Sustained GDP growth, a low unemployment rate and foreign direct investment give Malta a positive outlook, Economy Minister Chris Cardona says.
Overall, how has Malta’s economy performed in 2015?
Malta’s economy has proven to be remarkably resilient over the years in the face of the global economic downturn and has regularly been among the best-performing economies in the EU.
However, what we have seen in the past couple of years has surpassed every expectation. In fact, according to current data, we can now proudly say that Malta’s economic growth is four times the eurozone average.
The economic data we have as of September and the outlook for the remaining months are equally positive. For June 2015, we had the third lowest unemployment rate in Europe, standing at 5.5 per cent. Only Germany with 4.7 per cent and the Czech Republic with 4.9 per cent reported lower rates. The unemployment rate for the EU 28 was 9.6 per cent and 11 per cent for the EU19. In the publication European Economic Forecast Spring 2016, the EU Commission indicates that Malta’s unemployment rate will remain low, with an average of less than six per cent.
With regards to GDP growth, the latest figures confirm the strong and sustained growth trajectory Malta has taken. In 2014, the Maltese economy grew at a rate of about 3.5 per cent in real terms. This was significantly higher than the 1.3 per cent recorded as the EU 28 average. During 2014, in real terms, the Maltese economy was the fourth fastest growing economy in the EU. In terms of real GDP growth the Maltese economy outperformed the German and UK economy. The latest GDP statistics that have been published are for the first quarter of the year 2015. When comparing the first three months of 2015 with the first three months of 2014, the Maltese economy, in real terms, grew by four per cent.
The strong growth that we have seen in the first three months of 2015 will continue throughout the year as well as in 2016. Recently we received another positive report from the International Monetary Fund. In its conclusion on Malta’s economic performance, IMF experts state that Malta’s economy grew by 5.1 per cent in the first half of 2015 and unemployment rates reached record historic lows. According to IMF, this was partially due to large investments in infrastructure.
Which sectors have exceeded expectations?
The relatively well-diversified economy has helped preserve stability. However, foreign direct investment has exceeded our expectations since the beginning of this legislature.
There are varied reasons why Malta is attractive to some investors and not to others. First of all, the reality is that you cannot do blanket marketing in any country and in any sector. While this strategy worked well in the 1960s and 1970s, nowadays you need to try to attract those sectors which would be reasonably profitable when investment takes place. A good example is the textile industry. We cannot try to attract the textile industry to Malta because we cannot be competitive in this sector.
One thing that worked very well was to restructure ourselves and Malta Enterprise, which is responsible for promoting foreign direct investment and local industry abroad. We also started to work on the core target and focused assessment of foreign direct investment. For instance, we all know that the German manufacturing industry is incredibly competitive. We also know that there are some German industries which have a local economic operation in Malta for different reasons, such as wanting to explore the North African market. So we want to identify these manufacturers and see whether they are interested in having a facility in Malta. If they are, we will try to attract them with the right incentives.
Significant increases were recorded in the professional, scientific and technical activities sector, real estate, public sector, arts, entertainment and recreation, wholesale and retail trade, transportation and accommodation sector, financial services, and information and communication. Manufacturing also picked up in the second quarter of 2015 with a recorded growth of 4.7 per cent. We are confident that this sector will continue on this positive track.
Financial services operators enjoy a highly stable economic and political environment
The financial services sector is becoming a significant contributor to Malta’s GDP. What are the elements that are enabling its growth?
Malta’s financial services sector has experienced sustained growth due to a number of factors. This growth is driven by a sound financial ecosystem consisting of sub-sectors which today feature service operation as well as product clusters. These sectors include asset management, insurance, credit and financial institutions, trusts and foundations, pensions and wealth management.
Malta’s single regulatory body and the regulatory philosophy and approach adopted by the regulator with regards to licensed business is also an important contributor to sustained growth and has become a critical success factor. The presence of a comprehensive and flexible regulatory and legal framework and the timely transposition of EU Directives are also deemed as important business enablers.
Malta is also highly cost competitive. This positions us at the forefront of start-up or advanced start-up operations.
Financial services operators enjoy a highly stable economic and political environment. This places Malta in an enviable position considering the macroeconomic environment in the rest of Europe. The presence of a sound banking sector is today deemed as an important business facilitator.
Moreover, Malta’s enviable lifestyle is increasingly attracting foreign operators to domicile their business in Malta.
You have recently launched the Family Business Act white paper and public consultation. How will this proposed Act help new generations of family businesses?
The Family Business Act aims to encourage the regulation of family businesses, their governance and the transfer of the family business from one generation to the next. The legislation seeks to encourage and assist family businesses in enhancing their internal organisation and structure with the aim of effectively operating the business and working towards a successful succession of the family business.
In doing this, the act clearly defines what businesses will be considered as family business and the family members who will benefit from such registration. The legislation allows registered family businesses to benefit from fiscal incentives which will be developed specifically for family businesses during their phase of transition as well as governance incentives which will encourage and assist family businesses during their lifetime, transfer process and new phase of the family business.
What support is government giving to start-ups?
