT return through the post being phased out, the Office needed a communication channel with taxpayers to replace that, so we came up with the idea of introducing ‘My Account’.”

As a result, when users access their My Account page using their e-ID, they will be able to provide some important information, such as their mobile phone number and email address. “Once we have that information we will be able to communicate and remind taxpayers when their VAT form is due,” Mr Buhagiar continued.

Beyond that, Mr Buhagiar also explained that VAT return filing can be delegated to other people on behalf of the Registered Person, such as tax practitioners, people working within the company on accounts, or others.

“Firstly, delegated people should submit the respective form to the Department and, after gaining approval, can begin to submit the respective VAT return online. Obtaining approval

“With the VAT return through the post being phased out, the Office needed a communication channel with taxpayers to replace that, so we came up with the idea of introducing ‘My Account’.”

does not limit the user to submitting just the VAT return but paves the way for them to access the whole suite of online VAT services,” he said.

Finally, asked if there is any advice he can offer users who might

be concerned about the changes and what they need to do in the months ahead, Mr Buhagiar underlined the importance for businesses to get CFR approval and to

get registered for the submission of the VAT return as soon as possible. “Registered Persons that need clarifications and explanations about the online services

can phone the Department on 144, send an email to vat.cfr@gov.mt or visit Business First in Mriehel, where our staff have been trained to help.”

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e Malta Business OBSERVER

| December 12, 2018

STOCK MARKET REVIEW

Global investment themes for 2019

Josef Cutajar As 2018 is coming to an end, various market participants are now looking ahead for the start of the new year and examining the themes that are most likely to have the greatest impact on the performance of major asset classes over the next 12 months.

Across equity markets, following several months of relative calm, the recent prolonged surge in volatility has been truly remarkable. This was more pronounced in the US amid rising concerns over the pace of growth of the world’s largest economy, which is in a late economic cycle, coupled with fading fiscal stimulus and an interest rate scenario which, in the words of the US Federal Reserve, is now close to the ‘neutral’ level, meaning that interest rates are neither expansionary nor contractionary.

Against this background, and as trade tensions between the US and China continue to dominate headlines and pose several uncertainties worldwide, many financial analysts have been lowering expected profit margins, earnings and growth rates of numerous US multinationals. Automatically, this leads to the attribution of lower forward valuation multiples. Furthermore, sentiment towards three of the largest global technology stocks, namely Alphabet (the parent company of Google), Amazon and Apple, deteriorated significantly over the

past three months for various reasons. These exerted a notable downward pressure on the performance of the three main equity indices in the US, namely the S&P 500, the Dow 30 and the Nasdaq 100. For instance, it is worth noting that on 3rd October 2018, the share price of Apple recorded an all-time high of USD233.47. However, a series of disappointing developments, including lower forecasted earnings as well as a change in the intended way of how the company discloses the sources of its revenues, drove the equity price 24 per cent lower into bear market territory.

In the meantime, Apple also lost the title of the world’s most valuable company to Microsoft which, over the past three months, saw its market capitalisation ‘only’ dwindle by 6 per cent to just over USD853 billion. It is also interesting to note that the US treasury yield curve is now at its flattest point in over 10 years which, in turn, suggests heightened perception of deteriorating economic conditions in the future. In fact, data shows that when the US yield curve is inverted (i.e. the yield on a 10-year US government bond is less than the yield on a two-year Treasury), a recession generally followed.

Developments taking place in the US exert significant influence over the performance of financial markets across the rest of the world. For instance, emerging markets are important contributors to world economic growth as they represent a large addressable market and, unlike most developed economies, have high population growth rates such as in Brazil, Indonesia and South Asia.

However, emerging markets are particularly vulnerable to adverse movements in the value of their respective currencies which, in turn, are also driven by the general attractiveness or otherwise of the US Dollar, depending on eco-

“Other factors that are likely to keep investors in emerging markets on edge in 2019 are overall macro-economic conditions such as inflationary trends and current account deficits, issues of governance, as well as fluctuations in the price of commodities”. nomic conditions and the interest rate scenario in the US. Accordingly, a tighter monetary policy in the US encourages money outflows from emerging markets.

