Funding new industries

I read with interest Minister Austin Gatt's comments regarding Malta Industrial Parks Ltd (MIPL) and the "new" concept of funding industrial expansion within Malta, made during his inaugural visit to the new premises of Stainless Steel Malta Ltd.

Having been a driving force behind the concept of MIPL initially during my tenure as a board director at Malta Enterprise and later at MIPL, I was pleased to hear that the plan was moving forward, but as I read on I realised that it was, as usual with this government, rather the PR campaign for the plan that was moving forward.

It is true that in the last budget MIPL were allocated the rental income from the majority of the government-owned industrial areas, some Lm2 million per annum. It is also true that with this funding MIPL can, if given the necessary undertakings from Government (i.e. that they will not change their minds and take the money back next year), use these funds to secure borrowing from commercial banks to fulfil the outstanding works required on new units and the promised restoration on some of the existing buildings mentioned by the PM in his budget speech: "There already exists a Lm17 million demand from new business interests."

It is not true however that these funds will be used to build units for new companies arriving or expanding in 2005 onwards. Here unfortunately the PM and I disagree slightly on his interpretation of "there already exists a Lm17 million demand".

I would prefer the wording, "Lm17 million of liabilities incurred by the chairmen and boards of var-ious government bodies over the past 10 years, when all present knew full well that they had not been allocated funding year on year to meet their promises, but still committed to new projects".

It is also worth noting that this figure was calculated and capped as at December 31, 2003, and up to August 2004 when I left ME and MIPL, had not increased as the ME chairman and board members were made very much aware of the situation on a continuous basis, so at least up to that time the rot had been stopped.

The plan is a reasonable one save that of course there are quite large tax implications for the MIPL, given the current government tax policies for limited liability companies involved in the rental of commercial properties (a maximum of 20% of rental income only can be set against operating costs). As such, under current legislation, if this route is pursued it will deplete the Lm2 million collected by possibly some Lm400,000 p.a., which of course returns to the Government's coffers!

So how will MIPL fund the new projects that ME bring to the country? It's a good question and one easily solved with a commercial rent policy using commercially funded SPVs on a project-by-project basis. That is of course if ME and the government accept and sell the commercial rental policy to expanding and new entrant companies rather than the current reticence toward the policy and the constant infighting from local consultants and ME staffers to reduce the rate.

In any event this would price a new building rental at approximately Lm16.70 per sq m, lower than the current commercial rents available on the market, but much more realistic that the ridiculously low average figure of Lm2.50 per sq me that MIPL collects today from its existing tenants.

There is another more pressing issue that has not been addressed by the plans implemented at MIPL or in fact even discussed in the public domain.

Government historically included in the budget a capital vote of some Lm2 million annually for the maintenance and upkeep of the industrial estates (Lm3 million in 2003 as an exceptional item to retain and assist a specific large employer in their relocation to Hal Far).

Given the mismanagement or overspend of the old MDC enterprise agencies, it is fairly obvious that little or none of that money over the years has been spent on the estates' infrastructure.

During my tenure at MIPL, the management team calculated that it would require some Lm15 million, spent over a four-year period, to bring our estates up to European or internationally comparable 2005 standards.

We need to recover land populated by derelict, unsightly, impractical units, and reinvest in specifically planned estate sub- and surface infrastructure to facilitate changing market conditions. These would then be populated with steel-framed generic buildings that can be fitted out internally by the occupier as required or as their needs dictate; this action alone brings the building costs down by some 30%.

In other words invest in infrastructure rather than patching up existing buildings and in this way we will achieve a level playing field within the international FDI marketplace

In 2005 MIPL will received a zero capital vote in the budget. To date MIPL has at its disposal €3 million gifted as part of our accession benefits. To put this into a real perspective it would be sufficient to refurbish the drainage substructure and surface infrastructure at Bulebel Industrial Estate and just scratch the surface of the newly prioritised Pharma Park required at Hal Far.

As I said before, without industrial infrastructure new estates cannot be built, without money industrial infrastructure cannot be implemented so round and round we go.

When I worked with Minister Dalli and others on the "new" ME plan we had a mantra, "Malta Inc., Europe's Most Successful Nation State", "A country operating with transparent and accountable government as in body corporate".

Professor Joe Bannister is a guiding light with this ethos as is clearly demonstrated by the success of the MFSA, but little else in the country seems to have this thought process behind it. In fact it appears to me that following the PN leadership battle, EFA's departure and the resignation of Mr Dalli, this thought process has gone out of the window.

Perhaps if all ministers and politicians viewed their five-year political tenure as a "job" where they would be measured against pre-set goals before their contract was renewed as in the private sector, we would see more effort and results-oriented behaviour and less handshaking and lip service.

Why can we not unite to take full advantage of our new market opportunities? It must be said that various hard working and sharp-minded individuals are making great inroads into the new European markets and are fine representatives of the country, but it is also true that many companies are being left behind simply because of lack of knowledge or ambition.

These unfortunately are the same folk who cry 'foul' over proposed rent increases within the MIPL industrial portfolio, even knowing that in 2005 Lm2.50 per sq m cannot sustain or maintain the building they are renting.

If I were a gambling man, I would place a wager on this "political self-interest and short-sightedness" attitude as the real reason for the loss of our local industrial base.

Mr Newman is chairman of ITC S.A.