The long-term nature of the SmartCity project was always an element that increased the risk factor associated with this multi-million-euro project. Early in 2009, the promoters of SmartCity made a public declaration that the global economic crisis would not affect substantially their plans to go ahead with their investment in Malta.
The SmartCity CEO said that "the reason why the project in Ricasoli suffered delays was a result of the international economic crisis". He was quick to reiterate his reassurance that the investors will "keep to their contractual obligations undertaken with the Government of Malta". In October, the project lost its local CEO who cited differences of opinion on strategic direction as the reason why he had to leave SmartCity.
Quite recently, Go, which is partially owned by Tecom, announced plans to continue with its restructuring that could involve downsizing the local workforce by a few hundred. So far, these plans have not been well defined, even if the trade unions representing the workers may be mobilising for a confrontation. One augurs that the delay in taking the necessary action will not adversely affect Go's long-term sustainability.
We have now also heard that Tecom Investments, the promoters of SmartCity Malta, are engaged in an acrimonious squabble with the government of the Indian state of Kerala where the Kochi SmartCity is located. The Indian project, promised to generate 100,000 jobs, was initiated in September 2005 but it has still not taken off. Now, the government of Kerala has given an ultimatum to Tecom to accelerate the work in progress or risk losing their contractual rights.
But the issue that is casting most doubts about the future of the SmartCity project is the recent debt crisis that hit the Dubai economy. When Dubai World, a state-owned property development company belonging to the Emirate of Dubai, "requested a standstill on its debts", the financial markets switched to panic mode.
The property bubble in Dubai was bound to burst at any moment, but when the Dubai government seemed to disown its obligations on the massive debt owed by one of its own companies, many began to ask what other sovereign guarantees would soon prove to be worthless.
The Minister for Investment, who is the local champion of SmartCity in Malta, has once again reiterated in Parliament that the Dubai crisis has nothing to do with Malta and that the SmartCity project in Ricasoli is going ahead as planned.
This may not be enough to put at rest the minds of all those who are concerned about the future of this project. It is not only the government and the opposition that have a vested interest in the future of this project. Hundreds of students and their parents are also stakeholders in this project.
The real risk facing the SmartCity project is not so much the ability of the promoters to deliver but the effect of systemic contagion if the Dubai debt crisis should take a turn for the worse. Tecom, which has a critical role in both SmartCity and Go, is ultimately under the influence of Dubai Holding, the investment arm of the Dubai government. The CEO of SmartCity is quoted as saying that now "everything is linked to the shareholders' priorities".
Complacency could be our worst enemy in such difficult circumstances. The government must therefore ensure that the shareholders of Tecom continue to give priority to their obligations in the local investment in Go and SmartCity.