The Business Observer Newspaper 30th June

INTERVIEW

Issue 54

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June 30, 2016

Distributed with Times of Malta

Malta could position itself as alternative for UK operators Vanessa Macdonald UK operators who would no longer be able to operate freely in the EU would seek to establish a more physical presence in a member state and Malta could very well be a country of choice for such operators, according to Kenneth Micallef, the president of the Institute of Financial Services.

He was cautiously optimistic, stressing that while it was still very early for anyone to identify the exact consequences of Brexit, some aspects “would definitely require close monitoring”.

“Over the years Malta has attracted a number of foreign operators, including those of UK origin, to establish a presence on the island.

How these will be affected by Britain’s exit from the EU still needs to be established,” he said.

The financial services centre of the UK, London, is still reeling after the shock decision taken by voters in last week’s referendum to leave the EU, but it is still not clear what the long-term impact will be on that sector and in turn, how it would affect Malta, whose financial services sector accounts for around 12 per cent of GDP. Even though the UK was outside the eurozone, it was ‘allowed’ to handle euro-based business as a member state but it is not clear that the European Central Bank would be happy for this to continue once it left the bloc. Frankfurt is already courting many big banks, insurance companies and financial services institutions to lure them to relocate – but Malta Financial Services Authority chairman Joe Bannister thinks that Malta’s targets would be set much lower.

For example, Malta is waiting to see how the future of Gibraltar and

“ere are other ways in which services could be offered to a non-EU country.” the Channel Islands will evolve after Brexit, with the MFSA “ready to discuss cooperation”, he told The Business Observer.

“The reality is that most of the big companies already have a base within the eurozone, so what you are looking at is a change in operational structure, rather than a wholesale departure,” he said. “They would still retain a presence in London, to deal with non-EU trade.”

That does not mean that Malta could not see some activity drift here, however, as the attractiveness factors which have already brought so many smaller operators,

particularly asset managers, here would only be enhanced by Brexit.

Prof. Bannister said that the impact on Malta could largely be contained when it comes to financial services as there is not much crossborder passporting – but when it comes to insurance, the situation is a bit more sensitive.

“However, there are other ways in which services could be offered to a non-EU country.

“There is no reason why agreements could not be reached,” he said.

Together with member states such as the Netherlands, Cyprus

and Luxembourg, Malta is one of the countries which is expected to be mostly affected by the exit vote. According to a recent report issued by Fitch, Malta’s exports of goods and services to the UK amount to nearly eight per cent of GDP. “This is quite a significant dependency which makes it imperative that we immediately identify the factors which form part of this exposure, understand the possible impacts of Brexit on them individually and agree on a work around plan with the objective of mitigating the possible negative consequences,” Mr Micallef said.

Apart from financial services, the most important economic sectors expected to be directly affected by Brexit are tourism and trade.

“Some argue that the effects on these important economic pillars would not necessarily be negative – but if some initial effects, for example the strength of the euro against sterling, is sustained for a long term, then this might pose a negative effect on tourism from the UK to Malta,” he said.

The exchange rate could also have an effect on the level of trade between the two countries, although he pointed out that the diversification from being an economy dependent on manufacturing to a services oriented one has already considerably mitigated the possible impact.

Some of the impact would be less tangible, Mr Micallef stressed.

“The UK is an important collaborator for Malta sharing very similar views on certain aspects of the economy which are essential to make Malta lucrative for foreign businesses. These include the continued on page 5

It takes multiple visits – and time – to set up trading partnerships.

Trade Malta chief Anton Buttigieg said patience and determination were the key to success. see pages 10 and 11 >

NEWS e Gasan Group is setting up a foundation and is seeking ways to make sure the funds make an impact, using a competition to get the best projects. see page 3 >

NEWS Brexit obviously dominates this issue of e Business Observer, with must-read opinions and analysis. see pages 6, 15, 18 and 19 >

CASE STUDY 2015 was an annus horribilis for Exante but now that it has been cleared by the SEC, it is looking forward to picking up momentum once again, saying this is the best time in the past 100 years to be a broker. see pages 12 and 13 >

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On a humanitarian mission The synergy between entrepreneur Mark Weingard and local businessman Joe Gasan has grown since they ended up around the same board table of Midi’s business centre – so it is perhaps no surprise that Mr Gasan sought the younger man’s advice when he decided to set up a foundation to put his group’s corporate social responsibility programme on a formal basis.

Mr Weingard set up his charity, Inspirasia Foundation, in 2003 after his girlfriend was killed in a terrorist attack, wanting something positive to come out of the horror. It has evolved over the years thanks to a percentage of the revenue – yes, revenue, not profit – from his luxury Thai resort, Iniala.

“We didn’t want to only give them money.

We also wanted to give them time… And we sought out organisations which made an impact – looking for long-term projects rather than short-term ones,” he explained.

This approach was very much in line with Mr Gasan’s and that is why he and his daughter Sarah Carbonaro – who will run the foundation – found themselves travelling for hours with Mr Weingard through the jungle in Bali, much of the way on unpaved roads, across mountain ranges to reach a remote village.

A few years ago, it was so isolated that many of the inhabitants had never seen a white man – and disease was rife as there was no water and little agriculture. The funds (a third of which came from Inspirasia) made all the difference and the village has slowly but surely been brought into the 21st century – with roads, water, a school and plantations to give its residents an income and all-important sustainability. Mr Gasan and Ms Carbonaro forgot all about the dust and discomfort and knew immediately that they wanted their own foundation to achieve the same tangible results.

“We will definitely fine-tune our mission but at present we will be looking at impact, scalability, feasibility and sustainability,” Mr Gasan said.

The challenge is to find the right projects and the two hit on a solution: Social Impact Awards. The idea is for each of the foundations to donate €10,000 every year – but the twist comes from having a competition, with shortlisted projects going to a semifinal round, and possibly receiving further mentoring before the final, drawing on the foundations’ expertise. And a bonus is that the two of them have already started using

MARK WEINGARD (LEFT) AND JOE GASAN PHOTO: DARRIN ZAMMIT LUPI THE INSPIRASIA-AIDED PROJECT IN BALI MADE A HUGE IMPACT ON JOE GASAN AND HIS DAUGHTER SARAH CARBONARO

“We are encouraging people to come forward, whether they are an established NGO or a new one. If they have a great project, they should bring it to us” their extensive contacts to encourage other businesses to come on board as donors, with a further €30,000 already pledged in cash, but also other companies willing to offer services in kind, such as marketing.

“We want to televise the awards too, as this will bring the topic to a wider audience to encourage more donors, while we will also offer mentoring to help NGOs improve the quality of their projects in line with the four pillars we have identified,” Mr Gasan said.

“The shortlisted companies will pitch to a group which will include other philanthropists and corporate foundations who might be interested in innovative ideas,” Inspirasia assistant director Louise Attard explained.

The money will be pooled and the decision on how to allocate the funds will be taken on a case by case basis – as the foundations are open to the idea of multiple projects.

“We are looking at great projects for Malta which will make an impact on society. We are encouraging people to come forward whether they are an established NGO or a new one. If they have a great project, they should bring it to us,” Mr Weingard said.

Contact Ms Attard on louisa@ inspirasia. org for more information. The deadline for submissions of expression of interest is July 11. The awards will be held in autumn.

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Period of uncertainty continued from page 1 harmonisation of a tax regime across the EU and the imposition of tax on financial transactions which will definitely have negative implications on our financial services industry if they are introduced.

“Then, there are other aspects of our life which could also be affected and which we also need to understand, such as the free movement of citizens between the two countries. There are thousands of Maltese who live or work in the UK and we depend on the UK for certain health-related matters,” he said.

