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ECO NOMIC VISION BUSINESS. FINANCE. ECONOMY. A SPECIAL EDITION OF THE COMMERCIAL COURIER Gold Collaborating Partners

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2020


ECONOMIC VISION 2020: Business. Finance. Economy.

ECO NOMIC VISION

2020 BUSINESS. FINANCE. ECONOMY.

Economic Vision is an official annual publication of the Malta Chamber of Commerce, Enterprise and Industry, published as a joint venture with Content House Group. The prestigious annual publication focuses on the macro business, financial and economic outlook for 2020. It outlines the country’s annual economic, business and financial projections, focusing on the way these will impact people’s lives and the businesses which operate on the island. This publication also seeks to provide a preview of the Malta Chamber’s upcoming Economic Vision which is set to be published in early 2020. On behalf of the Malta Chamber of Commerce, Enterprise and Industry, and on behalf of Content House Group, we would like to extend our warm appreciation towards all the people who participated in the Economic Vision 2020 publication. The content was completed prior to the events that unfolded in Malta in late November 2019. 25


ECONOMIC VISION 2020: Business. Finance. Economy.

C

ontents

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A BEACON FOR ECONOMIC GROWTH Kevin J. Borg, Director General of the Malta Chamber, looks towards the Vision for 2020-2025.

OUR VISION IS SUSTAINABLE Chamber President David Xuereb highlights why there is no better time to consider the path that we are on economically – and reshape it.

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2020: WHAT TO EXPECT FROM THIS LANDMARK YEAR

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“MALTA’S BANKING SECTOR FACED WITH A CHALLENGING EXTERNAL ENVIRONMENT”

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Members of the Chamber Board of Management share their thoughts on what lies in store.

Governor of the Central Bank of Malta, Mario Vella, discusses the impacts of global and local developments on Malta’s banking sector.

“SUCCESS BRINGS NEW CHALLENGES” While there may be trials and tribulations ahead, Finance Minister Edward Scicluna believes that Malta’s economic future is still extremely positive.

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“THE TIME FOR HUMAN CENTRIC PROSPERITY IS NOW” Shadow Finance Minister Mario de Marco talks to Rebecca Cachia about the sustainability of Malta’s rapid economic growth and why the country is in dire need of long-term vision and bold action.

SUSTAINING OUR FUNDAMENTAL COMPETITIVENESS Economist Gordon Cordina cautions about the way forward, and stresses the need for quality to outshine quantity.

2020: BUSINESS PROJECTIONS, FORECASTS AND PLANS Leading business players from diverse economic sectors share what they think about the challenges and opportunities that lie ahead.

IN FIGURES: KEY NUMBERS, STATISTICS AND PERCENTAGES FROM THE ECONOMIC VISION 2020-2025 A look at the key numbers from the upcoming Economic Vision 2020-2025.

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AT A GLANCE: WHAT WILL 2020 HOLD? Economic growth, new economic activities and innovative technological solutions have excited the Maltese business landscape in 2019. But, what lies ahead in 2020?


ECONOMIC VISION 2020: Business. Finance. Economy.

PUBLISHER

92 107

THE ECONOMIC VISION ROUND-UP Director General Kevin J. Borg considers the Vision as it stands.

“OUR NATION’S PRIORITIES MUST CHANGE” Economist David Spiteri Gingell shares his thoughts on the Malta Chamber’s upcoming Economic Vision 2020-2025.

Content House Group 3, Level 2, Mallia Buildings, Triq in-Negozju, Zone 3, Central Business District Birkirkara CBD 3010, Malta Tel: +356 2132 0713 info@contenthouse.com.mt www.contenthouse.com.mt In conjunction with the Malta Chamber of Commerce, Enterprise & Industry, the organisation behind the Economic Vision 2014-2020 and 2020-2025

The Malta Chamber of Commerce, Enterprise & Industry The Exchange, Republic Street, Valletta VLT1117 Tel: +356 2123 3873 info@maltachamber.org.mt www.maltachamber.org.mt

EDITOR Kevin J. Borg

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2020-2025: AN ECONOMIC VISION FOR MALTA On the back of an eventful 2019, we ask Maltese business leaders involved in drafting the Malta Chamber’s 2020–2025 Economic Vision for their thoughts on how to secure long-term economic prosperity in Malta.

EDITORIAL COORDINATORS Edward Bonello & Jo Caruana

CORPORATE SALES & BUSINESS DEVELOPMENT MANAGER Bernard Schranz

HEAD OF ACCOUNTS & OPERATIONS Marvic Cutajar

CREATIVE DIRECTOR & DESIGN

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THE EUROPEAN PARLIAMENT AGENDA IN 2020

Nicholas Cutajar

Newly re-elected MEPs – and Heads of Delegation – Miriam Dalli and Roberta Metsola share their hopes for the future of their roles, Europe, and of the crucial European Green Deal.

Content House Ltd and the Malta Chamber of Commerce, Enterprise & Industry would like to thank all the protagonists, contributors, advertisers and the project team at Content House and at the Malta Chamber that have made this publication a success.

ECONOMIC VISION 2020: THE EUROPEAN PERSPECTIVE Emma Mattei speaks to MBB President Simon De Cesare and MEPs Alex Agius Saliba and Roberta Metsola about their reactions to the findings of the research study on the value of the European Single Market for Maltese enterprises.

Articles appearing in this publication do not necessarily reflect the views of Content House Ltd or those of The Malta Chamber of Commerce, Enterprise & Industry. All rights reserved. Reproduction in whole or in part without written permission of the publishers is strictly prohibited. The publication is being distributed to all leading businesses members of the Malta Chamber of Commerce, Enterprise and Industry by the Malta Chamber, and is also distributed to bank branches, government agencies, government ministries, leading cafeterias, and several public places including at reception areas of business centres, hospitals and clinics. The publication is also sold from leading newsagents.

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ECONOMIC VISION 2020: Business. Finance. Economy.

A BEACON for

economic

growth

A foreword by Kevin J. Borg

I

n 2014, our Chamber revolutionised the way economic policy is done in the country, and took the innovative and proactive action to design and propose an economic plan to government for the upcoming economic cycle. This document, ‘An Economic Vision for Malta 2014-2020’ was received extremely well, by Government, the Opposition, our fellow social partners and anyone involved in the economic growth of the country. The document in fact, proposed an economic blueprint for sustainable growth, identifying potential areas to look out for, and solid recommendations on how to take advantage of each. In other words, the document proposed an economic business plan to Government, rather than waiting for Government to provide its economic plan to business.

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ECONOMIC VISION 2020: Business. Finance. Economy.

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ECONOMIC VISION 2020: Business. Finance. Economy.

As the first cycle comes to an end, and seeing how successful the first document was, the Chamber felt it was only natural to set the wheels in motion to propose a new economic plan for the upcoming years. The new Economic Vision shall cover a slightly shorter period, in fact it makes its proposals for the years 2020-2025. This is due to an ever-changing scenario, characterised by emerging sectors and disruptive technologies that are shifting the way we do business at an increasing pace. The 2020–2025 Vision seeks to present an economic pathway that will ensure prosperity for the Maltese people in the long term. The Chamber considers 2020 to be a pivotal year. The right choices will enable Malta to evolve in a fast-changing world increasingly driven by disruptive innovation, technology, and concerns about sustainability and the impacts of climate change. The 2020-2025 Vision however – and perhaps this is the revolutionary aspect of it – looks beyond the mere economics of the country’s well-being. In fact, in its intrinsic design, the document seeks the achievement of smart economic growth sitting on one hand, while, on the other, is securing sustainable economic development.

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Both elements of the Vision will be underpinned by a number of strategic principles and are based on the presence of national economic determinants that need to be in place. The document lists over 50 recommendations for the achievement of the required national economic determinants and the attainment of both strategic thrusts. This time round, the Chamber shall be following the uptake of its recommendations by identifying a number of indicators that will tangibly assist in the measurement of progress throughout the time period covered by the Vision. At this stage, I feel obliged to thank all those persons who made this project possible, especially the CEOs who provided their views that effectively make up this vision, our Council and Board of Management, the Chamber’s executive team, and David Spiteri Gingell who facilitated the process. EV KEVIN J. BORG Director General The Malta Chamber of Commerce, Enterprise and Industry


ECONOMIC VISION 2020: Business. Finance. Economy.

The Vision is objective, strong, indepth, and complete in its nature.

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ECONOMIC VISION 2020: Business. Finance. Economy.

OUR VISION

is

sustainable Following months of work on the creation of the Malta Chamber’s upcoming Economic Vision for 2020-2025, Chamber President David Xuereb tells Jo Caruana why, this time around, there is no better time to consider the path that we are on economically – and reshape it.

A

s we sit down to chat about the Malta Chamber’s upcoming economic vision for 2020-2025, Chamber President David Xuereb begins by sharing stories about his recent visit to China as part of a Maltese trade delegation. “It was incredible,” he tells me. “A completely different world in a myriad different ways. As a group we learnt a lot about the future of where the world is heading, and what Malta’s role in that could be. It was exciting, but overwhelming. We have a lot of work to do.” Switching his attention to how that could pan out, Perit Xuereb stresses that it is part of the Chamber’s mission to shape Malta’s future. “And how better for us to do that than with a document like this?” he asks. He explains that the Vision is being crafted following discussions and interviews with 28 top local CEOs, all of whom gave their input as to what they believe should be the focus of our economic future. “We are therefore not giving an economist’s view of the economy and how they think it should develop, but have talked to business leaders who are on the ground and know exactly what the economy needs.”

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ECONOMIC VISION 2020: Business. Finance. Economy.

Quality needs to become one of the key things that our country stands for.

After all, as the Chamber President explains, this is the only document of its type on the island – one that has no motive except the sustainable development of the country’s economy. “The people who contributed to this Vision have a very clear understanding of what is going on in Malta, as well as in the wider business sphere. They understand our competitiveness, and our place on the world stage. Thus the Vision is objective, strong, in-depth, and complete in its nature.” Looking back on the success of the previous edition, and the fact that so many key parties – the Government, the Opposition, and the public at large – were not only interested in what the Chamber had to say, but eager to take proactive action and refer to the document time and time again, Perit Xuereb deems it to have been a very positive exercise. It was drafted until 2020, and he explains that the Chamber didn’t want there to be a gap between one and the other, so it opted to create the 2020 Vision in a timely fashion. “Now, we believe there was no better time than the present to revisit the project and to work on it to shape the future to be as positive and successful as possible – both in light of the positive advancements of the last few years, and in light of our country’s current objectives.”

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From an economic point of view, Perit Xuereb says he believes the Vision was very strong, while the country’s recent economic performance speaks for itself. “I think we are all proud of what we have managed to achieve,” he continues. “However, in this day and age, the objective of individuals – both in the Government and of the nation at large – should project beyond just the economic, and go that step further. It must focus on sustainability and respect for our resources, the environment, and quality of life for all. These words and thoughts weren’t considered as crucial six years ago as they are now, and they are maturing rapidly as we speak.”


ECONOMIC VISION 2020: Business. Finance. Economy.

Perit Xuereb is adamant that now is the time to reinvent ourselves with respect to the industries Malta wants to engage in. “Most have to do with technology,” he continues, “whether they are disruptive or not, FinTech, IT, or infrastructure; they will all enable us to be more connected than we are now. “The Vision also highlights the need for a reengineering of our education systems and structure, to ensure the gap between what is being produced through the system and what is needed by industry is reduced. As a Chamber, we fear Malta may have let that side of things go a little bit, which has meant that the development of the education system – from primary right up to tertiary – has not evolved enough to match the requirements of the global economy. Unless our education system is going to evolve, then Malta could start to lose out. As a result, one of the consistent focuses of the 28 CEOs we spoke to was the need for qualitative education that is led and guided by business. The business community should influence the choices that are made and the opportunities that are offered.”

Thinking further ahead into the future to 2025, Perit Xuereb says it is likely there will be challenges ahead. “It would be foolish not to assume that,” he asserts. “International competition is going to increase, and political and economic disruptions will continue. We have to remind ourselves that we are a small island though, and we tend to be nimble and able to adapt to change quickly. We are entrepreneurial by nature and, as we can see from our history books, we often find solutions quickly.” However, he stresses that, in light of our recent economic success, we cannot be numb to the challenges that could be out there, but awake and alert instead. “Research and development here is poor, even though that is something that really could help us deliver. Our own focus, as Chamber, is to be close to the intelligent individuals who are thinking about research and development – to develop intellectual property, and come up with ideas about how we can react to the needs of the market and be more efficient in our ways of doing things.”

Next, Perit Xuereb believes there also needs to be a shift from quantity to quality – whether in tourism, construction, infrastructure or the services we provide in the environment we live in. “It even comes down to the air that we breathe,” he says. “Quality needs to become one of the key things that our country stands for. I think we are most capable of achieving it – more than capable – but there is going to be a process to get there.

Finally, he calls on businesses to recognise that, in this current positive environment, it can be easy to become complacent and forget that the need to strive is omnipresent. “We have to reverse that. I believe that, in line with this Vision we have produced, the Chamber should take the lead in that respect – to encourage companies to look inward before they look outward, and consider what the world needs from us tomorrow.

“That is why this is a vision, and not an action that can be achieved instantly. We have to brand and engage society at large. I have a lot of faith in the younger generation, and believe they understand ethics and the environment; I hope that they, as future entrepreneurs, will live by sustainability. We have seen that people are able to make choices on account of value, and it is a question of attitude. The older generation must now take this seriously. As a Chamber, we are acting on this too, through our work with JAYE.”

“That is exactly what we intend to do, but I reiterate: We have a lot of work to do,” Perit Xuereb concludes. EV

With all of this in mind, Perit Xuereb also stresses that the Chamber has a CSR vision of its own that it will be launching in the years to come, while engaging with future entrepreneurs to help make it a reality. “We are counting on making Malta a smart and sustainable island,” he continues. “We believe disruptive technology – if used correctly – could really drive business in Malta.”

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ECONOMIC VISION 2020: Business. Finance. Economy.

2020 W H AT TO EXPECT FROM

THIS LANDMARK YEAR

Heading into 2020, Malta aims to make great strides towards maintaining economic growth, protecting the environment and restoring its reputation. The Economic Vision asks Malta Chamber of Commerce, Enterprise and Industry members of the Board of Management to share their thoughts on what lies in store.

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ECONOMIC VISION 2020: Business. Finance. Economy.

Photos by Justin Mamo

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ECONOMIC VISION 2020: Business. Finance. Economy.

