The Business Observer 9th October

INTERVIEW

Issue 11

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October 9, 2014

Distributed with Times of Malta

The MFSA has had numerous projects and regulatory deadlines to deal with which have stretched its resources, but chairman Joe Bannister sees light at the end of the tunnel. see pages 10 and 11 >

NEWS Betsson has ruled out social digital games of skill and CEO Ulrik Bengtsson warns that this sector is not a natural evolution from i-gaming, having a totally different business and marketing approach. see page 6 >

Differences over MIP project at airport Vanessa Macdonald There are contrasting views on whether the development of a site within the airport perimeter would impact operations, with Malta International Airport saying it would not in any way restrict development, but sources insisting that it would.

The government awarded the Park 4 site – which is also used for the annual air show – to Malta Industrial Parks (MIP) for development in 2010 and it appears that the project may go ahead in a year or so.

“The decision to lease Park 4 to MIP was taken after serious consideration of the airport’s airside masterplan, which includes the

capacity of taxiways, runways, aprons and ground services equipment staging areas.

“The airport’s core business is commercial aviation and we would avoid at all costs any development that could impinge on the airport’s future growth,” an MIA spokesman told The Business Observer.

When asked to comment, a spokesman for Malta Industrial Parks (MIP) said: “Your questions cannot be answered in a simplistic manner since requirements do change and we have to be flexible.

“Aviation is an area that has been targeted by government as offering excellent opportunities for sustainable growth. Indeed the interest being shown by investors in this sector is extremely

“e decision to lease Park 4 to MIP was taken after serious consideration of the airport’s airside masterplan”

NEWS

encouraging. MIP has been very proactive in this regard and is responding to the needs in a timely manner,” he said.

“When doing this we take into consideration all the stakeholders’ interests and work closely with all stakeholders concerned.

“The process of planning and execution is often not a short one and many times the needs and requirements of investors change from the original request to the final requirement. MIP seeks to respond to these changed requirements and we maintain our businessfriendly approach at all times.

“What must be stressed is that MIP will seek to accommodate all Continued on page 3 >

The EY Attractiveness report for Malta picks up some reassuring trends about FDI – but also raises a few trends that need to be nipped in the bud. see 8-page supplement >

CASE STUDY The Ħal Far Groupage Complex could turn into an efficient hub for logistics. But Express Logigroup CEO Jonathan Vella thinks this could only happen if it is privatised, and accessible 24/7. see pages 14 and 15 >

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NEWS

Some problems can be solved < Continued from page 1 stakeholders’ concerns while ensuring that sustainable development in areas of high national importance are not impeded.”

However, well-informed sources believe MIA could run out of space to park aircraft if MIP proceeds with plans to develop a hangar.

“The problem is that Park 4 is the second largest park after Park 9 (opposite the terminal). There is already a shortage of parking.

Imagine what would happen if aviation takes off the way it is being forecast,” the sources said, noting that there were nearly 35,000 aircraft movements in 2013.

Limited aircraft parking at the airport is not helped by the absence of ‘tractors’ to manoeuvre planes, which means that they require a much larger turning circle. Creating more parking would also have to be carefully scrutinised because of its impact on air navigation. Park 9 could be extended sideways, and there is also an area by the Safi Aviation Park which could be developed, the sources said.

This issue could escalate if aircraft movements keep increasing.

The sources said that because there is no taxiway adjacent to the runway (see map) when a large aircraft overshoots the terminal and needs to get back to Park 9, it must do so on the runway itself.

“This means that other aircraft cannot land while it is manoeuvring, taking up valuable time,” the sources said.

Another issue affects business aviation, which is increasing dramatically: around 1,200 jets a year up from 700 three years ago.

Businessmen who save an hour by travelling on a private jet are upset when they find they must wait half an hour at the traffic lights to cross the secondary runway.

The sources said that there were a number of solutions. There is a perimeter road that goes around the runway but this would need to be widened – at MIA’s expense.

A tunnel under the runway would be another option – but this would cost over a million euro, according to the sources, and would

probably also have to be paid for

by MIA. There is a much more straightforward compromise being proposed.

At the moment, there is only one “threshold” marked on the runway – meaning that it must be closed whenever an aircraft is landing or taking off. However, the sources said that while large, commercial aircraft require the existing threshold, smaller aircraft like business jets and flight academy planes could have a threshold on the other side of the traffic lights – effectively creating a ‘shorter’ runway for them.

“Since this runway is only used by commercial aircraft in specific circumstances – such as when there is a strong northeasterly wind – doing this would mean that the traffic lights would be green 90 per cent of the time,” the sources explained, adding that it would re-

“Unless the right decisions are taken now, we could face real problems in the future” quire procedural changes to air navigation procedures.

This would be a relief not only to businessmen but also to Enemalta, whose fuel trucks also get stuck.

“Enemalta’s Petroleum Division is working to allocate the necessary investments to improve the quality

and efficiency of all its services, including the supply of aviation fuels at Malta International Airport. A number of meetings were held about this matter with the parties involved. Discussions are still ongoing,” a spokesman for the corporation said.

Apart from space for aircraft parking, the increase in business aviation companies – there are now 22 licensed companies – means space is also needed for their operations. The old Civil Aviation Directorate is about to be demolished but there are also around nine units on the Ħal-Farruġ side which are used for non-aviation purposes, ranging from the area that used to be taken up by the Valletta Football Club to a drug rehabilitation centre.

The lack of a civil aviation authority is also being felt as the sector needs a strong regulator, with the

sources warning that more pressure needs to be put to bear on MIA to invest on airside facilities, including runway maintenance and upgrades.

The authority was Karmenu Vella’s baby but when he was nominated as a Commissioner everything ground to a halt.

“Let me give you just one example of the difficulty in getting anything done... There is a procedural ‘restriction’ in place because of overgrown trees on private property beyond the runway and, for a whole year, no one has actually done anything to get them trimmed.

These are problems which can be solved very easily. The airport is a vital part of our infrastructure but unless the right decisions are taken now, we could face real problems in the future.”

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NEWS

Start-Up programme to be extended Young Enterprise is going to repeat its Start-Up programme for entrepreneurs, building on the success of last year’s pilot programme.

Start-Up is the natural progression for Young Enterprise, which over 26 years has grown from the HSBC Company Programme for Sixth Formers, into a programme for primary and secondary students.

Aimed at those over 18, Start-Up grew from the frustration of those who completed the Sixth Form company programme – but were left wanting more once they went into tertiary education.

Five teams took part in a pilot programme, which was offered under the umbrella of the University’s Degree Plus programme. This year, the Faculty for Economics, Management and Accountancy has also come on board, supporting an extended offering and also recognising the programme’s modules as elective credits.

Start-Up is split between two modules running from October to January and January to May. The first involves setting up the team, identifying the product or service and doing market research . The second deals with the creation of the prototype and the drawing up of the business plan, which is judged in a ‘Dragon’s Den’ environment. During this competition the teams also get a chance to win €15,000, as seed capital through the BYE (Brilliant Young Entrepreneur ) award being supported by Hyundai. The overall winner will also represent Malta in the European competition.

The University has also been very active in promoting entrepreneurship and its Take-Off incubation project will help to nudge successful products and services into commercially viable businesses.

YE is reaching out to Mcast and other tertiary institutions and also wants Start-Up to be open to nonstudents – in the belief that the more multidisciplinary the approach and team make-up, the richer the experience will be for all concerned.

“People are afraid of entrepreneurship but much of that is perception.

They associate entrepreneurship with being a big capitalist or a chief executive, but the reality is that entrepreneurship skills help in many different situations in different career paths,” YE chief executive Lorna Farrugia said.

YE chairman David Pace agrees.

“Perhaps it is clearer when we say ‘enterprising’ as that immediately brings to mind people who understand business, who have a particular mindset,” he said.

“But we believe that this mindset needs to be instilled early on, which is why we have invested in the primary school programme. It is wonderful to listen to seven-year-olds comment on how the tax that their family pays is used to purchase the

“e YE programme is constantly looking for more input, from sponsors, mentors and business advisers” equipment in their local playground, or on how things bought through online websites have an impact on local businesses.

“And the earlier they start and get engaged, the more propensity there is to continue.”

Ms Farrugia said that people who have taken part in YE are easy to spot – but did YE turn them into achievers or did they join because they were achievers-in-waiting?

Thomas Naudi, who took part as a

student six years ago, believes that it is a combination – that there must be the innate desire to start with, but that YE channels it and gives it space to develop.

“I was the managing director of the company team and it was the first time that I had had the opportunity to make presentations. And with 12 people in the team I learned a lot about leadership, motivation, dealing with difficult people and so on,” he said.

The YE programme is constantly looking for more input, from sponsors, mentors and business advisers. It has now added another vacancy to the list: CEO. Ms Farrugia is planning to retire soon after five years in the role and a successor is being sought.

