Economic Vision 2017 by Content House

Economic Vision 2017 An official publication of the Malta Chamber of Commerce, Enterprise and Industry

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ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

C O NT E N THE PRESIDENCY AHEAD

STAY ON FOCUS

The Malta Chamber of Commerce, Enterprise & Industry rounds up 2016 with a positive outlook, yet with a healthy dose of caution for 2017.

As Malta gets set to take on its long-awaited Presidency of the EU for the first time, Jo Caruana finds out what to expect from Parliamentary Secretary for EU Funds and 2017 EU Presidency Ian Borg and Shadow Minister for Foreign and EU Affairs Roberta Metsola.

A CHANGING LANDSCAPE

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THE BEST IS YET TO COME

Prime Minister Joseph Muscat marks 2016’s achievements and looks forward to an ever-better 2017.

FROM GROWTH TO SUSTAINABLY HIGHER PRODUCTIVITY

Leader of the Opposition Simon Busuttil outlines his vision for a vibrant quality economy for Malta.

“WE’RE CURRENTLY RIDING THE CREST OF THE WAVE”

Despite positive figures for 2016, President of the Malta Chamber Anton Borg tells Martina Said that it’s no time to rest on our laurels.

2017: PROJECTIONS AND FORECASTS

Marie-Claire Grima discovers projections and forecasts for the year ahead from industry leaders in a variety of sectors.

Finance Minister Prof. Edward Scicluna speaks to Marie-Claire Grima about Malta’s pull factor for young Europeans, developing the national infrastructure and the opportunities ahead as Malta prepares to take the Presidency of the European Council.

Shadow Finance Minister Mario de Marco talks Jo Caruana through his economic expectations for the year to come.

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OUR ECONOMY IN 2017

ON THE CARDS FOR 2017: THE CENTRAL BANK GOVERNOR’S PROJECTIONS

Central Bank of Malta Governor Dr Mario Vella talks Sarah Micallef through the development of the local banking sector, sustained economic growth and the economic indicators for 2017.

A BRIGHT FUTURE FOR INDUSTRY IN 2017

Non-Executive Chairman of Malta Enterprise William Wait speaks to Sarah Micallef about attracting foreign direct investment, as well as what’s on the horizon for industry in 2017.

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BOOMS MUST INEVITABLY SLOW DOWN: IS MALTA’S ECONOMIC GROWTH SUSTAINABLE?

Leading economist Dr Gordon Cordina provides his forecast for Malta’s economy in the coming year.

DRAWING A LINE IN THE SAND

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Dr John Vassallo, former Ambassador of Malta to the EU, President of the Malta Business Bureau, member of the Council of Europa Nostra and Strategic Adviser to the Microsoft Corporation speaks out about striking a balance between economic growth and environmental protection.

STAYING AHEAD OF THE CURVE

From seizing local opportunities to keeping an eye on international hurdles, Maltese banks are firmly on their toes. Martina Said speaks to a number of key players.

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ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Publisher

Mallia Building, 3, Level 2, Triq in-Negozju, Mriehel BKR3000 Tel: +356 2132 0713 Fax: +356 2132 0714 info@contenthouse.com.mt www.contenthouse.com.mt In conjunction with the Malta Chamber of Commerce, Enterprise & Industry, the organisation behind the Economic Vision 2014/2020

The Malta Chamber of Commerce, Enterprise & Industry The Exchange, Republic Street, Valletta VLT1117 Tel: +356 2123 3873 Fax: +356 2124 5223 info@maltachamber.org.mt www.maltachamber.org.mt Editor Kevin J. Borg Editorial Coordinators Edward Bonello Sarah Micallef BRAND Sales Manager Petra Urso Advertising coordinator Lindsey Napier

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2017 AT A GLANCE

Malta’s industry leaders share their vision for the year ahead within the local business landscape, in a single sentence.

CAPITALS OF CHANGE

Both of Malta’s capitals – Valletta and Victoria – have experienced substantial change in recent years. Jo Caruana looks at what this has meant for the cities themselves.

Creative Director and Design Nicholas Cutajar Content House Ltd and the Malta Chamber of Commerce, Enterprise & Industry would like to thank all the protagonists, contributors, advertisers and the project team at Content House and at the Malta Chamber that have made this publication a success. Articles appearing in this publication do not necessarily reflect the views of Content House Ltd or those of The Malta Chamber of Commerce, Enterprise and Industry. All rights reserved. Reproduction in whole or in part without written permission of the publishers is strictly prohibited. The publication is being distributed to all leading businesses members of the Malta Chamber of Commerce, Enterprise and Industry by the Malta Chamber, and is also available to purchase from leading newsagents. MALTA CHAMBER’S BRONzE COLLABORATING PARTNERS

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

by the Malta Chamber of Commerce, Enterprise & Industry

The Malta Chamber is rounding up 2016 with a positive outlook, yet with a healthy dose of caution for 2017. The extraordinary circumstances Malta and the region shall be facing in the immediate future may alter the countryâ&#x20AC;&#x2122;s path of relative success it has positioned itself in within the recent past. Government and the authorities need to be vigilant more than ever in order to remain on track and continue to build on the successes garnered.

Photo by Gregory Iron - viewingmalta.com

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

016 has proved to be a positive year for business. In the past 12 months, the private sector has enjoyed a positive trend which has encouraged an appetite for investment. The economy has continued to grow, albeit at a slower rate than that of record-setting 2015 previously. Businesses are generally reporting encouraging prospects for the coming year while unemployment is at negligible levels.

Maltese businesses are still paying amongst the highest energy rates in Europe. After the 25 per cent reduction, although close to the EU 28 average, our industrial tariffs remain above the average level of those members states vying for FDI, and are the fifth highest in Europe overall. This, apart from the fact that Malta is the only country in the EU where industry pays higher rates than households. This situation is severely affecting investment in manufacturing.

However, we must remain watchful for the increasingly volatile situations developing round us. 2017 shall be the year in which the UK will most likely trigger Article 50 of the Treaty on European Union and commence the process of exiting the EU. It will also be the first year of a new US President. Sadly, the neighbouring conflicts in Syria and Libya will probably not be solved in the near future. All this shall take place in the context of Malta’s first Presidency of the European Union, which is bound to distract at least some of Government’s attention from the country’s daily needs.

The Malta Chamber is hopeful that 2017 shall also be the year in which serious decisions will be made in relation to Malta’s transport problems. Transport requires a holistic plan that combines various modes that would provide commuters an affordable but most importantly reliable means other than their private vehicle.

Therefore, the year ahead is expected to be challenging for this administration. It is the one preceding the next election, and extra effort will need to be spent on delivering its manifesto while attending to the extraordinary circumstances referred to above. On an economic level, the Malta Chamber has publicly commended the unprecedented GDP growth rate recorded in 2015. The forecast of GDP growth for 2016 of 3.5 per cent is also encouraging. The overall improving positions must, however, not eclipse the fact that certain sectors of the economy are not registering the buoyant performances one would expect from the macroeconomic figures above. It is evident that a dual speed economy has emerged.

The national airline situation remains elusive at best. The Malta Chamber maintains that Air Malta must remain the national airline, and that all decisions taken in this regard must be taken with the entirety of the country’s economy in mind. The country continues to rely heavily on the airline, in an economy which is totally dependent on international trade. The recent developments on increasing the minimum wage are also cause for concern. The Malta Chamber is worried that the way this issue is being tackled may betray an eagerness to satisfy political whims rather than a dedication to administer sound economic measures. This matter may be an easy way of scoring electoral points, but will certainly affect the economy at large in the medium to long term.

“The Malta Chamber stresses the importance of policies aimed at achieving sustainable growth, job creation and competitiveness.”

Photo by Gregory Iron - viewingmalta.com

In light of this, the Malta Chamber stresses the importance of policies aimed at achieving sustainable growth, job creation and competitiveness.

In certain areas, the Chamber is pleased to note that Government has taken concrete decisions that are expected to bear fruit. In education, for example, Government has teamed up with the Malta Chamber to set up Education Malta – a foundation which will be tasked with promoting private investment in this specialised niche sector. The Malta Chamber has taken the initiative to also provide support for the booming sector of logistics. In other areas, we have sadly missed yet another year and another opportunity to make the right decisions to make the difference. The Malta Chamber has been advocating courageous steps that have once again not been taken up for years.

The Malta Chamber has always been very clear on this issue – poverty ought to be tackled and eradicated, but there are no quick and simple solutions to poverty, and raising the minimum wage is certainly not the way. The Malta Chamber’s arguments are well reasoned and equally well documented, but the decisions on this delicate matter rest with the authorities. As 2017 brings the country closer to an electoral process, Government and the Opposition need to show greater responsibility and resist the temptation of engaging in a process of outbidding each other with unaffordable promises that will endanger the country’s hardearned economic successes, at the expense of national competitiveness. The Malta Chamber trusts that Malta has matured enough, that it understands that such exercises can have serious consequences on the country’s well-being. We need maturity at this time of relative prosperity more than ever, in order to maintain the favourable streak achieved in the recent past. EV

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

T he best is yet to come

Photo by viewingmalta.com

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Prime Minister Joseph Muscat marks 2016’s achievements and looks forward to an everbetter 2017. 2016 marked the achievement of some very significant milestones for Malta’s economy. We have effectively reached what is known in economics as ‘full employment.’ In three years, we have seen an increase in employment that exceeds that observed in the previous three legislatures taken together. We had the first drop in a decade in the number of those at risk of poverty and social exclusion. The ranks of those earning between €20,000 and €30,000 – our middle class – have increased by 5,000. And household bank deposits for the first time are close to €10.5 billion, a rise of 35 per cent since March 2013.

All this explains why many are starting to take our track record for granted, and forgetting that all around us, one finds the exact opposite. To our south, we have war, mass

“2016 marked the achievement of some very significant milestones for Malta’s economy.” > 15

Photo by Pauline Dingli - viewingmalta.com

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

emigration and social upheaval. To our north, the EU has 11 million long-term unemployed – nearly double the amount before the crisis. For a small open economy, so dependent on foreign trade and investment, to have managed not just to survive but to have doubled our economic growth and achieved the lowest unemployment rates in our history, is largely down to my administration’s policies. Policies which if kept in place, will mean that we will converge to the EU’s GDP per capita in just 10 years instead of in 40, as with our previous growth rates.

while still tackling long-term challenges. We have managed to have the lowest deficit since the 1980s, and by 2018, we will have eliminated the entire increase in the national debt burden made by the three previous administrations. Despite this, we have invested in capital expenditure more than all these administrations. In 2017, we take on the EU’s Presidency at a crucial junction. I am confident that we will rise to the occasion, helping to bridge differences and act as a trusted mediator. At the same time, we will further transform our economy into one of the best in Europe. I have a vision where Malta moves beyond its traditional role of an entrepôt, focused on the exchange of goods and services. I see us as the natural place, where in addition there can be an exchange of ideas, finance, learning, new technologies and creativity between Europe, Africa, the Middle East and beyond, as our renewed relationship with China has shown. This is why I believe that the best for our country is yet to come. EV

“I have a vision where Malta moves beyond its traditional role of an entrepôt, focused on the exchange of goods and services.”

Our plan has had and will continue to have three pillars. The first is to give private firms once again the incentive to invest and grow. We have focused on cutting costs, reducing electricity and fuel prices, fighting bureaucracy and attracting foreign direct investment. The second pillar is to boost the purchasing power of families by improving our labour market. We have cut taxes, improved incentives to work and provided free childcare, giving new opportunities to thousands of persons. The third pillar is to restore credibility in our public finances,

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Nationalist Party Leader Simon Busuttil outlines his vision for a vibrant quality economy for Malta. >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Photo by Jonathan Azzopardi - viewingmalta.com

As we look forward to 2017, we can see just how right for Malta our foresight was, before and since European Union membership. But we now need a vision that goes from growth to sustainably higher productivity. This is the only way we can aspire to higher incomes for all Maltese, including our businesses.

The proof of our vision • We are reaping the fruits of past investment in new economic sectors such as gaming, aviation, financial services and ICT. These are now the greatest contributors to our economic growth.

• We are enjoying efficient and cheap energy via the interconnector. • We can see all around us the fruit of the €2.4 billion injection of European funds. • The modern open economy we created over the last 30 years, and the impetus of EU membership towards increased competitiveness are standing us in good stead.

• Our economy weathered the recession post2008 and high crude oil prices; this period of growth while the world economy is now doing relatively well and oil and commodity prices remain suppressed gives us opportunities to invest. • The economy as a total is also growing because of an increase in population; both local population growth and foreign workers. >

“We cannot rest on our laurels, however much we opened, invested and modernised our economy in the past few decades.”

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Sustainability is key We cannot rest on our laurels, however much we opened, invested and modernised our economy in the past few decades. Exports net of fuels have dropped by 15 per cent, or €348 million, in the past three years. Manufacturing has also dropped substantially in the past three years. The increase we have had in Government recurrent consumption inflates the economic figures, yet is also unsustainable: an increase of €569 million or 23 per cent in the past three years. One-off privatisation receipts have partly paid for this, but most of the Government consumption increase is recurrent, paying a higher salary bill in the public sector. In the past three years, Government added on an extra 3,000 fulltimers, reversing a 25-year reducing trend in public sector employment. This is not only crowding out the private sector but eating into capital expenditure too. Public sector investment is nowhere near what we need it to be, as we suffer from an ever-increasing traffic problem which is costing us €300 million a year.

Government is also managing our reputation as a nation and as an economy badly. Corruption is bad for Malta, and it is also bad for business. Higher productivity for higher incomes The economy is much like a bicycle: if we don’t pedal forward, we fall. This is why we need to attract new quality economic sectors and embark on new infrastructural projects to shift our economic potential and our organic productivity upwards, which is the only way we can enjoy higher incomes. We have already published our economic blueprint which we are discussing with all interested parties to fashion it into an economic vision for the dawn of the 2020s. It revolves around quality investment, exports, openness, technology and the fight against corruption. We want Malta to be a logistics powerhouse in our region, a world-class business district, creating new high value-added niches and professional clusters, using land and energy responsibly, spearheading global economic connectivity, using technology to make up for our size, making finance work for business, and creating Trusted Malta as our brand: a safe, secure, stable and fair jurisdiction.

“The economy is much like a bicycle: if we don’t pedal forward, we fall.”

Quality of public expenditure A problem we have with our public expenditure is also one of quality – not just quantity – consumption versus investment. If it weren’t for EU funds, for example, we would have no major infrastructural project going on right now.

Photo by Clive Vella - viewingmalta.com

Energy and fuel prices are higher than they ought to be. Government has entered into an 18-year agreement obliging it to buy dearer electricity than it would obtain via the interconnector.

We need to invest in our road infrastructure, a light railway system, renewable energy programmes and improving our already built-up areas: this is where we can harness our construction industry to create an attractive urban environment. The vibrant quality economy we envision needs a level playing field. If we want Malta to succeed sustainably, we need to defeat corruption. That’s why we’ve also launched our programme for clean, honest, open Government. We can achieve

Though we diversified our tourism sector with the cruise liner business, other niches and low cost airlines, the Air Malta sell-off debacle has created uncertainty for the linchpin of our tourism sector.

We have come a long way in the last few decades. We also know the problems we need to tackle and we are discussing our policies with all sectors well ahead of an electoral campaign.

Property speculation absorbs huge amounts of money, that also inflate headline economic figures, but that can be invested more profitably to produce quality goods and services we can export.

Together with you, we can achieve our next challenge of going from growth to sustainably higher productivity and incomes. EV

“ W e ’ re currently riding the crest of the wave ”

Photo by Alan Carville

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Despite positive figures for 2016, President of the Malta Chamber of Commerce, Enterprise and Industry Anton Borg insists that it’s no time to be complacent. He discusses 2016 achievements and 2017 ambitions with Martina Said.

igures for the first six months of 2016 published by the National Statistics Office (NSO) are promising and encouraging, not least because some sectors of the country’s economy that for years have fallen by the wayside are finally looking up, says Malta Chamber President Anton Borg. “The latest NSO findings show that all sectors except for one have increased their contribution to the Gross Domestic Product (GDP) in real amounts, not just percentages,” says Mr Borg. “For the first time in many years, there’s been a growth in the manufacturing sector, which is very encouraging. The only sector which showed a decrease is construction, which is indeed very strange, considering the rapid rate at which construction is being carried out on the island.” This rosy outlook for the first six months of 2016 is indicating a phenomenal growth in GDP by the end of the same year over that which was achieved in 2015. “Indications predict a 4.1 per cent growth in GDP over last year, which is exceptionally good. Last year’s growth of 6.3 per cent was already outstanding; however, a 4.1 per cent growth on top of that is certainly the envy of a lot of countries that surround us. Also, the country’s deficit now stands at 0.7 per cent, which means we almost have a balanced budget.”