D AV I D X U E R E B PRESIDENT “We must develop new and disruptive economic streams, increase environmental awareness, promote sustainable and smart business, and, above all, restore our reputation,” says David Xuereb, CEO of QP Management. “In 2020, Malta’s economic growth is expected to continue but at a slower rate,” Perit Xuereb stresses, explaining that sustainable and smart economic growth should be prioritised. “Our main challenge is ensuring that Maltese business isn’t overshadowed by international competition. But there’s no escaping the fact we are facing limited resources and ever-increasing costs of employment.” Perit Xuereb is also cognisant of Malta’s position on the global stage, elucidating that fast-changing global trends will inevitably impact the country. “A case in point is Brexit, the effects of which are yet to be understood, but expectations aren’t encouraging. We must remain vigilant so as to react and pro-actively adapt.” Acclimation will also be an indispensable trait in upcoming years, when big data and artificial intelligence (AI) are set to change lives dramatically. “AI, 3D printing, quantum physics and the early regulation of disruptive industries will take centre stage, which is why I want Malta to become a centre of excellence in education,

I’d like all companies to increase their sustainability practices and lead profitable, green businesses because this could take Malta to the next level.

research and innovation across all segments. We must bridge the gap between our education system and the ever-changing market needs in order to meet the requirements of future industries.” On Malta’s objective of reaching carbon neutrality by 2050, Perit Xuereb says: “This is a step in the right direction and should motivate entrepreneurs to work towards securing sustainability in our economy. But a lot needs to be done, and we’re still awaiting tangible policies and legislation. I’d like all companies to increase their sustainability practices and lead profitable, green businesses because this could take Malta to the next level.” In this regard, the question of the Malta Chamber’s position is paramount. “The Chamber is evolving to assure maximum relevance in the current socio-economic-environmental landscape,” concludes Perit Xuereb. “It is drafting its 2020-2025 Economic Vision for Malta together with top players in Maltese industry, and the Vision’s recommendations will be presented to the Government and related entities to drive momentum towards achieving objectives.” 41


ECONOMIC VISION 2020: Business. Finance. Economy.

MARISA XUEREB DEPUTY PRESIDENT “Remaining competitive on the international stage will be the biggest challenge for Malta in 2020,” says Marisa Xuereb, Managing Director of Raesch Quarz Malta Ltd.

Malta’s rising labour costs in tourism, manufacturing, gaming and financial services are stress-testing long-established companies, according to Ms Xuereb. “The cost-value relationship is strained, so maintaining and improving product quality is imperative to withstanding the higher cost base. “We’re entering a period of ‘clean-up’, in which we must address construction sites that have invaded residential and touristic areas on the one hand, and the repercussions of deficits in institutional and corporate governance that have tarnished our reputation internationally on the other.” In fact, Ms Xuereb is closely following goings-on beyond Malta’s shores. “Brexit’s impact on business is, as yet, unclear, while the US-China dispute remains worrisome. Locally, though, the necessary shift in real estate seems imminent, and foreign workers will still be needed to meet labour demands.

I hope education and industry requirements align, particularly vis-à-vis new economic activities, such as blockchain and AI, which will continue to gain traction.

“That said, the costs of high labour turnover are eating into margins, so we should see a reduction in headcount and concerted use of technology to streamline operations. I hope education and industry requirements align, particularly vis-à-vis new economic activities, such as blockchain and AI, which will continue to gain traction. “As one of the first to establish a regulatory framework, Malta is on the blockchain map – but it’s early days and risky. Blockchain leaders will be those who lead the use of blockchain technology for smart contracts, banking transactions and data sharing – and this all requires more time to develop.” In the meantime, Ms Xuereb argues that Malta must invest adequately in infrastructure and sophisticated technologies that support innovative businesses. “We can make a quantum leap by establishing a research and development ecosystem, and attracting talent that spurs marketable innovation. “Long-term prosperity, however, depends on sustainability, and companies are increasingly talking about rebalancing the economy, the environmental impact of economic activities, and the effects on quality of life. I’d like to see more incentives that encourage impactful corporate social responsibility activities.” In her final thoughts on 2020, Ms Xuereb adds: “Crosssectorial communication is crucial. The Chamber unites the business community in Malta and anticipates impacts to help mitigate adversities and maximise opportunities. Whatever the economic circumstances, the Chamber’s role is unremitting, and that will be invaluable in 2020.” 42


ECONOMIC VISION 2020: Business. Finance. Economy.

HUGH ARRIGO VICE PRESIDENT “We have to be smart enough to capture the right opportunities yet astute enough to balance caution with bold action,” says Hugh Arrigo, Director of Attard & Co Ltd. “In Europe, all eyes are on Brexit as we enter 2020. Brexit will impact the entire EU, as the UK’s EU contributions equal those of the 19 smaller member states. In other words, the EU isn’t simply reducing from 28 to 27 members; it’s losing a major player. “As a country, remaining in our comfort zone will do us no favours,” summarises Mr Arrigo, who – as a founding council member of the Maltese-Chinese Chamber of Commerce – knows the importance of seeking new international opportunities. “I want to see connections between Malta and Germany and Asia being strengthened. Our generation is the product of Germany, but our children will be the product of China – and we should face this reality with open arms. “Germany has long supported Malta; it was even instrumental in getting us into the EU. Enhancing our relationship will open doors in 2020 and beyond. Likewise, China is a force to be reckoned with, and it’ll become the superpower of superpowers. We must consolidate our relationship with China to capture Chinese business reaching Europe and Sub Sahara via China’s One Belt and One Road global development strategy. “We are in a unique, strategic position in terms of geography and language abilities, and we can be an additional door opener for both Germany and China in Sub-Saharan Africa. Ryanair’s transit hub in Malta is a prime example of what we can offer major global players.”

Our generation is the product of Germany, but our children will be the product of China – and we should face this reality with open arms.

However, Mr Arrigo advises caution in emerging industries. “We have done well to promote industries related to modern technology such as blockchain and AI, for example, but there are disadvantages. Being in pole position doesn’t necessarily mean that we’ll emerge as the winner. Others will copy us – and, when they do, they’ll improve and correct what we’ve done.” Before anything else, however, Mr Arrigo believes that any kind of long-term prosperity depends on Malta restoring its damaged reputation. “Our performance rating has dropped, and our credibility is at stake. If our reputational shortcomings aren’t addressed, if institutions flout the law and if enforcement continues to be lacking, our opportunities and international relations will be severely at risk.”

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ECONOMIC VISION 2020: Business. Finance. Economy.

LIZ BARBARO SANT OFFICER “For sustainable success, a country must look ahead to where it wants to be in 10-to-50 years,” says Liz Barbaro Sant, the co-CEO and Member of the Board of Directors of Alberta Group. As a member of the Board of Management at the Malta Chamber, Director of TradeMalta and Secretary of the Maltese-Libya Chamber of Commerce, Ms Barbaro Sant is attuned to the economic, social and cultural transformations that have occurred in Malta over recent years. “Malta has witnessed exceptional growth,” says Ms Barbaro Sant, “but this has also triggered major infrastructural and social struggles, including a tightening of the labour market and unrealised productivity potential. To sustain competitiveness, Malta needs to solve these problems and re-visit planning strategies to ensure that we can serve future generations.”

We must prioritise Malta’s strategic objectives and coordinate with the Government and stakeholders to fully realise the country’s economic potential.

Re-asserting views that Malta lacks long-term vision, Ms Barbaro Sant explains: “Only with far-reaching vision can Malta pave a path towards this imagined, successful city-state. We must fix today’s troubles without harming our strategy for future prosperity. “I believe that investing in research and development is an investment in our own future. To truly become a knowledge-based economy that thrives on innovation and enterprise, we must first develop that knowledge base by attracting and developing talent. Only then can we build the future we envision.”

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Malta’s future, however, is also dependent on proactively tackling sustainability. “Some companies understand that, besides intertwining business growth with social change, they must effectively facilitate the true integration of sustainability into their culture and ethos. But all companies have a responsibility to contribute to solutions and to foster an approach to corporate social responsibility that is more involved than simply writing a cheque.” As she considers what 2020 has in store, Ms Barbaro Sant determines: “I’d like to see more productive discussions about longterm development. We must prioritise Malta’s strategic objectives and coordinate with the Government and stakeholders to fully realise the country’s economic potential. “In this context, we should consider the three emerging markets in which Malta is positioning itself as a potential leader: blockchain, AI, and medicinal cannabis. The country’s decision to invest in these areas will put it in a competitive and leading position for years to come.”


ECONOMIC VISION 2020: Business. Finance. Economy.

A N D R E W WJ M A M O OFFICER “Overlooking our traditional sectors because of the ‘new kids on the block’ is a grave mistake,” contends Andrew WJ Mamo, Managing Director of Galdes & Mamo Ltd.

Along with Malta’s economic growth have come unprecedented opportunities. “Consumers have more purchasing power, encouraging companies to become more innovative and promoting competition,” says Mr Mamo. “The Government is also offering funds to companies to enable them to compete within the growing EU market. “Having said that, challenges have also emerged. Across the board, business and residential costs have soared. The cost of real estate – both residential and commercial – has risen exponentially, partly due to the gaming industry. We’re also experiencing heightened labour costs as employees expect higher wages, and labour shortages are compounding the problem.” Unquestionably, problems are rife, but “Malta’s economy has been succeeding and progressing thanks to the services industries, primarily tourism, financial and professional services, real estate and gaming,” Mr Mamo points out. And although there may be some slight corrections in 2020, he does not see these segments slowing down soon.

We must remain mindful of our ‘traditional’ sectors – manufacturing, retail, wholesale and importation, and tourism – because they’ve sustained the economy for many years.

“Following the proliferation of interest in blockchain in Malta, we need to invest in AI. This could assist upscaling efforts across segments. In particular, we’ll be seeing new opportunities emerge in finance and technology, as Malta is on the verge of delving into new industries, such as FinTech.” Thinking ahead, however, Mr Mamo maintains: “We must remain mindful of our ‘traditional’ sectors – manufacturing, retail, wholesale and importation, and tourism – because they’ve sustained the economy for many years.” He advises assisting ‘traditional’ sectors in their efforts to upscale and adopt disruptive technologies in order to remain competitive in the long term. “At the same time, I’m also seeing companies investing in products and services with a lower carbon footprint, which is important because climate change is – and should be – on everyone’s agenda. With consumers demanding greener products, companies are being left with no choice but to supply them. “The Chamber itself is committed to nurturing sustainable practices and advocating the long-term benefits of policies for sustainability,” Mr Mamo concludes. “We’re evolving with the times, which is essential for us to remain relevant to our members and attractive to new sectors.” EV 48


ECONOMIC VISION 2020: Business. Finance. Economy.

M A LTA’ S

BANKING SECTOR

faced

‘with a challenging external environment’

In a time of global economic unease, Malta and its economy continue to show signs of strength and resilience. But what does the forecast look like for the medium- and longterm? Martina Said chats with the Governor of the Central Bank of Malta, Mario Vella, to discuss the impacts of global and local developments on Malta’s banking sector. 50


ECONOMIC VISION 2020: Business. Finance. Economy.

M

alta’s economy has boomed in recent years, outperforming most other countries in the euro area. Over the past five years, economic growth averaged 7.7 per cent, which Central Bank of Malta Governor, Mario Vella, says is “above Malta’s historical average”. GDP growth in 2019 is still expected to be strong at 5.4 per cent, while forecasts for 2020, predicted to be around the 4 per cent mark, indicate a slight dip. This drop, however, isn’t a troubling sign – rather a gradual normalisation in the pace of economic activity, says the Governor. “It reflects two factors. On the one hand, our supply of resources is limited and, though we are managing to increase productivity and add more productive resources, there is very little slack. We have the lowest rate of unemployment and the highest rate of employment in our history, and in both cases our rates now are better than in the rest of the euro area.”

For banks to remain competitive they need to invest heavily in technology to keep up with the pace of developments while at the same time meeting customers’ demands.

On the down side, however, trade tensions have put a brake on world demand, and this is affecting Malta’s trading partners and some local exporters. “That said, we are entering this phase with a glut of private savings and considerable fiscal space. This means that the pace of private consumption need not slow down significantly, even in the face of a slowdown in income growth,” says Dr Vella. “Moreover, Government has ample financial resources to carry out a countercyclical fiscal policy, particularly by boosting capital investment.” 51


ECONOMIC VISION 2020: Business. Finance. Economy.

In this light, the Central Bank forecasts that, while employment growth may decelerate somewhat, the unemployment rate will remain at historical lows and GDP growth will remain above that of Malta’s peers. “We anticipate that the participation rate will continue to improve and that we will continue to require an inflow of foreign workers,” he asserts. “We also believe that our exporting sectors are in a fairly good shape in terms of competitiveness, and that any negative effects from a less supportive external environment could also be partly mitigated by efforts to pursue further economic diversification.” The strength of Malta’s economy has been bolstered by higher value-added sectors in recent years, among them the financial services, iGaming, property development and, most recently, innovative technology sectors. Dr Vella believes that one of the biggest challenges for these sectors and the firms that operate within them will be the availability of human resources. “This means that the trends that have characterised our economy in recent years, such as the shift to services and to higher value-added activities in productive sectors, are likely to continue.” The Governor adds that the changing nature of demand means that sectors that are flexible and can offer more customised products will be able to maintain their profitability. “For instance, I think that in our tourism industry, the shift away from collective accommodation and towards more personalised accommodation – such as boutique hotels and rented accommodation – will persist, if not accelerate,” he explains. “Similarly, in an environment of ever scarcer resources, the adoption of technology to improve productivity will become ever more important. Sectors that fail to invest in innovative technological solutions will inevitably lose importance. This, of course, means that if as a nation we manage to attract firms that are involved in this technological revolution, we will continue to enhance our position in the global value chain,” asserts Dr Vella. “The coming years

will see more technologically advanced investment in Malta rise significantly. I also see large potential for the circular economy and green investment.” Turning our attention to the Maltese banking sector, the Governor asserts that, similarly to most other European banks, it is “faced with a challenging external environment”, namely a persistent low interest rate environment, a weakening euro area economy, fast technological developments, a more intensive regulatory environment, destabilising trade wars and Brexit uncertainty. On the positive side, Malta’s robust economic environment has supported financial stability. Dr Vella states that core domestic banks have managed to increase their income from intermediation on the back of increased lending volumes, particularly mortgages, together with a turnaround in corporate lending. Such banks have also tapped into other sources of income, with non-interest income increasing as a share of their gross income. “Such conditions are also helping the banks to further improve their asset quality,” says Dr Vella. “In fact, supported also by specific regulatory measures, the non-performing loans ratio for the whole banking system stood at 3 per cent in June 2019.” However, there are down sides, and the Governor cites Malta’s open economy as one of them, which makes it more vulnerable to external shocks. Weakening economic developments in other countries could also affect domestic growth, which could have adverse repercussions on the sector’s performance going forward, the Governor asserts. “While the probability of a ‘hard Brexit’ has diminished, the implications of Brexit on the Maltese economy are deemed to be manageable with no serious consequences for the local banks.” 53


ECONOMIC VISION 2020: Business. Finance. Economy.

