As Malta prepares to take on the Presidency of the EU in 2017 and the inevitable effects of the UK leaving the union, Maltese Minister for Economy, Investment & Small Business Dr Christian Cardona explains the impact of both events will have on Malta and the benefits the union receives from its smallest member state. He also discusses the substantial importance of SMEs to the Maltese economy and how they look to fare from the Brexit fallout.
What are your expectations of the upcoming European Union Presidency of Malta from January to June 2017?
As the smallest member state of the European Union, Malta is approaching the presidency with enthusiasm and a sense of realism.
We are conscious of the fact that the European Union is being challenged on many different fronts at a time when many European citizens feel disconnected from EU institutions.
We would like that our presidency would contribute towards a process of reconnecting the EU with citizens.
We are fully committed to working with our counterparts in the other member states and EU institutions to contribute in this regard.
On other issues, during our Presidency we would like to build on the work of our predecessors in order to achieve the aims set in our TRIO program.
How can the European Union benefit from Malta’s progressive approach?
Being a small country with a small administration, we are very realistic in our level of ambition in the goals we set to achieve.
Having said that, the fact we are small makes us more agile, flexible and easy to communicate. We hope these qualities would prove useful in our negotiations between member states and the EU institutions.
Many experts and high-level officials from member states and EU institutions will be visiting Malta for the numerous events we are going to host during our Presidency. They will certainly be looking forward to our warm welcome and our fine weather for which we are very well renowned.
It will also be a very good opportunity for them to appreciate the achievements our country made since we joined the EU 12 years ago in terms living standards for our citizens, foreign investment we managed to attract, investment in infrastructure and ICT, unprecedented levels of economic growth, and employment opportunities we are experiencing.
Malta is a very good example for our European counterparts of a small country with a voice that matters in the community of nations.
Being a Commonwealth member, how do you see Malta leading the negotiations between the European Union and the UK for future ties?
Malta looks forward to starting negotiations with the UK for future ties with the European Union. Considering our historical, political and economic ties with Britain, Malta is in a unique position to be a bridge between the EU and the United Kingdom.
We are committed to investing all our energies to set the path for a fair deal between both parties. Ultimately it is our aim that these negotiations will lead the UK to the closest possible relationship with the European Union.
What will be the negative consequences of the Brexit for Malta?
Companies that are exporting from Malta to the UK may be impacted adversely due to currency fluctuations which add to the risk of doing business – less income for these companies from their sales in the UK. The present currency fluctuations have made goods and services produced in Malta (and the EU) less attractive for UK companies.
Tourism originating from the UK might decline. British tourists have less purchasing power.
UK-based industry will potentially not need to apply high EU tariffs (which protect EU industry) on items such as sugars, thus making certain UK products such as processed foods highly competitive.
The UK has announced its intention to reduce corporate tax to 15%. This move has been heavily criticized by the OECD, however it is a fact that a lower tax base would make the UK more attractive. A weak sterling makes the cost base of operating in the UK more competitive.
According to a report by the European Council of Foreign Relations, Maltese exports to the UK made up 7.8% of the Maltese GDP in 2013, with foreign direct investment stock in the UK making up 11.8% of GDP, and UK bank links as a percentage of GDP amounting to 67% in 2014. Trade and financial services are two sectors which might experience a negative impact with Brexit. Having said that we are confident that negotiations between the UK and EU would lead to the closest possible relations between the two sides and these negative impacts would be minimal.
Education is another sector that might experience difficulties. Maltese students seeking to study in the UK may no longer be entitled to the same reduced EU tuition fees currently offered to all EU nationals. Problems might also be encountered in the agreement between the UK and Malta in the health sector. Nevertheless, as a member of the Commonwealth, Malta is going to do all that is possible to retain the closest possible relations with the UK and sustain current agreements, for the benefit of the Maltese people and over 12,000 British nationals living in Malta.
What course of action has been undertaken to prevent collateral damages of Brexit in Malta?
Prior to the Brexit vote, the Maltese government commissioned various studies on the impact that a possible UK exit from the EU might impinge on our economy. The different ministries commissioned studies on the possible impact on their respective sectors. Now that Brexit is a reality, we are well aware of the sectors that might be impacted negatively and we are prepared to negotiate with our European partners and with the new UK government to not only mitigate this situation, but also to exploit new opportunities and working relationships.
How can Malta benefit from its unique relationship with the UK to position itself as an entry point to the EU?
First and foremost, Malta would be able to start a fresh page in negotiations with the UK and looks favorably to a new start and its outcomes. The UK is highly integrated with the rest of the EU in terms of trade, investment, migration, and financial services. Malta is prepared to exploit new opportunities to attract investment and to collaborate with the UK and our European partners during this time of change and transition.
Britain has deep socio-political and cultural roots with Malta that stem from our colonial past and our current active involvement in the Commonwealth. Malta remains a preferred location for British tourists and has a healthy trade relationship, and we hope this tradition remains.
In which sectors can Malta benefit from the Brexit?
English is recognized as an official language and is widely spoken in Malta. The legal framework regulating Malta is based on the British model and EU approved. This makes Malta an ideal location for UK companies seeking EU certification, such as those on medical and aviation-related operations.
Moreover, uncertainty will prevail for a relatively long period of time. This in itself provides a lucrative opportunity to attract investment from the UK as companies are clearly evaluating their options.
Companies importing products from the UK can do so more cheaply (weak sterling). However, once Brexit is formalized, the tariffs imposed may make these products more expensive.