According to the IMF, the value of all imports from the UK is equivalent to 27.3 per cent (21.1 per cent services and 6.2 per cent goods) of Malta’s GDP – the highest for any member state. Big Four firm PwC said in a note on Tuesday that the UK’s departure from the EU could lead to higher import costs in the form of tariffs thus pushing up prices for Maltese consumers. On the other hand, this may be mitigated by the appreciation of the euro against the pound.

However, a cheaper pound will make Malta’s exports to the UK more expensive.

“The effect on Malta’s balance of payments will ultimately depend on the price elasticity of demand of the exported goods and services.

Tourism may be a vulnerable product to such a currency depreciation, given its relatively high price elasticity,” authors Joe Muscat and Michael Ganado said.

According to the IMF, Malta is the second most exposed member state (after Cyprus) in terms of services exports to the UK. Meanwhile, Malta exports the equivalent of two per cent of its GDP of goods to the UK, which

would be adversely impacted by the depreciation of the pound, again depending on how price sensitive UK consumers were.

Credit rating agency Standard & Poors had earlier already flagged that Malta was on the front line of economies susceptible to trade aftershocks from Brexit, with foreign direct investment from the UK into Malta amounting to 6.3 per cent of Malta’s GDP, again the highest figure of all member states, along with Cyprus.

“How adversely affected such flows will be now that the UK has voted to leave the EU depends on the degree of integration that the UK will negotiate with the EU,” the PwC report also warned.

Operators were clearly preparing for the theoretical impacts of Brexit and trying to assess the impact on their specific sector. QROPS specialist Sovereign Group, admitted that they did not really think that voters would choose to leave the EU – but explained that companies rarely had all their eggs in one basket.

“But for many months we have been looking at what repercussions this might have for our pensions business in particular. We do not think it has any. Sovereign is licensed in many different jurisdictions around the world both inside and outside the EU. It will probably be some time before the full implications of Brexit are understood but whatever they are, we are ready and prepared.

“We have a licensed pension operation in Malta which remains within the EU. And we have a licensed pension operation in Gibraltar which was in the EU but will leave when Britain leaves. UK nationals and residents will either be able to use Malta or Gibraltar. We have also

recently acquired a UK self-invested personal pension operation so we think we have covered all bases irrespective of what happens next.”

The impact of the exchange rate for tourism and trade might depend on elasticity of demand, but it also affects currency providers like the Alpine Group. For chief investment officer Nicholas Zahra, Brexit was a momentous event on par with the day Lehman Brothers failed.

“We can think of a currency as being representative of the issuing county’s value. Looking at it from this angle, it is hard to see how a Brexit could possibly lead to sterling’s appreciation, even over the long term. For starters, inward investment into the UK in property and as a commercial platform within Europe will definitely be hit.

“The likeliness is that unwinding the UK’s EU membership will take a long time, meaning that the period of uncertainty will also be long. Even if the UK government decides not to restrict EU citizens’ right-to-work immediately, the lack of growth in investment alone is bound to keep them away, further contribut-

ing to a long-term weakening of the economy as it begins to shrink.

“The EU itself is also at a crossroads, because this event will encourage other politicians with similar political agendas to push harder for a similar outcome in their domestic country, which may lead to more members leaving the EU. If a euro member leaves the EU, and assuming that its first action would be to ditch the euro, what happens next is easily predictable. If the departing country’s central bank has a strong balance sheet, like Germany, they would revert to their old currency which would immediately appreciate against the remaining eurozone countries.

“If the departing country was a weak one, such as Italy, Greece and Spain, the opposite would happen. We have already seen a very similar situation in January 2014 when the Swiss Central Bank abandoned its peg to the euro, causing the franc to appreciate by 20 per cent almost instantly,” he warned.

The Association of Car Importers Malta is also bracing itself for the impact of weaker sterling, which – along with other factors – had since 2006 prompted a massive influx of second-hand cars from the UK. The trend only recently started to reverse and recent statistics showed that, for the first time in years, the majority of local drivers (51 per cent) were choosing new cars – a welcome shift from the 40 per cent of just a short while back.

ACIM chairman Joseph Gasan said it would be too soon to assess what would happen.

“Obviously, we will be monitoring the situation and will keep our members updated,” Mr Gasan shrugged.

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Brexit: world reflections Parliamentary Assembly of the Council of Europe president Pedro Agramunt: “Something of the European ideal has been lost today following the UK’s vote for Brexit. Today, the European flag is at half-mast, but sometimes it is necessary to take a step back before taking a step forward. Avenues for inter-parliamentary dialogue in Europe will need to find a new impetus and the Parliamentary Assembly of the Council of Europe, in which the United Kingdom remains a major player, will need to do more to realise European ideals and affirm our common European heritage.”

Martin Schulz, president of the European Parliament; Donald Tusk, president of the European Council; Mark Rutte, holder of the rotating presidency of the Council of the EU; and Jean-Claude Juncker, president of the European Commission: “In a free and democratic process, the British people have expressed their wish to leave the EU. We regret this decision but respect it. This is an unprecedented situation but we are united in our response. We will stand strong and uphold the EU’s core values of promoting peace and the wellbeing of its peoples.

The Union of 27 member states will continue. The Union is the framework of our common political future. We are bound together by history, geography and common interests and will develop

our cooperation on this basis.

Together we will address our common challenges to generate growth, increase prosperity and ensure a safe and secure environment for our citizens. The institutions will play their full role in this endeavour.

“We now expect the UK government to give effect to this decision of the British people as soon as possible, however painful that process may be. Any delay would unnecessarily prolong uncertainty. We have rules to deal with this in an orderly way. Article 50 of the Treaty on European Union sets out the procedure to be followed if a member state decides to leave the EU. “We stand ready to launch negotiations swiftly with the UK regarding the terms and conditions of its withdrawal from the EU. Until this process of negotiations is over, the UK remains a member of the EU, with all the rights and obligations that derive from this. According to the Treaties which the UK has ratified, EU law continues to apply to the full to and in the UK until it is no longer a member.

“As agreed, the ‘New Settlement for the United Kingdom within the European Union’, reached at the European Council on February 18 and 19, will now not take effect and ceases to exist. There will be no renegotiation.

“As regards the UK, we hope to have it as a close partner of the EU in the future. We expect the UK to formulate its proposals in this

respect. Any agreement, which will be concluded with the UK as a third country will have to reflect the interests of both sides and be balanced in terms of rights and obligations.”

Business Europe president Emma Marcegaglia: “This setback makes it only more important to make the necessary reforms in the EU. “We call on EU member states to send a strong signal reconfirming their commitment to the EU and its three main economic pillars: the single market, the common trade policy and the euro. At the same time, we need to find smart solutions for an orderly Brexit process.

Keeping a cool head is essential to minimise the adverse consequences of this vote. We must keep calm and carry on.

“All the big challenges facing us today (security, migration, climate change, economic and social development, etc) have an international dimension.

Efficient solutions can only be found if we work together at Eu-

ropean level. However, the debate has also sent out strong messages about the urgent need to deliver a European Union adding value.

Christine Lagarde, managing director of the International Monetary Fund: “We urge the authorities in the UK and Europe to work collaboratively to ensure a smooth transition to a new economic relationship, including by clarifying the procedures and broad objectives that will guide the process.

“We strongly support commitments of the Bank of England and the ECB to supply liquidity to the banking system and curtail excess financial volatility.”

70 economists and strategists polled by Reuters on Friday: Sterling will fall further and there is a median 53 per cent chance of a British recession.

Gross domestic product would flatline in the second half, they said.

OECD secretary-general Angel Gurría on UK referendum result: “The vote on the UK’s membership of the EU has major consequences for the UK itself, the EU and the international community.

While it is on the public record that this was not the OECD’s recommended course of action, the focus must now shift to dealing with the outcome of this democratic process.

