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Malta’s attractiveness

The accountants firm Ernst & Young yesterday presented the results of their annual Malta Attractiveness Survey.

This survey is part of a much wider initiative – the European Attractiveness Survey. The objective of the Malta Attractiveness Survey is to assess the level of our country’s attractiveness for foreign direct investment and to find out what drives this attractiveness.

Respondents to this survey came from a range of economic sectors, with different levels of employment and turnover. The assessment focused on the most important criteria that drive foreign direct investment and the rating of these criteria.

According to the European Attractiveness Survey, the six most important factors when deciding on a location in which to establish operations are (in descending order the country or region’s domestic market; the stability and transparency of the political, legal and regulatory environment; labour costs; transport and logistics infrastructure; potential productivity increase; and local labour skills. Other factors mentioned were the stability of the social climate, corporate taxation, labour legislation and the telecommunications infrastructure.

This list may appear to be problematic for Malta. For example, our domestic market is so small that it can never be one of our unique selling points. Similarly, the fact that we are an island in the periphery of Europe means that companies operating here must incur additional transport costs.

Although the level of skills of our labour force is generally judged to be good, the small size of the population means that the number of persons with particular skills will always be limited.

Moreover, we need to appreciate that these disadvantages are permanent, as there is nothing we can do to surmount problems associated with our size and our geographical location.

In spite of these inherent disadvantages, Malta rates quite highly on most issues. It has a rating of 85 per cent for its social climate; 84 per cent for its corporate taxation system; 78 per cent for its stability and transparency of the political, legal and regulatory system; and 72 per cent for its local labour skills.

Even when it came to the domestic and regional markets, only 24 per cent rated it negatively.

The explanation for this is our membership of the EU, which has enlarged our ‘domestic’ market to 26 other states.

The criterion that received the worst rating was the transport and logistics infrastructure and, in this case, the negative rating still did not reach 50 per cent.

Respondents were also asked to state whether they perceived any changes in each of these criteria over the past year.

All criteria received significantly high percentages, meaning there has been no change over the past year. There were two instances where the change for the positive outstripped the change for the negative. These were in the sections of the telecommunications infrastructure and potential productivity increases.

This latter criterion is important as it balances out the negative perception on labour costs.

In terms of overall attractiveness for foreign direct investment, the survey shows that 86 per cent of respondents have replied in the affirmative. The number of respondents that have said “definitely not” has gone down from three per cent to one per cent.

Furthermore, 58 per cent of respondents expect that Malta will remain attractive over the next three years, while 34 per cent said they do not know.

This may be the most worrying outcome of this survey.

This relatively high level of ‘don’t knows’ tied to the fact that 22 per cent of respondents claim that the stability and transparency of the political, legal and regulatory environment has worsened, indicates that the foreign investors in this country are being very sensitive to the political decisions we will be taking in the coming months.

There are other points that emerge from Ernst & Young’s Attractiveness Survey which merit a separate commentary.

However, in my opinion, the key message that emerges from this survey is that our economy remains a very vibrant one, capable of facing the challenges that the negative international economic situation and the strong competitive environment are posing.

It has taken us a long time to get to this point. It is a result that should serve as an encouragement for the future. However, we must also make sure that we continue taking the right decisions to safeguard our achievements.

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