FDI in focus: EY survey reveals Malta's strengths and weak spots

Ronald Attard

Malta's investment landscape is spotlighted in EY's 20th Attractiveness Survey. Despite 70% of foreign investors planning to stay, challenges like talent shortages, rising costs, and infrastructure woes persist. MONEY analyses the findings, highlighting the factors driving investor confidence and the critical areas that demand immediate attention.

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EY Malta released the findings of its 20th Malta Attractiveness Survey during the Future Realised Conference on 23rd October. This annual study, which gathers insights from existing foreign direct investment (FDI) companies in Malta, provides a comprehensive overview of the island's investment appeal and areas for improvement.

Attractiveness Index

In this latest study, 54% of existing FDI investors considered Malta an attractive location.  Although this represents a slight decrease of 5% from the previous year, it is well above the low point reached in 2021. Yet, it does not match the high confidence levels Malta had enjoyed up to 2019.

Investors acknowledge Malta's strategic advantages but also recognise pressing challenges that must be addressed. These include the rising cost of living and the strain on the labour market, which could impact the country's ability to sustain long-term growth and retain its attractiveness for FDI.

Continuing the trend from previous years, Malta's corporate taxation is still the leading factor in its FDI attractiveness, with 75% of respondents acknowledging it as a pivotal aspect behind the country's investment appeal.

Following corporate taxation, 63% of investors recognise Malta's telecommunications infrastructure as a considerable benefit, underscoring the country's expanding influence as a hub for the digital economy. The emphasis on robust connectivity is especially vital for critical sectors such as finance, gaming, and technology, which are integral to Malta's economic framework. 

On the other hand, only 39% and 32% of respondents perceive the level of labour costs and skills as attractive. The stability and transparency of the political, legal, and regulatory environment are third from the bottom of the attractiveness index.

Transport and logistics infrastructure continues to be an area of concern, with only 16% of investors viewing it positively, a further decline from the previous year. Research and Development (R&D) and innovation, although marginally better at 26%, remain at the lower spectrum of the attractiveness scoreboard. 

Biggest risks facing Malta's FDI attractiveness 

The evolving international tax landscape and the scarcity of skilled labour continue to dominate as the principal risks to Malta's FDI allure, with each concern being flagged by 50% of respondents. Reputational risks have notably risen, now considered a significant threat by 42% of investors. This increase indicates a heightened emphasis on the importance of transparency and good governance practices, highlighting the critical need for Malta to uphold and enhance its regulatory framework to maintain investor confidence.

Cost competitiveness and the state of the physical national infrastructure are also among the concerns that follow closely behind, at 34% and 29%, respectively. The survey paints a picture of an investment community aware of Malta's enduring economic potential yet equally aware of the emerging risks that could alter its course.

Presence in Malta in 10 years

In an era marked by rapid economic and geopolitical changes, projecting the long-term presence of companies in any location is a complex task. Nonetheless, the investment community in Malta exhibits a resilient outlook, with a substantial 70% of FDI companies confirming their intention to sustain their presence on the island for the next decade. This figure represents a slight increase from the previous year.

Expansion plans

Tangible growth plans complement this confidence, as over one-third of investors are preparing to expand their operations in Malta. Investor commitment to growth within Malta remains positive, with 38% of companies planning to expand their operations over the next year. This figure indicates a modest increase from the previous year's 36%, highlighting a steady but cautious investment climate. The current percentage of companies with expansion plans is still lower compared to the more robust post-pandemic recovery period of 2022, which saw 46% of investors looking to expand.

Despite not reaching the heights of a few years ago, this continuity in expansion sentiment suggests that while investors remain optimistic about Malta's business environment, they are also mindful of the broader economic context and its potential impact on their growth strategies. 

Priorities to remain globally competitive  

Investors have identified critical focus areas for the coming decade to sustain and enhance Malta's position in the competitive global arena. Infrastructure, transportation, and planning, alongside education and skills development, are at the forefront, with 46% of respondents prioritising each area.  

Long-term economic planning is also emphasised, with 37% of investors highlighting its importance. This underscores the need for strategic foresight and the development of sustainable economic policies that can navigate the complexities of the global market and support Malta's growth. The alignment of these priorities indicates a comprehensive approach, with investors believing Malta must invest in its physical and human capital to remain competitive. 

Infrastructure planning for population growth

The adequacy of Malta's infrastructure for its current and future population remains a significant concern among investors. In 2024, a substantial 70% of respondents view Malta's infrastructure as inadequate for supporting the anticipated expansion of its population. An additional 19% perceive the infrastructure planning and development as neither adequate nor inadequate, signalling a sense of uncertainty or ambivalence about the country's readiness.

The consensus among investors is clear: Malta urgently needs to enhance its infrastructure across all sectors. The growing demands of a rapidly expanding population and economy exert considerable pressure on existing systems, highlighting the urgency for comprehensive and forward-thinking infrastructure development. 

