Elephants - white and green
Let's face it: the government's performance has
not always been brilliant where major projects go. The Mater Dei
hospital project has become an ever-growing white elephant. In selling
Mid-Med Bank to HSBC the government was short-changed by Lm10-Lm20
million. The Freeport has cost millions in interest subsidy. The
Cirkewwa terminal, when finished, will have cost several times the
initial estimated cost. As for Dar Malta in Brussels, the less said the
better.
In many respects the proposed golf course project
is revealing similar signatures and already has the makings of a green
elephant. On reading the address by Tourism and Culture Minister
Francis Zammit Dimech on September 28, "Golf courses for tourism",
available on his ministry's Website, one realises that the government
has already taken the decision to build a golf course, indeed three of
them.
The minister's main justification for this is
that the Opposition agrees. By this logic, nonsense turns to sound
judgment if only it is repeated by both sides of Parliament. It seems
to have escaped him that any investment project should be based on
serious financial and economic evaluations, reliable market studies,
meaningful (rather than mock) consultations, and respect for the
principles of good governance.
Instead, we get bombast: the golf course "offers
Malta and its people the opportunity of making a leap forward in the
overall product that we offer our own and visitors alike. That leap
forward will be easier when we learn to discuss issues calmly rather
than emotionally..."
But, to satisfy the public that this great leap
forward will not land us into another financial black hole, the
government must publish sound calculations. It also needs to follow, in
spirit and in substance, transparent and internationally accepted
procedures in the appointment of consultants and other experts involved
in the project. None of this has been done.
On the contrary, the ministry's Website confirms
that it intends to go ahead with the project come what may and that
most of the designers and consultants have already been appointed.
Since this is a public project, should we not know whether the
procurement procedures followed are consistent with national
legislation and the relevant EU directives? And do we dare ask if their
contracts are based on the same sterling principles as those underlying
the less than stunning performance at Mater Dei?
Case against
The economic case against the proposed golf
course project rests on three basic tenets:
? It is not Government's role to undertake this
project, and by charging ahead it is muddying greatly the waters that
are essential for healthy private sector development.
? A golf course, by itself, is not a viable
proposition and would result in substantial financial and economic
losses that would have to be borne by the public.
? The long-term macro-economic and social effects
of another mega-property project (to address the lack of financial
viability of a golf course) are negative.
In his cheery and breezy manner the minister
brushed all these concerns aside. But let us look at them in detail.
First, this should not be a public project. It
cannot be justified on social grounds (few play golf); the likely
employment impact will be marginal; and the private sector has already
demonstrated a capacity to design such projects and a willingness to
undertake them.
The fact that the necessary environmental
authorisations were subsequently denied only reinforces the need for an
independent regulator to safeguard public interests, and exposes the
nature of the present naked attempts to subvert the process.
Further, the Government's financial position does
not justify investments that are not central to its role. To say that
some governments have built golf courses is to miss the point. One
would hardly want to bring as paragons of accepted behaviour
governments that have (albeit indirectly) built golf courses for their
elite classes - Morocco, Burma and Suharto's Indonesia come to mind.
The second important argument is economic. A
self-standing golf course is not a viable proposition, either
financially or economically, and not just in Malta where the scarcity
of land, water and energy accentuates the problem.
Peter Michel Heilmann, founder of Athens-based
INV golf which organises industry events, was quoted saying that
"without a residential component you can forget about a (golf) project.
The golf course itself rarely makes money" (see article in the
International Herald Tribune of September 30 entitled "Homes on golf
courses suit investors to a tee").
This issue of viability has yet to be addressed.
The minister's pronouncements add up to little more than meaningless
'consultant-speak' ("win-win", "a careful balance between conservation
and development", etc.) and are based on spurious assumptions. Initial
claims that a new golf course will result in 30,000 additional tourists
have been abandoned as serious observers have shown this to be
preposterous.
Other claims in favour of the golf course are
little more than flights of fancy; for example, the claim that Cyprus
is experiencing "an influx of tourists from Japan" is contradicted by
the fact that the actual number of Japanese visitors to Cyprus in 2004
was 640,1 less than those visiting Malta that year.
