A lot is said about how social development and the distribution of wealth are generated by the economy.
Entrepreneurs and individuals who dream big and generate wealth need to be distinguished from dealmakers.
Entrepreneurs build their enterprise painstakingly, forming a team of loyal employees, acquiring the necessary assets, carrying out research to remain relevant and are at the forefront of the product line, seeking to conquer as wide an international market as possible at a profit to sustain growth.
Apple Corp, set up by a brilliant engineer and a dreamer 40 years ago, is worth well over the collective accumulated debt of Greece, Denmark and Malta. Yet an even younger Google, still to turn 18 this September, has already surpassed Apple Corp with half a trillion dollars in net worth.
The Maltese have for many years depended on foreigners setting up business on our Islands, attracted by low taxation on profits and other incentives, such as subsidised rent for factory space as other grants. These incentives mean substantial foreign direct investment apart from substantial transfer of knowhow, especially in operational productivity, employment of locals and, most importantly, export markets that help Malta’s balance of payments since the production is very often targeted for export.
The Maltese, though, need to learn to fend for themselves as a nation with a potential ‘home’ market of half a billion people by becoming attuned to the needs of the EU market and learn how to develop products and services that uniquely meet these needs. Businesses must not just provide a single silver bullet of profitability, but rather guarantee a steady stream of income which influences positively the bottom line of the Maltese economy.
Entrepreneurs need to focus on specific and measurable unique selling propositions for their businesses with a holistic ‘Island State’ view. The government should also make sure that such initiatives do not impinge negatively on each other through the development of national guidelines that as beacons for entrepreneurs to take action.
The current support mechanisms in Maltese legislation need upgrading
The future outlook for Malta necessitates the development of a new generation of entrepreneurs who have the ambitions to stretch themselves and those around them to achieve their dreams – in consonance with social ethics.
The current support mechanisms in Maltese legislation need upgrading because the aspects of financial proprietary systems over the years have generated draconian rules that do not foster an appetite for risk taking.
We should start off by lowering corporate taxation. Malta, together with Argentina and Zambia, has the third highest corporate tax rate of 35 per cent, according to the KPMG corporate tax comparison website, with only the US having a 40 per cent tax rate and the UAE a whopping 55 per cent.
The least the government can do is to decrease corporate tax to the EU average of 22 per cent. However, it is advisable to offer a tax holiday of 60 months for start-up companies at zero per cent tax to allow such companies to churn in their full income back into the business.
The second most important legislative incentive is to allow individuals to charge bank interest on debt from failed business ventures onto their income tax return and attain a tax credit on such interest incurred. The current situation is that if a business fails and the businessman seeks employment to pay off his bank debts, his salary is taxed in full and all debts, with interests, must be paid from his net income. Personal bankruptcy is difficult, time-consuming, slow and a vilifying process to the individual, making risk aversion even more pronounced.
The third most important initiative is to change the mentality that being entrepreneurial is a negative trait. The many scandals involving dealmakers acting as businessmen have shed a dark shadow on the sector. It is important to realise that without entrepreneurs willing to attract investors and take out loans from the banks, the multiplier effect will not kick in and Malta will operate below its potential, missing out on opportunities that maximise our economy.
The Maltese entrepreneur must realise that at start-up stage, it is the pooling of financial resources that should take precedence before bank debt. Equity finance is attracted through a sound business plan and investment proposal offered to experienced business angels – who would be laying a lot of small eggs in a lot of nests, knowing that only very few (if any) will hatch.
The strength of going after this type of start-up businesses is mainly the acquired discipline to convince others about an innovative and profitable idea, with the added proviso that if the business does not meet expectations, the investors are not liable to debts.
New methods are being adopted, such as crowdfunding platforms that reach out through the internet to attain very small investments from a global market.
Entrepreneurs know that they need to plan well. It is a must to have a sound understanding of all aspects of business. Knowledge is the basis of good preparation, especially when any mistake may turn out to be very costly. If we don’t plan well, we plan to fail.
Charles Theuma is an academic lecturing at St Martin’s Institute of Higher Education in entrepreneurship, strategic management and European business. He is also producing and presenting a new programme on Radio Malta Fi Kliem Ieħor.