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In it for the long haul at Smart City

Smart City is probably Malta’s leading construction project, but the promised jobs still need to materialise. CEO Fareed Abdulrahman calls for understanding in the current international climate but says he is confident about the future. Mark Micallef reports.

The only thing indicating you are approaching a massive building site on the way to Smart City is the odd crane towering over the skyline.

If you had to do that study today... you would not have come close to those (job generation) figures

The red containers lining the windy main road leading to the project at Ricasoli are so neat, they could be passed off as permanent decorations.

Even after you get past the containers and are confronted by the main building site – a gargantuan gorge that is meant to become Smart City’s own lagoon – dust is conspicuous by its absence and there is relatively little noise.

Yet, work on the site is moving. Two years after the first office block was launched, construction on phase two of the project – which includes two office blocks and two retail blocks, the lagoon and its reservoir, a promenade, and an architectural stairway modelled on Rome’s Spanish Steps – is set to be completed by next week.

After that comes the mechanical and electric work, which means the second phase could also be finished ahead of schedule, at the end of the year. It started being marketed abroad last week.

At the end of this phase of development, the project will feel more like a finished product, becoming essentially a sizeable nucleus of what Smart City Malta will end up looking like once more tower blocks, the residential buildings and the hotel are included.

The boss, 39-year-old Fareed Abdulrahman, is clearly proud of the way things are going.

“We are very happy with the pace. I would say that we are ahead of schedule. But more importantly, we are doing things properly,” he says.

The project has just received Silver LEED certification, a prestigious, internationally recognised green building certification, which took into consideration Smart City’s energy efficiency and water conservation.

It seems to be a mixture of good site management along with good, old-fashioned cash. The Dubai-based investment arm behind the project, Tecom Investments, has just increased its equity by €66 million, injecting another €35 million into the project in February. This year alone, the projected spend is in the region of €25 million.

If the project were only about the construction, it would be an all-round success, but Smart City Malta was largely sold to the Maltese public on the back of the 5,600 mostly ICT jobs it is meant to bring with it on completion in 2021.

The otherwise placid CEO gets a little nervous when this is put to him.

“I am bit surprised with your question because we are ahead of schedule here,” he says after a brief pause. That may be true, but two years after the first tower was inaugurated and delivered 12,000 metres squared of office space, there are not many real tenants or new jobs to speak of.

Moreover, the latest announcements – that of Saint James Hospital opening a clinic and the Corinthia group opening a bistro – have no connection with ICT.

“Perhaps it’s a good opportunity to clear the air... I have been saying this for two years, there is a wrong perception about this job creation and about targets... I see it because I read it in the news,” he says.

He argues that there is a wrong perception that Smart City Malta is meant to create the promised 5,000-plus jobs in the first year.

“Every time Smart City comes up, the 5,600 figure gets mentioned. It’s not 5,600 in the first year, it’s not in the second year, it takes time.

“It’s about 12 years, and the 5,600 might happen in the seventh year, it might happen in the 11th year, but is Smart City Malta only about that?”

But that is not quite what Tecom signed up to when the deal was sealed in 2007. According to its contractual obligations, Smart City Malta should have created in excess of 1,000 jobs by now, increasing to 2,000 by the end of this year.

In fact, had the government not fallen back on its side of the deal to demolish the Wied Għammieq sewage pumping station on the site, Smart City Malta could have been slapped with fines for failing to meet targets.

Legally speaking, the authorities’ failure bought Smart City more time, but the pumping station cannot have had any real impact on the management’s ability to sell the project.

So what happened to the projections?

Mr Abdulrahman’s answer is that the world has changed since the projections were made in 2007.

“If you had to do that study today, or better still, two years ago, you would not have come close to those figures. I think people are smart.” He points to the aftershock that the financial crash of 2008 had on the global economy and especially Dubai, which his team was targeting specifically as a source of substantial investment.

That may very well be the case but Smart City Malta kept being talked about in those terms well after the 2008 firestorm.

Is there a gap between the expectations raised about Smart City Malta and the situation on the ground? Again, he seems uncomfortable with the direction of the question.

“I’ve been explaining this for almost three years now. Does anybody care? It will happen regardless of anything.”

What does that mean?

“I don’t want to get into this area, I don’t want to get into the politics because it is not our area.”

It is not at all clear who he is directing the criticism at but it seems to be both the government and the opposition. “When there is election time you can come and see, because then Smart City Malta is taken for granted,” he says.

In what sense?

