23 - 29 November 2000

Profit through partnership

Dr Simon Tortell, Secretary-General of the Malta Hotels and Restaurants Association, talks to Blanche Gatt about the tourist industry’s reaction to this week’s budget.

As the stranglehold of public expenditure continues to hobble the country’s efforts to stride forward, Malta’s tourism industry proves an enduring mainstay of the economy. Only a few decades old, the industry contributes over 20 per cent to GDP, earnings from tourism reached Lm204 million, in the first nine months of 2000, and around 10,000 people are employed full-time in the industry. Malta’s economic growth is tied closely to the progress and advance of this sector.
So, it is not surprising that the morning after Budget Day, the MHRA, the organisation that is now considered most representative of the tourism industry, should call a meeting to discuss the implications of this document.
Simon Tortell, secretary general of the MHRA, explained that on the whole the Association is positive about the measures introduced. He clarified further that from their perspective there were two main issues in the budget that concerned them. “As members of the MCED,” he commented, “our role there is not simply sectoral or parochial – it is national. So while of course we focus on what we know is good for the industry, and hence also for the country, we also focused on things of a national importance.”
He highlights two items presented in the budget as being key matters to MHRA. The first, and most significant is the proposed Private Public Partnership, a scheme proposed by MHRA, through the Malta Council for Economic Development, offering government the means to carry out essential infrastructural and restoration works that it finds itself unable to pay for.
“If I were the government of Malta,” continued Dr Tortell, “It would be easy for me to look around and say I would do this, that and the other, but of course any project is going to cost a lot of money and we are all aware of the tremendous financial constraints on government. There is no doubt that government is in a very tight situation, so we came out with this idea of Private Public Partnership, which we sent to the Minister of Finance through the MCED. We have suggested that having identified the most valuable projects, government costs them and then we, the private sector, will carry them out. Government will be able to pay us back the money over a certain period of time, say 12-15 years and during that period we administer the property.”
I asked Dr Tortell to give me a few examples of what sort of projects could be implemented in this way: “Roads, are one thing that could benefit from an intiative of this sort,” he replied, “and in fact a similar scheme has worked very well in Ireland and England. Government would choose how to upgrade the roads, then the private sector would carry out the work. Paceville for example would benefit greatly from an effort like this. Or a bridge, for example, between Sliema and Valletta – in order to generate enough revenue the private companies could be given the authority to levy a toll for usage. The point is it would cost government less and also allow a period over which to repay the money.
“Beaches are another area that could easily be improved with this scheme. St Georges beach for example. A private company would upgrade the beach, and install beach concessions as a way of generating income and maintaining the area. Government pays slowly over a period of time and gives the company the right to manage the concessions.”
That the country would be enhanced by road-building and other projects is indisputable, especially for many tax-payers, who gasp at the enormity of government expenditure which despite the heavy toll on their earnings, is never sufficient for necessary infrastructural works.
Gobbled up by an enormous public service wage bill and the maintenance of health and pensions schemes, government funds are exhausted long before they reach projects. However, if the private sector were to take responsibility for some of these projects they would of course expect their contribution to render some return.
“First of all,” said Dr Tortell, “there is enormous value to the private sector in keeping the country ship-shape, because the environment has a great impact on the tourist and his impressions of the island, although undeniably it is primarily government’s duty to do it because we pay taxes.
“Secondly, the private sector will do the roads, but government will repay that money with interest over a period of time. I mean, government has proposed 6.5 million for roads; we wish government had proposed 65 million, because that’s what it will take to get our roads up to scratch. And the importance of the roads is clear even from past projects.
“When we did Bugibba, the roads were the main focus. The reason is that with good roads, the whole area looks better, cleaning is easier and the image is enhanced. And thirdly, the private sector would get a return on their investment in such projects through concessions, in the case of beaches, or maintenance, tolls etc in the case of roads.”
Dr Tortell explained that MHRA also discussed better utilisation of the public service, which is famously over-staffed on the lower ranks, and severely lacking in top and middle management. “We suggested that government should create a pool of between 6,000 and 7,000 workers that could be utilised to carry out these projects.
“Government has been very receptive to the idea, as have the unions, in particular the UHM because the GWU did not participate fully. However there is no agreement yet on whether it should be voluntary or enforced. As far as we’re concerned it’s up to government to decide which of their employees should become part of this, but the unions want participation to be voluntary. The sticking point is in the implementation, but the principle is agreed.”
“There are so many areas that could benefit from a partnership like this,” continued Dr Tortell. “Roads, beaches, Paceville, historical sights, Strait Street; so many derelict and neglected government properties that could be entrusted to the public sector for refurbishment and maintenance. That is why this was the central plank of our proposals this year for the budget.”
MHRA is also satisfied with the fact that Minsiter Dalli did not announce any increase in the rate of VAT on tourist accommodation.
“What we always say,” said Dr Tortell, “is that the tourism industry cannot afford to pay a higher rate of VAT. The hotel will end up paying this increase and not the tour operators, and our hoteliers simply cannot afford any further costs.
“Already we are in a situation where hotel operators make their profits only during the three months of summer when they have over 90 per cent occupancy. Up to a few years ago a 50-60 per cent occupancy rate in winter would be enough for them to make some profits, but today they are losing money in winter even with 70 per cent occupancy. The problem here is that tour operators will simply not pay, because there is big competition in the Mediterranean and they have a wide variety of resorts to choose from.
“The others, like Tunisia etc, offer low prices compared to which ours are high, and because Malta has been competing on price for the past 10 years, it is very difficult to change overnight to competing on value, for example. Even though our hotels have certainly increased in the value they offer clients – we have an excellent five-star sector.”
“Tourism is in a difficult situation at the moment. However the MHRA has just signed a contract with Lexington, an American company that looks after global bookings and that appears on 600,000 travel agents’ screens worldwide. Our members that participate pay a small fee, but this is one way of expanding your business beyond the traditional tour operators. The new conference and incentive travel is another way our hoteliers are trying to break the mould, as are franchise agreements with chains that have an extensive client list they then benefit from.”
“Seasonality is the greatest problem and a very big issue at MHRA. The problem is we have 1.2 million tourists and two thirds of them come in the three months between July and September. Winter is fundamental. If we can get tourists to come to Malta and see what we have to offer, if we can attract more business for the smaller hotels, by branding them in a different way for example, we have to create reasons for people to visit Malta,” Dr Tortell said.