Malta is becoming less attractive to foreign investors as the country struggles to convince companies that its political and regulatory environment is up to scratch, according to a major business survey.

The latest edition of the annual EY Malta attractiveness survey, released during a conference held in Valletta on Wednesday, shows that 54% of surveyed companies believe that Malta is attractive for foreign direct investment. 

That's a drop of five percentage points from a year ago.

Although higher than the low of 37% registered in 2021, this remains well below pre-Covid days, when Malta’s attractiveness rating hovered around the 80% mark.

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The survey suggests that one key reason for this dip is the perceived dent to the stability and transparency of Malta’s “political, legal and regulatory environment”.

While this was once seen as Malta’s greatest strength, scoring as high as 85% in 2015, investors say that it is now one of Malta’s biggest weaknesses, dipping as low as 17% in 2021, before settling on the 29% mark this year.

Other failings include Malta’s transport and logistics infrastructure which, although always seen as one of the country’s Achilles’ heel, has now dipped to an all-time low of 16%.

Companies warn of skills shortages and tax changes

Half of the companies surveyed say that the biggest risks that Malta’s business environment faces over the coming years are a skills shortage amongst its workforce and the upcoming changes to Malta’s corporate tax regime being imposed by OECD.

These changes will mean that Malta’s corporate tax rate, in which some foreign-owned companies pay as little as 5% tax, will have to eventually rise to a minimum of 15%.

But investors also spot other potential threats to Malta’s business environment, from the country’s physical infrastructure (29%) to reputational concerns (42%) and cost competitiveness (34%).

Companies plan to stay put, but not expand 

Some 70% of companies surveyed say that they are not planning to leave the country, believing that they will still be operating in Malta in a decade’s time. This score was at a low 59% a decade ago, before rising to 80% just before the pandemic hit in 2019.

But although the prospects of companies leaving the country remains low, the suggestion that they will be expanding their operations has been in freefall in recent years, dropping from a high of 65% in 2018 to 38% today.

Don’t cut back on economic growth, companies say

While the majority of companies surveyed say that Malta needs to focus on improving the quality of its product, very few believe that Malta needs to scale back its economic growth and output.

Only 3.7% say that Malta needs to cut its output and economic growth, with a further 12.7% arguing that the country needs to up its quality while lowering its output.

The conference opened with a warning by Malta Chamber president Chris Vassallo Cesareo, who told the audience that Malta’s incessant focus on economic indicators such as GDP growth “overlooks the broader societal costs that comes with pursuing growth at any cost”.

Malta Chamber president Chris Vassallo Cesareo. Photo: Jonathan Borg

Malta would be better served by shifting away from these “superficial assessments of economic success” to a “more holistic” understanding of people’s wellbeing, he said.

Meanwhile, EY Managing Partner Ronald Attard told delegates that the survey reveals that although Malta faces difficulties, the country needs to “leverage its small size” to rapidly adjust to the challenges its businesses face.