Michael Stivala was full of ideas for how to sustain Malta’s economic prosperity when the head of the construction lobby sat down for an interview with Times of Malta. But that didn’t make them uncontroversial.
His push for even more construction, foreign labour and mass tourism has led to calls for the country to find other ways to grow the economy without damaging the wellbeing of the population.
Finance Minister Clyde Caruana and the Malta Bankers’ Association chair, Marcel Cassar are among those advocating for change, suggesting a focus on other industries and quality.
Times of Malta spoke to economists Gordon Cordina, JP Fabri and Lino Briguglio to understand what potential future drivers of Malta’s economy could be.
Current economic model unsustainable
The cracks in the current economic model were clear to all, with Briguglio insisting that “Malta cannot continue to depend on industries like construction because they have evident impacts on Malta’s scarcest of resources – land – as well as the well-being of its citizens”.
Fabri argues that Malta’s need to continuously renew its economy “cannot be underestimated”, with Malta still “strongly dependent on a few critical sectors including tourism and gaming”.
Cordina, meanwhile, argues that diversification and a more sustainable economic model “underpinned by economic production of the right kind” is a “necessity for our economy to thrive in the coming decade”.
How can we diversify?
According to Fabri, diversification needs to take place both in terms of establishing new industries in Malta and also by “exploring new niches in existing sectors”.
He argues that several existing industries, such as financial services, gaming, tourism and information technology, have the potential to “continuously reinvent themselves through the establishment of niche markets or sub-sectors”.
Fabri mentions the example of the soon-to-be-launched superyacht policy as well as the aircraft leasing sector, which is mentioned in the recently launched financial services strategy.
Similarly, Briguglio argues for the need to identify and focus on niche sectors or products that can be manufactured and sold more broadly, “not just as artisanal products”.
“We need some creativity to develop new industries, where we look at what resources and qualities we have and maximise them.
“Look at the example of Fiji, also an island, that developed and marketed Fiji water as a unique product that is desirable around the world.”
Services or manufacturing?
Fabri notes how Malta’s industry has forked into two main clusters over the years. Service-based sectors, such as gambling, information and communication, offer “higher-than-average productivity” as well as a “leaner workforce”. On the other hand, more labour-intensive sectors are “losing ground compared to other European countries”.
Cordina describes the belief that Malta must specialise almost exclusively on service industries as a “myth”, arguing that other industries such as manufacturing and logistics also offer “great potential to contribute to the country’s vision”.
Briguglio agrees, pointing to the potential for Malta’s manufacturing industry to grow by focusing on “vertical specialisation”. This would involve Malta becoming part of the chain of production and contributing specialist skills or knowledge to imported goods, before passing them on for export or sale.
According to Briguglio, vertical specialisation would mean that mass production of goods – often associated with low wages – would take place elsewhere, with Malta’s input to the manufacturing process involving higher-value, higher-paid skills.
More and better government intervention
Cordina points to what he says is another oft-repeated myth that “the free market will produce the best results for Malta; the size of the government must be reduced as much as possible”. He argues that many of today’s problems are the result of a “poor long-term planning from decades ago”.
“Every country needs more of the right kind of government. The free market left to its own devices will probably bring more pain than gain to a small territory with environmental and social fragilities.”
He argues that Malta needs to be selective in the type of industries it seeks to attract, ensuring that these industries balance the type of jobs they provide with their “social and environmental impacts”.
These industries also need to be “subject to the right kind of regulation, possibly involving a more intrusive planning process”, according to Cordina.
Need for a ‘holistic vision’
Fabri criticises the fragmented approach to Malta’s economic development, with various sectoral policies and strategies taking the place of an overarching vision for the economy.
“What Malta requires is to take an ecosystem approach and reduce the fragmentation that exists. Malta needs a holistic national long-term vision that gives a clear direction of where we are heading and how we envision the economy to look like in the near future.”
Cordina agrees, saying that social partners and businesses “need a structured economic plan within and towards which to work”.
Such a plan, according to Cordina, needs to go beyond purely economic targets and look at the broader social fabric, including “the population which the country will be expected to accommodate over the next 30 years, the allocation of land and marine resources, the targets for business, environmental and social performance”.
Cordina points out that a new economic vision cannot pander to all economic sectors. “It will also need to courageously spell out the type of business activities and outcomes which are no longer suitable for Malta,” he says.
Ultimately, Cordina argues, this vision would need to be implemented by business leaders, professional politicians and civil servants working together. However, “they must act and be seen to be acting effectively and responsibly towards common goals”.