Malta’s recession very much dominated the newspaper headlines this year as the economy contracted for three successive quarters, showing that the global financial and economic crisis had a direct impact on the country.

Most of the industrialised world was in recession for much of the year and the world faced the biggest economic crisis since the Great Depression of the 1930s. This situation was bound to affect Malta’s economy and it was the tourism and manufacturing sectors which suffered the most.

In an attempt to kick-start their economies the EU, US and other major economies introduced massive economic stimulus packages worth billions of dollars and the G20 summit in London in April announced a $1.1 trillion deal to tackle the crisis.

Although the global economic situation is still fragile the various economic measures taken seem to have paid off and the US emerged from recession last October while the eurozone and Japan did the same in November. Both the UK and Malta, however, are still in recession. Malta entered into recession later than most of its EU partners and Prime Minister Lawrence Gonzi said earlier this month that he expects the country to exit the recession by the third quarter of next year.

The government’s approach to the recession was not to try and boost consumer spending but to focus almost exclusively on supporting industry and tourism. A task force headed by Finance Minister Tonio Fenech was set up to provide funds to manufacturing companies which were negatively affected by the global economic climate. The government spent almost €5 million in aid to a number of firms, many of which had been working on a four-day week. This approach paid off, and jobs were saved in the process. The funding, which was approved by the European Commission, was mainly used for human resources training and new production lines.

Unemployment, however, increased this year with a jobless rate in October of seven per cent. In November the number of registered unemployed reached 7,588, an increase of 988 during the same month last year. Earlier in the year ST Microelectronics in Malta announced that it intended to shed 60 per cent of its workforce over the next few years.

There was some good news, however, regarding foreign direct investment and companies expanding. Lufthansa Technik announced that it was going to increase its workforce from 450 to 700 over the next two years, Malta International Airport announced plans for a €16 million business centre, an Italian manufacturer of drones decided to open a Malta plant in a €2.7 million project and the government managed to secure a US$1.6 billion aircraft maintenance operation by Swiss-based SR Technics which will employ 350 by 2014.

Tourism suffered badly this year. The gloomy international climate translated into decreased arrivals, shorter lengths of stay, fewer guest nights and a lower tourism spend. Sterling’s fall alone cost Air Malta €10 million. The government announced new air routes, subsidies for the refurbishment of three star hotels and increased funds for the Malta Tourism Authority in an attempt to help this crucial sector. The MHRA also said it believes 2010 will see a reversal of the declining trends in tourism. Last week the government announced the appointment of Farsons CEO Louis Farrugia as chairman of the Malta Tourism Authority, replacing Sam Mifsud.

November’s budget for 2010 was aimed at boosting economic growth and job creation through support for industry and small enterprises. The measures announced included help for small enterprises and the self-employed such as the allocation of €10 million in EU funds for microfinance and a 40 per cent tax credit for SMEs (60 per cent if based in Gozo) that employ no more than 10 employees if they invest in new technology or create new jobs.

An additional €8.5 million in EU funds for industry, the creation of a reserve fund of €2.5 million as assistance to industry, an upgrading investment of €16 million for industrial zones, increased funding for Malta Enterprise and the MTA, more money for research and innovation and an investment of €20 million for the Biotechnology Park in San Gwann were among the measures announced by the government.

A cost of living increase of €5.82 per week was announced – which employers said would further erode Malta’s competitiveness – and the Finance Minister also decided to remove the €16.31 levy on credit cards, and increase the exercise duty on cigarettes.

The government made it clear it would not cut the 18 per cent VAT rate on restaurants after a Ministry of Finance report concluded that such a decrease would only contribute towards a 0.2 per cent growth rate in 2010 and the treasury would lose €29 million.

Finance Minister Tonio Fenech projected a deficit of 3.8 per cent of GDP for this year and a 3.9 per cent deficit for 2010, meaning it will not comply with the European Commission’s demand to bring the deficit down to the Maastricht three per cent threshold by the end of next year.

The latest deficit figures, however, do not make pleasant reading for the government. The shortfall between recurrent revenue and total expenditure between January and November increased by €139.5 million to €410.5 million, causing some observers to question whether the deficit target for this year would be met. Mr Fenech also forecast that in 2009 the economy would contract by – 2 per cent and that there would be GDP growth of one per cent in 2010.

The sharp hike in utility rates dominated the news for much of the year with both unions and employers criticising the government’s lack of consultation over the issue. The unions said the steep rise would erode the workers’ purchasing power while the private sector, especially industry, said the increases would be too much of a burden, especially in view of the global economic crisis.

The government did finally agree to reverse part of the price hikes, due to the fall in the price of oil, only to announce later that the rates would go up again in January after the price of oil increased. In fact in November’s budget an allotment of €10 million was made to compensate for this increase. Ninety-seven per cent of families will benefit from this subsidy.

Other news of interest to the business community was the decision to merge the Civil Aviation Authority, the Maritime Authority and the Transport Authority into a single transport authority, the legislation passed to offer incentives for aircraft to register in Malta, the lack of progress in discussions between the government and businesses over the eco tax refund – with the government now proposing to refund only 80 per cent of the tax - and government’s decision to award the private sector 25 year roads contracts.

Earlier in the year the contract for the extension of the Delimara power station was awarded to the Danish company BWSC, a controversial decision due to the use of heavy fuel oil - which some environmentalists say will cause pollution - as well as certain allegations regarding the company’s past.

The merger of the Chamber of Commerce and the Federation of Industry went well and no rifts appeared, at least in public, between importers and manufacturers. The private sector was given a new strengthened voice as a result of this merger.

The downsizing of Malta Shipyards went well with most of the former ’yard employees finding alternative employment. The workforce has now been reduced to 350. The privatisation process of the shipyards continued with the facilities divided into four units: the ship repair ’yard in Cospicua, the former Marsa shipbuilding ’yard, the super yachts facility in Cospicua and Manoel Island yacht ’yard.

A total of 14 bids were received, of which three were for the ship repair facilities, five for Malta super yachts facility, three for the shipbuilding facilities and three for Manoel Island yacht ’yard.

Bidders for the super yacht facility were asked to submit fresh proposals because their first offers were considered unsatisfactory. Preferred bidders have already been selected for the Marsa ’yard and the Manoel Island facility.

In other news the low cost airline Efly cancelled all it scheduled flights from Malta to Catania saying conditions made it operations impossible, the blackout in Malta last June is estimated to cost the economy €8 to €10 million and the annual Ernst & Young Attractiveness Survey once again found that the Maltese labour force’s knowledge of English and the adoption of the euro were the two most important factors in making Malta attractive for foreign investment.

The negative performance of Middlesea’s Italian subsidiary Progress Assicurazioni SpA caused the group to register a loss before taxation of €17.7 million for the first six months of the year, the company announced in August. The subsidiary was already responsible for making the group register a loss during the 2008 financial year.

Ten bond issues were launched during the year at a total value of €284.9 million, all of which were oversubscribed. SmartCity Malta continued to be the talk of the town as the global financial crisis affected Dubai and as expected Claudio Grech resigned as CEO of the Malta project. Changes were made to Malta’s gaming laws, mainly to bring into line the many gambling halls that were operating in the country. Competition between Go, Vodafone and Melita remained fierce, with Go being given the television rights for the English premier league and Italian Serie A for next season, in a major blow to Melita.

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