Another one bites the dust

It has been more than 15 years since Malta has taken a more liberal approach to commerce. In fact, there is general political consensus that protectionism and undue restrictions are no longer a viable way to promote industry.

But this new policy has also had negative repercussions on certain sectors of the economy. It was primarily because of these developments that successive administrations have tried to promote the diversification of industry and encourage the development of niche markets.

In this respect, in the late 1980s and early 1990s our legislation was amended and upgraded in order to create a legal regime that was conducive to promoting certain services industries. Among such new industries, we have seen the growth of the ship registration industry and the financial services sector.

For years on end, these new industries started steadily expanding to the extent that at one point Malta could boast of having the third most popular ship registration centre in the world and at the same time Malta was slowly being recognised as a financial hub to the extent that the financial services centre was contributing seven per cent to Malta's GDP.

Unfortunately, however, as predicted by the Labour opposition, subsequent legislation introduced on account of exterior pressures have had serious repercussions on the further development of these niche markets.

Today, in fact, we are slowly witnessing the shrinking of our financial services sector and, also, a reduction in the number of ships seeking to be registered under a Maltese flag. Undoubtedly, Maltese legislation in this respect was not compatible with EU legislation, even though this was strongly denied prior to the general elections. Time and again, Labour called on the government to act more prudently and carry out the necessary impact assessments before pushing forward such legislation but to no avail.

With the upgrading of the Maltese financial services in 1992, for the first time in Malta, a Maltese stock exchange was opened. For a time, it was faring reasonably well too. In fact, from 1992 till 2001, the volume of transactions carried out was constantly on the increase, reaching a peak in 2001 when the turnover stood at Lm169,413,450.

Here again, however, matters seem to be going wrong. All of a sudden, we are witnessing a drastic downtrend. Last year, turnover was only of Lm75,809,878. This shows that the amount of business carried out last year is considerably less than half what was carried out the year before.

This year, the prospects look even gloomier. Till the end of June, turnover has been only Lm24,100,482. If we therefore double this amount in order to be able to project a turnover for the whole year, we will find that the annual turnover will be in the region of Lm48,000,000 which will signify a reduction in business of 37 per cent over that of last year. This shows that business at the stock exchange has reached the levels of 1994 when this institution was still at its inception.

All this is very preoccupying indeed because if we continue at this rate the Malta Stock Exchange will end up being irrelevant. It must be pointed out that the companies listed here are all Maltese and, thus, the fact that foreign stock exchanges have been so severely hard hit over the last two years should have resulted in a boost in local investments. This is especially so after the investment registration scheme introduced last year whereby Maltese investors repatriated hundreds of millions of liri.

Clearly, however, Maltese investors are losing confidence in the Maltese economy and are hesitant in investing. In order to stimulate and reactivate this important institution, it seems high time that the government introduces a package of financial initiatives that would encourage Maltese and foreign investors to do business at our stock exchange. If such initiatives are not taken, our stock exchange could be facing its death knell.

Dr Herrera is the Labour Party's spokesman for financial services.