Malta’s open economy can only thrive in the long term if it offers an attractive package of competitive advantages, especially to direct foreign investors. Established investors regularly review their strategy to decide whether their local operations justify their remaining here. New investors compare and contrast the pros and cons of choosing Malta as a base for their latest project or opting for competing destinations.
The latest EY business research study on the country’s competitiveness in the eyes of existing investors reveals some worrying trends that have evolved over the past few years.
The headline finding of this study is that only 54 per cent of surveyed companies believe that Malta is attractive for foreign direct investment, a drop of five percentage points from a year ago.
The decline in the country’s reputation as a solid, respectable jurisdiction has still not been reversed despite the happy talk of the prime minister and various ministers on how well the economy is performing. The survey unsurprisingly suggests that one of the critical reasons for the dip in investors’ confidence is the perceived dent in the stability and transparency of Malta’s “political, legal and regulatory environment”.
The government’s strategy to control the various institutions directly or indirectly by appointing party loyalists to lead them is a stumbling block to governance reform to ensure that the checks and balances that should exist in a democracy are robust. The winner-takes-all system of government will continue to undermine the chances of improving the tarnished reputation in the eyes of existing and potential investors.
The weakness of the transport and logistics infrastructure is another reason investors’ confidence in the country is declining.
Navigating one’s way in our congested road network is becoming a nightmare for many businesses that have to pay for the chaos on our roads through declining efficiency.
Malta’s underperforming education system is another slow-burning issue that worries investors, who find it difficult to recruit highly qualified staff who are critically important to their operations. The claim that the country has an educated workforce that can offer potential investors a high level of skills at moderate costs is not based on the reality many investors face. Still, the education authorities fail to take action to implement the much-needed reforms to make the system fit for purpose in the context of complex economic developments.
The threat to Malta’s fiscal-friendly regime has existed for several years. Half of the companies surveyed by EY say that the most significant risks that Malta’s business environment faces over the coming years are a skills shortage among its workforce and the upcoming changes to Malta’s corporate tax regime being imposed by the OECD.
The economic impact assessment on introducing a minimum corporate tax rate of 15 per cent must indeed have been made by the government, even if it has not been published.
The rise in taxation could result in some investors who initially decided to relocate to Malta because of the fiscal-friendly regime deciding to relocate to other jurisdictions that offered a better overall package to investors.
It is time for the finance minister to go public on how the rise in corporate tax will likely affect the country’s attractiveness to foreign investors.
At the EY conference, Prime Minister Robert Abela told business leaders that Malta needs to shift focus from outperforming Europe in economic growth to outperforming the continent in the digital and green transitions.
Still, hubris and political happy talk will never address the stark reality that the country is facing as it sees its attractiveness to investors falling.