Malta’s information and communications technology (ICT) industry has experienced substantial growth, which, to a degree, mirrors similar trends elsewhere since 1990. Today, the sector is said to contribute some five per cent of GDP.
The Government could seek to attract the smaller VC firms
Historically, the first national ICT policy has its roots in a Public Service Review carried out in 1990 which charted out strategic reform supported by ICT.
Subsequently, a strategy with a national scope – the National Strategy for ICT (NSIT 1994) took a multi-dimensional view at strategic initiatives for the country to inculcate ICT into all aspects of society including education, Government, trade and the growth of an indigenous industry.
The advent of the first internet connections in Malta, in 1995, came along with the liberalisation of the telecoms sector. In 1998, a further strategy for the Government was launched which set the path for a key development , the introduction of “government online”.
In parallel since 1994, a transformation started in the education sector, with investment made in training teachers, introducing networks and computers into the classroom at the primary and secondary level. At the tertiary level, the University expanded its ICT degree courses.
To supplement the number of University graduates and address the needs of industry, Mcast was subsequently launched.
Subsequent strategies and policies continued to build upon this evolution and culminated in the ‘Smart Island’ vision which displayed a growing sophistication in the application and development of ICT in Malta.
A key tenet of policy of the previous Administration was largely focused on driving the increase in the number of ICT professionals. This has fuelled the growth of FDI-based, foreign ICT companies in Malta. A direct beneficiary has been the iGaming sector, which is a mainstay employer of ICT personnel, often with an inflationary effect on salaries.
The increase in the number of graduates also gave way to the rise of the ‘software factory’ – typically foreign owned companies that came to Malta because of the availability of a low cost, educated and skilled workforce. Their business model was predicated on reselling these resources’ labour at a premium elsewhere – especially the UK.
A new vision and set of underlying policies are needed to reflect the new realities within which Malta must operate. We can no longer position ourselves as a ‘cheap’ source of ICT labour. Neither can we continue to depend on these ‘software factories’. This is yesterday’s business model. We also need to acknowledge that such organisations are volatile and can depart very easily when it suits them, leaving little value added behind, since market access and such knowledge is tightly controlled by the owners.
In this uncertain economic era, Malta has thrived, mostly through a combination of low tax incentives, a flexible legal framework and pro-active regulator behaviour as well as a flexible workforce.
This recipe has been the raison d’être for the presence of the iGaming sector. There are external pressures, including geopolitical ones which are intent on curbing this flexibility (particularly with regard to tax) in places like Malta, Ireland and Luxembourg.
What the ICT sector and Malta need is not another prescriptive strategy. The market should dictate the directions taken. What is needed is a policy framework which enables the potential of Malta’s ICT entrepreneurs.
Malta needs to turn its attention to growing and nurturing its indigenous ICT companies and entrepreneurs. Such organisations are more likely to form deep roots within the community and therefore are less likely to leave the country. Failing to address this will ensure Malta continues to score low in research and innovation and leave the country exposed to slow economic growth.
The European Commission has recognised the need for policy frameworks to help its indigenous ICT industries evolve into world class players – the latest term bandied around is ‘smart specialisation’. We have among us a budding number of young entrepreneurs who, despite the odds, have been having some success developing innovative products and services in niche areas. These people know what it means trying to acquire support and funding in Malta (very difficult) – the key to our ICT sector’s growth lies with these individuals and ensuring the ground is fertile enough so others follow in their footsteps.
Despite numerous support programmes being run by organisations such as ETC and Malta Enterprise (start-up and internationalisation schemes), it is very time-consuming, expensive and difficult for start-ups and entrepreneurs to apply, let alone acquire funding. These programmes are simply not designed with the microenterprise in mind. Venture capital is virtually absent in Malta. Acquiring finance from the banks typically comes with many strings including collateral and property being held as security. Some programmes like Jeremie have helped, but recent statistics show that the uptake of such schemes for one reason or another is still very low for SMEs. This lack of available finance has driven potential entrepreneurs either into employment or overseas where they can use their ideas to attract venture capitalists – either way this is effectively a brain and idea drain of Malta’s best and brightest.
Ensuring that ideas and innovations are protected is a challenge for start-ups and local ICT firms. There is little knowledge about trademarks and patents. Given the complexity and expense of such processes, many fail to protect their intellectual property.
Government support and a well-targeted policy framework that addresses these areas is a sine qua non, if we are to achieve the next stage of growth as an industry. The ICT industry does not need handouts – what it really needs is a support framework where it can flourish. By doing this the Government will ensure that our economy will not be overly susceptible to volatile industries as these truly indigenous companies could flourish and create high value added jobs and enrich our research and innovation capacity.
A policy framework should encompass a number of factors. It needs to encourage the establishment of local incubators. The University and Smart City Malta could be players.
The rules and process for the various funding programmes with the microenterprise in mind must be simplified. A further option is to provide a fast-track process specifically based on the ‘value added’ content.
Access to venture capital through organisations such as Malta Enterprise should be facilitated and the Government could seek to attract the smaller VC firms to look at Malta and facilitate brokerage between them and Maltese entrepreneurs.
Patent processes should also be facilitated and guidance and support services would help enrich the national IP pool. The soft skills of budding entrepreneurs must be developed by providing education programmes not just to undergraduates but professionals who have already graduated or indeed are self-taught (innovation is not purely the domain of graduates).
As a clear case for supporting local entrepreneurs in the ICT industry, one need only survey the quantity of online start-ups being established by local graduates. If each of these firms employed five to 10 people each within the next two to three years, Malta could be looking at a healthy, high value-added cluster. This would help reduce our dependency on volatile FDI for employment creation and truly put Malta on the map.
Pierre Mallia, has worked with MITTS, start-ups and Microsoft Corp. He is managing director of iMovo.