Foreign direct investment statistics must be considered and compared in absolute terms, Malta Enterprise executive chairman Alan Camilleri told The Sunday Times last week.
The pre-Budget document 2011 launched last week indicated that at 102.1 per cent in 2008, the stock of FDI in the economy is by far the highest when compared with that in Malta's major European Union competitors and some 40 percentage points above the EU-27 average. However, 60 per cent of the stock of FDI takes the form of capital inflows in the transaction-based financial sector.
Mr Camilleri stressed that Malta Enterprise, the state agency tasked with, among other things, promoting the islands' attractiveness for FDI, primarily considered the value generated to the economy in terms of jobs, local consumption and support to the cluster industry when assessing new projects.
In crisis-plagued 2009, the agency approved €80 million in new projects and expansions, creating 950 jobs over three years (including the SR Technics aircraft maintenance contract). It was the highest amount of FDI approved for five years.
He pointed out that companies transferring treasury operations to Malta potentially transacted €50 million a day but created relatively little value to the economy, apart, of course, from income tax, which was important for government to carry out its own projects.
That the financial services sector grew by 22 per cent last year was a major achievement which several stakeholders worked towards, particularly Finance Malta, which Malta Enterprise also worked very closely with.
Mr Camilleri said Malta Enterprise worked hard to convince traditional investors to think in terms of financial services, such as brokerage and ancillary services.
"But it would be a mistake if we sent the message that financial services was the only way to go," he warned. "Our key strength as an economy has always been diversification, both in terms of inputs and outputs. We must maintain that balance as otherwise Malta would become very vulnerable."
The pre-Budget document also highlighted how investment levels in research and development are low compared to the EU average.
Malta Enterprise administers ERDF grant schemes for R and D, the take-up of which Mr Camilleri described as good. He cautioned that statistics could not be based solely on grants as there will come a time when the schemes will end. He suspected, however, that research capabilities and budgets were not being adequately captured by statistics. Significant R and D was taking place in local industry but official figures were not doing it justice for several reasons, possibly because companies feared for the security of their intellectual property.
In the industrialisation of Malta over the past few decades, the island had been considered a production site, not a think tank. The chairman maintained slow growth in R and D was materialising in industrial sectors as manufacturing and skill levels upscale and the economy becomes increasingly sophisticated.
There were also developments in the educational system and Mr Camilleri believed the seeds were being sown for the future with the creation of the University of Malta's research trust fund and its office for commercialisation. The realisation of a cadre of academics and researchers requires time and investment. In this sense, Malta needs to increase its collaboration with overseas research institutes for knowledge to be shared and transferred. Besides, a culture of endowments from industry to the University still had to be fostered.
Meanwhile, the establishment of the Life Sciences Park will go some way to provide the basic infrastructure for a research environment.
Malta's size and limited resources obviously placed it at a considerable disadvantage in the R and D field, but collaboration through research platforms was one solution. Over the coming months, Maltese companies will be able to tap Eurostars, the first European funding and support programme dedicated to small and medium sized enterprises and micro firms.
Meanwhile, Mr Camilleri acknowledged that the authorities were fully aware of the dependence on ST Microelectronics to make up the national high-tech export numbers, which compare well to the EU average. He pointed out that by its very size as a global player, ST Microelectonics would obviously tip the balance, but there were other companies like Methode and the Prominent Group which also contributed to high-tech exports.
However, the key in this sector was to continue to move up the value chain, particularly as lower value added production lines had long moved to low-cost sites, and in keeping with the philosophy behind diversifying the economy.
Malta's corporate tax regime, human resources skills, and fiscal incentives were the primary factors driving the country's business attractiveness, according to the annual survey by Ernst and Young.
But Mr Camilleri believed Malta appealed to international businesses for other important reasons. He said he refused to sell the country as an incentives site, because such schemes had a lifespan.
Product Malta, he pointed out, had proven to be a location providing security and stability for investments. Returns might not be as high as some other locations, but the risk was low. Potential investors would see that Malta provided a healthy balance of stability, accessibility, and an ability to act fast and decisively.
Elements like the tax rate, labour costs and social security legislation kept expenses down and ensured competitiveness, but the wider political, social, and economic environment ticked many other boxes too.
Labour costs in Malta were around 70 per cent of the northern Europe average, obviously, depending on the skill level. With a wage growth last year of 0.2 per cent, Malta was the second lowest in the EU, an indication that labour costs competitiveness was significantly contained.
"We need to keep it in check," Mr Camilleri warned. "The moment we lose our labour cost competitiveness, our attractiveness for foreign direct investment will be significantly dented."