“For the first time in many years, there’s been a growth in the manufacturing sector, which is very encouraging.”

Despite these healthy figures, Mr Borg asserts that there are exceptions. “In terms of expenditure, recurrent expenditure has gone up by €200 million, whereas public capital expenditure – that is, money spent on the country’s infrastructure, for example – has gone down by €200 million, a worrying figure. To me, this shows that Government isn’t really investing in the future, but spending more money on running the country at present.” >

Photo by Mario Galea - viewingmalta.com

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Mr Borg is also of the belief that Government is relying too much on the fact that the economy is doing well. “Every wave will come down – and we’re currently riding the crest. Eventually, the economy will start to slow down, and so far, we haven’t seen measures being introduced intended to prolong this wave. No measure was introduced that will impact the economy negatively either; but considering the country’s solid finances, we expected measures to be introduced, especially in the 2017 Budget, that will improve Malta’s competitiveness overall.” Moving on to the country’s infrastructural shortcomings – where terrible roads, long traffic jams and an overall disregard for the natural environment rank high on the list – I ask Mr Borg whether the changes taking place around us, including the everincreasing amount of construction, is impacting Malta’s tourism product offering, which for a long time has been, and still is, a pillar of the island’s economy.

troubled countries resolve their issues and start attracting tourists again. While we’re increasing numbers, we’re not looking at the tourist of tomorrow and not improving the quality of the product. Roads in this country have been an issue for as long as I can remember, and on top of that, we now have a major traffic situation, which has become unbearable for locals and tourists alike.” Looking ahead towards the island’s economy and future in 2017, Mr Borg says that, at present, indicators show a steady and continued growth rate in the coming year. “A year is too long to predict – however, so far, there’s nothing pointing towards a slowdown of our economy. On the down side, we are concerned about the lack of human resources available on the island. Whenever we get the go ahead for new projects from Malta Enterprise, there’s always a concern that we won’t find the people we need. More action is needed from Government’s end on this issue as well, and if it succeeds at addressing it, we could have an even better year next year in terms of the country’s overall performance.”

“Public capital expenditure has gone down by €200 million, which shows that Government isn’t really investing in the future.”

“To begin with, figures of tourist arrivals for 2016 speak for themselves. We might not hit the two million mark, but I think we’ll be pretty close. It’s clear that people want to come to Malta, but we need to analyse why. Is it because their preferred destination of choice is experiencing conflict or lack of security and so they opted for Malta as the next best location? If so, then we’re obviously benefitting from these unfortunate situations, but that could all change once

As for issues expected to dominate the national agenda next year, Mr Borg hopes that a solution will be reached on a number of public entities, primarily Air Malta, but international issues such as Brexit are likely to make an impact, especially seeing as Malta will have its hands full with hosting the EU Presidency come January. >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

“While we’re increasing numbers, we’re not looking at the tourist of tomorrow and not improving the quality of the product.” “When news of Brexit broke, we conducted a survey among our members to gauge how they’ll be affected, and results showed that the effects should be minimal. While the percentage of exports to the UK is not high, it remains to be seen what will happen in light of Brexit negotiations, and it’s still too early to know,” says Mr Borg. “As British Prime Minister Theresa May said, Brexit is Brexit, and Brexit will happen. Despite a level of uncertainty surrounding Brexit in view of the High Court ruling, it’s unlikely that members of parliament will vote against the wishes of the majority of the people, and simply delay the outcome. That said, one never really knows how pressure from constituents will affect the members of parliament.” On the EU Presidency itself, Mr Borg believes that Malta will use the opportunity to showcase its ability as a country to be a leader for the six-month duration. “Malta has always been praised and given good acknowledgment whenever it organised high-calibre events, and I’m sure we will rise to the occasion once again. Of course, when holding the Presidency, issues that affect us on a local level will be the last on the list, so we might have to wait for six months until the Presidency is no longer in Malta’s hands to shed light on important issues of national interest.”

As he approaches the last leg of his two-year term as President of the Malta Chamber, Mr Borg says one of his priorities from the outset was to attract younger members to join the Chamber, and he’s pleased to note that there’s been success in this regard. “Our membership has grown and we have a lot of activity going on, but it isn’t about the numbers. We want young members who join to be active and contribute their many great ideas, helping us move away from the ‘old gentlemen’s club’ mentality. This year, for instance, through our agreement with Junior Achievement Young Enterprise, we introduced the ‘Leaders for a Day’ concept, where 23 students spent a day with a CEO, shadowing that individual. It proved to be immensely successful and I hope that more of these kinds of initiatives are adopted in future.” >

Photo by Bruno Vetters - viewingmalta.com

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

More so than in the past, and in part thanks to its revamped business portal, maltachamber.org.mt, the Chamber has taken bold stances and been more vocal on issues of concern. “We try to speak out when there’s something to speak out about, and not simply to be heard,” he asserts. “We believe that this, and by way of what we say, creates credibility. We criticise positively and negatively – the authorities cannot be doing everything right, but neither is it the case that they’re doing everything wrong.”

“While the percentage of exports to the UK is not high, it remains to be seen what will happen in light of Brexit negotiations, and it’s still too early to know.” Mr Borg is also keen to finalise an agreement with Government on an ICT public-private partnership before the end of his term, while consolidating, strengthening and growing the other public-private partnerships that the Chamber has set up with Government, namely Trade Malta and Education Malta. “We’ll also soon be coming out with a position paper on the creation of a logistics industry in Malta, which there’s been great interest in, not least from the local logistics companies themselves. Overall,” he concludes, “as I approach the end of my term, I can only hope to leave the Chamber slightly better than I found it.” EV

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

2017: P rojections and forecasts Despite the geopolitical turbulence on the international stage that took up most of the headline space this year, Malta’s economy continued growing apace in 2016. Can momentum and growth be maintained going into 2017? Marie-Claire Grima speaks to several industry leaders from a variety of sectors to discover their projections and forecasts for the year ahead.

alta’s economic success in recent years has been attributed to the diversification of industry, with a cluster of different yet often complementary sectors working in parallel streams to keep the engine running at full force. Yet Malta does not operate in a vacuum, and with the changing sociopolitical climate worldwide, as well as more immediate obligations, such as Malta’s upcoming Presidency of the EU Council in 2017, and Valletta’s run as Capital of Culture in 2018, many different factors will come into play when it comes to forecasting the outlook and making plans for 2017. As more positions and opportunities are opening up in previously unexplored economic niches, one of the toughest hurdles facing employers has become finding the right persons for the job. Louis de Gabriele, Partner at Camilleri Preziosi Advocates, can attest to this. “One of the main challenges that the legal services sector is facing on the threshold of 2017 will be recruiting the right lawyers with the right level of experience and skills to meet the increasing demands of our clients. This is a challenge which the market as a whole seems to be facing; in fact, we are now looking to find people with these skills not just from a pool of Maltese talent, but from the entire European market.

“One of the main challenges that the legal services sector faces in 2017 is recruiting lawyers with the right level of experience and skills to meet the increasing demands of our clients.” – Louis de Gabriele, Camilleri Preziosi Advocates

“As a law firm, our view is that 2017 should bring about further growth in the market for legal services both on the domestic front and work with an international dimension. The outlook on the whole, therefore, remains positive.” >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Meanwhile, a materially well-off society translates into a competitive insurance sector, even when taking into account the relatively small size of Malta’s market. “The life insurance market continues to grow and we are in a privileged position with MSV Life being the leaders in the life sector,” Mapfre Middlesea CEO Felipe Navarro says. “In the motor business, the market needs to face the increase in injuries and causalities on the road due to the ever-increasing amount of cars, while in the home insurance sector there is room for growth since penetration is still low and most Maltese own their house but do not protect their investment. The health insurance sector should be developed further, providing products to complement the social security offering in the country. Commercial business insurance is also on the rise, given the new entrepreneurial activities being developed. “Going forward, Mapfre Middlesea will need to face the problematic increase in road accidents. The premiums being collected in motor business hardly can offset the losses incurred and we will be forced to take decisions to make it sustainable. We will continue on our mission to provide the best possible service to our clients, bringing a whole spectrum of solutions to their needs. We aim to continue focusing on innovation and we want to live up to our brand promise of being their trustworthy insurance company.

“The insurance market is growing above the rest of the economy and it will continue in the same path in view of all entrepreneurial activities taking place in Malta.” – Felipe Navarro, Mapfre Middlesea

“The introduction of the new Insurance Distribution Directive will bring new challenges and will affect all lines of business. However, the insurance market is growing above the rest of the economy and it will continue in the same path in view of all entrepreneurial activities taking place in Malta. There is a good opportunity for captive management and the fact that we are in the European Union provides a stable playing field to work for the future. In 2017 we will focus on stability and profitability emphasising on staff and distribution network training with the ultimate objective of focusing on clients’ needs and servicing them in the best manner.” >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

“Not only is Malta’s digital performance higher than the EU average, but it is growing at a higher rate than the rest of the EU. This not only augurs well for businesses who like Microsoft are directly involved in digital technology, but for the economy in general.” – Panayiotis Ioannou, Microsoft Malta Microsoft’s Country Manager Panayiotis Ioannou remarks that the 2016 European Commission’s Digital Economy and Society Index classified Malta amongst the leading EU countries running ahead in digital competitiveness. “Not only is Malta’s digital performance higher than the EU average, but it is growing at a higher rate than the rest of the EU. This not only augurs well for businesses who like Microsoft are directly involved in digital technology, but for the economy in general as more businesses from various industries are looking at digital technologies to transform their business models, to provide new revenue and value-added opportunities and gain competitive advantage.

Photo by Rene Rossignaud

“Within the context of the maturity of the digital economy in Malta, and in full alignment with Microsoft’s mission to empower every person and every organisation on the planet to achieve more, Microsoft Malta will continue with its commitments to act as a relevant catalyst to local customers, being Government, the private sector and consumers alike, for Malta to keep on

thriving in this digitalisation journey. In addition, Microsoft will be the key technical sponsor for the Malta EU Presidency in the first half of 2017. “Rising geopolitical uncertainty is the key challenge that many companies will be mostly concerned about in 2017. At Microsoft, we believe that we have the expertise, the technology, and most importantly the values to instil confidence in our customers and partners to look beyond this uncertainty and identify opportunities to help them achieve more. Over the next year, Microsoft Malta intends to keep focused on our customers’ needs in this digitisation age, to deliver solutions ranging from productivity, business solutions, data analytics and reaffirming our position as the leader in cloud computing services.” >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

“The competitive advantages that Malta can offer to the world of FinTech include flexible yet robust regulation, attractive incentives for FDI technology inflows, a pool of both local and international industry experts, as well as a government-backed digital strategy.” – Mark Curmi, KPMG

Technology is also becoming one of the key players in another important segment of Malta’s economy, the financial services sector. “Malta’s established and booming financial services centre, coupled with its growing IT capabilities, ensure that the island boasts a pool of untapped opportunities for financial technology (FinTech) companies,” says Mark Curmi, Associate Director of Banking Advisory Services at KPMG. “The competitive advantages that Malta can offer to the world of FinTech include flexible yet robust regulation, attractive incentives for FDI technology inflows, a pool of both local and international industry experts, as well as a Government-backed digital strategy. “FinTech connects clients directly to the markets, eliminating the need for middlemen. ‘Robo-advisor’ websites are employing traditional algorithm-based portfolio management services to create low-cost online portfolios that eliminate the involvement of a human advisor, as well as connect the financial market to the end user. A number of online payment services providers (PSPs) have been incorporated in Malta, making payments and online

purchases accessible through different media, without accessing your bank. These customer-friendly technologies are appealing to younger, more tech-savvy users, who expect accessibility and solutions instantly. Additionally, these solutions also reduce costs in personnel and intermediaries, making wealth management, online payments and finance affordable, and accessible to a broader market. With Malta’s rising success in the online financial services sphere, ranging from Forex companies, payment service providers and electronic money institutions, the MFSA and service providers today boast robust knowledge in this area, contributing to the transformation of Malta into a FinTech jurisdiction of choice. “In order to stay ahead of the FinTech game, the traditional financial service platforms need to seek partnerships with alternative FinTech platforms, or begin to invest in their own in-house solutions. With the world of FinTech changing traditions, financial service providers must ensure they invest in technologies to remain relevant.” > 39

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

optimistic. The new year is shaping up to be a pivotal year for the continued existence of a thriving local manufacturing industry, therefore the country must urgently strive to improve factors relating to many cost and non-cost factors that are currently straining the competitiveness of Malta’s industry.

While newer sectors continue to be explored and mined, legacy industries also see positive times ahead. “Malta’s manufacturing sector is experiencing interesting times,” says Norman Aquilina, Chief Executive Officer of Farsons Group. “While the share of the manufacturing industry’s contribution to Malta’s total share of GDP has decreased, largely due to the continued rapid growth in the services and tourism economic sectors, the manufacturing industry has posted generally positive figures in terms of value of exports and levels of employment. “Over recent months, it has been particularly positive to note the levels of investment that local manufacturing operations have undertaken with an aim to innovate products and processes whilst ensuring efficiency and viability. Such investments are vital if local industry is to remain relevant and competitive in the global market. These investments have in turn led to a positive spill over effect, such as the concurrent up-skilling of the labour force that is intrinsically tied with investment in modern operations and innovative processes as well as the reinforcement of Malta’s reputation as a centre of excellence in particular fields of manufacturing such as pharmaceuticals and biotechnology, food and beverages, plastics, rubber and electronics. “That said, though the state of play of manufacturing is encouraging, competitive pressures continue to mount and therefore need to be addressed with added vigour, so as to ensure we will be able to see an even stronger presence of manufacturing develop within our economy in 2017 and beyond. Summarising the outlook for the manufacturing sector in 2017, one would use two words – cautiously

“As local and international competition continues to intensify, Farsons Group’s ongoing priority has been, and must continue to be, that of ensuring we remain competitive. Our track record here has been good and most encouraging, but this certainly does not mean that we can lower our guard, more so now that we have gained momentum in our internationalisation drive. Our strategy of growth remains an entrenched objective, and our main concern is that of moving from a local brewery and beverage producer to a regional one with an international perspective, replicating the local success of our brands abroad.” >

“Though the state of play of manufacturing is encouraging, competitive pressures continue to mount and therefore need to be addressed with added vigour to ensure we will be able to see an even stronger presence of manufacturing develop within our economy during 2017 and beyond.” – Norman Aquilina, Farsons Group

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Meanwhile, logistics has become recognised as one of the industries where Malta can fully exploit its position and expand on its infrastructure. “As an island, Malta is a protagonist in the logistics industry and today, we can safely say that transport and logistics constitute a very important pillar in Malta’s economy. However, there is a wide imbalance between the volume of cargo we import for consumption or as raw material, and that which we export,” says Franco Azzopardi, Chairman and CEO of Express Trailers. “This imbalance creates dis-economies because carriers of cargo like us have part of their round-trips done empty. Consequently, the cost of that empty space transported is suffered locally, partly by us, the carriers, and partly by the client. As we prepare to enter 2017, the country is looking at hubbing to generate more export and correct this imbalance, allowing us to optimise our existent routes and channel more cargo via Malta.

