The financial services sector has been one of the success stories of Malta in recent times. In years gone by, when travelling to Europe on business, counterparts from other financial institutions showed little, if any, interest in Malta. Some even mixed us up with Gibraltar.
There is much to do for Malta to carry on growing the financial services sector- David Curmi
Today, the story is very different. On arrival at a bank or financial institution, one is today generally greeted with almost child-like enthusiasm and curiosity about the developments of Malta. There is both breadth and depth in this approach.
Malta is clearly on the financial services map. Whether it is funds, trusts, pensions, banking, investment services or insurance, Malta has developed an attractive overall package that continues to attract foreign direct investment. The statistics also bear this out.
According to the MFSA’s quarterly Q2 review, the finance sector now employs close to 10,000 people, forming one of the main pillars of our economy at approximately 12 per cent of GDP. It is also the second fastest growth sector, clocking up growth of approximately 7.6 per cent in 2011. In the meantime, the continued focus on quality has not been forgotten with international surveys ranking Malta well in various soundness reports conducted by the World Economic Forum.
On a personal level, Malta also fares extremely well, as witnessed by the number of expats arriving in Malta. Here too we fare well in security, cost of living, and most especially standard and quality of living.
Clearly this is something we ought to be proud of and, when looked at in the context of a world financial industry that has been passed through a shredder of late, the success is perhaps even more noticeable.
Looking forward though, there are challenges ahead. Both political and economic. The country is currently in the throes of an as yet unannounced election campaign. The usual debates and Sunday morning meetings are taking place but unusually, we are also being exposed to light-hearted billboard campaigns.
This brings with it a level of uncertainty about which party will claim that all-important hot seat and, even more importantly, what policies will be adopted. The financial services industry was brought about with an unusually high level of bi-partisan support. On the face of it, nothing has changed here and the noises from both parties appear to be focused towards the growth of this industry. This may be the case, but a word of caution will not go amiss.
The industry is built on stability, transparency and confidence. Any tinkering, however small, needs to be avoided at all costs, and if absolutely necessary, executed with extreme care. Take the present government’s changes to the high net worth individuals scheme. The lack of transparency in the process and the instability this created caused damage, some of it significant, to Malta’s reputation. While it may be debated whether the ultimate result is better or worse than the previous version, the changes caused instability that led to people opting for other jurisdictions. Time will tell whether the short-term pain is worth the longer term benefits. God forbid therefore that further changes are made in the near future, by any government, especially with tax rates for expats (no matter how small). These are highly mobile people and are defined in economic terms as having a high elasticity to changes in such tax rates.
Both parties need to have clear and unequivocal strategies for this area. And given that both parties have said that they are in favour of further developing this sector, let’s avoid using the sector as a political football. There should therefore be little political mileage to obtain from withholding policies that are directly affecting this sector. On the contrary, lack of knowledge on certainty, will by definition, create uncertainty. Uncertainty is one of the main slaying forces in any market, especially financial services. Conversely, clarity will help in allowing corporates and people take long-term decisions that are of benefit to the country. And there are benefits. Only last week I was sitting with a couple of French Canadians who are fleeing the policies of François Hollande’s new wealth taxes (an example of these people’s mobility and their willingness to flee the grips of a state that has shown its plans to shift the balance of tax to the state). Malta was high on their agenda of potential retirement destinations but the uncertainty is proving to be a hurdle.
There is much to do for Malta to carry on growing the financial services sector, not least the infrastructure that is needed to support the type of people who are arriving at our shores.
We need better roads, more diverse recreational facilities, schools, university courses, better human resources, better value properties. The list is long. Politicians should resist the temptation to enter a slanging match in this area. Rather they should focus their efforts on laying out a long term strategic plan which ensures the package of benefits Malta offers to attract FDI is not diluted in any way.
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Curmi & Partners Ltd is a member of the Malta Stock Exchange and licensed by the MFSA to conduct investment services business. This article is the objective and independent opinion of the author. The value of investments may fall as well as rise and past performance is no guarantee of future performance.
David Curmi is managing director of Curmi and Partners Ltd.