Other factors that are likely to keep investors in emerging markets on edge in 2019 are overall macro-economic conditions such as inflationary trends and current

account deficits, issues of governance, as well as fluctuations in the price of commodities. Particularly in the oil sector, it is important to highlight the market’s

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STOCK MARKET REVIEW

susceptibility to high volatility as also witnessed in recent weeks whereby the price of the benchmark West Texas Intermediate slumped from a four-year high of nearly USD77 back to the USD50 level (representing a decline of approximately 30 per cent) in just three months.

In Europe, the biggest cause of uncertainty for 2019 seems to be Brexit. Although the EU and the UK government recently struck a deal for Brexit to happen on 29th March 2019, as originally intended, the situation is nonetheless very fluid and complicated by political bickering within Theresa May’s own government and the House of Commons at large.

Beyond the UK, another important political event for 2019 is the European Parliament elections which are scheduled to take place between 23rd and 26th May. Although this is not a theme that is currently garnering much investor attention, it is worth recalling the dramatic rise of populist, anti-establishment and far right movements across Europe in recent years which, if fuelled further, could represent another source of uncertainty in the European political landscape over the coming months.

Furthermore, the biggest question mark for the euro area in 2019 from a financial and economic

perspective is related to the likely path to be adopted by the European Central Bank when it comes to continuing normalising monetary policy. In this respect, although the central bank has, on various occasions, indicated its willingness to stop its Asset Purchase Programme at the end of this year, and also suggested an increase in key interest rates from the current record low levels in the second half of 2019, the views of several international analysts are largely mixed amid signs of growth fatigue across the euro economy.

Another important theme for the single currency area in 2019 is the extent to which Italy will succumb to demands by the European Commission to limit its fiscal deficit targets whilst, at the same time, kick-starting an ailing and fragmented economy. In the meantime, Europe also needs to complete the establishment of the banking union, as it represents a key measure for the euro area to strengthen its defences against possible systematic financial shocks in the future. In this regard, it is widely recognised that Europe’s banks lack scale, especially when compared to their US counterparts. Furthermore, after years of protracted deleveraging and cost-cutting measures, European banks are largely behind the

curve when it comes to investment in technology. Profitability also remains a key challenge (as highlighted by the European Banking Authority in its most recent assessment of the sector), whilst cross-border consolidation among European banks continues to be a distant objective.

In China, financial market risks have also been on the increase amid signs of slowing economic growth (which, in turn, is delaying essential economic and financial reforms as recently highlighted by the international credit agency Standard & Poor’s) as well as increasing debt sustainability concerns in both the public and private sectors. The latter is also due to the significant growth of the country’s vast shadow banking sector in recent years which, according to Moody’s, another international credit rating agency, amounts to around 73 per cent of China’s GDP. Against this background, it is worth referring to an article published by The Economist early last month, which clearly stated that “what happens next in financial markets depends a lot on China.”

In addition, it is also significant to note that China’s two main equity indices – namely the Shanghai and the Shenzhen composite indices – have been on a steady

Rizzo, Farrugia & Co. (Stockbrokers) Ltd, “Rizzo Farrugia”, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned 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 to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report 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, have holdings in the securities herein mentioned 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 report. © 2018 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved

downward trend for the past year.

In fact, the Shanghai Composite is now 27 per cent lower from its most recent high which was recorded on 29th January 2018, whilst the Shenzhen Composite is in a worse position having suffered a 34 per cent decline from its most recent high reached in mid-November 2017.

2019 is expected to be yet another eventful year characterised by several issues, namely a slowdown in global economic growth, international trade tensions, possible tighter monetary policies in the US and the euro area, Brexit, a mature equity bull market in the

US coupled with various political issues including a potential political gridlock in the US Congress, as well as worries over the state of economic and financial affairs in China. Whether all these concerns will materialise is anyone’s guess, but the setting is clearly showing the need for market participants to be wary of current developments whilst always maintaining a long-term and disciplined approach to investing.

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

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BUSINESS UPDATES

Brexit could be main challenge for international logistics sector – Express Trailers CEO “Brexit could be the main concern for the international logistics sector especially if there is a meltdown of trade agreements, transit conventions, security agreements and other currently available arrangements and facilities,” said Franco Azzopardi, Chairman and CEO of Express Trailers. “Although the UK is aiming for a Facilitated Customs Arrangement (FCA), experience tells us that this will be difficult to apply before the end of the transitional period.”