“The programme has been built up considerably over the past five years. We have had as many students in that time as we did in all the previous 20 years put together,” Mr Pace said.

“This is a very exciting time for us.”

Applications for the Start-Up programme are now open. E-mail admin@youngenterprise.com.mt for further information. www.youngenterprise.org.mt

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e Business OBSERVER

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NEWS

Malta ‘naive’ to look at social digital games of skill – Bengtsson Social digital games of skill are being seen by the Lotteries and Gaming Authority as the natural evolution for Malta from the i-gaming industry – but one of the main operators in Malta believes that this is “naive”.

“Betsson looked at social digital games of skill a year ago and we decided not to go down this route. It is a very exciting sector but it is very different to i-gaming. The tendency is to try to draw parallels between them but once we looked into it, we found that in reality there is very little in common as you are dealing with different customers and different demographics,” Betsson chief executive officer Ulrik Bengtsson said.

“Many other companies have tried but DoubleDown are the only one who actually managed to penetrate both sectors. For us, it is a closed chapter.

“Is it the next step for Malta? I think it is very naive. You cannot just see it as being a natural progression because it requires the same technical skills,” he said.

If not digital games of skill, then what is the future? This is what he described as the “million dollar question”.

“What we need is a new user interface for doing the same old things. Take hailing a taxi as an example. It is absolutely obsolete to think of doing that by going out into the street and waving one down,” he said.

“Everything is now software based and this is where gaming is now. Sports betting is ancient but things have not really evolved beyond moving online.”

The challenge is to make that leap in user interfacing, which will require not just technical

know-how but also world class brains who understand customer behaviour, he stressed.

Another option for Malta is to expand to new markets. At the moment, there is considerable buzz about affiliates who channel players to operators but Mr Bengtsson has reservations on this too.

“Affiliates need to be paid and there is less and less money to give away in this regulated market,” he said.

He believes the regulatory window in Europe is closing – making markets to the east and west much more interesting, something that the LGA has already identified as worth pursuing.

“We have already seen how hard it is to make inroads into Europe where each country has its own history and policy. It will be very challenging for Malta to achieve elsewhere what it found so much resistance to in the EU,” he said.

Betsson is constantly assessing its own options and recently decided to move Sportsbook development to Malta from Manila.

“When we started Sportbook in 2005, it was very labour intensive so we decided to go for a low-cost option.

“We had over 100 people working in Manila at one point, now down to 65.

“But we realised that we needed particular skills for the next generation Sportsbook brand and we also needed to be closer to our customers – not only culturally but also geographically as the time zone difference was a problem. We considered Stockholm, Kiev and London but eventually decided to bring that business to Malta,” he said.

The company plans to close down its operations in Manila by the end of the second quarter 2015, creating around 40-50 jobs here in Malta.

The biggest challenge will be finding the right skills.

“As it stood, around a third of our employees in Malta were Maltese but we are seeing that ratio decline because we cannot find the right skills. We are even taking people straight from schools but that is not enough. At the moment, things are too focused on ‘gaming’ rather than on technology. We need levels of software development that were not needed before. We are seeing a lag in new competencies. It is important for people to understand the career options on offer.”

ULRICK BENGTSSON, BETSSON CEO

“What we need is a new user interface for doing the same old things”

This complaint has been repeated many times: Shouldn’t Betsson start to put its money where its mouth is?

“You are right. Perhaps instead of lamenting that there is a lack of skills, we should be part of the solution,” he admitted.

The obvious solution would be more collaboration with the educational institutes and Mr Bengtsson admitted that Betsson was already talking to the Eduction Ministry about the feasibility of a setting up an academy through some sort of alliance.

“It is worth exploring. Now we need to instil a sense of urgency.”

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STOCK MARKET REVIEW

MSE Share Index closes marginally higher in Q3 Edward Rizzo During the third quarter of the year, the equity market benchmark closed 1.1 per cent higher at 3,333.187 points. Although the summer months are generally a quieter period for market activity on the Stock Exchange, trading activity across the equity market increased by 14.8 per cent when compared to the volumes in the previous quarter.

During the three-month period from July 1 to September 30, 2014, a total of €12.7 million in equity trades took place. Bank of Valletta plc was once again the most liquid security with €3.4 million worth of shares changing hands, representing 26.5 per cent of the total value traded.

Among the 21 companies listed on the Malta Stock Exchange, the performances were mixed with five equities showing double-digit gains and another seven registering milder price improvements. On the other hand, eight equities closed in negative territory during the summer months and one closed the period unchanged.

The best performing equity during the three-month period from July 1 to September 30, 2014 was Go plc with a share price appreciation of 27.5 per cent. Go was the second most actively traded equity during the summer with a value of €2 million worth of trades, equivalent to 16 per cent of overall equity volumes. This strong performance helped the equity maintain its ranking at best performer in 2014 with a year-to-date gain of 42.5 per cent.

The continued upturn during the summer months came amid increased expectations from the investing community on the value of the possible disposal of the group’s indirect investment in Forthnet (Greece). In recent months, Forthnet issued a number of announcements confirming that the Greek incumbent operator OTE (partly owned by Deutsche Telekom)

offered to acquire Forthnet’s Nova Pay-TV business for an undisclosed amount. Another announcement was issued in mid-July confirming that Vodafone Group and Wind Hellas Telecommunications SA submitted a joint non-binding indicative proposal to Forthnet, for the possible acquisition of all the shares of Forthnet which are not owned by them. Wind and Vodafone currently hold 39.50 per cent while Forgendo (jointly owned by Go and Emirates International Telecommunications) is the largest shareholder with a stake of 44.96 per cent. The announcement indicated an offer price ranging between €1.70 and €1.90 per Forthnet share. Apart from speculation on the possible amount that may be recovered by Go should this sale materialise, the positive sentiment towards Go’s equity was also helped by the publication of interim financial statements showing a 3.1 per cent increase in pre-tax profits to €8.5 million.

GlobalCapital plc ranks as the second best performer during Q3 as the equity reversed its decline in the second quarter of the year and climbed by 21.4 per cent to the €0.80 level. However, this upturn materialised on very weak activity of a mere 34,927 shares.

The third best performer was Lombard Bank Malta plc with a share price rise of 16 per cent during the summer months to €1.699. The equity is still down 1.4 per cent yearto-date and the recovery is possibly a result of renewed hopes that the long-awaited sale of the significant equity stake held by Cyprus Popular Bank will finally materialise. Meanwhile, the financial performance of Lombard Bank during the first half of 2014 was again characterised by further pressure on net interest income as interest margins tightened,

largely attributable to softer loan demand and a higher level of deposits.

Pre-tax profits of the Lombard Group of €3.3 million during the first half of the year represent a decline of 22 per cent over the comparative period.

RS2 Software plc continued to perform positively and the share price traded up to new highs during the summer. The equity advanced by 10.7 per cent to €2.934 after touching a new record level of €2.95.

Trading activity was strong with over 760,000 shares changing hands for a value of €2 million. RS2 is the second best performer since the start of 2014 with an increase of 36.3 per cent as the market capitalisation of this IT company surged to €132 million. RS2 now ranks as the seventh largest company listed on the Malta Stock Exchange.

Bank of Valletta plc was also among the positive performers during Q3 with an increase of 10.4 per cent. Despite the summer recovery, BOV’s equity is still down 7.4 per cent year-to-date following the 16.1 per cent decline in the first six months. Also in the banking sector, HSBC Bank Malta plc continued to underperform and edged 1.8 per cent lower during the summer with the year-to-date loss increasing to 15.1 per cent However, the worst performer during Q3 was International Hotel Investments plc with a decline of 20.5 per cent to a fresh all-time low of €0.60 as sentiment worsened following the developments in Libya and Russia which are impacting the company’s financial performance.

The properties in these two countries were among the strongest contributors to overall performance in recent years. The directors of IHI warned that instability in both Russia and Libya will continue to

impact hotel operations going forward and they do not exclude the possibility that these events could have a negative impact on the value of the property at the end of the current financial year. This would naturally negatively impact the entire group performance despite the improved operations across the other hotels in Budapest, Lisbon, Malta, Prague and London.

Probably, Q3 2014 will mostly be remembered for the rally across the bond market. In fact, Malta Government Stock prices surged to all-time highs (the Rizzo Farrugia MGS Index increased by 3 per cent) as eurozone yields sunk to fresh lows on worsening statistics across the eurozone economies and the response from the European Central Bank.

A number of interesting developments are likely to characterise the market during the final quarter. On the bond market, a couple of new corporate bonds as well as the final Malta Government Stock issue are expected to come on offer. One of the key events for equity investors will be the publication of BOV’s financial statements towards the end of October and the publication of the Asset Quality Review and stress tests being conducted by the ECB. Both BOV and HSBC Bank Malta have been undergoing these audits.

During the final quarter, additional announcements should also be forthcoming from Go and Forthnet in Greece on recent discussions regarding the possible takeover of the Greek company by Vodafone and Wind. Should this materialise, Go shareholders will then be anxious to hear from the management team on how it intends to use the resultant cash inflow and whether a special dividend would also be distributed.