Skills challenges

Several critical factors continue to influence the recruitment and retention of specialised personnel in Malta, with the cost of housing and living emerging as the primary concern. Over half of the respondents (51%) cite the excessive cost of living as a significant obstacle to attracting and retaining international talent, particularly for roles requiring specialised skills. The housing market poses a considerable challenge for expatriates and local talent, creating a barrier to filling essential positions.

Challenges to finding the required specialised skills persist. For several years, Malta's skill supply has been unable to keep up with the increasing demand for specialised (and other) skills. This year, sixty-nine per cent of this year's cohort reported being unable to find the required specialised skills in the local labour market.

Technology and AI-related factors attractiveness compared to other European countries 

Malta's technological landscape is increasingly recognised for its competitiveness within Europe. 46% of respondents consider Malta's IT capabilities on par with those of other European countries, and 17% even view Malta as more attractive, indicating a positive perception of Malta's tech environment. However, 28% of respondents feel that Malta lags, highlighting areas for potential improvement in a rapidly evolving tech sector.

Artificial Intelligence (AI) is a crucial area of focus for investors, with many also looking to invest in cloud technologies and intelligent automation as drivers for future growth. These technologies enable businesses to enhance efficiency, reduce costs, and improve adaptability.

EY Malta's perspective

In his opening address at the Malta Future Realised Conference, Ronald Attard, EY Malta country managing partner, reflected on the island's transformation and journey over the past two decades. "Twenty years ago, Malta's official population was just over 400,000. Today, that number is close to 540,000," he noted, highlighting the significant growth in population and economic output, with GDP rising from US$6 billion in 2004 to over US$20 billion.

Attard addressed Malta's fluctuating attractiveness for FDI, acknowledging a recovery from the lows of 2019–21 but also a slight dip in attractiveness this year. "Telecommunications infrastructure has been a resounding constant positive over the years," he stated, pointing out that other previously attractive criteria have lost their appeal. 

"The stability of social climate has scaled down from the peaks experienced when we started undertaking our research," Attard remarked.

"Labour cost and skills, which were a major selling point, are now a challenge, with the increase in labour costs likely a consequence of growth. The stability and transparency of the political, legal and regulatory environment, although improved from 2020–21, remain distant from the highs of 10 years ago. Transport and logistics infrastructure, which has always been a challenge, continues to be perceived badly, exacerbating the challenge over the last two years. Growth pains and strains are evident throughout the responses.  

Unsurprisingly, 70% view Malta's infrastructure as inadequate. Infrastructure and education are seen by most as the key areas that Malta needs to prioritise, with some adding economic planning. Against this background of economic growth, we are losing ground in two of the most fundamental areas that potential investors assess: workforce skills and availability and stability of the political and regulatory environment. Respondents highlighted skills, tax reform, and reputational concerns as challenges.

"In our survey, we sought to discover whether respondents would prefer less growth. The survey indicates, probably unsurprisingly, that despite the challenges in attractiveness and infrastructure readiness, only one in 10 respondents want less—the majority of investors want more quality, and one in every four wants more of everything. According to respondents, the solution is enhancing and nurturing investment, with some arguing for rationalisation or sharing of infrastructure and resources but very few for slowing growth.

Demand for more investment is pervasive across different areas—education, energy, roads, health, and the natural environment. On the positive side, four in 10 investors plan to expand. And 70% believe they will still be here in 10 years—a proportion higher than 10 years ago. Tourism and technology—gaming, artificial intelligence (AI), and Fintech—are seen as Malta's future.

Technology is viewed as the primary driver for change—overtaking sustainability, and the availability of the necessary skills is viewed as more important than government support. Nearly two-thirds of respondents view Malta as attractive, or at least as attractive as other European countries, regarding technology. Leveraging Malta's strengths in telecommunications infrastructure and technology, not least the significant skills base on the island built through the growth of the gaming industry may be part of the answer.

Last year, we referred to calls from several groups, including the government, the opposition, The Malta Chamber, industry groups, employer associations, trade unions, and society, suggesting the need for an adjustment or change to the island's economic model, to one that emphasises substantial, tangible improvements in infrastructure, the labour market, and holistic economic sustainability beyond mere numerical growth. And those calls are more pronounced this year.

There is a desire to build more infrastructure, particularly as businesses expand. When we refer to build, it is not necessarily bricks and mortar. In fact, the greatest call is in education. There is some opportunity to share, which will need effort in building consensus, not least in sharing risks and rewards. We also need to question if the island is, at least in some areas, served better with more or less. Logistics immediately comes to mind as an opportunity to explore alleviating growth pains.

Perhaps Malta should even help its businesses offshore some of their less value-adding processes and functions to cheaper locations. In a more globally connected world, collaboration is critical. And choices need to be made. The public and private sectors must engage with new technologies to manage growth as efficiently as possible. Views on the ground are encouraging. This should help us be efficient and change behaviours to sustain the island's attractiveness and appeal. This does not mean the road ahead is easy, as we need to develop and generate the right skill sets, particularly with the young generations coming into the workforce."

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