Labour MP Alfred Sant yesterday warned against complacency in the financial services and remote gaming sectors which were doing well but if problems were to arise in these two sectors, the local economy would be put at grave risk. This was what happened in Ireland, Iceland and the UK.
Speaking during the debate in second reading of a Bill amending various financial pieces of legislation, Dr Sant said that it was imperative to take stock and analyse the impact of these two sectors on the economy because the local economy was far from balanced. It was more like a dual economy, he said. Other sectors were either stagnant or falling back and these two sectors were masking the performance in other sectors which was either stagnant or mediocre.
It was important that information on these two sectors should be on-going to enable practitioners and other interested professionals to make serious analysis vis-a-vis the economic development.Winding up the debate, Finance Minister Tonio Fenech said prudence was definitely the strategy being taken by the government. Dr Sant said the financial services sector did not have much backward and forward linkage to other sectors. It had a very low trickle effect. The Economic Survey published with the budget did not give any indication of this linkage.
He referred to the EU Economic Survey and Forecast where the data on Malta was in aggregate and macro terms and consequently was of a general nature. The UE report did not make any distinction between exports and re-exports giving an artificial picture of economic performance.
He also referred to the 2010 IMF Report where a lot of data was lacking even as regard the financial services and remote gaming sectors when compared to the previous report for 2009. No information was given on the year-by-year contribution of exports, investment, private consumption, inventories and public construction as part of GDP growth.
No mention was made on how exports and foreign demand changed in real terms over the years.
The IMF Report also lacked information on the contribution to economic growth of such sectors as remote gaming, manufacture, commerce, hotels, transport, real estate and financial services. He asked whether this lack of information was the result of complacency or because the authorities were following the Eurostat model.
Dr Sant also referred to the analytical report by Professor Joseph Falzon and commissioned by the Malta Institute of Management published a few weeks ago. The report compared the performance of the financial services sector with that of other EU countries over the last 10 years.
Gross value added of full-time employment in the financial services was the best in real terms in 2009. Income for employees in the sector was also the best ever. This was positive, said Dr Sant.
The average annual income in the sector increased to €22,344 for employees. The contribution of the sector to the economy increased from 4.1 to 5.9 per cent between 1995 and 2003. The gross value added more than doubled by 2009. Productivity by employees between 1995 and 2009 increased by 72 per cent.
The Falzon report used the labour cost index which increased, resulting in less competitiveness. Compared to Luxembourg, the cost competitiveness index declined between the 2000 and 2007. Dr Sant argued that this was a sign that the financial services sector was reaching saturation point.
The gross value added for every hour of work in the financial services sector in Malta amounted to €22.43 in 2009 when the EU average was €46.32 placing Malta in 19th place. The profit per hour of work in 2009 was €7.53 when compared to the EU average of €23.41.
Dr Sant also referred to problems pertaining to the banking system also referred to in the IMF Report. The IMF was concerned that the profitability of local banks rested on ever-increasing non-performing loans negatively affecting the sector. Financial problems would increase if the property market remained weak because property developers would sell bonds in non-transparent ways. The IMF Report referred to what Dr Sant called “incest between certain bank managements and some property developers”.
He called on the government to list its strategy in tackling the challenges and concerns raised by the IMF.
Dr Sant said the evolution of financial services in Malta was also linked to the euro which had passed through a lot of turmoil during the last three years. One should be wary and not let a pan-European financial, economic and political elite lead the country to a dead end. These pan-Europeans did not have any strength against a global financial tsunami but they would surely try to save their skin as happened in the last world economic crisis.
Malta should make its voice heard on the euro because in the eventuality of a crisis, the burden would be carried by the middle class, the workers and pensioners.
Dr Sant concluded that one should say the truth and not decide to accommodate banks’ and bankers’ interests.