Another company that should hit the headlines is Crimsonwing following the approval granted by shareholders at the annual general meeting in August for the dissemination of price sensitive information to prospective bidders that have shown an interest in the company. The circular distributed to shareholders ahead of the AGM explains that some bidders “have intimated an interest in acquiring a substantial shareholding in the company and in some cases in making an offer for the total issued share capital of the vompany”. Investors now await confirmation that the due diligence exercise has been completed and whether any of the interested parties has made a binding offer for the company.

The local equity market is therefore expected to remain responsive to the individual company newsflow as well as to the audit findings of the ECB on the two major banks.

Meanwhile, the bond market continues to be characterised by significant liquidity chasing limited fixed interest opportunities.

Edward Rizzo is a director at Rizzo, Farrugia & Co (Stockbrokers) Ltd. Rizzo, Farrugia & Co. (Stockbrokers) Ltd (RFC) is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent, and may also have other business relationships with the company/s. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report. © 2014 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved

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e Business OBSERVER

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INTERVIEW

MFSA awaits outcome of changes Last January, JOE BANNISTER agreed to stay on at the helm of the Malta Financial Services Authority for a further five years. Although as the regulator he cannot comment on any cases, VANESSA MACDONALD still found plenty of other challenging topics.

JOE BANNISTER

The MFSA has 234 staff – of which 120 are engaged in licensing, regulation and supervision. These must look after 26 credit institutions plus one EU branch, 125 investment service licences, 28 fund administrators and 60 insurance undertakings. And yet you only carried out 67 on-site inspections in 2013. Is that enough?

The number of on-site supervisions does not relate to the number of companies. Most things happen within the MFSA through compliance reporting by all which takes place quarterly or half yearly. The regulator may alter the frequency of reporting as necessary. It is the compliance reports which are fundamental for the MFSA to determine the risk posed by the company.

The point is whether you have sufficient resources for the growing number of entities you regulate.

And whether you can find not only the skills but the experience you need...

You will have noticed that in the last two years, there was a significant increase in staff numbers. We do find the right people. One of the issues is that other companies poach from us, and that causes a headache as it could take months to recruit replacements.

The Oliver Wyman consultancy firm – who are now the consultants of the European Central Bank (ECB) – recently carried out a governance of supervision at MFSA. The ECB is also conducting a capacity building exercise in every regulatory authority. We will await the results of these exercises and will then recruit.

We also have good, extensive training programmes, carried out by external supervisors: the German supervisor this year conducted training in banking and insurance, while the US Securities and Exchange Commission also comes regularly. We also have international trainers who do induction courses.

One of the problems of the MFSA – inherently because of its role but also because of your personal ap-

proach – is that much of work is done behind the scenes. But this may fuel the public perception that you let things slide by...

Not on supervisory issues. Those are enforced. But yes, we do enter into dialogue with operators and explain to them what they need to do – and it has worked. This also helps us when it comes to developing innovative regulation.

The unintended consequence is that people think that the MFSA doesn’t use a stick...

Obviously we cannot reveal what we do. The processes are confidential. But I can assure you that we do use a stick and we do get the results that we want.

People must understand that the regulator has certain obligations in terms of professional secrecy, so we cannot talk about what we are investigating.

And there are limitations at law on what we can enforce. But in the future, things will change with the introduction of the ‘conduct of business’ regulations, for which manuals are now being written.

The way companies deal with consumers will now obviously change – particularly when Mifid II (a directive on markets in financial instruments) comes into force in 2015. Staff are already undergoing training – we are lucky to have one of the drafters of the directive coming over.

What will it mean in practice for customers? We don’t yet have a financial ombudsman...

There is a difference between consumer complaints and consumer protection. The MFSA never had any consumer protection powers because it had no power to enforce any decision it took, any judgment it made, or any ruling it issued. Things will work differently when the government proceeds with the appointment of the ombudsman, hopefully early next year, who would be completely independent of the MFSA as it should be.

There have been cases in the past where guidelines and definitions

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INTERVIEW

were not as appropriate as they could have been on categories of investors. Have you changed anything yet?

We have to wait for Mifid II implementation in June 2015.

Why should you have to wait for anything to change the definition of a professional investor?

There are processes that the MFSA has to follow, and you have to see who is being affected and who is not.

You have had years in which to do this. Why has it not yet been done?

It is not something that you impose. For example, everyone thinks hedge funds – alternative investment funds –should only be sold to professional investors but actually the alternative investment fund managers directive (AIFMD) says that Alternative Investment Funds could be sold to retail investors.

It is not a question of standing up to say what should be done. We know what should be done but we have to conform to the directive although we have taken steps so that this does not easily happen.

“ings will change with the introduction of the ‘conduct of business’ regulations” The MFSA is the only EU regulator that has issued formal guidelines on Sharia-compliant investments, a $2 trillion sector.

But are guidelines enough?

Shouldn’t we be doing more to attract activity in this sector?

The role of regulator is to create innovative legislation. The operators have to go out to attract business. The rules we issued were already there in a different format.

We just gave them a different label and guided operators as to what is acceptable.

One misconception is that we do not allow Sharia banks. The issue is that they have to abide by IFRS accounting standards, such as for example, when it comes to capital requirements. This is a huge issue which is still being studied by both the IFRS and the Sharia committee.

The only issue in local law is a 1970s provision which says that banks cannot hold property except for their own use. Under Sharia, there are no mortgages and the banks own the property, transferring it to the client on maturity.

However, even though they cannot do it that way here, they could interpret the provision to refer only to property in Malta and therefore avoid the issue.

Other jurisdictions like the Isle of Man are creating a regulatory regime which is conducive to Bitcoin – although it is still very controversial. How does the MFSA see it?

First of all, you cannot compare

offshore and onshore jurisdictions.

There was also a guideline issue by the ECB saying that virtual currencies should not be licensed. We have to conform to that.

In fact, a number of countries first allowed them but then withdrew completely. There was a Bitcoin exchange which failed and even ‘ATM-style’ exchangers are shutting down.

The lack of custodians is restricting growth. What can be done?

Malta quite rightly got labelled at the beginning as a jurisdiction for start-up funds. That was the attraction and still is.

When we developed the professional investor fund regime we determined that they could have a prime broker who can act as custodian. In the case of the experienced investor, they need a custodian – but the custodian could be anywhere in Europe, as long as it is a regulated bank.

Then the dynamics started to change. We started to see more UCITS funds and the hedge fund directive introduced the concept that the custodian must now be in the jurisdiction, although there is a four-year derogation, pushed by Malta.

There are already two major international custodians here – Citco and Deutsche Bank – and Bank of Valletta and a few others also provide custodian services. We just licensed Swissquote Bank and Reyl Bank, a private Swiss bank, is also planning to start custody operations. By the end of the year, there will be another two announcements and hopefully, discussions will also open with another bank.

So in terms of small funds, between €5 million and €30-50 million, we are covered. For medium-sized funds up to €100 million, we had preliminary discussions with one firm and some managers are already talking to it.

Indeed, we are seeing certain custodians taking on Malta business from either Dublin or Luxembourg and waiting to see how things will grow. We are now seeing big funds of €1 billion and more which are looking to be registered here.

At the appropriate time – once the figures are right – I am sure contact will be established with leading custodians. There are also many fund operators who are assuming that in 2016 they will be able to

passport funds from offshore to onshore, so they prefer to wait offshore if this happens.

Custody works on volumes, so we cannot go out and persuade others to come to Malta. Setting up a full-blown custody operation is very expensive in terms of technol-

ogy. Of course, we could look at our position in terms of the directive and how a company could establish a custody operation.

A document on this is being prepared with the Institute of Financial Services Practitioners and should be ready early December.

I am confident that by the end of 2015 or middle of 2016, the situation will be resolved.

We are also seeing tremendous growth in the number of fund managers. We normally expect to see around five a year but since the directive was applied, we already had about 40 new applications.

Remember that this year, in addition to normal business, we have so far had to convert 94 licences from the old regime to the AIFM Directive, deal with new managers and also with over 200 applications for individuals and entities to become Company Service Providers. This was in addition to the banks’ asset quality review, new licences for banks and insurance companies, introduction of Solvency II and new regulations for insurancesecuritization and listings on the Malta stock Exchange and the new exchange for the wholesale capital markets (EWSM).

These are one-offs so it is inevitable that you fall a bit behind.

But all is moving in the right direction for financial services in Malta.

It is up to all involved to make it a continuous success.

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e Business Observer is Malta’s leading business newspaper distributed for free with Times of Malta every fortnight.

Editorial Vanessa Macdonald, Head of Content (Business), Times of Malta.

EDITORIAL

Shifting sands at Grand Harbour The news that there is one bidder for the whole of the Marsa Shipbuilding site is a double-edged sword.

