Last week, I gave some comments to a journalist about the current applications before the Planning Authority, relating to supermarkets and the retail sector. Indeed, the reporting was impeccable, and the economic theory was perfectly captured. However, I thought I would expand further to include additional ideas as I screened some comments on social media, and perhaps I can address some of them. One of the comments relates to the criticism that economists are all the same, and that sociologists must be included in such an assessment to capture wellbeing. I take it that what he meant by wellbeing is beyond GDP, which is measured by health, education, equality, and sustainability. Ironically, those very indices on well‑being and human development that critics think economists ignore are in fact designed and refined by development economists, sustainable economists, and other specialists, which shows how little some social media commentators understand what they are talking about.
Like many other sectors, the retail sector is one that follows the market. And this is important to mention because, unless there are projections of economic growth and demand, there won’t be opening of new supermarkets. This is what we economists call the invisible hand of Adam Smith. It is rudimentary economics. If the International Monetary Fund, as well as other credit agencies, are projecting that Malta’s economy will grow at a steady pace up to 2030, it is only logical that investors look at Malta. Let’s say that there is a chain of supermarkets which wants to either establish itself here or open additional outlets if they are already established in Malta, and see such projections, do you honestly think that they won’t apply for a permit? Or let’s look at it differently. Let’s say there are supermarkets established abroad, they see such economic growth projection, a projected increase in tourists, a lower tax rate, while they are established in a country which barely grows economically, do you think they won’t be tempted to move to Malta? Obviously, the answer is yes. Surely, this is mirroring the EY survey on investors’ confidence.
However, we must pay attention when zooming down to this sector, especially by NACE code. Indeed, when we zoom into a sector, we can see the micro‑pressures beneath aggregate growth. Surely, we need to ensure that the supermarkets that are opening are not growing to the point of driving Maltese supermarkets out of the market, particularly when they cannot compete on tax matters. And here I am warning about potential conglomerates and oligopolistic markets. It’s good to have competition, but competition must be fair, and it should not drive out others by using retaliatory pricing, as this would later be reflected in higher prices after they take over the market. Well, the Consumer and Competition Authority in Malta perhaps know what I am saying. Otherwise, it might inflict a social cost.
Besides, I was asked whether this is sustainable. Obviously, we must split the argument between financial sustainability and ESG, because sustainability has a wider definition, and it is also multifaceted. When it comes to sustainability, today we consider climate change and carbon emissions, environmental damage, including land use change, the social impact on affected communities, and the corporate governance of companies and economic operators. If there are thirteen supermarket applications, the way we do screening today is to zoom in on which area. Is it an already built area, or is it virgin land? If the area is already built, the assessment must focus on the emissions generated from demolition, debris and construction waste sent to landfills, reconstruction, finishing, and the upkeep of the supermarket. If the area is virgin land, the assessment must focus on land use change. Yet whether it is demolished or built from scratch, this is all true; the labour‑intensive process involving construction workers, finishers, installers of shelving, tills, scanners, products, stackers, storekeepers, cashiers, and delivery drivers, together with the indirect effects on the supply chain and infrastructure. Indirectly, it affects accommodation for those staying in Malta, additional workers moving to Malta, and deliveries.
These add pressure on the infrastructure, because the way the National Insurance system is designed is to give free access to everyone working and living in Malta. Well, this is why I said affected communities, because the wastes, emissions, and noise pollution created will affect communities, which in turn increase service vehicles on the road, and other pressures. You might ask whether this generates additional economic activity. Indeed, it does, because the investment is included in the private investment component of aggregate demand, and obviously contributes positively to economic growth. However, we are at a point where we need to zoom in on what the impact of supermarkets will be, not from a financial point of view, but from a sustainability perspective, as explained in detail in the preceding passage.
If we need additional supermarkets, we must equally match the infrastructure upgrades, including in health, education, spatial planning and affordable housing, so that we are able to correct part of the investment expansion and speculative part. I am mentioning speculation in the real estate sector because rational expectations dictate that if the market signal is to have additional workers, tourists and people working and living here, then we need to have additional units. And this fuels the K‑shaped economy, for those who have and those who do not. If tax on rent income is fifteen per cent, then those within this upper band of society will generate additional income, thereby growing the inequality of income, and the division between those who cannot now afford property. This is why I accentuate the need to have additional affordable housing units.
Obviously, what I said here in one supermarket must be replicated for the additional twelve supermarkets, if there are thirteen pending applications. And here one must ask whether this is sustainable or not. Because in the end, it’s always the fault of foreigners working and living in Malta. And the politicians do not address the elephant in the room, bar one or two, while the many others exploit the situations of planning and sustainability. But as I already explained in my preceding articles as an economist, I prefer to solve such economic success problems rather than having people register for employment or paying a monthly surcharge that eats their disposable income to the point of not even using basic utilities. This is the biggest nightmare of an economist or a politician. Next week, I will expand further on inequalities of income, from a European perspective, in the light of defence spending. And I will be bridging the K‑Shaped Economy with the pressure on infrastructure and related costs.
