Economic Vision 2019 by Content House

ECONOMIC VISION Business. Finance. Economy.

2019

Gold Collaborating Partners

A special edition of The Commercial Courier NEWSPAPER POST Â¤15 (where sold)

AN OFFICIAL PUBLICATION OF THE MALTA CHAMBER OF COMMERCE, ENTERPRISE AND INDUSTRY

ECONOMIC VISION 2019: Business. Finance. Economy.

Economic Vision 2019 BUSINESS. FINANCE. ECONOMY.

Economic Vision is an official annual publication of the Malta Chamber of Commerce, Enterprise and Industry, published as a joint venture with Content House Group, focusing on the business, financial and economic outlook for the coming year. The publication outlines the countryâ&#x20AC;&#x2122;s annual economic, business and financial projections, focusing on the way these will impact peopleâ&#x20AC;&#x2122;s lives and the businesses which operate on the island. The publication also features illustrations by artist Nadine Noko, which visually represent the industries featured. These were commissioned by Content House Group.

ECONOMIC VISION 2019: Business. Finance. Economy.

ontents

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LET’S MAKE 2019 THE YEAR OF SUSTAINABILITY

The Malta Chamber of Commerce, Enterprise and Industry looks at the progress made throughout 2018 and advocates for a long-term plan for the future in the coming year.

CONSOLIDATING MALTA’S SUCCESSES

Prime Minister JOSEPH MUSCAT underscores the importance of not resting on our laurels and of looking ahead to new technologies and innovations.

AN ECONOMY BY THE PEOPLE, FOR THE PEOPLE

Opposition and Nationalist Party leader ADRIAN DELIA calls for economic growth driven by sustainable industries, an equitable distribution of wealth and concrete action to shore up the island’s successes.

“IF CERTAIN PROJECTS ARE NOT SUITABLE FOR MALTA, WE SHOULD BE BOLD ENOUGH TO SAY SO”

Malta Chamber of Commerce, Enterprise and Industry President, FRANK V. FARRUGIA, speaks to MARTINA SAID about Malta’s prospects, and the need for a long-term financial plan.

2018 IN FIGURES

A look back at the numbers which defined the year.

YEAR IN REVIEW: WHAT WILL THE 2019 ECONOMY BRING?

“ECONOMIC GROWTH IN MALTA WILL CONTINUE TO BE ROBUST”

With a consolidative 2018 coming to an end, Finance Minister Prof. EDWARD SCICLUNA believes 2019 will bring more success and more progress for our economy.

Central Bank Governor, DR MARIO VELLA, looks back at the strides achieved in 2018 and details his projections for 2019.

2019 – INDUSTRY PROJECTIONS, FORECASTS AND PLANS MARIE-CLAIRE GRIMA asks a number of industry leaders, working in diverse sectors, to take a look back at the year that was and share their ambitions and expectations for 2019.

AT A GLANCE: WHAT WILL 2019 HOLD?

A FOCUS ON LONG-TERM ECONOMIC COMPETITIVENESS

As we edge towards 2019, we ask seven Managing Directors and CEOs for their thoughts on what they expect out of the year ahead.

Economist GORDON CORDINA outlines the economic trends set to dominate 2019, describing what can – and should – be expected across sectors and in fiscal markets.

ECONOMIC VISION 2019: Business. Finance. Economy.

BLOCKCHAIN LEADING THE WAY IN 2019

REACHING FOR NEW HEIGHTS

JOANNA DEMARCO speaks to industry leaders about the ways in which the DLT sector will continue to evolve throughout 2019.

With year on year growth, Malta’s iGaming industry is still operating at full steam. MARTINA SAID chats to industry players to find out how business fared in 2018, and what to expect in 2019.

THE BANKING AND FINANCE SECTOR: FACING THE CHALLENGES AND OPPORTUNITIES AHEAD It’s been an eventful 2018 for Malta’s banking and finance sector. REBECCA ANASTASI talks to the major players about this past year and asks what’s next for 2019.

PUBLISHER

Mallia Building, 3, Level 2, Triq in-Negozju, Mriehel BKR3000 Tel: +356 2132 0713 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 info@maltachamber.org.mt www.maltachamber.org.mt

EDITOR Kevin J. Borg

EDITORIAL COORDINATORS Edward Bonello Rebecca Anastasi

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THE PROPERTY MARKET: WILL IT CRASH OR FLOURISH?

The property market is said to be booming, but what lies in store for 2019? JILLIAN MALLIA speaks to the industry’s leading professionals to find out.

CORPORATE SALES & BUSINESS DEVELOPMENT MANAGER Bernard Schranz

DIRECTIOR OF OPERATIONS & SALES Lindsey Napier

CREATIVE DIRECTOR AND DESIGN Nicholas Cutajar

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FORGING THE FUTURE OF MANUFACTURING IN MALTA

With the manufacturing sector set to expand into 2019, JO CARUANA asks the experts what we should expect from this challenging industry.

BUILDING A SUSTAINABLE TOURISM INDUSTRY FOR 2019

LEWIS PITCHER speaks with five leading figures from across the tourism industry about the momentum, the challenges and the risks of handling what for a long time has been the lifeblood of a nation.

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 & 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. On the cover: A topographic overview of Malta’s industries. Illustration by Nadine Noko for Economic Vision.

ECONOMIC VISION 2019: Business. Finance. Economy.

et’s make

2019

the year of

SUSTAINABILITY

The Malta Chamber of Commerce, Enterprise and Industry looks at the progress made throughout 2018 and advocates for a long-term plan for the future which would help the island capitalise on its past successes and build a bright future.

The Chamber is proud of Malta’s achievements.

here is no doubt that Malta is currently experiencing a buoyant economy featuring unprecedented growth rates, consecutive fiscal surpluses, relative price stability and full employment. This environment of stability is providing the ideal habitat for economic growth and new investment, and the inspiration for budding new sectors. The Malta Chamber is proud to share some of the satisfaction related to our country’s successes. Within the same context, however, it is also compelled to comment on the current situation and propose a way forward. The Malta Chamber has repeatedly underlined the importance for Malta to use this moment of relative prosperity as a spring-board to propel the country towards a desired and well-planned future. The year 2019 should be when we collectively capitalise on this economic resilience to invest in the necessary infrastructure and safeguard future sustainability. This has been the Chamber’s mantra for a number of years now, and it is now more relevant than ever. We need to sit down and

ECONOMIC VISION 2019: Business. Finance. Economy.

take stock of the current situation, while it is favourable, and analyse the strengths and weaknesses which are characterising our economy. We also need to map out a long-term plan of where we want to take our country in the next five to 10 years.

The year 2019 should be when we collectively capitalise on this economic resilience to invest in the necessary infrastructure and safeguard future sustainability.

With this in mind, the Chamber has recommended that authorities address the Budget from a multi-annual perspective. This means that rather than a merely financial and fiscal exercise, the annual Budget would take the shape of a multi-annual economic vision for the country, automatically establishing a structure of continuity from one year to the next. At a European Union level, where a seven-year financial framework is drawn, countries are in a position to plan ahead, as they will be aware, with a degree of certainty, which finances are available and what policies will be expected to come into play. We wish to see the same happening at a local level, whereby our businesses will be in a position to plan ahead, well beyond the 12-month limit, which will enable them to make better-informed decisions about risk and investment. The next natural step would be for Government to initiate a thorough impact assessment of the country’s ongoing growth with a view to set sustainable targets for maximum carrying capacities and output levels, in the country’s economic segments. This study would also recommend a way forward towards reaching the set output levels and maximising returns with the highest efficiency of resources. Once this analysis is concluded, a national debate on a new, long-term economic, societal and environmental master plan for the country post-2020 would be in order. At the same time, 2019 ought to be the year when we see more competitiveness-enhancing measures, with a view to protect the recent economic achievements and ensure further sustainable growth. We must continuously question if our conditions are still right, if our competitors are providing better conditions and if we are still heading in the right direction. Policy-makers at a national level must be made aware that, in spite of the positive economic results achieved in the last years, there are weaknesses which need to be addressed. There exist a number of long-term threats that must be properly addressed through effective action plans.

In the present scenario, it is of utmost relevance to ask whether the current rates of growth are sustainable if the same output and level of skills emerging from our educational institutions are maintained; if the constant rise in the overall cost of labour, rising operating costs and the prevailing rates of rent inflation should sound alarm bells for our near future; and if the current infrastructural network and the present internal transport and logistics structure are still adequate for the rate of growth expected in a year or so. We must start taking these questions seriously to mitigate any risks posing a real threat to tomorrow’s economic growth. The Chamber is proud of Malta’s achievements. Indeed, these achievements are the result of clever planning and the hard work of our entrepreneurs, our workers as well as our political leaders. But we must not take these successes for granted. These successes were achieved because we provided the right conditions for them to materialise – and we must continue to do so. The Malta Chamber believes that this is the opportune time to capitalise on the successes of recent years and plan long-term, in order to determine where we want to take our country. These are exciting times indeed and the Chamber is all too pleased to once again be an integral part of the process. EV

ECONOMIC VISION 2019: Business. Finance. Economy.

Consolidating MALTAâ&#x20AC;&#x2122;S

successes

This past year has been characterised by robust economic growth, according to Prime Minister Joseph Muscat, who underscores the importance of not resting on our laurels and looking ahead to new technologies and innovations, and tackling the challenges of business expansion.

ECONOMIC VISION 2019: Business. Finance. Economy.

“

s 2018 comes to a close, with a fresh new 2019 chapter, some introspective reflection about Malta’s economic landscape is a must – not only from the political lens, but also from the business perspective. The numbers are promising. Malta’s economic growth remains robust, at nearly 5.5 per cent this year, and next year the European Commission predicts we will register the largest economic growth in the EU. Private consumption continues to increase, underscoring the crucial role domestic demand plays as the main driver of economic growth, supported also by strong investment growth. For the fifth year in a row, we had the fastest growth in employment across the EU. Moreover, the recent European Autumn Economic Forecast indicates that wages in Malta will improve three times the rate observed in the EU. This is encouraging news for our families, as well as our businesses. In 2018, investment in Malta is projected to have risen to €2 billion, 66 per cent higher than five years ago. This investment has, in turn, led to a surge in employment creation – 46,000 new jobs, with the majority created in the private sector. Concurrently, we have ensured that job-seekers in Malta find a support structure that is flexible and agile enough to facilitate finding new and stable employment, making Malta the top country with the highest unemployment rate in the European Union. Our business landscape has proven itself time and again fertile ground for business seeking to set down roots and flourish. Malta certainly is not looking to switch off its engine in this high time. On the contrary, our foot

The numbers are promising. Malta’s economic growth remains robust, at nearly 5.5 per cent this year, and next year the European Commission predicts we will register the largest economic growth in the EU.

remains on the accelerator, as we blaze new paths towards opportunities that present themselves through innovation and technological breakthroughs. A definite sign was given to businesses seeking to expand in the disruptive technologies sector. 2018 will go down in history as the ‘Year of Blockchain’, in which Malta established itself globally as the Blockchain Island. 2018 is the year when Malta became the first country in the European Union and worldwide to legally regulate distributed ledger technology. This was a decision welcomed by companies operating in this line of business. It sounds like a contradiction in terms, but our experience is that companies that operate disruptive technologies prefer to work in a regulated environment. That is what we have been doing over the past couple of years. In reality, investors want to work in a climate of trust and confidence, because this in turn would attract more clients. But if 2018 was the Year of Blockchain innovation, next year promises to be just as eventful. If there is one thing innovation never does, is rest on its laurels. Mindful of this, Malta has its eyes set on the next big thing. 2019 will be the year in which Malta will make inroads in Artificial Intelligence. We cannot let fear or luddism hold us back from exploring the huge potential which AI can offer to a small island like ours.

ECONOMIC VISION 2019: Business. Finance. Economy.

“

2019 will be the year in which Malta will make inroads in Artificial Intelligence. We cannot let fear or luddism hold us back from exploring the huge potential which AI can offer to a small island like ours.

It is due to this frame of mind that the economic numbers keep improving. The Government this year has presented yet another Budget which has not added any taxes, the third Budget with a surplus, the fourth Budget which offers an increase in pensions, and the seventh Budget to feature further income tax reduction. This Budget included the largest financial package in our history, with a worth of measures amounting to 1.1 per cent of the GDP utilised to boost disposable income. If this Budget had one goal, one overriding ambition, it was to consolidate the successes which Malta has been generating and experiencing year after year, for the past five years. Today, we look back, and recognise how much our country has truly advanced. The majority of Maltese feel that their families have advanced as well. But progress tends to bring with it fresh challenges. Malta and its economy are no different, and the risk of losing focus and perspective cannot be ignored. Indeed, this Budget tackles new challenges, which have arisen because of the wealth which this country is generating, head on. This can be done decisively because the country’s finances have been placed on a solid footing. One major challenge for further business expansion is finding the adequate human resources. This is a challenge which this Government clearly understands, and is working hand-in-hand with all the stakeholders to find the appropriate problem-solving channels. Another challenge is bureaucracy, even though we have seen considerable improvement over the past years. In the last five years, the Public Service has implemented over 600 simplification measures. We fight bureaucratic culture on a daily basis, by working closely with businesses to alleviate some of the day-to-day tensions which they face. By doing this, we are sending a clear signal that this Government not only opens its door and windows to new investment in Malta, but makes sure that future generations keep family businesses going.

Another challenge we have to tackle is strengthening our infrastructure. That is why the 2019 Budget includes a capital expenditure of nearly €675 million, including an allocation of €100 million for our road network. Efficient infrastructure will minimise running costs for most businesses. Malta’s road network will be revamped over the next seven years, with a total expenditure of €700 million. We will kick off 2019 with a feel-good factor running through the country. This is thanks to you, hardworking individuals who dedicate your lives to your businesses, employing many people, and giving many families an opportunity to live their life more comfortably. My appeal is to continue to put your trust in our country which holds incredible potential, and represents myriad untapped and unexplored opportunities. What we have achieved so far is just the beginning of what we can aspire to. EV

“

What we have achieved so far is just the beginning of what we can aspire to. 37

ECONOMIC VISION 2019: Business. Finance. Economy.

There seems to be no effort to align our economy with our education system, just as there seems to be no holistic plan on land and energy resource use for the development of our infrastructure. Photo by Roberto Runza 38

ECONOMIC VISION 2019: Business. Finance. Economy.

ECONOMY BY FOR

the

people

Opposition and Nationalist Party leader Adrian Delia calls for economic growth driven by sustainable industries, an equitable distribution of wealth and concrete action to shore up the island’s successes.

he economic vision of the Nationalist Party is based on two complementing and inseparable notions.

The first is that economic growth in Malta needs to be fuelled by sustainable industries. Sustainability comes from using the country’s resources intelligently which, in our case, are our human resources and our land, wind, sea and sun. We need to match our economic growth with human resource development in a manner that gives everyone the opportunity to operate at the best of his and her game. Sadly, today, this is not the case. We still have the highest early school dropout rate. The best jobs created by our economy are going to foreigners. There seems to be no effort to align our economy with our education system, just as there seems to be no holistic plan on land and energy resource use for the development of our infrastructure. Government is pursuing a policy of economic growth through population growth without planning ahead. The lack of serious planning and investment in infrastructure is starting to weigh down on our economic growth. Our roads have become virtually a parking lot, unable to cope with the increase in the number of cars. Middle and income earners have found themselves priced out of the property market. These are just two of the most pressing problems caused by Government’s economy of numbers.

The second pillar of our economic vision is that the benefits of economic growth should cascade in an equitable manner throughout the whole of society, rather than trickle down. Our economy is working very well for property owners but less so for those looking to buy or rent property. It is working well for foreigners who have the skills required to take the best jobs in iGaming and financial services, but less so for those leaving the education system without having obtained any qualifications. The economy is working well for consultants and people in highly-paid positions of trust, but less so for the pensioners who are struggling to make ends meet. The Opposition published its pre-Budget document in which we analysed the country’s economic and financial performance. We did not stop there. Our document puts forward proposals on how to tackle the shortcomings and challenges which we identified. We recommended clustering as a means of improving our competitive edge in key economic sectors. We recommended that part of the Budget surplus be ring-fenced for long-term investment – in other words, saving for those rainy economic days. We also recommended that a study be carried out on lowering the individual income tax rate. In the past, a substantial decrease in the rate led to higher revenues to Government. We need to ascertain whether the time is ripe again for such a bold step. We also need to intelligently remove unfair competition

ECONOMIC VISION 2019: Business. Finance. Economy.