“I believe that Malta’s logistics sector is currently at very important and decisive crossroads especially now that Government is looking at furthering Malta’s potential as an international logistics hub.” – Franco Azzopardi, Express Trailers

“Malta’s strategic location in the middle of the Mediterranean and close to the main trade routes of shipping lines carrying cargo from the Far East to the West, including Europe, presents our sector with ample opportunities to refine and maximise our potential. We can capture more west-bound cargo at our free-trade zone, warehouse it, pick-and-pack it, change the modality of transport to road trailers, and then either fly it or ship it out of Malta to its destination in Europe. This is why I believe that Malta’s logistics sector is currently at very important and decisive crossroads, especially now that Government is looking at furthering Malta’s potential as an international logistics hub. “At Express Trailers, we are looking forward to another challenging and active year. Our priorities for 2017 will remain unchanged. We will keep bringing more value to our investors, investing in our employees and sustaining and pushing for more environment-friendly operations. Furthermore, we will keep strengthening our core business while reaching out to new markets and newer opportunities. One of the main projects we have lined up is to go live with a major investment in the company’s logistics core IT system to have a robust infrastructure, which will provide the necessary backbone for our operations to be future-ready. We will also keep nurturing and growing our 220 employees, giving them the attention they deserve by keeping up our investment in more training and development courses.” > 43

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Yet, while diversity within the local economy has certainly grown, the backbone of Malta’s economy remains the tourism industry. “It is evident that at present, tourism on the Maltese islands is in a particularly positive position, says Martin van Kan, Area General Manager for InterContinental Malta. “Growth over the previous decade has been impressive, contributing significantly to a very encouraging development in the Maltese economy in general. Factors that have led to this result include the decline of seasonality in tourism business, with the extension of the busy summer season to both earlier and later in the year; private investment in infrastructure by hospitality businesses, leading to better quality accommodation available for the increasing numbers of tourists; and the increase in air capacity seen with the growth of low-cost carriers and the return of legacy carriers to the islands. The major challenge we are facing as an industry is the uncertainty with our national airline, Air Malta, and how it will operate with the current challenges that it faces. To deal with this and other challenges, we have shifted our commercial approach from mass market tourism to quality tourism, thus reducing our reliance on any one particular group or business channel. “We do have an exciting year in prospect at InterContinental Malta and our main priorities are focused around our recent areas of investment, including our brand new luxury Highline Suites and the InterContinental Arena Conference Centre, which offers a fantastic range of services to our clients and their guests. Our job at the hotel is to ensure that all make the best use of these facilities effectively and efficiently over the coming years. The current outlook is highly positive, with opportunities resulting from the increased exposure generated by Malta hosting the Presidency of the European Council in 2017 and Valletta being European Capital of Culture in 2018. Both provide excellent new avenues for business through the increased exposure they garner. We believe that the hotel is already well-positioned to seize both of these opportunities with our recent investment and our renewed approach toward service.” EV

“We have shifted our commercial approach from mass market tourism to quality tourism, thus reducing our reliance on any one particular group or business channel.” – Martin van Kan, InterContinental Malta

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

T he presidency ahead

As Malta gets set to take on its longawaited Presidency of the EU for the first time, Jo Caruana talks to Parliamentary Secretary for EU Funds and 2017 EU Presidency Ian Borg and Shadow Minister for Foreign and EU Affairs Roberta Metsola about the preparations that have gone into ensuring weâ&#x20AC;&#x2122;re ready and able to excel, as well as the impact it will have on our country. >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Malta is approaching another major milestone in its relationship with the European Union – the Presidency of the Council of the EU. This rotating responsibility, which we will hold for six months come January 2017, means that Malta will chair meetings at every level in the Council, thus helping to ensure the continuity of the EU’s work while driving forward the Council’s work on EU legislation, the continuity of its agenda and the cooperation of its member states. So, are we ready?

A three-pillar, central team has dealt with the programming, planning, logistics, communication and media liaison related to the Presidency since 2013, under the guidance of the Parliamentary Secretary for the EU Presidency 2017 and EU Funds within the Ministry for European Affairs.

“Besides talk of Brexit and the US election results, the Union has other major challenges to tackle.”

Put simply, both Dr Ian Borg, the Parliamentary Secretary for EU Funds and 2017 EU Presidency, and Dr Roberta Metsola, the Shadow Minister for Foreign and EU Affairs, believe that we are not only ready, but eager.

“Their objective was to ensure that we, as a nation, have been progressively equipping ourselves to successfully fulfil the five main tasks of the Presidency,” Dr Borg continues. These tasks are: planning and chairing meetings in the Council and its preparatory bodies; providing representation and coordination outside Brussels; representing the Council in relation to the other EU institutions; defining the 18-month trio programme and the six-month national programme; and organising any >

– Dr Ian Borg

Speaking about how the country has prepared for this momentous milestone, Dr Borg explains that preparatory work has involved interaction at three key levels – “internally within Government and the Permanent

Representation of Malta to the EU in Brussels primarily; with civil society secondly; and, finally, with the EU institutions, and especially the Council Secretariat,” he says.

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

“This Presidency is something that we have worked so hard for as a country and it will be a very proud moment for Malta and Gozo” – Dr Roberta Metsola Informal Ministerial Meetings and other Presidency-related events in Malta, Brussels and the various capitals. “On the programming side, two principal tasks concerned the selection, preparation and training of the necessary human resources both in Malta and in Brussels,” Dr Borg continues. “Beyond that, the identification and definition of the relevant EU priorities, at first at the 18-month trio level and then at the sixmonth national level, was also key.” Logistically, the first vital task was the identification and refurbishment of the venue where the informal ministerial meetings were to take place. Other tasks involved the identification of the series of technical and expert meetings that are to be held in Malta during the Presidency, and the finalisation of all the practical arrangements, ranging from accreditation to accommodation, for these meetings. Then, on the communications side, one important task was the elaboration of a cultural and media programme that would suitably complement and promote the work of the Presidency. “Within Government, the process of consultations was coordinated through the inter-Ministerial committee, under the direction of the EU Secretariat within the Minstry for European Affairs and Implementation of the Electoral Manifesto

which, since Malta’s accession to the EU, has been the main coordinating organ, in conjunction with the Permanent Mission in Brussels, for all EU-related matters,” the Parliamentary Secretary says. “Meanwhile, interaction with civil society has been ensured primarily through MEUSAC, and the Presidency team has presented periodic reports on the preparatory process and discussed relevant issues, and also through individual contacts as necessary with civil society and other partners.” And various other important elements have been covered. For instance, extensive interaction was required with the Grand Harbour Regeneration Corporation (GHRC) in connection with the work on the refurbishment of the Grandmaster’s Palace, which is to be the venue for the informal ministerial and highlevel meetings. “Work here is very advanced, and will be finished in good time,” Dr Borg says. Then, in the area of media and communications, there has been interaction with, among others, the Malta Arts Council, which was tasked with developing a programme of cultural activities that will be held in Malta and overseas, and in particular in Brussels, during the Presidency. “The result is an extensive programme of cultural and promotional events that will be launched at the Opening Ceremony on 12 January,” he continues. “Now, at this stage, most of the preparatory work is near completion,” Dr Borg says confidently. “The six-month national programme has been drafted, though work will continue until the start of the Presidency in January so as to ensure that the priorities identified are indeed the ones which are ripe for action during our tenure.” Dr Metsola is also eager to see all the hard work that’s gone into the Presidency come to fruition. “This is something that we have worked so hard for as a country and it will be a very proud moment for Malta and Gozo,” she says. “I see it as an opportunity for us to show how far we have come since we joined the EU in 2004 after a hard-fought national campaign. “I want the Presidency to be a success and, as the Opposition, we will work with the Government to ensure the best possible outcome for Malta.” But it isn’t all rosy according to the Shadow Minister. “Precisely because the Presidency is such a crowning moment in Malta’s recent history, it is so unfortunate we are entering into the process with the Panama Papers scandal engulfing those at the highest echelons of our Government,” she says. “We have worked too hard, for too long, to allow unscrupulous individuals to cast a shadow over the country at a time when the spotlight is directly on us. >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

“That aside, in the coming months and perhaps more than ever before, we need to work on bringing the EU closer to the citizen, reiterating why we need Europe and why the values that make us European must be reaffirmed.” Looking at the topics that will be discussed during our Presidency, it seems inevitable that Brexit and the recent US election results will weigh heavily on the next six months. Will they create hindrance? “The first six months of 2017 will be crucial for the development of Europe; it does seem likely that the UK’s exit process from the EU and relations with the US will dominate our Presidency,” Dr Metsola says. “We need to stop thinking that Europe is some mythical, far away entity. Malta is Europe and Europe is Malta. If Brexit taught us anything, it is that the EU needs to respond to people’s concerns and that means having more Europe in some areas and less Europe in others. In the words of Jean-Claude Juncker: ‘Europe needs to be big on the big things and small on the small things’. “We also need to do much more to face down rising populism and populist leaders. It never ceases to amaze me how Prime Ministers can come to Brussels, agree on a number of laws or initiatives and then go home and blame Europe as if they had no part in it. Europe needs people to stand up for it and I hope that the Maltese Presidency will do just that,” the Shadow Minister says. Meanwhile, Dr Borg stresses that Brexit and the Trump Presidency shouldn’t be the only focus. “These topics will inevitably feature in the political debate during our Presidency and beyond, but shall not monopolise it,” he says. “The EU is a historical process with deep roots in European reality that transcend single issues, however serious and complex these may be. “So, besides those topics, the Union has to tackle other major challenges – the continuing aftermath of the economic and financial crises, and the growing migration challenge in particular. There are the still unfinished tasks – the completion of the single market, of the digital single market and of the energy union. There are the external dimensions of the European reality, too – the continuing unfolding of the neighbourhood policy, to the south and to the east; the global commitment towards sustainable development especially in Africa; and the pursuit of improved trade relations with partners in Asia and in America. Plus, at the same time, the Union needs to continue seeking ever-more effective ways through which its citizens can remain active and committed participants.

“At the same time, as a member state, Malta has its own perspectives on these priorities, and it is these perspectives which we can seek to bring to the fore during our Presidency. Malta’s national priorities will not change during the Presidency and are already well known. They include migration, Union relations with our neighbours in the Mediterranean, the maritime strategy (in particular as regards transport and tourism), and the development of the single market (especially where it touches the interests of small enterprises). “Also of high interest for Malta are aspects including social, financial and monetary, international trade, research and innovation, digital strategy, and the energy strategy. An underlying objective regarding the way we wish to manage these priorities relates to the need to bring the Union closer to its citizens,” Dr Borg says. Dr Metsola also has strong ideas about the issues Malta should strive to push forward in the months to come, and that starts with taking every opportunity to place our country’s priorities on top of the agenda. “This Presidency is not simply a logistical exercise, so it would be a huge waste of resources if we treated it as that. The Maltese Presidency comes at a time when the EU’s migration and asylum legislation are being re-negotiated. We will be in a position to finally influence the EU’s direction on this sensitive issue more than at any previous time in the past. We cannot let the opportunity slip through our fingers. “The same goes for issues such as taxation and the need for Malta to remain in charge of its own taxation sovereignty. We are seeing more and more moves on taxation at EU level that would see Malta disproportionately affected and that is something that the Maltese Government heading the Presidency should also seek to address.” Finally, Dr Borg and Dr Metsola take a look at the legacy of what this Presidency will mean for Malta. “The political and historical importance for our island is huge. I have never viewed Malta as a small country – while our geographic realities are what they are, we have never had a sense of inferiority and have always managed to live up to all our responsibilities and obligations as an EU member state. Now we will be leading and it is our responsibility and duty to leave our mark on the European legislative and political landscape,” Dr Metsola says. And Dr Borg concludes: “This is not the first time that Malta has played a role in European life that goes well beyond considerations of our size. We have every reason to be confident that this, our first Presidency of the EU, will constitute yet another proud moment in our history,” he adds. EV

“During our Presidency, our European partners will expect us to keep a sharp focus on all these aspects, while simultaneously collectively contending with the implications of the Brexit process and the Trump presidency in the States.”

“So, to manage the agenda effectively, the Presidency needs to develop a firm understanding of the whole range of issues that have emerged from these processes, together with a clear sense of where member states, individually and collectively wish to assign priorities among these issues. In a very real sense, the Presidency’s priorities need to faithfully reflect the Union’s own priorities,” he says. 52

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When it comes to setting the agenda of our Presidency, Dr Borg believes that the agenda of any presidency should be “a function of strategies and decisions resulting from the political and institutional processes of the EU.

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

A changing landscape

Photo by Lionel Galea

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

After Malta hit a peak of commercial and investment activity in 2015, the pace has steadied, while the increasing diversity of the economy ensures that the breadth of its stride is maintained. Finance Minister Prof. Edward Scicluna speaks to Marie-Claire Grima about Maltaâ&#x20AC;&#x2122;s pull factor for young Europeans, developing the national infrastructure according to the needs of the people and the nationâ&#x20AC;&#x2122;s opportunities as the holder of the Presidency of the European Council for the first semester of 2017. >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

After a heady two years where there was a flurry of economic activity on the island, any slowing, even if the pace remains steady, can cause alarm bells to ring. Finance Minister Prof. Edward Scicluna is quick to rebuff claims that the bullish Maltese economy is now slackening. “There were two notable bursts in activity, one during the first year of this administration in view of the many things held up before then – decisions weren’t taken, regulations were locked, legislation was put on hold; people even stopped making simple consumer decisions such as whether to buy a car or not. From then onwards there was a very steady growth. Another one occured due to a peak of investment activity coming from EU structural funds, unspent money accumulated over nine years, which Government had no choice but to spend by the end of 2015. That was the peak year. After that, both grants and expenditure fell because it was the start of a new cycle. However, if you look at the figures, the economy is still growing steadily.” He’s also impatient with the criticism that was levelled at Government, particularly after Budget 2017 was announced, that not enough was being done to secure new sustainable and profitable economic sectors. “It’s all political nit-picking. People on the ground know that so many more avenues are being opened and investment is coming in. Furthermore, we’re constantly working on opening up new investments, as well as building on various others, such as the filmmaking, maritime and manufacturing industries. We’re more than happy to tell young people that Malta’s growth is sustainable, contracts are being signed, and investments are being made. “The landscape is changing all the time, and for Malta, the most crucial way to protect against any economic slowdown is to diversify. That way, you prepare for any potential sector failure by compensating with another sector. The smaller a country, the more important it is that it is diversified. We’ve seen this done in Malta even with tourism – we’ve broken out of the sun and sea model, and now offer winter tourism, medical tourism, conference tourism and much more.”

Prof. Scicluna is pleased that the most critical economic markers for Malta remain suitably buoyant. “Inflation is neither very high nor abysmally low like some deflationary countries, and year after year, we’ve gradually reduced the deficit, with the aim of eventually ending up with a surplus, which will keep debt falling towards the 60 per cent benchmark. We’re also doing very well when it comes to both general employment and youth unemployment. In fact, in many ways we’re similar to Germany – except for our size of course!” Being close to full employment means that vacancies can and will go unfilled, and many business owners across all sectors have reported having a hard time filling the blank spaces within their companies. “Well, you can’t have it both ways,” says Prof. Scicluna. “However, as a member state within the EU, people from all over the EU can live and settle here – as can Maltese people all over Europe. The main reason why workers migrate is the pull-push factor. Countries like Italy and Greece have been pushing out their young people for years now, whereas Malta actually needs and welcomes them. Foreign workers continuously expand our workforce, preventing wage spirals and inflation, and helping the economy grow without heating up.” 2017 will be the year that Malta, takes over the Presidency of the EU Council, after the Netherlands and Slovakia held the Presidency for six months each during 2016. Together, these three countries form the current Presidency trio. “It’s an opportunity that comes once in a political lifetime, which will see attention drawn to our island like never before. We’ve never seen so many high-level business delegations and companies flocking to our shores, who want to know what Malta is like. It’s an onerous responsibility – after all, these six months will have a significant impact not just on the EU but even beyond. However, we’re up for the >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

“Unlike the US, Europe hasn’t developed its capital markets to their fullest extent. Banks remain the first port of call for businesses requiring capital. We want to see ordinary people making use of the stock exchange, taking on certain risks and enjoying the return on their capital.” challenge. Malta has grown significantly in stature because of this Presidency; we should think deeply about what our priorities are and make good use of this opportunity.”

