Anyone who reads newspapers in Malta would get the impression that since 2013, public corporations have become a cesspit of corruption, mismanagement, and theft of taxpayers’ money. We are constantly told stories of excessive corporate pay, bloated recruitment, and botched contracts. By contrast before 2013, everything was different, with public corporations being a paragon of wise and well-guided management.
Of course, when one switches from reading newspaper articles to reading financial analysis, particularly that prepared by the rating agencies, the European Commission and the IMF, the narrative is very different.
Public corporations before 2013 were a veritable mess, dragging down public finances and the country’s rating, burdening taxpayers not just with lots of debt but also giving them bad service and higher prices.
A recent release by the National Statistics Office (NSO) serves as a good reminder of how Malta’s public corporations have turned around in recent years. In the golden days when public corporations were led by the meritocratic cadre appointed by Nationalist Cabinets, public corporations made ever rising deficits. From less than €30 million combined deficits, by 2013 the annual hole to be covered by taxpayers had more than doubled to €76 million. As a result, the difference between these corporations’ assets and liabilities had fallen to just €254 million, from €284 million just three years earlier. Bank borrowings rose during this golden era from €0.9 billion to €1.4 billion. Half a billion more borrowing in just 3 years, an increase of over 50%. At the same time these state-owned companies failed to pay their suppliers, so much so that their credit on materials and services doubled in just three years.
Then exactly when the narrative spun by some commentators suggests that corruption and theft started, a miracle happens. Instead of rising deficits, public corporations start making a profit. Their bank borrowings start to fall and their debts with suppliers contract sharply. From a combined deficit of €76 million in 2013, by 2019 public corporations made a combined surplus of €130 million. This is a turnaround to the benefit of taxpayers of over €200 million.
The net worth of public corporations, which by 2013 had fallen to a paltry €254 million, by 2019 reached the unprecedented figure of €1.7 billion. In 7 years, the surplus of assets over liabilities rose by 7 times. Bank borrowings which by 2013 had ballooned to €1.4 billion, by end 2019 were down to €1.1 billion. A decline of a fifth. While in 2013 public corporations had cash available that fell well below their annual wage bill, in 2019 they had funds to finance a year and a half of wages.
The net worth of public corporations shot up from €254 million in 2013 to an unprecedented €1.7 billion in 2019.
Despite raising prices, the pre-2013 public corporations had seen their income generation drop from €1 billion to €0.8 billion. The same post-2013 public corporations, while lowering prices, saw revenue rise from €0.8 billion to €1.4 billion. Wage costs as a percent of revenue fell, as revenues grew by far more than the wage bill needed to generate this activity.
Still a long way to go
These results in no way mean that Malta’s public corporations are being perfectly run. Public corporations still need to transform greatly. In particular they need to spearhead the digital and green revolution that Malta must go through.
The focus on improving the bottom line and improve net worth has been successful. However now the key performance indicators need to be modified. Public corporations can truly be leaders in the coming decades, adopting new technologies that improve the service to customers and also lead to better efficiency. They also need to play a key role in Malta becoming carbon-neutral.
Like in 2013 this is not the time for half-measures. The country needs public corporations to shift their focus, while keeping a dutiful eye on the bottom line. Their success in future years will not be judged just by their financial results. They will now be judged in terms of how much they serve as enablers of the new prosperity that Malta will be building towards.