One of the first and very important tasks the new Government had to undertake was to determine how to spend the €1.1 billion that were allocated to Malta from the EU Budget 2014-2020.
The outgoing government had established certain priorities but it is understandable that such priorities may change.
In addressing the Malta Council for Economic and Social Development, Deputy Prime Minster Louis Grech stated that the plan will be a holistic one and that it will not merely seek short-term fixes.
He was quoted saying that his aim is “to leave a legacy for future generations”.
The amount itself is significant. Therefore putting €1.1 billion into good use becomes necessary.
The amount needs to be considered together with the odd €855 million that had been allocated to Malta under the previous Budget period, which comes to an end this year. It is therefore most appropriate that Mr Grech makes an appeal to the social partners to put aside their vested interests and to look at the national interest.
After all, the €1.1 billion belong to the whole of the Maltese nation and the benefits need to encompass the whole of Maltese society, both vertically and horizontally.
One must give credit to the outgoing government for having negotiated this amount. It surpassed all expectations. Moreover, one also needs to look at the areas in which the previous EU funds were spent.
There were certainly no short-term fixes and the national interest was given top priority.
In fact, funds were spent to encourage the employment of persons, especially those who are disadvantaged; to expand educational institutions; to upgrade industrial parks; on the training of employees; to safeguard our heritage; to provide businesses with access to finance; to invest in the environment and renewable sources of energy; to stimulate innovation; to assist in the internationalisation of Maltese businesses; to develop child care facilities; to create sustainable tourism projects; and to enhance the road infrastructure, among other areas.
The companies, NGOs and individuals that have benefitted from such funds know how important these were to their activities.
The Malta Business Bureau – the EU business advisory office, set up by the Malta Chamber of Commerce, Enterprise and Industry and the Malta Hotels and Restaurants Association – published a report that makes recommendations on the more efficient use of the EU structural funds.
The fundamental point of the report is that there need to be more EU funds invested in private enterprise. This may sound like looking after one’s patch. However, there are some very good reasons why in this second round of EU funding, more needs to be invested in the private sector.
The MBB report highlights the fact that given the small size of Malta’s economy, growth must be export led.
Export-led growth can happen only through investment by the private sector. The state does not – and should not – invest directly in economic activities. It should, however, provide incentives and make use of EU funds to assist companies to improve their productivity and enhance their competitiveness in the international markets.
Part of the success will also be due as to the type of assistance offered to businesses operating in Malta in this regard. Initiatives should be demand-led and not supply-led.
Secondly, private sector investment is more likely to yield long-term economic growth than public sector investment. Although public sector investment is required to facilitate the work of the private sector, on its own its benefits are likely to be short-lived. Public sector investment provides the best results when it is undertaken in support of private investment.
For example, the upgrading of the industrial estates would have minimal long-term economic benefits if it does not serve as a spur for the private sector operating in these estates to invest further.
The third reason is that boosting private sector investment enhances the country’s potential for growth.
This is supply side economics at its best (even if the current Cabinet includes a Minister who used to wax lyrical against supply side economics in the early 1980s).
Malta should not use EU funding to stimulate consumption, as most of that goes into imports – we would be strengthening the economy of other countries. It would, however, be putting into good use EU funds if they are used to facilitate access to finance that would be used for investment as has been done through the JEREMIE scheme and other schemes.
The critical point we need to appreciate in all this is that we have to maximise the multiplier effect of this injection of funds from the EU in order to maximise the economic benefits.