“The OECD will spare no efforts in supporting the government of the UK to make the transition as smooth as possible and advance the country’s economic and social agenda. We will also help the EU and the international community best address the consequences of such a decision and chart the way forward.

“The OECD believes that openness, integration and diversity will make our economies and societies stronger and fairer. Thus, we will continue to support the European project while further reflecting on how to strengthen well-being and inclusiveness, both within our countries and globally.”

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INDUSTRY FOCUS

Fortune favours the brave Malta reported economic growth of 6.3 per cent in 2015 – and companies are contributing to that through a mixture of local growth and international expansion. But success is not automatic and there is no doubt that fortune favours the brave, those who are willing to take the risk and try something new.

Some did so through necessity. Many companies established themselves in Malta and became market leaders, forcing them to look overseas for new business. One such company was SMS, which took the plunge to represent its cruise operator principle NCL in Miami. Since then, its operations there grew dramatically and it now represents a total of eight companies – and has added operations in Cuba. In 2015, SMS handled 728 cruise calls in Miami with a forecasted 760 in 2016.

“For a small family company from Malta, the thought of taking on the giants in huge America was daunting to say the least. But we did and from little seeds this has grown and grown,” managing director Simon Mifsud said.

“This year SMS successfully tendered for cruise handling in a further eight ports all along the west coast of America and Canada, acting as port agents, ground operators and handling shore excursions. This is an enormous leap for a small Maltese family company, not only from the geographical point of view but also from a cultural perspective.”

HILLTOP GARDENS OFFERS ACTIVE AGING

His brother Sam, the managing director of SMS USA Inc, encourages other companies to take that step: “With the required ambition and drive, coupled with local professional advice, there is no reason for Maltese companies to be afraid of taking such a leap,” he said.

Of course, even saturated sectors in Malta can offer opportunity for those willing to carve out niche markets. One such company was Hotelogique, which realised that there were tourists out there who travel extensively and

want something much more personal than an internationally-branded hotel.

Managing director Jankarl Farrugia, said that companies should not only look at overnight growth but should aim to expand slowly but surely.

“Hotelogique is a relatively new company, and considering that primarily we provide a very niche service and our target audience are very selective hotel owners/investors, growth as such is very contained and controlled.

“In three years we have two properties under management and another two in development while others are being discussed.

Malta is attracting a higher end tourist that fits perfectly in the boutique properties we seek for management,” he said. Of course, he acknowledges that there are only so many boutique hotels that Malta can sustain – which is why Hotelogique will eventually also have to look overseas for growth. He is not daunted: “No support was sought in the initial phase of growth, but considering that we are looking at international management opportunities, we would like to look into some grants that are available through Trade Malta.”

Some growth is driven by government policy – such as initiatives aimed at boosting solar energy use. Alternative Technologies head Mario Cachia admitted that his industry was still very dependent on government grants.

“Until these are in place, we will continue to have ups and downs. While we understand the need for government grants to stimulate business, we believe that more education is needed in this sector so that investment can become a regular thing,” he said.

Government does, however, help in other ways as he noted that Alternative Technologies benefitted from local schemes, namely Micro Invest schemes by Malta Enterprise.

“This helped with investment in training, technology, and the recruitment of new

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employees. Of course, we also invested our own money in finding and tapping into new markets,” he explained.

How to succeed in new markets is not rocket science, he stressed.

“We generally give great importance to technical competence, quality of products and services, customer service and most of all honesty.

“We have sourced new products and entered new markets, based on these principles.

Still, when opportunities for expansion come, one should be cautious, especially given the small market we operate in,” he advised, repeating the point made by Mr Farrugia.

In some cases, government policy can disrupt a business model, rather than create one.

One such case is the incentive for carers to enable the elderly to stay in their own homes, which has made the operators of residences for the elderly revisit their calculations. However, innovators like Hilltop believe that the government initiative complements, rather than challenges, their business model.

“Companies should not only look at overnight growth but should aim to expand slowly but surely” “In our fast aging world – and Malta is no exception – the number of older people is on the increase with fewer people of working age around to support them. Since putting large numbers in institutions will be less affordable than ever, we need to ask how the carers of today and tomorrow can be helped to be able to cope with their responsibilities and roles,” marketing manager Brad Bartolo Frendo said.

“Malta has a wide range of home care help services covering non-nursing, personal help and light domestic work to older adults or persons with special needs. The aim of such services is to aid beneficiaries to keep on living in their community as independently as possible. It also aims to provide respite and support for informal carers,” he continued.

What Hilltop has done is create an alternative for those who want to live independently, but not necessarily in the home they have occupied for decades.

“Hilltop Gardens Retirement Village wanted to create an inspiring community for the elderly who want more from their retire-

HOTELOGIQUE PALAZZO PRINCE D'ORANGE

ment, in line with the EU strategy of active aging, “Yet it also offers the peace of mind that as one’s needs and dependency change over time, customised clinical and domiciliary care can be provided by qualified clinicians, nursing staff and allied health professionals.”

Hilltop also opted for a flexible model: its apartments are more accessible as they can be rented or leased – with the possibility of converting a rental or a short term lease to a longer lease if desired.

Companies don’t have to pick their way through all the potential problems and opportunities alone, of course. Michael Debono, the chief executive officer of consultancy firm D Consulta Ltd, has been pleasantly overwhelmed by the influx of companies.

“The economic growth that Malta is having is quite astounding especially when compared to our eurozone colleagues. This is mostly due to the benefits of a balanced and diversified economy.

“This diversification means that our company has benefited from new business emanating from companies seeking to set up shop in Malta as a base for EU targeting and also from giving advice to companies seeking expansion.”

But he is disappointed with the incentives being offered to companies: “Unfortunately some of the incentives in the market do not apply to operators in the financial services sector, which in my opinion is somewhat discriminatory and should be changed.

“On the other hand we have found local banks very helpful during those phases of growth necessitating bank facilities and guarantees which enabled us to participate and manage relatively big tenders and projects,” he said.

He advised companies seeking to grow to get advice on a variety of issues, from preparing fully-fledged marketing or business plans and applying for incentives and finance to tapping into EU funding opportunities.

Of course, banks do not only have a role to play in helping other companies grow, but have been seeing growth themselves. Bank of Valletta chief executive officer Mario Mallia said banks were very sensitive to economic growth, which generally translates into a higher take-up of financial services such as facilities and card usage, hence interest and commission earnings. But he warned that just as policies canpropel growth, they can also restrict it.

“Economic growth does not automatically translate into higher profits for Bank of Valletta. Ultimately the bank’s strategy is designed to address its micro and macro environments.

“For instance, regulatory requirements are impinging significantly on the bank’s procedures, particularly now that the bank is directly supervised by the Joint Supervisory Team. Another important variable would be the persistently low interest rate scenario across major global economies, which impinges directly on the bank’s profits.

“The bank’s focus currently is to ensure its long-term sustainability and minimise risk, even at the cost of foregoing immediate profitability. Consequently, there could be economic sectors which are contributing significantly towards the economic growth of the country, but in which the bank is not currently investing, due to its cautious risk appetite. Therefore, technically the bank would not be partaking fully from the country’s economic growth.

“Having said that, one should not forget that the financial services industry in general, and Bank of Valletta specifically are ultimately main contributors to the economic growth of the country.”

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INTERVIEW

ANTON BUTTIGIEG. PHOTO: MARK ZAMMIT CORDINA

Seeking new horizons For decades, dozens of Maltese companies had their focus on Libya as a gateway to North Africa but the country’s collapse left many of them looking for an alternative market. It is, therefore, no surprise that both the Prime Minister and the President have been there on official trips in the past year.

“Algeria is the largest country in Africa, with 40 million people compared with Libya’s six million – of which 45 per cent are under 35. So the potential is huge for a number of businesses, from food and beverage to retail operations and training,” Trade Malta chief executive officer Anton Buttigieg said.