“

The benefits of economic growth should cascade in an equitable manner throughout the whole of society, rather than trickle down.

being faced by local businesses that are competing with foreign-owned businesses operating in Malta. The latter can enjoy advantageous tax rates which ultimately translate into a competitive edge. We also proposed ways on how to improve our education system and the transfer of knowledge from foreign experts, who are currently working in different sectors in Malta. Our document identifies ways of helping the vulnerable members of society who are feeling alienated by talks of economic growth. We focused particularly on pensioners. We believe that our pension system needs to be adequate in that it should allow our pensioners to live a decent life. It also needs to be sustainable in the long term. We called for a planned approach to development, especially highrise development. One has to ask whether enough investment is going into ensuring that these high-rise developments, and their eventual occupants, are safe in case of emergency and that there exists the proper subterranean infrastructure to support them. We also called for concrete action in protecting Malta’s reputation. This is the intangible asset, the intangible resource, which sadly

In our pre-Budget document we also called for concrete action in protecting Malta’s reputation. This is the intangible asset, the intangible resource, which sadly is fast becoming a liability.

is fast becoming a liability. International institutions and rating agencies are picking up on this fact. They saw, as we did, an erosion of our institutional framework. They want and expect us to shape up. Government has, to date, dragged its feet, refusing to even admit that a problem exists. One hopes that concrete steps are taken to shore up the independence of our institutions and save the day before it is too late, because there is too much at risk – our good name, our pride, our Malta. EV

ECONOMIC VISION 2019: Business. Finance. Economy.

Currently, the country is enjoying a surplus, which the Ministry for Finance said should be repeated in 2019.

Photos by Alan Carville 42

ECONOMIC VISION 2019: Business. Finance. Economy.

IF CERTAIN PROJECTS ARE NOT SUITABLE F O R M A L T A , we should be

bold enough TO SAY SO

Malta Chamber of Commerce, Enterprise and Industry President, Frank V. Farrugia, speaks to Martina Said about Malta’s prospects, where it can do better, and the need for a long-term financial plan for the islands.

he year 2018 has turned out to be, in some respects, positive for Malta, the economy and local business. Unemployment rates have been low, inflation rates have remained relatively stable, and, according to the European Economic Forecast published last November, real GDP growth is expected to average 5.4 per cent by the year’s end, which augurs well for a solid start to 2019. President of the Malta Chamber of Commerce, Enterprise and Industry, Frank V. Farrugia, is in agreement, and believes that “the economy has done fantastically well in 2018,” particularly the major industries of iGaming, financial services and hospitality. However, he adds, “various sectors are not doing as well as expected, and this is partly due to the problem we’re facing of finding the right people for the right jobs.” The issue here, Mr Farrugia asserts, is two-fold. “There is a shortage of people, as well as a skills gap, and considering the amount of money spent on education, it is absurd that a vast number of jobs on the local market and across various sectors are not being taken up by Maltese nationals. Unfortunately, the 2019 Budget fell short of addressing this important issue which the Chamber has been very vociferous about over the past years.” 43

ECONOMIC VISION 2019: Business. Finance. Economy.

Other issues hampering growth, says Mr Farrugia, are rental prices and a shortage of banks serving the local market. “We need to attract more international banks with a very good reputation in order to serve Malta as a whole. Without them, I think that the success we are currently enjoying cannot be maintained,” he states. “Rental property prices are another obstacle to further growth – foreign, as well as local, individuals are paying rent which is practically unaffordable. The right balance needs to be found to ensure that property owners protect their investments while tenants are charged fair prices. This especially applies to foreign workers who move to Malta to work here. If the package offered to them is not good enough to sustain them, they will come, stay for a few months, and then leave.” Sharing the Chamber’s views on the 2019 Budget, the President states that “overall, it is a positive Budget for businesses, in the sense that no new taxes or fiscal measures were introduced. The Chamber had asked Government for no surprises to be announced, a call which has been heeded,” he says. “Currently, the country is enjoying a surplus – apart from the revenue generated through the Individual Investor Programme – which the Ministry for Finance said should be repeated in 2019. To this end, we advocate for economic planning to be done for a longer term than the one-year period covered by the annual Budget and adjusted along the way. This exercise needs to be carried out by Government and constituted bodies, including the Chamber,” he insists. Mr Farrugia adds that while Government has all the economic figures at its disposal, it is entities like the Malta Chamber which know, through its members, what can and needs to be achieved through business and commerce. “The country is at a stage where it needs to be choosy – if we feel that certain projects are not suitable for Malta, we should be bold enough to say so, and adjust the long-term Budget forecast accordingly. Additionally, we need to ensure that citizens get the most value for money on every euro spent by Government.” Looking ahead to 2019, Mr Farrugia believes that the economic momentum gained in 2018 will be sustained, and that the future for Malta and its continued success lies in IT and technology-based industries. However, this goes back to the issue of a skilled workforce, or lack thereof. “In order to shine in this industry, we need to go back to our education system and ensure that school-leaving students are wellversed in subjects such as mathematics and sciences; for them to be competent in the fields of Artificial Intelligence, robotics, iGaming, medicine and more. Currently, Malta is unable to provide certain services to certain markets as it is limited by its own size. However, size won’t affect its ability to service digital sectors, and all companies – no matter how big or small – can compete in the race. I believe that Malta can excel in this area.” As for what he hopes to see achieved in 2019, Mr Farrugia states that some sectors are in dire need of an upgrade. “One such sector is tourism – we need to do so much more here to improve our package. To begin with, there’s an urgent need for a general clean-up of the island and we also need to improve infrastructure across the board in the country,

Size won’t affect Malta’s ability to service digital sectors, and all companies – no matter how big or small – can compete in the race.

ECONOMIC VISION 2019: Business. Finance. Economy.

especially in areas which attract large numbers of tourists, such as Bugibba, Qawra, Sliema and St Julian’s. We cannot accept littered streets, damaged pavements and a general sense of neglect, where people get away with doing whatever they please. We need discipline and we need cleanliness,” he asserts. The Malta Chamber is currently in the process of mapping out its second Economic Vision 2022-2028, with the aim of releasing it by the second quarter of next year. “This supports our call on Government to have a long-term economic forecast with complementary financial planning and budgets. We will be reviewing what was achieved by the first phase of Economic Vision 20142020, as well as what still needs to be achieved, what needs to be changed, what is still valid, and the direction that we want to see Malta take over the next 10 years. We’ve roped in the leaders of 25 top international companies operating

in Malta, as well as entities such as the University of Malta, Malta College of Arts, Science and Technology, and others, to design a new Economic Vision for Malta.” The year 2019 will also mark the end of Mr Farrugia’s tenure as President of the Malta Chamber, a role he describes as “too short, but incredibly interesting.” When he was elected, he says, his “mission statement was to improve the Chamber’s relationship with its members. Just as citizens deserve to get the best value for their money, our members should also get what is expected of the Chamber. We’ve done a lot, in this respect, to create new B2B opportunities for our members over the past two years.” Among the Chamber’s most recent highlights are the BusinessEurope Council of Presidents (COPRES) meeting in 2017, as well as the 170th anniversary of the Chamber, commemorated last August with a national conference on family businesses, which hosted three Italian giants: Ferrero R&D Chief, Briano Olivares; Buffa Founder, Paolo Buffa; and Grimaldi Lines Director, Eugenio Grimaldi. “Looking beyond my tenure as President, I hope that the Chamber will continue to flourish and develop fresh ideas,” he asserts. “I also hope that members will come forward to participate in the Chamber’s elections next March, and that members are more active in various committees, because without members’ participation, the Chamber simply cannot function.” EV

ECONOMIC VISION 2019: Business. Finance. Economy.

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I N F I G U R E S A L O OK B AC K AT T H E NUMBERS WHICH DEFINED THE YE AR .

Photo by Steven Psaila 48

ECONOMIC VISION 2019: Business. Finance. Economy.

The percentage of graduates who are employed in Malta, the highest in the EU (2017 figures, as announced in Eurostat 2018).

Total tourism expenditure for the first nine months of 2018.

Malta’s expected real GDP growth in 2018.

The percentage of investors who said they believed Malta is still an attractive destination for Foreign Direct Investment (FDI), according to the EY Malta Attractiveness Survey, the results of which were revealed in October 2018.

3.8

Malta’s unemployment rate, the sixth-lowest in the EU, as announced in the 2018 Eurostat figures.

72.2

Malta’s labour force participation rate in 2017, as announced in 2018; these numbers are up by nearly 10 percentage points since 2012.

€1.7 BILLION

The new voting age in Malta, unanimously approved by Parliament in March 2018.

6.8 MILLION The number of passenger movements expected through MIA by the end of 2018.

€392.7 MILLION The surplus registered in Malta in 2017 and announced in October 2018, equivalent to 3.5 per cent of GDP.

2.04 MILLION The number of inbound tourist trips for the first nine months of 2018.

78.2

Sources: NSO, EY Malta Attractiveness Survey 2018, Eurostat, European Commission Autumn 2018 Economic Forecast

5.4%

94.5

The percentage of Maltese families who own the property that they live in.

5.6

The percentage of electricity derived from renewable sources in Malta. 49

ECONOMIC VISION 2019: Business. Finance. Economy.

Maltaâ&#x20AC;&#x2122;s infrastructure has to catch up with its fastmoving economy.

Photos by Alan Carville 50

ECONOMIC VISION 2019: Business. Finance. Economy.

ear in review: W H A T

W I L L

T H E

2019 economy bring?

With a consolidative 2018 coming to an end, Finance Minister Prof. Edward Scicluna believes 2019 will bring more success and more progress for our economy. By Jo Caruana

“

2018 was a year of consolidation,” Finance Minister Prof. Edward Scicluna tells me as we sit down to discuss his thoughts on the year gone by, and the one that is about to unfold.

“We had big plans and I believe we have acted upon them, especially when it comes to aspects like infrastructure and construction, where a lot of work was needed. People are seeing big changes and a lot of money has been spent on the groundwork – human resources, machinery, and works which had already been approved,” he says. “There is no doubt that Malta’s infrastructure needs to catch up with our fast-moving economy. Our island’s level of development and income deserves modern infrastructure and we need to get rid of any bottlenecks that may exist. That’s where our attention is at the moment, because we are aware that we are cruising along and that we don’t want to meet any mishaps when it comes to maintaining that speed. But everything we are doing is being achieved within our capacity as a nation; the surplus shows that the Government is living within its means,” he continues.

ECONOMIC VISION 2019: Business. Finance. Economy.

Looking to the future, we must ensure a fair and equitable distribution of resources while supporting the most vulnerable in society.

However, Minister Scicluna admits some people may be struggling to come to terms with the fast-paced growth and development the island is experiencing. “They think it’s short-term,” he says. “That it can’t last. But we’re saying that it can. It might seem shocking because we have never experienced this kind of sustained growth before, but we need to get used to it. At the start it was a vision, but now it is our reality – it’s not a dream. I understand that people do worry it won’t last but this is the higher standard of living that we must become accustomed to – in the same way that other advanced countries have gotten used to it,” he states. “That said, as a Government we are aware that the pace of economic activity can create social pressures on certain vulnerable segments of the population, including pensioners, single-earner households with children, disabled people and low-income households that are at risk as a result of the booming rental market. Thus, a number of Budget measures addressed these pertinent concerns and, looking to the future, we must ensure a fair and equitable distribution of resources while supporting the most vulnerable in society.” In a similar vein, Minister Scicluna says that Malta must continue to strengthen its success, while also protecting the reasons why foreign companies are attracted to our shores. “It is crucial not to spoil what we have obtained. The first five years were the hard part; now it should get easier, but we have to maintain what we’ve built. We mustn’t become overconfident and make mistakes.” Highlighting 2018’s growth of 5.4 per cent, which is consistent with an output gap of 0.9 per cent, Minister Scicluna underlines the past 12 months as a “year of satisfaction,” stressing the need to meet the requirements sustaining that growth. “You can never ignore growth,” he says. “But we don’t want to start fanning the economy excessively because resources need to be able to catch up – especially when it comes to human resources. Meanwhile, looking to the future on a number of aspects – including education and health services – we want the best for Malta; it’s about quality not quantity.”

Now, with 2019 in view, Minister Scicluna explains that 2019 is expected to continue to be underpinned by a stronger element of domestic demand, driven in particular by strong investment activity in real estate, accommodation, aviation, technology and telecommunications, and supported by substantial public investment. “Exports are also expected to pick up momentum, though the external situation is expected to remain fragile and conditioned by rising protectionist tendencies and vulnerabilities to global capital flows. Currently, the local economy is forecast to grow at a more moderate pace of 5.3 per cent, sufficiently below the potential growth estimate of 6.2 per cent, to allow the output gap to close.” He goes into further detail to explain that the growth outlook for 2019 is expected to be underpinned by rising productivity, moderate wage growth, relatively low inflationary pressures and a persistent current account surplus. “Together with a more modest output gap, these indicators suggest that the positive outlook can be sustained over the medium-term,” he says. “This notwithstanding, risks to the growth outlook

ECONOMIC VISION 2019: Business. Finance. Economy.

cannot be underestimated. However, both the sensitivity analysis and the alternative model projections suggest that risks are fairly balanced in 2018 and still marginally positive for 2019.” Minister Scicluna explains that Malta isn’t yet a mature economy. So, in order for it to converge with more developed economies, growth needs to be faster than the wider average. “We are planning for convergence to take place in a number of years’ time,” he says. “We are also placing our focus on some very upand-coming areas which will enable Malta to be ahead of the game – just like we are doing with blockchain at the moment. Our island was one of the first – if not the first – country to create a regulatory framework for blockchain and related services, and we have thrived in this aspect. The seeds are there, and big companies have said they are very happy doing business with Malta and from Malta; this is a significant point for us to have reached.”

In fact, Minister Scicluna says Malta definitely presents the right package for further development in this area. “We have an edge over bigger countries because they are often more set in their ways and thus struggle with the idea of disruptive technologies, so they often brush them off. Malta needs to survive in a different world – a world with very limited resources of our own – and we need to embrace movements of this kind. We have the intuition to believe it’s going to be revolutionary. That said, we are in no way doing away with the financial stability or customer protection that we are used to or allowing crime or money laundering to take place. Of course, our objectives and ethos will remain the same, but the way we regulate this new sector has to be different from the way we have regulated other institutions in the past. I have no doubt it will be a major step forward for our island. It’s very positive.” Finally, however, when looking to the wider world, Minister Scicluna does have a number of concerns. “With regards to Europe, the UK and beyond, I believe the next 12 months will be quite different to the last 12,” he says. “I think both international and European brinkmanship are leading to significant negatives – whether it’s the USA versus China, or the EU with or without Brexit, things do not bode well. I suspect it will all lead to situations that we never intended to get ourselves into and which we cannot come back from. I hope there will be some positive resolutions in the months to come,” he concludes. EV

The local economy is forecast to grow at a more moderate pace of 5.3 per cent.

ECONOMIC VISION 2019: Business. Finance. Economy.

ECONOMIC

G R O W T H in Malta will continue to be

robust 54

ECONOMIC VISION 2019: Business. Finance. Economy.

Central Bank Governor, Dr Mario Vella, looks back at the strides achieved in 2018 and details his projections for 2019.

n 2018, the Maltese economy went through its ninth consecutive year of growth. Since the last major financial crisis hit the global economy, our economy has expanded by 55 per cent, achieving growth rates last seen in the early 1990s. This happened even though the economic climate around us was not that benign. Our European partners only managed to return to their 2008 level of economic activity

in 2014. Weak management of government finances, significant issues in the banking sector, combined with an unsatisfactory pace in embracing change, and structural reform buoyed down our traditional trading partners. In this environment, Malta’s only way to progress was to look beyond these markets while continuing to diversify its productive capacity. The Maltese economy today looks very different to that of 2008. It is more service-oriented, more outward-looking and more reliant on human capital, including talent from overseas. Malta has also learnt from the mistakes of others and has worked hard to ensure fiscal and financial system stability.