Reviewing Express Trailers’ performance over the past months, Mr Azzopardi mentioned that 2018 had been a milestone year for Express Trailers, as it was for the local logistics sector as a whole. He said that the national policy of population growth continued to yield a heightened demand for consumer goods.

“From an operational perspective, we consolidated our hubbing and ‘warehousing as a managed service’ concept with the completion of a new 2,800 sqm warehouse facility in Qormi, a move that helped us centralise all our managed warehousing activity in one depot to cater for the increased business in this sector. We also set up our new company, Express Trailers

Engineering, with the objective of serving our maintenance needs and to serve Hammar Maskin of Sweden in rebuilding reengineered side-loaders,” Mr Azzopardi said.

“Internally, from an HR perspective, we set up our dedicated Express Trailers Training Academy with the aim of providing our employees with ongoing training and to develop the next generation of logistics employees, based on a blend of theory, practice and experience. And as part of our CSR, we continued to assert our commitment towards road safety, with the launch of a national Express Road Safety Campaign to promote safer roads for everyone.”

Referring to the company’s priorities and goals for 2019, Mr Azzopardi explained how from a commercial aspect, one of the priorities was going to be ShipLowCost.com’s B2B service, which is now adding export service for online sales done by Malta-based retailers.

“Internally, our topmost efforts will be trained on the implementation of a three-year IT project that will see our operations using best-of-breed logistic planning and administration core systems,” Mr Azzopardi added.

“The roll-out of our new core logistics and transport IT platform will pose the most significant challenge for our people but it is a project to which we have been giving a lot of energy over the past three years. With the involvement of all key people, users, risk function, IT, project management, legal, and the board, I am very confident that this will continue to position Express Trailers as the foremost logistics operator on the island.”

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BUSINESS UPDATES

Encouraging better management of construction waste The largest share of waste generated in the Maltese Islands comes from construction and demolition. The management of this waste stream is challenging, given the limited land space availability. Such waste should not go to landfill, but should instead be deposited and backfilled in authorised quarries for land rehabilitation purposes, where a soil layer is introduced on top of the backfilled inert construction waste for agricultural purposes. Rehabilitated quarries help to reduce unsightly views in the countryside and contribute to an increase in land space availability for recreational purposes.

Available disused quarries are filling up quickly. It is in our interest and essential for future generations that we manage construction waste in a sustainable manner, by also ensuring its reduction, reuse and recycling as priorities.

Construction waste reduction always begins at the drawing board stage. Good design can reduce overspending and ensure the procurement of more sustainable resources, like reusable materials, increased recycled content in new materials and products, and materials with a longer lifes-

pan. By meticulously planning ahead, aiming to re-use as many materials as possible, and integrating waste separation at the design stage, architects, engineers, designers and builders can better manage generated construction and demolition (C&D) waste associated with development, renovation and refurbishment works. A large part of this waste is inert, such as tiles, ceramics, concrete, bricks, screed (torba) and stone slabs. Being inert means it is non–hazardous when disposed of. However, it is still imperative to reuse this waste and prevent it from going to landfill.

This further underlines the importance of good planning at the pre-construction phase while also ensuring the allocation of space for further waste separation once the building is occupied. The demolition of a building is a particularly important aspect in the management of construction and demolition waste. During deconstruction, materials like windows, plumbing fixtures, beams, apertures and floor tiles can be removed carefully and professionally so that these can be salvaged and reused.

Backfilling of construction and demolition waste into quarries should be considered only

“Available disused quarries are filling up quickly. It is in our interest and essential for future generations that we manage construction waste in a sustainable manner, by also ensuring its reduction, reuse and recycling as priorities.”

after ensuring that there is no alternative use for the material in question. For example, stones from demolished buildings can be used to reconstruct boundary walls in the countryside, including rubble walls. The Ghaxaq Local Council is a great example of this, where an initiative to reuse Maltese stone salvaged from construction was implemented and supported by the Council, which used these stones to build boundary walls around fields.

