Is Malta's competitiveness in crisis?
Victor Calleja interviews six of Malta's leading economic minds: Marthese Portelli, CEO of the Malta Chamber; Marisa Xuereb, former president of the Malta Chamber; Paul Bonello, economist; Ronald Attard, EY Malta country managing partner; Norman Aquilina, group chief executive of Farsons Group; and Chris Vassallo Cesareo, president of the Malta Chamber, to discuss Malta's economic journey over the past two decades as an EU member and its future challenges.
Crises come, and crises go, but it seems Malta has continued successfully forever. In contrast to most other countries in the Mediterranean, Malta has sailed on without huge economic problems for the last couple of decades.
Can this go on? Shouldn't more be done to examine the years gone by and analyse what we did right and wrong and what happened just by chance? Shouldn't we plan better and truly stick to what we plan, not just pay lip service to reports, analyses, and surveys?
Reflecting on the past two decades, what did Malta get right and wrong when attracting investment?
Reflecting on the past two decades, what did Malta get right and wrong when attracting investment?
Marthese Portelli: The country successfully positioned itself as a preferred jurisdiction in areas such as yachting, gaming, financial services, and, more recently, aviation.
On the other hand, Malta could have done better by diversifying its economy more, ensuring a better balance between paper-pushing, substance-based, and high-value-added industries. Additionally, more investment in critical infrastructure such as the energy distribution network, transport modality and logistics, traffic management, and urban planning was needed. RD&I also deserved more attention.
Marisa Xuereb: Malta got it right on iGaming. It was a first-mover and paced the industry's growth quite well. We messed up on things where we took big gambles, such as with blockchain. The timing of this was also unfavourable, as all eyes were already on us because of Moneyval, and it eventually contributed to our greylisting, which was a big test for our financial services industry. Medical cannabis was another one where we took a gamble that didn't go in our favour.
We managed to keep what we have in manufacturing, which is quite a feat considering how operating costs increased over the years. More recently, we attracted substantial property investment and bounced back well from COVID-19 in tourism.
Paul Bonello: The volume of non-resident-owned businesses in Malta in the financial services sector has been astronomical. However, this type of investment often does not percolate in the local domestic economy. Foreign Direct Investment has faltered over the years. There is very little foreign direct investment in the high-value-added manufacturing industry. What little there is from time to time is incremental investments in companies that have been on the island for a very long time.
We still have a very inadequate infrastructure, and our international reputation stinks. Unfortunately, we are only associated with gaming companies and ancillary industries.
Ronald Attard: Malta's economic performance shows that the country has achieved a lot—not least an open business environment that's attracted significant investment across financial services, iGaming, manufacturing, aviation, telecoms, maritime, life sciences and more. On the one hand, a well-diversified economy. On the other hand, given its size and diversity, it is fragmented. The island has also grown fast, with GDP increasing from 5 billion to 20 billion in 20 years since EU accession. Infrastructure, however, needs to catch up with the growth.
Norman Aquilina: What is clear from this two-decade trajectory is that attractiveness is a moving target that needs constant monitoring to ensure our economic strategy and related policy decisions are aligned and favourably connect investors with investment opportunities. That said, our rapid economic growth has somewhat clouded our economic vision and investment destination.
What we certainly got right was Malta's EU accession and subsequent entry into the eurozone. This played a crucial part in setting our investment footprint. From a sectoral perspective, investment is somewhat of a mixed bag, increasingly weighted in favour of the services sector, notably financial, iGaming, and tourism-related, with manufacturing placed on the other end of the scale.
Chris Vassallo Cesareo: While Malta has attracted investments in tourism, financial services, and iGaming, it has become overly reliant on them, leading to economic vulnerabilities. The country needs to diversify its economy, particularly considering challenges like sourcing human resources, energy dependence, and the need for sustainable urban planning. A shift towards a knowledge-based economy with high-value-adding industries is crucial for long-term prosperity.
Malta's size is its obvious limitation—space, talent, capital. From your perspective, are there any ways in which size can be positive as the country looks ahead?
Marthese Portelli: While Malta's size creates several challenges, particularly in economies of scale, it also presents many opportunities. Being small means that, with the proper political will, it is easier to bring about tangible change in a relatively shorter term than in a much bigger country. Malta can quickly act as a test hub for pilot projects in technology and RD&I.