Photo by Melvin Bugeja

Our banks’ liquidity – which was already strong – and their capital position were both strengthened further. Government finances turned, for the first time in a generation, from deficits to surpluses, with national debt following a steady downward trajectory and starting to be repaid. Our country’s current account in the balance of payments has shifted from one of high persistent deficits to one of the highest surpluses among EU member states. The last nine years of growth have put us in a relatively strong position. We are a country which is less reliant on a handful of industries dominated by large firms, but instead depends on a fast-developing ecosystem of dynamic small and medium enterprises. Malta is increasingly a leader in a number of new and growing sectors, such as remote gaming and blockchain, but also in ‘traditional’ industries,

ECONOMIC VISION 2019: Business. Finance. Economy.

such as tourism, in which we are much more diversified and less exposed to the vagaries of single external actors. Our financial system is bolstered by an unprecedented degree of liquidity, spurred by a large rise in household and corporate saving, but, despite this, our banks have retained a very prudent approach to lending. At the same time, the fiscal space available to Government means that it is well placed to invest more on building the infrastructure we need to move to the next phase of our economic development. In this light, the Central Bank of Malta projects that economic growth in Malta will continue to be robust. Last year we had forecast that in 2019 real GDP growth would be 4.5 per cent. We now think it will be closer to 5 per cent. This upward revision reflects the unanticipated strength of domestic demand during 2018. Our economy has experienced a more rapid expansion of disposable income, fuelled by a stronger-than-expected rise in employment. Maltaâ&#x20AC;&#x2122;s employment rate has, indeed, been surprising and it now exceeds the EU average when, just a few years ago, we were one of the laggards. We believe that this largely reflects the positive impact of structural reforms which have increased greatly the incentives to work. The provision of free childcare to working parents, the introduction of schemes such as the tapering of unemployment and social assistance and in-work benefits, the lowering of income taxes and the granting of incentives for those who work beyond their retirement age,

Last year we had forecast that in 2019 real GDP growth would be 4.5 per cent. We now think it will be closer to 5 per cent.

ECONOMIC VISION 2019: Business. Finance. Economy.

have contributed to raise labour participation among women, older workers and persons previously reliant on benefits. Moreover, we have benefitted from a considerable availability of overseas talent. This has undoubtedly helped Maltese firms to expand more rapidly as they could access skills which were otherwise not present in our labour market. Moreover, while wages have risen, they have remained competitive as demand for labour could be accommodated. We believe that these trends will continue over the coming years, though the pace of economic growth will converge to more moderate rates, of closer to 3.5 per cent per annum. Government and private investment are anticipated to boost domestic demand during the coming years, resulting in an improved transport infrastructure, together with new capacity in relatively new sectors, such as medical tourism and digital technologies. At the same time, while there is considerable uncertainty about foreign demand, we continue to believe that export growth will accelerate, driven not only by services, but also by a recovery in our goods exports.

During 2019, as policymakers, we have to seek new avenues for Maltaâ&#x20AC;&#x2122;s continued economic expansion.

Photo by Melvin Bugeja

The main challenges we face are twofold. On the one hand, our open economy faces an environment that is becoming less open to trade. Brexit, and other populism-driven political developments in various countries, the imposition of trade tariffs on industrial goods, and reticence in opening up further international trade in services all pose risks to our growth model. On the other hand, our economic success means that, as a country, we are currently operating above capacity. This leads to rising costs, which can erode our competitiveness in the medium term. This will happen unless we manage to increase our resources or improve their productivity to generate more value-added. During 2019, as policy-makers, we have to seek new avenues for Maltaâ&#x20AC;&#x2122;s continued economic expansion. We should build better ties with existing trade partners, but also seek to nurture new relationships. We need to ensure that the growth of new sectors does not harm that of existing ones. We should focus more on upskilling our workforce and creating a more flexible working environment. Finally, we need to leverage better the unprecedented stock of savings in our economy and transform it into an increased capital stock that helps us sustain our vibrant economic growth path. EV 57

ECONOMIC VISION 2019: Business. Finance. Economy.

201

2018 was an eventful year for several companies within various industries in Malta, and the year ahead promises to be even more so. Marie-Claire Grima asks a number of industry leaders, working in diverse sectors, to take a look back at the year that was and share their ambitions and expectations for 2019.

Industry

PROJECTIONS FORECASTS AND PLANS

alta has had yet another economically successful 12 months in 2018, on the back of the bumper year that was 2017. Business and consumer confidence indicators remain high and real GDP growth is expected to average 5.4 per cent at the end of the year. According to the European Commission’s Autumn Forecast, domestic demand is replacing net exports as the main engine of economic activity, while the large current account surplus continues to be underpinned by the internationally-oriented services sector. Inflation is expected to pick up as wage pressures start gaining pace, and the Government balance is projected to be moderate but remain in surplus.

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Data centre, cloud services and solutions are enablers to the many new realities being brought to life by technology. As a result, we are experiencing a much higher adoption of big data and Artificial Intelligence solutions across various industries. Christian Sammut, CEO, BMIT

BMIT CEO Christian Sammut says that 2018 was a successful year for the data, cloud and managed services provider. “We have continued to experience growth in our core areas of operations, including our data centre and cloud and managed IT services, despite increasing local and international competition. This growth was coupled with the development of new products and services, as well as with further enhancements to our international connectivity offerings including our MultiCloud Connect service. During this same year, we have also completed the acquisition of Kinetix IT Solutions, which will enable us to extend our market reach better locally, as well as further enhance our cloud competences.” Mr Sammut says that 2019 will be a year of major opportunities for BMIT, which is on its way to becoming a publicly-listed company. “Our shareholder has publicly announced its intention to sell shares in BMIT through an IPO and we will therefore eventually be listed on the Malta Stock Exchange. However, the changes expected from this major step in our corporate

ECONOMIC VISION 2019: Business. Finance. Economy.

history will not derail our focus from our customers and businesses. In 2019, we will further reap the benefits of the Kinetix acquisition, by offering new and enhanced services and solutions. We also have plans in place for further investments in our relationship with customers and we will also be announcing a number of partnerships.” Locally, a key challenge remains recruitment. “The demand for human resources is high, with a consequent direct impact on our ability to grow our workforce,” Mr Sammut says. “Notwithstanding, we have managed to maintain and recruit excellent people, as part of our continuous investment in people and their training.” He continues by saying that the IT sector, in which the company operates, is a highly dynamic one, bringing with it continuous challenges and opportunities. “We will be addressing this with further IT specialisations, by focusing on key competences and on the HR expertise we possess, as well as committing further investments in technology, systems and infrastructure.” “Undoubtedly, 2019 will see further innovation across the tech world. Data centre, cloud services and solutions are enablers to the many new realities being brought to life by technology. As a result, we are experiencing a much higher adoption of big data and Artificial Intelligence (AI) solutions across various industries. [Research and advisory company] Gartner refers to ‘autonomous things’ as a key trend moving forward, powered by AI, IoT and complementary technologies.” “On the other hand, we are also seeing increasing demand for data and network security services. As more and more businesses become totally dependent on their IT infrastructure, the security of their data, their systems and ultimately their business, becomes a critical factor for survival and success.” Software development company DataByte also reported a fundamentally important year that rewarded the firm’s efforts and strategies developed over time, according to Managing Director Frederick Micallef. “We have further successfully grown our Workforce cloud HR suite to include more HR modules that are being requested by the market,” Mr Micallef says. “We are adding many more clients who are now investing in our cloud HR suite so as to add even wider HR management functionality in the near future through more integrated applications. The incredible growth and demands in the HR function and management complexities, both locally and abroad, put us in a very good position to build a product that will even have international appeal.” Databyte has also pledged total commitment to the development of its cloud-based WMS3PL application – Warehouse Management System for Third Party Logistics – which the company is developing jointly with a local leading logistics company and in solid partnership with

Through our Software as a Service (SaaS) offering we will try to automate and improve HR management for many organisations. Frederick Micallef, Managing Director, Databyte

world-renowned consulting firm Gartner. “For us, these are two critically important milestones achieved this year as we strive strategically to become market leaders in these two areas of business,” Mr Micallef says. Mindful of further growth expected in the economy in 2019, Mr Micallef says Databyte is driven to deliver more to its HR clients, “by giving them even more complex and fully-integrated software tools and business analytics to permit better management of their human capital with better efficiencies and effectiveness. During this year, we will add modules to our HR system which our new clients are demanding from our suite. Among others, these will include a rostering and scheduling module, as well as a performance appraisal module.” In the WMS3PL space, Mr Micallef says Databyte will be releasing the first cloud version of what is aimed to be a warehouse management product which will have international multi-language functionalities. “This will appeal to the wide and fast-growing business of international warehouse management as a part of the complex supply chain process.” Mr Micallef says that the tech sector, in an age of expected disruptions, will continue to avoid rest. “Technology growth will continue on its exponential trajectory. We are seeing more mobility requirements, more cloud developments, FinTechs establishing themselves firmly and blockchain technology looming over every industry function. These are wonderful challenges that we will need to understand and absorb in our journey into the very near future, to help us give more software service platforms to our clients both locally and abroad.” 59

ECONOMIC VISION 2019: Business. Finance. Economy.

In the gas and petroleum sector, business has also, predictably, been good. “There is only one word to describe this year for our company – excellent!” exclaims Kevin Chircop, Executive Chairman of Enemed, the company responsible for the importation, distribution and wholesale of petroleum products for Malta’s inland market. “We have seen our major infrastructural projects kicking off on time, and the launch of the franchise which has been very successful. We were the first company in this industry to achieve the ISO 9001:2015 certification, and most importantly, we have achieved growth in sales, which means that all the above tactics have made a significant contribution to our way forward.”

Next year, we are anticipating that the bulk of the fuel stations under our brand will be fully upgraded.

Mr Chircop expects 2019 to be another Kevin Chircop, challenging, albeit fruitful, year for Executive Chairman, the company. “Our main priority is to Enemed maintain our focus on delivering the infrastructural projects of Has-Saptan and Luqa on time so that we can start making use of the most versatile and efficient logistics centre on the island,” he explains. “These projects will not only make our company more effective in maintaining our high-quality standards but will also bring the capability of developing more products which will enhance our customers’ experience.” Going forward, Enemed aims to continue launching the franchise in more fuel stations around the Maltese islands. “Next year, we are anticipating that the bulk of the fuel stations under our brand

will be fully upgraded. This will continue to strengthen our presence on the market. Maintaining focus will be key,” Mr Chircop observes. “At Enemed, everyone is keen on delivering more but we have to ensure to manage our deliverance expectations and not run out of fuel before the finish line!” While Mr Chircop expects the push for fossil fuel substitutes to intensify going forward, he does not anticipate any major breakthroughs that will have a significant impact in 2019. “In terms of our country, the outlook is stable with some organic growth expected, but no significant upward trends.” Moving on to the shipping industry, Express Trailers Chairman and CEO Franco Azzopardi states that it has been a milestone year for the company. “Among the most notable events were the acquisition of an Italian company owning strategically-located property very close to the port of Genoa. The objective is to develop into an operational hub to serve both our operations, with Maltese retailers conducting e-commerce, and with Italian customers being serviced in our North-bound trips. We also set up our new company, Express Trailers Engineering, with the objective of serving our maintenance needs and to aid Hammar Maskin of Sweden in rebuilding reengineered side-loaders. We have also consolidated our hubbing concept with the completion of a new warehouse facility.” The company also set up its dedicated Express Trailers Training Academy and reasserted its commitment towards road safety with the launch of a national Express Road Safety Campaign, promoting safer roads for all. Heading into 2019, Mr Azzopardi says one of Express Trailer’s priorities is going to be its ShipLowCost.com B2B service, now adding export services for online sales done by Malta-based retailers. “We shall also be concentrating on the Genoa hub towards providing a managed warehousing

ECONOMIC VISION 2019: Business. Finance. Economy.

and hub facility for Malta-based importers venturing in large scale e-commerce, but having the facility in mainland Europe through our hub. Internally, our topmost efforts will be trained on the implementation of a three-year IT project that will see our operations using best-of-breed logistic planning and an administration core system,” Mr Azzopardi elaborates. “The roll-out will be, by far, the most significant challenge for our people, with the involvement of all key people, users, risk function, IT, project management, legal, and the Board.” Mr Azzopardi says that locally, logistics correlates positively with the national policy of growth in the population due to heightened demand for consumer goods. But internationally, the outlook is troubled by the UK’s upcoming exit from the European Union. “The main concern in the industry is Brexit, especially if there is a meltdown of trade agreements, transit conventions, security agreements and other currently available arrangements and facilities,” he explains. “The UK is aiming for a Facilitated Customs Arrangement (FCA) but recent developments seem to point to difficulty in applying it in practice before the end of the transitional period. One must also not undermine the capacity that has been lost over many decades in the arena of customs competences and with regards to trained personnel.”

The main concern in the industry is Brexit, especially if there is a meltdown of trade agreements, transit conventions, security agreements and other currently available arrangements and facilities. Franco Azzopardi, Chairman and CEO, Express Trailers

While MaritimeMT, a co-operative providing highstandard training services to maritime pilots and mariners, was launched as a project and as a brand this year, the core project has been a long time in the offing. “It follows eight years of experience from operations as the Mediterranean Maritime Research Training Centre (MMRTC),” says Joseph Meli, MaritimeMT’s Marketing and Operations Manager. “Moreover, this experience goes back further, considering that MMRTC Coop Soc Ltd was established by experienced Master Mariners within the Malta Maritime Pilots Coop Soc Ltd, with the view of delivering specialised training to local seafarers,” he details. The official launch this year included the start of construction of a €3 million stateof-the-art training centre facility which will house MaritimeMT’s full bridge simulators, ECDIS simulators, GMDSS simulators and engineering workshop. Construction, which is planned for completion in 2019, comes together with an improved holistic curriculum of training courses aimed at seafarers, superyacht crews, shore-based personnel, as well as the general public who would like to learn more about safe navigation as well as Malta’s seas.

ECONOMIC VISION 2019: Business. Finance. Economy.

“Our motto is ‘Development of Excellence’. That is what we are set on doing. MaritimeMT is not just a training centre,” Mr Meli insists. “We aim to create a one-stop-shop for those individuals who would like to start their career or improve on their career at sea. We will be offering career path advice, training support and access to recruitment. Although many see a career at sea as consisting of embarking on a path to become either a captain or an engineer, there are many more careers available in this sector, and we want to invest a lot of energy in nurturing that. To do this, we intend to partner up and lobby our cause with as many entities as possible on both a national as well as on a community level.” Mr Meli laments the fact that in Malta – as has been the case in many other countries around the globe – vocational education has been facing an uphill struggle. “Malta is an island and being surrounded by sea is a destiny we all share. The sea has shaped many aspects of Malta’s culture, way of life, demography and economy, and it will continue to do so. It would be tragic risking a situation where we will not have a strong enough workforce to sustain our vital maritime sector in five, 10, or 15 years’ time. We urgently need to invest in the training and upgrading of our future generations of seafarers and shore-based personnel. MaritimeMT is being built to do just that.”

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We urgently need to invest in the training and upgrading of our future generations of seafarers and shore-based personnel. MaritimeMT is being built to do just that. Joseph Meli, Marketing and Operations Manager, MaritimeMT

Looking on the bright side, Mr Meli says that Malta’s maritime sector is generally healthy. “Our ports are very busy and there has been constant growth. The authorities have been doing a great job in different areas. However, significant opportunities beckon, particularly in promoting maritime-related careers among young people. We need to augment our efforts to promote these careers. We believe that it is up to the industry to take the lead. The Malta Maritime Forum, as well as Transport Malta, are already tackling this issue and we look forward to collaborating with them to make this happen.”

ECONOMIC VISION 2019: Business. Finance. Economy.