A subject of interest and a challenge for the banking sector is the digitalised environment, specifically the digital economy which is “taking over, almost completely, the traditional way of doing business in banking.” Dr Vella explains that such technological changes have given birth to what is called the ‘open banking’ approach, with technology enabling the unbundling of banking services that are being provided by different players, particularly in the lucrative payments services.

The termination of correspondent banking relationships for certain currencies can have potential far-reaching consequences, including financial exclusion.

“For banks to remain competitive they need to invest heavily in technology to keep up with the pace of developments, while at the same time meeting customers’ demands,” he says. “Undeniably, this comes at a cost, but the advancement in technology provides opportunities for banks to increase their customer base and volumes, with positive outcomes on profitability.” Turning our focus towards the international stage, the subject of correspondent banking services being withdrawn from Malta by international banks comes to the fore. The Governor says the worldwide de-risking by large correspondent banks, due to increased regulatory pressures and costs of complying with the legal requirements imposed by AntiMoney Laundering (AML) and Combatting the Financing of Terrorism (CFT), is affecting banks in countries with relatively smaller banking sectors. “Of late, a number of correspondent banks announced the termination of their relationships with small jurisdictions, in a bid to maximise their risk-adjusted returns, cut down on costs and concentrate on more profitable markets. Malta, like other small jurisdictions, has been caught in the crosshairs of this strategy, which is essentially a market failure issue,” says Dr Vella. “The termination of such relationships for certain currencies can have potential far-reaching consequences, including financial exclusion and a deterioration in the integrity of the international payments system and international trade in general.” The Governor asserts that correspondent banking arrangements are crucial for making cross-border payments, especially in an environment where the US dollar is still the most used currency in trade. Therefore, any disruption in the payments system will affect business and individuals. “Maltese banks are doing their part to maintain or find alternative clearing arrangements,” he states. “At the same time, the Maltese regulatory authorities have implemented further measures to ensure that banks are de-risking where necessary and are employing enhanced governance practices.” The silver lining, however, is that local conditions appear favourable overall, according to the Central Bank Governor, and the current strong domestic economic environment should also provide further opportunities for banks. “Buoyant economic activity increases business confidence and hence, the possibility of exploring new niche markets and investment opportunities are higher. This gives the banks the chance to support new investment and emerging new sectors.” EV

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uccess

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challenges While there may be trials and tribulations ahead, Finance Minister Edward Scicluna believes that Malta’s economic future is still extremely positive. He talks Jo Caruana through his expectations for the years to come.

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s Finance Minister Edward Scicluna looks back on 2019, he is pleased that – as such – the year hasn’t served up too many economic surprises. “That’s what we were after,” he tells me. “When we look at what we set out to do in the 2019 Budget, we are practically on track. Of course, you never quite know what the year could bring in the first two or three quarters but, now that we are reaching the end of the year, we can say with certainty that it has been a good year.”

He explains that, in the first six months of the year, the local economy grew by 4.7 per cent – more than three times higher than the EU’s average growth rate of 1.4 per cent. “Investment was the primary driver that fuelled that growth, as it increased by 14.2 per cent,” he continues. “Private consumption also contributed to economic growth, with a 4.5 per cent increase. This strong increase in investment led imports to rise by 2.2 per cent, while exports increased by 1.5 per cent. All this was reflected in substantial increases of 5.7 per cent in wages and salaries, and 9.5 per cent in company profits.”

Minister Scicluna assesses this success based on the number of measures and proposals – announced in the 2019 Budget – that have been completed. “We’re at 74 per cent at the moment,” he continues, “which is quite satisfactory. We knew that some measures would take more than 12 calendar months to complete, and they are still on track. But we have delivered.”

Malta’s economy also continued to be diversified in the first half of the year. As the Minister explains, all sectors – from the industrial to the service divisions – registered increases in Gross Value Added, and this grew by 7.5 per cent overall. “The labour market in Malta continued to be dynamic throughout the year, too,” he continues,


ECONOMIC VISION 2020: Business. Finance. Economy.

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“with the number of employed people now reaching 230,000. The private sector continued to fuel the increase in employment and was responsible for more than 90 per cent of the new jobs created.” Minister Scicluna goes on to talk about the successes that were registered in 2019 in relation to the international trade sector, where the country’s external account registered a surplus of 8 per cent of the GDP in the first half of the year. “All this led to a situation where we succeeded in attaining sustainability in public finances with public debt decreasing to 45.8 per cent at the end of 2018, and expecting it to decrease to 43.1 per cent at the end of 2019. Once again, we also expect to register a surplus in our fiscal balance and must highlight the fact that, by 2020, Malta’s GDP will have doubled in nominal terms since 2013, from €7 billion to €14 billion. That is a span of just eight years.” Switching his attention from the past to the future, Minister Scicluna notes, however, that challenges could be afoot. “We must bear in mind that the International Monetary Fund is revising its global economic growth projections for next year downward, to 3.5 per cent. This is because of the slower rate of growth in investment and in consumption of durable goods in advanced and emerging countries, as well as uncertainties in international trade due to the introduction of new tariffs, and – of course – Brexit.” Nevertheless, he says that Malta is still forecasting an economic growth rate of 4.3 per cent in real terms, and 6.5 per cent in nominal terms – above the expected Eurozone average of 1.6 per cent and 1.4 per cent respectively. “This growth is expected to be fuelled by a 9.7 per cent increase in investment, while private consumption is expected to increase by 4 per cent, and public consumption by 4.9 per cent.

The International Monetary Fund is revising its global economic growth projections for next year downward, to 3.5 per cent.

“Overall, this growth forecast means that we are expecting to have a 4.1 per cent surplus, and that the burden of debt will decrease further to 40.4 per cent of the GDP in 2020.” As far as industry is concerned, the Minister talks through a number of new initiatives that will continue the diversification of Malta’s economy, and which he says will be important for its sustainability in the future. “Initiatives are launching in everything from blockchain to medical cannabis, AI and IoT,” he explains. “We have shown a lot of interest in all of them, and we’re taking the initiative to be as far ahead as we can. In the past we have shown – through iGaming and other areas – that

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The secret is for us to keep getting the flow of investment; international investment is still seeking Malta and I believe it will continue to keep seeking Malta.

being a small country gives us the flexibility to react and make things happen. I liken it to the Kodak of yesterday and Instagram of today; there is always a fresh way of doing things.” Minister Scicluna believes it is Malta’s willingness to listen to forward-thinking industries that make it special and appealing. “Yes, certain sectors could be risky, but we have to manage that risk. Having a piece of the pie will give us some insurance for the future, and will help make us future-proof.” Admittedly, the Minister does believe that the environment and waste management will prove to be major challenges in the years to come, but he stresses that careful planning will help to manage that. “I think there are encouraging signs. Take the separation of waste; a lot of families are now cooperating and feel they are doing something to help our future. They are aware that what you put in your dustbin counts. With this in mind, our waste to energy plant will be crucial in the future, along with our bottle-collecting plan. We look forward to the private sector coming on board with this as well.”

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Finally, the Minister explains that, in his opinion, there is no reason why the next five years shouldn’t be positive – unless we are so careless that we want to crash the economy. But who would want to do that? The secret is for us to keep getting the flow of investment; international investment is still seeking Malta and I believe it will continue to keep doing so. “Just like the Chamber’s Economic Vision suggests, it will be important that planning and our island’s capacity are taken into consideration, as both these could be limiting factors. We have to address them to ensure we can cope. But overall growth has been good. That growth will continue to help us converge and finally reach the median standard of living in Europe, which is an excellent goal for us to focus on. “So with all that said, our vision is clear: We are sensibly following a plan that has the primary aim of bringing prosperity to everyone, so that nobody feels excluded or neglected. The execution of this plan will continue next year with new measures that will be announced soon, and which will continue to strengthen us for years to come,” Minister Scicluna concludes. EV


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Shadow Finance Minister Mario de Marco talks to Rebecca Cachia about the sustainability of Malta’s rapid economic growth and why the country is in dire need of long-term vision and bold action.


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e are on the precipice of 2019 amid chatter about the potential slowdown of Malta’s economy, while the global economy is facing several threats.

In anticipation of what the coming year has in store, Malta’s Shadow Finance Minister, Mario De Marco, shares his insight. “2020 brings with it a strong element of uncertainty,” Dr De Marco contends, emphasising that, despite our geographical location, we cannot pretend that Malta exists in isolation. “Events out in the world bring unknowns into the Maltese context. Global economic forecasts predict that international economic growth will slow down, and Malta is not immune to these trends. Global trade is being influenced by, for example, Brexit, the US-China trade war, and the revival of protectionist trade policies and threats of tariffs. Malta is part of the global village, so what happens out there will inevitably affect us. “Having said that, I believe that the Maltese economy will continue growing – but, at an altered pace. Over the past decade or so, we’ve experienced a growth rate that is higher than the EU average, but it’s now tapering off – after a decline from 6 per cent, we’re now predicting 3 per cent. Ours is certainly still a growing economy but – for reasons both within and out of our control – growth will decelerate.” In fact, the construction and development sectors are already showing tell-tale signs of a slowdown. Until recently, Malta had been jolted by an unprecedented rate of development. But the construction boom now seems to be dissipating. “Some will tell you this is a good thing,” remarks Dr De Marco, “because we know that overdevelopment has taken us beyond sustainability, and it’s en route to impacting other sectors, such as tourism.” Prudence may be the order of the day, but Malta cannot afford to rest on its laurels. A case in point is the financial services sector. In July 2019, Moneyval – Europe’s anti-money laundering and counter-terrorist body – released a report indicating that Malta’s institutional weaknesses put it at significant risk in the fight against money laundering. Malta has been warned that policies such as the investor citizenship scheme, together with regulatory shortcomings, expose the entire EU to money-laundering risks. “Indisputably, one of the major influences for 2020 depends on how we tackle the findings of the Moneyval report. If we get blacklisted, the financial services names that matter will avoid Malta at all costs. Our reputation has already been tarnished, so, to avoid being completely submerged in a bad reputational situation, we must address the failings in our institutions.

Attracting new industries is useless if our banking sector does not have an appetite for them – or even for economic growth.

“There’s a lot at stake. We’ve already heard financial services practitioners complain that some clients have cut ties with Malta. And the tendrils of a bad reputation are reaching into other sectors, too. For example, we must keep a watchful eye on the gaming industry because several companies have already either relocated or reduced in size. We need to scratch beyond the surface to comprehensively understand why companies are leaving.” The banking sector is the thread running through the different components of Malta’s economy, so the impacts of changes in banking are farreaching. Following HSBC’s branch closures, Bank of Valletta’s loss of correspondent banking and cessation of the accounts of some gaming companies, Deutsche Bank’s halt to any correspondent banking with local Maltese banks, the regulatory gaps in Malta’s handling of the Pilatus Bank scandal, and the ongoing Satabank saga, Malta is unquestionably facing the heat. “Look at the impact that the nature of local banking has had on blockchain in the country,” Dr de Marco continues. “In recent years, the Government has tried to launch Malta as a blockchain hotspot. But the hype is fizzling out. Operators who were interested in Malta couldn’t find a banking network to support them. It’s becoming near impossible for foreign operators to open accounts here.”

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It has indeed been difficult not to succumb to the blockchain buzz that has swept the nation, and any voice of cynicism or criticism has been quickly drowned out. “As the Opposition, we supported the necessary legislation for blockchain and cryptocurrency, but we also warned that this is a very high-risk industry,” explains Dr De Marco. “For example, cryptocurrency is not recognised by the World Bank, and it has made headlines for being used for the wrong reasons. Simply put, if you’re not one step ahead, it’s the people using cryptocurrency who’ll be running ahead of you. To deal with these types of naturally high-risk industries, the presence of a strong, high-tech regulator is required.” The question is, are our regulators up to scratch? “To regulate and excel in high-tech, high-risk industries, we need human capital with the right qualifications, training and experience – of which we’re currently lacking. Beyond that, attracting new industries is useless if our banking sector does not have an appetite for them – or even for economic growth. We need to determine the exact state of our banking sector and work closely with our banks to determine the industries that they’re ready to support.” While the Opposition has pushed for discussions around new business sectors, Dr De Marco explains this does not mean that traditional industries should be overlooked. “The financial services and tourism sectors of today are different to those of yesterday, so we’ve got no choice but to keep up with changes, continue strengthening our traditional sectors and elevate them to the next level and beyond. “We must retain a position of advantage by increasing competitiveness and creativity. We talk a lot about the creative economy, but what are we really doing to attract it? Culture and creativity are painted with the same brush as traditional culture, which prevents us from moving forward – or in any direction at all. And even in traditional arts and culture, we’re not very supportive of our artists, for example.”

We talk a lot about the creative economy, but what are we really doing to attract it?

The creative economy is multifaceted, but centres on having a vision – something that Dr De Marco finds troublesome on the island. A short-term economic vision, he argues, does not build a solid foundation for Malta, especially at a time when the country exists on a landscape of radically changing global trends, technologies and challenges. “Our local budgets lack vision,” asserts Dr De Marco. “We need a vision for the next 10 to 15 years, and not a year at a time. To prepare Malta for new industries and economic strategies, short-term vision is unhelpful and potentially harmful.

