The lack of diversification in Malta’s economic activities is arguably one of the biggest threat to our future prosperity. We have managed to somewhat diversify relatively well from a manufacturing driven economy in the 1970s to a services-based economy driven mainly by tourism but also by financial services and electronic gaming.

However, our dependence on promoting ‘tax efficiency’ to prospective investors to set up shop here is a weakness that needs to be addressed. As economic growth continues to be sluggish in the bigger EU economies we will be short-sighted indeed if we think that our economic success will not irritate larger EU states who see our ‘tax efficiency’ competitive advantage as a not-so-clever way of depriving them of much needed tax income.

EU politicians and bureaucrats may take a long time to come up with effective action plans to shake up the stagnant economic scenario, but when they do decide to take concrete action they can be ruthlessly efficient. One such shake up seems to be coming in the form of the resuscitation of the reform of Common Consolidated Corporate Tax Base (CCCTB). Our politicians are right in challenging the authority of the European Commission to impose fiscal changes without all member states agreeing to such changes. But, realistically, a small nation cannot defy the rules of political gravity without risking collateral damage.

Tax advantage can prove to be a strong competitive advantage for a short period of time, but usually those countries suffering from leakage of potential tax income can act very fast to close the loopholes that make other countries – usually small ones – attractive to investors who seek to pay as little tax as possible.

When consultation on the reform of the CCCTB ends on January 8, 2016, we need to have a strategic plan in place to prepare for the worst case scenario where our fiscal attractiveness could be shaken by new EU wide tax reform. We need to identify and work on enhancing other competitive advantages.

A small nation cannot defy the rules of political gravity without risking collateral damage

One area that cries for more attention from policy makers is the maritime sector. Cyprus may have been hit by a number of economic setbacks in the last few years, but it still has a viable maritime services sector. Admittedly this is partly due to this country’s close political and economic links with Greece – a maritime nation that is a protagonist in the shipping industry.

Malta has the ideal geographical location for an enlarged maritime services industry. I am not referring just to ship repair where our costs are arguably no longer attractive enough, but to ship management, maritime logistical services, as well as training of maritime personnel to serve in the various merchant shipping companies that ply the world’s seas.

I believe that where there is a will there is a way. Switzerland is certainly not a maritime nation, but many ship management companies are to be found in this land-locked country. Efficiency, educated staff and excellent communication are what ship management companies look for when deciding where to set up base.

Our educational system needs to accelerate its reform programme and move beyond the headline capturing initiatives of building new schools and distributing tablets to students and concentrate on hardwiring excellence in our curricula and invest more in educators. Our university and vocational colleges are doing a great job in preparing our young people to acquire first degrees in various disciplines, but to lure investors to Malta we need to have a core of people who specialise in scarce specialisations in a few preferred economic sectors. The maritime sector could be one.

The promotion of medical tourism is another area which is receiving much deserved attention from policymakers. At a time when some may be taking significant economic growth for granted, we should not rest on our laurels but should start making contingency plans for when EU-wide fiscal changes could destroy one of our most effective competitive advantages.

Rather than continuous bickering on petty partisan issues, our political leaders would do well to provide fall back economic activities as soon as one or more of our present economic motors shows signs of slowing down. Complacency about continued economic growth is our worst enemy.

Our most effective competitive advantage will always remain the quality of our educational system. Progress has undoubtedly been achieved, but so much more needs to be done because investors today demand well trained specialised staff.

johncassarwhite@yahoo.com

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