Elsewhere on the high seas, the Grimaldi Group’s vision for 2019 consists of a greener future for Europe. Dr Emanuele Grimaldi, Managing Director of the Naples-based shipping Group, which is represented in Malta by Sullivan Maritime Ltd, seized the opportunity at the company’s 22nd annual Euro-Med Convention, titled From Land to Sea, to reveal the Group’s investment plans. “Twelve state-of-the-art ro-ro green ships will join the Grimaldi Group’s fleet in the next few years, nine of which will be deployed in the Mediterranean and three in the Baltic,” he announced. “These vessels will reduce polluting emissions in ports to zero, thanks to innovative lithium batteries, and will be the new flagships of the world fleet for rolling freight transport, both for their size and for their technological equipment. Moreover, the Group’s ship investment plan includes seven pure car and truck carrier vessels – which will be delivered by 2020 for the transoceanic services of the Group – and an important green retrofit intervention which will be carried out on the whole Grimaldi fleet.”

As for the Group’s passenger sector, served by vessels under the Grimaldi Lines, Minoan Lines and Finnlines brands, the number of people transported increased from three million in 2017 to over four million in 2018. “The Group’s new target for 2019 is five million passengers carried; a feasible objective, thanks to the strengthening of our ro-pax fleet, with six vessels already operating in the Mediterranean, and the lengthening of the cruise ferries Cruise Roma and Cruise Barcelona, which will be completed by the first semester of 2019,” Dr Grimaldi says. Additionally, the Group recently renewed its environmental commitment, becoming one of the founding members of the Clean Shipping Alliance (CSA). The CSA is a group of leading commercial shipping and cruise companies that have been leaders in emission control efforts, providing support and information about the use and effectiveness of Exhaust Gas Cleaning Systems (EGCS), in order to foster shared environmental and sustainability initiatives, and supporting the scheduled implementation of the International Maritime Organization’s requirement for a 0.5 per cent global sulphur cap on fuel content as of 1st January 2020.

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The Group’s new target for 2019 is five million passengers carried. Dr Emanuele Grimaldi, Managing Director, Grimaldi Group

ECONOMIC VISION 2019: Business. Finance. Economy.

Over in the insurance sector, MAPFRE Middlesea’s CEO Felipe Navarro says that the Group continued to maintain its healthy solvency position. “The consolidated results for the first six months of 2018 registered a profit before tax of €9.02 million, compared to €7.02 million for the same period in 2017. The company strived tirelessly to improve services and ensure the best possible relationships with clients.” The company has recently launched a new channel of communication utilising AI on Facebook messages. “Our new Bot Emma replies to queries on a 24/7 basis. This will improve our service to clients by offering more options on how to reach us,” Mr Navarro states. “We continued offering innovative products and benefits to our clients. The roadside assistance is available at all hours to all motor policyholders with all levels of cover included, while home policy owners benefit from a 24/7 emergency services assistance.” He adds that MAPFRE Middlesea is the only insurance company on the island which rewards customers through a loyalty programme, offering customers discounts from several outlets. “This year we have increased the number of outlets by 50, giving clients more options on where to get their discounts.” In the year ahead, Mr Navarro says MAPFRE Middlesea will continue developing innovative solutions that safeguard people, with products to protect their property and savings, and that secure their future. “Our aim is to provide close support to clients whenever and wherever they need us. This is core to our mission and we will strive to continue delivering an excellent service. The main priority areas

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I see the local market growing when it comes to home insurance and home contents cover. Felipe Navarro, CEO, MAPFRE Middlesea

are to nurture our employees’ talent to deliver the best possible service through excellence in technical and operational management, and by never losing focus on the client. We believe that only by putting the client at the centre of our activities will we deliver profitable growth to our shareholders.” Mr Navarro says the outlook for 2019 is for a 4.6 per cent increase in GDP, making it a very positive forecast, since the insurance sector in Malta usually grows more than the GDP. “I see the local market growing when it comes to home insurance and home contents cover. I think most homeowners invest a lot of money in refurbishing houses, but they often don’t sufficiently protect what they have inside the house. There are also a lot of big projects under development in Malta and these require the right insurance capacity to ensure their risks are well managed. I think that, as a company, we have the right presence in the market and the right approach, and people are starting to recognise that the MAPFRE brand can bring a lot of value to the product and service we offer.”

ECONOMIC VISION 2019: Business. Finance. Economy.

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We have to constantly adapt accordingly, taking into account the regulatory frameworks within which we have to operate. Thomas Kraemer, Director, Timberland Invest Ltd

2018 was certainly a milestone year also for Timberland Invest Ltd, the licensed, authorised distributor of Timberland Securities Investment plc, which celebrated its fifth anniversary in Malta. “After having been established for more than 25 years in Germany and Luxembourg, it made strategic sense to grow in the Mediterranean region, and Malta was the location of choice,” says Thomas Kraemer, Director of Timberland Invest Ltd. “Timberland Securities Investment plc raises capital by issuing bonds to the general public. So far, two bonds have been issued, in August 2016 and July 2017, with the same terms and conditions during the tenure of the bond. Following on the success of these bond issues, in the fourth quarter of 2018, Timberland Securities Investment plc will be issuing new bonds in terms of a new prospectus. We are very happy with our achievements so far as we continued growing our client base and creating awareness about our company in Malta and internationally.”

a technology-wise highly innovative company delivering the right solutions in the energy storage market.” Mr Kraemer says that financial services in Malta have grown on a solid basis over the years, and that Malta is now in the forefront of distributed ledger technologies, particularly blockchain. “It should provide the industry with valuable insights on how to harness the potentials of technology and to improve core business functions. We have to keep abreast of knowledge in this area to identify the opportunities and reap the benefits from adopting it.”

Mr Kraemer says that the management of the Timberland Group have in the past few weeks been liaising with the Malta Stock Exchange on the first Maltese Central Securities Depository (CSD) listed bond. “This should create more accessibility and awareness about the bonds issued by the company. Investors will, hereby, have the possibility, with even more liquidity in these bonds, to trade them on the central European exchanges.” Mr Kraemer says that the company’s long-term goal is to capitalise on the success achieved so far in terms of building a good client base and a relationship of trust with its clients. “We believe this is one of the most important ingredients for the growth of our company whilst at the same time keeping in mind our business culture. Taking a pro-active approach in setting up the right investment vehicles, whilst considering new investment trends, is also of great importance. We have to constantly adapt accordingly, taking into account the regulatory frameworks within which we have to operate.” “Investor expectations and regulation certainly shape the way we plan our business. As we are continuously growing, we will remain highly client-focused in our day-to-day business, to give our customers the best benefits.” He highlights climate change as an issue which is affecting both businesses as well as the lives of millions worldwide, and states that green investing is on the company’s agenda as it focuses on social responsible activities. “One such example is the number of innovative technologies in the field of energy storage solutions which are in high demand. Timberland Finance has, in this growing field, a shareholding in 68

Internationally, Mr Kraemer identifies issues such as tensions from trade wars, the uncertainty over Brexit, which is due to materialise in March 2019, and geopolitical pressures as having an impact on international growth. “Central banks around the world address issues such as inflation, employment and economic growth, and their policies will, in turn, affect many sectors of the economy including the financial services sector. Regulation continues to set demands on how financial services companies operate. These are exciting times, and new developments will surely keep us all on our toes.” EV

ECONOMIC VISION 2019: Business. Finance. Economy.

A GLANCE

What will 2019 hold?

As we edge towards 2019, we ask seven Managing Directors and CEOs for their thoughts on what they expect out of the year ahead.

ECONOMIC VISION 2019: Business. Finance. Economy.

“The Mediterranean and North African region were and will remain a buzzing maritime centre and an attractive region for oil and gas endeavours. We are also seeing a global drive in both sectors for sustainability and lower pollution, resulting in a preparation to transition to the use of lower carbon fuels, thus instigating more investment in newer technologies and LNG.” Joseph Maggi, CEO, Mediterranean Maritime Hub

“The constant growth in the economy is reflecting positively on the demand driven market of freight-forwarding. The request for services is on the increase due to various factors such as the rise in consumption of materials due to the growth in the number of infrastructure projects, a consequence of the population boom, leading to further consumption and so forth. In such a thriving economy, the freight sector always steps up to meet this demand. As a result, Global Freight Solutions is looking forward to a positive 2019.” Jimmy Cutajar, Managing Director, Global Freight Solutions

“There has been moderate growth in the number of merchant ships calling Malta in recent years and we are not expecting large increases for 2019. The major factor that will contribute towards growth in this area will come from new and required investments in our ports.”

Matthew Sullivan, Director - Strategy, Development and Finance, Sullivan Shipping Agencies Ltd

“With Malta gearing up to try and reach its renewable energy target for 2020, the year ahead is looking pretty bright from a solar energy perspective. With a very interesting return on investment, and the focus shifting slightly, we expect an increase in demand for commercial PV systems in 2019.” Ing Mario Cachia, CEO, Alternative Technologies Ltd

“Activity in the local construction industry will continue to be very strong during the coming year. Due to this extraordinary activity, the industry has to continue working under stiff pressure, facing issues like lack of personnel, longer working hours, higher wages and higher operating expenses. The number of foreign companies winning contracts will also continue to increase.” Raymond Vassallo, CEO, J M Vassallo Vibro Steel Ltd

“Malta’s scientific and healthcare sectors have rarely seen such a wealth of new possibilities come their way as now. In this era of digital transformation, it is speed of change which will give the edge and not size. Think medical cannabis and AI!” Christopher Buttigieg, Managing Director, Evolve Ltd

“The continued growth in Malta’s economy and infrastructure has helped sustain demand whilst we have further enhanced our service quality and product offerings. Additionally, the strengthening of regulatory requirements drives a demand to support this transformation with robust and innovative solutions.” Tony Mahoney, Chairman, Computime Group

ECONOMIC VISION 2019: Business. Finance. Economy.

focus on

LONG-TERM ECONOMIC

competitiveness Economist Gordon Cordina outlines the economic trends set to dominate 2019, describing what can – and should – be expected across sectors and in fiscal markets.

ECONOMIC VISION 2019: Business. Finance. Economy.

Photo by Jan Zammit

n a context of increased uncertainty in global economies for the coming few years, Maltaâ&#x20AC;&#x2122;s performance remains one of the best across the EU, with projections for 2019 indicating a robust growth in activity and employment, as well as continuing improvements in the fiscal position.

To ensure the durability of this performance into the medium term and the resilience of the economy against outside shocks, we need to continue to enhance the productive capacity and the competitiveness of our economy, and certainly not rest on our laurels. Investment in productive assets and infrastructure is driven by private initiative and this is to be reinforced by EU-funded projects especially over the coming two to three years. Investment in human capital is needed more than ever to resolve the emerging tensions between population expansion and the need for economic growth, wherein the economy must rely on the attraction of skills from abroad and the development of local talent. Actions to improve quality of life against growth-induced stresses are also essential to continue 73

ECONOMIC VISION 2019: Business. Finance. Economy.

to attract economic and investment activity. Likewise, the country needs to increasingly address the need to resolve pressures on poverty and inequality that are typically induced by rapid economic growth. The ongoing reduction in national debt is expected to strengthen the economy, providing resources to address future challenges. The extent to which the country is currently managing to balance economic investment with the need for better productivity, environmental amelioration and social cohesion is the fundamental question to be addressed by policy-makers, social partners and stakeholders in the Maltese economy. The way in which we address this question over the next few years is likely to impinge on economic performance and the standard of living over decades to come. The approach of the 2019 Budget indicates that the economy is expected to continue growing without requiring massive new interventions from the fiscal budget. This is not to say that the economy is not facing challenges to growth, particularly in providing sufficient capacity to meet demand, be it in tourism, industrial working spaces and sufficient human capital. The Governmentâ&#x20AC;&#x2122;s commitment for Malta to become a hub of disruptive technologies, expanding

The approach of the 2019 Budget indicates that the economy is expected to continue growing without requiring massive new interventions from the fiscal budget.

upon the past successes registered in iGaming and financial services, through the provision of effective regulatory environments which enable global activity in a business- and worker-friendly operating environment, is important to wean the economy off advantages whose long-term durability could be in question, including those based on tax competitiveness. In a situation of strong economic performance, the Budget has prioritised the prevention of poverty, especially that associated with housing; the improvement of road transport infrastructure; and the management of waste as an environmental priority. Each of these aspects requires long-term approaches which typically span beyond the fiscal budget time planning horizon. It is expected that the interventions spelled out in the Budget, which have their obvious merits, would form part of a coherent longer-term plan to effectively address current and future challenges. It is essential that these interventions would ensure that the benefits of growth effectively permeate all strata of society, while enabling the economy to remain competitive in the face of rising wages and costs. Another particular challenge for Malta to address is to prevent excessive specialisation of in silos activity, which, on the plus side, could prompt diversification, but otherwise could offer relatively little by way of interlinkages. There is a risk that with the rapid development of the technological sector, the disparities between sectors, businesses and workers would tend to be accentuated. It is important that the development of new sectors would be accompanied by measures which ensure a sufficient dividend from such sectors to a wide economic base. Can new technology sectors serve to attract niche tourism in shoulder months? Or develop an international educational service proposition? How ready are our construction and tourism infrastructures

ECONOMIC VISION 2019: Business. Finance. Economy.

to provide products based on the Internet of Things, at the same time when we are developing business at the cutting-edge of blockchain technology? Human capital is possibly the most important form of foreign direct investment in todayâ&#x20AC;&#x2122;s economy. The issue must be addressed from the short-, medium-, and long-term dimensions. In the short term, we must have a sufficient number of the right skills to meet demand, while putting into place structures that sustain productivity so that we can do more with less. In the medium term, there would be the question of sectoral

Human capital is possibly the most important form of foreign direct investment in todayâ&#x20AC;&#x2122;s economy.

Photo by Jan Zammit

restructuring, thus replacing the workers which would have built the infrastructures with the higher value-added skills which would occupy them. In the long term, there would be the social and cultural changes required to occupy a permanent element of foreign population within the country. I augur that all stakeholders involved in the socio-economic development of the country cohesively work towards a comprehensive economic strategy aimed at making Malta an attractive regional hub where to live, work, heal, learn, enjoy recreation, and create new culture. This, in the essence, is what our long-term economic competitiveness should be about. EV

ECONOMIC VISION 2019: Business. Finance. Economy.

LOCKCHAIN leading the way IN 2019

DLT technologies have lit up new avenues for 2019. Illustration by Nadine Noko for Economic Vision.

ECONOMIC VISION 2019: Business. Finance. Economy.

The approval of the globally advanced legislative framework for Distributed Ledger Technology (DLT) by the Maltese Government in 2018, has rolled out the red carpet for the industry to take off locally. Joanna Demarco speaks to industry leaders about the ways in which we could expect the industry to evolve throughout 2019.

ead held high, Malta firmly wedged its spot into the centre of the DLT field earlier this year with the creation of a milestone legislative framework regulating the industry, a move seen as progressive particularly when compared to the developments – or lack of – in other jurisdictions. Consequently, this has garnered the interest of a number of big international players within the field, who have shown interest and commitment to doing business in the island. Since 2018 was the year in which the industry was set into motion, what will 2019 have in store for the sector?

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A year ago, few people believed we would be able to come forward with such a comprehensive, complete and innovative piece of legislation. Silvio Schembri, Parliamentary Secretary for Financial Services, Digital Economy and Innovation 77

ECONOMIC VISION 2019: Business. Finance. Economy.

Parliamentary Secretary for Financial Services, Digital Economy and Innovation, Silvio Schembri, the local, prominent political head responsible for this field, believes that 2019 will be the year when the industry begins to increasingly gain momentum. “We will start seeing the first tangible results of our work,” he says. “Companies and entities have already taken the first steps to move – either by fully relocating, or by moving part of their business here. We expect the momentum to be sustained as the increased number of operators in Malta will result in the jurisdiction being more complete and attractive,” he continues. Mr Schembri predicts that initial results will manifest themselves in the form of significant changes to which the legislative framework will necessarily adapt. “I am sure new operators will emerge and replace existing ones. The same can also be assumed for services and products. These developments will create the need for further changes in the relevant legislation and regulations, in order to cater for the evolving necessities.” Turning to the broader societal changes which the blockchain industry will precipitate, Mr Schembri points to an expanded economy, the result of which may have an impact on Malta’s infrastructure. “Elevated rates of economic expansion will create wealth and hopefully well-being for the entire society,” he says. “New workers and talent will definitely enrich our culture and productivity. On the other hand, more people living on a small island will surely increase pressure on the existing infrastructure. However, this should not be a bottleneck to growth. Investment will flow, and the supply will adjust in the medium- to long-term,” he asserts. Addressing the impact of such an industry on Malta’s reputation, Mr Schembri does not shy away from stating the inherent dangers. “Among the major risks is obviously the reputational one,” he says. “However, Malta has also managed to balance risks, and, in the past, has proven very effective to legislate accordingly,” he argues.