It is, of course, a great relief to know that this project might actually get off the ground after so many failed starts. But it is undoubtedly a great disappointment that of the 28 companies that collected the documents, only six submitted bids. And it is even more of a disappointment that five bids are only for parts of the huge site – and probably all for the same, most obviously value-added parts of the site.

This means that the government is faced with two options: give it to the bidder willing to take the whole site; or give it to a few of the operators whose bids do not overlap – and be left with vast swathes of workshops and land that no one wants. Hardly the bustling maritime hub that it envisaged. Is there really a choice?

But having just one bidder is never ideal. It is hardly the strongest of bargaining positions for the government, even if the activities being proposed – oil and gas – could create a completely new economic activity.

Perhaps the word ‘new’ is misleading. Malta has handled many rigs in the past – but the potential goes well beyond what has been done so far, as the services that could be provided extend to the storage and maintenance of equipment, certification, as well as light engineering and administration.

Operators in this sector have already said clearly that this would only work if there is an “open shop” approach, allowing the client to choose their own contractors and to manage their own projects – something which rival Palumbo is clearly uncomfortable with.

If Marsa Shipbuilding were to develop into an oil and gas hub, it would certainly put pressure on Palumbo to re-think its strategy – and to ensure it

has enough alternative sources of work, from commercial ships and cruise liners, to superyachts.

There is also another category of work which has completely slipped off the radar: navy ships – in particular, American navy ships. There was a time a decade ago when we had a dozen visits a year. Has anyone noticed that there were only two visits in 2012, one at the end of 2013 and one in January 2014 – but nothing since? One of the ships that had work done here in 2012, the USS Mt Whitney, is due for an overhaul worth several million dollars this winter. Did Malta even get a look in?

The Sixth Fleet spent €26 million on around 275 port visits alone in 2013, and the US Navy spends an average of €2-3 million in the Mediterranean on maintenance each and every day.

Both the Nationalist and Labour Parties are against a Status of Forces Agreement (SOFA), which provides clarity over the rights of foreign personnel on Maltese soil and establishes the US courts’ jurisdiction over very specific crimes. There are dozens of SOFA – including with neutral countries like Austria and Sweden – and contrary to assumptions, each can be different.

US Navy ships have visited for both rest and recreation and for maintenance in the past – so it is possible for work to be done without a SOFA. But the absence of any such visits for months now should be generating questions about whether the US is willing to go through the hassle this entails.

There is no doubt that SOFAs are controversial and a few isolated incidents have generated bad press. But the risk of an actual problem has to be put into context and weighed against the economic gain.

Does it make sense to plough ahead into new sectors at the expense of others that could be just as lucrative?

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BUSINESS OPINION

Re-assessing the role of government

Malcolm Bray Every economy has to address three challenges: what to produce, how to produce and for whom to produce. There are two extremes: either all choices are determined by the government or else market forces dictate.

All nations are mixed economies, with some opting for relatively more government intervention and some for less. The right question to ask is whether government is performing its functions – and whether it is doing so efficiently. In other words, is there too little or too much government and are taxpayers getting good value for money?

From a microeconomic perspective, governments are expected to correct market failures.

In practice this implies the provision of goods and services by society for which a private sector solution is difficult to achieve – for example, the provision of police services.

Another role for government is to intervene in markets where someone’s behaviour creates ad-

verse or positive effects, since in this case the private sector solution could be sub-optimal. Examples of this type of intervention in Malta include the scaling up of car licence fees according to the year of manufacture, and the subsidies offered to households who invest in solar energy, in both cases to reduce the amount of pollution.

From a macroeconomic perspective, government economic stimulus is justified when an economy is experiencing or facing a threat of recession. The recent reductions in utility bills and higher public sector employment can be interpreted along these lines.

Another important role for government is to enhance the country’s productive potential. The initiatives aimed at attracting more women to the labour force and investment in upgrading human capital through education are examples of such supply side policies.

Governments’ actions to achieve a better distribution of income, through a progressive tax system and the social welfare system, are also justified since this ensures higher wellbeing by reducing crime. The fact that economic growth in Malta in recent years compared favourably with that in other EU member states shows that the chosen combination of demand management and supply side policies are bearing fruit, while at the same time, pockets of poverty are very much circumscribed.

“e fact that economic growth in Malta in recent years compared favourably with that in other EU member states shows that the chosen combination of demand management and supply side policies are bearing fruit, while at the same time, pockets of poverty are very much circumscribed”

But government activities which do not meet these microeconomic or macroeconomic criteria can be deemed unjustified.

There are cases where the government gets involved in activities which can be catered for by the private sector. Government should proactively identify such activities as this would free up

scarce resources and ensure that public finances remain sustainable. This is also necessary to reduce the risk of ever increasing government spending (referred to as Wagner’s Law), which would necessitate ever increasing taxation.

In particular one needs to distinguish between the funding and

the implementation of an activity. It is possible for government to limit its involvement to funding and let the private sector deliver the output. Government’s role should quality assurance, ensuring that the output is in line with expectations. A transparent and competitive tendering system should then allow for the delivery of the output by the most efficient provider. In education and health this approach has to some extent already been used but can be extended further. Similar policies should likewise be implemented in other areas.

At the same time, greater resources should be allocated to regulatory functions. The rule of law is a precondition for sustainable growth and better living conditions. Authorities need to be equipped with human resources of the highest calibre and have at their disposal the best type of technology. Otherwise there can never be a level playing field.

So far the prominent role played by the public sector in Malta has never been questioned, particularly as tax revenues and the willingness of households to buy government bonds have sustained the growth in public spending. However, as recent examples abroad have shown, some countries suffered a brutal turnaround in their fortunes which forced a massive scaling back of their governments. This should serve as a lesson for Malta: better be proactive, and reassess the role of government now.

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CASE STUDY

Ħal Far groupage should be privatised – Vella Ħal Far groupage complex should no longer be under the control of the Customs Department – and should be open round the clock, according to the head of Express Logigroup Jonathan Vella.

Mr Vella has invested heavily in his company, growing from a laptop on a desk and one truck to hundreds of clients and 30 trucks in just two years.

The company carved out a niche for itself handling food and pharmaceuticals,

both of which require special handling with regards to factors like temperate control and contamination.

“We handle things like flowers and oysters. Can you imagine how the client feels to have these brought down here as fast as possible only to be told that they must wait a day or more to be cleared by Ħal Far – especially when these are coming from the EU? “Finance Minister Edward Scicluna talks about cargo from the

EU being considered the same way as cargo coming from Gozo.

The whole concept of sending groupage cargo to Ħal Far is nonsense!” Mr Vella said.

He objects on various grounds.

The main argument is that cargo originating in the EU – which has a so-called ‘C’ status – should not even have to go through Ħal Far in the first place.

The minister’s arguments are to be taken on board. And the reality is that very little of it does,

as most operators will admit – as long as they are not identified – that they bypass Ħal Far completely, especially given the paltry fine imposed if the law were enforced.

“And if I do have to use the groupage complex and pay €12,000 a year for a warehouse there, then should I not have access to it whenever I – or my client – wants?” he said.

Express Logigroup does not have its own warehouse at Ħal

Far, and has to share with another operator. It applied for its own but after a few months was turned down, and must share for now with another company. Mr Vella is urging the authorities to revisit the 2003 legal notice which established the groupage complex, as part of a holistic plan, especially now that so much emphasis is being put on Malta as a shipping and logistics hub.

“We have to look at all the three streams of cargo brought to Malta:

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CASE STUDY

accompanied freight on the catamaran; Ro-Ro on Grimaldi; and containers at the Freeport. We need to distinguish between cargo which has C-status and which does not. We need to ensure that the Customs Department can deploy its resources where they are most needed, where there is most risk,” he said.

His frustration is clear. He wants to raise standards and insists that he is willing to put his money where his mouth is, for example by centralising his operations at a warehouse at Ħal Far, and investing in temperature-control. However, he does not see the

point of doing this unless he has 24/7 access.

“Ideally the complex should be liberalised and given to the private sector to run. Customs will always have the right to monitor and check any cargo, after all.

“It should be enlarged – perhaps by relocating other entities in the area which do not need such a strategic location.

Companies could then centralise all their operations there, making it cost-effective for them, as well as rationalising freight on the roads.

“You could then attract investment in temperature control and ensure that hazardous waste is completely segregated. It could really work...” he concluded.

“We need to distinguish between cargo which has C-status and which does not.

We need to ensure that the Customs Department can deploy its resources where they are most needed, where there is most risk” AT A GLANCE The company has three main spheres of operation. Cold Moves is aimed at pharmaceuticals, using trailers with temperature probes installed. These offer both refrigerated cargo and controlled ambient temperate requirements.

Daily Fresh carries fresh produce, most of which comes from Italy. Express Logigroup is also offering cross-border transport to other countries.

Just in Time is a service aimed at speed, where the company competes with courier services and airfreight.

