In its Bill proposing rent reform Government has decided to abandon enterprise. By enterprise I mean entrepreneurs small, medium or large, who invest their money, borrow and re-invest hard-earned returns to turn a dream into a profitable business that employs themselves, their family and other employees and create economic value added. The entrepreneur creates work through endeavor. He's not a hoarder or speculator. He's a creator of wealth through enterprise.
Jobs do not grow on trees. There was a time, not so long ago, when people like me involved in business promotion and business start-ups. Knocked on people's doors to encourage them to go into business and create enterprise. Many medium and large businesses that thrive today were born years back through the spirit of entrepreneurship that some individuals possessed. Indeed, many businesses started with very little and now they are pillars of success. Many others did not grow so much but in their own way they are also successful. These enterprises serviced and continue to service the community faithfully. They are the grocers, minimarkets, supermarkets, the iron mongers, the bars, the butchers, the bazaars, the domestic appliances dealers, the car repairers, bicycles shops and the other shops of all size and form that keep the life in many towns and villages lively and busy. Most have learned to put aside enough to buy their premises or to start in rented premises and then move out to newly build premises in newer areas.
But not all had the vision, the financial strength or the ability to move. They stayed small while continuing to service the community. They received no assistance from any government and they asked for none. The only protection they enjoyed to help them exist and stay in business come through the rent laws. This was before all the talk about SME protection, Think Small First and all the other slogans heard today became so popular. The Maltese authorities did practically nothing else to effectively help the smaller entrepreneur to start and stay in business. The only business support that existed was the protection from summary eviction by the owner of the premises from were he operated. The law protected the tools of the self employed from confiscation and protected his licenced premises. Nothing else stood as safeguard of the self employed and the small business owner.
Many premises today under rent protection cost practically nothing as construction costs when originally built. Some of these places cost not more than a couple of hundreds to build or buy. The owners received a rent which was then considered just and enough. Through the years this rent in money terms became insignificant. Owners therefore invented all sorts of devices available at low to get additional payments from tenants for privileges that tenants requested from time to time. And a market for these rent protected premises grew alongside the market for non-protected properties but always within the very limited market for rents. Many owners of rented properties made good money in spite of the restrictions. Landowners learned how to handle the situation. Those who didn't, of course, suffered and fair enough they've asked for the reform.
The law is now changing. Enterprises now move from absolute protection to no protection at all. This is not correct. The first question that needs to be asked is why enterprise is no longer protected. There are clauses in the Reform Bill that protect many small enterprises now under perpetual protection till 2010 and others for 20 years, but effectively the protection has been abandoned in principle. Many small businesses have their days numbered. Most have already decided to call it a day, close shop and retire. The Maltese Government and Opposition now no longer believe enterprise ought to be protected from eviction beyond what is written in a rent contract. In this they are in a minority in the E.U. Most European countries continue to believe that enterprise needs safeguards. That job's protection remains a priority.
Most other governments in Europe distinguish between property rented for residence purposes and for that rented for enterprise use. Those who move in rented property and create work for themselves and for others and provide a service to the community are given protection. Why assist a foreign investor to open factory in Malta and give no protection at all to a small entrepreneur who wants to manage a small enterprise? France presents an interesting enterprise promotion policy: come to France, start your own business and you have a minimum 9-year protection at law if in rented property. You take up a garage or other premises, turn it into a business and you have nine year's protection from eviction. Rented commercial property in France is renewable after nine years and if the rent contract is ended the tenant owner is guaranteed compensation at law. Land owners know that when they rent to enterprise owners for whatever commercial reason, the tenants cannot be evicted before a lapse of 9 years and that in the absence of a renewal they have to pay compensation for the value added to the property through the investments of the tenant.
The capital value added that the premises gains after nine years does not belong only to the landlord alone. A garage or any other premises unlicensed without any goodwill and without the investment necessary to make it an enterprise, grows in value but not as much as a licenced premises with investments and goodwill made and earned by the tenant. The latter appreciates in value much more then the former. The capital gains after nine years belong to whom? Do they belong to the landlord alone? French law says no. If rent is to be renegotiated the "gains" given to the property by both the property owner and the tenant owner is recognized and the renegotiated rent is not dictated only by the owner. It is not dictated only by the market value of property in the general property market. The owner could after nine years evict but he has to pay the capital gains awarded to the building by the tenant owner during the period of his tenancy and reward him/her accordingly. Because for the French enterprise matters. It does not grow on trees. Jobs matter. Its entrepreneurs small, medium or large who create jobs. The law in France protects job creators.
Why are we in Malta abandoning this basic principle? Let's have rent reform but let us not forget enterprise. The new reform does not give due recognition to what tenants have contributed. It looks only at what they have gained over the years that rent was protected. No one is arguing that rent should not be adjusted. But it should not be adjusted without due consideration to the contribution of the tenant to the value gained by the property during the full period of the tenancy. Enterprise owners should not be thrown out simply because the legislator today thinks differently from the legislator of the past. Today's legislator has no mandate to do this.
No law can impose without due compensation. A government that rightly compensated dockyard workers, that compensate hearse owners and all others who suffered as a result of government decision, cannot simply allow small business owners to be kicked out of their enterprise without due compensation. Government and opposition cannot jointly be responsible for this injustice. They are still in time to re-consider and adjust.
It's never too late to be fair.