“The legislation, especially the Virtual Financial Asset Act (VFA Act), goes a long way in building strong structures to mitigate against reputational damage. In fact, in the coming weeks, through subsidiary legislation, the Maltese Government will also be issuing a legal notice that goes beyond the fifth anti-money laundering Directive (AMLD),” he continues. “The VFA Act also creates the concept of VFA agents who will, among other things, offer an additional buffer, monitoring any risks which might arise. This shows to what extent we have gone to manage any potential issues.” Mr Schembri also believes Malta is setting an example to other jurisdictions. “We like to think we are showing the world the way forward!” he beams. “A year ago, few people believed we would be able to come forward with such a comprehensive, complete and innovative piece of legislation. Nowadays, other countries – some very big ones – are turning their attention towards us so as to learn from us. This is a great compliment. We strongly believe that the way forward is to have proper regulation around this space.” For Stephen McCarthy, CEO of the Malta Digital Innovation Authority (MDIA), the year 2019 will “only be the beginning” for the DLT industry. “We anticipate this business to grow year on year,” he states. Mr McCarthy points out that 2019 will be “challenging” for the MDIA, given that the laws and guidelines enacted will have to be put into practice and will be tested. “However, we are prepared for this next stage of the process and we feel that since we have set out clear and robust guidelines, we will not encounter huge problems,” he stresses. Reiterating Mr Schembri’s thoughts, Mr McCarthy predicts that by embracing DLT, and in creating the legal framework within which it functions, Malta will experience a prolonged economic boom, which will result in an influx of workers. Consequently, the demand for property will increase and local infrastructure will be affected.

“ Photo by Ray Attard 78

We anticipate this business to grow year on year. Stephen McCarthy, CEO, Malta Digital Innovation Authority

ECONOMIC VISION 2019: Business. Finance. Economy.

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The blockchain industry has to start churning out practical applications with real-world use and approach the banks for cooperation. Dr Jonathan Galea, Managing Director, Blockchain Advisory Ltd

“The influx of workers is important in an economy which is working at full employment in order to keep increasing the national output, especially in the case of innovative technology where the influx of workers will mostly be of those who are highly specialised and skilled,” he says. “These professionals will also help train and instruct local workers and students.” Seemingly confident that any negative repercussions will be mitigated, he asserts that the issues surrounding the rise in property prices and any impact on the infrastructure will – and are being – resolved by natural market forces and Government. Mr McCarthy predicts that adopting a robust system in certifying Innovative Technology Arrangements and registering Systems Auditors and Technical Administrators will be the primary challenge. The MDIA plans to tackle this by “making sure that all applications are seriously and meticulously assessed,” Mr McCarthy says. Like many blockchain supporters, Mr McCarthy looks forward to more countries embracing the technology, and eventually creating an international ecosystem in which multiple jurisdictions can collaborate. Dr Jonathan Galea, the Managing Director from Blockchain Advisory Ltd (BCA), points to 2020 as the year when the success of the legislation will be measurable. “The implementation of a legislative framework does not tend to take effect immediately, at least in practical

terms,” he believes. “There will inevitably be teething issues, such as foreign business entities biding their time and waiting to see what the effects of the legislative framework will be before setting foot in Malta. I, personally, think that we will see whether the framework has succeeded or not in 2020.” 2019, will, then, be the year in which blockchain projects will continue to be developed, along with the technology itself, according to Dr Galea. “Hopefully, it will also be the year in which institutional players will decide to invest more heavily in this technology,” he says. Dr Galea goes on to highlight a factor which he is particularly concerned about: the relationship between the blockchain industry and the banking sector. He believes that the relationship between the two will be the main challenge which Malta, and the rest of the world, will have to face. “This is not just a localised issue, and it tends to hamper the growth of the industry due to issues arising when opening bank accounts,” he says. “This is especially the case when it comes to bank accounts being opened for the deposit of clients’ segregated funds.” But, he says, collaboration is possible. “Both sides need to work together,” he suggests. “The blockchain industry has to start churning out practical applications with real-world use and approach the banks for cooperation, whereas the latter should commit every effort towards educating themselves about the industry and embracing this new technology.” The main potential repercussion of this, says Dr Galea, is that companies may opt for other jurisdictions whose banks have a more business-friendly approach, keeping in mind that other

ECONOMIC VISION 2019: Business. Finance. Economy.

countries, especially other EU member states, may adopt Malta’s regulatory framework. However, Dr Galea sees nothing but opportunity in this sector. “If Malta maintains its overall business-friendly approach towards the industry, there can only be growth,” he says. Gordon Micallef, RSM’s Partner for Business and Technology Consulting, believes that although 2019 will see a steady base of companies investing in Malta, the country will not yet experience the industry in its full potential. “The sector will not come into complete fruition in this coming year,” he predicts. “However, 2019 will establish a solid base of blockchain operations based in Malta and will broaden business horizons across many diverse industries.” Mr Micallef anticipates that the industry will, in turn, have effects on other sectors, impacting key business models around supply chains, disrupting financial services such as banking, insurance and asset management, as well as increasing demand for new types of workers, with the related pressures which accompany these developments. “The trends observed in 2018 will continue to prevail in 2019, and no industry will be spared from this impact in terms of the lack of workforce availability and increasing salaries,” he says. “The lack of skilled resources with the necessary knowledge of DLT technologies will continue to be a challenge. However, it is expected that current efforts will deliver the benefits in having a better supply of resources with DLT competences towards the end of 2019.”

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2019 will establish a solid base of blockchain operations based in Malta, and will broaden business horizons across many diverse industries. Gordon Micallef, Partner for Business and Technology Consulting, RSM

Meanwhile, bigger challenges such as the risks to privacy and money laundering could potentially influence take-up of the technology, he believes. Nonetheless he adds that “advances expected to take place in this coming year, will ensure that the impact of such challenges is further reduced, making blockchain more pervasively applied across various industries.” A highly-regulated market, effective enforcement and efforts to keep innovating are, therefore, the way forward in ensuring success, according to Mr Micallef. “In the meantime, new competing forces will evolve in 2019. So, attracting the right investors and the right skilled workers will remain fundamental objectives,” he claims.

ECONOMIC VISION 2019: Business. Finance. Economy.

“ The emphasis on enforcement is reiterated by Silvan Mifsud, Senior Manager in Business Advisory Services at EMCS Group, as well as Dr Simon Schembri, Partner within Ganado Advocate’s corporate team. “Malta has moved fast in implementing a gold standard with regards to the regulation of blockchain technology and FinTech,” Mr Mifsud says. “Thus, I believe that industry players, who want to show that their Initial Coin Offering (ICO) or their VFA service is a serious proposition, will regulate themselves in Malta. This will allow them to differentiate themselves from the competition and show the highly rigorous process they submitted themselves to.” However, “if proper filtering is not done,” he warns, “Malta as a jurisdiction runs the risk of licensing VFA service providers which do not offer the required level of operations and commitment to tackling cyber security or, registering ICOs that do not abide by what is declared in their white papers. The last thing the jurisdiction needs is to be licensing service providers or allowing the registrations of ICOs that result in cyber threats or outright scams. Such an event would cause huge reputational damage to Malta.” Indeed, the necessity for regulation is a factor which is seemingly agreed upon by all jurisdictions, despite taking different routes, according to Mr Mifsud. “For example, the Americans seem to be moving along the path where all tokens are to be considered as securities and hence regulated by the already existing rules for financial securities. However, blockchain as a technology is much more than just FinTech and it is very likely that we will start seeing the application of this technology to other areas, like education, healthcare and industry.” “There is a growing international consensus that attempting to stop the growth of the blockchain technology and FinTech industry is futile and that the best way forward is to regulate it,” he says. “I believe that Malta has the advantage of having taken this approach quite early in the day and many jurisdictions are at present looking at Malta and positioning themselves to emulate its approach.”

Malta has moved fast in implementing a gold standard with regards to the regulation of blockchain technology and FinTech. Silvan Mifsud, Senior Manager, Business Advisory Services, EMCS Group

Photo by Rene Rossignaud

ECONOMIC VISION 2019: Business. Finance. Economy.

Dr Schembri from Ganado Advocates deems 2018 as having marked a “remarkable” emergence of blockchain globally and looks forward to 2019 being the year where blockchain technology will become more legitimate worldwide. “It is anticipated, that in the coming year, with even more countries recognising that blockchain technology will be the platform on which interactions in all spheres of life will be taking place, there will be a great endeavour in creating legitimacy across a greater number of states,” he says. Addressing Malta’s role as a leader in the field, he emphasises the need to maintain high standards of regulation in order for this position not to falter within the competitive industry.

“Malta’s unique regulatory framework will attract a diverse spread of interested parties who will be looking at using Malta as their seat of business,” he believes. “The Maltese operators and regulatory authorities will need to ensure that the highest standards are maintained at all times to safeguard Malta’s reputation in this space.” In order for this to happen, he says, regulation must remain key. “The whole framework has been designed to enable the necessary checks and controls to ensure that the businesses set up and operating through Malta will have passed through severe scrutiny,” he replies when queried about potential repercussions. “A relaxation of these rules at any level will cause serious prejudice to the Maltese platform.”

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Dr Schembri explains that although Malta is currently leading the way, it needs to remain attentive to the dynamic industry. “Malta, being the leader in this space, has the advantage of being the prime mover and has, in fact, attracted major players in this industry to set up their business operations locally,” he states. “Other jurisdictions will follow suit with their own regulatory frameworks and they will undoubtedly seek to improve on the Maltese one. The local authorities must remain vigilant of the ongoing changes in this space, act with circumspection and forbear from attempting to over-regulate or excessively loosen the rules. Otherwise, we risk an immediate knelling of the DLT death bells,” he concludes. EV

In the coming year […] there will be a great endeavour in creating legitimacy across a greater number of states. Dr Simon Schembri, Partner, Ganado Advocates

ECONOMIC VISION 2019: Business. Finance. Economy.

The iGaming sector has made itself at home in Malta. Illustration by Nadine Noko.

ECONOMIC VISION 2019: Business. Finance. Economy.

eaching FOR

NEW HEIGHTS

With year on year growth, Malta’s iGaming industry is still operating at full steam. Martina Said chats to industry players to find out how business fared in 2018, and what to expect in 2019.

ith €1.1 billion generated by Malta’s iGaming industry in terms of gross value added in 2017, it’s fair to say that the industry has shown no signs of slowing down. The figures show a 10 per cent growth over 2016, outlined by The Malta Gaming Authority (MGA)’s Annual Report for 2017, laying down the industry’s successes for all to see. And, judging by on-the-ground feedback from some of the industry’s main players, 2018 will go down as another successful year, which will pave the way for further growth the following year.

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Photo by Aleksey Leonov

While figures for 2018 have yet to be revealed, it’s clear that, success aside, it was one marked by significant changes. Alan Alden, General Secretary of the Malta Remote Gaming Council, explains that “gaming operators became subject persons under the fourth antimoney laundering (AML) Directive as of January 2018. They also needed to become GDPR compliant by May

We have seen some regulators come down really hard on operators, citing responsible gambling and money laundering as major areas of concern. Alan Alden, General Secretary, Malta Remote Gaming Council

ECONOMIC VISION 2019: Business. Finance. Economy.

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Overall, the regulation revamp is a positive development as it secures its continued relevance in a fast-developing industry. Jesper Svensson, CEO, Betsson Operations

2018 and new VAT rules came into effect in January 2018, so existing operators have been pretty busy with compliance matters.” He goes on to say that “there seems to have been a number of licence terminations due to market restrictions at EU level, but we have seen an increase in licence applications, especially by business-to-business operators, since the new regulations came into effect on 1st August 2018.” Following the introduction of the Gaming Act this year, Mr Alden says that the new regulations came as a “breath of fresh air” and states that the biggest problem in the previous regulations was “the sheer number of licences required by operators who wanted to offer a variety of products, compounded by the endless number of audits needed, which made life rather difficult and also slowed down the time to market drastically.” “With regards to reputation,” he adds, “I believe that one of the aims of the regulations is to ensure that in and from Malta, material activities are only provided to EU/EEA licensed entities. Furthermore, the MGA has made it clear that, where a website has an MGA seal, it cannot offer nonEU/EEA licensed games. Malta is also willing to recognise that Maltese companies can operate from and in Malta with a licence issued in another member state. I believe this is a major step in the right direction for better harmonisation of online gaming activities.” The industry, however, has not been without its challenges this year. Mr Alden says that coping with the different regulators and licence conditions is a challenge, while entering new markets is becoming harder, as is hanging on to customers. “We have seen some regulators come down really hard on operators, citing responsible gambling and

money laundering as major areas of concern and issuing huge fines,” he asserts. “Some are saying that the EU market is now saturated, and operators are taking their expertise to other continents. The US has created some new opportunities for sportsbooks, but it’s not cheap to get involved in that market. Africa and South America tend to be more attractive as new markets to venture into.” Looking ahead towards 2019, Mr Alden sees more mergers and acquisitions taking place as small- to medium-sized operators continue to struggle with compliance, national licensing requirements and difficulty to compete against the bigger players. “Hopefully, banks will realise that gaming is not high risk, and coupled with the fact that gaming companies are subject persons too, opening a bank account for a regulated operator stops being a nightmare. I would say that this is currently the biggest concern for the gaming industry at the moment.” Jesper Svensson, Betsson Operations CEO, says 2018 was the year that the company started executing its “back on track” plan. “This plan brought with it a number of product and technology improvements, additional efficiencies and more focus on our core markets. The results of the first three quarters of 2018 indicate that the plan is working. In the first three quarters we’ve seen a 15 per cent increase in revenue, with an organic growth rate of 11 per cent. Our operating income (EBIT) increased strongly by 28 per cent, whilst our net income increased by 30 per cent. This would not have been possible without the amazing contribution and work ethic of every Betssonite.” Mr Svensson believes that the new Gaming Act was a needed development for the industry. “The previous law was drafted in 2004 and, since then, the industry has changed drastically, so a number of clauses had become superfluous,” he asserts.

ECONOMIC VISION 2019: Business. Finance. Economy.

“We also welcome how it has amplified a lot of the operators’ compliance requirements, which shows that the MGA has raised its standards in terms of regulation of the industry, similar to the higher expectations being set in other jurisdictions,” he adds. “Overall, the regulation revamp is a positive development as it secures its continued relevance in a fast-developing industry. On the other hand, the higher standards continue to underline how complex it is becoming to run an international business that complies with the different rules of various jurisdictions.”

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Attracting and retaining good talent in Malta will continue to be a challenge for the industry. Jesper Kärrbrink, CEO, Mr Green Ltd

Looking at the challenges and opportunities that lie ahead, Mr Svensson says that one which embodies both sides of the coin is the changing regulatory frameworks. “Today, Betsson Group already operates in 11 different jurisdictions, and each jurisdiction has its own framework with different technical and operational requirements. More and more countries are looking at how to regulate and tax gaming locally, or how to change the current framework in their respective markets,” says the CEO. “Over the last year alone, we’ve seen developments in many countries, such as the UK, Italy, Sweden, the Netherlands and the USA. For us operators, this can bring both challenging demands but also opportunities.” As for 2019’s prospects, Mr Svensson thinks it will be another good year for the industry, with continued growth amid further changes in industry regulations. “After many years of talking and planning, the re-regulation of the Swedish gambling market is finally happening. This gaming licence opens up the Swedish market further and enables competition on more equal terms for the licence holders, which is positive for customers, operators, the regulator and shareholders,” he asserts. “The iGaming industry is maturing a lot, and we’re expecting more of that in the coming 12 months. All in all, I believe 2019 will bring about some interesting changes to our industry, and we’re looking forward to what’s to come.” Jesper Kärrbrink, CEO at Mr Green Ltd in Malta, says 2018 has been a game-changer for the company. “Our efforts in Green Gaming are paying off with good customer reviews. Our two acquisitions, Evoke and 11.lv, have been successful. Both game win and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) growth in Q3 for the Group stood at around 50 per cent, of which 36 per cent was organic, making it our best quarter ever. We also celebrated our first 10 years as the Gentleman in iGaming.”