Cargo which requires temperature-control needs a completely different approach, covering every step of the way from supplier to consignee.

“At the end of the day, the client wants peace of mind that everything is 100 per cent safe, and with cargo like food and pharma, this means certainty that the temperate has always been within the specified range,” he said.

Mr Vella recalls one incident on a Sunday evening when the electricity supply to a truck loaded with ice cream was inadvertently disconnected when it was already on a vessel bound for Malta.

“We were alerted through automation – here in Malta – as soon as the temperature started dropping and were able to take immediate action, sending someone on board, and we saved the cargo,” he said. Another aspect is

segregation to ensure that there has been no contamination.

Apart from equipment and systems, processes are crucial and Express Logigroup is currently finalising its ISO certification.

At the moment, half the company’s work overseas is done through hand-picked contractors but as the economies of scale improve, the trend is to take over more and more of the operations itself. It will join up with a company in Milan next month to take over space within a 4,000 sq.m. warehouse, which is divided into three cells for dry and hazardous goods, food and pharmaceuticals.

“The three streams of goods are handled completely separately and completely

differently, from different loading bays and processes, to staff,” Mr Vella explained.

Express Logigroup is also adding new functions to its website by the end of the year – including a news stream of snippets relating to products and services which might impact its clients. It has also ditched its ‘tracking’ function as it prefers to deal with its customers directly over the phone, notifying that at the main stages of pick-up, transit and delivery.

The website will also have an in-built calculator which will enable customers to calculate the cost of groupage collection, merely by inputting the postcode, weight and volume. www.expresslogigroup.com

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INDUSTRY FOCUS

ICT companies eyeing growth as demand for IT graduates soars There are not enough students taking up IT courses at the University even though there is clearly demand in the workplace, according to the dean of the ICT Faculty, Ernest Cachia.

There was a time in the not too distant past when the demand used to exceed the number of places available, driven by the promise of over 5,500 jobs at Smart City. The State and private sector struggled to cope but the sector is now facing a crisis.

Malta is falling behind when it comes to providing enough programmers, designers, and skilled workers to work in this field.

Sixty per cent of the respondents from the ICT, telecommunications and i-gaming sectors say in the EY Attractiveness Survey released yesterday that they could not find the right specialised skills in the local market.

The faculty, which opened in 2007, caters for over 2,000 students in all, the majority of which are in other faculties but following ICT study units. It had an intake of 130 this academic year, meaning it has 400 exclusive faculty students.

The faculty still has room to grow, however, and could probably cope with double the number of exclusive faculty students without losing its ability to mentor all aspects of the students’ experience. But the numbers are not the only concern.

“Employers favour university graduates – but far too many are being lured to the workplace before they proceed to masters’ level.

The intake to masters this year was extremely low. This is a growing problem as industry has a real thirst for employees and they start headhunting as soon as the students join the course!”

“There is definitely a shift in industry and while they were previously happy with students who have a bachelors’ degree, they now want postgraduates.

“The competitive edge comes from specialisation...”

Once out there, there is a dazzling array of careers that are being offered and local companies are now no longer only looking at the domestic market.

For example, earlier this year, PTL International acquired SAD, Poland’s largest Apple retailer,

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INDUSTRY FOCUS

and Apco, the Malta-based payments business. CEO Kenneth Spiteri believes that you must look beyond the horizon to create a critical mass for growth.

“It is possible to succeed in niche markets. However, innovation evolves rapidly and narrowlyfocused companies risk being out of business fairly quickly as legacy companies or even start-ups leapfrog existing technologies.

“Both acquisitions fit PTL International’s vision which is geared towards international diversification. Under this vision, we are able to consistently expand our portfolio of technological capabilities – and our talent pool – and identify an increasingly collection of synergies. In parallel, we continuously grow and diversify our customer base,” he said.

While companies are growing as IT service providers in their own right, others are providing IT services to help other companies grow.

Stefan Morrow, the head of Wildgras, believes that any startup planning to create an online based product or service needs an experienced IT partner.

“This holds whether it is a standard e-commerce site or a bespoke web application. Having a good partner simplifies communication, project planning and in many cases, as in the case with Wildgras, they can offer additional business consulting to help with start-up gaps such as writing business and financial plans, preparing for investors and of course prototyping.”

Apart from e-commerce, companies are realising that their website should not just be an online version of the old-style brochure.

Dominic Scicluna, who is head of business development at Exigy, has seen many changes in website design over the years.

“In early web design, marketers used to experience a lot of pressure to fit in as much content about products and services as possible into the company’s website. Complex visual effects and flashy animations used to make up an edgy website.

“We have now experienced a shift towards visual storytelling, whereby text on websites has been cut down to just the essentials, combined with visuals that impart important information.

Today, it’s all about providing an immersive and interactive experience to users, making website

“While companies are growing as IT service providers in their own right, others are providing IT services to help other companies grow” responsiveness a must. With cloud computing on the rise and with a massive boost in social media popularity, web designers need to keep the bigger picture in mind and design websites that churn out information in a faster and reliable manner,” he said.

Companies are also rising up to cope with the ever-increasing demand for data storage. Raphael Trigona of eWorld Ltd, said that his clients range from telcommunications, to major banks and financial services and igaming companies, besides companies of all sizes and industries.

“One of the key drivers for the IT sector is the continual growth in the demand for data storage, and the consequent demand for improved server performance and network throughputs.

“By virtue of its early specialisation in virtualisation techniques through world leading solution provider VMWare, we have space developed a leading local position in this field. Virtualisation implementation, management and performance optimisation are ever present challenges.”

John de Giorgio, the managing director of Shireburn Software, believes that even a small country like Malta can create products with global reach. “At Shireburn Software we created two products

which were world firsts with our Integra for Notes product, and more recently with our Concessionaire Analyzer+ solution aimed at airports. These were both unique solutions worldwide. It is all about opportunity identification and then execution.

“The important thing is the business need that the product addresses, the quality of the solution and the ability and financial capacity to market the product globally or at least regionally. I believe that the key to success is identifying a specific business need which is not addressed in the current market and developing and marketing a product for that niche.”

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NEWS UPDATES

New ECB measures mark new policy phase – Constancio The European Central Bank is embarking on a new policy phase with its latest stimulus measures, ECB vice president Vitor Constancio said, vowing to steer the central bank’s balance sheet “significantly higher”.

Since summer, the ECB has cut interest rates to record lows, offered banks new long-term loans, and announced plans to buy private sector assets – a programme with which it aims to stimulate lending to support the flagging eurozone economy.

Constancio said in the text of a speech released yesterday that “the measures

Britain’s EE launches TV service to boost broadband sales EE, Britain’s biggest mobile operator, is to launch a new TV service to help it compete with rivals BT and TalkTalk who have won over customers by offering premium programming as part of a broadband package.

EE, jointly owned by Orange and Deutsche Telekom, said the new set-top box would be given for free to customers taking a home broadband subscription.

EE’s service will be similar to other offerings in the market, providing the country’s biggest broadcast channels and other programming such as movies on an on-demand basis.

That model has proved popular in recent years to customers who want more than the basic television service but are not willing to pay for the full TV subscription services offered by the likes of BSkyB and Virgin Media.

BT, the country’s biggest telecoms provider, has helped grow its broadband business since launching a high-profile sports service.

EE has repositioned itself in recent years, stealing a march on its competitors by becoming the first mobile operator in Britain to offer superfast 4G services, nearly a year before rivals Vodafone and Telefonica’s O2 were able to compete.

Its new service will enable customers to watch different content on four different screens at once.

Offering sought-after content also helps the operators to set themselves apart from rivals in the highly competitive market, and to increase customer loyalty.

The service will only be available to EE mobile or broadband customers. (Reuters)

decided in the past few months mark a new phase in the ECB’s approach.”

“With these new measures, the Governing Council demonstrates that we are ready to actively steer the size of our balance sheet towards significantly larger levels, so as to further ease the stance of monetary policy,” he added.

Stressing that the economic recovery in the eurozone is “still weak and fragile”, the ECB vice president said the period of very low inflation levels the bloc is experiencing “raises serious concerns”.

EUROPEAN CENTRAL BANK PRESIDENT MARIO DRAGHI (RIGHT) AND VICE PRESIDENT VITOR CONSTANCIO ARRIVE FOR THE BANK’S MONTHLY NEWS CONFERENCE IN FRANKFURT. PHOTO: RALPH ORLOWSKI/REUTERS

Eurozone inflation slowed to 0.3 per cent last month – far below the ECB’s target level of just under 2 per cent over the medium term.

Constancio said the stock of covered bonds eligible for purchase by the central bank amounted to about €600 billion.

(Reuters)

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APPOINTMENTS

Go chair for auditing forum Ingrid Azzopardi, Go’s group internal auditor, has been appointed chairman of The Malta Forum for Internal Auditors for a two year period.