“For jobs, this, that... I am not here to point fingers and it is not my intention. We have a direction and we will move towards that direction regardless of what they say but the challenge.”

Again, he refuses to elaborate, though at one point says: “We’ve been used.” But then, he insists the people bandying the 5,600 figure about should make clear that the project was never meant to deliver these jobs from the outset.

He dismisses critics’ fears that the project will end up as yet another example of property speculation, after having seen this happen in the past.

“The smallest portion is dedicated to residential buildings. How can we be accused of running a speculative venture?” he asks.

“The irony is that we sometimes get complaints from some clients that there isn’t enough residential element in the project to make their move worthwhile.”

Beyond the politics, which he refuses to go into, the reality is that the situation changed and the project was hit directly by events in Malta and beyond.

For instance, when things looked as though they had started picking up after the 2008 crash, the Libyan war erupted.

“In 2010, we did a lot of promotion in Dubai. We focused mostly on media companies... because we knew North Africa in 2011 was coming with huge production budgets. So we promoted Malta with this in mind in Tecom’s 11 business parks, representing some 6,000 clients that cover mostly the Middle East and North Africa.”

The selling point was that large companies covering the region could keep their base in Dubai but ship the North African operations over to Malta. He said: “This is where we saw an opportunity and it worked... we had advanced talks with about 10 business partners... but then in February and March (when the war broke out) everything went down the drain. Everybody stayed in Dubai and nobody did any job in Libya.

“If you look at the situation today, it is still the same from the point of view of the companies. Coming to Malta is fine, they could have done it last year, but would they be able to do transactions and business with North Africa? No.”

When there is election time you can come and see, because then Smart City Malta is taken for granted

The likelihood is that the situation is going to stay this way for a while.

While activity has picked up in certain industries, such as oil and gas, there are still no real signs of life in most ICT related sectors, he points out.

To boot, the project is now also being hit by the euro crisis.

“For instance, we had a campaign in India with companies that do not have a base in Europe yet... the perception, right away, was that Malta’s membership of the eurozone was a problem.”

The problem may not necessarily be Malta itself but how the uncertainty with the single currency will affect the main markets these countries would aim to penetrate, not to mention the potential losses from exchange rate fluctuations.

“We obviously tell them that Malta is different from other Mediterranean members of the euro, we tell them to look at the country’s rating and its economic stability but their concern is Greece, Spain, Italy and the rest of Europe. The perception is there.”

Mr Abdulrahman also points to some endemic problems flagged by potential investors which should not have sprung any surprises on the people making projections in 2006.

“We also get problems with connectivity, especially for the investors based in Dubai. For instance, there is a daily flight to Libya (since the interview Air Malta added a thrice-weekly flight to Benghazi in addition to its daily flight to Tripoli) but there is only two flights to Egypt, when one is not cancelled, and nothing to Algeria, nothing to Morocco.

“But Egypt and Morocco are huge. It’s a combined population of 180 million. It’s a massive market.”

The main selling point with companies considering moving to Malta is the opportunity to expand their business, but with Malta itself offering no market to speak of, the link with North Africa is vital.

Again, a recent effort to attract ICT companies abandoning Greece because of the economic climate saw the Maltese project being beaten by Ireland and Turkey, he points out, because they offer a robust internal market as well as a good base for export.

But as these are chronic problems that are unlikely to be resolved in the immediate future, particularly Malta’s size – in the case of connectivity it might get worse for a while as Air Malta sheds some unproductive routes as part of its restructuring – what are the future prospects for Smart City Malta?

“Seeing as we are talking of a cluster, we do not stop at the ICT and media sectors. We are also looking at the educational sector now – how to bring universities into Smart City Malta,” he says, adding the response to some recent networking events in Dubai and China were very encouraging.

“This is why I say that people have to be patient. Did we give up when faced with these challenges?

“Not only did we not do that, but we kept investing heavily because we have a long term vision that we share with Malta.”

The criticism itself hurts efforts to attract business, he argues, pointing out that every time the project is criticised locally, news is picked up internationally because of Tecom’s role in it.

“The damage that has on the marketing is massive. We don’t complain and we keep going, but it’s there.”

In spite of the doom and gloom on the international markets, he still appears confident of future success.

“The success is there, we need to work hard for it. I think 2008 shocked everyone globally. But thank God, we did not stop, we continued.

“I think the recovery will take another couple of years. The euro problems might persist but I am seeing things in Dubai picking up.”

Moreover, he says there are good prospects in the offing, due to talks with some large companies.“I’m talking about 180 to 200 people on which there might by an announcement by September/October.”

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