Mr Kärrbrink says that the Gaming Act was welcomed in a fast-changing market. “It puts some more pressure on the actors in the industry, both in terms of responsible gaming and AML, but also takes away some of the unnecessary bureaucracy that existed in the older regulation.” As for the introduction of new technologies, such as blockchain, the CEO

ECONOMIC VISION 2019: Business. Finance. Economy.

says “blockchain technology will be a larger part of most businesses going forward, including in the iGaming industry. Malta foreseeing and regulating this area is a good thing.” While Mr Kärrbrink’s projections for the industry in 2019 are “good”, challenges currently do exist. “Increased complexity and higher tax costs due to multiple licences (even if this in itself is positive) will be a challenge for many brands. I think we will see more consolidation in the coming years,” he asserts. “Attracting and retaining good talent in Malta will continue to be a challenge for the industry. Meanwhile, opportunities exist within eSport, with the US opening up to betting, as well as some parts of Asia moving in the direction of licences.” Turning to the organiser of the largest iGaming event on the island, Eman Pulis, Managing Director of SiGMA, says the industry has never been in better health. “The island has the perfect ecosystem for it to thrive; it’s evident that the potential for further growth is there,” he says. “Thanks to strong support from Government and business-friendly tax and gaming regulations, Malta has become the jurisdiction of choice for operators within the industry. The iGaming industry in Malta contributes a significant percentage to the

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The industry is buzzing at the moment, there’s a very positive, cando attitude – people are excited to roll up their sleeves and get involved. Eman Pulis, Managing Director, SiGMA Photo by Aleksey Leonov

Maltese economy, generating millions in revenue and thousands of job opportunities across myriad industries, such as leisure, entertainment and IT.” Mr Pulis asserts that this year’s edition of SiGMA, which took place in November, and was extended from two days to three, welcomed a record-breaking 12,500 attendees, hosted 400 sponsors and exhibitors, and provided a platform to 200 speakers from across the globe. “Our

internationally-recognised speakers and globally-themed conferences reflected a move away from local issues to more global affairs,” says Mr Pulis. “The industry is buzzing at the moment, there’s a very positive, can-do attitude – people are excited to roll up their sleeves and get involved.” Looking ahead towards the iGaming industry in 2019, the Managing Director says it shows no signs of plateauing. “The gaming sphere has grown steadily and sustainably, and there 93

ECONOMIC VISION 2019: Business. Finance. Economy.

is no reason why it won’t continue to do so throughout 2019. We can expect to see Government initiatives bear fruit, such as the recent proposals announced in the Budget, which support the expansion of the eSports arena and the development of blockchain-based gaming as a result of the launch of blockchain and DLT legislation.” Indeed, he believes there is room for further future growth, in line with the industry’s steady expansion over the last 10 years. “Focusing on the country’s infrastructure will be important, and the sustainability of the industry relies on enticing fresh investment to the island,” he says. “So, it is essential that the right initiatives are in place to make investors and operators feel welcome and supported.” Joachim Baca, CEO of Tipico, says 2018 was a “very successful year” for the company, which expanded its leading position in Germany – its core market – with a current market share of more than 50 per cent. “To provide football fans the closest connection to the game they love, we established a proven multi-channel strategy for the best online and land-based sports betting experience,” he explains. “Our ‘Mobile First’ approach significantly increased the growth of our digital revenues – more than 80 per cent of our online revenue share is generated via mobile devices. In addition to being a digital pioneer, we also expanded our strong high-street presence in Germany and Austria, where we now have more than 1,200 retail outlets.” As a gaming provider headquartered in Malta, Mr Baca says that 2018 was also a special year due to the introduction of the new Gaming Act. “We welcome the associated innovations and improvements for the entire industry, especially the extension of licence terms from

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five to 10 years. In 2019, we will be celebrating the 15th anniversary of our business activities based on licensing by the MGA, which has continuously developed exemplary regulatory standards in many areas.” As challenges and opportunities within the industry continue to overlap, Mr Baca asserts, “up-coming challenges for the entire gaming industry include an overall intensified competition for the wallet share of customers for digital entertainment offerings. To succeed, further product innovations and the extended use of AI, combined with smart data management, are in demand.”

Our ‘Mobile First’ approach significantly increased the growth of our digital revenues – more than 80 per cent of our online revenue share is generated via mobile devices. Joachim Baca, CEO, Tipico

“At the same time,” he continues, “increasing regulatory requirements and compliance standards must be met. In 2019, the UK will again have the industry’s attention. Depending on the outcome of Brexit negotiations, Malta as an iGaming location could also benefit and continue to grow. We are already experiencing intense competition for the talents that Tipico has been able to successfully compete for so far. We now employ around 250 people from over 30 nations in Malta, and the number is rising.” Head of Operations and Business Development at Gaming Malta, Ivan Filletti, says that three years into the independent, non-profit foundation’s operations – set up by Government and the MGA – it

ECONOMIC VISION 2019: Business. Finance. Economy.

has a very clear North Star. “Gaming Malta is tasked with promoting Malta as a centre of excellence in the digital and remote gaming sector globally, and is responsible for liaising with local authorities to improve Malta’s attractiveness as a jurisdiction and enhance the ecosystem surrounding the gaming industry. We are embracing the whole gaming ecosystem – iGaming, video game production and eSports.” He says that Malta is distinguished in the region by its strong economic performance, pro-business attitude, state-of-the-art infrastructure and modest operating costs, which have helped it become the go-to country for growth-minded entrepreneurs. “Our strong economy, EU member state credentials, resources, people and culture, as well as a strong presence of B2B and B2C, and strong affiliate clusters, give any operator an immediate plug into the gaming sector. Joining and connecting the dots within the ecosystem is a vital component of our game. Our networking events and international roadshows serve as a platform for this, which also help to attract investors to the iGaming industry.”

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Remote gaming, however, is only a part of “this marvellous world of gaming”, Mr Filletti continues. “We are working on three other verticals – Daily Fantasy Sports, eSports and Video Gaming. This all boils down to a talent game. We want to work closely with the sector in order to attract key talent to Malta,” he states. “In keeping with this, we are further enhancing our iGaming educational platform by having a dedicated iGaming academy, called the European Gaming Institute of Malta (EGIM), which is a joint collaboration between MCAST and the MGA.” Having already built the largest iGaming centre in Europe, attracted a host of IT and software development companies, and having solidified its reputation as a popular location for the international film industry, Mr Filletti believes it is now time to unleash the country’s potential as a global creative hub for digital gaming production. “The island is inviting content producers and digital publishers to join its other thriving tech and entertainment industries.

We are embracing the whole gaming ecosystem – iGaming, video game production and eSports. Ivan Filletti, Head of Operations and Business Development, Gaming Malta

The positive reception by industry leaders at this year’s Gamescom has further strengthened Malta’s reputation in the sector. Testament to Malta’s creative potential has been the relocation of Trojan Horse Was a Unicorn (THU), a week-long gathering of digital artists, he asserts. “THU, which previously took place in Portugal, brought more than 1,000 creatives and creators from all corners of the world to the island, including executives from the world’s leading entertainment companies – Disney, Netflix and Ubisoft. THU is set to become a vital showcase of Malta’s digital creative ecosystem, which is expected to grow and gain further global recognition in the years ahead.” Gaming Malta firmly believes that Malta has all the right credentials to also become an eSports hub, a sector which has the Government’s backing, and which it’s endeavouring to turn into another success story for the island, Mr Filletti states. “Add to this our strong iGaming ecosystem, of which both worlds can leverage business potential and opportunities. We are looking at the eSports sector holistically, which includes a strong push on education,” he concludes. EV

ECONOMIC VISION 2019: Business. Finance. Economy.

THE BANKING AND FINANCE SECTOR

f CHALLENGES acing the

AND OPPORTUNITIES

ahead

The necessity for solid foundations in the banking and finance sector. Illustration by Nadine Noko for Economic Vision. 98

ECONOMIC VISION 2019: Business. Finance. Economy.

It’s been an eventful 2018 for Malta’s banking and finance sector, with some of the smaller international operators coming under fire, and with pressures from having to comply with increasing regulation and competition, albeit within the context of unprecedented economic growth. Rebecca Anastasi talks to the major players about this past year and asks what’s next for 2019.

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T While the banking sector is under pressure, one cannot say the same for the whole financial sector, which offers myriad services. Prof. Edward Scicluna, Finance Minister

he year 2018 has seen Malta’s buoyant economy continue to flourish, with official figures strengthening investor and consumer confidence in the jurisdiction. But, with the threat of reputation risk, Brexit on the horizon, the rise of FinTech and blockchain as a result of the recently enacted legislative framework, and further regulation, 2019 may prove to be a different beast. Or perhaps not? Finance Minister Prof. Edward Scicluna points to the challenges confronted over the course of the past year but notes that these did not apply across the board. “While the banking sector is under pressure, one cannot say the same for the whole financial sector, which offers myriad services,” he says. “Malta has survived the banking crisis and is currently enjoying good liquidity and solvency ratios. It also has a low level of non-performing loans (NPLs), but at the same time, the innumerable

ECONOMIC VISION 2019: Business. Finance. Economy.

pressures on banks from new anti-money laundering regulations and the many onerous financial regulations resulting from the 2008 financial crisis have made many banks de-risk.” Indeed, this necessity to reduce risk has pushed banks to be more cautious, according to the Minister. “Many banks have actually closed thousands of accounts for various reasons. The common thread is this reduction of risk,” he says. Companies have, in fact, reported increased difficulty in opening bank accounts with one of the core banks. “The demand for banking services hasn’t been greater than it is today, but there is a high level of investment in Malta with literally hundreds of firms seeking to open accounts locally to start doing business. So, this is the ironic situation we find ourselves in today. Ask any new business wanting to open an account,” he notes.

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The emphasis on the reduction of risk has also led to an increased level of caution in granting banking licences, the Minister says. “Again, in this area, there is more and more pressure on the bank regulators not to get it wrong. But, unfortunately, they cannot always predict the future from their diagnostic checks,” he claims.

Malta’s ambitions to continue to develop as an international financial centre must be complemented by a reform of the sector coupled with a transformation of the MFSA to a more modern, technology-driven and effective financial supervisor. Joseph Cuschieri, CEO, MFSA

The Minister also points to the challenges which arose from the global market systems, highlighting the pressures “from successive stiffer stress tests by both the local and European bank regulators.” This was because Maltese banks are treated “no differently from bigger multinational banks” and they are also expected to follow the same rules. “The principle of proportionality has not yet been accepted so far. Small banks are trying their best to be heard and be treated accordingly,” he continues. Yet, he does not see recent events as detrimental to the future but looks on 2019 with optimism, “in spite of increasing and intrusive regulation”. Indeed, he points to Brexit as being a key factor in enabling Malta’s economic growth, emphasising that “due to Brexit we can confidently say the picture is quite positive and very promising.” The Chief Executive Officer of the MFSA, Joseph Cuschieri, echoes much of Minister Scicluna’s thoughts, and states that the financial services industry in Malta is, indeed, facing three important challenges: growth, reform of the regulatory framework and expectations. “With the development across the global financial regulatory sector of new financial markets and technologies, new complexities between cross-border structures, and new legislations and regulatory norms, the expectation from the public and from peers has grown.” This is in no small part also due to the overhaul in regulatory frameworks on an international level following the global financial crisis, he notes, though he underlines the further challenge faced by the Authority due to the increase in the number of entities being regulated by the MFSA – from 1,800 four years ago compared to 2,300 today.

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which propelled Malta as a leader in FinTech, with the enactment of the first framework for VFAs globally, by the MFSA, which puts priority on market integrity and financial soundness,” he stresses. Technology is, indeed, the future, according to the MFSA’s CEO and he announces that the Authority is currently “looking into a significant outlay in technology development to ensure risks associated with virtual currencies are kept to a minimum.” This is critical for the MFSA, Mr Cuschieri says, while also revealing that the Authority will be launching its Vision 2021 and FinTech strategy in the months to come. “Such investment in technology will be focused not solely on FinTech but across all areas of the Authority’s activities and will be made up of, among others, business intelligence tools, regulatory technology, licensee relationship management and knowledge management platforms. I believe that such investment will improve the efficacy of supervision and the MFSA’s performance as a corporate player,” he asserts. Indeed, the priorities for 2019 will be “reforms to the legislation, investment in human resources and technology, and the overall transformation of the MFSA,” Mr Cuschieri concludes. Technology is also on the Central Bank of Malta’s radar, according to the Governor, Dr Mario Vella. The benefits of VFAs, in his view, are “faster transaction speed and financial inclusion,” though he asserts that such assets “also entail risks that could affect financial stability”. Despite this, the Bank, he says, “sees no immediate financial stability risks from crypro assets,” since they represent just a fraction of the traditional financial system” and have “limited links with the real economy, thus far. Nonetheless, it is very important that the authorities remain vigilant against emerging risks.” Indeed, the Authority has invested in “human capital, technology and long-term strategic planning”, also “implementing strategic qualitative changes” to meet the expectations required. “Malta’s ambitions to continue to develop as an international financial centre must be complemented by a reform of the sector coupled with a transformation of the MFSA to a more modern, technology-driven and effective financial supervisor,” he notes. These comments come off the back of criticisms over the Authority’s handling of Pilatus Bank and Satabank. On this subject, Mr Cuschieri points out that the Authority “is continuously striving to enhance the effectiveness and efficiency of its operations to safeguard the integrity and stability of the local financial market.” Hence, the emphasis on “working hard to ensure we are a leading, accountable and transparent regulator.” Indeed, in 2019, the Authority plans to “publish a long-term strategy for banking in Malta which will include a plan for major reforms in legislation” which, he hopes, will go a long way to further regulating the market. Despite the challenges, there have been opportunities in 2018, specifically related to the increased investment in FinTech and Virtual Financial Assets (VFAs), and this will remain a priority moving into 2019, according to the Authority’s CEO. “This certainly has been the year

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Dr Vella also looks back at 2018 by noting the challenges prevalent globally. Malta, he says, has had “to navigate through the current geopolitical uncertainties such as a potential disruptive ‘hard’

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During 2019, Malta must seek new avenues for its continued economic expansion. We should build better ties with existing trade partners, but also seek to nurture new relationships. Dr Mario Vella, Governor, Central Bank of Malta

ECONOMIC VISION 2019: Business. Finance. Economy.

Brexit, concerns on weak fundamentals of the Italian economy, emerging market contagion risks and, more generally, an emerging protectionist world view.” This, coupled with “the current low interest rate environment” has posed challenges to “financial institutions, especially traditional banks, throughout Europe.” Despite these issues, local banks have “remained more profitable than their average European counterparts without having to resort to higher risk strategies,” he notes, and he expresses further optimism for 2019. In this regard, he points to the implementation of the fourth anti-money laundering Directive and the “stepping up of resources”, by the authorities concerned, “to enhance further their supervisory capabilities”, also highlighting the Bank’s commitment to “further strengthening of the Maltese regulatory framework.”

