Small economies are dependent on direct foreign investment to promote the growth that they need. Malta’s economy has benefitted significantly from this investment in the last few years with a mix of competitive advantages that investors were seeking. However, these advantages need to be sharpened if they are to continue reaping the benefits that the government expects.
The EY Attractiveness Survey 2019 has confirmed certain trends in Malta’s appeal to foreign investors that the government would do well to scrutinise and, where needed, to adopt strategies to correct any deteriorating trends. The investors who participated in this survey confirmed what some economic analysts have been arguing for some time – Malta’s fast acceleration in growth is not sustainable unless measures are taken to address the severe weaknesses in our human, physical, environmental and institutional infrastructure.
The good news is that 80 per cent of those who participated in the survey say they expect to be still operating in Malta in 10 years’ time. No one knows how the economic environment will evolve in the next decade, and one hopes that policymakers, markets and politicians will do what it takes to boost confidence in investors.
The concerns of investors are not insignificant. It will take a brave effort on the part of the government to adjust its policies to address these concerns. Talent shortage is the most pressing concern of a clear majority of investors who say that this element will be the biggest obstacle to expanding their Malta operations.
There are various reasons for this shortage. These include the inability of our educational system to produce more graduates in specialised skills, the small size of the local labour force, and the inflationary pressures on the salaries paid to experienced staff demanded by the industries that Malta is promoting. EY’s managing partner Ronald Attard rightly argues that “The quality and coat of labour is no longer our big selling point”.
A less tangible but equally essential competitive advantage is that of stability and transparency of Malta’s political, legal and regulatory framework. While in 2015, 85 per cent of respondents said they were satisfied with this element so essential to investors, this figure had gone down to 46 per cent in 2019. It is not just a significant section of Maltese society that is worried about the low quality of governance in the public sector that falls under the responsibility of the government.
The flow of direct foreign investment will only continue to be significant if policymakers avoid groupthink and address the issues that threaten future investment. For instance, upskilling the workforce to ensure they have the digital skills needed for modern-day industry is not about increasing the age of compulsory education. It is about a root and branch reform of our educational system.
Smart legislation and an attractive tax regime are not enough to convince investors to set up shop in Malta. Protection of the environment is rising fast in the agenda of international investors as is the reputation of the jurisdiction where they consider for their operations.
A small number of businesses in igaming and financial services have recently decided to relocate from Malta to other EU jurisdictions because they feel that Malta no longer has the right mix of competitive advantages.
Hopefully, policymakers will make the changes necessary to stop this flow.