The local council also invited the public to help themselves to stones if needed, going as far as inviting contractors to pick up material needed for reuse for free. Gozo Mosaic is another excellent example of local businesses with good waste management practices, creating responsible art by producing mosaic murals, panels, stairs and pictures from used tiles, broken plates, glasses, mugs and other decorative ceramic items.

When designing a property, it is vital to plan for dedicated waste management areas, especially in apartment blocks and larger scale developments. Doing so will reduce the number of bags deposited outside on the pavement, while rendering buildings more efficient and sustainable. For more information, visit www.dontwastewaste.gov.mt

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e Malta Business OBSERVER

| December 12, 2018

BUSINESS UPDATES

HSBC first in Malta to introduce complete digital experience on personal loans HSBC Bank Malta customers can now submit a personal loan application online and, if approved, receive the money in their account within 24 hours, without leaving their home.

Eligible customers only need to fill out a simple form via internet banking that should take less than 10 minutes to complete. Documentation is sent to the customer via email, removing unnecessary paperwork.

The move is another step in HSBC Malta’s journey to simplify the customer experience through its online and mobile banking services.

“We are committed to providing the best service and experience to our customers and we believe that improving the services we offer through our online and mobile banking platforms is critical to achieving this,” said

Daniel Robinson, Head of Retail Banking and Wealth Management of HSBC Malta. “We have already delivered some exciting changes this year such as TouchID and FaceID access to the iOS version of our mobile banking, so it’s great to keep momentum with these two exciting initiatives. And more is planned.

This continues to reinforce our

commitment to continuously renew and update our services.”

Earlier this year, HSBC Malta became the first in Malta to launch fingerprint recognition.

This was followed by the introduc-

tion of facial-recognition technology. Prospective customers of HSBC Malta are also benefiting from a streamlined customer due diligence process that is almost entirely online.

Cleland & Souchet introduces new gifts for Christmas From their iconic gift hampers to their vast range of exclusive brands and beautiful gifts, Cleland & Souchet is a landmark destination for the distinctive gift, whatever the occasion, and especially at Christmas.

Their flagship store in Portomaso is split between the ground floor, which houses a wonderful range of gifts and luxury brands, and the first floor, which is dedicated to the

world of wines, premium spirits, cigars, fine foods and chocolates.

For this Christmas, the company has launched Lalique and introduced unique gifts from Philippi and Ted Baker. It has also added new cutting-edge products in its home technology sector. From hand-made backgammon boards to stylish bar ware to Marshall Bluetooth speakers, you are sure to find an unrivalled selection of special gifts.

While the staff are beautifully wrapping your gifts, you can also sit back and enjoy a great cup of coffee or glass of wine at their C&S Wine Café, making your shopping experience a real pleasure to enjoy.

In December, the shop is open every day, including Sundays, up to 9pm. Parking for patrons is free. For their iconic hamper collection, call on 2138 9898 or email on info@clelandsouchet.com

e Malta Business OBSERVER

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December 12, 2018

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BUSINESS UPDATES

AML Transaction Monitoring – three best practices for your business In order to counter the risks of money laundering and terrorist financing, financial institutions must have in place a proper system for transaction monitoring, which should provide the confidence that they are in control to make the right AML risk decisions. The responsibility of reporting suspicious transactions was emphasised after the first AML directive was introduced in 1991, and as the years go by, this obligation has become even more critical. Here are three best practices to incorporate into your AML transaction monitoring process.

ters such as regularity, amount, and frequency of payments.

Reassessment of previous and related transactions Should an unusual transaction be flagged up, you should go back and review previous and related transactions. This process can provide insight to any possible patterns of unusual activity, followed by a review of the client’s transaction profile. The 4th AML Directive even recommends that the effectiveness of a company’s transaction monitoring process be reviewed on a regular basis to allow a trend analysis to be carried out.

Therefore, full access to past data is crucial.

Proper risk analysis at client level The better your KYC procedures are, the easier it is to identify discrepancies between a customer’s risk profile and a given transaction. Fully integrated KYC and transaction monitoring tools mean that the information collected at client on-boarding can be used to update the parameters of the transaction profile. This saves time, increases efficiency, and prevents the potential loss of important information – compared to operating two separate systems.