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Prof. Scicluna believes that developing Malta’s capital markets and making capital more freely available to businesses and SMEs should be one of the primary goals going forward. “I’ve just had a discussion with the president of the European Economic and Social Committee about this. Unlike the US, Europe hasn’t developed its capital markets to their fullest extent. Banks remain the first port of call for businesses requiring capital. We want banks to remain, but >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

they can’t be the only way; other avenues need to open up too. We want to see ordinary people making use of the stock exchange, taking on certain risks and enjoying the return on their capital. Empowering ordinary people and giving them the chance to shape the way they live seems to be something of a running theme with Prof. Scicluna for 2017. He turns his attention to infrastructure, and his frustration at the state of the transport system in Malta shines through. “It may seem like the traffic problem we are facing today came out of nowhere, but it didn’t – it just got increasingly worse. For many years we had a system which never met the demands and needs of the people, and clientele kept falling until it was abysmally low. As a result, every household had to have a car – most have more than one – to be able to move about. And when the public transport reform happened with Arriva, it wasn’t well planned; it’s outrageous for a German company that had all the advice at its disposal to make €100

“When economies grow at a fast rate on a small island, the size of the country, the land availability and infrastructure will definitely restrict its growth if we don’t invest in it.”

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million loss in one year. Add to that a very fast-growing economy, with up to 30,000 new foreign workers, not to mention all the tourists, all of whom need transportation, and it’s easy to realise that we’re now bearing the fruit of bad decisions in the past.”

However, he feels that building more roads to alleviate the congestion is not necessarily the right solution to this problem. “When economies grow at a fast rate on a small island, the size of the country, the land availability and infrastructure will definitely restrict its growth if we don’t invest in it. We have to look to the future, learn from other cities. We’re talking office space, transportation, communication. It’s not a question of Government deciding for the people – the people have to decide how they want to live. Would they like to stay wedded to their cars? Or would they be interested in a public transport system that actually works? Government has the capacity for investment but where should it go, and how should it be done? These are the questions we would like to seek the answers to from the people, through interaction and dialogue. We would like their input and their consent going forward.” EV

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

2017 will be a great year for Malta as the country will be holding the EU Presidency for the first six months of the year. Microsoft intends to play a central role in this historic moment for Malta. Microsoft’s Country Manager Panayiotis Ioannou speaks about the global brand’s presence in Malta and its vision for the country over the coming years.

e can easily say that Microsoft today has very strong roots in Malta. We have been present here since 2003, and have a growing team of local professionals and a very healthy ecosystem of partners, customers and collaborators. The strategy with which we have been operating to date reflects the vision that Microsoft has for Malta for the coming years. This means that as Microsoft, we want to be Malta’s main partner and enable the country to achieve stronger economic success in the coming years, where a lot of important developments are expected to happen. Today, we live in a mobile-first, cloudfirst world, and the transformation we are driving across our businesses is designed to enable Microsoft and our customers to thrive in this world. Technology is one of the major contributors to economic growth and competitiveness, connecting businesses and industries to enable innovation, opportunities and jobs. It is the engine of human progress, growing faster than any other economic sector globally, and it can definitely create great prospects for sustainable and inclusive growth in the Maltese economy.

“Technology is one of the major contributors to economic growth and competitiveness, connecting businesses and industries to enable innovation, opportunities and jobs.”

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

The innovative technological solutions that can fuel growth in Malta are enablers to create new opportunities for businesses, helping the economy to expand and improve its overall competitiveness. Cloud computing, a proven tool, which offers significant advantage, is becoming a necessity rather than a ‘nice to have’ option. Microsoft is building its strategy on four main pillars to make sure that Malta embraces technology, empowering every person and every organisation in the country to achieve more. Our first pillar is Malta’s EU Presidency. Microsoft is already in discussions with Government and together, we are already exploring ways for collaboration, namely by being the main sponsor of the EU Presidency in the area of technology. Besides physical support through the provision of technology productivity tools, our support will also be directed to co-hosting of technology-related events. In fact, we are planning to host a number of executives from Microsoft to address a number of events related to policy, compliance, cyber security and other subjects. The initiatives that we are lining up in this respect should contribute towards a more impactful and successful Presidency. Microsoft has been following with great interest the recent news that Malta’s eGovernment services have ranked first in Europe. We see Government as one of Microsoft’s greatest partners and therefore, this latest great news makes us very proud. Over the coming months in fact, we will be strengthening our already strong collaboration with Government to continue to understand its key priorities and how we can take the current collaboration to the next level and support the digital transformation across Government priorities. Microsoft’s third pillar deals with Microsoft’s constant investment in Malta, and supporting the country’s way forward. We have been investing a lot in Malta’s infrastructure through solid partnerships with businesses and a growing ecosystem. Together, we will keep leveraging Malta’s potential.

36 church and private schools in Malta and Gozo. This project meant bringing the power of the cloud to people and organisations in places under-served by reliable and affordable connectivity. We believe that empowering the local educational sector not only contributes towards improving students’ digital skills in Malta, but means an investment in Malta’s economy. Microsoft’s commitment is to bring strategic support to Government so that through technology, Government can put the citizen at the very centre of its vision. Looking ahead, Microsoft’s fourth pillar is being built on forming a strategy for the coming years – a strategy that will bring a transformation to our partner eco system. Technology is going through a major transformation, and as a partner-oriented organisation, we will be giving all the support to our partners to help them through the challenges and opportunities of this transformation.

“Microsoft’s commitment is to bring strategic support to Government so that through technology, Government can put the citizen at the very centre of its vision.”

Besides seeing more growth to our commercial business, we will also remain committed to the community in which we operate. We have been working a lot with local NGOs, assisting them with technology and helping them reach out to their audiences more effectively. We believe in NGOs and the work they are doing in Malta. This is why we want to see Malta’s NGOs fully harness the power of innovation to meet the needs of our country and the various communities. For the future, we are looking to more projects by NGOs that aim to leverage technology in order to improve their social impact.

Microsoft has also had a major role in supporting the local education sector. Our Partners in Learning programme delivers training and resources for educators to help their students develop 21st century skills for enhanced employability. In this regard, we are constantly supporting local state and church schools in the application of technology for better education.

The Microsoft Innovation Centre is also an extremely important tool for Microsoft. I like referring to the MIC as the ‘human’ aspect of Microsoft. Locally, the MIC’s main role is that of bridging the gap between industry and education. Besides hosting and assisting hundreds of start-ups, the MIC has also been seeing a steady flow of students, educators and professionals from all walks of life who come together to realise the potential of technology in today’s work and life.

In recent years, we have also been working more closely with the Ministry for Education on a number of important initiatives by Microsoft aimed at strengthening the local education sector. One such initiative was the recent project to bring Wi-Fi connectivity to

Microsoft is committed to Malta and this commitment is bound to keep becoming stronger and more impactful. Being part of these exciting times for Malta makes all of us at Microsoft extremely proud. Here’s to more years of collaboration, successes and economic growth! EV 63

Photo by Alan Carville

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

O ur economy in 2 0 1 7

Shadow Finance Minister Mario de Marco talks Jo Caruana through his economic expectations for the year to come, including the risk that could come of resting on our laurels and the threats from further afield.

he world feels a little less stable than it did a few months ago. From the shock Brexit result to the equally-shocking Trump win in the United States, tremors have been felt across the world and everyone seems to be asking: what now? This question extends to the state of our economy, and its future. While things have been on the up for a while, one can’t help but fear the many question marks that lie in wait for us in 2017. >

“I think 2017 is going to be the year of political posturing. I can live with that, as long as 2018 becomes the year of common sense.”

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Shadow Finance Minister Mario de Marco admits to having many questions of his own about what the next year will bring. Looking to the challenges that our economy could face in 2017, he immediately highlights the Brexit referendum win and the Republican Party’s win in the United States. “In both cases, if the winners deliver on what they promise, their countries and, with them, the world economy will suffer,” he warns. “The UK divorce from the European Union is going to hurt. It is going to hurt the UK and it is going to have strong ripple effects throughout the European Union. Likewise, if President Trump pursues protectionist policies targeting China, we could very well end up with a world recession on our hands.

shifts in the world economy will impact us, as happened in 2009. “If against all predictions, these two game-changing factors lead to an economic boom, then our economy will ride the wave,” he says. “But, irrespective of the challenges faced by these new realities, we cannot ignore the particular challenges that we face, namely the future of Air Malta which is hanging in the balance, the threat to our financial services sector by international efforts at tax harmonisation and the erosion of the competitiveness of our manufacturing sector.” Looking at what we know is working for Malta, Dr de Marco explains that our island has a two-speed economy. This means that certain sectors – most notably tourism and financial services – are flourishing. “On the flip side, however, economic growth is not cascading into all levels of society, it is not necessarily translating itself into higher earnings in everyone’s pockets,” he says. “While some are seeing their earnings shoot up, others are finding it more difficult to make ends meet.

“We might be resting too much on our economic laurels. We must never stop thinking of tomorrow, in particular the economy of tomorrow if we want to address the challenges of today.”

“Post-2009, the world economy is moving forward but we cannot ignore the fact that ice never thickened beneath our feet – we are still skating on thin ice. A major shock and we could be looking at another major world recession. I think 2017 is going to be the year of political posturing. I can live with that, as long as 2018 becomes the year of common sense.”

Dr de Marco explains that our economy is intrinsically linked with the British, European and global economies. Thus, any tectonic

“This is now an undisputed fact, but it wasn’t the case last year. This time last year, Government was refusing to acknowledge this reality. This year, Government not only acknowledged the problem but went as far as to draw up a budget >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

“The UK divorce from the European Union is going to hurt. It is going to hurt the UK and it is going to have strong ripple effects throughout the European Union.” purportedly aimed at targeting the low income earners. We have to see whether these measures will be enough to stop the drop in the purchasing power of a significant section of our population.” Dr de Marco believes that, if left unchecked, this inequality could become one of Malta’s major problems. “The reaction so far by a large section of civil society is that the budgetary measures do not go far enough in the face of rising food and rental costs,” he continues. “This is why there is now heightened discussion on raising the minimum wage, the proposed introduction by the GWU of a living wage and the proposed introduction by the UHM of a second pillar pension.” He also stresses there are other challenges that need to be addressed head-on in the short-term, such as the future of Air Malta which accounts for nearly 45 per cent of Malta’s incoming tourist numbers, and the Organisation for Economic Co-operation and Development’s (OECD) efforts towards tax harmonisation, that could impinge on the island’s competitiveness in the financial services sector. “On the positive side, we can look forward to putting the billion euro EU funding to good use,” he continues. “Hopefully, Government will use this money to bolster our overall competitiveness.”

Looking back over the past year, Malta has experienced very healthy economic figures in terms of GDP growth, employment growth, unemployment figures, inflation figures and reduction in deficit and public debt. That said, economic growth for 2016 will be slightly subdued compared to last year, largely because, as Dr de Marco explains, 2015’s GDP growth figures were inflated with the construction of the new power station. “The size of our economy is such that a single project can impact GDP figures. In this reality, one has to be cautious when trumpeting historic economic growth levels. One has to ask whether those growth levels are sustainable or blimps. “This is not being said to question the growth recorded in certain sectors. It is recognised and applauded that the growth levels and momentum we achieved in tourism and financial services in the previous legislature has been maintained. However, the last published Eurostat figures show that industrial production is down and the export levels of our manufacturing industry are yet to reach 2012 levels. “The Chamber of Commerce and GRTU maintain that our fuel prices are still amongst the highest in Europe and energy prices for industry are amongst the fifth highest. This impacts our competitiveness. The question arises whether the contractual commitments entered into by Government with Shanghai Electric and Electrogas limit our flexibility as a nation to buy energy from the cheapest source, which so far has been the interconnector. The sooner Government decides to publish the contracts and come clean on its commitments, the sooner we will know to what degree these projects have helped or hindered our competitiveness.” Dr de Marco uses the same argument when talking about Government finances, stating that Government recurrent expenditure is >

He believes there are growth sectors that Malta can tap into; sectors that could make up for any losses the country could sustain in existing sectors. “Can you imagine what our economy would be like if 10 years ago we hadn’t pursued iGaming?” he asks. “Or if around 20 years ago we did not sow the seeds of our financial services sector? Or if over the last 10 years we did not revolutionise our tourism industry?

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“Our economy needs to keep changing, and needs this state of flux to remain relevant. I think that we have lost some of the momentum in this regard. We might be resting too much on our economic laurels. We must never stop thinking of tomorrow, in particular the economy of tomorrow, if we want to address the challenges of today.”

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

increasing twice as fast as it used to in the previous administration. “Government is not duly worried due to the increase in revenue. But part of that revenue is coming from one-off sources including the sale of citizenship. Government is less lean today than it was four years ago. Less lean means less able to handle difficult situations, such as international recessions, should these arise.” As for the construction sector, Dr de Marco looks back on the Finance Minister warning about the possibility of overheating in this sector. “There are signals that sales of lower-end properties are flatlining – probably because of the phenomenon of rising prices which is making it increasingly difficult for first-time buyers to buy. Higher end sales are still performing well, but one has to see what happens when and if all the properties being touted actually materialise. “As for the job market, we are seeing mixed messages,” he continues. “Our economy is creating job opportunities but our indigenous labour supply is not necessarily always able to compete successfully for the higher end jobs being created. As a result, a significant percentage of the higher paid jobs are being taken up by foreigners. The fact that we are attracting foreigners to Malta is not a bad thing in itself. The fact that Maltese are not always keeping up with the opportunities being created is and should be addressed.” He stresses that several sectors need more attention, in particular the manufacturing and the retail sectors. “Our manufacturing sector is losing its competitive edge. Industrial exports today are less than what they used to be in 2012. Contrary to the impression that is sometimes given by Government, the problem is not related to just one particular factory. It is more widespread. Less orders and lower profit margins are leading to lower wages in this sector, as factories are employing foreign labour at more competitive salaries. But this should not, and is not, the most sensible long-term solution. We need to help our industry become more competitive, but not at the expense of the worker. The Malta Chamber, Malta Employers Association, GRTU and the Opposition are pushing for cheaper energy and fuel for commercial enterprises. The higher prices paid by our manufacturing concerns are impacting on our competitiveness.” Similarly, he believes our retail community is also facing challenging times. “I am speaking particularly of the retail operators based in our communities and traditional commercial centres – areas such as Hamrun, Birkirkara, Rahal l-Gdid and, to a certain extent, Valletta. A number of retailers are literally keeping their nose above the water, barely surviving. The commercial centres which once stood proud are now often centres of neglect. I am not laying the blame for this on the current administration. This problem is the result of a number of factors that span over decades. But it is high time that the problem is addressed. We need to inject life back into these commercial centres to keep our towns and villages alive.” The sustainability of the property market also raises key questions, and Dr de Marco stresses the next three to five years will be crucial – primarily because the relaxation of planning rules coupled with substantial inward migration of workers heralded a spate of property development in the past four years. “Unfortunately, this sector worldwide is known for having time-lag problems,” he says. “Projects that are planned in times of boom

are often put on the market in times of lower growth. When the timing between the property sector and the economy at large are completely off, then this sector can push the economy over the brink. This is what happened in Spain and Cyprus in recent years. Will the same happen in Malta? We would be foolish not to learn from the mistakes of others. We are already seeing one negative effect of the property speculation or boom. Rental prices and property prices have trebled even quadrupled in a short space of time. This is clearly not sustainable. This market is not immune to price elasticity. “There is then the other argument, the environmental one. Do we want to change Malta into a concrete platform? Do we want to cover the whole island in towers and to live in their shade? There will be a popular reaction against this which, again, will put into doubt the sustainability of the property sector in Malta.” In fact, the state of the environment is also playing on Dr de Marco’s mind, and he stresses that the last three-and-a-half years have led to environmental considerations being side-lined. “Business considerations triumphed over environmental ones,” he continues. “Malta is going through a period of uglification, as Din l-Art Helwa so aptly put it. We have done horrible things to the streetscapes of our towns and villages, and we are now allowing more and more development in the countryside. Most of what we are doing is sadly not reversible. “Will it impact on our tourism? I think the real issue is not whether we can find two million tourists who are willing to come to Malta every year. It is whether we are leaving our island in a better state than it was left to us. We owe it primarily to ourselves and not only to the tourist who spends a few days living here, to create better living spaces.” Finally, Dr de Marco addresses the question of whether Malta’s financial services could be threatened if the EU pushes ahead with its long ambition of achieving tax harmonisation. “Yes,” he says. “Malta’s advantages as a financial services centre will be eroded if efforts to harmonise tax regimes are successful. The damage will not be limited to Malta and other financial centres in the European Union. I believe that the European Union as a whole will suffer if it allows this frontal attack on this sector to proceed unchecked. We need to act with reason. While there may be need for further regulation, we cannot ignore that the financial services sector has contributed significantly to European Union wealth,” he concludes. EV

“The real issue is not whether we can find two million tourists who are willing to come to Malta every year. It is whether we are leaving our island in a better state than it was left to us.”

