The Malta Business Bureau has asked the Government to allocate €180-€200 million to the private sector from the money available in next EU funding period, saying that it is much more efficient at using these funds and that doing so would result in more economic growth.

Pending any changes due to negotiations currently taking place with the European Parliament, Malta will receive a total financial package of €1,128 million from the EU Budget for the programming period 2014-2020.

The funds allocated to Cohesion Policy amount to €776 million compared to €855 million allocated for Malta for 2007-2013.

“It is crucial that the amount of funds allocated to private enterprise is not cut to reflect this decrease. If anything, this should be increased to reflect the multiplier benefits of added investment into the private sector,” MBB president George Vella said when presenting a comprehensive BOV-sponsored report on the topic to Parliamentary Secretary for EU Funds Ian Borg.

“It is generally accepted that investment by the private sector yields higher rates of economic growth. In fact, while contrasting findings show that public investment may have either expansionary or contractionary impacts on GDP, the majority of empirical research shows that private sector investment yields positive rates of economic growth,” the report said.

The figure of €180-200 million is based on the assumption that the level of Maltese private sector investment as a percentage of GDP should converge with that of the EU27. On average, between 2007 and 2012, Maltese private sector investment as a percentage of GDP was around 3.2 per cent lower than that of the EU average. This is equivalent to around €200 million per annum, such that it accumulates to €1.4 billion over the seven-year budget cycle if Malta fails to close the gap. However, the MBB is suggesting that €180-200 million over the period would provide the right balance between reducing the gap with the EU average and ensuring sufficient demand from the private sector for the allocated funds.

The MBB argued that public sector projects should avoid crowding out private capital.

“This may result if EU funds are used to finance public sector projects that are close substitutes to private capital. There are also sectors where public sector entities are already in operation. In such cases, there have been instances where the support of EU funds might have given public sector entities an unfair advantage over private businesses for whom funds were not equally accessible. The waste management sector is a case in point.

“Such considerations are even more important if one considers the greater levels of efficiency typically achieved by private businesses when compared to the public sector,” the report said.

The MBB suggested public/private partnerships (PPP) as a solution, saying that this would ensure greater involvement by the private sector which typically leads to faster project completion rates, higher return on investment and enables risk sharing between the private and the public sector.

“In addition, PPPs offer a unique opportunity for government to cut down its budget deficit amid the challenges that it is currently facing,” it said.

The allocation of European Social Funds (ESF) to Malta is expected to increase from €112 million in 2007-2013 to an estimated €200 million in 2014-2020. The MBB said that following discussions it believes that Government should allocate a pot of €10 million (over and above the allocation to Financial Engineering Instruments from ERDF) to create the first loan guarantee with an initial start-up grant to assist start-up companies.

It also noted that the majority of member states have decided to manage EU funds directly through state agencies. However, private sector non-profit business intermediary organisations can play a crucial role in further increasing the absorption of EU funds by managing part of the Structural Funds allocated to Malta, it said, saying this was a role it would be willing to take up itself.

“The MBB could administer small grants of say €5,000-€7,500 for the assistance of small companies (employing less than 50 persons) for the improvement of operations, people development, etc. Such grants can also be granted to recruit new university graduates at no cost to the employer (say, a 6-month enterprise training programme upon graduation). This will address skill shortages and increase the employability of young graduates.

 “It could also offer technical assistance to SMEs (employing less than 250 persons) to develop and submit EU-funded applications to open calls for grants by intermediate bodies. This can take the shape of a PPP with consultancy service providers. MBB has been informed that there are a number of banks interested to cover the guarantee which would be required for such an operation.”

The full report may be downloaded from www.mbb.org.mt.