Yuletide and the AI revolution

One may excuse readers, who may have forgotten how shopping by housewives in the US has vastly developed since the early 50s and 60s.

Today, it reaches high levels of bounty and affluence, spurned by the re-election of Donald Trump and his slogan “Make America great again”. Likewise, in Malta, we dread past years of poverty, rationed food and long queues of jobless workers in the 70s.

Today, we can rejoice and triumphantly welcome a thriving economy which boasts full employment aided and supported by the recruitment of thousands of third country nationals. The latter signed up for local work conditions, after facing meagre wages and difficult living conditions in East Asian countries. Most were lured by licensed temping agencies which bagged a cool million – charging them for work permits, while finding them temporary shelter and jobs.

On the subject of demography, Adrian Delia, deputy leader of the Nationalist Party, stated in Parliament that the indigenous population could not have increased naturally in such a short period, given the low female fertility rate. Alternatively, even if the government had introduced a scheme to attract back 160,000 Maltese migrants, the country would still be facing the same problem of overpopulation. So, are we classified as the isle of milk and honey – where equality reigns? Not so quick.

Data released by the Central Bank of Malta shows that the richest 10% in Malta own practically 90% of Malta’s business wealth (equivalent to €11.6 billion). The overall amount of debt (including mortgages and other personal credit) of households in the bottom half of the net wealth distribution is estimated at €6.7 billion (fourth quarter of 2023), accounting for 65.6% of total household debt in Malta.

The wealthiest 10% alone, not surprisingly, account for half of the level increase in net wealth since 2010. Yet, on a positive note, cash is everywhere as the economy floats on €25 billion of idle depositor money. Also, encouraging are tourism forecasts. Ryanair is currently forecasting that overall passenger movements will climb to over eight million next year. The tourist season has been very rewarding last year (albeit at a lower per capita return) as we picked up the slack suffered during the 2020-2022 period. A cool 4 million visitors are expected in 2025.

At the same time, sadly, not all taxpayers are rendering to Caesar the true coin. Malta has the second-highest VAT gap – an estimate of the overall difference between the expected theoretical VAT revenue and the amount collected. This can be our Achilles heel when it comes to tax avoidance. Although progress has been glacial, unresolved scandals and lingering signs of corruption have kept NGOs actively protesting. A recent IMF report warned that, despite impressive growth, Malta’s physical and public health infrastructures are creaking under rapid population growth.

We urgently need to refurbish St Luke’s, which has been abandoned and left derelict. The debacle of the Vitals/Stewards concession of three hospitals sticks to our dirty slate. Three years ago, the Court of Appeal found the deal to be fraudulent and decried government officials to be complicit. This has cost us millions. More sins of our economic success include a shortage of skilled and high-tech workers. A sombre mood lingers, over jobs’ scarcity, particularly in professional offices. Yet, the property sector is comparatively buoyant, even if their lucre rarely makes headlines, fortified with the NSO data indicating that the number of signed promises of sale remains stable compared with previous years.

Internationally, particularly in the US, one notices aggressive, almost belligerent “disruptors” appearing virtually out of nowhere, dominating new markets, or driving long-established top firms to ruin with radical business models lacking industry experience. In Europe, the latest AI Act, introduces the concept of classification of the risks posed by the use of an omnipresent AI system. Simply put, there are four tiers of risks, the highest of which applies to those uses that are considered unacceptable for people’s security and fundamental rights, such as social scoring.

The second, and perhaps most significant tier, identifies “high-risk” AI systems, subjecting them to a myriad of ongoing obligations, including testing, risk mitigation, human oversight, data governance, cybersecurity, accuracy and detailed documentation. Finally, the third and fourth tiers consist of limited-risk systems where minimal transparency requirements are imposed to strike a balance between innovation and regulatory oversight; and minimal/no-risk AI systems, where voluntary codes of conduct are encouraged.

In conclusion, the nostalgic picture of US housewives buying staples from an open-air truck in Manhattan, reminds us how today, the procurement of family needs in Malta, has vastly improved by the opening of a galloping number of mega discount stores, each competing to offer a wider product choice.

Cheers, let us pray in Yuletide, that Malta succeeds to sustain an economy with full employment, reduce inequality, foster meritocracy and good governance.

Merry Christmas

George M. Mangion is a senior partner PKF Malta