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ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

O n the cards for 2 0 1 7 : the C entral B ank G overnor â&#x20AC;&#x2122; s projections Central Bank of Malta Governor Dr Mario Vella speaks to Sarah Micallef about the past, present and future of the local banking sector, Maltaâ&#x20AC;&#x2122;s impressive economic growth and the economic indicators for 2017. >

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Overall, the banking sector continues to remain sound and the strong growth of the Maltese economy in recent years has further enhanced the resilience of our financial system,” says Central Bank of Malta Governor, Dr Mario Vella. Looking back on the past year, Dr Vella maintains that the core banks have continued to be well capitalised and highly liquid, further strengthening their capital ratios. Meanwhile, he continues, “nonperforming loans (NPLs) continued to decline as a result of strong e c o n o m i c performance, and particularly the recovery in the real estate market. At the same time, core banks enhanced their resilience to adverse shocks by increasing provisions, thus strengthening their coverage ratio to their stock of NPLs.”

of a prolonged low interest rate environment worldwide. Yet while the local banking sector seems to be enjoying positive results, mirroring the positive economic cycle that Malta is experiencing, there has been criticism, even on the part of the Prime Minister, that banks are not doing enough to facilitate business, start-ups and continued investment. Dr Vella’s take is that the banks are being understandably prudent, especially considering the regulatory framework and the low interest rate environment they operate in. However, he notes, “evidently a greater involvement of the banks in Malta’s economic development is always welcome and should be supported.”

“We anticipate that our economy will continue to register an output surplus at least till 2018. This contrasts with much of the euro area where economic output remains below pre-financial crisis levels.”

According to the Governor, this build-up of provisions and strengthening of capital has been possible because core banks have been successful – through a business model focused on providing prudent financial intermediation using retail deposits – in sustaining growth and profitability. Indeed, bank profitability continued to improve despite the challenges

Meanwhile, the European Commission recently gave Malta a greenlight to set up the Malta Development Bank, which will be the first financial institution of its kind locally. Speaking of how this will differ from the services currently offered by the commercial banks, Dr Vella explains that the Malta Development Bank (MDB) is not intended to compete with commercial banks, but will fill financing gaps that commercial banks do not or cannot address. “This is mainly related to

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ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

“The Bank is expecting Malta’s economic growth to remain above four per cent in 2017, fuelled by rising private consumption and investment.” SME financing on terms that the banks will not offer unless they benefit from risk enhancements through MDB platforms. This is basically what banks have been doing with the EIB/EIF through the Jeremie and Jamie platforms. Now, through the MDB, the banks will have larger and more favourable credit enhancement platforms to facilitate access to credit to SMEs,” he says. Moreover, he continues, “the MDB will also participate directly in large-scale infrastructure project finance, mostly on a PPP basis, on terms which are not currently in scope for commercial banks because of the equity-like features required by such financing and the long-term nature of such investments. In the end MDB’s success will be measured by its ability to stimulate investment through better financing packages.” Shifting to Malta’s impressive economic growth over the past years, I ask whether the Governor believes that we are currently experiencing a boom. Indeed, much the same as other central banks around the world, the Central Bank of Malta follows economic developments closely, and has developed models that help to assess business cycle conditions. “We have published our methodology earlier this year, including our most current estimates,” says Dr Vella, likening these to the calculations made independently by the European Commission. “They show that in 2015, Malta registered an output surplus for the first time in several years. This means that economic growth exceeded potential output, or the underlying increase in capacity. This, despite the fact that we estimate that Malta’s potential output is now growing at the fastest rates since the late 1990s,” he continues, chalking the acceleration up to two factors. “On the one hand, we have had a very significant increase in our labour supply. On the other hand, our investment-to-GDP ratio has risen substantially. We anticipate that our economy will continue to register an output surplus at least till 2018. This contrasts with much of the euro area where economic output remains below pre-financial crisis levels,” Dr Vella maintains. Looking to the future and analysing the economic indicators for next year, the Central Bank Governor asserts that 2015 was an exceptional year for Malta’s economy, and no one was expecting our real GDP growth to exceed six per cent. As a result, he says, many forecasters are now anticipating a slower pace of economic expansion during 2016. “Official data published up to June has confirmed this trend, with growth observed at slightly above four per cent. The Bank is expecting Malta’s economic growth to remain above four per cent in 2017, fuelled by rising private consumption and investment. We are also anticipating some recovery in exports of goods,” he says, explaining that the continued rapid pace of growth should result in

further increases in employment, with the number of full-time jobs projected to rise by close to three per cent. “Given the tightness in the labour market, we are anticipating that wage growth will accelerate slightly. This, in turn, could result in an increase in the inflation rate to above 1.5 per cent. Turning to the fiscal side, we think that the deficit will decline further, while the national debt-to-GDP ratio will end up very close to 60 per cent,” says Dr Vella. Meanwhile, property seems to be booming, which while intrinsically is a positive thing; is giving rise to concerns that people are taking risks and NPLs and exposure by local banks are increasing. Asked whether the property market and the banking sector are strong enough to continue sustaining each other, Dr Vella affirms that the boom in the domestic real estate market during the immediate post-EU membership period came to an end after the 2008/2009 global financial crisis. “At that time, the domestic banking system was characterised by relatively strong growth in credit to construction and real estate – which subsequently impacted on banks’ non-performing loan ratios,” he asserts, explaining that most of the current non-performing loans are a legacy of that period. “Since the crisis, however, banks have actively reduced their exposure to this sector, with its share in total resident lending falling from almost 19 per cent in 2009 to just around 11 per cent by the end of last year. At the same time, banks increased their focus on granting mortgages – which effectively spreads their risk across a significantly larger number of borrowers. In addition, the ability of such borrowers to repay is not intrinsically related to the fortunes of the real estate market, but rather to borrowers’ employment prospects in the various sectors of the economy. “The current recovery in the real estate market, therefore, does not appear to be driven by growth in credit to the construction and real estate sector. At the same time, while mortgage lending continues to grow, this has been mostly directed to households purchasing their primary residence, and very much in line with economic expansion. Therefore, there is no evidence that the recovery in the real estate market is being largely fuelled by bank credit. It is more likely that the current low interest rate environment may have led to some portfolio rebalancing by private investors,” the Governor continues, pointing to the fact that NPLs, including in the construction and real estate sector, have been declining, together with the exposure of bank lending to this sector. “Furthermore, with stronger capital ratios and additional provisioning, banks continue to remain resilient to shocks, as shown in stress tests > 77

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“Various studies by both the ECB and our own Economics & Research Department suggest that at the current juncture, there are no signs of significant misalignment in the real estate market.”

conducted by the Central Bank and the ECB for significant banks. Various studies by both the ECB and our own Economics & Research Department suggest that at the current juncture, there are no signs of significant misalignment in the real estate market. Nevertheless, the Central Bank of Malta continues to closely monitor developments in this sector,” he says. Looking beyond our shores, we are all eager to see how Brexit will impact the economic and financial mood in Europe, not to mention the impact on the euro currency in the medium to long term. Speaking of the implications, Dr Vella maintains that at this stage, there is a high degree of uncertainty surrounding the terms at which the UK is likely to exit the EU, and understandably, the long-term political, institutional and economic consequences of the UK’s withdrawal will crucially depend on the arrangements governing the UK’s future relationship with the EU. “Despite the strong historical ties with the UK, the share of Malta’s exports to the UK has been declining over time as we successfully diversified our economic base. Even in tourism, the share of those coming from the UK declined from 41 per cent in 2005 to 29 per cent in 2015. That said, scenarios and simulations conducted by the Bank’s research staff focusing primarily on the trade effects point to a possible slight Brexit-related decline in economic activity in Malta in the medium term,” Dr Vella asserts, but advises that these results be treated with caution given the high degree of uncertainty surrounding the terms of the UK’s exit. “Moreover, beyond the adverse effects from trade and the exchange rate, on the upside, Malta could also benefit if companies that seek to relocate outside the UK are attracted to Malta,” he adds. Finally, during the international financial crisis, we have seen major global banks defaulting, with some disappearing from the scene. Several years on, there are serious concerns about the state of affairs of Deutsche Bank, which is a global banking institution. Asked whether he is concerned that the regulatory framework in Europe might not be adequate for today’s market and economic realities, the Central Bank Governor affirms that systemically important banks are regularly stress tested and subjected to challenging asset quality reviews, putting them in a much better positon to handle financial stress. “The challenge for such banks going forward is how to adapt their model to new realities to reduce their operating cost-to-income ratio. This is of key importance in order to attract private capital investment to continue strengthening their capital ratios,” he says.

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“With the advent of the Banking Union, a framework has been created to introduce a more intrusive and effective banking supervision that contributes to a safer and sounder banking system. Systemically important banks have been subjected to a thorough comprehensive assessment, which includes a challenging asset quality review and a stress test. Furthermore, such banks are regularly subjected to a supervisory review examination process, which also comprises a stress test. Despite this, European banks continue to have a relatively high stock of NPLs, which continues to inhibit banks from increasing lending and profitability. In this regard, apart from the need to have a common European deposit insurance fund to complete the Banking Union, there is scope for harmonisation of insolvency legislation to resolve longoutstanding NPLs within a reasonable time period,” Dr Vella concludes. EV

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ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Non-Executive Chairman of Malta Enterprise William Wait speaks to Sarah Micallef about Malta’s strides when it comes to attracting foreign direct investment, as well as what’s on the horizon for industry in 2017. > 81

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ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

ith years of experience within the manufacturing sector under his belt, recently appointed NonExecutive Chairman of Malta Enterprise William Wait has big plans at the helm of the Government’s agency focusing on attracting inward investment and supporting enterprise in Malta.

“We have seen a shift from a focus on the textile industry to more highly automated and more value-added lines.” Mr Wait reveals that Malta Enterprise has approved 80 foreign direct investment projects over the last few years, albeit pointing out that for various reasons, not all of them will pan out, and that within this number, projects vary greatly in size, ranging from one employee to hundreds. “We’re seeing several projects coming from various countries. From Europe, IBG – an automation company based

in Hal Far which produces automation for the automotive industry; as well as various projects within the pharmaceutical industry from different countries including Iceland and Israel; projects from China, including the Shanghai Electric investment; and others from the US, like Boston-based currency printer Crane Currency,” says Mr Wait. Indeed, the Chairman continues, despite Malta’s small size, its list of advantages is sizeable. Among these, he notes our location, the fact that we form part of the European Union, a good standard of living, pleasant climate and a good education system. “There is a lot of coordination between Jobs Plus, Malta Enterprise and educational institutions,” he adds. “In a country the size of Malta, every little movement in economic terms, both positive and negative, has a direct effect on the economy,” Mr Wait continues, stressing the importance of diversification when it comes to both the island’s economic pillars, namely manufacturing, tourism, financial services, etc, as well as the countries from which they come. Maintaining that whereas traditionally, foreign investment in Malta came primarily from European countries like Germany >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

(Playmobil) and England (De La Rue, Toly Products), the situation is different today, and the aim is to widen and extend the net as much as possible. Apart from attracting foreign direct investment to our islands, the other pillar Malta Enterprise is tasked with is supporting local businesses, including giants like Farsons, Busy Bee, James Caterers and Foster Clarks. And sizeable investments are also being made as far as these go, Mr Wait affirms. “There is the new factory by James Caterers, which is a multi-million euro investment; investments by Busy Bee; and Farsons’ new logistics hub, which is the latest in a stream of investments amounting to circa €135 million over the last 10 years,” he lists, adding on Playmobil’s factory extension, which will see the company that has been based in Malta since the early 70s add some 300 employees to its workforce.

“Any business, even within the most highly successful sector, which doesn’t continue to reinvent itself, invest and train its people, is dying.” “We currently have about 190,000 people employed in Malta – approximately 30,000 of these are directly employed within the industrial field. About 20,000 are in manufacturing. So, we’re looking at anywhere between 25 and 30 per cent of GDP, which is substantial,” Mr Wait maintains, pointing to his own experience within the industry for 26 years, working within the Manufacturing Economic Group at the Malta Chamber and serving as a director at Toly Products – one of Malta’s longest established manufacturing companies.

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In 2017, Malta Enterprise will be celebrating 50 years of industry, and Mr Wait refers to an impressive number of companies that have been in operation since then, still employing hundreds of people today. And according to the Chairman, this has only been possible thanks to their ability to adapt and change with the times, in the face of an industry that is constantly in flux. “We have seen a shift from a focus on the textile industry to more highly automated and more value-added lines. In the past, Malta used to attract manufacturing companies because labour is cheap, but it is no longer the case today – and that’s good,” he says, emphasising the importance of training for employees to advance within the sector. “Today, most manufacturing companies in Malta are highly automated. We’ve managed to reinvent ourselves, and I believe that automation and education have allowed us to retain about 20,000 people directly >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

employed in manufacturing. But what is important is that out of that number, a sizeable chunk are good quality, value-added jobs,” he continues.

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Moving on to his priorities for the coming year and beyond at Malta Enterprise, Mr Wait asserts that the main focus is attracting high value-added industries – like Crane Currency and EasyJet. “Our strategy is not to try and catch all the fish in the sea, but is more focused on what we believe can add value here in Malta.” Apart from this is the work being undertaken by Trade Malta – the public-private partnership between Government and the Malta Chamber of Commerce, Enterprise and Industry – of which Malta Enterprise forms part. “Using our combined resources, Trade Malta sets up visits to countries where we never imagined we would set up business,” Mr Wait explains, affirming that Malta Enterprise also keeps constant communication with players in the industry, providing tailor-made packages and support to individual companies through the Malta Enterprise Act and the Business Promotion Act.

Turning his attention to specific sectors that are currently showing potential for growth, Mr Wait lists the health sector, education, aviation, logistics, life sciences and high value-added manufacturing as the ones to watch. As Non-Executive Chairman of Malta Enterprise and Executive Chairman of Projects Malta Ltd, Mr Wait maintains that it is those industries that don’t improve their processes, train their people and invest in their machinery that won’t have a place in this world. “Any business, even within the most highly successful sector, which doesn’t continue to reinvent itself, invest and train its people, is dying,” he asserts. Following the recent Budget, I ask whether there are any specific measures that have been announced,

which he feels will impact local industry, to which Mr Wait affirms that there are a number of new support measures which will facilitate the setting up of new business and the growth of established ones. “These include assistance for the hospitality sector, financial assistance for the setting up of business by disadvantaged individuals, tax credit to promote R&D, energy efficiency measures and assistance to promote the development of digital games with a cultural theme. Meanwhile, companies providing transport for their employees will receive a tax deduction of 150 per cent, up to a maximum of €35,000,” he adds. As for what is on the horizon for industry in 2017, Mr Wait maintains that Malta Enterprise is continuously in touch with stakeholders to ensure that it meets the requirements of industry and has designed a mechanism to reduce the bureaucracy faced by entrepreneurs. “As from 1st January 2017, the number of days required to set up a business in Malta shall be reduced from 30 days to three days,” he says. Apart from this, “retail and other commercial activities (excluding operations requiring approval from the Health Department) will no longer require a trading licence in order to operate.” Finally, turning his attention to the sister isle, he adds, “to facilitate investment in Gozo, the island’s digital infrastructure will be strengthened through the laying of another fibre optic link which enhances the quality of digital connectivity.” EV

“As from 1st January 2017, the number of days required to set up a business in Malta shall be reduced from 30 days to three days.”

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

B ooms must inevitably slow down : is M alta â&#x20AC;&#x2122; s economic growth sustainable ?

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Leading economist Gordon Cordina provides his forecast for Malta’s economy in 2017, emphasising the need to foster an environment that is supportive of competitiveness for the economy’s traditional sectors, while ensuring the continued growth of ‘new economy’ activities. The Maltese economy is best assessed through separate analyses of the different economic sectors within it. This is because growth has to be mainly driven by export demand, rather than domestic demand, with the latter then responding to the employment and incomes created in export activities. Domestically-oriented sectors, such as construction, also have their own specific driving forces, of which external demand forms an important component through tourism and acquisition of real estate by foreigners.