Ms Azzopardi, an active member on the executive committee, is a founder member of the forum which was set up in 2007. A certified public accountant and auditor, Ms Azzopardi set up Go’s internal audit function over the past 20 years. She is also a member of the Global International Institute of Internal Auditors based in the US. The Malta Forum for Internal Auditors will host its next seminar on corporate governance and risk on November 18. http://www.fiamalta.org

CEO for Med Corporate Bank Experienced banker Charles Cini has been appointed CEO of the newly launched Mediterranean Corporate Bank. The appointment comes after Mediterranean Bank’s acquisition of Volksbank Malta, now renamed to Mediterranean Corporate Bank.

Mr Cini moved to Mediterranean Bank in August 2010 to head the corporate banking unit, following 27 years in the sector at Bank of Valletta, Lombard, Midland and later as a senior manager within HSBC Malta’s head office credit function.

Avellino joins UIA

Agius replaces Denaro at BOV

Untours Insurance Agents has appointed Joe Avellino as technical advisor.

He joins the UIA Team after his last position as chief operations officer at Allcare Insurance.

Mr Avellino spent 25 years with Middlesea Insurance plc and also held senior positions at Abela Insurance Brokers and Citadel Insurance.

Mr Avellino is also a qualified member of the UK Chartered Insurance Institute.

Victor Denaro has taken early retirement from Bank of Valletta, with Joseph Agius appointed chief technology officer in his stead.

Mr Denaro will remain a consultant to the bank for a period of time to help with various projects.

Mr Agius joined the bank in 1985 and is currently the executive head for information technology.Throughout his career at BOV, he has held a number of senior positions.

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BUSINESS UPDATES

HSBC Yes 4 Students offers gifts on all new accounts

Benefit from discounts and special offers during R Living’s Open Week R Living will be holding this year’s edition of their October Open Week from Wednesday October 15 to Sunday October 19. During these days, the R Living showroom on the

Mrieħel Bypass will be open all day till 8pm.

Throughout this period, R Living customers will have the chance to benefit from discounts and special offers, while the

company also promises delivery before Christmas 2014 for most of the furniture ordered throughout this week.

R Living – Mrieħel Bypass, Qormi – Tel: 2149 9699

HSBC Malta, in partnership with Scan Malta, is offering a wide range of gifts to complement the HSBC Yes 4 Students financial packages. All students who open an HSBC Yes 4 Student account before October 31 can choose one of the following instant gifts: 4GB USB stick, Dynamode headphones or Dicota mini optical mouse.

Students who direct their stipends into a YES 4 account are also eligible for a range of gift options, some being completely free of charge. These include a Sony Digital voice recorder, Philips Pro hair clipper, Philips hair dryer, Sennheiser professional head-

phones and Philips digital tuning clock radio.

Additionally, special offers at discounted rates include a Fuji digital photo camera 14MP, 1TB USB3.0 portable external hard drive, an Agfa video action camera, Samsung/Asus 7" Android tablet, or a Toshiba 32" LED HDTV. For the first time, all online applicants this year will also receive an additional €38 voucher from Scan, redeemable on Windows PC or laptop or a 16GB pen drive.

More information from www.hsbc.com.mt/Yes2013, customer service on 2380 2380, or any HSBC branch.

Keep it up with your IT infrastructure With today’s challenges, companies and organisations are increasingly looking for ways of increasing their productivity by focusing on their business.

With the advent of mobile technology, cloud services and various internet threats, companies are becoming more aware of the benefits of aligning with companies that provide managed services.

Comprehensive and flexible managed services enable businesses to free resources to focus on strategic initiatives and new projects rather than engaging in firefighting efforts to maintain their systems.

The evolving technology puts additional pressure on companies to hire specialised staff to cover the diversity in technology. As the businesses grow, so does the need

to rapidly scale, deploy and manage IT services.

Managed services providers are designed to cater for this diversity with people specialised in different areas of operation, removing the headache of having to engage in an ever more sophisticated IT recruitment process.

Most of all, by providing flexible services, managed

services providers personalise services to their clients’ budget, availability and needs.

Businesses that opt to outsource their IT to a managed services company such as PTL will benefit from overall cost effectiveness as well as peace of mind with reduced operational risk through better systems functionality and availability.

HSBC MALTA IS OFFERING A VAST RANGE OF GIFTS TO COMPLEMENT THE HSBC YES 4 STUDENTS FINANCIAL PACKAGES.

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BUSINESS UPDATES

e capacity to innovate

Middlesea’s SME Insurance Policy Middlesea’s Insurance Policy for Small and Medium Enterprises is a tailor-made and flexible insurance business solution to protect your business risks. Whether you’re a sole trader or an established company, Middlesea will work with you to create the ideal cover for you.

The SME Insurance Policy is the ideal solution for restaurants, bars, offices, retail outlets and other service providers, which provide a service from their premises.

The Middlesea SME policy includes a number of benefits to ensure your business is properly covered if something goes wrong. The policy gives you the full flexibility to increase cover limits or add on cover to suit your business’ unique needs.

Middlesea’s SME Insurance Policy provides cover for property, stock and other trade contents, public and products liability, employers liability, loss of income, money and personal accident cover, fidelity guarantee, equipment breakdown as well as an annual travel cover for the insured or any other employees. The SME Policy also includes as standard cover, business emergency assistance to cater for all your emergency needs 24 hours a day seven days a week through their call centre.

For more information call us on Tel. 2124 6262. Middlesea Insurance plc (C-5553) is authorised by the MFSA.

According to the World Economic Forum’s ‘Global Competitiveness Report’, Switzerland remains the world’s most competitive economy.

Malta, on the other hand, now finds itself in 47th place, slipping down six positions in the ranking. Why this difference?

The answer lies in a combination of factors, although the issue of innovation stands out predominantly.

While Switzerland has created an innovation hub, with the world’s highest rate of international patent applications, the report highlights Malta’s insufficient capacity to innovate as a major stumbling block.

Talent needs an innovationfriendly environment in which to grow. Innovation needs to be promoted and fostered, particularly amongst SMEs. Improved access to finance, more innovation-friendly regulations, and additional incen-

tives for R&D can spur Maltese entrepreneurs to turn their ideas into reality. Clustering can give local companies the economies of scale to pool knowledge and develop joint

research and innovation potential.

More investment in science and technology is a means of developing a culture of local technological innovation.

The development of innovative capacity can only come about through the consistent application of the correct strategies. Malta has shown glimpses of its potential to become one of the world’s most successful economies.

To achieve this potential, it needs to invest in those who through their talent, skill, entrepreneurship and the development of intellectual property can bring the best out of this country.

Margrith Lütschg-Emmeneger is the president of Competitive Malta – the foundation for national competitiveness, and a World Economic Forum partner. Ms LütschgEmmenegger is also the president of FIMBank plc.

New disruptive storage technology Eworld Limited, HP authorised GOLD sales and services partner, and authorised PernixData partner, hosted PernixData, to conduct a successful business breakfast event at the Corinthia Palace Villa, Balzan. The event was very well attended, with over 60 of Malta’s leading CIOs, IT management and IT professionals, from private industry as well as the public sector.

Paul Schatteles, European sales manager for PernixData, introduced the new disruptive storage technology in a presentation titled ‘Rethinking storage performance’. While using storage arrays for both capacity and performance is viewed as normal by many, it invariably introduces issues with storage performance irrespective of the environment size. Mr Schatteles enlightened the audience with his energetic insights into how Flash Storage can be the saviour of storage I/O bottlenecks, what key features are required to turn Flash Storage into an effective tool for accelerating storage performance and how the PernixData solution delivers accelerated storage environments.

Ing. Raphael Micallef Trigona, managing director of Eworld, said that he was highly encouraged by the quality and depth of the turnout by the IT profession.

Moreover he was pleased to comment that the first

FROM LEFT: NUNO FERNANDES (EWORLD ENTERPRISE SOLUTIONS AND SERVICES MANAGER), KEITH MUSCAT (EWORLD ENTERPRISE SALES MANAGER), PAUL SCHATTELES (PERNIXDATA, EUROPEAN SALES MANAGER), WAYNE HEWITT (EWORLD BUSINESS DEVELOPMENT MANAGER), ING. RAPHAEL MICALLEF TRIGONA (EWORLD MANAGING DIRECTOR)

local installations were up and running, and would therefore serve as essential reference sites for other potential local business. Contact Eworld on sales@eworld.com.mt or via their website www.eworld.com.mt/enterprise

OCTOBER 9, 2014

MALTA ATTRACTIVENESS SURVEY 2014 50 YEARS OF FDI: LOOKING FORWARD

Malta most attractive for its stability Malta’s stability of social climate and the local political, legal and regulatory environment emerged as the country’s most attractive features in the EY Attractiveness Survey for 2014.

This is the same view held by investors in Europe. Respondents also mentioned that Malta’s low-cost base, a skilled English-speaking workforce and the ease of doing business all make our country attractive to FDI. There an interesting difference, however. While investors in Malta gave their second priority to corporate taxation, those investing in Europe ranked it 8th.