Algeria is by no means the only destination in Trade Malta’s sights – trade missions have been organised to six emerging markets since it became operational a year ago – but it has certainly been given intense attention.

“The first day we started to operate, we found a box full of profiles from companies wanting to go to Algeria. There had already been an expression of interest and 30 chamber members had already applied,” Mr Buttigieg explained.

Trade Malta organised a pre-visit in October and the Prime Minister led the first trade mission in November, which attracted an impressive 300 Algerian companies, Trade Malta chief officer Joe Schembri explained. The President was then invited to go there in January and there was once again a good response. Trade Malta followed it up by inviting 50 Algerian companies to come here in April – matching them with 130 Maltese companies.

“People ask why we travel with the Prime Minister, President or even a minister. Our intervention in

places like Europe is not required – companies can and do go to Europe on their own. So we are focusing on countries where governments still have a major stake in the economy and where businesses requires the intervention of a public agency,” Mr Buttigieg said.

“You could organise a meeting through the chambers of commerce – but it would not be as effective as it would be with government backing.”

Once contacts have been set up, Trade Malta encourages further visits – which Mr Buttigieg and Mr Schembri cannot stress enough.

“We encourage follow-ups as, in this country as in many places in the Middle East, you can’t go there once and then just send an e-mail. You won’t even get a reply. It is all about getting to know someone before you do business with them…” Mr Schembri said.

Malta had a special relationship with Libya which it could replicate in Algeria, Mr Buttigieg believes.

“We have an important role to play but it is the companies who do most of the work, developing products and services” “Algeria – like Lebanon and Jordan – see Malta as a small but successful country that has integrated very well with the EU, a market that interests them a lot. They want to learn how Malta could help them get in line with EU standards and regulations and then use Malta as a launch pad,” he said.

Mr Schembri believes that Malta is also attractive for perhaps more abstract reasons, as larger member states might overwhelm them.

“As a developing country, they want to diversify away from oil, and want a partner they can trust.

Maltese companies which had experience in Libya would adapt very

easily to Algeria. Our companies are also SMEs and we can talk their language – not only because of our size but also literally because they even understand quite a bit of Maltese, which makes them feel much more at home with us,” Mr Schembri said.

They warned that building relationships takes time – anything from six months to a year at least – irrespective of whether it is an IT company or a manufacturer.

“If you are an IT company, it is even harder to get into a new market because you are selling an intangible good. So you need to prove yourself. Of course you can

do videoconferencing but there is a limit. Face to face interaction is irreplaceable.

“And with manufacturing, there is a lot of competition. So distributors have a whole line up of brands so it is not easy to persuade them to take on a new one,” Mr Schembri said.

Trade Malta was set up last year as a 51/49 per cent joint venture between the government and the Chamber of Commerce, Enterprise and Industry. The idea was first mooted by the chamber two years ago by its president at the time, David Curmi, who is now Trade Malta’s chairman. For some time, local enterprises had been complaining about the emphasis at government level on attracting foreign direct investment – feeling that there was also considerable scope for established businesses to grow, whether they had foreign shareholding or not.

Trade Malta was hived off from Malta Enterprise with an operational budget from the government (via the Malta Enterprise Act) but a commitment for private funds to be generated. Its five staff are based in the clock tower at Tigné Point, administering a number of schemes and programmes on behalf of Malta Enterprise.

“Malta Enterprise used to do all this, of course. But it has been interesting to see how having an entity focused on the internationalisation of local companies has raised awareness. People are curious and they are approaching us more than before,” Mr Schembri said.

The timing is auspicious. Companies in Malta are being set up with a global DNA – and not just IT software ones, either. Mr Buttigieg said it was gratifying to find companies founded just two years ago which are already employing 40 people.

“Ten years ago, it would have taken much longer for these companies to grow. These were definitely not set up with an eye on the local market,” he said.

Trade Malta is sticking to tried and tested approaches: helping companies to attend trade fairs and exhibitions, and organising trade missions.

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“Fairs and exhibitions remain a popular and effective instrument. In a lot of industries, irrespective of technology, people still meet a few times a year, and we have schemes which help to cover up to 50 per cent of the cost of participation,” Mr Schembri said, adding that companies could also get help with product-specific collateral.

“These fairs are effective – they keep on growing and space is very limited. You need to book two years in advance to get a stand,” Mr Buttigieg added.

Trade missions also have an impact but Trade Malta is trying to plan further in advance – up to six months when possible: “You would be surprised how many people simply cannot make it if we give them less notice… We are also trying to send information to our counterparts on the ground as it takes time to set up matchmaking opportunities. Finding the right partner is one of the biggest challenges to internationalisation,” Mr Buttigieg said.

The advantage of having government support is instrumental – but so is the presence of the chamber, which uses its network of counterpart chambers, and business and trade promotion associations.

Trade Malta also uses other entities as a gateway, such as banks.

“We mobilise any network that will get us good meetings. At the end of the day, trade delegations measure success by the quality of the meetings,” Mr Schembri said.

Trade Malta is also working with other partners, such as HSBC, to offer its Global Growth programme, which is much more flexible when it comes to benefits.

A number of companies chosen on the basis of a business plan competition are already getting considerable support.

Trade Malta is not taking the effectiveness of its strategy for granted, however, and is keeping a close eye to ensure that companies follow up the contacts made – and also gathering information and feedback to ensure that these are translating into actual orders. One way to do this is to have surveys.

“One of the first things we did was to identify a few key sectors which we wanted to help, then to identify the operators in each sector, which is not that hard to do in a small country!

Then we tried to understand what that industry needed so we could develop a suite of services to help…

“The surveys are helping us to understand the current status within each sector and what the major obstacles are, which markets they are already exporting to and which ones they are looking at. It is an interesting exercise as we are

Trade Malta in numbers SMEs participating in information meetings

+ 300

Companies participating in trade missions

122

SMEs assisted to exhibit in trade fairs abroad

111

SMEs in the early-stage exporters programme, Go Global

20

Companies assisted to implement export marketing plans, via Global Growth

12

Trade missions to emerging markets

6

Sector surveys done

2

Note: The numbers refer to 2015, for part of which the programmes and schemes were administered by Malta Enterprise, before TradeMalta started operating in June 2015.

building up information about how many people they employ, how many they expect to employ in the medium term, their turnover and how much of their turnover is export revenue.

“We want to do these on an annual basis so over a five-year period we can build up a much better picture of how that sector is evolving. And we will also be able to see whether the help and support we have given has had any impact…”

Mr Buttigieg said.

The survey also helps to make companies aware of Trade Malta’s services and it is gradually building up its mailing list, for example.

The enthusiasm in the new offices is infectious: Mr Buttigieg and Mr Schembri finish each other’s sentence and nod excitedly as they discuss plans. They clearly believe that anything is possible for Maltese companies.

“We have an important role to play but it is the companies who do most of the work, developing

products and services. They come to us seeking help with introductions and we help to open doors for them. But the amount of support we give them is a fraction of what they will need to develop that market.

“We meet a lot of companies which do not see immediate results and they lose heart. But after two or three years, the initial disappointing €10,000 order can easily grow to €500,000, quite a substantial amount for a Maltese company,” Mr Buttigieg said.

Mr Schembri once again chips in, to explain that HSBC also has a programme for early stage exporters who have some success – but need training to build internal systems.

“We assign an advisory firm to help… And we worked with the University to design a practical 10session course to equip them with the skills that they will require to get out there. It will be accredited as from next year by the University. Two of the 10 sessions are based on a discussion with a panel of people who have experience in exporting.

