Foreword - Time to Act
Ronald Attard, EY Malta & Cyprus Country Managing Partner and Central, Eastern, and Southeastern Europe & Central Asia (CESA) Strategy and Transactions Leader
For almost two decades now, the Malta Attractiveness Survey has gathered the views of foreign direct investment (FDI) companies with roots firmly on the island. These companies, across various sectors, are deeply invested in Malta and have an interest in its prosperity and future. Looking back, it’s interesting to see how far we’ve come, but it’s equally important to take the time to reflect on where we are today, before charting the way forward.
The COVID-19 pandemic came out of nowhere, and action was needed to safeguard people’s lives as well as the economy. From a health standpoint, our ability to vaccinate almost the entire adult population in a short time frame has been commendable. Businesses have responded well to the support measures. Economically, though, these measures cannot be sustained indefinitely. Some uncertainty remains, particularly as we have seen new variants emerge. Authorities in Malta and elsewhere have a mammoth task to navigate the next phases on both the economic and health fronts.
In June, the Financial Action Task Force (FATF) put Malta on the grey list. We conducted this year’s annual survey just a few weeks later. For the first time since we have been conducting our survey, a significant part of the investors interviewed are telling us that Malta is currently unattractive for FDI. This might not be easy to digest as we are accustomed to better results. This outcome is not necessarily only due to the grey listing, but it has certainly played a big part. It would be foolish to bury our heads in the sand and not act immediately.
Other countries, most notably Iceland, have passed through the same process and come out the other side in a timely and effective fashion, and Malta can too. It is imperative, though, to look beyond short-sighted gains and shift the focus toward building a future-proof framework, legislation and enforcement to underpin long-term economic prosperity.
Eight out of 10 investors would like to remain here for the long term. This is their home too, and they want us to succeed, but what other issues are investors telling us to look at?
Our tax regime remains our most attractive feature for FDI investors, but its attractiveness has declined by 15% in one year. Developments internationally will certainly have had a bearing. The stability of the political, legal and regulatory environment has been placed last for the second year running. Some years back, this parameter was ranked at the very top. With consistent effort from all interested parties, improvements can be registered once more.
In last year’s report, we asked whether this was the time to pause and reflect. We asked whether we should take the opportunity to reframe our future. Potentially, a new economic model that is less based on numbers – be it the number of cars, tourists, permits or property sales – may be needed. One that focuses more on well-being and the quality of life of our residents. An economic model where the benefits of an attractive tax system are eclipsed by the strength of our talent pool, digital infrastructure, innovation environment, quality of life and social fabric.
In the meantime, positively, any lull due to COVID-19 has given way to increased recruitment. The flip side is that the ability to find and recruit specialized personnel has once again resurfaced. The skills required within the market are continually changing, and the skills of tomorrow won’t necessarily be the skills we are teaching in schools today. Local industry and educational institutions must align to cater to each other’s needs.
Linked to this is the fact that, for several years, investors have highlighted Malta’s weak innovation capacity, despite thriving ICT, telecommunications and hi-tech manufacturing clusters. The growth of the tech sector throughout the pandemic proves its resilience and shines a light on where Malta should focus in the years ahead in an increasingly interconnected and digital world.
In last year’s survey, we wrote that “sustainability may be a buzzword for 2020 but it is not a fad.” The same can be said in 2021. Although Malta’s green efforts have increased in recent years, there is still some way to go. The survey highlights how investors believe that sustainability and climate change are trends expected to continue accelerating due to COVID-19.
Furthermore, a large majority believe environmental sustainability is a critical or somewhat important part of their investment strategy. Companies are realizing the importance of meeting the needs of all their stakeholders – customers, employees, partners and society – as a critical factor to drive sustainable, long-term value creation.
If you look at our 2021 EY Generate Youth Survey, released during EY’s Future Realised Week, you will see how high on the agenda sustainability issues are for both Gen Z and Millennials. They are the future of this country and 9 out of 10 believe the environment is getting worse. They also believe our biggest challenge is overdevelopment and the environment. Almost two-thirds indicated they would prefer to live and work elsewhere in Europe. It is therefore imperative that we transform our urban and social fabric, and create the type of employment opportunities that will rekindle Malta’s appeal. Around 60% wish to become entrepreneurs, and I have no doubt we will be seeing many of them providing workable solutions to the challenges we face.
These are all priority areas going forward, but it’s worth keeping in mind that our weaknesses are not permanent. Far from it. We have the capability and resources to turn our fortunes around and harness our strengths to compete with the very best.