News | Sunday, 04 January 2009

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To a prosperous new year

DAVID DARMANIN discusses whether the world economic crisis and the local political landscape will turn 2009 into a well of gold, or a bottomless pit for small businesses

Taken together, small business owners in Malta have enough power to decide the fate of a general election.
This was last seen in 1996, when executive members of the GRTU visited retail shops in attempts to convince establishment owners to vote Labour. By then, less than 10 years had passed since the fall of a Labour government that had restricted retail operations because of an overly strict import policy. Government had in the 1970s and 1980s allowed the start of a scary racketeering trend in Sliema and St Julian’s. It is therefore not surprising to see that nowadays, most retailers are PN-inclined by tradition.
That said, in 1996 some shop owners did give in to the protest vote. Those days the hot issue was VAT: somewhat insignificant when compared to today’s world economic crisis, rocketing energy prices, a declining trend in British market tourism, and the threat of losing security of shop tenure under new and improved rent laws.
If any tough decisions are to be taken, it is no longer a secret that this is done in the first two years of a legislature – with the hope that by the fourth or fifth year, all will be forgiven and forgotten. The electorate has by now seen through government and its timing tactics. Whether it has accepted it as a correct way of running a country, is a completely different story.

The energy crisis
After months of strong opposition, government decided to publicly announce the price hike in electricity tariffs as initially planned – thus putting the operation of energy intensive outlets such as grocery shops, butchers, food stores, small hotels and catering establishments in serious danger.
When the news came in November, there was no hint in the air that a good Christmas season would be forthcoming. Consumer confidence seemed to be at a low, while prospects of good revenues generated from tourism were at best bleak.
It turns out than Christmas was not that bad, and after all the energy issue does not seem to be affecting small businesses as badly as many had predicted.
What hardly appeared in the media until sister paper Business Today revealed it, was that after all the hullaballoo, government succumbed to pressure by the Malta Hotels and Restaurants Association to not only forget any increases in tariffs for small hotels and restaurants, but also to give them a generous discount of up to 20% of what was previously paid on utilities. The discrepancy will be made up for by the larger hotels.
The MHRA did send out a circular to inform its members of this important development, but it is more than likely that small bar owners and many restaurateurs – who do not form part of the MHRA or are not Business Today readers – remain unaware of this groundbreaking development. The Ministry of Finance failed to issue a press release to flaunt this act of chivalry. Certainly, the reasons not to publish this news item were well thought-through.

The price of oil
Believe it or not, many small business owners do not budget their fuel expenses as a cost centre within their yearly forecasts. Most micro-business owners, in fact, draft neither yearly forecasts nor business plans to help them through their year-to-year developments.
Invariably, Joe the plumber would all of a sudden notice that his stops at the petrol station had become more frequent – and this is often followed by a reflection in his rates charged, unless he decides to absorb the additional cost in his profit margins.
Recently however, the price per litre of petrol has gone down in Malta too, and this comes as a pleasant surprise to the many who noticed.
Until OPEC’s decision to cut down crude oil output is reflected in the end price of fuel oil, businesses are expected to benefit from cheaper transportation – after all indications pointed at higher costs for 2009 in this respect.

Product Malta
After some major tourism operators almost lost hope that government would finally take the bettering of the island’s product seriously, it seems that both the Prime Minister and the newly appointed Tourism Junior Minister, Mario de Marco, have understood that unless we get going and to turn the over-all guest experience into a worthwhile holiday, there is no hope in hell that Malta can overcome the looming slump from our UK market share.
If such government efforts turn out to be successful, the face of competition in tourism and services will certainly change. Whereas up until last summer competition may have been all about cost leadership, the tourism market may now turn into one which rewards those service providers who offer the best value for money.
Many operators are sensing Malta’s tourism policy going down this route, and some have already started investing in getting their human resources in order – an arduous task in a culture where generally, hospitality is not seen as a profession or a career choice, but rather as a second job we would much rather not do, had it not been to match home loan repayments.
With political will on improving service levels, a number of operators anticipate that if they are to be truly competitive, their front-of-house standard must have edge.
The outlets that have so far been successful in this respect are invariably small family run operations, a handful of medium-sized and large luxurious outlets that have managed to retrain their staff at a considerable expense, as well as those hospitality operations opting to employ foreign professional staff, especially Eastern Europeans. Foreign staff has become very much in demand in the tourism industry, and some outlets are actually bidding on such professionals to outmatch salary packages offered to them by competitors.
It is safe to anticipate that salaries in hospitality are to witness an increase over the next year, while local part-time employees may very well dwindle. With more investment in human resources, it is also safe to expect an increment in restaurant and bar prices as well as in hotel room rates.
That said, government’s effort in getting Malta out of the service apathy rut is as admirable as it is ambitious. Although the EU funds made available to train tourism operators is a positive development, unless the Institute of Tourism Services is given a good shake up – and other key elements of the Maltese product, starting with our roads, are seen to – such sterling efforts will have little effect on the overall picture.
Incidentally, it is easy to anticipate that many tourism operators, barring bus and taxi drivers, will welcome Austin Gatt’s transport reform with open arms.

Rent reform
The GRTU has campaigned adamantly against Social policy Minister John Dalli’s planned reform in archaic rent laws, and this position scares government. So much so, that Vince Farrugia was offered an MEP election candidature under the PN ticket.
But the union seems to be genuinely concerned with the fate of sub-lease tenants, mostly in core commercial areas such as Valletta. What will happen to tenants who fail to reach an agreement with their landlords is not known, and while one trusts government to introduce the proper safeguards, the healthy way with which businesses will now be at par in their rental rates is already a significant development. Furthermore, this new law should also see numerous abandoned properties be put to good use, and when the consumer gets to benefit from more varied and improved services, it is only natural to expect competitors to put their product a notch up.
Invariably, with harder work and more competitive edge, most small businesses tend to do better – and this is what 2009 seems to be all about.

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