Turning again to the Maltese survey, 79 per cent – including all banking and insurance companies – think that Malta is currently attractive for FDI. This is 12 per cent less than it was three years ago, the result of a gradual shift towards the “don’t know” category.

In addition, only 52 per cent think that the current level of Malta’s attractiveness will be sustained in the next three years. Pertinently, 44 per cent report that they are uncertain about this, almost double those who said so in 2011.

FUTURE ATTRACTIVENESS AND EXPANSIONS Almost two out of every three investors (58 per cent) believe that igaming will be among the business sectors driving Malta’s growth in the next five years.

Two out of every three respondents believe that Malta’s growth in the next five years will be driven by backoffice work.

Encouragingly, only 2 per cent of investors in Malta do not intend to remain here in the next 10 years. In addition, 59 per cent plan on staying and 39 per cent were uncertain about their long-term plans. The majority of

operators in all sectors, except for ICT, telecommunications and igaming, plan on keeping their Maltese operations going. A high proportion of respondents from these sectors were unable to comment on their presence in Malta in 10 years’ time.

Perhaps the most encouraging fact to report is that 56 per cent of existing investors have some form of expansion plans in the pipeline. Back-office projects account for just over a third (36 per cent) of this, followed by R&D (16 per cent) and sales and marketing office (14 per cent).

MARKETING MALTA A number of respondents say that globally Malta is still unknown, particularly outside the EU. The reputation as a hospitable Mediterranean resort, the good climate, high quality of life and a well-pitched work/life balance emerged as key elements of the international brand.

Just as prevalent was the “friendly” and “low” tax jurisdiction.

However, while 41 per cent think that Malta has the right brand for foreign investment, 29 per cent do not. Almost equal numbers (40 per cent) believe that current promotional strategies for Malta as an FDI destination are effective while 32 per cent do not.

Comments focused on the need to do more, especially by pooling and coordinating the valid marketing efforts of different public agencies.

SKILLS NEEDED For 57 per cent of all foreign investors, finding specialised skills in the local labour market was not an issue.

Continued on page 6

Malta Attractiveness Survey 2014 |

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In a nutshell RONALD ATTARD country managing partner, EY Malta alluring. Over half of respondents (51 per cent) indicated that Maltese legislation created a competitive advantage in European and global markets, and this is something that Malta should build upon.

COST STILL KEY Despite an increase in average labour rates, respondents continue to indicate that Malta’s workforce remains a relatively competitive one. Moreover, Maltese employees are renowned for their hardworking and flexible attitude as well as their skills and multilingual abilities.

CONCLUSION

For Europe and the rest of the world, the last few years have been ones of great economic turmoil – recessions, austerity measures and uncertainty.

Many countries are still struggling to get themselves out of these financial woods. Yet EY’s 2014 Malta attractiveness survey (MAS), carried out among already existing investors in the country, paints a very favourable picture of Malta as an FDI destination.

This report provides a detailed analysis of the views held by existing FDI investors in Malta. Over threequarters (79 per cent) believe that Malta is currently attractive for FDI, and more than half think that it will remain so in the next three years. In this light, the country’s foreign investment should be expected to thrive. More than half (56 per cent) of the foreign-owned companies surveyed indicate that they have plans to expand operations in Malta in the next 12 months. This is the highest expansion rate indicated in our surveys in the last three years; more than double the percentage indicated by respondents to EY’s 2014 UK attractiveness survey. Furthermore, an even larger percentage (59 per cent) expects to remain in Malta in the next

decade. What makes Malta so successful in attracting and retaining such FDI in today’s rapidly changing market place?

The data gathered highlighted the following key drivers of previous and ongoing performance:

SMALL AND NIMBLE Even though sectors and types of operations have and will continue to change, Malta has remained attractive for FDI. The ability to act quickly and nimbly in reaction to developments and threats, both real and potential, is considered to be very important. So are the short ‘decision lines’ and the ability to contact

all levels of the government in a very short time frame.

EU MEMBER, UNIQUE HISTORY AND AN ATTRACTIVE LEGISLATIVE BACKDROP

While having the benefits associated with EU membership, part of Malta’s attractiveness lies in its unique propositions in the EU context. The country’s rich cultural heritage, Mediterranean lifestyle, perfect climate and hospitable English-speaking population are frequently cited as reasons why Malta regularly places as one of the best places to live in international surveys. However, this is not all that potential investors find

“MORE THAN HALF (56 PER CENT) OF THE FOREIGN-OWNED COMPANIES SURVEYED INDICATE THAT THEY HAVE PLANS TO EXPAND OPERATIONS IN MALTA IN THE NEXT 12 MONTHS”

We believe that significant FDI opportunities continue to exist in Malta, for both existing and potential investors.

Historically driven by manufacturing and industry, the nature of FDI in Malta is changing. Today, investors find servicebased industries as the most attractive, with survey respondents indicating that they expect knowledge-based sectors, such as the digital and finance sectors, to be the ones driving Malta’s growth in the next five years. This view is reflected in business functions expected to draw the most investments in the same period, with back-office functions leading the way, followed by headquarters, research and development.

We would like to thank all those who participated in this survey. The feedback they provide plays a vital role in helping to shape the future of FDI in Malta.

What they told us is a real eye-opener for government, policymakers and regulators. It is also an invaluable source of information to potential foreign investors, giving them genuine insight into current investors’ perceptions of what makes Malta attractive.

My gratitude also extends to the organisations that have cooperated with and supported EY in this initiative: the Malta Chamber of Commerce, Industry and Enterprise, Malta Enterprise, FinanceMalta, the Lotteries and Gaming Authority, Bank of Valletta, HSBC and Huawei.

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Malta consistently scores high on the stability stakes, and its regulatory framework is also deemed to be particularly strong. Existing foreign investors believe that Malta offers attractive legislation. They also believe that ours is a safe harbour for their investment in a frequently turbulent geographical region. The strength and resilience of Malta’s banking industry during the financial crisis, from which the country emerged virtually intact, gave ample proof of this. Consequently, it is important to maintain Malta’s currently strong social, political, legal and regulatory competitiveness, as well as the high quality of life it offers to investors. Ongoing efforts to simplify and reduce bureaucracy as well as shorten decisionmaking time frames must also be maintained.

Moreover, further efforts are needed to contain and, possibly, reduce certain operating costs as well improve institutional services, such as the law courts.

One of Malta’s most attractive features remains its multilingual and flexible workforce. Over the years, significant resources have been allocated to maintain and improve skill sets as well as cultivate new ones.

Yet, as the survey shows, while FDI has significantly contributed in this regard, gaps still exist in certain sectors, including information and communications technology (ICT), iGaming and certain specialised financial services. An increasingly sophisticated economy requires that educational and training programmes are put in higher gear and synergised to continue bridging the gaps. This could include increasing cooperation in specialised skills training at all levels between businesses across all sectors and educational institutions, both locally and abroad.

There also exists scope to pursue this end within the framework of EU co-financing assistance programmes. Developing policies to increase female workforce participation rates should remain on the national agenda, as should those that stimulate higher-secondary and tertiary education completion rates.

The local survey is telling us that more incentives may be needed to maintain current FDI investments and attract new ones, especially in the more traditional, capital-intensive manufacturing industries. Respondents to EY’s 2014 European attractiveness survey expect manufacturing to be one of the key business functions driving growth in the next five years, ranking second of the listed seven business functions. By contrast, only 5 per cent of respondents to the Malta survey thought that this would be the case locally, ranking it sixth out of the seven, just above the “other” function. Further capital incentives – or removal of any disincentives – may therefore be one way of continuing to support sectors, such as manufacturing, that have been committed to Malta for many years. Concurrently, ongoing incentives aimed at retaining and increasing investments in more recent technologies need to be maintained and enhanced where possible. Any such initiatives must also reflect the continuing importance of SMEs in Malta’s economic set-up.

The rate of innovation is seen as crucial to maintaining and improving Malta’s attractiveness.

Measures to further stimulate R&D and innovation need to be adopted. While often linked to the previous priority action, we believe that increased FDI incentives in this area will also increase support for SMEs, which tend to form clusters around large manufacturers to whom they supply ancillary services and products. Alternatives to direct incentives from government do exist. Better uptake and utilisation of EU funds should also help in this regard. Facilitating access to credit, possibly through some sort of guarantee schemes, could be another avenue to be pursued, especially given the large amount of excess liquidity in the local banking market.

While respondents did commend current efforts to attract FDI, they also indicated that more needed to be done. The issues appear to be threefold. First, Malta lacks the financial resources to have the required brand presence in all of its target markets. A solution to this could be to replicate successful models such as the UK’s and use investment delivery partners to reach and tap existing market knowledge.