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“By looking far ahead, we can predict the knowledge and skills needed to meet the market requirements of the future – and not just the present. Training people properly for the future relies on providing the right education now in secondary schools, MCAST and university. Educational institutions should work hand in hand with the visionaries of this country’s economy to meet the demands of tomorrow.” Our economic growth has opened new doors for expertise and talent not currently commonly found in Malta. “I think we need to learn from the foreign experts who now work here, but not necessarily to displace them,” reflects Dr De Marco, “Rather, I’d like to see the Maltese benefitting from the opportunities afforded by foreign expertise. Eventually, for example, in gaming, I’d like more Maltese to possess the knowledge and skills needed to get high-level jobs.” It is no secret that several foreign companies are in Malta primarily for tax reasons, but Dr De Marco would like to see economies based on human talent rather than solely legislative advantages. “To secure future prosperity, we must expand beyond tax. Malta has resisted attempts to harmonise tax systems across the EU, but we’ve always had support from the UK when fighting battles over tax sovereignty. PostBrexit, our voice against tax harmonisation will be much weaker, and our economy will be at risk. The Opposition is against tax harmonisation because financial services constitute a crucial industry locally. But we must think long-term because what exists today might not be here tomorrow – and for reasons potentially beyond our control. “We can, however, strengthen the reputation of our institutions,” Dr De Marco continues. “If reputation is weak, our fight against tax harmonisation will be much harder. If our institutions were renowned for their autonomy rather than lack of it, we’d have a much stronger voice.” Nevertheless, a restored reputation and continued economic growth will not eclipse the fact that Malta’s prosperity has not come with an improved quality of life. When the Government should have already started proactively tackling sustainability, it has instead opted for policies that move Malta in the opposite direction. “As Minister for the Environment, I had introduced legislation to create the concept of a guardian for future generations. Today, I regret that the legislation was not made stronger. Malta has failed in achieving the right balance between economic growth and environmental protection. The two are wrongly perceived as mutually exclusive; in reality, however, they’re not inherently incompatible. “In Malta, we’re obsessed with construction and development. To a certain degree, this is understandable given our size and the value of land. However, it simultaneously impacts our quality of life negatively. We must start

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measuring growth beyond GDP and follow the lead of countries such as New Zealand that measure economic success in terms of GDP as well as the well-being of the individual. “The average person’s quality of life has not improved as a result of Malta’s economic success. Our infrastructure is bursting at the seams, we’re surrounded by construction, dust, noise and traffic, and our open-air and green spaces are shrinking by the day. The word ‘sustainability’ is a hype word that, as politicians, we often use, but we rarely action. We’ve lost sight of what the word means, but this has to stop. Our long-term focus must shift to quality of life and humancentric economic growth.” It is difficult to reconcile such words with a history of economic policy in Malta that has treated the environment and quality of life as a neglected stepchild. Dr De Marco admits that this is indeed the case, but says that we now have no choice. “We have to look to the younger generation because they are much more passionate about having a human-centric economy than other generations have been,” he rationalises.

To prepare Malta for new industries and economic strategies, short-term vision is unhelpful and potentially harmful.

“Young people need a louder voice. The element of despair in Malta calls for a lot more than attending a protest. Of course, disenchantment with the political class goes beyond Malta. From other countries, though, we learn that a voice can transform into a movement and into new political parties that traverse traditional party lines, as seen with Macron in France and Movimento Cinque Stelle in Italy. “In Malta, this isn’t the case yet. I want young people to be more politically active and to show what they do and don’t believe in, and what is and isn’t important for their future.” Young voices need to be listened to by the Government, Opposition and other stakeholders when looking ahead to Malta’s long-term future. However, a lot can already be achieved if today’s authorities were to be strengthened. In his closing thoughts, Dr De Marco affirms that “authorities and institutions ought not to be treated as an extension of the Government arm. They must have true autonomy and independence to function without fear or favour. Consolidation and seeking consensus in this regard are our most critical challenge in the immediate term. Malta is a country that could progress so much further if only there were genuine discussion, transparency and agreement.” EV


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Sustaining our

F U N DA M E N TA L

competitiveness Economist Gordon Cordina cautions about the way forward, and stresses the need for quality to outshine quantity.

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he global economic situation and elements of overheating on the domestic front may restrain the growth rate in activity and employment in Malta, that are among the best throughout the European Union, to more sustainable levels in the medium term. It is imperative for this to happen in an orderly and managed manner, while sustaining competitiveness and all the elements in the social and environmental fabric that underpin the quality of life.

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This requires our economy to be resilient to face a potential slowdown in export demand in coming years. The international economic scene has recently taken a turn for the worse in response to a number of events, not least trade disputes and the apparent weakness of the EU in maintaining a cohesive economic bloc. Safeguarding the structural fiscal surplus and a continued decline in public debt levels to GDP will be crucial in this regard, to ensure that the country retains a buffer of resources to be tapped into should the need arise.

Sustaining the underlying fundamental competitiveness of the sectors that are generating the ongoing growth is an essential requirement to enable them to withstand eventual downturns in the economic cycle.

Sustaining the underlying fundamental competitiveness of the sectors that are generating the ongoing growth is another essential requirement to enable them to withstand eventual downturns in the economic cycle. This is equally true for tourism, where we need to up our game, including through the better skilling of our human resources in the sector, and in financial services, where better regulation is called for to ensure future sustainability and reputation. It is also especially relevant for the construction sector where the ongoing boom in demand needs to sustain a significant upgrade in the quality of the product being delivered, to guarantee the international marketability of the real estate

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The economy needs to sow the seeds for the growth of new sectors of activity in order to ensure the growth of our economy on a longerterm cyclical basis.

available in Malta and, consequently, its ability to attract the skilled human resources that the economy needs in order to continue to grow. At the same time, the economy needs to sow the seeds for the growth of new sectors of activity in order to ensure the growth of our economy on a longerterm cyclical basis. These sectors must be fundamentally grounded in the competitiveness advantages that our economy can offer on the international plane, equally as a Mediterranean small island as much as a member of the euro area. We need a clear vocation of promoting innovative activities as well as transforming our country into a hub where the global community can work, relax, learn, heal and engage in creative activities. This calls for focus on the fundamental pillars of the residential attractiveness of our country, including economic, human, infrastructural, social, environmental and institutional capital. I look forward to a time when we will be able to measure our economic success by considering progress in each of these aspects of investment in our economy and our society.

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From the perspective of the social dimension, attention needs to be placed on reducing absolute and relative poverty as much as possible, which are often inevitable consequences of periods of rapid economic growth. And this, of course, leads us to the consideration that the economy and economic growth are never ends in themselves but means towards promoting fundamental human well-being. In this respect the country is being called to make sacrifices, which should result in longer-term benefits for society. Finally, I think that our country is now ready, on the basis of the growth and development over the past few years, to be more discerning in terms of the investment programmes on which it embarks, and which should serve us in good stead over the years to come. EV


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Business

PROJECTIONS, FORECASTS AND PLANS 2019 has been a beneficial year for many companies across numerous sectors in Malta; 2020 is being met with a touch more trepidation. Here, leading business players who represent diverse economic sectors share what they think about the challenges and opportunities that lie ahead.

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M AT T H E W J M E R C I E C A F O U N D E R & C E O , M AT T H E W J A M E S MERCIECA DESIGN ARCHITECTS (MJMDA) “I’m very excited to see what 2020 brings, but we’ve definitely got our work cut out for us,” says Matthew J. Mercieca, a senior architect with over 20 years’ experience in applying his unified design approach to residential, commercial, food, beverage and hospitality projects. Stepping into 2020, businesses in Malta are faced with a wealth of opportunities and challenges, which Perit Mercieca knows all too well. “We have the opportunity to upscale our investments and operations, which will entail working on multiple tracks to improve the odds of winning despite complexities in human resources,” he explains. “After 16 years, the MJMDA head office will embark on another extension – our fourth organic evolution of the space. The upcoming development will work to the benefit of our team as well as our clients. We’ll also be working to consolidate and amplify our international resource market.” In the coming years, Perit Mercieca thinks – more than ever before – that firms and individuals are going to realise that integration and a holistic approach to the delivery of professional services – rather than a piecemeal approach – is essential for success. “Time is everything,” he contends. “Prompt service provision and response time are more crucial than costs. Optimising time is the springboard to improved quality, and companies and individuals will soon be compelled to follow this route by investing in improvements, so as to remain relevant. Developing projects in a fragmented manner, instead of following a holistic design and cradle-to-grave approach, is going to lose favour because of its inherent lack of appeal.” A change in approach comes hand-in-hand with an increasing awareness of how business activities affect society at large. “I believe that top-tier companies are becoming more receptive to strategies of corporate social responsibility,” says Perit Mercieca, “but I still sense a divide between those companies that do a lot and those that have no drive or reason to ‘do good’ because they’ll sell their products and services regardless. “What certainly needs to change is the knowledge and awareness of consumers, as this will affect their purchasing decisions. In reality, do people really distinguish between more and less sustainable products or companies? Or do they simply care about their own interests and watch their pockets? In this respect, education needs to achieve more. We need cultural assimilation from generation to generation for real improvement, because we should all have the privilege of buying sustainable products at reasonable prices.” Reflecting specifically on the construction sector, Perit Mercieca’s final thoughts for 2020 are: “Architecture, structures, building services and interiors services, as well as the project management of holistic projects, are tightly linked to wider economic developments and investments. For most operators, the state of the sector depends on the state of the economy. However, in the case of MJMDA, we work for many end-users directly. This diversification leads me to expect a healthy 2020.” 76


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MARIO MALLIA C E O , B A N K O F VA L L E T T A “Malta’s main challenge in the 2020s will be the sustainability of its economic model,” contends Mario Mallia, who is also the Chairman of the BOV Management Board and Asset Liability Management Committee, and a Director on the board of MAPFRE MSV Life plc.

Mr Mallia prefers the term ‘economic development’ to ‘economic growth’ because, rather than solely using GDP, it incorporates quality of life and the environment when measuring economic welfare. “Besides being an economic powerhouse, Malta must remain an attractive place in which to live and work. We need robust long-term planning, which promotes sectors that are sustainable in the long term and mitigates those that aren’t. “Overdevelopment could have harmful effects on physical and mental well-being,” Mr Mallia warns, as he calls for improved planning so as to avoid impoverishing resources to the detriment of future generations. “It’s foolish to believe that environmental degradation is the inevitable consequence of economic growth. Internationally, countries are leveraging their natural and artistic heritage, and attracting expats and tourists alike. Renewable energy, cultural tourism and environmental protection have themselves become generators of economic activities.” As the Government steers the economy towards high-value, low-environmental impact sectors such as AI, robotics and blockchain, Mr Mallia says: “For proper long-term vision, we also need complementary strategies in education and training to secure the necessary resources to drive such activities both now and in the future.” Mr Mallia also advises developing areas where Malta has a natural advantage: “Given our geographical location, we should focus on shipping and aviation registration domiciles and maintenance hubs.” A well-diversified economic portfolio is invaluable, according to Mr Mallia. “Tourism continues to be lucrative, but it’s time to identify new niches. Health and education are also sustainable and value-adding. We must avoid over-reliance on a single sector, and sustainable sectors that are value-adding in the long-term should be stimulated.”

“However, as always, the financial sector is critical,” he maintains. “It’s often criticised as being too risk-averse, unsupportive of innovation, and overly insistent on customer due diligence procedures. Banks and banking regulators, however, must ensure a jurisdiction’s financial stability and reputation. The former is protected through sound banking practices, such as maintaining strong capital, liquidity buffers and prudence in lending, and the latter by anti-money laundering defences and customer due diligence. “Malta must retain its name as a reputable financial centre and remain well-connected to international financial planning. The authorities need to showcase our regulatory structures, legislation and system stabilities to international regulators. And banks must invest heavily in skills and technology, and cooperate with regulators and educational establishments to prevent financial crime.” All in all, Mr Mallia is optimistic about Malta’s future: “The economy is functioning well, and our financial stability is well protected. Now’s the time to leap towards the promotion of qualitative factors, including environmental and lifestyle elements, so that we can focus on economic development rather than crude economic growth.”

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JOHNNY TOMINAGA CHIEF MARKETING OFFICER, G O T O M A LT A “In 2020, I expect GoTo to continue leading in the shared mobility sector. Of course, the question is, how?” says Johnny Tominaga, who leads marketing, sales and tech operations at the fast-growing mobility start-up.

Mr Tominaga’s wealth of experience leads him to believe that Malta will continue seeing growth in the adoption of shared mobility solutions, such as car and scooter sharing. “Growth of shared mobility is one of the biggest trends locally and worldwide,” he explains. “In Asia alone, car-sharing membership increased by 400 per cent between 2014 and 2016. And in North America, the fleet size of peer-to-peer car sharing grew by 80 per cent in 2018 alone. Furthermore, you can now find scooter-sharing services in almost four times the number of cities as there were back in 2015.” At the same time, electric vehicles keep gaining traction and demand for them is set to increase. “This is a huge opportunity for GoTo,” he continues. “We bring innovative solutions to a single, integrated shared mobility platform that addresses multiple customer needs from the first to the last mile of their trips. Making our solutions smart and sustainable will continue to be at the heart of everything we do.” That said, the coming year will not be without its challenges, of which Mr Tominaga pinpoints three. “Firstly, we need to accelerate the pace of installation of charging stations for our fleet of cars. Secondly, we face the challenge of reducing instability in network connectivity. And, thirdly, we’ll be improving the distribution of our vehicles to address locations of higher demand. “A lot of effort is going into improving infrastructure and the development of technology so that we can overcome these challenges. One example is the launch of an AIpowered platform that we recently deployed to highlight areas of potential future demand for our service. Using this technology, our vehicle handlers can take our cars to the locations where people need them the most. This reduces unnecessary waste of battery life and drastically improves availability.”

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When it comes to vehicular transport, a growing number of companies seem to be becoming more conscious about adopting solutions that are sustainable and less harmful to the environment. “The fact that we offer shared mobility services with electric vehicles has made us one of the preferred choices among people who are looking for alternative transport options. “Data has shown that services like GoTo help reduce congestion, pressure for parking and CO2 emissions, which are all major problems in Malta,” concludes Mr Tominaga. “By the end of 2020, I hope that shared mobility solutions like ours will continue to rise in popularity. By sharing more, we enable exciting possibilities because, as a society, we can achieve more and progress further if we work together.”


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M A R I LY N F O R M O S A D I R E C TO R & H E A D O F L E G A L , P K F M A LT A LT D According to Marilyn Formosa, the first thing to keep in mind as we step into 2020 is that Malta supports diverse industries in a thriving environment, including advanced manufacturing, aviation, the film industry, medicinal cannabis, remote gaming and financial services.

When reflecting on other sectors, Dr Formosa sees 2020 as a pivotal year for the sustainability of aircraft. “Efforts and investments have already been made to test run biofuels, design lighter airframe components and evaluate carbon footprint taxes,” she says. This is interesting when analysed in the context of Thomas Cook’s recent insolvency and especially with the implementation of Ryanair’s subsidiary, MaltaAir. “The Maltese market is undoubtedly going to change,” Dr Formosa affirms. Furthermore, the realm of sustainability will continue to extend across businesses and sectors. “At PKF, we adopt business practices that are socially and environmentally responsible with the aim of making a positive difference,” Dr Formosa explains.