Malta Enterprise has carried out changes within Business First in order to make it even more efficient and expand its reach towards new clients. Between January and November 15, 2015, Business First received 1,556 enquiries in relation to a number of support measures which are offered by Malta Enterprise. Most of these enquiries resulted in actual requests for assistance.
There are also various schemes intended to support start-ups. Business advisory services are designed to provide business undertakings operating in Malta with advisory services that suit their specific circumstances.
Malta Enterprise, via Business Start, is offering a seed funding for start-ups. The measure is intended to support small start-up undertakings that have a viable business concept and are in the early stage of development. Initiatives that are deemed to be economically viable shall be supported through a grant of up to €25,000. The Micro Invest scheme, which is aimed not only for start-ups, encourages undertakings to invest in their business, innovate, expand, and implement compliance directives or develop their operations. Such undertakings, which may include self-employed persons (employing less than 30), will be supported through a tax credit representing a percentage of the eligible expenditure and wages of newly recruited employees. With regards to start-ups, the tax credit must be utilised by the fourth year of assessment (instead of third year). Gozitan start-ups could benefit from a tax credit amounting to €50,000 instead of €30,000.
In order to encourage more women to start up and run their own business, Malta Enterprise will be carrying out changes to the Micro Invest scheme. Female-owned businesses including self-employed (but not only start-ups) will be granted a maximum tax credit of up to €50,000 instead of €30,000.
Malta Enterprise will be launching another scheme for start-ups. Assistance will be given in the form of a repayable grant that will have to be repaid over 10 years. This scheme will provide financial assistance of up to €200,000. This assistance will be granted in parallel to the private equity invested in the business. Alternatively, for innovative companies producing products or processes which are new or substantially improved compared to the state of the art in the industry, the repayable grant can be increased to €500,000 to cover the purchase of machinery. This assistance can also be granted to companies that seek to raise funds through crowdfunding campaigns.
We have also extended assistance to other companies, not just start-ups. Cabinet has approved for publishing a new legal notice entitled Enterprise Support Incentive: For Gozo Transport Grants. This shall be administered by Malta Enterprise and will take the form of a cash grant to undertakings engaged in manufacturing activities which operate from Gozo for transport costs incurred for transportation of machinery, plant, materials, goods and finished products between Malta and Gozo, which they have to incur as a direct result of the double insularity of the sister island. This assistance serves to reduce the cost disadvantages for manufacturers based in Gozo, rendering these businesses in a better position to compete effectively within the single market.
Growth is expected to remain solid in 2016-17
Through another incentive, the Business Associations Grant, Malta Enterprise intends to promote the development and continuity of small business associations that aim to facilitate collaboration and develop their relevant business sector.
Intellectual property is key to innovation. What reforms are currently ongoing in this area?
With regards to copyright, in 2014, Directive 2012/28/EU, on certain permitted uses of orphan works, was implemented into national legislation by virtue of subsidiary legislation to the Copyright Act. This directive and hence the legislation which transposes this into national legislation sets out common rules on the digitisation and online display of orphan works, that is, works like books, newspaper and magazine articles and films that are still protected by copyright but whose authors or other right holders are not known or that might remain untouched without common rules to make their digitisation and online display legally possible. Discussions are also underway with the World Intellectual Property Organisation with a view to set up a copyright registry
For trademarks and designs, over the past three years the Commerce Department has worked closely with the Office for Harmonisation in the Internal Market (Community Trademarks and Designs) to develop and implement software tools under the framework of the OHIM Cooperation Fund with the aim to simplify procedures and access to protection. The office also introduced a new back office system for trademarks and designs.
Furthermore the office also introduced the e-filing trademarks and designs facilities whereby interested parties can file a new application for a trademark or design online. To complement these systems, the office has launched other e-services consisting of trademark and designs renewal, change of ownership of a trademark and change of name and address of a trademark.
Government has also approved amendments to the Patent Legislation, the main thrust of which is to curb patenting of inventions which are not novel, do not have an inventive step or are not industrially applicable, while facilitating invalidation procedures.
What are the prospects for Malta’s economy in 2016?
Growth is expected to remain solid in 2016-17, driven initially by domestic demand and later by a gradual recovery in external demand.
In the forecast for 2016, Malta aims to have the sixth lowest unemployment rate in Europe. Standard and Poor’s, which had revised its outlook on Malta to positive from stable while maintaining the BBB+/A-2 rating, said it expected the economy to grow by close to three per cent annually between 2015 and 2018, outpacing the eurozone as a whole.
Economic growth is attributed to investments in the energy sector, including the interconnector and the building of a liquefied natural gas terminal and power station. Economic diversification after 2016 into information and communication technology and medical tourism, could boost investment.
Growth is also expected to be fuelled by domestic demand on the back of stronger private consumption as a result of utility tariff cuts. Consumption trends are being supported by rising real wages and broader female participation in the labour market.
Government is fully committed to furthering Malta’s economic growth by sustaining macro-economic stability, enhancing competitiveness, raising potential output and putting public finances back on track, while the implementation of the respective measures will continue to unfold.
From a macroeconomic perspective, the main drivers of growth are expected to be investment, supported by a number of large scale projects mainly in the energy, health and educational sectors, and private consumption, encouraged by increasing disposable income and continued positive developments in the labour market.