The extent of the sharp drop in foreign direct investment in the first six months of 2011 can only be calculated after eliminating the investment by the fluctuating financial and eGaming sectors, according to leading economists.

It’s not pleasant but it’s not as bad as it seems...

Economist Karm Farrugia believes the 70 per cent drop in the flow of foreign direct investment in the first six months of last year compared to the same period in 2010 was nothing to worry about.

“It’s not pleasant but it’s not as bad as it seems because it may well be that we see a surge in the following six months,” he said, when contacted.

Last week, the National Statistics Office said the amount of FDI at the end of June 2011 was estimated at €12.4 billion, a rise of €518.8 million over the corresponding month in 2010. However, investment flows in those six months was estimated at €140.2 million, a decline of over 70 per cent from the comparative period in 2010.

Mr Farrugia said the statistics were “a little bit distorted” because the country relied “maybe a bit too much” on the financial sector and eGaming.

“To see the real FDI picture, you have to dissect the financial and eGaming sectors from the real economy. It’s not healthy to depend on the contribution of the financial sector but, on the other hand, we cannot refuse it because the country is struggling with unemployment and the participation of women,” he said.

Financial analyst John Cassar White believes stripping the contribution of the financial sector would uncover the “real picture” although he expressed concern the country was experiencing a downward trend in direct foreign investment.

“Part of the ‘hot money’ flowing in the financial services industry should be stripped from a meaningful analysis of investment inflow,” he said.

Mr Cassar White said rather than looking at the drop per se, the country should benchmark itself against other countries, especially in the eurozone, to establish whether they had experienced similar drops and whether the drop was the result of the general slowdown in Europe.

He said the drop was worrying if it was directly related to the country’s competiveness.

“Our education system needs upgrading because while it is good that we are producing graduates, we need to also look at the subjects they are graduating in and the level of specialisation. If someone invests here, they would want peace of mind that they will find staff rather than have to import resources,” he said.

Mr Cassar White said Malta had to continue focusing on reducing the level of bureaucracy, emulating Italy which is eliminating red tape for small and medium enterprises to flourish.

Moreover, government-induced costs needed to be addressed, especially the energy sector whose prices were higher than those in other countries.