Challenges and opportunities for SMEs

During 2010, the Maltese economy registered a positive real Gross Domestic Product growth rate of between three to four per cent, according to recently published data. We are expecting the last quarterly data to be published later during 2011. The main contributors to this positive rate growth when compared to the 2009 shrinkage in the Maltese economy are financial services, tourism, manufacturing and the services industry, particularly remote gaming among others.

Malta’s tourism industry has certainly registered record breaking results with the arrival of over 1.3 million visitors and having a tourist expenditure of €1.1 billion. On average, tourist per capita expenditure is estimated at €850. One also has to add the contribution of the cruise liner industry to the Maltese tourism industry. It has been estimated that on average each cruise liner passenger contributes €60 to the economy for the eight hour stay in Malta. All things being equal, this runs into over €29 million per year.

Certainly, 2011 is going to be a very challenging year for all Maltese economic operators, particularly small and medium sized enterprises. The increase in the price of commodities (such as cereals, petroleum and the related energy prices), the austerity measures being taken by European governments endeavouring to balance their books by cutting on expenditure and increasing general taxation in order to boost revenue streams and the general fragile economic recovery are taking a direct and indirect impact on Maltese SMEs.

Taking the tourism industry as a case in point, Maltese operators are faced with the challenges of strengthening Maltese connectivity with the main and regional airports, the increased airport taxation imposed by some European Union member states as part of their austerity/ environmental measures, the sovereign crisis that the eurozone is passing through with the volatility of the euro against the US dollar and the pound sterling and the increase in the general operating costs as a result of international developments.

Within this context, Maltese SMEs and start-ups have to continue with their endeavors to further strengthen their strategies, operational management and their competitiveness in relation to local and international operators. Environmental sustainability today plays a crucial part in enhancing an organisational business model. Being environmentally responsible has a significant number of benefits in terms of cost management, resource utilisation, business generation and relationship management, marketability and enhancement in the year’s end bottom line figures.

Market forces are pushing Maltese SMEs to move up the value-chain. The emergence of Asia particularly China and India as manufacturing and to a certain extent as service hubs, the relocation of labour-intensive production facilities away from our islands particularly in the textile sector, the increase in Malta’s standard of living and operating costs are all market forces pushing our economy in this leap up the value-chain. The leap up the value-chain has a high investment cost in terms of financial, infrastructure and human resources management.

This investment is coming from both the public and the private sector. Being a small island economy, the public sector will always remain a key player in the development of our economy. Currently, the public sector is investing heavily in strengthening of our energy, road network, health care, industrial factory stock, educational and social network infrastructure. This investment runs into millions of euros which is being part financed by the Maltese tax payer, the European Union Structural and Cohesion funds for the programming period 2007 – 2013, the local financial services industry and the European Investment Bank.

Local SMEs are also investing and reinvesting in their operations, what used to work during the 1960s, 1970s and 1980s and 1990s is being revisited. It is widely accepted that the typical Maltese business is very price conscious, yet the importance of investing in quality facilities and capital expenditure is also on the increase. SMEs are seeking to diversify their revenue generation by operating in niche markets and in general having three markets.

These are the local private sector, the Maltese public and parastatal sector and the overseas market, be it servicing the foreign direct investment and tourism market in Malta or exporting one’s products and services internationally. Malta Enterprise, the Maltese foreign service through its network of embassies and high commissions and the domestic banks through their representative offices and international networks are assisting SMEs to internationalise their operations.

Currently, there are a number of national and European Union funding schemes and initiatives that are intended to assist Maltese SMEs and start-ups to address the current challenges and emerging opportunities. Malta Enterprise has an interest rate subsidy scheme addressed for restaurant and hotel operators. Furthermore, SMEs can take advantage of tax credit system worth up to €25,000.

An internationalisation scheme is currently being formulated. The Employment and Training Corporation has a number of employment and training grant opportunities. A number of EU financing, co financing and loan guarantee opportunities have been launched and others are in the phase of being launched. It is recommended that SMEs seek further information and assistance from the bank’s EU and SME desk/ advisor.

Mr Sant is a senior manager within the EU and SME desk of Bank of Valletta plc.