Malta’s economic growth heavily depends on its ability to attract foreign direct investment. For the last four decades, the country’s main competitive advantages were a favourable tax regime and an abundant supply of qualified workers paid significantly lower salaries than those in more advanced European economies. This model now looks tired. The need to revamp our competitive advantages is becoming inevitable.
This year’s EY Malta Attractiveness Survey confirms that urgent action is needed to ensure that the country remains attractive in the eyes of investors based here and others looking to relocate here in the future. The most revealing finding of this year’s survey is that a staggering 86 per cent of those participating said that Malta’s preparedness for future population growth is inadequate.
Put simply, relying on population growth to generate more economic activity is not viable because of the inadequate physical infrastructure. Perhaps even more worrying is that the size limitations of the country make population growth through imported labour unfeasible and likely to strain the social fabric.
The survey also confirms that the challenges facing foreign investors already established on the island are getting more daunting. Sixty-one per cent of those surveyed are concerned about pending tax reform brought about by changes in international taxation policies. While changes in the tax regime will be gradual, the fact that foreign investors can no longer rely on ultra-friendly tax policies makes revamping the country’s main competitive advantages urgent.
EY Malta country managing partner Ronald Attard argues: “While it is good to see that the majority of investors perceive Malta to be attractive, the immediate question is why the numbers are not as high as those of a few years back.” While this may sound like a rhetorical question, the stark reality is that the government has been procrastinating the revamping of the economic model for too long. And Monday’s budget did little to address this challenge.
Almost half of those surveyed also identified the shortage of skills as one of their top concerns. The shortage of skills challenge is caused by various factors. They include an education system that is underperforming, a silent, very real brain drain as some of the more qualified local graduates leave the country to seek better paid and more fulfilling employment opportunities abroad and too many economic operations competing in a limited pool of talent.
The third risk that foreign investors identify is Malta’s lingering shady reputation. While the worst phase of bad governance may be behind us, restoring Malta’s reputation to the levels that investors expect will take a long time.
Investors participating in the EY survey argue: “Looking ahead, it is important for Malta to develop new economic sectors to remain globally competitive.”
There are two essential elements for this objective to be achieved. The first is to urgently define an action plan that identifies what needs to be done and the timeframes to implement the necessary changes. The second is ensuring that there is the political will and the competence to drive change, overcome resistance and achieve the targeted results.
There is no shortage of business and political rhetoric on what must be done. What is missing is a tangible comprehensive change management strategy that will deliver a revamped economic model that goes beyond minor insignificant changes.
It is time for transformational leadership to chart the way ahead for the good of society.