“Especially in relation to the medicinal cannabis sector, Malta is on the right track,” Dr Formosa argues. “We’ve started by establishing a more liberal legislature in this regard. The speed with which the legislation was developed allows Malta to control the production of medicinal cannabis in a legal framework without hindering the owners of plantations with entangled laws. In fact, about 20 projects have already been confirmed. “The next important step is to evaluate the positive effects this will have on the domestic economy. When the companies start to operate in 2025, our export figures will increase substantially, and PKF is keen to assist international companies in acquiring licences for this market. However, we’re sure that other European countries will eventually promote the legalisation of CBD oil medical use. With stiff competition from operators based in Spain, Germany and Netherlands, it is our task to promote the island and convince sustainable investors to locate here, attracted by our proactive legislature and other fiscal incentives.”

“Our team works in a modern building, using an open-plan arrangement that encourages teamwork and interaction with each other. We also support local start-ups in many areas and we offer the use of an equipped office space. We lead by example in corporate social responsibility activities, and we encourage our clients to do the same.” In her final thoughts on 2020, Dr Formosa hopes that PKF, as well as the economy in general, will develop further across various sectors. “As an ambitious team, we hope to grow as part of the PKF International network and to strengthen our global connections, which have already opened up many opportunities for us. “Above all, though, we hope that we can convince high-net-worth individuals from around the world to invest locally. As a result of the ongoing efforts of FinanceMalta and Malta Enterprise, Malta has attracted numerous applications from top investors every year. In particular, I’d like to see more investors from the Gulf countries attracted by the beauty and diverse business possibilities of our country.” EV 83


ECONOMIC VISION 2020: Business. Finance. Economy.

I N F I G U R E S K E Y N U M B E R S , S TAT I S T I C S A N D P E R C E N TA G E S F R O M T H E UPCOMING ECONOMIC VISION

2020-2025

ECONOMIC VISION – GENERAL EDUCATION

28 Key business people involved in creating the Economic Vision 2020–2025

18.6% 21.9% Early leavers from education and training (age 18-24), which is 8 per cent above the EU average and the highest in the EU

7

of children entering primary education today who will ultimately work in new types of jobs and functions that currently do not exist

4,500

PENSIONS

Membership in voluntary retirement and personal pension schemes within three years of their launch

Strategic principles underpinning the 2020–2025 Economic Vision

TRANSPORT & EMISSIONS

0

5%

Tolerance towards corruption as well as employers who exploit foreign workers

2020 target for emissions above the 2005 transport-sector emissions level set for Malta

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Share of low achievers in science, reading, and mathematics among Maltese 15-year-olds. Significantly higher than EU average

65%

387,774 Number of licensed motor vehicles in Malta. A 3.4 per cent increase since same quarter in 2018

27 Newly licensed vehicles daily


ECONOMIC VISION 2020: Business. Finance. Economy.

GENERAL ENERGY & EMISSIONS

WASTE

17%

5th

40%

14%

Percentage of total GHG emissions from energy consumed by Maltese households in 2015

Malta has the 5th highest energy prices for non-household consumers

Industrial energy tariffs are more than 40 per cent more expensive than the average of Malta’s main competitors

Percentage of municipal waste in total waste generated

TOURISM

2.3 million Number of tourists who entered Malta in 2018

PEOPLE

5-star The Government must commit to establishing Malta as a topquality, five-star product

60,000 Growth in population within a seven-year period. A 14 per cent increase

HEALTH

576 Premature deaths per year caused by diseases brought on by airborne pollutants

E-VEHICLES

BUSINESS LANDSCAPE

46%

95%

84th

Percentage of businesses in Malta that are SMEs

Malta’s ranking on ease of doing business

38th

11%

16%

Malta’s ranking in The Global Competitiveness Report for 2019. Malta slipped two places and is less competitive than 18 other EU member states

Percentage of GDP held by iGaming

Percentage of gainfully employed who are foreign workers – EU and third-country nationals

Rate of new EU workers who leave the job between one and two years after starting

0.7% Electric and hybrid vehicles constitute 0.7 per cent of the entire vehicle stock

300km Range of an electric vehicle

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ECONOMIC VISION 2020: Business. Finance. Economy.

a glance

At

W H AT W I L L

2020 HOLD?

Economic growth, new economic activities and innovative technological solutions have excited the Maltese business landscape in 2019. But, what lies ahead in 2020? Rebecca Cachia speaks to industry experts to find out.

ANGELIQUE MAGGI, DEPUTY CHAIRPERSON, MEDITERRANEAN MARITIME HUB Known for her ambitious and long-term vision, Angelique Maggi drives growth and business development at Mediterranean Maritime Hub (MMH). “Malta’s strategic location is, for the maritime industry, a catalyst factor that boosts the sector and economic growth, especially in light of the upcoming green challenges for the sector,” says Ms Maggi. “With regards to the global scene, we need to watch geopolitical developments, especially those regarding oil and gas in the Mediterranean.” In 2020, MMH will continue upgrading the marine, oil and gas centre of excellence it envisioned in 2016. “Our drive, experience, new synergies and new markets mean we’re well primed to become a regional player in marine, oil and gas, and build on Malta’s privileged maritime tradition.”

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GEORGE MANGION, SENIOR PARTNER, PKF MALTA With over 30 years’ experience in accounting, taxation and finance, George Mangion has been instrumental in establishing e-commerce and international trading companies in Malta. “Budget 2020 revealed measures for strong welfare support and reductions in CO2 emissions,” says Mr Mangion positively. “But how do we re-ignite growth when, for example, public funds for research and development are lacking? We need adequate funding to establish a thriving technological system.” France’s President Macron has warned that European economies are at risk, and Mr Mangion contends that this applies to Malta. “Exports for 2020 have plateaued, while gaming is showing signs of ‘fatigue’ and high-cost awareness due to rent inflation and limited trained human resources. To boost GDP growth, we must keep the labour market buoyant in 2020.”

JOHN WOOD, DIRECTOR, COMPUTIME GROUP & CEO, COMPUTIME SOFTWARE LTD As a long-time Board member of the Computime Group, John Wood brings a vast amount of experience-honed knowledge to Malta’s ICT sector. “2020 will be a year of consolidation for Malta’s economy. The usual sectors will be improved but likely at a slower pace than recent years,” asserts Mr Wood, who also sees the global situation improving. “WTO’s global growth rate for 2020 is 3.5 per cent – better than the 3.2 per cent projected for 2019. However, this outlook assumes no resolution of 2019’s trade policy disputes.” Reflecting on ICT, Mr Wood explains that sectorial performance partly depends on other ‘growthdriving’ industries, such as iGaming and financial services. “All things considered, ICT should remain a leading growth area locally. We’re also working on innovative technology solutions for launch in 2020, which will further fuel growth.”

FRANCO AZZOPARDI, CHAIRMAN & CEO, EXPRESS GROUP Franco Azzopardi’s leadership has transformed Express Group into a company with a far-reaching vision for international expansion. While global outlook is debatable, “forecasts indicate that Malta’s economy should maintain its positive performance,” says Mr Azzopardi. “Some speculate that 2020 will bring global recovery. Others warn about trade wars, currency gyrations, a no-deal Brexit and shifts in long-term interest rates.” While advising preparation for any eventuality, Mr Azzopardi reflects on his sector: “Provided there’s a propensity to consume, business will remain. However, rising living costs are troubling because they affect people’s disposable income. That said, a growing population brings increased demands for imports. Above all, though, I see big data, smarter technologies, workflow automation and a focus on sustainability as driving the sector in the coming years.”

MICHAEL BONELLO, CEO, RE/MAX ALLIANCE GROUP With a team of 150 real estate associates, Michael Bonello is a leading name in local property development. Next year will have its challenges, according to Mr Bonello. “With the upcoming US presidential elections and Brexit, the global economy will remain volatile. Malta may be too small to be harmed by particular global events, but it will certainly face threats; chiefly, the damaging media coverage – fake or not – that it has endured internationally in recent years.” That said, Mr Bonello assures that “real estate will remain a solid investment locally, because of the natural constraints of our islands’ size. In 2020, however, we’ll definitely witness a readjustment of prices. Contrary to previous years, there’s going to be a shift towards a buyer’s market.” 87


ECONOMIC VISION 2020: Business. Finance. Economy.

JOHN DEBATTISTA, FOUNDING PARTNER, ZAMPA DEBATTISTA Highly specialised in accountancy and auditing, John Debattista has led work across Europe in gaming and financial services. Malta’s rapid growth is coming to a head, according to Mr Debattista, adding however that “while it will decelerate, Malta’s economy will perform better than the economies of other EU members. Rather than growth, Malta’s challenge in 2020 is sustainability. We must consolidate our achievements and become an attractive hub for businesses with substance.” Still, the hurdles are many. “Improvements in education are essential. Foreign direct investment is limited by the skills we currently miss, as well as by issues with capital and infrastructure. In finance, we must ensure that, despite the regulatory pressure and economic slowdown, we continue delivering the top-quality services that clients expect.”

JP FABRI, DIRECTOR – REGULATORY & ADVISORY, ARQ GROUP Having been a policy advisor to nine governments, JP Fabri is a blockchain and FinTech expert with extensive experience in the private and public sectors. According to Mr Fabri, Malta’s economy will grow steadily but slowly in 2020. “Economies are cyclical in nature, so moderation is expected after fast growth,” he explains. While alluding to a global economic slowdown, he also warns that “there is no room for complacency. Malta must strengthen its economic fundamentals.” Mr Fabri stresses that Malta has to face a number of key and fundamental challenges that are damaging Malta’s standing. “Key institutional reforms, including a constitutional review, must be started. In addition, challenges in the banking sector, infrastructure, human resources and education must be addressed because they permeate all sectors. In general, though, in 2020 we’ll see consolidation in professional services, especially in terms of legislative and regulatory changes entering into force, which will be essential for a resilient and future-proof sector.”

CHRISTOPHER BUSUTTIL DELBRIDGE, MANAGING DIRECTOR, EVOLVE Christopher Busuttil Delbridge is a passionate scientist and recognised business leader, with over 20 years’ experience contributing to Malta’s scientific industry. “Change – or ‘disruption’ – is the only constant,” remarks Mr Busuttil Delbridge. “We’ve got new ways of banking, new insurance concepts and even the discovery of a fifth force of nature. Traditional political systems are evolving, with community pressure and global power struggles taking centre stage. For example, if Brexit happens, Malta’s supply chains will certainly be affected.” Looking ahead, Mr Busuttil Delbridge determines: “2020 will be a period of breaking new ground. Globally, innovation in – and the use of – renewable energies will increase as the price of oil keeps being jolted. Locally, in the scientific sector, the creation of new medicinal cannabis facilities will dominate.”

JIMMY CUTAJAR, MANAGING DIRECTOR, GLOBAL FREIGHT SOLUTIONS With over 20 years’ experience, Jimmy Cutajar is a leading figure in Malta’s logistics sector. “The global economy is in a synchronised slowdown, but 2020’s projected growth rate is slightly better than 2019’s. For Malta, the EU forecasts a 4.2 per cent growth, so a decrease from the 5 per cent of 2019,” says Mr Cutajar, explaining that this is still high compared to the European average of 1.6 per cent. However, Mr Cutajar warns that statistics lean towards positivity that, in reality, is followed by a drop. “The logistics sector reflects the economy and consumption – so, if they decline, logistics will also suffer. We must find new opportunities, and we should look internally too. For example, still no conclusions have been reached about Hal-Far Groupage Complex.” EV

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ECONOMIC VISION 2020: Business. Finance. Economy.

The

ECONOMIC VISION Round-Up By Malta Chamber Director General Kevin J. Borg

Photo by Justin Mamo

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ECONOMIC VISION 2020: Business. Finance. Economy.

C

entral to the mission of the Malta Chamber of Commerce, Enterprise and Industry is to engage in shaping Malta’s future. In 2013, in fact, the Chamber took the strategic decision to assume a more proactive role in influencing Malta’s economic future and articulated its first Economic Vision. Fast forward to 2019 and it is once again actively engaged in the preparation of a second Economic Vision document, covering the 2020-2025 period which dovetails the original document that had a 2014-2020 timeframe. On both occasions, the documents were derived from the active feedback of a group of chairmen and CEOs of leading enterprises in the manufacturing, retail, financial, and services sectors, who are members of the Chamber. The first Economic Vision was drawn up at a time when global and European economies were grappling with the aftershocks of the worst financial and economic crisis since the Great Depression. European Union member states, such as Portugal, Ireland, and Italy, implemented austerity programmes to bring government debt under control. Furthermore, Greece was

Over the past six years, Malta has experienced an unprecedented rate of economic growth.

enmeshed in a sovereign debt crisis, and southern Mediterranean member states experienced high youth unemployment. Malta emerged relatively unscathed from the turmoil that beset the Eurozone. By early 2013, Malta’s economy had stabilised, and the future economic outlook was, on balance, positive. However, what was of particular concern to the Economic Vision was that, while at national and business levels Malta saw through the crisis with relatively minimal retrenchment, other member states and businesses were forced to retrench to survive the crisis. Such firms emerged leaner, more efficient and, hence, more competitive than Maltese enterprise. It was, therefore, speculated that this state of play could affect Malta’s economic growth. This concern did not materialise. The ripple effects of the 2008 crisis continued well into the 2010s in several member states, thereby limiting the overall economic growth of the Eurozone. However, Malta – together with a small number of other member states – bucked this trend. Over the past six years, Malta has experienced an unprecedented rate of economic growth. It is an economic performance that has seen the country reduce its debt structures, achieve budget surpluses, and reach a quasi-zero natural rate of unemployment. The latter has even led to the importation of foreign talent to continue to sustain the pace of economic growth.

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ECONOMIC VISION 2020: Business. Finance. Economy.

THE 2014-2020 ECONOMIC VISION A N D I T S I M PAC T S The Chamber presented its 2014-2020 Economic Vision to the Government and the Opposition in early 2014. The response from both was overwhelmingly positive. Indeed, Government took the lead – through individual ministries and entities – to regularly meet with the Chamber to follow up on the implementation of the recommendations presented in the Vision. A key recommendation was the need for the Government and public service to become partners with business and enterprise. The Chamber states that this is a recommendation that Government openly embraced. In this regard, the Chamber found a partner in Government, one with a ‘can-do’ approach to handling businessrelated issues. Always ready to listen, Government is, invariably, ready to act and creatively find solutions. The Chamber lauded Government on its strategy of fiscal prudence, which has resulted in budget surpluses for the first time in years and a commensurate lowering of the debt-to-GDP ratio to more manageable levels. It positively notes that the Government has adopted its recommendation to set up a post-doctoral research capacity. Furthermore, the decision to establish the National Development Bank, which provides the country with a policy instrument directed to address market failures, has been a positive one.

Despite investment in education and reforms to create student-centric learning and applied education pathways in the curriculum, the fact is that the outcomes are poor on practically all education performance indicators.