“There is no single recipe for success. What works for one does not work for another…! It is so good to listen to different people who have been there, done that,” Mr Buttigieg said. www.trademalta.org

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CASE STUDY

Platform for growth GATIS EGLITIS, Exante’s cofounder, is breathing a sigh of relief that 2015 is over, preferring to look ahead and boost the company’s momentum to where it should be.

Last year, you were embroiled in a €100 million trading scandal uncovered by the US Securities and Exchange Commission (SEC) but you were cleared of all charges last February. How did the story end?

The US Court confirmed that Exante was no longer on the defendants’ list. It was dismissed from the case and the SEC admitted that they had made a mistake.

We were ended up without any charges or any penalties. Very few companies survive an SEC investigation… It took a lot of resources to protect our rights.

Although many of our customers supported us throughout this time, we lost a lot of business. But since then many customers came back to us and to many of them, we are heroes as we survived and are actually stronger than they imagined.

This is one of the worst times for anything to do with investments – in fact, many investors are opting to keep more cash than they have in years, because the yields are so bad…

Keeping cash is also a position. It means that there has been a decision to stay in cash: there are bulls and bears and there are those who wait. If you look back last week, before Brexit, it was the highest level of cash ever held by hedge funds. I talked this week to a few of our hedge fund customers and asked them whether they had survived Brexit. All of them said they were actually sitting on cash and willing to buy things – which was not that easy as everyone was doing the same thing.

Due to large cash holdings the impact of the referendum was cushioned. There was very high volatility and the markets crashed but they bounced back very quickly. Those who had cash helped the Bank of England and other central banks to boost the markets.

GATIS EGLITIS WITH PART OF HIS TEAM AT EXANTE. PHOTO: MATTHEW MIRABELLI

“e money being printed is no longer being used to purchase only sovereign debt but also corporate debt. at is insane” Cash actually has a negative interest in the eurozone as you now have to pay as much as one per cent to keep it in a bank (for example in Switzerland and Denmark). The financial system is designed to encourage you to invest, to take a risk rather than hold on to cash. I predict that 10 years from now, there will be no cash on the streets and all cash will have to be held in banks with negative yields.

The trading platform that we built in-house is well prepared for these times – it gives an opportunity to buy more than 80,000 financial instruments through one account which is a

good alternative to keeping cash in a current account with negative yield. Why lose money by keeping cash in a bank while there are so many opportunities to make it by allocating to other financial securities – bonds, stocks, metals, ETFs, options, futures and funds?

We live in the best time to be a broker in the past 100 years. Money is so cheap. There is excess liquidity. We have seen the ECB printing money every month. If you think about it, with €80 billion every month you could build hundreds of skyscrapers. It would pay for 800 skyscrapers every month! You cannot spend that much even if you tried. When you take into consideration that the global GDP is $70 trillion, of which $15 trillion is the US’s, then it puts this huge number into context.

The money being printed is no longer being used to purchase only sovereign debt but also corporate debt. That is insane.

If you think about it: companies are benefiting from a regulator!

The premium of their risk reward, which should be included in the price of those debt instruments, is just evaporating because of this massive securities purchase.

With Brexit, we saw what happens when uncertainty kicks in. For example, Italian and Spanish bonds all lost tremendous value once people started to ask whether Italy and Spain would also decide to leave, now that there was a precedent – which would mean there would no longer be the ECB to back up their debt.

Prior to Brexit, banks had been buying sovereign debt, dragging sovereign interest rates to very low levels, so 10-year bonds in Spain peaked at the same level as in the US, even though the former has high unemployment and other fiscal problems and the latter is a superpower in economic terms. So why would the yield of that debt be the same? It was clearly mispriced over the last year or so.

Our customers made a lot of money by making a bet that there would be a correction – and it happened. US and German debt papers rallied while European weaker economy bonds were dumped massively.

Market participants were simply relocating assets from risk to safety.

Nowadays markets have never been so unified and there is no longer any discussion about single stock picking, or single asset

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CASE STUDY

opportunity among larger asset managers.

There are only two options: risk is ‘on’ or risk is ‘off’.

This binary approach in the market has been very successful for our customers. If something like Brexit happens, everyone can anticipate the repercussions. There is more certainty than ever before. You know for sure that during such events the risk will be ‘off’ and you know which instruments are going to move and where.

But if things were so certain, then everyone would become a millionaire…

That is exactly what they are doing, with us.

To give you an idea, you could have increased your portfolio tenfold last Friday if you knew which products to buy. Of course, you have to be dynamic and you have to manage your assets and risks properly.

There are numerous strategies. All you need is the right tool to capitalise on the certainties. Lot of our customers made in between 10 per cent and 100 per cent on “risk-off” investment strategies overnight on Brexit news.

Now that the SEC issue is behind you, what have you planned for the future?

Since February, we started expanding significantly, recruiting around 50 people, bringing the total – including outsourced staff – up to 150.

We are still hiring so if you are an expert or you see a career with us, then contact us. We need a range of skills, from quantitative technicians to account managers, but the most important thing is that we want recruits with

energy! And we also need people who speak different languages; in fact we have 40 nationalities working for us already.

Over the past three years, we have been developing software and designing the business model. Now we are ready to go.

Our trading platform works on every computer and every device on the planet. We just need to get the message to people: we offer access to all financial instruments through one account with a debit card attached to it, from which you can trade any financial product in the world, from wherever you are. It has become a necessity to be able to shift as quickly as you can from one asset class to another, if you want to reduce risk.

Which other company can give you this opportunity to manage your assets so dynamically? Obviously, when you have this technology everyone benefits as commissions are smaller, markets are more accessible and scalability improves. In our company, the fees are affordable even for smaller investors, because our business processes and technology is extremely efficient.

“All you need is the right tool to capitalise on the certainties”

.

IL-GARDINA PROJECT

We are planning to invest over €50 million over the next two years. We want to open another 50 offices around Europe and we will hire around 300-400 people, and add new services like payments so it would really be a one-stop shop. This would mean a move from the financial world to the real world we live in.

We would probably also double the size of our office here in Malta. We are also planning a few strategic acquisitions – and perhaps even mergers – from various countries.

There is only one company in the world that gives access to all capital markets from all devices, on one account with an attached debit card and the possibility to make payments. And this is Exante.

It has been developed. It is there. Now we need to start using it.

Going green When Eglitis first came to Malta from Denmark in 2010, where he had been based, he was not prepared for the relatively barren Mediterranean landscape and he made it his mission to ‘green’ the island.

The first year of operations, they planted 250 trees, and since then have been involved in a number of projects.

The latest is Il-Ġardina, a garden at the Sir Anthony Mamo Oncology Centre, where Exante is also roping in its customers to donate.

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e Business Observer is Malta’s leading business newspaper distributed with Times of Malta every fortnight.

Editorial Vanessa Macdonald, Assistant editor, Times of Malta.

EDITORIAL

Pouring oil on stormy waters The yachting and superyacht industry is not intuitively the obvious subject for the Malta Institute of Management. However, the Yacht and Superyacht Symposium held recently went well beyond what the name implied.

Institute head Reuben Buttigieg explained that there were various ancillary services missing and that consultation was not at the level it should be given the potential for the island. The MIM is in fact soon presenting a study on the reality and the opportunities.

As Finance Minister Edward Scicluna said, the strategy is to move up the value-added chain – and there is nothing higher up the chain than a superyacht.

However, Malta’s role does not need to be insular. Speaker after speaker delved into the various treaties, conventions, regulations and directives that apply to the sector – and the anomalies between them.

One of the most complex is the VAT regime: not because of the huge disparity in rates, but because there are so many concepts that are illdefined. For example, boats can get a discount on VAT if a boat spends a “reasonable” amount of time out of territorial waters – with no help defining what “reasonable” would be.

Charter rules also vary from country to country and the mere mention of withholding tax made speakers roll their eyes.