High costs, low demand
The reasons why a self-standing golf course would
not be viable are simple; high costs and low demand. Take the cost of
water. According to a study by Colorado State University and the Golf
Course Superintendents of America,2 the average 18-hole golf course in
Florida (average rainfall 46 inches per year) uses 375,0003 gallons of
water per day, i.e., just over 500,000 m3 per year.
This is about the same as that quoted in studies
by the Institute of Food and Agricultural Sciences of the University of
Florida and half that estimated in a recent WWF study entitled
"Freshwater and Tourism", that focuses on the Mediterranean Region and
claims that water consumption by one golf course is the equivalent of
the needs of a city of 12,000 inhabitants.
But, for the sake of argument, let us stick with
the assumption of a need for 500,000 m3. This would result in a
financial cost for water of Lm625,000 at present water rates.4 The
economic cost would be higher since both water and electricity5 in
Malta continue to be subsidised. Just look at the size of Government's
annual transfers to the WSC and Enemalta. Add financial charges. With a
capital cost of Lm5 million (on the low side), interest costs would add
up to Lm250,000 per annum.
Add in administration charges, salaries and
maintenance and so on, and you are talking of well over Lm1 million.
Amortisation of capital costs over ten years means that the project
would need to generate between Lm1.5 million and Lm2 million per year
to break even in cash flow terms, that is, Lm4,000 to Lm5,600 per day.
In view of the small local market, many of these
costs would have to be recouped in green (playing) fees, rather than on
annual membership fees as is usually the case elsewhere. Assuming costs
of about Lm20 per 18-hole round, you would need to rustle up quite a
lot of golfers.
And since we are speaking of averages, and there
are rainy days, and extra-windy days, then the actual average on
playable days has to be considerably higher. But perhaps the nub of the
argument is not whether these calculations are right or wrong, but that
the government has not seen the need to publish them, perhaps not even
to make them. A hunch is good enough!
The arguments for the golf course project now
seem to be shifting to ensuring "competitiveness and complementarity"
(sic) with other tourist facilities and
keeping up with our competitors (identified as Tunisia, Morocco and
Cyprus). This argument has the advantage that it is more difficult to
quantify. So, why bother? But this is really little more than a
'keeping up with the Joneses' simplistic mentality that could land us
in trouble.
If this is the depth of strategic thinking that
the minister can come up with, perhaps we might soon be discussing the
pros and cons of ski-slopes down Dingli Cliffs, for skiing too is a
winter sport. But, seriously, look at successful corporations. They do
not try to be all things to all men, but focus, laser-like, on a few
select products that they make to perfection.
Villas
Perhaps the greatest benefit of this debate so
far is that it has now clearly teased out the reality that what we are
talking about after all is not a golf project. As Minister Zammit
Dimech notes in his "win-win" article (The Sunday Times, October 2):
"The project will also provide precise space for real estate
development to ensure its possibility." This imprecise statement means
that what he has in mind is another mega-construction project, in other
words, villas.
Leaving aside environmental and social aspects,
Malta needs this as much as a hole in the head. Such a project at this
time would worsen the balance of payments problem in the immediate
future, given the high import content (including labour inputs in view
of the tight situation in some skill-markets).
It is not clear that the outlay will be easily
recouped in the medium term, given the likely impending supply overhang
in upmarket (for foreigners) residences in Malta, where unit costs are
now at or above those in other countries, and the precarious situation
of the property market in general as we enter an upward swing in the
interest rate cycle.
Official egging-on of essentially speculative
property investments could only heighten the danger of significant
distress to our financial system if the general property market
deflates over the next few years, as some observers expect. Of course,
the growing social divide as a result of the situation in the property
market is another issue.
One could go on, but one thing is already clear:
that the golf course idea is either the outcome of confused minds or an
elaborate fudge to hoodwink the paying public. It already evinces a
shallow analysis of national and sectoral priorities in the allocation
of Malta's scarce resources. In the coming weeks, we shall ensure that
the subject will be treated with the depth and seriousness it deserves.