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The long-term prospects for our industry and its role to facilitate growth in the economy depends fundamentally on its reputation. Andrew Beane, CEO, HSBC Bank Malta plc

On the topic of Brexit, the Governor sees potential direct adverse implications of a ‘hard Brexit’ on the Maltese economy to be “manageable”, saying that “the short-to-medium-term impact on the Maltese economy is likely to be negative with output loss ranging between -0.24 per cent to around -0.54 per cent, largely driven by the external sector. This is considered to be tolerable in the current context of a robust growth.” However, much will depend on the outcome of talks and on the final deal agreed upon. “Should the UK not be granted an ‘equivalent’ status, exposures would attract higher risk weights with adverse implications on the banks’ level of capital. The Central Bank of Malta carried out an impact assessment to assess the implications should such an event materialise. Results revealed that banks are able to withstand higher risk weights given their healthy capital levels,” he states. However, the Bank’s – and Malta’s – priorities within the sector, going into the new year, go beyond Brexit, Dr Vella states. “During 2019, Malta must seek new avenues for its continued economic expansion. We should build better ties with existing trade partners, but also seek to nurture new relationships. We need to ensure that the growth of new sectors does not harm that of existing ones. We should focus more on upskilling our workforce and creating a more flexible working environment. Finally, we need to better leverage the unprecedented stock of savings in our economy and transform it into an increased capital stock that helps us sustain our vibrant economic growth path,” he asserts. Moving to the private sector, HSBC Bank Malta plc, Chief Executive Officer, Andrew Beane, highlights Malta’s strong economic performance in 2018 and notes that “forecasts for 2019 suggest this pattern will continue, with Malta’s GDP expected to grow faster than all other EU member states.” Yet, he asserts that despite the buoyancy in the figures “2018 has not been a good year for the reputation of the local financial services industry, following a series of serious compliance failures.” Mr Beane stresses the necessity of ensuring compliance is adhered to – across the board. “The long-term prospects for our industry and its role to facilitate growth in the economy depends fundamentally on its reputation, which must be built upon full and effective compliance with all local and international obligations.” He points to statements by the European Commission regarding the need to strengthen

jurisdictional defences against financial crime which, he states, “must be heeded in addition to swift implementation of any recommendations by the EU Financial Crime inspection system (Moneyval) when their country review is released in mid-2019.” Risk management was also a priority in 2018, and is set to continue being so, according to the CEO. “The asymmetry between high local growth and negative European interest rates remains a structural problem and it is imperative that banks remain conservative in their appetite for credit risk at this stage in the economic cycle,” he states. “It is also important that high levels of growth in the local bond market, encouraged in part by excess liquidity and low interest rates, do not lead to a weakening of the prudent risk management standards which have served Malta well over the years.” 105

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“ For the bank itself, 2018 was a positive year. “In 2018, HSBC largely completed its business transformation to a simpler and lower-risk business model. The bank has continued to make significant investment in compliance which is protecting customers, colleagues, shareholders and wider society from the risks of financial crime. The progress made enabled a rebalancing of HSBC’s strategic agenda towards new customer propositions in the second half of 2018 which will continue into 2019,” he outlines. He also refers to the bank’s Fusion proposition for small businesses which, he notes, “experienced significant growth” this past year, “as did its international commercial banking business which connects Maltese customers to the global economy and international customers to Malta.” And, in 2019, the bank is set to continue on this trajectory with the unveiling of “a significant transformation of its digital solutions for customers which will bring some of the world’s best banking technology to the island,” he says. Concluding, Mr Beane stresses the need for sustainable growth on the island with policy-makers paying attention to “how best to modernise the country’s infrastructure and improve environmental performance to facilitate longer-term development.” Bank of Valletta plc’s CEO, Mario Mallia, concurs, though he stresses the positive aspects of such growth. “Malta boasts one of Europe’s healthiest and most profitable banking sectors, currently home to around 25 banks, with most performing very solidly, and its booming economy has led to a growing demand for banks which support niches in Malta’s finance sector – such as private banking, wealth management and investment services,” he says. 2018 was the year in which the bank “invested heavily in both human resources and technology,” Mr Mallia states. This was done with the intent “to remain abreast of new regulations while transforming itself into a more customer centric, strategically focused, technologically modern and agile bank to maintain its leading position in this rapidly evolving ecosystem while meeting the challenges from competition and offering top solutions to our discerning customer base,” he asserts.

A slowdown of the UK economy and possible volatility in the UK financial sector might have a negative impact, however an increase in business might be on the horizon with Malta attracting companies that will seek to leave the UK and relocate within the EU. Mario Mallia, CEO, Bank of Valletta

He also notes “the ever-increasing regulatory constraints, disruptive technologies and new competition, in the form of financial institutions, as well as alternative financing opportunities”, which have proved challenging for the bank this past year and which might continue to do so going into 2019. To meet these challenges, Mr Mallia points out that the bank inaugurated a new centre in 2018 housing the bank’s risk management, compliance, anti-financial crime and debt management unit, thus “recognising the systemic importance of these functions as having an impact both on the bank and the Maltese economy.” Indeed, “the expertise in these units is constantly being enhanced to combat money laundering and to continue elevating the reputation of Malta’s financial services sector,” he highlights. With regards to Brexit, Mr Mallia notes the “high degree of uncertainty”, though he sees potential opportunity for the Maltese banking and financial services sector. “A slowdown of 107

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the UK economy and possible volatility in the UK financial sector might have a negative impact, however an increase in business might be on the horizon with Malta attracting companies that will seek to leave the UK and relocate within the EU,” he asserts. The CEO also points to leaps Malta is taking in the digital sphere, but for the bank the intent is to remain “focused on ensuring the long-term stability and sustainability of the Group through the build-up of strong capital buffers and by keeping the business model under constant review.” Moreover, he notes that the bank is in the process of migrating its core banking system to Oracle’s Flexcube, thus “furthering the bank’s commitment to put customers at the centre of the organisation.” David Pace, Head of Advisory at KPMG and Mark Curmi, the Director for Banking, FI & VFA Advisory at the firm, also stress their commitment to placing the organisation’s clients at the heart of the process, stating that 2018 was the year in which the firm consolidated its investment towards that goal. To this end, “the firm has invested significantly in people, technology and process, and continues to do so,” Mr Pace says. “2018 was quite a watershed year in terms of investments. We have completed our office upgrade, and we’ve equipped ourselves with the necessary technology and broadened skillset, all while retaining our focus on the day-to-day.”

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Mark Curmi, Director for Banking, FI & VFA Advisory, KPMG

Trust is at the heart of everything. David Pace, Head of Advisory, KPMG

David Pace, Head of Advisory, KPMG

“Challenges were transformed into opportunities this year,” Mr Curmi adds. He notes the difficulty of attracting talent, due to an “increasing gap in skills availability”, saying this is an issue faced by many other entities, but says the firm doubled its efforts in this regard and was able to build teams comprising of professionals specialising in various sectors. “These are able to connect to the sector and truly understand business challenges”, in Mr Curmi’s words, so “they can go to our clients and offer a diverse amount of solutions.” Mr Curmi also points to the consolidation in the banking sector which took place over 2018. “This is a sector which took a lot of current this year, but which has continued to grow nonetheless. Indeed, looking at their balance sheets, our core domestic banks have retained their growth trajectory over the past 12 months.” Moreover, both Mr Curmi and Mr Pace point out the importance of current advances being made, in terms of the legislative framework for VFAs, noting that a small country needs to be “agile” and keep innovating, particularly in light of the drive towards making Malta “a digital economy”. Mr Curmi highlights the positive aspects of Malta’s regulatory regime “which provides for a robust infrastructure aimed at providing a base for long-term, sustainable growth in the sector.” Indeed, the firm’s Head of Advisory and Director for Banking insist that 2019 will be “one of maintaining the momentum. One can see opportunity all over the place and there is a lot to be done. But you need to focus and the goal for the firm is to maintain momentum whilst tuning that focus,” Mr Pace says. Focus will be turned to looking at local mid-markets, for example family businesses, the needs of the public sector and attracting international business to Malta, he explains. “There are a number of things which create a compelling package for Malta, and Brexit might have opened up some businesses to think about relocating, and possibly considering the island for their move,” he asserts. However, “trust is at the heart of everything”, Mr Pace emphasises, going on to underline that “it is essential in the long-term.” Mr Curmi concurs and stresses that this is what will keep KMPG motivated to keep striving for better going into 2019 and to continue working at being “the trusted professional services firm offering a holistic level of solutions.” EV 109

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THE PROPERTY MARKET:

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will it crash

OR flourish The property market is booming, with frenetic construction works in full swing, ostensibly to meet demand, and real estate agencies making hay. But what lies in store for 2019? Jillian Mallia speaks to the industry’s leading professionals to find out.

uch has been said about the Maltese property market over the course of 2018. With rising sale and rental prices, construction projects drilling in every corner of the island, and new development applications being approved at a frenzied pace, it’s no wonder many are asking whether the current level of activity is sustainable or whether this is a sign of a ‘fictitious bubble’ about to pop. Can – and should – Malta maintain 2018’s pace in the forthcoming year?

Tetris-blocks have become a recurrent feature of Malta’s skyline. Illustration by Nadine Noko for Economic Vision.

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Photo by Ray Attard

“Market forces, such as today’s unprecedented increase in population, is what is driving the construction boom,” David Xuereb, the CEO of Quality Projects Malta says. The question is, however, whether the real estate inventory on the market matches the actual demand, in real terms, he says, though he expresses confidence in the ability of industry players to act conscientiously. “My opinion is that most developers in Malta are professional enough to appreciate and sense what demand is required. From economic research carried out and the various ‘state of the industry’ reports, it does not appear that any property bubble is on the horizon,” he states. However, customers and investors are becoming more demanding, expecting design and construction quality, which stakeholders are attempting to meet. In this regard, he mentions the need to continue improving the quality of the construction process and the product, and notes that a critical challenge is to improve “the quality of the real estate that is being placed on the market, both in terms of design and aesthetics, as well as functionality and adaptability.” Despite some effort, Mr Xuereb admits there may be “some shortcomings for those properties that do not meet the objectives of the evermore discerning customers,” but he believes this is an obstacle which can be overcome.

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My opinion is that most developers in Malta are professional enough to appreciate and sense what demand is required. David Xuereb, CEO, Quality Projects Malta

He also stresses the importance of establishing methods for “the industry to improve its respect of the public and the environment during the operations of its business,” as well as ensuring an improvement in the calibre of the island’s infrastructure in order to be able to cater for the current – and future – capacity. Together with the upswing in the number of new developments, old and dilapidated houses are also being given some attention, the CEO stresses. “Interest in restoring and renovating old houses is also on the increase,” he affirms. “The latest national Budget incentives, together with the Planning Authority grant schemes to assist and motivate restoration and renovation projects, have gone a long way to making this a reality.”

He also comments positively on the incentives announced by Government in this year’s Budget which aim to help first-time home owners. Indeed, he notes that a side effect of the current rapid economic growth is the difficulty first-time buyers are facing in investing in property. “Property prices and rental costs have been increasing steadily over the last five years. It is becoming increasingly harder for first-time buyers to afford to invest in property. However, national Budget incentives to assist such first-time buyers have been very positively received by the market and have gone a long way to address first-time buyer property affordability,” he emphasises.

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These views are also echoed by Benjamin Tabone Grech, Managing Director at Engel & Völkers Sara Grech, who comments that the resilience in the market is forecast to lead to a correction in prices. He believes that a healthy and strong market is on the horizon for 2019 but expects the inflation of prices to become a thing of the past. This is due to the gamut of opportunities which lie ahead. Indeed, he asserts that “the principal challenge envisaged is the alignment of each business with the technology available to offer more efficient, practical and higher quality services.” He maligns today’s attitude of quantity over quality, saying that in the past century there was a certain responsibility to both the environment and society – each brick laid was there to stay, so it needed to be sustainable. “Today the approach is ‘let’s just do the project quickly’, and it is visually very apparent that this past responsibility is no longer alive and has begun to affect our real estate market and economy.”

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Today, the approach is ‘let’s just do the project quickly’, and it is visually very apparent that this past responsibility is no longer alive and has begun to affect our real estate market and economy. Benjamin Tabone Grech, Managing Director, Engel & Völkers Sara Grech

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Mr Tabone Grech says this may have something to do with current industry trends for “what’s in today may not be in tomorrow but can come back in next year,” and he notes the rise in the popularity of apartment developments. “The condominium or the apartment is the essence of communal living where space has become limited and people gather to maximise the sharing of costs and have easier access to amenities. The rise in the number of developments for apartments has been ten-fold in recent years.” Yet, he notes that the construction sector does not always rely on the most opportune trends, stressing that the importance of longevity is at the forefront of what some players do. Indeed, he notes the large number of old properties still on the market, and envisions “a very unique market opportunity for restoration projects and business cropping up which will deal with the difficulties of renovating old properties and finishing them for a family to enjoy.”

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BICC Chairman, Charles Buhagiar, also weighs in on Malta’s construction boom, yet comments on its effects on, primarily, the local population. “The construction boom principally affects people who live near construction sites. This definitely needs to be better regulated to ensure that contractors abide by certain building regulations to cause the least amount of inconvenience to residents or passers-by.” The Government has done this by implementing a White Paper for the setting up of a new Building and Construction Authority in Malta for better industry regulations, he notes, though he says that more needs to be done – including adequate planning – particularly with regards to addressing other issues which may arise such as the use of heavy machinery which may cause traffic problems. He notes that the high influx of people migrating to Malta for work opportunities presents a challenge for the property market, since more housing units to accommodate the increase are required. “We need to provide a minimum of 6,000 or 7,000 new residential units, also taking into account the requirements of the ever-growing Maltese population.” It is clear that the current trend is to rent property rather than buy it, so, “in 2019 we will have a big challenge to see how we are going to satisfy this demand,” asserts Mr Buhagiar.

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In 2019 we will have a big challenge to see how we are going to satisfy this demand. Charles Buhagiar, Chairman, BICC

Mr Buhagiar also turns attention to the plight of first-time buyers, offering them a glimmer of hope. “They can start by investing in a small apartment and work their way up,” he suggests, pointing out that “there are Government initiatives to help them.” Mr Buhagiar suggests they “get onto the market soon, as it will be much more difficult,” to do so later on. “Whilst I do think that there will be some type of inflation in 2019 with regards to both the rental and sale prices of property, I do not think these will be high enough to discourage first-time buyers.” Contrary to his industry colleagues interviewed for this article, Mr Buhagiar notes the difficulties associated with renovating older homes. Such dwellings have higher costs of purchase and renovation, and are almost becoming extinct in certain areas, he says. “The value of houses has increased considerably, making it more difficult for first-time buyers to buy a house and leaving them no option but to go for apartments.” On the other hand, as can be seen in various localities, older houses are being acquired by investors and developers and converted into “modern living residential units and in some cases, converted into boutique hotels and commercial outlets,” reflecting a trend, Mr Buhagiar continues, that is set to increase. As a result of these trends, Mr Buhagiar does not consider the property market to be reaching saturation point. Rather, he notes that “property prices could at one time level at a certain price.” Thus, he does not “foresee a bubble in the coming year, let alone one that can pop”. This is because “apartments are being used like some kind of currency, as property is a solid investment,” one that many don’t pass over, he claims.

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These thoughts seem to reflect those of Kevin Buttigieg, CEO of RE/MAX who also points to the high influx of people coming to Malta and generating high property demand as a contributing factor to the healthy property market. “The island continues to offer a lot of advantages for foreigners to either set up their businesses here or just to take up residence on the island.” Maintaining such a momentum would be a significant challenge for the coming year, he says, going on to explain that, despite these trends, the Maltese “believe in property investment and are still the largest investors on our island.” Prospects for 2019 promise further buoyancy, according to the industry leader. “Whoever is in any way connected to this industry is finding his personal net asset value growing year-on-year and is further encouraged to continue along the path of more investment in the sector itself. I believe that the property sector will continue to affect the economy for 2019 in a big way in all sectors and across the board,” he says. “So it’s all about staying on top of our game, and there will be lots of it in 2019,” confirms Mr Buttigieg. This vision of the future is reliant on the approach being taken, the RE/MAX CEO says, that is “to provide supply to the demand of buyers through newly developed condominiums, and lately, high-rise buildings.” He does not regard the renovation of old properties useful in this respect, despite admitting that the current rate of development only solves the problem temporarily and negatively affects “the present infrastructure, including the environment.” Yet, he is of the opinion that the authorities are monitoring the situation well and that decisions have been taken to intervene when necessary.

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With this scenario we are inclined to project that if there were to be any price adjustment for the coming year, it would be on the increase. Kevin Buttigieg, CEO, RE/MAX

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Current trends, however, mean that it will be a significant challenge for first-time buyers to climb the property ladder. There are “available schemes being offered by the banks which also realise that the property market is a rather sound means of investment.” This situation is set to be compounded in 2019 since, in Mr Buttigieg’s view, demand will continue to be strong and “with this scenario we are inclined to project that if there were to be any price adjustment for the coming year, it would be on the increase.”