The complications are not limited to fiscal matters. Yachts are registered in one country and operate in several, with a crew of multiple nationalities. Quite apart from visa issues, there is also considerable uncertainty when it comes to calculating where their social contributions should be paid, not to mention certification, insurance, indemnity and more.

The keynote speaker, Thierry Voisin, the president of the European Committee for Professional Yachting, vented his frustration and while he appreciated that getting the world to align might be overly ambitious, he saw no reason why member states within the EU could not agree on definitions and provide clarity.

He laid down an important challenge to the host country: Malta should use its EU presidency to get the member states together and simplify the rules.

The idea of charting a new course is not entirely without precedent for Malta. After all, Maltese diplomat Arvid Pardo is known as the “Father of the Law of the Sea Conference”. In 1967, at the UN General Assembly, he called for international regulations to ensure peace at sea, to prevent further pollution and to protect ocean resources. He proposed that the seabed constitutes part of the common heritage of mankind, setting off a 15-year process that led to the United Nations Convention on the Law of the Sea. The global fleet of superyachts is forecast to reach 6,000 by 2020, and many of those are old yachts, in need of refit – which Malta is increasingly well-placed to offer. The sector employs some 33,000 crew and supports 260,000 jobs, according to Voisin, with a $32 billion impact on the world economy.

Ten per cent of the original cost of a superyacht is spent every year on its upkeep – far more than is the case for a villa or plane.

Promoting the island as the leader of change would help to put us on the map. The island is at the centre of the Mediterranean, something we have heard ad nauseam. Pardo was able to bring the world together all those years ago. Who will pick up the baton and do that again?

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BUSINESS OPINION

Brexit is a test of the extent of political deafness

Beppe Zammit-Lucia When I first moved to The Netherlands three years ago, quite a few things turned out just as I expected.

Many were much more positive than I had thought. But one thing stood out as a big surprise – the extent of Euroscepticism among the Dutch voting public.

As a Brit, I thought we had a monopoly on deep Euroscepticism. The result of the EU referendum indeed underlines British attitudes. But I was obviously mistaken in believing this to be an exclusively British issue.

Now that Britain has answered for itself the question of its relationship with the EU, the next big question to be answered is by the EU itself – what does all this mean for Europe and for the future vision and structure of the EU? Two things stand out about the British referendum campaign and result. The first is the almost total deafness of the political class to the concerns and attitudes of the voting public. The second is that threats and predictions of catastrophe (the whole basis of the Remain campaign) don’t work.

VOTE LEAVE SUPPORTERS OUTSIDE DOWNING STREET IN LONDON AFTER BRITAIN VOTED TO LEAVE THE EUROPEAN UNION. PHOTO: KEVIN COOMBS/REUTERS

Deep-seated emotional responses will always win out against socalled “rational” and technocratic arguments. This is something that I pointed out to the Remain campaign strategists early on but, of course, it was totally ignored.

The big question now is how the rest of Europe will respond to

a British exit. The temptation is to punish Britain and make sure that the threats of catastrophe come to pass. The rationale for such an approach is exactly the same as that used by the Remain campaign: it will put off those in other countries that are pressing for a referendum of their own.

Just like the Remain campaign, it will not work. It will simply indicate to voters that the deafness of the political and Brussels elite is total; that not even a major country deciding to leave is a sufficiently large signal to be heard.

It will likely generate what in Britain we like to call the spirit of

“I am hoping that the unbelievably idiotic standard Brussels response – that the only answer to Europe’s problems is more Europe – will be consigned to the dustbin of history”

the blitz – that when you are under sustained attack you hunker down, resist and fight back.

Dislike for the EU will increase as voters across The Netherlands, France, Poland, Austria, Hungary and other countries will want to show that they will not allow themselves to be terrified into submission by a political class they despise.

Most of my friends voted to remain in the EU. But by far the vast majority of them did so while holding their nose. They felt that the EU in its current form stinks but they might still be better off in than out. There is no way back for the EU to gain wide public support except through root and branch reform and through revisiting and redefining some of the basic principles that the Brussels elite have come to consider as unchallengeable.

Chief among them is the free movement of people across the continent, but there are many others.

I am hoping that the unbelievably idiotic standard Brussels response that the only answer to Europe’s problems is more Europe will, after this week, be consigned to the dustbin of history.

However, I fear that the blindness and deafness of the European ideologues that still populate the European corridors of power may well be total.

That, by their actions and behaviour, they will convert what could be a temporary setback to a catastrophic unravelling of the whole European project. We shall see.

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APPOINTMENTS

General manager for Microsoft’s New manager for MPG appoints public sector division advisory services new general counsel in Malta at KSi Malta Bernard Bartolo has joined KSi Malta as a manager to boost the firm’s advisory services.

KSi Malta is one of the leading audit, tax and advisory firms in Malta, forming part of Morison KSi, a global association of leading professional service firms offering accounting, auditing, tax and business consulting.

Mr Bartolo has vast experience in public sector procurement and eProcurement.

After leaving the public sector, he joined the private sector where his main area of specialisation was the preparation of tendering documents in response to tenders.

BERNARD BARTOLO

Richard Ambery has been appointed as MPG’s general counsel by Managing Partners Group, the international boutique asset manager.

Mr Ambery joins MPG from Maltabased Ganado Advocates, where he was partner and head of capital markets. He began his career in 1988 in debt securities sales and trading at Security Pacific Hoare Govett before switching disciplines and becoming a trainee solicitor then associate at Freshfields Bruckhaus Deringer.

He later worked for Clifford Chance, Dechert, Mayer Brown, Paul Hastings and Arthur Cox. He is a member of the investment and capital markets committee of the Institute for Financial Practitioners, which is a main consultative body for the government and Malta Financial Services Authority.

Managing Partners Group intends to offer securitisations and alternative fund management services to the pan-European market. Malta and Luxembourg are the only two financial centres in Europe with a comprehensive regulatory infrastructure in place to domicile securitisation vehicles.

Microsoft has appointed Kostas Loukas as general manager of its public sector division for Central and Eastern Europe. In his new role, Mr Loukas will be responsible for the strategic planning and building of partnerships with public institutions across the 33 markets in the region. His focus will be on the modernisation of public administration, through the adoption of digital solutions.

He began working at Microsoft Hellas 11 years ago as financial controller and soon thereafter as chief financial officer for three years. He then held the position of marketing and operations director until 2011, and for the next two years he took over as country manager for Microsoft Cyprus and Malta. Mr Loukas served successfully as general manager of Microsoft Romania for the last three years.

In his new role, he will remain based in Bucharest.

KOSTAS LOUKAS

Head for Environment Zahra Snr made and Resources Authority IHI director Ruben Abela has been appointed the first executive head of the Environment and Resources Authority.

Mr Abela is specialised in restoration and historic buildings and in the management of planning and environment.

He occupied managerial positions within the authority for many years and was also manager of the projects section of Heritage Malta, as well as project leader of the Fort St Angelo project.

Winston V. Zahra has been appointed a director of International Hotel Investments, replacing Michael Beckett.

Mr Zahra is the chairman of the Island Hotels Group Holdings and was managing director of the IHG Group until 2009. Prior to 1987, he was the co-founder of one of the leading tourism-oriented companies in Malta.

He has served on various boards and committees related to the tourism industry. He has also served as a board member of the Malta Council for Economic and Social Development.

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STOCK MARKET REVIEW

e Brexit effect

Edward Rizzo The UK’s referendum on its membership within the EU had been dominating sentiment across international financial markets for several months.

Volatility intensified over the past two weeks. As the polls indicated that the Leave campaign was ahead during the second week of June, equities across the main stockmarkets around the world declined, bonds of ‘safehaven’ countries rallied and sterling weakened.

However, a few days prior to polling day, the Remain camp seemed to be in the lead and equity markets rallied strongly while sterling strengthened once again until the eve of the referendum.