A transformation in the energy mix for the generation of electricity contributed towards a significant reduction in the emissions of CO2, NOx, SOx and greenhouse gases (GHG). The Chamber also recognises that, for the first time, a concentrated effort is underway to reconstruct Malta’s roads and to build new roads and flyovers to remove transport bottlenecks, which negatively impact productivity. At the same time, the Chamber questions the focus on the widening of roads and the limited short-term benefits of this approach relative to the rate of growth in new vehicle registrations. The Chamber has consistently called for longerterm direction and solutions in the area of public transport solutions and multi-modal alternatives. The Government also adopted recommendations relating to the formal establishment of partner institutions with the Chamber – that is, public-private partnerships (PPPs) – directed to promote Malta’s credentials as a worthy business player in the global landscape of trade, tech, and education. These PPPs were also set up to strengthen the business ecosystem for overseas growth. The Chamber regrets that several core recommendations that it presented in its 2014-2020 Vision were not adopted. The Vision underlined the importance of positioning Malta as a premium global brand,

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ECONOMIC VISION 2020: Business. Finance. Economy.

but the opposite has occurred. Among other events and actions, the fallout from the Panama Papers scandal, the regulatory and compliance entities’ failure to take timely action, and the serious allegations and concerns regarding money laundering, have tarnished Malta’s brand and reputation unnecessarily. However, the Chamber is encouraged by the Government’s positive reaction to the July 2019 Moneyval Report as well as its declared resolve and intent to settle all highlighted issues. The Vision stated that Malta’s continued economic success and social development depended on its ability to achieve bipartisanship, constancy of purpose, and a culture of cooperation within society, as well as an ability to recognise and establish national priorities. This has not been achieved. Partisanship in policy design and implementation is at the highest it has been since the 1980s. Bipartisanship is openly not sought, and where bipartisanship previously existed, this has broken down. The Chamber further recommended that the Government should undertake economic and social measures that are both remedial and proactive, and that require time and a national, concerted effort to come to fruition. There are policy areas where the desired results are not being achieved. Of significant concern are the poor results in education and the nature of engagement in this area. Despite investment in education and reforms to create student-centric learning and applied education pathways in the curriculum, the fact is that the outcomes are poor on practically all education performance

96

indicators. In the OECD’s Programme for International Student Assessment (PISA) 2015, the proportion of low achievers in science, reading, and mathematics among Maltese 15-year-olds was significantly higher than the EU average. Results from the 2016 Progress in International Reading Study (PIRLS) ranked Malta in 40th place out of 50 participating countries in terms of overall performance. Moreover, the proportion of early leavers from education and training, while continuing to decrease slowly, is still the highest in the EU. The Chamber underlined the importance of balancing economic growth with a sustainable environment and in reversing the uglification of Malta. During the term of the Vision, Government opted for a contrary policy position. Government has favoured a policy of low enforcement and fragmented regulation towards construction resulting in over-development, land abuse, and sanctioning of development in Outside Development Zones (ODZ). Very limited value is being given to qualitative development with aesthetics that is in-keeping with a maturing and educated society. The 2014-2020 Economic Vision was underpinned by five policy fundamentals: securing economic prosperity; fostering human development; supporting the further development of business and enterprise; building an innovation infrastructure; and, investing in infrastructure and the environment. Within the context of these five policy fundamentals, the Vision sought to identify the investment required during its period to secure targeted economic growth.

The latest 2020-2025 Economic Vision is being drawn up within a different global, European and national context than its previous edition.


ECONOMIC VISION 2020: Business. Finance. Economy.

The European Commission’s Country Report 2019 emphasises the need to focus investment on skills development, innovation, infrastructure, and natural resource management to strengthen the sustainability of Malta’s economic growth.

The latest 2020-2025 Economic Vision is being drawn up within a different global, European and national context than its previous edition. On an international level, the world is grappling with a United States of America (US)-China trade war and a revival of protectionist trade policies, which create the potential for short-term and medium- to longterm threats to the global economic system. Europe is unlikely to emerge unharmed. In May 2019, the OECD warned that uncertainties associated with trade disputes between the US and its partner countries are negatively affecting growth and global business investment, which is projected to rise by only 1.7 per cent in 2019 and 2020, down by half (3.5 per cent) from the 2017-2018 period. At the time of writing, the EU is facing the real prospect of a no-deal Brexit. With the United Kingdom being the world’s fifth-largest and Europe’s second-largest economy, economic uncertainty will prevail even if an agreement is reached with the EU on exit because there is no roadmap to follow or analogy to invoke as a guide or a pattern for how a Brexit will reverberate over the coming months and years. Furthermore, the EU has also seen a rise in populist parties – an increase resulting from a failure to resolve the whiplashes of the 2008 crisis, such as high youth unemployment, austerity, social malaise, and disagreement about fundamental nationalistic responses to immigration and multiculturalism. In addition, Italy’s ‘permarecession’ risks a financial crisis in the form of a Greek-style collapse that may threaten the Eurozone itself.

Despite this state of play, Malta continues to prosper. Indeed, there is a danger that Malta’s economy is overheating. One indicator that is flashing ‘red’ is the construction sector. Construction reflects the underlying condition of the economy. Maltese developers, as well as individuals, are investing their money into new buildings – primarily bringing larger levels of residential and commercial supply on stream. As reported by KPMG, as long as the price increases are generated by stable and growing demand, then this should not present a threat to the health of the property market and prices. It is nevertheless important that the key stakeholders in the market exercise prudence and moderation in order to allow for the rest of the economy to adjust to the current construction boom and reduce any risks related to market overheating. Malta also faces other challenges. The European Commission (EC) 2019 Country Report identifies that, while Malta’s economy continues to grow strongly, the main challenge is to ensure that its development is sustainable in the long term. The EC singles out the fact that, while the banking sector remains sound, shortcomings in anti-money laundering enforcement have resulted in reputational risks. It emphasises the need to focus investment on skills development, innovation, infrastructure, and natural resource management to strengthen the sustainability of Malta’s economic growth. It also underlines that the outcomes of poor education may limit growth prospects, and it adds that pressure on infrastructure is creating further burdens on sustainability. The 2020-2025 Vision seeks to present an economic pathway that will ensure prosperity for the Maltese in the long term. The Chamber considers 2020 to be a pivotal year. The right choices will enable Malta to evolve in a fast-changing world increasingly driven by disruptive innovation, technology, and increasing concerns about sustainability and the impacts of climate change. Malta in 2020 is similar to Malta in 1990: it is at a crossroads where decisions taken today will shape Malta’s medium- to long-term future.

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ECONOMIC VISION 2020: Business. Finance. Economy.

P U B L I C - P R I VA T E PA R T N E R S H I P S As mentioned earlier, a strong recommendation made by the Chamber in its first Economic Vision was for the private and public sectors to work in partnership as two sides of the same coin, and in so doing Government should provide the necessary support for business to generate wealth. More specifically the Chamber recommended the setting up of public-private partnerships in the area of supporting the capacity of locally-based companies to expand their business abroad. Since 2014, Government took up this recommendation and established three entities in partnership with the Chamber namely Tech.MT, Education Malta and Trade Malta. In recognition of the pivotal role played by education in Malta’s economic development, the Chamber sought partnership with Government aimed at the assistance of locally-based educational entities to attract international students to study in Malta. It also acts as a point of contact for the provision of information and guidance that may be required. The establishment of this public-private partnership also followed on from the Chamber’s identification of the economic potential of the educational services sector in contributing to Malta’s continued economic growth. The first Chamber Economic Vision, in fact, recommended for the country to establish itself as a global and regional education provider of excellence. The 2014-2020 Economic Vision document also identified the ICT sector as a prime potential contributor to Malta’s economic growth throughout the period under review. For this potential to materialise, the document recommended that locally-based companies consolidate their intellectual property value and evolve towards a productisation strategy, as opposed to assuming a sub-contracting role in seeking international business. Even in 2014, the Chamber’s Economic Vision identified the skills challenge as the main prerequisite for growth in the ICT sector.

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The 2020-2025 Vision seeks to present an economic pathway that will ensure prosperity for the Maltese in the long term. The Chamber considers 2020 to be a pivotal year.

With this in mind, long consultations between the Chamber and Government took place with a view to establish a public-private partnership aimed at assisting tech companies based in Malta in exporting their information and communications technology beyond Malta’s shores. These discussions culminated early in 2019 and, in March this year, the Chamber and Government launched Tech.MT. While advancing through its early steps, Tech.MT is already participating in international tech exhibitions and fora to widen the sales channels for the export of information and communications technology, while positioning Malta as a quality and creativity delivery country. In so doing, this public-private partnership aims to expand the value of Malta’s ICT industry, as it seeks to attract further international conferences on key tech areas and facilitate innovation in new technologies. Tech.MT also aims to position Malta as an attractive working location with the European tech industry. Moreover, Tech. MT will actively promote Malta with specific foreign universities and work closely with local education institutions to engage the student community within its initiatives. With these clear aims, Tech.MT is working hard to take the prolific tech industry to the next level, building on the strengths that it already enjoys and move forward to new ambitious highs.


ECONOMIC VISION 2020: Business. Finance. Economy.

T R A D E M A LT A Given that internationalisation assumes fundamental importance for companies in a small island like Malta, the Chamber recommended the setting up of TradeMalta as a public-private partnership. TradeMalta was tasked to assume a more focused approach directed at increasing successful export market entry by undertaking actions for businesses to ensure that they have: (a) Access to expert advice and support on global expansions (b) Access to a pool of expertise particularly in the tapping of emerging markets (c) Support in raising their levels of international marketing and export competencies (d) Assistance to exploit the information economy through overcoming obstacles with regard to cross-border trading (e) The backing in selling innovative goods and services, and (f) Full support in export orientation through increased higher and further education of international trade, traditional marketing and digital marketing. The following is an overview of what TradeMalta has been up to over the last few months. Throughout 2018 and 2019, TradeMalta has been busy. During this period it assisted 70 companies to exhibit in 180 trade fairs. TradeMalta took 150 companies to the various trade missions that sought to explore markets such as Japan, South Korea, Singapore and India. During the same period the organisation invested over ¤800,000 in a digital platform to assist companies in their market research and other areas, a project which was co-funded by the EU. For the various information seminars held as part of this ERDF-funded project, TradeMalta had close to 100 companies attending with close to 50 additional companies participating in the early stage exporter course which it calls Go Global, during the same period.

Chamber President David Xuereb presenting an award at this year’s Malta International Business Awards organised by TradeMalta

TradeMalta’s ambition is to be the natural port of call for any company in Malta thinking of going international.

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ECONOMIC VISION 2020: Business. Finance. Economy.

TradeMalta came up with The Malta International Business Awards, in a discussion with HSBC a couple of years ago, to recognise those companies that distinguish themselves in their international efforts. TradeMalta thought that by turning the spotlight onto the best exporters in a high-profile event, it would encourage enterprises to go further and inspire others that have the potential but for some reason have not taken the plunge into export as yet.

In the words of TradeMalta’s Chairman Stephen Sultana, the ambition of the organisation is to be the natural port of call for any company in Malta thinking of going international. For the next 24 months TradeMalta has an action plan which sees it leading trade missions to Ghana and other emerging markets, an extensive outreach campaign to promote its information services, revamping the services offered by the office in Dubai, launching new training masterclasses, assisting companies with strategy, and upgrading and widening its financial assistance schemes. The quantity and quality of services which TradeMalta offers depend on a few key aspects. First, the direction and funding which the organisation gets, at least to date, mostly from the Ministry for Foreign Affairs and Trade Promotion. Second, the excellent coordination with key stakeholders like the Chamber of Commerce, certain sector organisations, partners such as HSBC and others. Thirdly the commitment and delivery by the team at TradeMalta led by Anton Buttigieg. The commitment remains to act in a professional, transparent and efficient way to deliver services that Malta-based enterprises want.

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The context of what TradeMalta does, including in the recognition of the best performers through the Malta International Business Awards, is that Malta’s economy is not just robust but diverse. It produces stories of international success in many sectors. Just a cursory look at the winners of the awards at their second edition this year demonstrates such diversity. Pet Nutrition, a fast-growing firm promoting its own brands of pet food won the Small Business Category. The Medium-Sized category went to Aquabiotech, the innovation-driven specialists in aquaculture with projects in various parts of the world. Aquabiotech was also named the overall winner and the Exporter of the Year. Mediterranean Ceramics was recognised for its efforts in the Middle East, and won the Emerging Markets award. The High Potential Exporter award went to Stargate, a highly innovative provider of visual effects for the film industry and the On-Line Exporter of the Year went to the dynamic firm Freehour, for its success in taking its student time-tabling App to Italy. EV


ECONOMIC VISION 2020: Business. Finance. Economy.

O U R N AT I O N ’ S

PRIORITIES

must

change Economist David Spiteri Gingell shares his thoughts on the Malta Chamber’s upcoming Economic Vision 2020-2025.

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ECONOMIC VISION 2020: Business. Finance. Economy.

I

n the late 80s and early 90s I had the privilege to form part of a team involved in a fundamental reform of Malta’s economy and governing institutions. We clearly saw that, unless Malta’s main three economic underpinnings – particularly ship building, maintenance and repair and low cost manufacturing – were transformed, Malta’s future economic and social well-being was uncertain, at best. We also clearly saw that the emerging technology of PCs and the internet would disrupt economies and societies as we knew them at the time. We, however, believed that if harnessed well, these disruptive technologies supported by the right ‘soft infrastructure’ – human capital, legislation, communications, knowledge, and so on – would be a game changer for Malta: It would eliminate the competitive disadvantage of the ‘tyranny’ distance, and place Malta on a competitive and comparative advantage in the provision of high valued-added services. We embarked on an ambitious – and silent – revolution, supported by significant national investment. Between 1990 and 1995 alone ¤250 million was invested. At the time few understood what we were trying to achieve. Indeed, Management Systems Unit Ltd did not survive the change of government in 1996. Its constituent parts, however, were maintained – and, primed by the political drive and support, together with the newly set up Malta Communications Authority, propelled the attainment of this vision. The result of this 30-year journey is a well-tuned information economy and society – with at least 30 per cent of its economy today dependent on sectors that did not exist in 1990. Malta was positioned to positively leverage new internetbased innovation disruptions when these occurred for further economic growth. One example is the emergence of the e-tourist: The ability of providers to embrace e-commerce preparation enabled the tourist sector to flourish.

