Privatizing the shipyards  timely and challenging

By Impetus Europe Chairman Mr. Joseph F.X. Zahra

(Mr. Zahra is an economist, former Chairman of Bank of Valletta plc and former Chairman, National Euro Changeover Committee)

July 2008

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There is today limited scope for a heated debate on the benefits or otherwise of privatization. Both the proposers of a free market or a social market agree that the benefits of privatizing commercial activities by far outweigh the costs. The issue perhaps might sound to be too simple. Looked at from a purely economic perspective, private initiative and entrepreneurial flair should direct any business activity towards profitability for its shareholders. However, once a social perspective is introduced to the argument, other matters start surfacing, such as those related to culture, history, nostalgia and emotions.

The privatization of the Malta Shipyards falls nicely and squarely into this type of debate. The Shipyards form an integral part of Maltas industrial and maritime history. They have been the cradle for modern and progressive thinking over different decades. They contributed to the formation of political parties and unions. They have formed the first Maltese industrially skilled personnel, as well as the first supervisory, managerial and administrative body of employable staff. This industrial culture provided the attitude and tools to a large number of people with entrepreneurial drive to start their own business. These then in their own turn supplied the new manufacturing industries of the sixties and seventies with the required services and supplies. These new industries were also attracted to set up in Malta thanks to the supply of experienced managers, supervisors and skilled personnel deriving from the Drydocks. During my years at the Malta Development Corporation in the seventies we had on our list of Maltas attractions as a business location, the variety and number of competencies deriving from the ship repair sector.
This outline on the Maltese shipyards is not complete if one leaves out the other facet which was a heavy burden on our social and economic fabric throughout the years. The nineteen seventies experiment with workers participation on board of directors and management levels at the Yard had badly back fired. These were experiments which were replicating socialist ideas which were originating in then Yugoslavia and Peru. The formation of Malta Shipbuilding was yet another costly experiment based on dubious feasibility studies. The failure of both initiatives instilled in the staff and workers of this institution a strong sense of polarization in thinking, an indifferent and apathetical attitude towards work as the order books were weakening and sometimes completely vanishing. Idle time on your hands is dangerous; more so if that space is taken up by time for heated arguments, intolerance and defensive attitudes in the face of a new reality which changed the logic of how business is practiced in a fast modernizing world. The lack of a strong commercial orientation at the Yards added up to low morale and antiquated work practices made the docks irrelevant in a new reality of results centric and highly competitive global business. During the nineties, the political implications of forcing drastic change would also have upset the much necessary tranquility on the industrial and social fronts that were necessary for economic growth and improved quality of life. The decision to buy this peace was high as Government funded the perpetual deficits on the shipyards income statements. But this had to be a temporary measure, not only because the European Union said so, but mainly because a painful drain of financial and other resources can never be sustainable in the long run.

The privatization of the shipyards has to be seen therefore within this context. This is a bold decision which is also meaningful because it is happening at the right time. The socio political climate allows for a rational thinking and debate process. The results of privatizations in Malta during these last years have generally contributed in a positive manner to the countrys real economy also by means of the development of a skilled and competent personnel, the instilling of a right work ethic, and a stronger and sharper competitiveness in the market which is for example evident in the way Bank of Valletta rose to the occasion when faced by an aggressive global operator such as HSBC. One can add more benefits that Malta has acquired from this policy such as that of a surge in investment in modern technology, the strengthening of Maltas brand name on an international business level and the consequential multiplier effect of attracting new businesses. The new privatized entities grew in revenue and profits (with improved tax revenue for Government), introduced new products and services, diversified their businesses, and introduced the latest best practice management and business models. The stories of the MIA plc, Go plc and the Malta Freeport give enough evidence to support this argument.
The privatization of the shipyard does indeed present one of the most challenging initiatives for todays Government. The shipyards location is in one of Maltas prime sites. The shipbuilding industry on an international level is going through difficult times as the price of oil and energy is rocketing. A heated debate on the future of shipbuilding in Poland acts as a backdrop to the steps that Malta is taking in this direction. Furthermore, the emotional baggage full of nostalgia and sense of history makes each and every step vulnerable to misinterpretation and misunderstanding.
The Governments task therefore needs to be guided by clarity in objectives and strength in principles. The objectives should be those of making the optimum use of the space available by attracting investment in economic activities that lead to higher efficiencies, the best use of available resources, and the achievement of maximum economic return. These economic principles however should be fully sensitive to the fate and future of the people working in the shipyards, and are made with eyes that are fully open to the environmental impact of any project or projects which are eventually located there. The Grand Harbour is one of the worlds most definite jewels and it needs to be respected as such. The overarching objective of the present Government to establish Malta firmly as a centre of excellence in various sectors including maritime activities while taking specific consideration to learning and education and information and communication technology forms part of the raison dêtre of this challenging initiative.
This implies that flexibility and open mindedness on the type, nature and magnitude of projects for this area becomes essential to achieve these objectives. Add to this the encouragement of both foreign and Maltese investors to participate in this privatization. The prioritization of criteria for the selection of the right investor or investors has therefore to consider their contribution to business innovation and competitiveness, the trainability and adaptability of existing personnel to new activities, the creation of inter-industry links and multipliers, the introduction of best practice business and management systems and last but certainly not least, the full respect for the environment. A diligent, transparent and professional method of selecting the right investor should naturally reverse the unsustainable situation that we are in at the moment, to one which will give the best return to all stakeholders.