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Although Malta’s score dropped by four percentage points from the preceding year, 74% of foreign direct investors still believe that the island country is an attractive destination for foreign direct investment (FDI), EY’s Attractiveness Survey 2018 reports. Malta’s attractiveness for FDI dropped for the second consecutive year in 2018.

Figures for the past five years draw up a declining curve in terms of attractiveness for FDI, yet pundits find Malta can still be bullish about the upcoming years. In 2013, EY reported that 88% of the investors included in their survey found the country attractive for FDI. Although the figure dropped to 79% in 2014, it started climbing up step-by-step to 84% and 87% in 2015 and 2016, respectively, before taking another downslide. In 2017, some 78% of the consulted investors found the archipelago attractive, before last year’s 74%.

“Although there was a decline, three out of every four investors still believe that Malta remains attractive to their business,” Ronald A. Attard, Malta Managing Partner at EY, says in the foreword of the report. “Equally significant, four out of every five are committed to remaining here in 10 years, while 65% have expansion plans, the highest in the last three years,” the managing partner adds.

EY describes the current times as “transformative age”, with increasing global competition. EY sees that Malta must consolidate its position at the forefront of innovation to remain attractive for FDI. Malta’s most attractive FDI parameters include corporate taxation (mentioned by 88% of the asked investors), the stability of social climate (75%) and potential productivity increase for a company (67%).

Transparent and well regulated

At the same time, investors involved in the survey pinpointed some areas for further improvement. Stability and transparency of political, legal and regulatory environment appear to be the most crucial aspect mentioned by 44%, the R&D and innovation environment named by 37% and transport and logistics infrastructure singled out by 26%.

Some 83% say that Malta does keep the pace up with regulatory changes, and the regulatory environment offers an international advantage according to 56%. As such, EY finds that effective and efficient legislation will continue to play an essential role in attracting more FDI.

The labour market is also going through some spectacular transformation due to disruptive technologies. “As Malta’s economy continues to flourish, the ability to source skilled and unskilled labour is becoming increasingly challenging,” EY says in the report. Malta resembles EU trends in labour shortage and difficulties in finding skilled labour. Some 81% believe that they can manage to retain specialised personnel; however, only 36% manage to find and recruit the required specialised skills in the local labour market. Still, 63% believe that Malta has the right skills in place to keep up with technology.

Standing still in uncertainty

Although the Brexit is still not in the books and uncertainty surrounds it domestically and internationally, EY finds that Malta has not been affected by it, for the time being. While 77% of businesses included in the survey say the Brexit referendum did not have any effect on them, 19% claim they improved and 4% say they deteriorated in some ways.

International risks keeping companies located in Malta alert include the talent shortage (mentioned by 57%), the economic and political instability in the EU with the exception of Brexit (26%), the competition from emerging markets (22%), the rise in populist and protectionist feelings among politicians and populations (22%) and the impact of Brexit (19%), according to data by EY.

Looking into the future, 78% of the companies included in the survey said they expect to stay in Malta for the upcoming decade, 18% said they might stay, while only 3% said they would leave. Also, 65% expects to expand over the next year, 17% do not plan to expand, and another 17% could not say.

To remain competitive on the global scale, however, 70% of the respondents underlined the importance of improving education in Malta. Investors would also like to see more support for high-tech and innovation industries (61%) and small and medium-sized enterprises (59%), according to the survey,

Technology and iGaming leads

The EY report also singles out Malta’s iGaming sector as a significant contributor to the local economy. After being the first EU member state to regulate the online gaming market in 2004, Malta has become a significant iGaming hub with global relevance. The sector directly accounted for 11.3% of Malta’s gross value added — more than €1.1bn — in 2017 according to Malta’s National Statistics Office (NSO) statistics. The same year, the watchdog Malta Gaming Authority (MGA) issued a total of 165 new remote gaming licences.

“The contribution of the gaming sector to the Maltese economy is now entrenched at around one-eighth of the total, following a period of year-on-year growth in excess of 10%,” says Heathcliff Farrugia, CEO at Malta Gaming Authority (MGA). As well as Malta, as an early adopter, stood at the forefront of the iGaming industry, latest progress has shown that the same approach is being applied towards distributed ledger technologies, blockchain and artificial intelligence.

Prime Minister of Malta Honorable Joseph MMuscat notes the country’s progress made in distributed ledger technologies (DLT) and blockchain, placing the country at the forefront of regulating operations previously hovering in an unregulated space. Demonstrating what EY tags as “notable increase”, 50% of the respondents said that they believe the way forward for Malta is to tailor its regulation to keep pace with technological and other disruptions.

‘Quick’ and ‘rational’ actions in need

EY believes that to capitalise on the opportunities in this transformative age; Malta needs to act “quickly” and “rationally”, with a particular focus on the areas in which its competence will stand out against stiff international competition. The firm also warns that skills shortages remain a principal issue to be dealt with.

“Positioning the island at the forefront of innovation, while remaining true to the principles and values that the country has grown accustomed to, will be even more relevant going forward than ever before,” the report concludes.

EY’s attractiveness surveys apply a two-step methodology analysing both the reality and perception of FDI in the respective country or region. Findings are based on the views of representative panels of international and local opinion leaders and decision-makers, EY says.

The full report is available for download on EY’s website.