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At the eve of 2020, Malta is now at the threshold of a new digital transformation. Cloud, AI, the Internet of Things, Robotics, 5G, and 3D printing are going to revolutionise business and social interaction as we know it today. Malta is at the crossroads of a new wave of disruptive technology and innovation. Is Malta – Government, business and society – prepared for it? I fear that we are not. I believe that the Government is correct in taking the lead in stewarding and managing this transformation. The work it is spearing in blockchain technology and AI, among others, shows that the Government is moving in the right direction. I have, however, three concerns. First, as we learnt through our journey with the Internet economy/society transformation, for Malta to be successful, pervasive economic, societal and polity transformation is required – and one that requires massive investment. Malta will not achieve this with annual financing pots of ¤3 million here or ¤5 million there. Second, I am not sure whether business understands the extent of the disruption that is coming its way. In the 1990s, the then-incumbent telecommunications provider-financing model was based on international calls. Despite the convergence of voice and data, they persisted with that model. The opening of cheap international calls over new technologies quasi killed the incumbent. I fear that business is in denial – and in the main – not prepared for it. Third, as a nation, we have always looked at research and innovation as a cost rather than as an investment. A nation that does not innovate withers. In this regard our nation’s priorities must change. EV


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2020–2025:

ECONOMIC VISION for

Malta

On the back of an eventful 2019, we ask Maltese business leaders involved in drafting the Malta Chamber’s upcoming 2020–2025 Economic Vision for their thoughts on how to secure long-term economic prosperity in Malta.

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MARCUS MOTSCHENBACHER, CEO, LUFTHANSA TECHNIK MALTA “Malta is facing increasing staff shortages. I suggest that investments are channelled, mostly into R&D, to understand what elements of work can – in the mid-term – be substituted by AI, workflow apps and automation. My vision is to reduce the movement of people – urban traffic – to a minimum. I’d like to see multiple, paperbased information handling made obsolete.”

BENJAMIN TABONE GRECH, MANAGING DIRECTOR, ENGEL & VÖLKERS SARA GRECH “We’ve had lots of very fruitful discussions and meetings with all the stakeholders involved in drafting the 20202025 Economic Vision. It has been refreshing to learn that we are all passionate and extremely like-minded in our ambition to form part of positive progress and change in Malta. I’ve learnt that we are all accountable, and I’d like to see this continuing into the future.”

DR ROLAND J. WADGE, AQUABIOTECH GROUP “When considering Malta’s economic health and prosperity, there is only one number that needs to be looked at, and that is the ‘foreign exchange’ number. When this figure is negatively affected, the country needs to address this with urgency. The factors influencing this number need to be examined and actioned in every possible way.”

ALFRED PISANI, CHAIRMAN, CORINTHIA GROUP “For long-term success, Malta must care for its environment, history and cultural heritage. We must shift from quantity to premium quality by leaving mass tourism and mass production behind us, and focusing our limited resources and infrastructural capabilities on offering top-quality goods and services. We should work to attract tourists and investors who’ll pay appreciably more if what they receive is significantly better. This will lead to an improved quality of life and jobs for the Maltese.”

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MARISA XUEREB, MANAGING DIRECTOR, RAESCH QUARTZ “Malta must limit the detrimental effects of accelerated economic growth on wealth and income distribution as well as quality of life. This requires rationalising development permits; improving the quality of construction and limiting its impact on the surrounding environment; correcting and stabilising the rental market; rethinking transportation; and, incentivising investment projects that benefit the economy and society in the longer term, such as infrastructural and R&D projects.”

CHRISTIAN GANADO, DIRECTOR, MELITE FINANCE LTD & MELITE PROPERTIES “Malta has prospered, but certain threats could hinder its goal achievement. We’re in an odd situation where we’re promoting Malta as the AI and blockchain capital, but then foreign companies and individuals can’t open bank accounts, so peerto-peer wallets, like Revolut, have stepped in. I travel a lot for work and, regretfully, see that Malta’s reputation has been damaged. We must safeguard our reputation. Furthermore, we must prioritise sustainability as we continue to push forward the economy.”

SONIA HERNANDEZ, CEO, VODAFONE MALTA “Introducing technological innovation that is relevant for Malta has benefitted the economy, environment and wider society. We should continue accelerating technological disruption to enable traditional industries to become more efficient and grow faster, while improving people’s lives and reducing environmental impacts. To do so, Malta must be positioned as a house of talent, and we must ensure accessibility and sustainability, particularly through focusing on education and digital skills for the future.”

DAVID VELLA, CEO, ALTARO SOFTWARE “Malta has made itself an attractive location for companies to invest in R&D in technologies, such as AI, bioengineering and IoT. As we look ahead, it is absolutely imperative that Malta continues the momentum in introducing new legislation that makes it an appealing jurisdiction for such companies.”

SIMON DE CESARE, CEO, EDEN LEISURE GROUP “Long-term future planning and enforcement are essential. This is nowhere more applicable than with regards to the environment, sustainable tourism and reimagining the balance between Maltese and foreign direct investment. Before the economy starts to slow down, we must address the oversupply of hotel rooms in addition to the unfair competition that exists between local businesses and the benefits received by foreign companies that relocate to Malta.”

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ALFIE BORG, CHAIRMAN & CEO, HUDSON HOLDINGS LTD “By working together, we can effectively lay the foundation for a new generation of inclusive economic growth. There must be a concerted effort made to expand economic opportunities for middle-class families, create transparency and effective governance in every sector, and ensure that innovative private businesses that keep our country progressing have the support they need to grow and thrive in the years to come.”

DAVID G. CURMI, CEO, MAPFRE MSV LIFE “A genuine, long-term economic vision for Malta should be about how to make economic growth and development smarter, more sustainable and more inclusive. Malta cannot be everything for everyone. Decisions need to be made to pinpoint the activities that are more important than others for Malta. This is critical when setting the direction for our economy. And in doing so, we should prioritise premium quality and good value.”

FRANCOIS GRECH, EXECUTIVE DIRECTOR, EXIGY “Sustainable economic growth can be achieved through the right innovation and technologies that can help transform businesses and facilitate new operating and business models. We need to stimulate funding in applied innovations across our local businesses, and provide practical funding opportunities for further R&D within knowledge-based enterprises.”

MARTIN HIGNETT, MANAGING DIRECTOR, TRELLEBORG SEALING SOLUTIONS MALTA “For genuine, long-term prosperity, we must respect the islands’ culture and heritage. Malta needs to ensure that the areas of focus that are chosen benefit all of society in Malta and are not a short-term boost for the few.”

DAVID XUEREB, CEO, QP MANAGEMENT LTD “While striving for creativity and innovation in our economic growth, I want us engaging in SMART business models that drive Malta’s commitment and ambition towards developing a zero-carbon economy by 2050. I’d like 2020 to be the year in which we kick-start the development of relevant competencies to scale our economy further. The cornerstone of our development’s next phase is the attainment of the highest quality in our business activities, products and services.”

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ANDY GATESY, CHAIRMAN & CEO, TOLY PRODUCTS “We are living in a volatile and uncertain world. As a country, we need to be smart and constantly adapt to the changing environment. However, on the other hand, to be sustainable in the long term, we must not grow blindly at the expense of our soul and identity.’’

FREDERICK SCHEMBRI, MANAGING DIRECTOR, AUROBINDO PHARMA (MALTA) LTD & PRESIDENT OF THE BOARD OF GOVERNORS, MCAST “Geopolitical uncertainty makes economic planning difficult and necessitates contingency planning. The Chamber’s Economic Vision, however, is taking the unfavourable global economic outlook into account, and this is positive. Technology progresses rapidly, and the future of work looks very different from what children are currently being educated for. Malta must focus on societal well-being, adaptive sustainability, climate change, environment, integration and equality, corruption and government accountability. Crucially, every citizen needs to play their part.”

MARIA MICALLEF, CEO, THE GENERAL SOFT DRINKS LTD “Securing our economic prosperity needs to be our priority. To do so, Malta must ensure that its resources and infrastructure provide a solid and sustainable foundation upon which the economy can continue to grow. To this end, Malta must focus on the implementation of effective policies and investments that elevate the quality and quantity of our human capital.”

ERNEST SULLIVAN, CEO, SULLIVAN MARITIME LTD “In line with Government’s policy of attracting foreign investment and emerging industries, local banks should be in sync with this vision. They should provide ample support to businesses by granting credit lines, as well as in more mundane matters such as when opening and maintaining bank accounts. This will help to incentivise sustainable economic growth.”

PROF. ALFRED J. VELLA, UNIVERSITY OF MALTA “The key ingredient for sustained economic prosperity is effective education, not just at the higher levels – such as tertiary education – but across the entire educational system. An uneducated citizenry will not have the knowledge, capabilities or skills to be able to exploit whatever wealth the nation may generate.” EV

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THE EUROPEAN PARLIAMENT AGENDA

in

120

2020


ECONOMIC VISION 2020: Business. Finance. Economy.

Having fought hotly-contested elections earlier this year, newly re-elected MEPs – and Heads of Delegation – Miriam Dalli and Roberta Metsola are back in Brussels and forging ahead with their manifesto plans. Here they tell Jo Caruana how those plans are going, and share their hopes for the future of their roles, Europe, and of the crucial European Green Deal they both steadfastly believe in. They also speak about the momentum in Brussels to finalise the EU budget for 2021-2027.

meet the

Maltese Heads of the

Photo by Rene Rossignaud

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M I R I A M DA L L I Dr Dalli, with the European elections over and a new European Commission soon taking over, a new momentum is expected to finalise the EU budget for 2021-2027. Do you think the EU’s investments match its political priorities and are sufficiently ambitious? As S&D – the Group of the Progressive Alliance of Socialists and Democrats – we have already established important priorities to which the commissioners-designate have committed themselves. For us, a Just Transition Fund through a New Green Deal is a must to ensure economic, environmental and social progress. It’s about leaving no one behind. Other priorities include agriculture and the EU’s cohesion policies. The Parliament has been trying to engage in negotiations on the Multiannual Financial Framework (MFF) for over a year. But, since the negotiations are taking so long, the S&D is insisting on having a safety net to protect

I am pushing for a robust set of properly funded objectives that encourage member states to show solidarity with other member states, and with people in need of protection.

the beneficiaries of EU programmes. We have, thus, called for an MFF contingency plan in case negotiations cannot be finalised successfully by the end of the current budget period. To meet the current socio-economic priorities, the EU must also address youth unemployment, the skills gap – the upskilling and reskilling of workers – and access to quality education. Education is key to fighting poverty, leading to a more dignified life. With more women joining the labour market, salaries must reflect the job that an employee does – irrespective of their gender. A flagship priority for the Von der Leyen Commission will be the fight against climate change, with one of her first commitments being to issue a European Green Deal. What are your expectations for this initiative and do you think the EU can balance between an ambitious green deal and safeguarding economic competitiveness? The EU has a leadership role to play in the fight against climate change. Ursula Von der Leyen’s decision to create the new European Green Deal portfolio bodes well for the future. This should, however, not be limited to proposals on paper – it needs to be put into action and citizens expect to see a legislative proposal on an EU 55 per

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cent reduction target by 2030. If Von der Leyen is serious about achieving carbon neutrality by 2050, then we require ambitious targets for 2030. As the S&D Vice-President responsible for a Green New Deal, I will be monitoring the Commission’s work in this regard. The EU has the potential to take leadership in implementing and enforcing current policies and in coming up with new proposals that can deliver the emission reductions required. Urgent action is needed to address maritime and aviation emissions, while the enforcement of standards for road transport are also a priority as is ensuring new energy-efficient building stock and renovating current buildings.

A skilled workforce not only secures a better standard of living for citizens but also ensures the availability of adequate future labour supply.

The peak of the migration crisis has passed, yet, little progress has been made to create a new framework that would prevent or help the EU deal with a similar crisis in the future. With geopolitical relations with Turkey, a strategic partner in addressing migratory flows, at a historic low, and several EU member states not willing to cooperate on long-term solutions, what progress do you see possible in this area, and what role can the EP play in the process? Very little progress has been registered but, at least, we can see some practical efforts by a few member states to reach an agreement on relocating people seeking protection upon arrival in the EU. The importance of funding as an incentive to member states should also not be overlooked. The new EU Asylum, Migration and Integration Fund is currently under negotiation. As the rapporteur for this instrument, I am pushing for a robust set of properly funded objectives that encourage member states to show solidarity with other member states, and with people in need of protection. I am seeking to ensure that the money is spent where it is needed – in front line member states and in those member states with the largest number of people seeking, or being granted, international protection across the EU. We also need to ensure that more money is available for the integration of people in need of protection into our societies. A new SME strategy is long overdue. This appears to be forthcoming during this mandate. How do you think SMEs can be aided to be productive, and to innovate and grow? SMEs are the backbone of our economy, representing over 90 per cent of all businesses. At an EU level, they account for 85 per cent of new jobs created in the last five years. To support SMEs is to support family-run businesses. It means supporting innovators and entrepreneurs. From a Maltese perspective, they provide vocational training to young people.

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In the SME strategy outlined by Von der Leyen, the Commission is expected to develop a new private– public fund specialising in initial public offerings for SMEs. The initial investment is expected to come from the EU, and that could be matched by private investors. To encourage growth, funding is not enough. Governments should provide SMEs with the necessary tools to help set up proper internal governance. This is especially important for family-run businesses whose interest is to keep on growing and expanding. Most of the budding SMEs today – such as those operating in sales and IT sectors to give an example – can expand their business to other EU member states. So, to increase their competitiveness, funds and schemes should provide internationalisation and innovation support services to SMEs. Finally, the EU is facing many labour market challenges, particularly characterised by an ageing population and a structural skills mismatch. Companies today are struggling to hire employees with the right profile compared to 5-10 years ago. What, in your view, can the EU do to address what many have already started labelling as a ‘skills crisis’? The pace of economic change is likely to accelerate because of technological developments and the spread of Artificial Intelligence. As a result of this, continuous education and training is needed. This education and training for students and current workers must take into consideration the jobs of the future. For a country to move forward, it needs to invest in a sustainable economy and services in different sectors. Innovation is the key, including the need to revitalise crafts and trade. This applies to a wide range of sectors, such as machinery, energy and smart grids, 3D printing, blockchain and more. Through continued social dialogue, governments, employers and unions can chart the way forward on how best to generate the necessary pool of funds that can be allocated for the upgrading of skills. A skilled workforce not only secures a better standard of living for citizens but also ensures the availability of adequate future labour supply.


ECONOMIC VISION 2020: Business. Finance. Economy.