However, the country needs to shift from the current labour-intensive economy with low productivity to one driven by quality.
Marisa Xuereb: Our space limitations facilitated the property boom. The high rate of return on property development projects triggered significant talent and capital leakage from other more knowledge-based and potentially more sustainable industries.
Our present challenge is synchronising further property development with a highly strained infrastructure that needs massive investment to catch up. The global talent shortage in critical areas such as technology and healthcare represents a significant challenge for a very small country with a highly fragmented business landscape and an inward-looking culture.
Consolidation is required to make investment more viable. We also need a shift in mindset to make the required quality leap and become more strategic in attracting talent, investment and business.
Paul Bonello: Of course, there is: in capable political hands, we could really be the Switzerland of the Mediterranean, with less dependence on imported labour force but with a much higher GNP per capita.
Ronald Attard: Like a nimble sailing boat among larger ships, our small size allows us to navigate changes swiftly, adapt to new circumstances, and implement innovative solutions. This agility, this inherent advantage of being small, is a key factor we need to leverage as we chart our course forward. We should always remember that while the sailing boat cannot match the larger ship's cargo capacity, it can quickly respond to changes or challenges, be it in weather or currents.
Malta's size allows for rapid decision-making and adaptability. We can quickly develop and test innovative policies with a focused approach, creating an attractive "test market" for harnessing emerging tech and AI in sectors like financial services, education, transportation, life sciences and energy. This nimbleness can set Malta apart, attracting investors seeking a fast-moving, responsive EU jurisdiction with English as an official language, where the connectivity of the ecosystem makes this possible.
Norman Aquilina: Size is a limitation but not necessarily a hindrance. Indeed, it can be turned to our advantage, subject to our ability to focus on our capabilities and exploit our nimbleness. Furthermore, we need to strategically target and place ourselves in a position that is primarily focused on innovative value-added sectors driven by technological and jurisdictional advantage rather than being overly skewed towards size and scale.
Chris Vassallo Cesareo: The pursuit of growth at all costs has impacted the quality of life in the country. Issues like overdevelopment, noise pollution, traffic congestion, and environmental degradation are of major concern. Even the government has acknowledged this. The Malta Chamber has long been calling on the government to shift focus from quantity to quality. We need an urgent shift in focus from growth at all costs to a more sustainable approach, which is essential for Malta's long-term prosperity and the well-being of its people. As we have done in the past, we need to reinvent ourselves by focusing on value-adding industries, innovative technologies and solutions. Niche sectors like yachting, aviation, and virtual assets can also help establish a strong position in specialised markets.
Rising labour costs and skills gaps are vital challenges. What should Malta prioritise today regarding talent development?
Marthese Portelli: Knowledge and competence in tools that facilitate operations, decision making and problem-solving. Knowledge of new technology tools to keep up with the pace of time and to learn how to do more with less. Development of transversal skills. All of this needs to be done from the very early ages to lifelong learning – we need to transform the core of our education system.
We must focus on foreign labour policies that attract the right talent. Additionally, we should introduce incentives to retain local talent and encourage Maltese professionals working abroad to return to Malta.
Marisa Xuereb: There needs to be a combination of local talent development and attraction of foreign talent, with an improvement in retention. It's partly about forward-looking formal education, on-the-job training, and lifelong learning and partly about improving quality of life.
Paul Bonello: Education, education, education. Many government measures are taken ostensibly in the name of encouraging further education. But very often, they are merely populist measures which increase students' pocket money and the churning out of often mediocre university degrees. There is probably no other place in the Western world where students get free tertiary education, free transport, and stipends. Still, notwithstanding all this, the output – in terms of quality and quantity – is disappointing. Politics and populism keep failing our poor island.
Ronald Attard: Malta's near-full employment highlights the need to prioritise quality over quantity in job creation. We should focus on the types of roles we want, the industries we aim to grow, and how these choices impact our infrastructure, environment, and workforce. AI offers an opportunity to achieve more with fewer resources – well-suited to Malta's small size – but it requires us to rethink education.
Developing future-ready skills, emphasising communication, critical thinking, problem-solving, and adaptability, will be essential. If we approach this wisely, Malta could become a model for the next wave of education. Aligning these efforts with Malta's economic vision is vital, especially as skills become a key differentiator and tax plays a less central role in Malta's model looking forward.