Comprehensive and current transaction profiles Profiles should be kept up-to-date with all account details and beneficiaries noted,

payment amounts, and their frequency established. The information should be clear and easy to understand, with relevant supporting documents provided and

the profile saved as part of the client acceptance file. The identification and monitoring of these transactions can be automated by establishing key parame-

Enhance your AML Transaction Monitoring with AXON AXON AML Transaction Monitoring enables organisations to detect suspicious behaviour quickly and effectively. It optimises transaction monitoring by automating processes in order to minimise unnecessary alerts, while also offering real-time notifications and reporting. With AXON, compliance teams become more accurate and efficient in their monitoring of potentially fraudulent transactions. Visit www.computimesoftware.com or email info@computimesoftware.com to learn more about AXON and how it can help your business fulfil its regulatory requirements.

Increasing Malta’s presence in key markets Malta has become a leading innovator in the blockchain, cryptocurrency and DLT (Distributed Ledger Technology) space. While other countries are typically looking at crypto and blockchain for shortterm gains, Malta has created a strategy to harness what blockchain technology can offer in the long run, giving it the ‘blockchain island’ title.

In line with this drive to promote investment in DLT, FinanceMalta

is constantly participating in direct and third-party events in Europe, the United States and the Far East.

The objective of these initiatives is to attract more foreign direct investment (FDI) in financial services to Malta, as well as to sustain the growth experienced so far in the key sectors of Malta’s financial services industry.

“Our strategy to increase our presence in key markets is in line

with that of the government, and its commitment to attract new business to our shores,” said FinanceMalta Chairman, Kenneth Farrugia. “Our plan covers various initiatives such as DLT, private wealth, insurance and asset servicing sectors. Other initiatives being planned also cover subsets of the key financial sectors such as securitisation, pensions, protected cell insurance business,

venture capital and private equity business and a number of related areas of business.”

With Brexit looming, Mr Farrugia added, “Brexit will bring about a significant change in the way business is conducted by UK operators currently servicing the financial services industry in the EU’s internal market.

Clearly, as a non-member state, the UK will be unable to benefit

from the passporting rights currently enjoyed by such operators. This will create various opportunities for the Maltese financial services industry, as operators in the UK will be looking at the possibility of setting up operations through a branch or a subsidiary in an EU member state, or to redomicile their business completely from the UK to another EU member state.”

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e Malta Business OBSERVER

| December 12, 2018

BUSINESS UPDATES

Five years on, Timberland looks back on its success in Malta Timberland Invest Ltd, a financial services firm licensed by the Malta Financial Services Authority (MFSA), this year commemorated its fifth-year anniversary since it set up office in Malta.

Timberland Invest Ltd forms part of the Timberland Group of Companies, which has over 25 years’ experience with authorised entities in Malta, Germany and Luxembourg.

After successfully operating throughout all these years within the EU, it made sense to strategically grow the operations of the group in the Mediterranean region and establish a foothold in other jurisdictions within the EU. Malta thus became the location of choice for the management of the Timberland Group.

Timberland Invest Ltd was registered in Malta in 2013 and since 2014, has been authorised by the MFSA under the Investment Services Act of 1994 with a Category 1A licence. The European Union law, through various Directives applying

to all EU member states, provides a harmonised regulatory framework for investment service providers across the EU member states.

Through this common framework, financial products and services can be passported in or out of Malta, through the Prospectus Directive. In fact, in 2016, Timberland Securities Investment plc was set up, and has published and passported a prospectus in terms of this Directive.

Timberland Securities Investment plc raises capital by issuing bonds to the general public. So far, two bonds have been issued in August 2016 and July 2017 with the same terms and conditions during the tenure of the bond. Following on the success of these bond issues, in the fourth quarter of 2018, Timberland Securities Investment plc has issued two new bonds in terms of a new prospectus.

Timberland Invest Ltd has been appointed as the authorised distributor of the bonds in Malta.

TIMBERLAND INVEST LTD. LEFT TO RIGHT: JOANNE SCHEMBRI, ANTONELLA MERCIECA, COLIN MICALLEF, DIRK KOESTER, THOMAS KRAEMER AND ANTHONY PARIS.