Photo by Rene Rossignaud

R O B E R TA M E T S O L A Dr Metsola, with the European elections over and a new European Commission soon taking over, a new momentum is expected to finalise the EU budget for 2021-2027. Do you think the EU’s investments match its political priorities and are sufficiently ambitious? Our quality of life depends heavily on the environment we live in, so climate-relevant action is, of course, one of the priorities for the next EU budget, with a proposed 25 per cent dedicated to the important decisions that must be made to address climate change. But, importantly, the budget also addresses the reduction of the use of plastic and the improvement of air quality. This proposed EU budget includes significant increases in financing that will go towards Erasmus+, migration and border management, as well as research, innovation and the digital field. It is crucial that Europe continues to invest efficiently in industry, with the best possible results, and this must be done in a manner that ensures the continent is capable of keeping up with its global competitors.

We need to make the European Green Deal work. If we cannot find a bold fix for our environment and for our climate now, we never will.

A flagship priority for the Von der Leyen Commission will be the fight against climate change, with one of her first commitments being to issue a European Green Deal. What are your expectations for this initiative and do you think the EU can balance between an ambitious green deal and safeguarding economic competitiveness? We need to make the European Green Deal work. If we cannot find a bold fix for our environment and for our climate now, we never will. But, of course, we need to tackle this complex issue in a holistic and sustainable manner. We must look at the idea of moving from a linear economic model to a circular one. This shift is beneficial, not only in terms of environmental impact but it makes economic sense. Naturally, member states cannot act alone on this, so it isn’t simply about a common approach but, more importantly, about a common will. The European Parliament’s Environment Committee, which I form part of, will be a watchdog to ensure the proper implementation of this plan once we look at all the details of the European Green Deal, together with all the stakeholders in a manner that strikes the right balance.

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We need to remain fair to those in need, be firm with those who are not, and be strong with those who seek to exploit the vulnerable.

The peak of the migration crisis has passed, yet, little progress has been made to create a new framework that would prevent or help the EU deal with a similar crisis in the future. With geopolitical relations with Turkey, a strategic partner in addressing migratory flows, at a historic low, and several EU member states not willing to cooperate on long-term solutions, what progress do you see possible in this area, and what role can the European Parliament play in the process? We cannot allow issues like migration to become existential questions that are agreed only on shortterm lines. It is clear that there is the need for a more effective control of the EU’s external borders. At the same time, we need to remain fair to those in need, be firm with those who are not, and be strong with those who seek to exploit the vulnerable. The new law on the European border and coastguard will better protect the Union’s external borders, which means a safer continent for our citizens. Europe needs to be able to effectively manage its external borders, to ensure that returns are effected more efficiently and to provide for enhanced security within the Union. In the EP, I will be pushing for an approach that is holistic, one where we are fair with those in need of protection, firm with those who are not eligible and strong with those who seek to exploit the vulnerable. Migration is, above all, a human issue, and we can never lose sight of the fact that, behind every statistic, lies a person, with dreams and hope for a better future. A new SME strategy is long overdue. This appears to be forthcoming during this mandate. How do you think SMEs can be aided to be productive, innovate and grow? Saying that SMEs are the backbone of Europe’s economy shouldn’t simply be a fancy way of describing our 21 million SMEs across the EU for about 85 per cent of jobs actually depend on SMEs.

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While governments need to focus their strategic efforts on improving the environment in which SMEs operate, we need to be looking at an SME strategy that doesn’t simply improve the business environment in an isolated national context. The new SME strategy must ensure that businesses are given all the tools necessary to exchange best practices, for instance, with respect to finding ways of improving access to finance and increasing the uptake of EU funds. The process needs to be less cumbersome and funding must be made more accessible, even for the smaller firms. While we need to make sure that the Single Market caters precisely for the backbone of Europe’s economy in a way that it is SMEfriendly, the new SME strategy needs to be designed in a way that puts SMEs in the best possible position to operate in the current global climate and to continue doing so effectively in the future. To this end, the strategy must address issues such as skills and talent, innovation and digitalisation, as well as internationalisation. The EU is facing many labour market challenges, particularly characterised by an ageing population and a structural skills mismatch. Companies today are struggling to hire employees with the right profile compared to 5-10 years ago. What, in your view, can the EU do to address what many have already started labelling as a ‘skills crisis’? We need to work on European legislation like the Blue Card that will allow any member state to better fill any gaps in the labour market. It is not only about legislation. This is another area where exchange of best practices across member states could be extremely beneficial for SMEs. The EU’s action plans have been focusing on increasing the EU talent pool and helping people to acquire new skills, with a focus on new technologies. Much more, certainly, needs to be done to properly implement these plans by creating stronger networking programmes between educational institutions, such as the Malta College of Arts, Science and Technology and the University of Malta, and their counterparts across the other member states. But this also needs to be done in conjunction with industry players in order to ensure that the various needs are addressed and met accordingly. EV


ECONOMIC VISION 2020: Business. Finance. Economy.

ECONOMIC VISION The European

2020

Perspective

89

per cent of

BUSINESSES in Malta ‘better off’ since joining the Single Market

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The Malta Business Bureau has recently completed a research study on the value of the European Single Market for Maltese enterprises. Emma Mattei speaks to MBB President, Simon De Cesare, and to MEPs Alex Agius Saliba and Roberta Metsola about their reactions to the findings of the survey and how they each intend to address the issues brought to the fore.

O

n 28th February 1986, years of hard work and perseverance paid off as the then European Economic Community (EEC) adopted the Single European Act, a treaty with the objective to guarantee the free movement of goods, capital, services, and labour – what would later be termed the ‘four freedoms’ of the European Union. The legislation heralded fundamental changes in the way ordinary citizens interacted, worked, lived and connected, with the Maastricht Treaty – that came into force on 1st November 1993 – solidifying the shift, transforming the EEC into the bloc we know today. The value of the Single Market has been much disputed in recent years, with Brexit and the rise of populism seemingly delivering shattering blows to the integrity of the dream, one which links every single European across the continent, facilitating trade and industry between the EU’s 28 member states, as well as Iceland, Liechtenstein, Switzerland and Norway through bilateral treaties. With this in mind – and with the local context firmly in view – the Malta Business Bureau – an organisation that represents the Malta Chamber and the MHRA in Brussels and Malta – embarked on a research study asking: what is the value of the Single Market for Maltese businesses today?

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We believe that Market Surveillance authorities should be given greater resources in order to effectively monitor and enforce rules set at EU and national levels. Simon De Cesare, President, Malta Business Bureau

The MBB’s study, conducted by Grant Thornton among local firms and entrepreneurs, sought to explore the tangible benefits of the Single Market while identifying barriers and gaps in legislation that need to be addressed, both at national and EU levels. The findings of the study will support the MBB’s endeavour to directly influence proposed EU legislation and ensure a favourable outcome for Maltese businesses. The survey found that 89 per cent of respondents have claimed they are better off since joining the Single Market. However, 49 per cent of the respondents are concerned with excessive legislation, 35 per cent are worried about ineffective enforcement of EU law at a national level, while 26 per cent are uneasy with the inefficient implementation of legislation which, they say, has resulted in more stringent regulatory burdens and higher costs than necessary for local operators, causing a competitive disadvantage for businesses. Simon De Cesare, President of the Malta Business Bureau, believes that the study’s results will provide enough material to be able to back up lobbying work in Brussels over the next five-year political cycle with evidence and hard facts. “This will enable us to pinpoint accurately to the key decision makers in the EU where exactly the problems lie, and this will aid us in our quest for tangible solutions,” he explains. However, in addition to searching for such solutions, he is also concerned with ensuring that the rules – as they stand – are adhered to. One of these crucial elements is “the principle of mutual recognition”, he states, whereby member states must allow goods that are legally sold in another member state to also be sold in their own territory. “The legislation at European level is robust but there seems to be little enforcement by the Commission,” he says, “and there are several instances where this principle isn’t functioning as it is supposed to.”

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Another issue of concern stems from the fact that businesses often do not operate on a level playing field with each other, with some businesses importing goods which do not conform to EU health and safety standards, or labelling and packaging requirements. EU law requires member states to conduct their own market surveillance to ensure that products conform with EU rules. “We believe that Market Surveillance authorities should be given greater resources in order to effectively monitor and enforce rules set at EU and national levels. It is crucial that all businesses operate on a fair level playing field, by ensuring that standards such as labelling and packaging restrictions are adhered to,” he continues. Therefore, while the main aim of the Single Market project was to eradicate all barriers to trade, the survey results suggest that there is the perception that several still remain. In this regard, the European Commission has recognised the need to address certain issues with the Single Market as a whole. The MBB President notes that, as a result, towards the end of the last political cycle, and over summer, there was a huge effort to gather more information on the remaining barriers. Mr De Cesare indicates that the MBB saw this as an opportunity and undertook the study in order to participate in the Commission’s process of analysing these issues. “Malta will have given its contribution to the process in order to ensure that the solutions brought forward will be to our benefit,” he underlines.

We need to have a stronger competition policy regulatory regime concerning the economic dominance of the large players. MEP Alex Agius Saliba

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MEP Alex Agius Saliba agrees that the Single Market is Europe’s best asset to generate economic growth. However, he feels that the Single Market is underperforming in many areas and has brought about several challenges that hinder participation and cross-border trade. Companies often find themselves negatively exposed, “either because the current legislation is not appropriately enforced or, simply, because it has not been developed to deal with the new digital challenges.” Commenting further on the results of the MBB’s survey, when it comes to the existing rules, compliance and enforcement are essential to creating a level playing field, where all players compete fairly. “Better enforcement and implementation of Single Market legislation and ensuring the correct application of the current existing rules will create a trust for businesses to confidently engage and participate in the Single Market,” he continues.


ECONOMIC VISION 2020: Business. Finance. Economy.

Yet, Dr Agius Saliba proposes the need to further examine whether the existing framework is still suitable for the new digital world since “most of the EU legislation that deals with the internal market has not been created with a specific digital structure in mind.” He points out the need to lower the cost of internet access for SMEs and to further improve the related infrastructure such as 5G, also noting that “we need to have a stronger competition policy regulatory regime concerning the economic dominance of the large players.” In this regard, the concept of digital skills in Europe has become “a cornerstone of a truly functional digital society and the digital Single Market,” Dr Agius Saliba says, also pointing out the need to deliver the appropriate measures to adapt the Single Market to the new digital environment. Moving on to the movement of services, he says that “the Services Directive and the Professional Qualifications Directive stand out” since “both directives have had a significant impact on the liberalisation of the services market, enhancing the freedom to provide services.” Despite this, companies still face different notification and registration obligations, and there is lack of technical and administrative infrastructure within the services sector as well as of an appropriate framework to digitalise procedures and services. “Points of single contact often do not communicate and underperform,” he remarks. Thus, “there is room for improvement. There is a need to improve the implementation of the acquis in the area of services and to improve the sharing of best practices between the member states,” the MEP continues. Referring to the current upheavals in the European political system in certain member states – and with Brexit in mind – Dr Agius Saliba reiterates the power of the Single Market. “What is for sure is that the Brexit process had one silver lining, which is that the member states are now even more aware of the benefits of union membership and the Single Market.” Indeed, he notes that, in order to avoid other countries leaving the bloc, “we should venture into continuously rebuilding and achieving a citizens driven Single Market that truly benefits businesses and consumers alike, built on trust, choice, and a high level of consumer protection.” To this end, “maintaining, enforcing and deepening the Single Market is a never-ending but vital task to retain growth, foster competitiveness, and promote the emergence of new businesses in Europe,” Dr Agius Saliba concludes.

MEP Roberta Metsola also feels that local businesses need to be given all the tools they need to be able to compete, with the two most important being access to finance and the reduction of bureaucracy, as also evidenced by the survey results. “I have, and will continue, to push against a one-size-fits-all approach. It is clear that such an approach cannot always work, especially considering economies of scale,” she says. Access to finance means increasing the uptake of EU funding by SMEs. She praises the InvestEU Programme, which will trigger more than ¤650 billion in additional investment, and will make EU funding simpler to access, with one set of rules and procedures, and one contact for advice. “This programme will bring together a multitude of financial instruments under one roof, but it is the channelling of information related to this programme that is especially important to make sure that it is implemented effectively,” Dr Metsola stresses.

In addition, and looking ahead to the new legislative cycle, the European Commission needs to continue working on its action plan aimed at enhancing efficiency, transparency and legal certainty for a fully functioning Single Market, she adds. It will need to continue “eliminating the backlog of harmonised standards that have not yet been published in the Official Journal of the European Union,” as well as streamlining “internal decision-making processes with regard to references to harmonised standards; elaborating a guidance document on the practical aspects of implementing the Standardisation Regulation; and, finally, reinforcing the system of consultants to support swift, robust assessments of harmonised standards and timely publication in the Official Journal,” Dr Metsola states. 137


ECONOMIC VISION 2020: Business. Finance. Economy.

Malta’s size and insularity were always going to be a challenge for the functioning of Maltese businesses inside the Single Market, at any rate. “Legislative bodies should reconcile the desire for avoiding a one-sizefits-all approach with ensuring an adequate level of harmonisation, to ensure a fair level playing field and functioning Single Market with minimal barriers,” she adds. It is in the interest of the EU as a whole to ensure that every part of the Single Market functions properly. “Malta and Cyprus, for instance, are small in geographic terms and located in the EU’s periphery,” Dr Metsola comments, “but there are a number of other regions around the EU for which it is especially important to promote fully-developed strategies and action plans, including specially designed programmes aimed at ensuring that economic regions are not deprived of the advantages.” Dr Metsola observes that Brexit has been very damaging for the European project as well as for the image of the United Kingdom globally, saying that she does “not think anyone expected it to be plain sailing but the way it has developed politically, socially and economically has been very painful. A deal in place benefits everyone. We all lose in a nodeal scenario.” The implications of Brexit for Malta remain serious, she underlines. Businesses cannot plan effectively, meaning that industry is forced to take measures to ensure stock and seek alternate routes of supply. “It is the uncertainty that is the worst; having a deal has always been the aim of any responsible

It is the ability to understand these four freedoms that will ensure we communicate a strong message about the significant gains brought about by EU membership. MEP Roberta Metsola

politician. Only this would provide the parameters with certainty on how business can be conducted, and only with a deal can people be sure of their rights,” Dr Metsola points out. A no-deal Brexit would spell economic and social difficulties, and Dr Metsola hopes that a no deal is wiped off the table. She urges politicians and stakeholders, including businesses, to join forces to communicate and explain, in a tangible manner, the benefits of EU membership and its four freedoms: goods, services, capital and people. “It is the ability to understand these four freedoms that will ensure we communicate a strong message about the significant gains brought about by EU membership,” Dr Metsola declares. EV

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ECONOMIC VISION  

2020

ECONOMIC VISION  

2020

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