The salary received by expats in the UK has been eroded by the recent currency fluctuations. Thus, for expats working in the UK to maintain the same salary when this is repatriated to their native country, they need to ask for a higher salary in sterling to compensate for the loss in exchange. This will increase costs to the extent that currency advantages may be eroded.
Given that the Brexit debate was heavily characterized by migration issues, companies relying on foreign workers (non-British) might be more inclined to leave. These opportunities are more immediate in the services sector where companies are very mobile and can virtually relocate instantly. Whilst for the manufacturing sector the timelines are longer. The same may apply for UK universities that attract foreign students. This could be a big advantage for UK universities to operate from Malta.
Malta has established itself as a hotspot for international talent. The fact that every year the number of foreigners working in Malta is increasing at a staggering pace will serve as a good marketing factor with companies that need to relocate with their personnel that Malta is an attractive location.
Tariffs are currently applied on non-EU originating products, including in sectors that are of potential interest to Malta, namely machinery, precision engineering, plastics and rubber, with tariffs roughly in the range of 2.2% to 4.7%. If these tariffs are applied to UK, more companies will seek to move out.
How are you encouraging Malta’s exports and adding value in the increasing services sector?
Malta vaunts a dynamic government that keeps abreast of the realities and trends in the local domestic sector, and enacts policy decisions and legislation to untap identified growth potential as well as remove obstacles to growth. This is one of the key advantages of being a small state, as it is simpler to maintain a constructive, ongoing dialogue with the social partners and it is subsequently nimble in implementing the identified action.
This has also been undertaken through the engagement of the private sector in ‘traditionally’ government-directed structures by establishing a number of strategic public-private partnerships, such as in the export promotion field – TradeMalta – and in health services, Vitalis.
Furthermore, the government, through Malta Enterprise, undertakes active investment promotion drives geared at stimulating new local and foreign greenfield investments through the maintenance of an attractive incentive package, which may be tailor-made to the specific needs of investors as well as microtargeting of investments.
What is being done to boost and strengthen SMEs and family businesses, which represent the main part of the economy, as well as Malta’s openness to private international investments and simplification and reduction of bureaucracy?
The government has a declared mandate of facilitating the business environment and has announced a few weeks ago the implementation of a radical reform to the current regime for starting a business in Malta, such that prospective start-ups may register their business through one channel and will be provided with all the necessary authorization/permits within three and a half days.
In view of the particular characteristics of local SMEs, which include a significant proportion of family-based business, the government will be launching the Family Business Act, a pioneering piece of legislation and the first of its kind in Europe.
Family businesses are the beating heart of the Maltese economy, with about 70% of Maltese businesses being run or controlled by families and employing about 40,000 people. This government has recognized the significance of family businesses and will continue to support them in any way it can.
This legislation aims to address a problem that many family businesses face, since only 30% of such businesses complete a successful transition from the first to the second generation, while less than 10% of such businesses make it to the generation after that. With the new Act we will be creating a legal framework; members of family businesses can receive legal guidance and assistance to plan adequately and effect a successful transfer of their business when the time comes, as well as comprehensive legislation which also addresses access to finance and investing for the future.
Often considered as a barrier for SMEs, access to finance is key to enable a vibrant economy. How can this access be facilitated?
Malta Enterprise, a government entity, develops and manages a range of instruments that have the scope of facilitating access to finance. These include fiscal and non-fiscal schemes and are always linked to the volume of investment and generation of new jobs that investors would be proposing.
Furthermore, alternative financing models are being developed, such as the recently launched initiative called B.Start, which is targeted at innovative SMEs and is a two-phase scheme wherein qualifying start-ups are given a grant in order to commence operations, followed by quasi-equity facilities to stimulate the ramping up of operations. This scheme is proving to be very successful, and it is built on the identification of issues flagged by the private sector related to access to finance by these high-risk innovative SMEs.
How would you define Malta’s image as a reasoned and entrusted investment destination?
Malta has earned and maintained a reputation as an affable and safe location for investments. This is the result of subsequent governments’ drives to ensure that Malta has an investor-friendly environment backed by a robust regulatory framework and a consistent fiscal regime that ensures predictability and foreseeability, which is crucial for investors. This is demonstrated by, amongst others, the exponential growth of the financial services sector, the growth of the value-added productive sector, and the relatively unscathed weathering of the recent economic turbulences which resulted in the government not needing to resort to any additional burdens on industry through austerity measures.
Malta, however, does not rest on its laurels and we continue to strive to implement policies geared at enhancing our reputation as an investment location, and maintain constructive dialogue and partnerships with the private sector.
What is the role played by authorities to position Malta towards investors?
Specific agencies have been established and tasked with promoting Malta as an investment location.
Malta Enterprise traces its origins back to the late 50s, and even though it has changed its form and institutional structure over time, its role as the primary promoter of greenfield investment in Malta has not changed. It undertakes this through building on its wealth of experience and networks, a robust research base, an array of incentives, a fervent policy advocacy at both local and EU level, and through targeted investment promotion campaigns.
MEIB maintains a central role in policy formulation and provision of the government’s strategic direction of the economy, with a particular focus on SMEs, with primary instruments being the implementation of the Small Business Act and the upcoming Family Business Act and Social Enterprise Act.
How would you qualify the attractiveness of ‘Made in Malta’?
Made in Malta is synonymous with quality and transparency, that is, the product is guaranteed to meet the standards it defines.
Moreover, it is also pertinent to mention to Malta enjoys a supply of highly skilled personnel having a very strong work ethic, which means we will always get the job done, with a distinct Maltese hint.