Norman Aquilina: Competitiveness is not only driven by costs but also by our capabilities. Skill gaps present a growingly complex challenge given the rapidly evolving job market, which is driven by technological progress, educational mismatches, changing industry needs, and demographic shifts. Addressing these challenges requires more coordination between government, educational institutions, and businesses.
This needs to be addressed both from a short- and long-term perspective. The former is predominantly through the right employment policy, and the latter by better anticipating our gaps and emerging demands by analysing industry trends, technological advancements, and consumer behaviour. This requires developing comprehensive skills maps that outline the skills needed for future jobs.
Chris Vassallo Cesareo: The strong economic growth of recent years was achieved on the back of substantial importation of foreign labour by the private sector. We have, however, been experiencing significant human capital challenges, including skills gaps, staff shortages, and difficulty retaining foreign workers. Prioritising upskilling and retraining the existing workforce is crucial to address these challenges.
Encouraging returning Maltese professionals with incentives like tax breaks and promoting STEM education from an early age can also contribute to developing a highly skilled workforce. We must transform into a knowledge-based economy, but to do so, we must reform our education system. We need to collectively challenge the acceptance of low achievement levels in our education system.
What critical infrastructure investments are needed to support Malta's growth ambitions?
Marthese Portelli: Several areas require immediate attention, including the transport network, the energy distribution network and renewable energy generation, water and sewage infrastructure, waste collection and management, the integration of systems across all government sectors to reduce excessive bureaucracy, as well as investment in digitalisation, new technology, and AI across various government entities to facilitate service delivery, compliance and proactive enforcement.
Marisa Xuereb: Energy generation and distribution, water and wastewater management, solid waste treatment, land, sea, and air transport, and disaster relief are all critical infrastructure areas that we need to invest more in.
Technology will place increasing demands on energy, as will climate change. We are not immune to extreme weather events and must improve our disaster recovery capabilities. If we are not able to tame population growth and wean ourselves off mass tourism, we will need to invest heavily in energy distribution, water, waste, and especially transport infrastructure.
Paul Bonello: The elephant in the room: water and electricity, roads and traffic management, reduction of population density.
Ronald Attard: Our recent EY study reveals that most of Malta's physical and social infrastructure is nearing capacity and needs billions in investment over the next decade. This requires a well-structured plan. Unlocking close to €30 billion in bank savings for productive use could be transformative. The sequencing of projects is key – not only to minimise disruption but to ensure efficiency and cohesion and avoid costly overlaps. Equally important is rethinking infrastructure holistically, exploring shared models for logistics, rethinking transport, and ensuring proper spatial planning, with due consideration given to population and tourism growth, to guide planning.
Norman Aquilina: We need to stop playing catch-up, making our infrastructural investments seem like afterthoughts. Such investments need to supersede our socio-economic development. We cannot aspire to attract investment if our infrastructure cannot fully satisfy the demand. This calls for better nation-wide coordination and planning amongst all the relevant entities.
Chris Vassallo Cesareo: To support its growth ambitions, Malta requires significant investments in critical infrastructure, particularly in areas like energy, transportation, and waste management. Modernising the energy grid to accommodate the increasing demand, particularly with the shift towards cleaner energy, is essential. This includes exploring renewable energy sources like wind and wave power and potentially integrating hydrogen into the energy mix.
Upgrading public transportation to cater for industrial areas and better managing traffic flow, especially during peak hours, is also crucial. Additionally, investing in waste management infrastructure, promoting circular economy practices, and addressing issues like illegal dumping are vital for environmental sustainability.
Is Malta doing enough to leverage tech to remain agile and drive innovation?
Marthese Portelli: More needs to be done—the European Innovation Score Board 2024 ranks Malta 21st out of 27. Over the past years, the Malta Chamber has put forward several proposals for the government's consideration, including doubling the country's expenditure allocation on RD&I.
Marisa Xuereb: There are some attempts here and there, but they're somewhat disjointed. Coordinating a national effort on tech when everyone is competing for our scarce tech talent is not easy.
When it comes to enabling technologies, sharing platforms and infrastructure could significantly accelerate uptake and improve payback periods. However, first-movers tend to use such investments as barriers to entry for others.
