Smaller end of a big thing

Running a business is never easy. Taking care of a small-to-medium one can be more difficult still. That is one reason why there exists a Chamber of Small and Medium Enterprises – GRTU, as the former General and Retailers’ Union is now called. The Chamber recently carried out a survey among its members and released it a week ago. There was extensive coverage in The Sunday Times.

High business costs are a major concern for small-to-medium operators, followed by late payments- Lino Spiteri

The survey identified several problems affecting the sector which, being a very important element of the micro activities within the Maltese economy, hits a considerable number of operators.

High business costs are a major concern for small-to-medium operators, followed by late payments. High business costs are deterring a large number of operators from planning to invest and expand this year. That is bad news. Without ongoing investment even the smallest of enterprises will probably fall behind the growing competition.

Late payments deny liquidity to suppliers, which do not always find it easy to cover their cash gap with suitable overdraft facilities. Not surprising, approximately half of the late payments are due from other businesses. That is a situation prevalent within the whole economy, not least among larger operators, especially in the tourist sector.

What is surprising is the finding that one in 11 small-to-medium operators suffer late payments by the government. That is a situation which the Treasury needs to address. Not so long ago suppliers of medicinals to the government, as well as contractors working on public contracts complained that millions of euros were overdue to them, impacting on their strained cash flows.

The extent of the outlays is not easy to determine since the reports on public revenue and expenditure are not worked out on an accrual basis. This criticism regarding public accounting is not new. Various finance ministers have not only admitted that the situation should be remedied, but have undertaken to do so. So far such promises have not been redeemed.

At the same time financial reports submitted to Eurostat, the statistical arm of the European Commission, are – I understand – calculated to include accruals.

This point should be clarified and accrual accounting should be introduced without further delay for the benefit of all and sundry, but particularly those who want to know exactly what is the real state of public finances. One in six of those surveyed by the Chamber showed good awareness of what was going on around them, expressing concern at the EU’s negative outlook. External factors are bound to impinge on Malta’s wide-open economy. That is the main reason why the IMF team of economists forecast that growth this year would be around one per cent, less than half of the forecast mention in the Budget when the government’s estimates of revenue and expenditure were presented to the House of Representatives on November 14.

Slower or possibly negative growth within the EU will impact on the whole of Malta’s export sector, and not just small-to-medium activities. But this latter sector could be the worst hit, unless it shows resilience to adapt to changed circumstances with early measures to contain and possibly reduce costs.

It is in this regard that the concern with high (and probably rising) costs comes into play. Unexpectedly, political uncertainty was of concern to only one in 12 of respondents to the GRTU’s survey.

It is almost certainly higher than that in the larger-industries sector. Economic activity suffers from political uncertainty, which tends to cause investment decisions to be postponed. It bears reiterating that investment, particularly when it incorporates technological innovation, is the engine of economic growth.

Among other things it helps to bring down unit costs by contributing to increased productivity which, by the way, is reckoned not to have fallen since Malta joined the European Union. Such measurements very often depend on the base year used to work them out.

While almost one in two of respondents to the GRTU survey said that their capital financing was sourced from the banks, the Chamber’s director general claimed that the cost of financing from the commercial banks was excessive. He criticised the financial services regulator for doing “practically nothing” to make the banks reduce their charges.

I am not sure that the regulator can intervene in what is now a very competitive market. Of the 26 banks registered in Malta at the last count six compete in the domestic economy. Admittedly, the two major banks dominate this sector. But the other four banks are becoming increasingly aggressive, both to attract deposits and also to entice business customers.

It could be that small-to-medium sized operators do not have the time, or the expertise, to seek out the most competitive rates, both as regards interest on loans and overdrafts, and as regards charges. One says that in a context where some charges levied by the banks have become unreasonably high and have yet to be dented by active competition.

It must be of concern to the public authorities that, although the survey found that 60 per cent of respondents were aware of schemes intended to help them obtain bank finance through lower collateral and guarantees, only 18 per cent are making use of such schemes.

Again, it might be a matter of lack of the knowledge and human resources required to fully exploit those schemes. The sector now has a Cabinet Minister, Jason Azzopardi, to look after its needs and he is known to be dedicated and hard-working. Perhaps one of the areas he could look deeper into is the extent to which small-and medium enterprises understand schemes tailor-made to them, and know how to exploit them.