AI - a sudden transformation of commerce

One may be excused not to remember how shopping by housewives in the U.S. developed since the early fifties and sixties.  In Malta, we dreaded such years of poverty and long queues of jobless, that now triumphantly pave way to a thriving economy which boasts full employment plus the attraction of over one hundred thousand TCN’s.

These signed up for better work conditions in Malta after facing meagre wages in East Asian countries. Most were lured and registered against payment by local temping agencies. So are we the isle of milk and honey?

Not so quick. The pangs of inflation hit us following the calming measures taken by Castille to quell the pandemic and render our shores wide open for exports.

On a positive note, Malta International Airport is currently forecasting overall passenger movements will climb to eight million this year, which translates into a healthy growth of 2.5% over the 2023 level. In fact, MIA’s CEO made reference to data from ‘Eurocontrol’ that indicates that passenger traffic across Europe in 2023 reached around 92% of the 2019 pre-Covid levels. The tourist season has been very rewarding last year (albeit at a lower per capita return) as we picked up the slack suffered during 2020 to 2022 period.

Throughout 2023, the local deficit narrowed by €779.3 million when compared to 2022, reaching €4,061.2 million, according to NSO statistics. At the same time, not all tax payers 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.

A recent IMF report warned that, despite impressive growth, Malta’s physical and public health infrastructures are creaking under rapid population growth. We badly need to refurbish St Luke’s Hospital, currently abandoned and sadly derelict. Naturally, such neglected public expenditure for the infrastructure must be funded by taxation or more borrowing as fiscal pressures are increasing fast.

The Chamber of Commerce last month demanded the removal of duties on consumer goods that are in frequent use, such as water, non-alcoholic beverages, shampoo and hair products, personal care, make-up, shaving products, deodorants, wipes and body soaps. Such products are not covered by the government's omnipresent “Stabbilta” enforcing a 15% price reduction scheme - so such duties constituted a “hidden tax”.

The sins of our economic success include shortage of skilled workers. The sombre mood about jobs scarcity in the retail, wholesale, importation and distribution industries is felt in other sectors such as professional and legal offices. The property sector faces a similar downturn, even if their concern rarely makes headlines, given that the NSO recently tells us the number of signed promises of sale is not showing a drop compared to previous years. Another headache is the US inflation.

In the international sector one notes the high Federal rates which one hoped these will be trimmed this March. Fed chairperson Jerome Powell said that a March interest rate cut is unlikely. The Fed maintained its benchmark federal-funds rate at 5.25 and 5.5 per cent, the highest level in over 20 years, as it awaits more convincing evidence that inflation, which saw a significant decline at the end of last year, will not spike higher.

The ECB's governing council reiterated in its statement that it believed rates are at levels that "maintained for a sufficiently long duration, will make a substantial contribution" to returning inflation to the two-percent target. The European economy is now experiencing the extreme effects of Darwin’s theory more frequently in the digitalised business world. Surely Malta is not immune.

One notices aggressive, almost belligerent ‘disruptors’ appearing virtually out of nowhere, dominating new markets quickly, or driving long-established top firms to ruin with radical business models without industry experience. There is then hardly any room left for potential competitors in Malta to gain a foothold with an alternative offering.

A respite came last month by the introduction of a long-awaited European Union Artificial Intelligence Act. In its credo, it seeks to strike a delicate balance between fostering innovation and safeguarding fundamental rights and security within the digital ecosystem. Can MDIA take note and sharpen its educational and innovational prowess?

In brief the A.I. Act introduces the concept of classification of the risks posed by the use of an 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, 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.

There is more about annexes II and III which list specific high-risk AI systems. Annex II includes all AI systems that are incorporated as a safety component within products that are regulated under separate EU legislation, such as medical devices, toys, civil aviation, and motor vehicles. Annex III lists AI systems that, overall, pose a substantial risk to people’s security, health or fundamental human rights, such as AI systems that determine access to and the enjoyment of essential private services, including those systems that evaluate creditworthiness and pricing of life and health insurance.

The prohibition on banned AI systems is slated to be enforced later, with the act anticipated to be fully operational by the second and third quarters of 2026, reflecting a measured and deliberate approach to ensure effective implementation and industry adaptation.

Upon reflection, Malta’s accession to the EU in 2004 has opened the flood gates to myriad regulations, that if religiously followed, guide our politicians to improve good governance, environment, meritocracy and maintain a higher moral rectitude.

In conclusion, the nostalgic picture of US housewives buying staples from an open-air truck remind us how today, the procurement of family requirements in Malta, has improved by the opening of large discount supermarkets; each competing to offer a wider choice. Cheers, together we have progressed to build an economy with full employment and economic stability.