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Business could be better

There are clear indicators that Malta’s economy is performing well. But how easy is it to do business, Helen Raine asks.

On the face of it, Malta has the goods to attract international investors and support local entrepreneurs. These positive elements vary from social and political stability, EU membership and an educated, multilingual and hardworking workforce to a European customer base that offsets a narrow domestic market. The island’s advantageous geographic position places it as a natural business hub between Europe, North Africa and the Middle East. And having a warm, sunny climate doesn’t hurt either.

With all these attractions, you would expect business to be booming. And it is. Real GDP per capita, private consumption, the number of people in employment and foreign direct investment are all on the increase.

But it’s not easy. In fact, according to the World Bank Group’s Ease of Doing Business 2015 index, Malta is right at the bottom of the listings for EU member states. Moreover, it ranks 95th out of 189 countries worldwide, behind the likes of Kazakhstan, Kosovo and Rwanda. According to the World Bank Group, a low score basically means that the regulatory environment is less conducive to the starting and operation of a local business.

So what are the stumbling blocks?

It will come as no surprise to business owners that Malta’s score is being dragged down by a few familiar criteria. The biggest problem is that it’s hard to get credit. Starting a business is also a bureaucratic nightmare. In New Zealand, which ranks in second place in the Ease of Doing Business 2015 index, it takes you one day to set up your business and get it up and running. In Malta, it takes you around 34 days to complete. Moreover, this requires 11 procedures.

Adding to Malta’s woes is the fact that dealing with construction permits is enough to deter even the most determined investor. Getting electricity to a new building can be tough and enforcing contracts is a challenge.

“There is significant scope to improve the administrative operating environment for businesses,” Marika Tonna, chief operating officer at Malta Enterprise, acknowledges. However, referring to the World Bank Group report, she says that Malta is being significantly penalised as a result of the methodology applied – consequently, the report doesn’t represent Malta fairly.

“Foreign projects generated over 3,000 new jobs and an investment of €195m while local projects generated over 1,400 jobs with an investment of €85.6m,” she says, adding that a record number of projects have been approved by Malta Enterprise since 2013.

“These greatly outweigh the results for the 2011-2013 period, when Malta ranked slightly better in the Ease of Doing Business index.”

“Even so, it’s clear that Malta could do better and there are a few quick fixes that might help. The World Bank Group notes that by allowing credit bureaus to collect positive information on individuals, New Zealand has made it easier to access credit information and thus speed up the process of obtaining lines of credit and business registration. And in Denmark, a plug and play registration system enables investors to start doing business in a few hours.”

Flexibility has to be backed by strong regulation

Institutionalised practices such as education will take longer to alter. Malta has been sliding steadily down the international ranking tables. This leads to a shortage of trained employees with technological skills.

There’s another key difference between Malta and the countries at the top of the pack. For instance, Singapore ranks at number three for least corruption in the economy, meaning that government practises an open and transparent approach when it comes to all business matters. Meanwhile, in Malta, successive administrations have been rocked by scandals while accusations of nepotism and political favours are rife.

Fiscal policy is also important. The UK ranks in the top 10 for ease of doing business partly because corporate tax has been trending downwards and now stands at 20 per cent, the lowest in the G20, and is set to fall further. On the other hand, Malta has a corporate tax of 35 per cent, although shareholders are entitled to refunds.

That said, flexibility has to be backed by strong regulation. American business owners may complain about red tape, but the Economic Policy Institute notes that they rank in the World Bank top 10 because some of those rules actually protect businesses. The EPI says that, “The US ranks especially high in protecting investors, enforcing contracts, and getting credit.” Malta ranks especially low in the last two areas.

However, change may be in the pipeline. Tonna says that Malta Enterprise is aiming for the removal of unnecessary administrative processes and delays, as well as re-engineering certain cumbersome processes.

“Effective action will be implemented this year and will continue to be rolled out in 2016,” she says. Malta Enterprise also plans to slim down the start-up process to three days for a total cost of €100.

There’s also hope for those who struggle to get credit. Tonna flags up the Business Start initiative, which is intended to support small start-up undertakings that have a viable business concept.

“Malta Enterprise will be offering seed funding for start-ups, up to a maximum grant of €25,000,” Tonna says.

Moreover, Malta has plenty of strengths to trade on. The Malta Ship Register is the largest in Europe and the sixth largest worldwide. Financial services, the medical field and life sciences are all performing well.

Malta Enterprise has got the rhetoric about streamlining and cost reduction right. If the goods can be delivered by the next World Bank Group report, more business could be flourishing. After all, as any business owner will tell you, time is money. The changes just can’t come quickly enough.

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