As the counting ended shortly before the opening of European stock markets on June 24 and the Leave vote emerged victorious with 51.9 per cent, shock waves were felt across global stock markets.

The UK’s FTSE 100 fell as much as 8.7 per cent at the open and Germany’s DAX dropped 10 per cent. Equity markets, however, partially recovered throughout the day with the FTSE100 closing 3.2 per cent lower at 6,138.69 points, Germany’s DAX30 finishing down 6.8 per cent and France’s CAC40 ending eight per cent lower. The worst hit markets across the EU were Greece – which plunged more than 13.4 per cent – followed

by Italy and Spain with declines of 12.4 per cent each, the biggest ever one-day declines for these markets.

Sterling plunged in value against most major currencies, dropping by 10 per cent to its weakest position against the US dollar since 1985. Incidentally, sterling had rallied to a fresh 2016 high on the eve of the referendum after one of the polls suggested that the Remain vote would prevail. Sterling declined by eight per cent versus the euro in the immediate aftermath of the result and by 15 per cent versus the Japanese yen (which, like the US dollar, is also considered to be a ‘safe haven’ in times of market turbulence). The British pound had not experienced such a decline in a single day since Britain’s exit from the exchange rate mechanism in 1992.

Bond markets were also impacted by this historic decision.

While the prices of bonds of euro-peripheral nations declined (namely Italy and Spain), prices of UK treasuries as well as the government bonds of the higherrated EU countries (namely

“e impact on the companies listed on the Malta Stock Exchange … will likely only be felt… once the full implications of Britain’s relationship with the EU is determined” Germany, France, Austria, Finland, Belgium and Netherlands) rallied due to overall risk aversion.

So what next following this widely unexpected outcome?

Once the UK Parliament decides to act upon the referendum result, there will then be a period of transition where the implications, details and timings of the exit will be scrutinised and negotiated. This is only likely to take place as from October 2016 once a new prime minister is sworn as after David Cameron resigned following the publication of the

official result of the referendum last Friday morning.

The immediate risk to Britain’s economy is serious, since the Brexit vote creates enormous uncertainty. This is likely to persist until it becomes clear what kind of new trading agreements will govern Britain’s economic relationship with Europe and the rest of the world. In fact, credit rating agency Moody’s immediately downgraded the outlook for the UK’s credit rating from ‘stable’ to ‘negative’. Likewise, another credit rating agency,

Standard & Poors, initially announced that the outcome of the referendum had made Britain’s ‘AAA’ rating “untenable” and earlier this week it downgraded Britain by two notches to ‘AA’, with Fitch following soon after, also with a downgrade to ‘AA’ and a negative outlook.

The shock of Brexit will result in a prolonged period of uncertainty, impacting financial markets for a while and raising the risk of a renewed global recession. This may also cause political contagion for the rest of Europe – a fresh election in Spain over the weekend did little to resolve the political deadlock of the past couple of months, a referendum on constitutional reform in Italy will be held by October 2016, while France and The Netherlands could also possibly request a referendum regarding their membership in the EU. On the other hand, it is also possible that Scotland will call a second referendum (following the one conducted in 2014) to seek

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STOCK MARKET REVIEW

independence from the UK and in turn become a member of the EU. Given the long-term ramifications of Brexit on the global economy, the risk aversion was immediately evident across all financial markets as investors focused on whether the Bank of England would step in to support the economy by cutting interest rates or reigniting a programme of quantitative easing.

The governor of the Bank of England, Mark Carney, stated last Friday morning that the bank had “extensive contingency planning” in place and it “would not hesitate to act” to support the economy in the wake of the Brexit vote. Most investment bankers believe that the Bank of England will not only reduce the current record low rate of interest of 0.5 per cent to zero per cent but that will also revive its quantitative easing programme.

Likewise, the US Federal Reserve also issued an immediate announcement in which it stated that it “is carefully monitoring developments in global financial markets, in cooperation with other central banks”. The Federal Reserve indicated that it was prepared to provide liquidity in order to address pressures in global funding markets, which could have adverse implications for the US economy.

In the short term, the reaction in financial markets will be very much dependent on the decisions taken by central banks. Sterling is likely to bear the brunt of the general uncertainty and the possible action by the Bank of England.

Due to the UK’s structural imbalances with a current account deficit of seven per cent of GDP in Q4 2015 and a budget deficit of over four per cent of GDP for 2015, sterling is likely to remain under substantial pressure and will act as the adjustment mechanism.

As the news came out of the referendum results, various banks and economists revised downwards their immediate forecasts for sterling. A prominent UK bank predicted that sterling will weaken to £0.92 against the euro by the end of 2016, representing a decrease of almost 18 per cent from the level of £0.75 to the euro before the referendum vote. Sterling declined by nearly six per cent on the day of the result so this

forecast would imply a depreciation of an additional 12 per cent.

Moreover, following the immediate drop in yields on 10-year UK government bonds in the aftermath of the referendum vote (yields declined by 31 basis points to a record low of 1.07 per cent on Friday and dropped below the one per cent mark for the first time ever on Monday), foreign media sources indicated that yields on 10-year UK gilts will drop further to 0.90 per cent. Due to the inverse relationship between prices and yields, this implies a further rise in UK government bond prices.

While it is important for investors to follow the developments across global financial markets, most Maltese investors would be more interested in gauging the likely impact on securities listed on the Malta Stock Exchange.

The weather in Malta also seemed to be impacted by the Brexit decision with thunderstorms on Friday despite the summer season now upon us.

Following the numerous calls received in the aftermath of the refendum result, I have tried to highlight some of the possible consequences on the local stockmarket.

Since many Maltese investors have exposure to Malta Government Stocks, it is worth explaining that MGS prices have been following movements in periphery Europe to a larger extent as opposed to movements in the ‘safe havens’ of Germany and France. This was very evident over the past three weeks when the bond markets across Europe were very volatile around the polls of the UK referendum. German and French bond prices rallied on Friday morning after the UK referendum result while bond prices in Italy and other periphery countries declined.

It is therefore not surprising that the Central Bank of Malta quoted lower prices for long-dated MGS on Friday and should the markets continue to react in a similar manner to the referendum result over the coming weeks and months, MGS prices could gradually decline, mirroring the possible sell-off in the periphery countries unless coordinated efforts by the world’s global central banks help investor sentiment.

BRITAIN’S PRIME MINISTER DAVID CAMERON ARRIVES AT THE EU SUMMIT IN BRUSSELS LAST TUESDAY. PHOTO: FRANCOIS LENOIR/REUTERS

“In the short term, the reaction in financial markets will be very much dependent on the decisions taken by central banks” Undoubtedly, as a result of the immediate decline of sterling and expectations of further weakness in the months ahead, the largest impact for Malta could be on the tourism industry.

With almost one-third of tourists coming from Britain, a weaker sterling implies that vacations in the EU are more expensive for British nationals. This could naturally lead to a decline in the number of British tourists visiting the Maltese islands with a multiplier effect across all related industries, namely hotels, restaurants and the retail trade.

Some weeks ago, Standard & Poors created a Brexit Sensitivity Index in an attempt to gauge the susceptibility to possible aftershocks from a Leave vote. Due to the reliance on British tourism, it comes as no surprise that Malta placed second in this index.

The property sector can also eventually be impacted negatively if this would lead to fewer British buying property in Malta not only

as a result of the effect of sterling but also due to restrictions once these would leave the EU in a couple of years.

In the banking sector, the immediate impact is possibly mixed.

On the one hand, some banks could suffer declines in the value of their investment portfolios from the drop in the value of sterling and declines in the value of any bonds of periphery nations. However, this could be mitigated by an increase in the value of ‘safe haven’ bonds such as German bunds, French sovereign bonds, UK gilts and US Treasuries.