Secondly, respondents highlighted the valid, yet disjointed, current brand-building and marketing initiatives pursued by different national agencies promoting Malta abroad. The country could benefit from the creation of a single national brand supported by all promotion agencies, thereby making optimum use of relatively limited resources. Thirdly, respondents highlighted the need for micro-targeting of specific sectors or subsectors. A potential approach could be to attract major brands or companies in particular sectors to act as anchors and to use existing investors’ testimonials to promote Malta’s various assets.

Historically, Malta’s position as a strategic trading post in the middle of the Mediterranean has driven its economic development. We therefore encourage any steps to promote Malta as a strategic gateway and hub for Europe, North Africa, the Middle East and perhaps beyond. Respondents often highlight transport and logistics infrastructure as one of the least attractive of Malta’s features. Their enhancement is therefore required to allow Malta to continue to capitalise on its location and improve its accessibility.

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DR JOSEPH MUSCAT PRIME MINISTER OF MALTA It is interesting that respondents believe that Malta will prove to be an attractive location for back-office operations in the coming years. This dovetails perfectly with our efforts to improve Malta’s potential as a maritime, logistics and distribution hub in the Mediterranean. ... None of these successes are a reason for complacency. We need to continue to invest in education and develop our skills base, and we must strengthen support structures for SMEs ... It is absolutely vital that we think long term.

DR MARIO VELLA CHAIRMAN – MALTA ENTERPRISE

EY: who we are Over the last few years, EY Malta has seen an exceptional year-on-year increase in revenue. In this light, the firm has recently reviewed its operations to mirror this success story as well as to embark on an ambitious plan – Vision 2020.

The move positions the firm to handle its larger presence in the market, to face corresponding demands and to achieve higher targets in the coming years.

Effectively, EY Malta has four service lines: assurance; tax; transaction advisory services; and advisory. These comprise 17 units, each with its own head.

Supporting the firm’s partners, these new appointees have been empowered to act within the realm of their area of expertise to expand the client base as well as continue to give excellent service. Among the key sectors at the cutting edge of our change are insurance, banking, asset management, financial crime, EU advisory, project finance and mergers and acquisitions.

The synergy of the firm’s high rate of growth and its globally integrated structure have rapidly moved it to the cutting edge of its sector, both locally and abroad. In a certain sense, EY Malta’s success also reflects that of EY global. The latter employs more than 190,000 people in offices spread over 150 countries and has an annual revenue in excess of $27 billion. True to its mission to create tomorrow’s leaders, EY Malta is valuing and entrusting its pool of rising leaders in each field to grow the EY brand, locally and abroad, always with our clients’ best interests as the benchmark.

Ronald Attard, country managing partner of EY Malta, outlined the thinking behind the restructuring: “We have thought long and hard about this and we are certain that it puts us on the right track to continue delivering the goods.

Precipitated by our exceptional year-on-year increase in revenue, this organisational change will mean that our clients, old and new, small and large, shall have access to a suite of more streamlined, objective-driven and top-notch services.

“As the firm’s managing partner I strive to keep up a high momentum of productivity while insisting on unwavering focus on our clients’ key interests. This internal culture promotes leaders who can be trusted to face the market with confidence and with the right level of expertise. Today, EY Malta’s ethos places its partners and managers at home everywhere, from Manhattan to Msida to Milan. I am extremely proud of my new leadership team and I have no doubt that they will continue to give the best possible service to our clients.”

EY was recently ranked as the world’s most attractive professional services employer in Universum’s 2014 World’s Most Attractive Employer ranking, matching its historic achievement last year. For the second year in a row EY has also been ranked #2 among all employers, second only to Google.

The Universum World’s Most Attractive Employer ranking is an annual global survey of over 110,000 business students from the world’s top academic institutions.

The EU is traditionally our most important foreign direct investor but today we are looking further afield. We believe that in the future more business with come from Asia, mainly – but not only – from China and the Americas, mainly but not only the US. We intend to leverage a 40-year relationship with what is, after all, one of the fastest-growing economies in the world. And this strategy is already bearing fruit.

MATTHIAS FAUSER CEO – PLAYMOBIL We are faced with stiff competition from other countries and that is why we are also trying to push for more competitive energy and transport rates for Malta’s industry. We are one of the heaviest industrial consumers on the island of energy for heating and cooling.

Remaining competitive is more important than ever as other countries in Southern Europe are re-emerging from the financial crisis leaner than before.

MICHEL CORDINA HEAD COMMERCIAL BANKING – HSBC MALTA To benefit and cash in on its strategic advantages, there is the need to develop state-of-the-art warehousing facilities, continue to invest in the trans-shipment sector and create a logistics park that will act as a catalyst for further value-added economic growth. ... The strategy is in place, the market opportunities are there and the potential economic benefits known. However, to realise the ultimate objective it is necessary to act in a swift and coordinated manner, prioritise initiatives, involve all key stakeholders and be proactive.

CHARLES BORG CEO – BANK OF VALLETTA Our duty is to identify new areas of our economic growth, like aviation and the maritime sectors, while making sure that tourism, manufacturing, retail and the wholesale sectors continue to flourish.

Recently growth has been significant in other areas, the fund servicing industry in particular. It has been the fastest growing sector since 2008, with investment service providers, fund administrators and custodians, investment management companies and collective investment schemes leading the way, many having redomiciled from other jurisdictions.

ULRIK BENGTSSON CEO – BETSSON From a recruitment point of view, certain technological expertise and a range of specialist internet functions are crucial to the successful running of the businesses. It is a concern that we are sometimes not able to find employees locally with the required skills and experiences to work with our company.

Betsson is a large company operating on a global scene and needs world-class internet professionals. This leads us to recruit people from outside Malta, or even to set up satellite office where such skills are widely available.

JOSEPH CUSCHIERI EXECUTIVE CHAIRMAN – LOTTERIES AND GAMING AUTHORITY NOT FARMING AUTHORITY Our current legislative framework is in the process of undergoing a major overhaul in order to make it more innovative, cutting-edge, growth focused and which raises the bar in consumer protection, innovation and technology. The LGA is also evaluating entry into new markets, such as the Asian and Latin American ones where Malta could be positioned as the gaming jurisdiction of choice. The regulatory scope of gaming will be widened to include other forms of remote gaming licensing, like social and digital games of skill with prizes.

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Continued from page 1 Manufacturing and ICT, telecommunications and igaming firms reported most concern in this regard, with only 42 per cent and 40 per cent of respectively saying that they are able to find the required skills locally.

Almost two-thirds (63 per cent) believe that developing education and skills should be one of the measures that Malta should concentrate on in order to remain attractive for FDI. With respondents being able to select more than one parameter, supporting small and medium sized enterprises, increasing incentives for investors and supporting hightech industries and innovation were also chosen by a majority.

Interestingly, more than half of each sector’s respondents are willing to provide the training and education needed required to develop a human resource complement to fill any existing skills gaps. Internships and vocational training are the preferred method of 41 per cent and financial help or sponsorships were favoured by 39 per cent.

Whereas all insurance and “other” respondents are willing to provide training, three-fourths of ICT, Telecommunications and iGaming respondents are willing to do so.

LEGISLATIVE AND REGULATORY FRAMEWORK

78 per cent of current investors believe that the current legislative framework encourages players in their sector to set-up in Malta.

Sectorally, a different picture emerges. While 94 per cent of insurance and 90 per cent of the ICT, Telecommunications and iGaming respondents agree with this statement, only 46 per cent of their manufacturing counterparts do.

In addition, the majority (51 per cent) think that the legislative framework creates a competitive advantage in European and global markets.

Again, while 68 per cent of the ‘Other Financial Services sector’ and 55 per cent of the ICT, Telecommunications and iGaming sector agreed, only 31 per cent of manufacturing counterparts do.

For Malta to become a leader in innovation, 66 per cent believe that it needs to reduce bureaucracy, 51 per cent to improve education and training in new technologies and 44 per cent to develop a culture of innovation.

EUROPEAN ATTRACTIVENESS SURVEY

In 2013, Europe attracted 20 per cent of the all global FDI inflows, 2 per cent more than in 2012. Ten years ago, manufacturing accounted for almost half of the FDI projects in Europe. By contrast, services now account for more than twothirds.

Asked about the key to their investment decisions, 43 per cent said the stability and

transparency of a market’s political, legal and regulatory environment. Improving the business environment for SMEs was also deemed to be very important.

Significantly, for the first time since 2009, Europe (45 per cent) overtook China (44 per cent) to become the world’s most attractive region to establish operations.

Looking ahead, 54 per cent believe that Europe’s attractiveness will improve in the next three years. 45 per cent think that the R&D will draw the most investments in Europe in the coming years. Sectors with innovative and high value added services such as the ICT, pharmaceutical and biotechnology industries are seen as the business sectors which will drive Europe’s growth in the coming years.

“LOOKING AHEAD, 54 PER CENT BELIEVE THAT EUROPE’S ATTRACTIVENESS WILL IMPROVE IN THE NEXT THREE YEARS”

October 9, 2014