Fabian Demicoli

Price Control in Malta – Back to the days of Balk Bajing?

 We are on the brink of having politicians ruin businesses again by attempting to set up structures that compete and distort the market again. The Chamber of Commerce was right to be concerned and it issued a statement to that effect last Friday. I am in total agreement on this, although I am not a member of the Chamber of Commerce, and there is no love lost between us, but I am in business.

People cannot have the cake and eat it at the same time. Let's just take an example I am familiar with.  Eurostat says that on average, our medicines prices are 1.9% above the EU average in general. These are the facts. These are the known facts. That fact has been conveniently omitted by both sides of our political spectrum. "Let's do something about prices in Malta" is just a convenient catchphrase used every time the issue of making ends meet in Malta raises its head. It's the medicine importers who are invariably targeted first, and then the food importers follow.

It is a known fact that in the EU no one cares about the price of medicine except those who pay for them, that is, Governments and Insurance companies. Therefore most times prices are agreed between manufacturers and payers.  There exist reimbursement systems over the entire EU except Malta and Cyprus. But people in the EU pay a lot of social security contributions for this. They also have to co-pay for all their medicines in most countries. Then it's either the patient or the pharmacy that is reimbursed. BUT patients under 65 or over 18 have, in most cases, to pay a prescription fee  or a co-payment that is either a percentage of the medicines cost or else a straight fee. In the UK it's around STG 6.50 for example, even if your medicine costs STG 1.50. If people want this in Malta, I am sure that the Chamber of Commerce and the GRTU can find ways to oblige, but invariably the Maltese will pay more than they are doing just now. I can guarantee this.

I have heard that both the Prime Minister and the Leader of the Opposition are in broad agreement that, if necessary, Government should start importing products itself, even medicines, and selling them in competition with the private operator. Or else introduce a system of price controls. This is austere Marxist-Leninist ideology at its very best. Its unbelievable that these people, who spend most of their time in the hallways of Brussels, don't bother to read the EU treaty and the various directives. It is ILLEGAL to impose price controls on anything in the EU in principle. As regards medicines, unless you are paying for it all, you can't impose controls on the prices of medicines. Government already is supposed to be buying at the cheapest price possible, as it issues tenders for medicines. That's about the best it can do. It certainly cannot go to importers or pharmacies and demand price reductions. It will be war with a capital W.

The reality is that Government dishes out most medicines in Malta for free. The most expensive ones are not bought in pharmacies, but are given away for free. So what in God's name are people bleating about? Who are these constant complainers who do so behind everyone's back? Where are the facts to back up the Government and Opposition's so called surveys on prices in Malta?

To give these medicines out, the Government has created a huge monolith employing hundreds of people, to purchase medicines by tender. Millions of Euros are wasted in bureaucracy and archaic work practices and even when presented with viable alternatives, the politician gives in to the supposed "experts" in the Civil Service thus making it as difficult to move forward as sending a man on the moon.  When it comes to paying for what it buys, then it's a matter of delays and obfuscation. Anyone tendering has to abide by a clause that payment will be made 150 days after goods are delivered. This is clearly in breach of the EU late Payments Directive, and the supposed EU representative in Malta is either blind, or deaf, or simply not bothered, and has not brought this to the attention of the EU. This is the example Government is setting in Malta.  Now we learn that it's not even allowing businesses to factor invoices due from Government departments. How ridiculous is that?

The other ludicrous lie that politicians wheel out regularly is that there are cartels in Malta. Cartels when people and businesses are at each other's throats all the time in this microcosm of a state? What utter hogwash. The only cartels formed are those done with Government sanction. A glaring example comes to mind. There is only one company that is allowed to carry out public registry searches and this by direct Government sanction. There are other examples.

The nub of the matter is that we try and impose large mass market formulas in Malta when in fact, these don't work at all. It may have escaped people's noses that our population is less than a small town in the UK or Italy. There is no appreciable mass market here in Malta which makes it easier to negotiate lower prices. There are many importers who have to plead with their principals to sell them a pallet when these people usually sell in trailer loads or container loads.