The strong growth of the Maltese economy over these past two years was to my mind driven in the main by a strong tourism demand, as well as the influx of workers, both

“Malta is proving to be attractive to foreign direct investment in manufacturing and service activities.” > 89

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Maltese and foreigners, into the labour market. This said, manufacturing has performed generally better than expected, while ‘new economy’ service activities also continued to drive GDP growth. Economic growth statistics also benefited from turnaround in the bottom-line of public sector activities, including electricity production. Malta is proving to be attractive to foreign direct investment in manufacturing and service activities.

“As a small economy, we can hardly afford mistakes in major investments.”

These trends point to obvious questions regarding the extent to which such growth is sustainable, because economic dynamics over time and across the world indicate that booms must inevitably slow down. This could happen as the growth in the labour force cannot continue indefinitely, tourism is more difficult to encourage in the off-peak rather than the peak season, while ‘new economy’ sectors are approaching maturity and possibly facing their own specific challenges. On the other hand, investments in new activities and the improvements in the country’s credit ratings point to the real possibility of continued growth.

One main concern is that as a small economy, we can hardly afford mistakes in major investments. It is essential to properly phase the sequence of supply with the development of demand, particularly in sectors which are especially prone to cycles, including construction and real estate. The country also needs to face major demographic and environmental challenges in the years ahead, which will require significant public expenditure. It is thus essential to retain focus on efficiency in Government expenditure and on the collection of revenue due.

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Turning to a specific focus on 2017, the country will be absorbed by the EU Presidency in the first half and by the run-up to a general election sometime next year or the following. These are events which can be generally costly to the economy, burdening the public sector with additional expenditure. Perhaps even more importantly, persons with key skills in crucial positions will be focusing more on this issue rather than domestic concerns and opportunities. The run-up to the general election may introduce elements of uncertainty in private investment and in demand, with obvious costs to the economy, at least in the short term. These elements could contribute to some slowdown in economic growth in the coming year. It is thus important that the bureaucratic and political processes ensure stability and continuity, within an environment that is supportive of competitiveness for the economy’s traditional sectors, while ensuring the continued growth of ‘new economy’ activities. EV

“The run-up to the general election may introduce elements of uncertainty in private investment and in demand, with obvious costs to the economy, at least in the short term.”

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D rawing a line in the sand Dr John Vassallo, former Ambassador of Malta to the EU, President of the Malta Business Bureau, member of the Council of Europa Nostra and Strategic Adviser to the Microsoft Corporation speaks out about striking a balance between economic growth and environmental protection.

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ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

“The local natural and built-up environment has a far superior economic, social and cultural value than any haphazard development.” What do we mean by sustainable development? Should all development be controlled and sustainable? Should only economic considerations be measured? Should a particular development or an area to be developed only be accepted and permitted if it is economically feasible for the owner of the land or the developer thereof, or should other considerations be calculated and given a cost or value? In my opinion, the local natural and built-up environment has a far superior economic, social and cultural value than any haphazard development. I speak of ‘haphazard development’ as a style opposed to controlled or planned development. Malta has had different construction- or reconstruction-led periods of development, the first being the different periods of construction from the Iron Age down to the end of Malta’s occupation by the Knights. These were periods of a miniscule local population, where construction was small-scale, built for a purpose and controlled by the ruling powers. Despite the fact that structures like the Three Cities, Valletta, Mdina and the Cittadella, as well as the prehistoric temples all tower on hilltops, thus spoiling the natural environment, they have melded with the natural colours and shapes. Using local stone, low heights and squarish shapes, they served their purpose to offer secure protective areas for the small population of the time, but were also built with beauty that has lasted throughout the ages. They now serve as a basis for one of the major pillars of our modern economy – tourism. The same applies to the numerous village and city churches that brought artists and artisans to our islands and gave us the town and village way of life – with circular expansions of low housing crowding around the dominant church structure. Humans could relate to each other, living close to family, friends and whatever linked them together – the bar, the banda, the church, the ladies’ circles, the school, etc. This is the Maltese way of life. The second period, also one of planned construction, was that of the ensuing 100 years after the Knights – the British occupation. During this period, our population exploded with growth generated by the war economies. Construction was geared towards defence, military installations, airfields and barracks, but also towards new urban areas such as Sliema and Paola, and the expansion of towns like Birkirkara and Hamrun. Once again there was control by the authorities, and the terraced houses of the new towns had gardens, regular blocks with good roads and sanitation, but always with local materials and limited heights. Spectacular developments along these lines graced Sliema Seafront, 94

with over 200 jewels of period houses. It would have compared with the best that coastal cities in France and Italy can offer. Quel dommage! During this period, Malta’s environment was damaged by overdevelopment, and the sprawl of the growing towns, military installations and barracks in many prominent areas like Mtarfa, St Andrews, and Tigné did not improve Malta. However, the height and the building materials remained true to the local colour and texture. Some of these structures later could be re-constructed or restored to be used for other purposes. What characterised this period, which started to come to an end with the early post-war boom and growth (both in population and wealth), was the control by the ruling authority of the time. It also coincided with the beginning of periods of self-government, and later, Independence. This is when Malta’s ‘haphazard development’ began, and has continued since. It may be a coincidence, but it may also be the result of this taking over of control of our destiny by us, the Maltese. Governing ourselves seems, to me, to be the cause of the break of harmony between the environment and development. Unlike our many overseas rulers, we do not seem to have any sense of vision and purpose, except that of economic development. Of course the economy is and will always remain the main driver, but without a long-term vision and clear definition of what we, the Maltese population, want our island to look like now, in 10, 20, 40 or even 100 years’ time, we will continue to live haphazardly. Many very good and sustainable constructions have taken shape in these last 80 odd years, and many more will see the light of day. Yet there has never been a long-term plan. Whenever a plan is launched, it only lasts one legislature at most. Very soon, exceptions begin to be made, exemptions given, and permits granted or negotiated. Once permits are given, the Maltese nature is to cheat a little, add a little, encroach a little. We are unable or unwilling to restrain ourselves and follow the rules. Even when we do follow the rules, our politicians are tempted to change these rules. Our developers and every owner of a house, plot, field or whatever, dream of translating this into a bigger structure. The destruction of the Sliema Seafront – a pearl of the Mediterranean – to replace it with terrible buildings that are too high and lacking style or collective order is a sin of this generation that our descendants will never forgive us for. >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

The Maltese were once described to me as being a people endowed with excessive ‘criminal energy’. Looking critically at ourselves, this description fits very well in the area of conflict or contradiction between the environment and the classical way of life of the Maltese, and the development by the construction industry of Malta in these last 80 years. The terrible growth of all towns has led to one urban sprawl from Zabbar to Paola to Marsa, Zebbug, Qormi, Birkirkara, Mosta, Naxxar, San Gwann, Sliema, Gzira, Msida, Pieta and Valletta, with ugly blocks of pigeonhole flats with terrible shafts and long dark corridors. Older houses lie derelict by the thousands, awaiting destruction to turn from swans to ugly ducklings. Going forward, it seems that this lurching forward haphazardly from one set of uncontrolled uglification to another is set to continue. The current debate about the need to build upwards even higher and higher on the most cherished and beautiful coastal promontories and even in the dead centre of the island does not fit the Maltese way of life, does not fit the natural environment, and does not use local materials, but will add enormous glass, steel and concrete monsters to the already growing number of glass buildings. They will take light away from neighbours, lower the value of existing housing stock and pander to the needs of a small sliver of foreign investors, business leaders, tax residents and a few wealthy Maltese, and will plunge a stake of social divisiveness into Maltese society. The prospective customers for this unprecedented race to the skies, amongst our few developers, are in Malta not for the sun, landscape or flats on the 20th or 30th floors of seafront skyscrapers. They are here because of tax, services and other regimes that offer them advantages they do not find in their countries. But similar regimes are also offered in other places. I think of two types of competing locations for regime seekers. The first category are the Dubais and the Singapores of this world, and the second are the Monacos, Genevas, Zurichs and Luxembourgs. Which do the Maltese want to be like? The first are high-rise skyscraper conglomerations. The second are European low-to-middle height cities retaining local continuity and human-size structures. Prices per square metre are probably higher in Monaco and Zurich than in Dubai. Empty blocks are much fewer in Monaco and Geneva than in Dubai. Yet the tax or regime seekers, whether retirees or businessmen, flock to both types of places.

Photo by viewingmalta.com

Thus, development does not preclude environmental sustainability. Prices are not set by the type of buildings offered, they are set by the attractiveness of the regimes and the attractiveness of the environment. Then there is the local population to think of. What do the Maltese, who cannot afford these exceptionally high prices, want? How do they want the island to look for their children and grandchildren? What would happen should the regimes that attract these foreign investors to Malta change? What would happen should there be a slump in the economy, or restrictions imposed by the EU? What would happen should a score or two of these skyscrapers get built, and we face an economic downturn? There is too much uncertainty to lurch forward haphazardly. We need a long-term plan that is put to the vote of the population, which is endorsed by experts, that is socially, economically and culturally sustainable, and that is outside the powers of any elected government to change without either two thirds majority in Parliament or similar manacles.

Our ‘criminal energy’ or greed should not be the driver of development, but simple protection of the existing environment is not the answer either. A balance must be struck. Before finding this balance, before having the population express itself on a couple of alternative long-term plans for Malta and Gozo, I suggest a moratorium on all new construction, allowing only refurbishment and re-construction of the existing stock of buildings and monuments. This will keep the labour force and cash flow of our construction industry going. This will also ensure that the ever-growing number of tourists who come to Malta for its weather, history and culture will not begin to decline because we are making Malta unrecognisable and unlivable. For me, development that raises the standards of the existing stock of Maltese housing, whether townhouses, social housing, flats built in the last 50 years or historical buildings, is more economically sound. We should put an end to damp walls, leaking roofs, asbestos, tanks on roofs, crowded families, draughty windows and doors, and no heating systems – issues that are endemic to the living areas of most Maltese. Other countries have managed to improve this over the last 100 years of economic growth. We have not. It is socially unacceptable. Reconstruction and refurbishment retains the look and way of life that will continue to attract mass tourism. It will produce elegant and 21st century interiors with the platinum or BREAM certificate standards that will suit tax and regime hunters who wish to come here and are most welcome. The bread and butter of our businessmen and women and the jobs for the young generations will be found by serving the 450,000 Maltese and the two million tourists who visit us. The small number of wealthy or business folk will be equally attracted, whether we offer them skyscrapers or palazzi. Lack of a long-term vision that is signed up to by all citizens and all parties so that the 50 to 100 year plan remains intact throughout the entire period will only promote a continuation of the haphazard development period of our history. Add to this our own national erratic decision-making powers and our criminal energy characteristic, and we are doomed to fail. >

“Older houses lie derelict by the thousands, awaiting destruction to turn from swans to ugly ducklings.”

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Allowing only economic factors, profit and maximization of land space to rule the decision-making is wrong and unsustainable. The question to ask is whether we want to continue haphazardly and unsustainably, moving away from our natural building materials to glass, steel and concrete, and rising upwards under the argument that one limits the use of space by going upwards must be first measured against the yardstick of what constitutes planned urban areas, healthy living, and Maltese way of life and sustainability, not just profitability. Rushing now, especially with the results of the US election and the uncertainty it will produce in the world, is foolish. Overinvesting may be damaging to our economy. We should use the time until the dust settles and see how the EU will react. Will the EU regroup and strengthen its common institutions, and act much more in integrated fashion, or will it also fall apart into populism? Both scenarios can damage our regimes and attractiveness. If it becomes more unified, we can expect harmonisation of taxation and common rules for provision of services. If it falls apart, the result can be chaotic and investors will be more cautious. Both scenarios would temporarily slow down our present economic growth. When foreign investors come to Malta, they do not come because we present them with elegant, prestigious office spaces or living spaces. They come because the regimes in place allow them to do their business on the fringes but within the EU more profitably then elsewhere. They are more than welcome. I contend that since they come for the regime, like they go to Dubai, Singapore, Monaco and Geneva for their regimes, then they are neutral to what there is on offer. Prices in Monaco at €30,000 per square metre are equal to those in Dubai. Malta can still choose to go lowrise or high-rise. Dubai should not be our model.

Photo by viewingmalta.com

Our model should be the Malta that the Maltese want – the Malta that will still attract the normal tourist, our bread and butter, and not a Malta that attracts more of the inward investors who may be only as sustainable as the tax, legal and other regimes that keep them here. The same applies to so-called modern retirees who buy flats they do not live in for more than a couple of weeks

a year, bringing little value-added to the local economy apart from their initial investment. They come for the tax benefit we offer, out of reach of their tax collectors. They also like what they see of the weather and cultural heritage. As we all know, both the tax regime and the gaming regime are under scrutiny and potential attack by the EU. Whether we can keep them intact, tweak them or have to leave the EU to retain them will only be known in the next five to ten years. They are being challenged, as are the regimes of Ireland, Luxembourg and now even Dubai and the Emirates – our colleagues and competitors. Were these to change, the investors would leave in the blink of an eyelid – as quickly as they came. Hopefully, we could replace them with healthcare wealthy tourists, passport buyers and wealthy tax planning retirees, but that is neither secured nor certain. Thus we live in a pretty uncertain economic situation. For this reason, I suggest that we take a time out – some breathing room to take a long look at ourselves as Maltese EU citizens who wish to continue to enjoy living on these God blessed islands of ours. A final consideration is pure sustainability. With 700,000 people crowding this island every day of the year, making us over 2,500 per sq km with too many cars, too few roads and a very low standard of building stock in the towns, villages and residential centres of Malta, we have a very wealthy country but a very badly distributed quality of life. We cannot build a silver or golden set of cages for the wealthy investor, his employees and a few wealthier Maltese, leaving the rest to live miserably. We must raise the quality of life of all Maltese so that we do not create a social divide that is already with us. For our businesses who import, provide services, build and sell, the local and tourist population is their bread and butter. Therefore, high-value clientele is the icing on the cake. We need to raise the buying power and living conditions of our base home market and base touristic market that provides the major part of our revenues before we cater for the elite niche. We need to plan and have a vision now, not next year. We need to stop all but restoration and upgrading work until then. EV

“The small number of wealthy or business folk will be equally attracted, whether we offer them skyscrapers or palazzi.”

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

B U S I N E S S U P D AT E JM Vassallo Vibro Blocks Co. Ltd – Unrivalled quality, flexibility and reliability

Start-up Success

Growing the businesses of the future

JMV has successfully forged a solid reputation for the enterprise by establishing unrivalled quality, flexibility and reliability in all its product and service offerings. Since 1969 JMV, continued expanding to provide quality products and newer services to the local construction industry. Steel Reinforcement JMV produces electro-welded steel wire mesh for concrete reinforcement, electro-welded galvanized mesh for fences, processes steel reinforcement from rods and wire in coils. During Q2 of 2016 JMV completed a Rebar Facility Expansion Programme which included the installation and commissioning of additional specialised machinery, with the aim to supply their clients in the shortest possible time than ever before. Quality Control With its in-house laboratory, quality control testing on samples extracted from raw materials, reinforcing steel wire mesh and processed rebar is produced in accordance with the requisite standards and respective Certificates of Conformity are provided free of charge to JMV’s customers. Energy-Efficient and Eco-Friendly Solutions JMV pioneered the introduction of EVG-3D Construction System in Malta by investing in a production plant and wide-scale education. The EVG-3D panels Construction System is a key to sustainability for Maltese developers and developments. Being lightweight advanced materials, EVG 3D wall and slab panels reduce energy consumption in dwellings of up to 50 per cent and reduce the load on building foundations up to 40 per cent. Furthermore EVG 3D Construction System is certified as antiseismic and can reach high fire-resistance levels. Solutions JMV offers a wide range of other products and solutions including restoration products, waterproofing, strengthening of existing structures, cladding and roofing, non-ferrous products, enclosures, water management, etc.

