The operators in today’s successful sectors, unlike their ancestors in manufacturing, incur much lower costs if they have to pack up and leave for a better financial and economic climate, the EY Malta country managing partner Ronald Attard has warned.

In his foreword to the annual EY Malta Attractiveness Survey for 2015, themed Malta: Open for Business, he said that sectors like financial services, i-gaming and shipping were more volatile.

“They just unplug their server – assuming that it is here – turn off the office lights, put their key personnel on a plane and start operating somewhere else the next day. Of course, in practice it may not be so simple but it is easier than relocating a manufacturing plant,” he said.

“Operators in the thriving sectors – from i-gaming to game development to asset management, and many more – are all much more physically mobile than at any other time in our foreign investment history.

“As in the past, these foreign investors are here almost exclusively because we offer a better financial proposition compared with other countries. We therefore need to strive to build a healthy and robust ecosystem for these new industries to increase their stickiness and drive long-term attractiveness.”

The EY report found that Malta was more attractive for FDI in 2015 than in 2014, and that more companies intended to still be here in 10 years’ time (see graphics). But he nevertheless found red flags, the main one being our competitiveness.

“The more economically successful we become, as almost full employment becomes an economic fixture, our cost competitiveness could possibly suffer. To be clear, I am not suggesting that better pay packets and conditions must necessarily undermine competitiveness. The two are not mutually exclusive.

“My point is that we need to keep a careful eye on the underlying pressures which are driving costs upwards,” he said.

Mr Attard said that one of the bottlenecks was labour supply, both in terms of supply as in terms of closer alignment with the requirements of the higher valued-added and knowledge-based sectors.

Operators in the thriving sectors are all much more physically mobile than at any other time

EY suggested three objectives: exploring new high-value added, knowledge-based sectors and niches; continuing to be at the cutting edge of technological developments; and incentivising new labour sources in areas where there are not enough Maltese workers.

It also made six specific suggestions, saying first of all that Malta could take a lead in regulating online financial services.

“These can take the form of crowdfunding, peer-to-peer lending and similar platforms. At present, there is no pan-European legislation on these services and Malta can do what it did with online gaming a decade ago – take a lead in regulation in Europe,” the report said.

The second suggestion was to turn Malta into a commodities trading hub, including regulating certain activities and developing a global trader type of programme.

EY said that Malta should also ensure it has the best legal infrastructure in Europe for logistics.

“To get there we would need to look at duty, customs, clearance processes, costs [particularly government-induced], and ways of stimulating capacity subject to state aid rules,” it said.

Following on from this, the fourth suggestion was for Malta to become a hub for Asian e-commerce by making it the key Mediterranean and European destination for goods sold online in Asia for distribution to businesses and end consumers all over Europe.

Improving the transport infrastructure, which is regularly cited as a cause for concern by FDI operators in Malta – rated as negative by 32 per cent in this survey – was the fifth suggestion, with the last being tapping into the skills of irregular migrants to plug the labour gaps.

The respondents to the survey scored the stability of the social climate as the more attractive parameter (90 per cent), followed by the stability and transparency of the political, legal and regulatory environment (85 per cent) and corporate taxation (75 per cent).

Transport and logistics infrastructure got the highest negative rating, followed by R&D and innovation environment and the size of the domestic or regional market (both 21 per cent).

EY Malta Attractiveness Survey 2015 results

Sources: Mas 2015 respondents.Sources: Mas 2015 respondents.

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