Even at the EU level, the Letta and Draghi reports have triggered an epiphany that we must rethink regulation, competition policy, and state aid.
Paul Bonello: Yes and no. This is flourishing in the gaming sector but is absent in other industries as Malta is often perceived internationally—possibly not erroneously—as a no-no. Government authorities and bodies such as Finance Malta give the impression that it is increasing by leaps and bounds, but this is not the case.
Ronald Attard: Malta has done relatively well in this area in recent years. However, a bolder focus on AI is essential to stand out globally. We have an opportunity to make Malta a showcase for how smaller nations can use AI to enhance public services, streamline business operations, and improve quality of life. This would require adopting AI tools and embedding them into critical areas like healthcare, education, and transport. We are an attractive place to harness AI innovation, and we need to be bold in creating the framework to capture this.
Strategic partnerships and investment in digital skills will be crucial to making this vision a reality and building a workforce capable of supporting these advancements.
Norman Aquilina: In today's mainly tech-driven environment, and more so given that we are a small island economy, we are compelled to punch above our weight. We need to ensure that our resulting nimbleness is fully exploited. But this is also conditional on us strategically positioning ourselves to effectively leverage all possible technological advantages, along with incentivising innovative activities through start-ups or established businesses.
Chris Vassallo Cesareo: As a country, we have taken initial steps towards digitalisation. However, we need to do more rapidly to leverage technology for innovation. Investing in research and development, particularly in the government sector, is crucial. Promoting digitalisation across various industries and encouraging public-private partnerships in emerging technologies are key steps to achieving a knowledge-based economy. The country's expenditure budget remains low.
How can Malta enhance the stability and transparency of its political and regulatory environment significantly to improve investor confidence?
Marthese Portelli: It is crucial to ensure the independence of regulatory bodies, increase transparency in government decision-making processes, and foster a culture of accountability. Additionally, engaging more effectively with stakeholders, including the private sector and civil society, in policy-making processes will help increase trust and ensure that policy decisions and regulations are fair and effective.
Marisa Xuereb: We need to speed up judicial processes, first to ensure that our laws effectively deter abuses and second to shorten the shadow of reputational damage cast by high-profile cases.
We also need to improve the credibility of our political class. This will impact the kind of investors we attract and, hence, the reputational risks we could be exposed to in the future.
Paul Bonello: By replacing the Boy Scouts in the cabinet with able and mature people. This is where Malta got it wrong. Compare our cabinet with the level of talent of its counterparts in places such as Luxembourg and Switzerland.
Ronald Attard: Governance should be a consistent, visible standard. We did well pulling through the greylisting quickly, but we must set and keep the bar high. Malta must focus on quality over volume, attracting businesses and sectors that align with what we want to be known for and ensuring that regulated sectors are highly respected. Investment in regulatory capacity and expertise is essential, especially given our small size and the high standards expected globally. We must also better publicise what we get right and where we do well.
Norman Aquilina: Beyond considerations of lucrative incentives that may enhance Malta's attractiveness, investors expect clear directional guidance. Competition in attracting foreign direct investment is high, and the attention span from such investors is generally tight, so clarity is critical; any complexities will only dissuade a would-be investor, who is then likely to consider elsewhere.
The starting point hinges on how well we are ranked within the reputational value ladder. Over the years, despite progress in some areas, this has generally been erratic and certainly not optimal. Needless to say, the stronger our reputation and country brand positioning, the better we position ourselves as an investment destination.
Chris Vassallo Cesareo: Good governance, transparency, and accountability are vital to improve investor confidence in Malta. Implementing recommendations from international bodies, strengthening enforcement agencies, and reducing the reliance on persons of trust are crucial steps to improve transparency and good governance. Addressing the perception of corruption, particularly in the public sector, and reforming the justice system to ensure efficiency and fairness are essential to building trust and attracting foreign investment.
The Malta Chamber's "Report on Public Procurement Reform 2021" provides specific recommendations for achieving this goal within the context of public procurement. Implementing our recommendations, including a Public Procurement Outlook and a Contracts Register, Financial Statement Transparency and Strengthening Black-listing Procedures, will enhance investor confidence by demonstrating a commitment to fair competition, ethical practices, and the responsible use of public funds.