We also had some sea surrounding us the last time I looked. This means freight charges and expenses that are bigger because the market is small and there is no mass volume, so freight is expensive compared to bigger markets in the EU. At the port and anywhere else to get the goods delivered, the cost of transport is high.  Diesel costs money. Electricity costs more and more nowadays to keep things refrigerated and warehouses cool, especially food. Not many foodstuffs or medicines for the matter, can tolerate temperatures above 25 degrees Celsius. We have to have these standards, and that's how it should be. People expect that prices remain the same, although quality, quantity and choice have vastly improved. Well, it's just not going to happen. There is a limit as to how much people are prepared to invest in order to abide to today's standards, without raising prices.

Instead of lambasting the importer, get on your knees, raise your hands to heaven and thank him that he has managed to still provide you with a choice and range of prices. He does the impossible to do this; the costs of doing so are high in comparison to potential sales in Malta!

Yet, there is cut throat competition in Malta, but the baseline remains the same. It is the baseline of not having the weight of a mass market with volumes behind you that does not let you negotiate prices. It is also a baseline made up of disproportionately high expenses that encompass freight, certification, energy, storage costs, and distribution costs. The cut throat competition that does exist doesn't allow for high profit margins either.

Oh, and by the way, we still manage to employ your son, daughter, wife, husband, aunt, uncle, and God knows who else. We also keep at least half the mouths in the civil service, the people who are at the beach at the moment enjoying their half days whilst we toil in this heat, with food on their table and clothing on their backs with the wealth we generate and the taxes and VAT we pay. We get very little back in the form of service or increased productivity. I don't mean to generalise, but the Government employees who toil at all hours deserve a medal, and there are quite a few. Sadly, the majority don't have these high ideals of service. This is where politicians, all politicians have failed us. We trusted them on this one.

For all of those who believe in some ersatz communism tinged with pseudo-socialism, and want to introduce price controls, "difensuri tax-xerrejja", bulk buying and other forms of control, I say  get a life and leave us alone.  Take a trip to Sicily and fill up your cars!  Who is holding you back?

By all means strengthen the Office of Fair Competition. This is important because we need to foster more competition and more entrepreneurial spirit amongst the Maltese. By all means, make sure that the OFC comes down hard on cartels like a ton of bricks, not that they exist, mind. I'll bet my bottom dollar that most people don't even know what a cartel means and how it is created. They think that the pasta importers get together and agree on a price for every brand or some kind of infantile conspiracy theory you read about only in novels.

Recently Lidl opened its doors here with lower prices for what are mostly secondary brands. This bought a whole new arena in play. Lidl has failed to capture the majority of the market, however. The only reason why the rest of the Supermarkets are still in business is that Lidl don't always have your favourite brand. It's the poor supermarket owner who stocks all your favourite brands, has a delicatessen, and gives you oodles of choice, who has.

In a nutshell the consumer in Malta thinks it's their right to buy things at ridiculous prices, and expects products to be much cheaper than abroad. The only problem is that we are not a cheap economy. It costs more money for a business to operate in Malta than the UK. However a coffee is cheaper in Malta than the UK. It's cheaper to eat out as well. Clothes are not as cheap. But other things are. And the choice concentrated in Malta's shops is better than it has to be, considering everything.

If the Government wants to do something, then provide a  better access to finance mechanism than we have at the moment, reduce expenses, tackle your own shortcomings, implement Better Regulation well, and behave like a Government should, set an example and pay your bills on time. Foster entrepreneurship by making funds available for people to start businesses. Set up a structure that will guarantee these loans to first time businesses. Introduce a culture of value for money and productivity in Government departments itself, by involving the private sector in benchmarking exercises for the public sector. Reward people with promotions only based on merit and not on seniority.  And control the Unions. They are more to blame than anyone else, because they make it a point to defend archaic work practices.

As for the politicians, targeting us is a very cheap shot indeed. You attack us one day, and come to us for donations the next. And this applies to ALL parties! Shame on you!  The only time you had the chance to do something meaningful about prices is when you could have reduced the price of cars in Malta to reasonable EU levels. Instead, you have filled Malta with second hand cars from the UK. How short sighted!

And yet, these people want to compete with the private sector by using our tax money to set up and run importation enterprises that will end up being inefficient and will have to sell at a loss. They think that by doing this, they will force everyone to depress prices. They want to do it by using our tax money against us. Isn't this a form of subsidization? Is the EU listening?

Mario Debono

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