The fundamental driving force behind the modern start-up company is to do things differently and to create a stir in a somewhat conventional and saturated market. In essence, start-up companies, in any type of commercial undertaking, capitalise on the way they are capable of providing a product or a service of which there is high demand. By their very nature, start-up companies are in their very first stages of their evolution. It is at these formative stages that support to start-ups is critical. Firstbridge – ahead of the curve by supporting start-ups. In order to truly appreciate the nature of a start-up one needs to understand the value and risks involved when starting a new venture particularly within a context that is not yet well known to a particular market. Working in tandem with start-ups allows us to provide structured mentorship programmes that come in the form of business plan preparation, relevant corporate structuring, legal, tax and accountancy support, and ultimately financial management. The main focus for any start-up is the successful growth of their business through strategies that allow them to quickly scale up and successfully bring their product or service to market. At Firstbridge, we strongly believe in creating long-lasting relationships with the start-up community and ultimately supporting the key protagonists in exceeding all expectations in becoming the successful businesses of the future. #supportingstartups For more information contact T: 2132 2118; E: startups@firstbridge.com; www.firstbridge.com

A journey of success Established in 1995, EuroBridge Shipping Services’s journey started as freight forwarders, transporting goods from Italy. During the last decade however, we have established ourselves as one of the leading freight forwarders and logistics companies in the island. We now move cargo to and from all over the world in all kinds of modes available to ensure complete customer satisfaction.

Environment Policy JMV ensures that its raw steel material imports are sourced from steel mills which are in compliance with international regulations on the reduction of emissions, rational use of resources and sustainable management of plants to ensure environmental protection. The Group also operates an ISO 9001 Quality and Traceability System. As part of its alternative energy and environmental policy, JMV has invested in 650 Kwp generating photovoltaic plant which is more than 100 per cent of its electricity consumption.

We also continuously invest in new technologies to offer our client base the best possible service, not only by delivering on our promises, but also by keeping them informed about their shipments at all times. Having our own fleet of trailers, the company offers regular and established groupage and full load services throughout Europe and the rest of the world. Moreover, we are connected with a wide range of international and local partners to be able to give clients the right service, at the right level of quality for the right price. Our list of services includes: • Groupage • Full Load • Air Freight • Temperature Controlled Cargo • Custom Clearance • Domestic Haulage • Insurance • Overseas Removals.

For further information contact the Sales Office on T: 2146 7421; E: sales@jmvibro.com, or visit www.jmvibro.com

Get in touch with us for a free quote of our freight forwarding services on T: 22487 000; E: sales@eurobridge.com.mt 101

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

B U S I N E S S U P D AT E

The Msida & Ta’ Xbiex Marina: an ideal year-round base Creek Developments Plc provides berthing and ancillary services for 767 leisure yachts up to 22m LOA in the Msida & Ta’ Xbiex Marina. Since taking over the management and operations of the Msida & Ta’ Xbiex Marina in 2011, Creek Developments Plc has invested heavily in a comprehensive upgrade of the marina, with the aim of pairing this prime central location with world-class facilities, security and service, all the while maintaining a competitive price structure. Enjoying a uniquely sheltered and central location in the heart of Malta’s longest-established yachting district, with the majestic bastions of Valletta as a backdrop, the Msida & Ta’ Xbiex Marina offers an ideal yearround base for locals and visitors alike. Busy with residents and shortterm visitors throughout the summer months, the marina has become an established long-term winter berthing destination, with many owners returning year after year to merge off-season boating with a winter maintenance programme. Pontoons are provided with modern access control, CCTV, safety and security equipment, moorings, and utility pedestals supplying water and 13 or 32 Amp power. Garbage and waste oil disposal facilities are available throughout the marina and highly skilled staff are on hand to assist 24 hours per day, 365 days per year. Shore side, boat owners enjoy the use of clubhouse, washrooms and laundry. Creek Developments Plc, Office No.1, Crown Marina Apartments, Ta’ Xbiex Seafront, Ta’ Xbiex. T: 2133 7049; Marina 24 hrs: 7933 7249; M: 7933 7149; E: info@creekdevelopments.com; www.marinamalta.com

Catering for all waste disposal needs Green Skip Services Ltd is a family-owned business established since 1992. With experience of 25 years in the waste management business, GSS is Malta’s foremost waste management company, providing services to the industrial, hospitality, medical, government and basically all sectors. We offer a one-stop-shop for all types of wastes from the non-hazardous to packaging material on to the hazardous industrial wastes, including pharmaceutical, cytotoxic and WEEE waste, among others. The company provides a tailor-made service whereby clients can find a complete solution for all their waste disposal needs. The GSS team also offers documentation as part of the service, advice, as well as aid in the planning of a waste management programme. No job is too small or too large. To complement its services, GSS offers a vast range of waste containers and waste reduction equipment for the better management of onsite waste containment. Destruction and issuance of certificates for expired, off spec and confidential material is another service that is offered. Trained personnel, ADR certified drivers and services DGSA also form part of the waste management services offered. Moreover, GSS is in the final stages of attaining IPPC permitting for its facility. Contact Green Skip Services for any waste problems – ‘impossible’ does not feature in our dictionary. Green Skip Services Ltd, Administrations Building, Ta’ L-Imriekeb, Ramla Road, Maghtab. T: 2142 2009/10/17; F: 2142 2029; M: 9942 2544; www.greenskipgroup.com

A fresh perspective that helps you stay one step ahead True success comes from working with a partner you trust to provide the insight, support and expertise that will propel your business forward. Working with Grant Thornton means you can count on results, partnership and leadership.

We have the autonomy and flexibility to adapt our client service to our local and global clients’ requirements. We work to ensure that our clients get a tailored service and that we truly understand their business as if it were our own.

Our clients can access the knowledge and experience of more than 42,000 people in over 130 countries and consistently receive a distinctive, high-quality and boutique service wherever they choose to do business.

T: 2132 0134; E: grantthornton@mt.gt.com; www.grantthornton.com.mt

With over 40 years of industry experience, we focus on providing a full range of services including assurance, tax, advisory, specialist financial services, corporate, back-office services to clients ranging from public companies, multi-nationals and Government agencies to entrepreneurial businesses across a broad spectrum of industries. We combine award-winning technical knowledge with the intuition, insight and confidence gained from our extensive sector experience and a deep understanding of our clients. We have the scale to meet our clients’ changing needs, alongside the insight and agility that helps them stay one step ahead. Our partners and teams invest the time to truly understand our clients’ business, giving real insight and a fresh perspective to keep them moving forward. 103

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Staying ahead of the curve From seizing local opportunities to keeping an eye on international hurdles, Maltese banks are firmly on their toes. Martina Said speaks to the heads of a number of industry leaders to find out what’s in store for their bank, as well as for the industry at large, in the coming year.

ollowing steady and strong economic growth in 2015, it appears that Malta is looking to outdo itself with another outstanding year in 2016, and the local banking sector has certainly played its part. Despite local and international setbacks and challenges, industry players are far from shying away, but rather looking towards the future with a cautious yet optimistic eye. HSBC Bank Malta plc Chief Executive Officer, Andrew Beane, says 2016 has been a year of change, as the sector has continued to adapt to the dual challenges of sustained low interest rates and a transformed regulatory framework. “In particular, the compliance requirements to use the international banking system have changed and have become more demanding on banks and their customers. While this can at times cause inconvenience for clients, meeting these standards is the right thing to do as they support building a stronger and safer financial system to protect Malta’s economy.”

With 2017 around the corner, Mr Beane says that HSBC Malta’s focus in 2017 is simple: to be the bank of choice for their customers, supporting businesses to grow and individuals to achieve their personal goals. “A key focus for us in 2017 will be small businesses which are the heart of the economy. We will be placing HSBC’s business services back in the community across our branch network. Our commitment to continue to attract new companies to Malta that wish to make a tangible commitment to the country remains strong. Indeed, we will be establishing a new team focused solely on this imperative, working closely with our partners in the accounting and legal professions. We will also continue to help Maltese companies expand overseas, which remains HSBC’s unique strength, being Malta’s only bank with a truly global network.”

“At the end of the day, banking is a simple business based on relationships and you only succeed if you help your customers to grow and prosper.”

HSBC’s CEO says the bank will achieve this while continuing to run its business to the highest global compliance standards. “Even though sometimes these requirements can be demanding of our customers, we believe that knowing their bank is run to such high standards gives them confidence and security. And everything that we do is delivered by our people. Focusing on our people, in partnership with the unions, is at the very heart of how we run HSBC, and this will remain the case in 2017.” >

– Andrew Beane, HSBC

Mr Beane asserts that HSBC Bank Malta made significant progress in 2016 to implement a new strategy agreed by the Board at the beginning of the year, which enables the bank to reposition itself for growth within an adjusted business model that will improve customer service while meeting the highest global regulatory standards. “Change takes time, but we are on the right path and increasingly our customers will begin to see the benefit of the actions we are taking. For example, in retail banking we have re-launched our Advance proposition making it free to access for eligible customers,” says Mr Beane. “Within our commercial business, we have continued to use HSBC’s unique international reach to connect our customers to opportunities in the global economy, which has enabled us to achieve record levels of take-up of our International Trade fund.”

As the country’s only global bank, HSBC’s CEO asserts that, with Malta’s economy being one of the most dynamic in Europe, the bank has a very important role to play to enable international connectivity. “In doing so, we will support continuation of Malta’s growth story, but we make no apology for ensuring that our approach to new business generation is in full compliance with the highest global compliance standards, even if at times this can be demanding for our clients,” he asserts. “We are committed to responsibly grow our lending into the economy to facilitate growth. At the end of the day, banking is a simple business based on relationships and you only succeed if you help your customers to grow and prosper.”

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ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

FIMBank Group Chief Executive Officer Murali Subramanian says that 2016 was a tough year overall for European and OECD banks, but one in which banks in emerging markets made gains in key market share acquisition. “Generally speaking, the impact of two slow years has been felt in loan losses, with prudential tightening in most markets, particularly in terms of additional provisioning requirements, greater oversight, and more frequent inspections. There has also been a retreat from non-core businesses, which is increasingly being defined more and more conservatively by the high street banks. This has actually created a much greater space in which smaller banks can participate.” As far as FIMBank is concerned, M r Subramanian says that 2016 has been a turnaround year for the Group, following several important changes in the way business is conducted, as well as with regards to improved profitability of the bank’s operations. “Legacy misadventures of prior years are being dealt with firmly, and we expect that these should be fully behind us in 2017,” says the Group’s CEO. He also underlines the fact that Malta has enjoyed a high growth economy in 2016, and that the demand for banking services is strong, “giving all banks operating here an opportunity to service the market profitably.” As for those sectors that FIMBank sees strong business potential in, Mr Subramanian says “we have recently launched a real estate financing business aimed at selected Malta-based developers, and have relaunched our factoring business in Malta.” As Malta increasingly becomes an investment hub for businesses and expats, FIMBank’s CEO explains that, while it is the case that Malta is an attractive inward investment destination, and several successes have been registered in this regard, the focus for banking has not changed. “This remains the servicing of the main elements of the Maltese economy, namely manufacturing, real estate and services (and not necessarily in that order). Some industries that have set up shop in Malta are perhaps not being as well serviced on account of the perceived moral hazards, given the increasing regulatory compliance requirements,” he says. “Regulation is a dynamic subject, and is not always clear-cut in its implications. It therefore behoves the banking industry to interpret situations and potential opportunities in the manner best suited to preserving their shareholders’ interests.”

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“We are looking at growing our business to more sustainable levels of profitability and generating greater returns to shareholders, while strengthening our balance sheet further.” – Murali Subramanian, FIMBank

Looking ahead to FIMBank’s prospects for 2017, Mr Subramanian states, “we are looking at growing our business to more sustainable levels of profitability and generating greater returns to shareholders, while strengthening our balance sheet further. We are very focused on becoming a relevant provider of banking services to the corporate and real estate sectors in Malta, and to be recognised for our superior service levels.” He adds that the bank “will be pursuing several interesting opportunities with real estate developers and corporates in Malta, and we expect that ongoing economic growth will provide many opportunities for financing, as well as managing efficiencies in the operations of the corporate sector.” Mr Subramanian also

sees the Maltese banking system benefiting as a whole from these developments, and envisages opportunities where FIMBank can complement banks in Malta with its international capabilities and network. Moreover, he points to the significant investment which the bank is directing towards a secure, robust and userfriendly digital banking platform, so as to service the demands of the growing number of FIMBank’s online customers. From a global perspective, FIMBank’s CEO sees the Group consolidating its international network, while driving higher performance levels from the current set-up, in preference to further expansion. “We intend to be ready to capitalise on the economic recovery and global growth when this picks up.” >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Mr Mifsud adds that this change, however, is not exclusive to the 129 significant banks in Europe, “as the remaining 3,500 banks in Europe, considered to be ‘less significant’ institutions (LSIs) will, to the same degree (no proportionality applied here) be supervised by their national supervisors, in close cooperation with the ECB with the possibility of an LSI to be directly supervised by the ECB to ensure that high supervisory standards are applied consistently. This is what has characterised much of what is happening in the banking sector in 2016 and previous years, and has set the stage for what banking will look like in many years to come, the effects of which are just beginning to emerge.” Despite the less-than-positive outlook, Mr Mifsud maintains that 2016 was a successful year for Sparkasse Bank. “Besides having achieved our annual targets in terms of revenue, costs and profitability, we have also managed to achieve softer targets aimed towards projects and goals we set internally, and achieving the market share reach we set for the year. All in all, a challenging but successful year. Bankers have much to be proud of for delivering positive results against a backdrop of negative rates.” Europe’s banking sector has attracted its fair share of controversy recently after headlines revealed that Germany’s Deutsche Bank may be slapped with a $14 billion fine from the US Department of Justice for mis-selling mortgage bonds in the run up to the financial crisis, sparking fears over whether the bank can afford it, and what will happen if it can’t.

Paul Mifsud, Managing Director of Sparkasse Bank Malta plc, says 2016 has very much been a reflection and continuation of the de-risking and deleveraging processes that commenced in 2014, when the European Central Bank (ECB) categorised banks into significant and less significant banks, and started to supervise banks within the euro area directly.

Weighing in on Deutsche Bank’s case, Mr Mifsud says the issue is yet another unfortunate occurrence that has contributed towards further straining inter-banking relations. “We see this being manifested most significantly within correspondent banking at large. These new operational strains will have significant repercussions on determining or shaping what bank customer bases will look like, as certain businesses may become un-bankable and restricted from processing international payments.”

“The aim of this was to avoid further systemic stress to the banking system and to ensure the safety and soundness of the European banking system,” he explains. “One must remember that the ECB directly supervises 129 significant banks from 19 participating countries, of which Malta is one such country with four participating banks. Several banks have already undergone comprehensive assessments, the result of which has had a dramatic effect on the banking risk appetites locally as well as within the wider EU context.”

The European Commission’s approval of the Malta Development Bank marks this entity as a first of its kind locally, one which Mr Mifsud believes indeed may have scope, seeing as de-risking continues and bank lending tightens, and that the capital markets in Malta are still not mature enough as a reliable alternative source of funding. “However, when commercial banks refuse funding, it is usually for good reason. I am assuming that the Development Bank will be subjected to the same prudential supervision and rule book as a commercial bank, and that this will not be a simple shift in risk from commercial bank balance sheets to tax payer.”

“We believe that diversification of product and service is key to the success of an enterprise, and this reinforces our quest for innovation.”

As for the bank’s future plans, Mr Mifsud says, “at Sparkasse, we are constantly investing in resources. We have recently acquired more office space aligned with our strategy to grow the business through hiring talent and expertise locally. We plan to expand our fund custody team and services as well as invest in our infrastructure to better support asset and wealth managers. We believe that diversification of product and service is key to the success of an enterprise, and this reinforces our quest for innovation. We plan to remain nimble to seize opportunity.” >

– Paul Mifsud, Sparkasse Bank Malta 109

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“Based on the products and services which the banks are offering, including to the SME segment, I see them as being generally proactive and helping business to grow.” – Marcel Cassar, APS Bank

Marcel Cassar, Chief Executive Officer of APS Bank Limited, says Malta’s economy has been growing consistently which means, all else being equal, more business and opportunities for the banks, at least those that are primarily domestic-oriented. Internationally, however, the situation is not quite as rosy. “Internationally, there are challenges facing banks across many fronts, particularly in jurisdictions that are still struggling with economic recovery, not to mention challenges coming from shrinking margins, increasing regulation, compliance issues and more. And then we have fintech, which is chomping at the fringes of traditional banking as we know it. So, good times for our sector but the challenges are there – and we cannot be immune to them.” APS Bank, meanwhile, has been enjoying its fair share of the expanding economic activity, says Mr Cassar, and, coupled with more ambitious business and strategic goals, the bank’s performance in 2016 has been a positive one so far. “The bank remains strong in its core market segments, such as home financing, but we have also been growing our commercial book. There is both the capacity and the appetite to do more – the bank is on a growth trajectory, cautiously but surely.” Commenting on Deutsche Bank’s scenario and its implications, Mr Cassar asserts “compliance risk in banking has never been as high, and banks which become exposed to compliance issues of such magnitude are likely to take a hard look at their business model. The outcome is ‘de-risking’, with all its consequences. To see an institution like Deutsche Bank having to contemplate also asset divestments in order to cope with a potential fine of $14 billion brings home loud and clear that the consequences can be not only reputational, but also financial.” Sharing his insight into the establishment of the Malta Development Bank, Mr Cassar says that development banks exist to address so-called market failures, that is, projects and activities – such as infrastructure and housing – which the commercial banks finance limitedly or not at all. “The authorities have recently indicated that a financing gap of some €2 billion to €3 billion has been identified, of which, if one large infrastructural project like the monorail were to be singled out, could easily absorb a considerable chunk of this ‘gap’. For the SME segment alone, the financing gap is estimated at €300 million to €600 million. So the MDB will serve as a secondtier financial institution to address specific financing gaps, and therefore I see scope for the banks to cooperate with it.”

