The Maltese economy has always grown on the strength of its ability to attract foreign investment into the country and its ability to export goods and services.
Because of various reasons, we import most of what we consume in terms of goods. Unless we are able to export goods and services, we cannot balance our demand for imports.
There is then another factor that is a very good indicator of our economic success or otherwise. It is our ability to increase the value added component in our economy. Given that we have no natural resources that we can sell to other countries, the value added component in our economy is made up of our human resources, thereby giving credence to the often-made statement that people are our only resource.
Gross value added has been around 87 to 88 per cent of the gross domestic product in the last years. The net between taxes and subsidies make up the difference between gross value added and the gross domestic product. What is most interesting is how the various sub-components of the gross value added have evolved over the years.
Overall, the gross value added of the Maltese economy increased by €2.8 billion in the five years between 2011 and 2016. In 2011 it stood at €5.9 billion and it had increased to €8.7 billion in 2016, an increase of 47 per cent, a compounded annual rate of around eight per cent.
The strength of our economy over the last decades has been its resilience
The two sectors that experienced major growth in these five years were the arts, entertainment and recreation services (which comprises the i-Gaming sector) and the professional, scientific, technical, administrative and support services sector (which provided the back office services to international companies). The former increased by 116 per cent while the latter increased by 95 per cent in five years, that is double the rate for the whole of the economy.
Together these two sectors made up 26 per cent of the total gross value added of the Maltese economy in 2016, compared to 19 per cent of five years before.
There was only one sector that did not experience growth in 2016 when compared to 2011 – manufacturing. Its contribution to total gross value added fell from 13 per cent to nine per cent. It registered a drop in absolute terms of 2.5 per cent.
Other growth sectors were public administration and related services such as health and education, and the sector that groups together wholesale and retail trade, accommodation services, transportation services and others. The former grew by 39 per cent (explained by the investment in education and health and other aspects of public administration) while the latter grew by 42 per cent (explained by the growth in the tourism sector and the changing face of retail activities).
A special mention needs to be made about construction and real estate. They both grew by less than the national average; thus putting paid to any grandiose idea that construction drives the economy.
Construction grew by 24 per cent in five years while real estate activities grew by 29 per cent; thereby indicating that the greater beneficiary of all this construction activity has been in the intermediary real estate sector and not in the production construction sector. Their joint contribution to the gross value added in the economy dropped from 11 per cent to nine per cent in the five years leading up to 2016.
The ICT sector also grew in an interesting manner. It grew by 59 per cent (so well above the national average) in five years. Its contribution to the total gross value added is seven per cent. Probably there are some ICT activity that does not appear under this heading as it would be incorporated in other sectors. So the contribution of ICT activity is bigger than what is being reported under just this heading.
The other sector that received a great deal of attention in the last years was the financial and insurance services sector. Again, even in this area, a great deal of activity it generates is reported under other sectors that service this sector. It grew by 35 per cent in five years and its contribution to gross value added is of five per cent.
My intention in writing this contribution is not to make any value judgements. When the economy is doing so well, all hands on deck are required to maintain the momentum. However, depending on one’s perspective, one notes the opportunities and vulnerabilities.
The strength of our economy over the last decades has been its resilience, mainly due to its diversification. As such we cannot lose the diversification of our economy, as this will make our economy more vulnerable.