The decline in the value of sterling is also expected to negatively impact those companies that hold property in the UK or part of their revenue is generated in sterling and then reported in euro in their financial statements. Likewise, those companies that have a reporting currency in sterling and their cost base is in euro are also impacted negatively.

Rizzo, Farrugia & Co. (Stockbrokers) Ltd (RFC) is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon.

RFC, its directors, the author of this report, other employees or RFC on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent, and may also have other business relationships with the company/s. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen.

Past performance is not necessarily indicative of future results. Neither RFC, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report. © 2016 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved

The few beneficiaries would be those companies that could be increasing their business as a result of a weaker sterling, namely due to increased importation from the UK as a result of the cheaper conversion from sterling to euro.

The impact on the companies listed on the Malta Stock Exchange is very difficult to gauge immediately and will likely only be felt over the long term once the full implications of Britain’s relationship with the EU is determined. In the interim period, it would be helpful if the companies listed on the Malta Stock Exchange provide guidance to the market on the possible impact on their businesses in order to assist investors of the likely repercussions on their investments from such global developments.

Edward Rizzo is a director at Rizzo, Farrugia & Co. (Stockbrokers) Ltd.

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BUSINESS UPDATES

Tirrenia to operate from Malta to Catania June 11 saw the arrival of the vessel Moby Aki with over 900 transport operators from Italy and Sicily, all guests of Tirrenia, to launch their services from Malta.

These were joined in the evening by another 150 Maltese operators for an event including a concert by Luca Carboni, dinner and drinks.

Minister Emmanuel Mallia welcomed the guests on board and recalled the fact that Tirrenia had operated routes to Malta over 25 years ago with a dedicated vessel passing by Naples, Reggio Calabria and Catania. Vincenzo Onorato, chairman

of the Onorato Group, introduced the service which will begin on September 2 with a dedicated vessel operating from Malta to Catania with six trips a week going on to a daily service in 2017.

From Catania, this service will link to other routes operated by the company up the Adriatic to Ravenna and on the Tirrenean coast up to Livorno and Genova.

Mr Onorato has pledged his commitment to the increase of maritime transportation between the islands with a view to the increase of commerce between the respective countries.

MOBY AKI ENTERING VALLETTA PORT

Malta’s first 1920s themed bar set to open its doors in July Love a good 1920s vibe? You will be pleased to know that Malta’s first 1920s prohibition-themed bar, The Thirsty Barber, is set to open its doors to the public at its grand opening on Friday July 22.

The Thirsty Barber promises to provide an exciting new experience for people who are looking for a fresh and sophisticated environment where they can relax and enjoy some

delicious cocktails, wine, beer and more.

After eight months of hard work by some of the island’s best interior designers, The Thirsty Barber will provide an authentic experience where waitresses and bartenders will be seen wearing uniforms that would have been commonplace in 1920s prohibition America. Patrons will also enjoy delightful sounds from some

of the Malta’s best entertainers, ranging from electro swing to acoustic acts and more.

So if you have a love for the 1920s, or perhaps you’re a fan of the legendary Godfather movies, The Thirsty Barber really is the new place to be. Be sure to drop by on Friday July 22 to see what all the fuss is about.

Visit www.thethirstybarber.com to find out more.

Sparkasse Bank Malta plc rescues Mattia Preti’s St Nicholas

FROM LEFT, FR LINO SPITERI, SARRIA JESUITS HOUSE; DR GIUSEPPE MANTELLA, MANTELLA RESTAURI; PATRICIA SALOMONE, DIN L-ART ĦELWA; PAUL MIFSUD, MANAGING DIRECTOR, SPARKASSE BANK MALTA PLC.

One by one, the seven Mattia Preti paintings adorning the Sarria church in Floriana are finding donors who generously invest funds to support their restoration.

This time, it was Paul Mifsud, managing director of Sparkasse Bank Malta plc, who offered to fund the return of the St Nicholas oil painting to its original splendour. Giuseppe Mantella Restauri has committed to complete the work within a few months.

The St Nicholas of Bari is one of the seven works painted by Mattia Preti on commission by Grandmaster Nicholas Cottoner as a pledge to the

Blessed Assumption for deliverance from the plague in 1676. This particular painting depicts the Grandmaster’s patron saint who is said to have saved a group of infants from being martyred in a cauldron of boiling water. The young children appear at the foot of the saint, while on the opposite side a putto holds a sheaf of cotton, representing Grandmaster Cottoner’s coat of arms.

Din l-Art Ħelwa is grateful to Sparkasse Bank Malta plc and trusts that the new legislation regulating tax rebates on heritage restoration will encourage other serious donors to offer their support for finalising work on the last two remaining Preti paintings.

22

e Business OBSERVER

| June 30, 2016

BUSINESS UPDATES

Accounting for outof-office employees While working remotely is not for everyone, advances in technology are making it a feasible reality.

In the early 1990s, AIS Technology introduced biometric hand recognition devices instead of the traditional card punch clocks.

These devices changed the landscape of time and attendance record-keeping.

Since then, AIS Technology has expanded the range of biometric technology, and fingerprint and face recognition readers are now popular products.

For the past 25 years, AIS has been on the forefront of innovative technology. On its anniversary, the company introduced a new solution for out-of-office time keeping.

TimeTec Cloud allows employees to literally punch in and out of work from anywhere in the world. Using a range of diverse technologies such as smartphones, computer logins or geo-location identification, TTimeTec Cloud provides employers with a system by which remote workers are accountable, not only when they are working from home but also while servicing customers.

Happy people work better and employers need to recognise that

Perfectly furnished work environments from Della Valentina Office

more people are ready to work remotely and at odd hours if it means a more balanced work and home life. AIS Technology has the know-how to deliver this.

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T: 2180 3350; E: darryl.schembri@ais.com.mt; W: www.ais.com.mt

Della Valentina Office (DVO) is an example of fine quality and excellent customer service brought together to create empowering work environments. From executive to reception desks, workstations, partitions, chairs and meeting tables, Della Valentina Office will perfectly furnish every corner of your company’s headquarters.

Workstations at DVO offer the latest open-space solutions that stand out for their elegance, minimalism, technology and simplicity. Seating and office sofas show not only a high level of functionality, but also outstanding design. DVO delivers high-performance furniture items that take into consideration the wellbeing of each employee.

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A vast choice of furniture from Della Valentina Office, designed to outsmart your competitors, can be viewed at Fino’s showroom in Mrieħel. Take your time to experience quality, attention to detail and material-matching that will add prestige to our company by providing you with the image of style and success.

For more information contact DVO by e-mail at projects@fino.com.mt or call on 2549 3000.

Andrew Manduca elected to Sparkasse Bank board of directors Andrew Manduca has been elected to Sparkasse Bank Malta plc’s board of directors as an independent nonexecutive director.

Mr Manduca was a founder partner of Deloitte Malta, set up in 1980.

He led the Deloitte tax practice from 1980 to 2012 and retired as chairman and senior partner of Deloitte Malta in December 2015 He is a former president of the Malta Institute of Accountants and of the Institute of Financial Services

Practitioners (IFSP) as well as the first and current president of the Malta branch of the International Fiscal Association. Ever since Malta started its quest to become an international onshore financial centre of repute in the early 1990s, Mr Manduca has represented local practitioners on various committees set up by different administrations to suggest ways to make the jurisdiction more competitive. ‘’We are honoured to welcome Mr Manduca to our board as his

experience and background will help contribute to the technical competencies of our board.

“This is aligned with the Bank’s wishes to strengthen its expertise and corporate governance in anticipation of further expansion plans the bank is seeking to foster in the near future – we look forward to working closely with Andrew,’’ commented Paul Mifsud, managing director at Sparkasse Bank Malta.