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Despite this, however, Mr Cassar maintains that banks are at the heart of the conveyor belt that moves business and commerce, and the investment momentum that Malta is experiencing gives them the opportunity to grow and profit. “Based on the products and services which the banks are offering, including to the SME segment, I see them as being generally proactive and helping business to grow too. Of course, there is also de-risking taking place with some banks as they limit their exposure to particular industries and segments, not to mention where this may be resulting from supervisory oversight. It’s a fine balance which is never easy to strike.” As for the new year, Mr Cassar asserts that a transformation is underway at APS Bank. “Simply put, we are taking the bank ‘to the next level’. This will see it position itself for growth in market share and also in the personal, retail and commercial segments. We are also starting to diversify our geography insofar as commercial lending is concerned. Whether domestically or internationally, ‘selectivity’ is the word. Further investment in technology is also on the cards, including the modernisation of our branches – our community presence, while governance and risk structures are also being strengthened. So 2017 will be a year of growth and development – always measured, consistent. I like to call it ‘consolidating as we grow’.” >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Meanwhile, Bank of Valletta’s Chief Executive Officer, Mario Mallia, is in agreement that 2016 was a challenging year for the banking sector, both locally and in the larger euro area, having seemingly entered an era of long-term low-to-negative rates. “The fact that Maltese banks, like most of the sector in the euro area, have chosen not to pass on negative policy rates to deposit customers means that their interest margins, and consequently their profitability, are coming under pressure. Low rates put pressure on banks’ profitability, particularly on banks which are very reliant on net interest income. “The local banking sector is undergoing a strategic process of de-risking,” he continues. “Banks are reviewing their business models, and questioning why they should be undertaking certain activities which carry a certain level of risk which is not compensated by an equitable return. They are taking a second look at those sectors of the economy where they may be overly exposed, and are moving to control high concentration areas. At the same time, banks are building up their capital buffers, driven by European banking regulation. De-risking and capital buildup make for safer, albeit less profitable, banks.” Additionally, however, Mr Mallia says that the sector is also highly liquid, thanks to a vibrant economy and to the interest rate environment, which entices savers to ‘park’ their savings with the banks while searching for higher yields elsewhere. “While good liquidity is an essential ingredient for financial stability, too much of it becomes yet another source of pressure on the sector’s profitability.” Despite the challenges as experienced by all other Maltese banks, BOV has also had its fair share of opportunities, including solid demand for

personal finance, especially for home loans and investment properties, investment services, bancassurance and credit cards. “Demand for business credit was, overall, moderate, and focused primarily on property development. Nevertheless, we continued to witness vibrancy in the local SME sector. During 2016, BOV continued to support SMEs through the launch of BOV JAIME (Joint Assistance Initiative for Maltese Enterprises) Financing Package, a new financing tool arising out of the agreement that was signed between the European Investment Fund

“Demand for business credit was, overall, moderate, and focused primarily on property development. Nevertheless, we continued to witness vibrancy in the local SME sector.” – Mario Mallia, BOV (EIF) and Bank of Valletta. Following a competitive call between banks, BOV was entrusted with the management and administration of the SME Initiative for a total fund of €50 million. Take-up has been strong, and pipeline business interesting.” In reaction to Deutsche Bank’s case, Mr Mallia asserts that it is the starkest reminder yet of the extent of supervisory scrutiny of banks in Europe and the US. “It is hard to argue against robust supervision – although one may certainly find issue with the proportionality of the penalty in Deutsche’s case,” he explains. “Commentators have argued that the fine is so large that it could destabilise the bank and provoke a new financial crisis. But the case serves to highlight that even the largest global institutions are nowadays held to account, and that banking supervisors are ‘strong with the strong’.”

Could this have implications on Maltese banks? “Maltese banks are always more vulnerable than most of their euro area counterparts, in view of their size and lobbying weight. The risk is that disproportionate supervisory responses may prompt banks to retreat to their comfort zones, and just sit there. In such cases, the smaller institutions, in the smaller countries, are always the first to be affected, since the volume of business they generate is usually not enough to justify the actual or perceived risks being assumed by the services providers. So the latter may end up withdrawing their services.” Looking ahead, Mr Mallia maintains that the bank’s strategy for the coming two or three years is one of consolidation. “We are focusing on taking our resources to the next level – by enriching and diversifying our internal skills sets; by introducing

fresh blood at every level of the organisational structure; and by ensuring that BOV remains a model employer which can attract and retain top talent,” he asserts. “We will be transforming the way we do business, by replacing our core banking system and changing our processes to fit into the new architecture. On the financial front, we are seeking to strengthen our capital buffers through a variety of means, including the issue of fresh equity. “The ultimate beneficiaries of this change programme must be our customers, who are ultimately the raison d’être of BOV, as they are of any bank,” concludes Mr Mallia. “Unless our efforts translate into better quality service, shorter response time, enhanced security and an improved customer experience, they will all have been a waste of shareholders’ money.” EV

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ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

2017

at a glance As one year draws to a close and businesses take stock and gear up for the next, it’s time to look forward to the prospects that 2017 brings. Here, some of Malta’s industry leaders share their vision for the year ahead within the local business landscape, in a single sentence. “As we assume the Presidency of the EU Council, all eyes will be on Malta, and no doubt this will create opportunities for us to exploit in the short, medium and long term – 2017 will test our ability to adapt and react to significant international developments that will take place just at our doorstep, primarily stemming from the Brexit process and the developments in Libya.” – Dean Micallef, Managing Director, Firstbridge

“We will not be seeing a revolution in banking, but we will experience a gradual paradigm shift that has already started, and that is picking up momentum.” – Mario Mallia, Chief Executive Officer, Bank of Valletta

“Challenges also bring opportunities: how many can we tap into?” – Ivan Refalo, Head HR & Corporate Communications, Medavia

“As Malta’s largest insurance brokers and risk consultants, 2017 gives us an opportunity to continue providing our expertise in order to best serve and guide our clients; we manage their risks so they can focus on what they do best.” – Fiona Borg, Chief Operations Officer Business Development, Mediterranean Insurance Brokers 114

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

“For the past 35 years, Dhalia has built a reputation based on trust, and in 2017 we will continue to invest in our people and new services to ensure that our clients are provided with the premium level of service they expect from us.” – Alan Grima, CEO, Dhalia

“Sullivan Maritime marked its 20th anniversary this year with a rebranding exercise, and we are very enthusiastic for 2017 as we are embarking on modernising our systems which will keep us in tune with the fast developing maritime environment.” – Karl Sullivan, Business Development Executive, Sullivan Maritime

“In 2017 and especially during Malta’s EU Presidency term, GreenPak expects to see progress in the Circular Economy – an EU action plan which aims to ‘close the loop’ of product lifecycles through greater recycling and re-use for the benefit of both the environment and the economy.” – Ing. Mario Schembri, Chief Executive Officer, GreenPak Cooperative Society Ltd

“With a uniquely sheltered and central location, and world-class facilities, Creek Developments Plc is wellplaced to thrive in the increasingly competitive local market in 2017, as international yacht owners are attracted by Malta’s growing reputation as a high-quality yachting destination.”

“The economy in Gozo in 2017 will continue to grow – it will be further boosted when the second fibre optic cable and the new medical school are fully operational.” – Joe Cordina, Chairman, Gozo Channel Company Ltd

– Sarah Gauci Carlton, Commercial Manager, Creek Developments Plc

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Photo by Luis Lopez Rodriguez

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Both of Malta’s capitals – Valletta and Victoria – have experienced substantial change in recent years. Now, with European Capital of Culture just a year away, Jo Caruana looks at what this has meant for the cities themselves. >

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ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

There’s a sense of pride to be felt in Valletta these days. The city is alive, thriving, busy and buzzing with everything from international business to exciting cultural initiatives. Similarly, just across the water in Gozo, Victoria has also reached a new milestone thanks to the completion of works on the historic Citadel. Here too there’s a sense of excitement, thanks to the new Visitors Centre, the restoration works, and the throngs of people now eager to explore the results of this master plan. Now, with their revivals in place, we can look back at the history of these two iconic cities, and appreciate the strides that have been taken for their future.

Plans were drawn up by architects Harrison & Hubbard from the UK and several buildings went up in the 40s and 50s, financed by the war damage funds.

Valletta “Any capital city is a symbol of the identity of a nation and, as long as it is alive, it needs to be changing,” says architect Konrad Buhagiar, a founding partner of Architecture Project. “It needs to be constantly accommodating new development and the evolution of new technological transformations, of changing identities, as well as new social, political and cultural events that all take their toll.”

“Very little happened in Valletta for a long time after that,” continues Konrad. “Although there was one important competition held for the rebuilding of the Opera House and a new City Gate, and the Law Courts were also built – other than that, no major works took place. On the contrary, the whole town became quite abandoned.”

As he explains, architecture is one of the main tools used to express change and transformation – as well as one of the main economic drivers, particularly in Malta. “Architecture has always been one of our economical mainstays, all the way back to the time of the Knights of St John, when the Order would introduce new projects to keep the economy afloat and provide employment. It’s been like that ever since.”

“In the years to come I hope changes in the capital will be carried out carefully and with quality in mind.” – Konrad Buhagiar Valletta itself went through many transitions. “When it was built in the 16th century, it was conceived as a military town based on the Renaissance principles of the Ideal City. During the 17th century however, the Order had a long-term vision to improve the infrastructure of the harbour,” Konrad continues. “This led to further changes in the Baroque era, with the addition of new buildings outside the walls while monuments including the Anglican Cathedral, the Opera House and a number of Gothic churches characterise the 19th-century town. Of course, the war years incited much change in the city when a fourth of the building fabric was destroyed and had to be rebuilt.

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People who left during the war never returned, instead choosing to relocate to areas like Hamrun and Sliema. This was also the result of Valletta’s typology, which became impractical for young families – the large palazzos were untenable while the tenement buildings were too small and in a bad state of disrepair. >

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

Architect Chris Briffa, founder of Chris Briffa Architects, explains that the city was totally ignored and side-lined for a long time by both the private and public sectors. “It was an office town with a depleting residential population,” he says. “This phenomenon is not uncommon, but occurs when people seek newer places to live, where they can comfortably park their car or build higher if they need to. Valletta posed all sorts of issues in this regard and was unattractive to investors for a long time. Its evolution is similar to other European areas like the Docklands in London or Berlin, which fell abandoned due to urban sprawl and only started to regenerate when creatives chose to move there for the cheap rent. This eventually leads to gentrification, which is exactly what we have seen with the city in recent years.” The capital first began to revive in the late 80s, following Renzo Piano’s master plan, when the city began to attract the professional classes and couples with no children. “Slowly people came to see that Valletta is our most prestigious urban symbol, and began to appreciate the architectural value of the buildings,” Konrad continues. “This was all consolidated by the revenue that came from EU structural funds, including the restoration of the fort network, the rebuilding of the Upper Barrakka Lift, and the Parliament project. This also immediately upped other activities, such as the water taxi operation from Valletta to the Three Cities, which had been disused for decades. The cruise terminal has also been key in bringing thousands of people into the city at a go, thus making the commercial infrastructure of the town more alive and sustainable.” Chris also believes that it’s a mix of things that have helped to regenerate Valletta, including the cultural marketing campaign that has taken place in the run-up to the city’s role as European Capital of Culture in 2018. “Developers and investors started to take an interest, while young people also began to appreciate its beauty and efficiency,” Chris says, adding that he chose to move to the city several years ago – long before many people started to show an interest in it. “Sadly, though, we now face the issue of speculation, with people buying property here and just sitting on it for many years, thus sending prices through the roof. There have not been any incentives for young people or families to move here, and there need to be, as balance needs to be achieved for locals to be able to live here too, and not just foreigners.” Today, Konrad believes Valletta has achieved a nice balance “between buildings that have been restored and others that are stuck in a time warp, thus giving that beautiful feeling of old and new. “The whole scheme behind Renzo Piano’s latest project was to make Valletta a contemporary city; people’s perception of it has changed and property prices have soared,” he explains. “That said, I still think there’s a long way to go. The quality of our cultural events still needs to improve, especially when it comes to the visual arts. In the years to come I hope changes in the capital will be carried out carefully and with quality in mind. It’s important to keep the balance between old and new, while retaining its atmosphere as a wonderful city to live and work in.”

“Valletta’s evolution is similar to other European areas like the Docklands in London or Berlin, which fell abandoned due to urban sprawl and only started to regenerate when creatives chose to move there for the cheap rent.” – Chris Briffa Chris, meanwhile, believes more needs to be done with regards to improving the city after V18 is complete. “Valletta’s public spaces are currently managed by a local council structure with very limited resources, whose funding is based on its tiny number of residents and its management controlled by unqualified representatives. “This affects every aspect of life for the locals here and, in my opinion, an independent agency needs to be set up specifically to deal with the unique issues that Valletta faces – from its problems with cleanliness and parking management, to smarter planning and development control. This team will need to be responsible for managing the present and future of the city, otherwise all this investment won’t have been warranted and Valletta’s ‘boutique’ status risks becoming a superficial fad,” Chris adds. > 121

ECONOMIC VISION 2017: BUSINESS. FINANCE. ECONOMY.

“Without this project, so much of the Citadel would have been lost, and more and more of it would have fallen into disrepair and been forgotten.” Photo by MXA - Martin Xuereb & Associates

– Martin Xuereb Gozo While the Gozitan capital won’t technically be Capital of Culture, it has recently been cast into the spotlight – particularly thanks to the complete rehabilitation of the ancient Citadel. Martin Xuereb’s architecture firm, Martin Xuereb & Associates, was responsible for the development of a master plan for this tiny city and its suburbs. His team was tasked with the restoration of numerous elements, including cleaning the ditch and restoring the various building façades, as well as creating others from scratch, including the new approach into the Citadel, the new entrance way, and the Visitors Centre. Beyond all that and during the works, architects also found a number of historic elements, including old arches that had been covered up for centuries, so they chose to incorporate them into the new project too. “Our role was very much focused on bringing the Citadel to life in a whole new way,” Martin says. “In fact, since the works were completed, 100,000 people have been to visit it – there’s so much more for them now, from the information in the Visitors Centre to the beautiful walkways; there’s plenty for them to see and enjoy. Without this project, so much would have been lost, and more and more of it would have fallen into disrepair and been forgotten.

“It is crucial to keep our cities alive, just like Valletta has been kept alive thanks to the interventions there. Of course, the Citadel is a bit different because barely a handful of people live there, so it has an unusual role and atmosphere. But, nevertheless, the focus needs to be on encouraging people to go there, to explore and to discover what it has to offer.” Asked about his vision for the future of the Citadel, Martin stresses he hopes it will continue to be brought to life. “For instance, I am not against the inclusion of a carefully-created boutique hotel or a couple of quality restaurants, as this will encourage people to spend time here and enjoy it. Although the area is challenging and limited, I think there is scope to keep improving it – from adding these commercial elements, to working on further architectural finds that will keep adding to its incredible story. “Now that this project is completed, I would say that the focus should be on the further restoration of the ruins and breathing new life into the very few existing buildings. If carefully studied and executed, this would guarantee the continued change and positive stimulus for the Citadel, and Victoria as a whole,” Martin adds. EV

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