The government has been promising a logistics policy for over a year and is now tying it in to the establishment of one or more free trade zones. But operators are getting frustrated, seeing the opportunities that this sector holds out and anxious to get on with it.
Free trade zones are enclaves in which exporters and traders receive tax and regulatory incentives with the main objective of generating more trade and boost jobs in the respective country. But Peter Bonavia, the general manager of shipper Carmelo Caruana, warned that this could be a double-edged sword, creating unintended consequences unless it was done right.
“Usually the implementation of such zones creates distortions within the local economy, resulting mainly from the loss of revenue for the government. Therefore, if not implemented with the right approach, the benefits for the local economy would be minimal,” he explained.
Clearly, investing in the right infrastructure is key for the success of such zones. Mr Bonavia ticked off the main requirements: they should be located close to main port hubs and airports and have direct and adequate links to such areas. A highly-trained and flexible workforce is also necessary as one of the prime objectives on the zones would be to provide value-added services to intermediate goods or components with the final product being exported to final destinations without the burden of additional taxes, he added.
If not implemented with the right approach, the benefits [of free trade zones] for the local economy would be minimal
“The benefits of a free trade zone can only be achieved if the system is not loaded with bureaucracy and extra red tape which will not only hinder the whole operation but may also result in the zones being a means for graft,” he stressed.
As long as the government gets this right, then the opportunities are varied. Kevin Filletti, the sales manager of freight company Attrans, sees these coming from both Malta’s EU membership and its strategic position in the Mediterranean.
“The logistics sector can be one of the island’s main industries and would definitely create new job opportunities. We could attract various commodities as the free trade zone eliminates bureaucratic requirements such as customs tariffs and quotas.
“We could use our sea connectivity from the Far East to warehouse goods in Malta under FTZ and then despatch by sea, road or air to mainland EU or North Africa. A typical activity carried out in a free trade zone area is the Onward Supply Relief (OSR). This is a VAT exemption on importing goods to Malta from a non-EU country. Once despatch is done, duty is paid in Malta and cargo can travel freely in the EU under free circulation,” he enthused.
While Malta has a very good strategic location as a hub for shipping logistics, it is not the only one in the Mediterranean.“Considering the imbalance of trade between importation and exportation, free trade zones would help trailer operators like us decreasing our costs on north-bound routes. This can close the gap between import/export.”
With all these opportunities, it is no wonder that there is growing frustration, only made worse by the fact that a policy has been promised but has failed to materialise.
Joe Gerada, the managing director of shipping and freight company Thomas Smith, explained that businesses needed to plan ahead.
“In the absence of a government policy, business just adapts itself to the market and develops – expecting conditions not to change in the short term – and tries to interpret the long term. If the government defines a policy then the picture is clearer and the market should perform better.
“But given an announcement of a policy, entrepreneurs tend to hold back from taking risks and commitments until the policy is actually defined. So announcing an imminent policy and delaying it will most likely have the effect of stalling entrepreneurs from taking on new ventures. The negative effect of that is obvious.
“In the meantime, further delay can have various other repercussions. Different people may have different opinions about the future policy and start working in different directions.
The logistics sector can be one of the island’s main industries and would definitely create new job opportunities. We could attract various commodities as the free trade zone eliminates bureaucratic requirements such as customs tariffs and quotes
“Some may try to tap inside information – not necessarily in a fair way with regards to the rest of the market. There may be other influential players who would try to tweak policy in a way that suits them. The effect is to confuse the market and stall investment. It makes it difficult for businesses to take their own direction and define their own strategy,” he emphasised.
Mr Gerada also warned that the negative impact of further delays also had a wider impact than just on Malta.
“In shipping, which is by definition an international business, it starts sending confusing messages to foreign partners who might be interested to look at Malta for their strategic options. Logistic projects cannot wait for suppliers to define time scales. Their time scales are defined by the clients and the clients of clients.
“Given that Malta tends not to be the ultimate customer of the logistic projects but a hub, base or strategic location supporting the client country, we could easily miss the bus as, while we have a very good strategic location, we are not the only one in the Mediterranean. There are others who describe themselves as we do, an ideal central hub for logistics,” he pointed out.
Mr Gerada had a final warning: “If the delay is a long one, it tends to weaken credibility – which is also very significant.”