Investors use strict criteria before deciding where to set up shop. One critical issue is political stability and the institutions’ reputation in the countries on their shortlist. Malta has suffered a significant drop in how foreign investors perceive the country’s political, legal and regulatory environment.
The Ernst & Young Attractiveness Survey is a useful tool that enables policymakers to understand how others see us. When the noise of the local political communications machine is suppressed, one can understand whether foreign investors are satisfied with developments in the critical factors that determine where they should locate their business.
The first worrying statistic that comes out of the E&Y survey is that investors gave the island a score of 44 per cent on the transparency scale, a considerable drop of 37 per cent over the past two years. Typically, the government gives the impression that this drop is no more than a perception that is in contrast with reality. Economy Minister Chris Cardona reacted thus: “We have a direct link with business and those considering setting up here and what I can say is that it does not have any bearing on their decisions to invest in the island.”
The Prime Minister told participants in the E&Y conference that the choice before the country is either to preserve the status quo or “thread forward carefully but bravely”. Many foreign investors question whether the country is indeed threading forward carefully and bravely rather than adopting a plan-as-we-go attitude with little consideration for improving the human infrastructure that is so vital for long-term economic success.
The E&Y study, not surprisingly, confirmed the concern of at least 70 per cent of foreign investors who believe that the island should focus on developing education and skills in attracting investment and ensure economic growth. When one links this recommendation to the reality that Malta has one of the worst educational achievement records in the European Union, the mountain the country has to climb to realise its economic ambitions becomes apparent.
Rather than embedding sustainability for future economic growth, the government’s economic strategy is becoming more dependent for success on the importation of foreign labour as the local talent shortage continues to persist. Developing a technological infrastructure as recommended by those participating in the E&Y survey involves robust leadership to reverse failures in the country’s educational system.
The favourable tax incentives are a critical success factor for Malta’s investment attractiveness. However, this incentive cannot be relied upon in the long-term as competitors could adopt more favourable low-tax regimes to lure foreign direct investment. A significant 40 per cent of investors said Malta should cut taxes, especially since operating costs, including rents and salaries to foreign workers, are increasing.
The present generation of local political leaders will most likely have left the political scene when the consequence of the lack of adequate economic planning will be felt. Slow burning issues, like scarcity of local talent, will eventually come to haunt business and political leaders.
Sadly, there is little indication that the concerns of both foreign and local investors are being addressed by political policymakers beyond lip service aimed at giving a false sense of security to those with their feet firmly on the ground who fret about the sustainability of our economic model.
This is a Times of Malta print editorial