"It's not bold enough". That was my first comment on Budget 2008. I lived through three recessions and was active in all in one capacity or another, I live daily with business people and I know for sure that we're not doing enough to meet the growing economic menace. "Exceptional times call for exceptional measures. The jobs and well being of our citizens are at stake .... If we do not act now, we risk a vicious recessionary cycle": that's Jose Manuel Barosso, the EU Commission President.
Here government continues to insist only on the Capital Budget presented in November. The few stimulus proposals in Budget 2008 drafted when hardly anyone here had woken up to what 2009 has in store for us are simply not good enough.
I instigated GRTU to hold a National Business Conference on 16th December 2009 precisely to bring home to the public sector decision makers and private business owners the realities that will face business and the Maltese economy in 2009. The Prime Minister, the Minister for Finance and the Chairman of Malta Enterprise gave us their views. The new Leader of the Opposition was sick so Gavin Gulia, Economic Spokesman, came from the PL. Economists Gordon Cordina and Edward Scicluna gave excellent economic analysis. Individual business owners gave their views directly and through the GRTU Annual State of Businesses Survey. This week I attended an important Malta Enterprise meeting of experts to discuss what needs to be done to meet the evolving negative situation. Contingency plans do not exist as far as I know but Malta Enterprise is waking up to the threat.
I'm not convinced the Authorities are yet aware. Being unaware is a terrible state. How can you act decisively if you're unaware of the realities? I wish not to believe that this is the situation. It's not a question of not saying so that we do not scare people. That's what many keep telling me. But this is the contrary of what everybody else that matters elsewhere is doing. No administrator of economic affairs in his sense wants business not to be aware of the realities. How can business and industry plan ahead if they fail to grasp the realities and plan ahead? Business cannot do it on their own. The crisis that beholds us is too big for individual business to master successfully on their own. Decisive government action, and very extensive and costly intervention is needed.
We practically know the dimensions of what will hit us and we know that we hardly have any control. This is like a tsunami. You know its coming. You can only take action to protect yourself, but you can't really stop it. Our main business, whether it's tourism, Freeport, cruise-liner business, financial services, manufacturing exports, gaming, international business, they are all decided, elsewhere. Our economy's drivers are in the economies that are already suffering from recession. The rest of our businesses, shops, bars, restaurants, workshop, transport, agriculture, etc have what we call a derived demand. The real new money comes from what we sell abroad. Locally the economy is big of course, but once the money flows from abroad dwindle there's very little else we can do. The large public sector, of course continues to dominate. From Prime Minister down to the least messenger and watchman in the public sector will continue to get their pay. They always get their money. And that money will continue to be spent on goods and services so many will not be hit. And government will continue to spend of course. Who cares since taxes will keep flowing to the exchequer and government will continue to borrow.
But the Economy is not that simple. It doesn't function simply because those in steady public sector employment continue to believe that as long as everything is well with them, then everything else is fine. It's incredible that there are so many who still propagate this fallacy.
The Maltese economy has over the last ten years grown at an average rate of 1.9% compared to the average economic growth rate of 2% in the other leading 15 European member states. We're not closing the gap between us and the leading EU countries, on the contrary we're not catching up. Worst still when there is a recession in the EU 15, economists like Gordon Cordina reckons that Malta will be hit 3 times harder. The statistics of the last decade prove this point. Of course it counts also when a boom exists. But now it's recession that dominates. So we expect a triple negative impact on our small open economy. And business cycle fluctuations in Malta are increasingly tuned to those in the major 15 European Union members. We could have moved out of this trap but in spite of all the glibe talk of recent years the Maltese economy restructured itself pretty poorly towards economic activities that are relatively immune from the cyclical fluctuations elsewhere. We are pretty much an economy that is dependent on what happens elsewhere, especially in the E.U.
Edward Scicluna reckons that a 2% annual fall in all export oriented industries including tourism translates into over 1,000 full-time equivalent job losses in the economy as a direct impact and an additional 500 full-time job equivalent in the rest of the economy with tourism, transportation and recreational and similar services most affected.
Can we build the necessary retention walls to avoid the worse? Of course we can. The best is to strengthen and support existing enterprises. We cannot just let the construction sector fall under for example. We cannot let industry that is normally strong and competitive go under simply because in the short term they don't have enough orders. We cannot let hotels close down as is already happening simply because their cost structure makes it impossible for them to compete for the dwindling tourist market open to us. It's a vicious circle. You let one sector go under and it will pull the others down. That's how a recession feeds on itself; you stop one sector falling, hold the other, retain the third and you're out of it as soon as the markets on which Malta depend start moving again. Let factories, hotels, constructors, SME's go under, and then you won't get them back. It's easier to sustain what you have than build a new.
And government cannot expect the Banks to do it for them. On the contrary Banks give you an umbrella when it's not raining and grab it back from you as soon as it starts raining. They are doing it now already. What was easy money yesterday now it's very hard to get. Government needs to step in and give enterprise the guarantees that Banks are asking for to get the extended credit facilities they need to bridge over the negative phase.
Things are not going to improve without government intervention. Burn your ideologies and act now. That's my advice. Go out and identify what is holding our export oriented enterprises, including hotels from getting that important order. Lessen the bureaucracy. Re-draft your tax pretensions. Give small and medium enterprises more breathing space to pay their VAT, their Income Tax and their Electricity and Water bills.
Most businesses have a cash flow problem. If no action is taken unemployment will grow rapidly.
If we do not act now the pain will be long and unbearable.
I wish I can scream louder.