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I feel it is important to note the huge divergence between home prices which are advertised and those that are actually paid at contract. Across the board the prices advertised are much higher than the prices paid and this gap continues to grow. This is what’s making the real estate market seem like a bubble. Michael J. Zammit, Director, Malta Sotheby’s International Realty Michael J. Zammit, Director and Joint Owner of Malta Sotheby’s International Realty, weighs in on the increasing demand for property across Malta. “The factors affecting the housing demand are the increase in foreign workers, increase in investment in the buy-to-let market, growth in disposable income, increase in demand for office space, increase in tourism, Government incentives and legislation which attracts various businesses, as well as Malta’s residency and tax programmes.” Mr Zammit asserts that these factors represent opportunities for further growth in the real estate market, yet he takes note of the challenges facing the island’s sector. “The largest concerns for the property market are the lack of supply of quality properties,” and “delays in the delivery of new builds for properties, the negative press about Malta in the foreign media, and infrastructural issues,” continues Mr Zammit. Despite these issues, Mr Zammit does not believe the island is currently experiencing a ‘fictitious bubble’ which is about to pop. “I feel it is important to note the huge divergence between home prices which are advertised and those that are actually paid at contract. Across the board the prices advertised are much higher than the prices paid and this gap continues to grow. This is what’s making the real estate market seem like a bubble. Moreover, although constant building and cranes may be an annoyance to Malta’s residents, the demand for property is present and new construction is a positive economic driver. Malta attracts foreigners and investors with high purchasing power who can pay higher rents and are used to doing so in their home country. As long as population growth and local and foreign investments are the main drivers of the housing demand, then there is no issue,” he claims. With regards to how this affects first-time buyers, he says they “need to revaluate their expectations in terms of geographical location. You wouldn’t move to New York City and expect to live on Park Avenue, just as a first-time buyer shouldn’t expect to live on Tower Road in Sliema.” He also insists that Government “should encourage the private sector to get involved in affordable public housing via affordable housing incentives. There are also talks to stretch the development zones further, but this would be a challenge as the country would also need to focus on the environment and sustainability,” he adds. However, he sees hope for the many dilapidated properties on the island. “Clients buying for the purpose of residing in the property are not discouraged from purchasing homes of character that need conversion,” he says. Mr Zammit adds that the Government’s tax incentive which reduces the stamp duty to 2.5 per cent instead of the standard 5 per cent for the acquisition of properties within these areas has encouraged many to opt for older properties. “This encourages clients to restore properties to their former glory, as well as the attraction of the unique selling points heritage homes offer – charm, character, and instantly recognisable historical features – in other words, a true taste of the authentic Maltese lifestyle,” he concludes. EV 121

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Forging the

FUTURE OF MANUFACTURING

in Malta

With the manufacturing sector set to expand into 2019, Jo Caruana asks the experts what we should expect from this challenging industry â&#x20AC;&#x201C; and what new technology will be brought to the table in the year to come.

The reproduction of Maltese culture through the art of manufacturing. Illustration by Nadine Noko for Economic Vision.

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he manufacturing industry in Malta is one of the economyâ&#x20AC;&#x2122;s stalwarts. In fact, the most recent National Statistics Office data shows that the sector at present employs 21,700 people, which accounts for roughly 13 per cent of all private sector employment in Malta. And all this is achieved despite obvious challenges, including the fact that our country is an island and every item made or manufactured here has to leave on a plane or a ship before making it to the wider marketplace, while most raw materials also need to be flown or shipped in. 123

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Investors see their future in Malta and they have managed their assets accordingly. Dr Chris Cardona, Minister for the Economy, Investment and Small Business

Asked about the current state of the manufacturing industry, Minister for the Economy, Investment and Small Business, Dr Chris Cardona, explains that, after years of decline, the sector has – in the last five years – become a pillar of the local economy once again and is now contributing to Malta’s economic growth. “A healthy manufacturing sector will always have a positive ripple effect on the economy,” Dr Cardona says. “Since being elected into office, this Government has embraced a new approach to supporting the industry – through incentives, by cutting bureaucracy, by reducing induced costs, and by keeping an ear to the ground about what the local industry needs.” He says that a number of strides have been made in recent years. “Looking back, there has been a quantitative leap forward in investments from both large and small players in the manufacturing industry. There have been vast investments in new plants, machinery and equipment, in acquiring knowledge, as well as in the propagation of the competences and capabilities of the workers. Investors see their future in Malta and they have managed their assets accordingly,” he continues. “We have paved the way and taken calculated risks for the flourishing of new sectors and sub-sectors in ICT, life sciences, advanced manufacturing, aviation and direct services. Value-adding jobs have been created and our educational institutions are adapting to meet the new requirements of the industry. The cluster of like-minded companies and resources has really helped us accelerate our manufacturing sector,” he states. Toly is an example of one of the companies trailblazing within the manufacturing sector on the island – and it is fast becoming one of the leading luxury packaging manufacturers in the cosmetics, fragrance and skin care industries anywhere in the world. “Manufacturing in Malta is definitely in a good place,” says Olaf Zahra, Toly’s COO. “But traditional manufacturing is, and will remain, very difficult in the future for developed

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countries such as Malta, where the workforce is already at a higher level of education. Manufacturers are adapting and becoming smarter about adapting to this changing lean and agile world. It is the implementation of new technologies, such as increased automation, additive, robotics and absolute precision software control that makes a Maltese manufacturer successful nowadays, and many already do or are in the process of adapting to that.” Underlining the importance of the manufacturing sector, Patrick Cachia, the Chairman of the Manufacturing Economic Group within the Malta Chamber of Commerce, Enterprise and Industry, says that, as a country without any natural resources, it is impressive that this sector continues to do so well. “This is despite the fact that Maltese operations are forced to import raw materials and then re-export manufactured goods, while also coping with rising operating costs,” he says. He explains that, what started out as an economic sector developed in Malta as a consequence of the island’s fiscal benefits, and then one which grew as a result of the ready availability of low-cost labour, has now developed into a largely high-value-added sector. This, he goes on, is built on technical processes, innovation and advanced machinery, strengthened by the fact that the sector’s workers have painstakingly established a solid, world-renowned reputation in precision, reliability and dedication. “For this reason, the manufacturing industry, through its representation in the Manufacturing Economic Group within the Malta Chamber of Commerce, Enterprise and Industry, maintains constant two-way communication with the Minister for the Economy, as well as authorities and bodies such as Malta Enterprise, Malta Industrial Parks, the University of Malta and MCAST, among others. Such two-way communication serves to safeguard and enhance the sector’s competitiveness, which is of primary importance above all else.”

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The high labour turnover is imposing significant recruitment and training costs and is resulting in a relatively inexperienced workforce on production floors. Marisa Xuereb, Managing Director, Raesch Quarz (Malta) Ltd

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However, there are some challenges being faced by the manufacturing sector locally, and it is vital to be aware of them. Marisa Xuereb, Managing Director of Raesch Quarz (Malta) Ltd, which has been operational in the sector since 1997, says the main issues are on the labour front. “We are facing a general shortage of manpower, exacerbated by a level of skills and competences that does not match salary expectations, particularly at the lower and middle levels, as well as a deteriorating work ethic,” she explains. “This is resulting in persistent wage inflation and a decline in productivity. The high labour turnover is imposing significant recruitment and training costs, and is resulting in a relatively inexperienced workforce on production floors. The approach to training is changing and becoming more expedient, as companies are fully aware that employees may not be with them for long. This is particularly problematic in industries where specialised skills with steep learning curves are involved. In a nutshell, we generally have well-equipped but inadequately staffed production facilities,” she continues.

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There is the current global political situation to consider. Olaf Zahra, COO, Toly

On top of that, Ms Xuereb says that the labour force shortfalls that the sector is experiencing are pushing companies to further automate their processes. “But there is a limit to the feasibility of automation in industries like ours, where it is impossible to compete on mass market products and, hence, have to focus on niche markets where a high degree of customisation for relatively small volumes is required,” she says. “3D printing seems to be an obvious solution for small-volume production. But, when the material required needs to withstand operating temperatures over 600˚C and have the same transparency and purity as quartz

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glass, then 3D printing is not an option. But, this is the same for anyone operating in our industry, anywhere in the world. It’s those issues that render Malta less competitive than other countries at a similar level of development and these are the issues we have to address with urgency and expediency.” At Toly, Mr Zahra says his team faces another challenge – namely the fact that plastic has become a ‘dirty word’. “Without going into the merits of which plastic industry is creating pollution issues, finding more sustainable alternatives to the materials we use will definitely impact our business in the near future,” he explains. “And beyond that, there is the current global political situation to consider. Re-shoring has its pros and cons, and a global business like Toly will reap benefits in certain areas but has to face challenges in others. For instance, we have a factory in China and the USA is our largest market there today. If the current rhetoric continues, we don’t know what could happen,” he says. Meanwhile, there are a number of developments expected to impact the sector in 2019 – including the Falsified Medicines Directive (FMD), which will become effective for most EU countries in February. Mr Cachia, from Malta Chamber, explains that, as a result of this, manufacturers of pharma products sold in the EU have to upgrade all their equipment, including software and hardware, so that all units that are sold have a unique identifier and a tamperevident feature. “This means that all pack presentations have to be printed with 2D data matrix information which will have all the necessary details, apart from the printing of product information and specific details,” he says. “Aside from 2D data matrix information, an additional unique serial number will need to be encoded into the matrix on every product carton. Such serialisation will need to be maintained throughout the entire product supply chain to allow verification of this ‘safety feature’ against a central database.”

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However, despite this and other challenges, there is no denying that the sector is stable. “With careful and strategic planning on both a macro and a micro level, it is safe to say that the future of manufacturing in Malta will be encouraging,” Mr Cachia stresses. Minister Cardona, meanwhile, highlights the related technological developments that are likely to come on in leaps and bounds in the year to come. “Through our economic development agency, Malta Enterprise, we are laying the groundwork through incentives to support emerging technologies such as automation, robotics, AI and 3D printing,” he says. “These incentives consist of financial and fiscal support, and are available to all manufacturing sectors. The take-up for these incentives is indeed encouraging and there is a clear sign that, today, our manufacturing sector differentiates itself from our competitors on the basis of efficiency and quality.” Toly is one such company adapting to these developments. “3D printing is already very commonplace in our production, and is used for making jigs, fixtures and other parts that help support production with quick lead times,” explains Mr Zahra. “However, in the future, additive manufacturing is poised to change the way manufacturers think. We’re adapting to that trend and investing in it.”

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With careful and strategic planning on both a macro and micro level, it is safe to say that the future of manufacturing in Malta will be encouraging. Patrick Cachia, Chairman of the Manufacturing Executive Group, Malta Chamber

Finally, Minister Cardona makes his projections for the future of the manufacturing industry on the island. “It has entered a dynamic new phase,” he says. “And we need to ensure we have a holistic ecosystem that supports industry at the same speed. Company models are changing, and their livelihood depends on their R&D capabilities, knowledge of their customer, and product design. They will need qualified, computer-savvy factory workers and agile managers to keep up,” he notes. “To this end, I believe the manufacturing sector in Malta will continue to grow. One area, for instance, will relate to the long-term growth of medical cannabis manufacturing. There are a number of projects in the pipeline, approved through Malta Enterprise over the last two years, and which will be implemented in 2019. These projects are expected to result in increased employment, investment and exports,” he continues. “I believe Malta can safely position itself as a centre of excellence with all the components of our ecosystem making our manufacturing sector highly competitive. These include our political, social and industrial stability, excellent links with the world, high-quality workforce and, of course, our incentives,” he concludes. EV

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uilding A SUSTAINABLE TOURISM INDUSTRY FOR

Like the sun which defines so much of Maltese life and culture, tourism can seem like a renewable, inexhaustible source of energy to drive the country forward, but many forget that it too can have the power to burn if handled without care. With this in mind, Lewis Pitcher speaks with five leading figures from across the tourism industry about the momentum, the challenges and the risks of handling what for a long time has been the lifeblood of a nation.

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Valletta was Malta’s beating heart for tourism in 2018. Illustration by Nadine Noko for Economic Vision.

t is hard to overstate the vital role that tourism has played for Malta’s economy for well over 50 years. It is fair to say it has been one of the main driving forces in pushing the country towards where it is today. Entire towns, notably those in the areas of Bugibba, Qawra and St Paul’s Bay, often come to life in the traditional tourist season and essentially hibernate through the winter. Indeed, the influx of visitors to Malta’s shores shows no signs of abating as can be seen from the numbers defining the sector in recent years. Figures issued by the National Statistics Office show that inbound tourists broke the 2 million mark in 2017 and this number is expected to reach 2.5 million by the close of 2018, with close to €2 billion in

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“ total tourist expenditure over the year. In fact, virtually every aspect of the industry experienced an increase of over 10 per cent over the same period. This could be expected to increase further by the end of the year, given the marketing spend and popularity of Valletta’s tenure as European Capital of Culture 2018.

We are predicting further growth for 2019 due to the expanded airline connectivity both by the national carrier Air Malta and also by the increased activity from low-cost airlines. Kenneth de Martino, Chairman, KDM Group

Tony Zahra, Chairman of Alpine Holdings, claims there is much to be positive about for the tourism sector in 2019. “Tourism has been the bedrock of the Maltese economy for the last 40 years and will remain the bedrock of the economy given that the product is in high demand and that the industry is growing worldwide, as a result of the increase in people’s income. In fact, a lot of these people are seeking to spend their money on leisure activities, top of which is travelling to other countries.” On the success of Valletta 2018, he adds that “Valletta 2018 was important in so far as it gave a great target date for getting things finished. Valletta has become a destination in its own right and I am sure that it will continue to be so going forward well into the future.”

A positive outlook for tourism in 2019 is also widely shared by many industry figures, such as Kenneth de Martino, Chairman of KDM Group, which encompasses, among others, airline ground handling agent, Aviaserve. “There is no doubt that the tourism sector remains one of the pillars of our economy. Over the years, it has matured, diversified and regenerated. We are predicting further growth for 2019 due to the expanded airline connectivity both by the national carrier Air Malta and also by the increased activity from low-cost airlines. Ryanair will in fact be basing their sixth aircraft in Malta which will certainly contribute to the increased numbers predicted for next year,” he claims. Both Mr de Martino and Mr Zahra agree that the effects of Brexit on the local tourism industry will be relatively minor, notwithstanding the fact that Malta’s largest source market of inbound tourism remains the UK. Aviaserve as a whole is not predicting any real drop from the UK market share, 137

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while Mr Zahra explains that the diversity of the modern tourism market is set to take the edge off the worst of the process. “The percentage of British tourist arrivals to Malta went down from a high of some 75 per cent to what it is today, which is about 33 per cent of the total arrivals. It is interesting to note that whilst, in percentage terms, the arrivals went down, in absolute terms arrivals remained at the same number. This was due to the strategic decision of developing other markets,” the Apline Holdings Chairman says. Malta’s strategy of developing other markets seems to have borne fruit, as evidenced by the NSO’s statistics for 2018, which show an increase of tourist arrivals from Australia, the USA and Austria (of 27, 29 and 31 per cent respectively over the same period of the previous year) in the first nine months of the year, compared to the UK market which suffered a decrease in numbers for the same period. These trends are set to continue through to 2019, according to the industry stakeholders, and thus, as Mr Zahra points out, “Brexit as such will not affect the market. However, should one of the effects of Brexit be a lowering of the exchange rate and a devaluation of the British Pound, arrivals from Britain will be affected, and this will escalate the weaker it gets.” “That said, to put this in context, should Malta lose 20 per cent of the British market due to a lower exchange rate, it means that we shall lose 6 per cent of the total market and I think Malta has enough ability to be able to increase arrivals from other countries to make up for this shortfall,” Mr Zahra continues.

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Brexit as such will not affect the market. Tony Zahra, Chairman, Alpine Holdings

The diversification of the market is not, however, limited to the territories being targeted: there has also been a major push to attract tourists other than the traditional summer holidaymakers. Alan Arrigo, director at the veteran tourism agency Robert Arrigo & Sons Ltd, feels that this is a current and future priority for Maltese tourism as a whole. “The Malta Tourism Authority has done a great job, together with incoming agents and destination management companies, in marketing Malta to a good number of different niche markets and tourist types. This obviously took over two decades to achieve and Malta should keep marketing to various niches,” he says. This shift is reflected in the propagation of diverse accommodation categories, with boutique hotels, which often cater for more specialised tourist types, having increased, as well as rentals such as flats, villas and farmhouses rising in popularity, suggesting a move away from the traditional hotel tourist. It may seem then that, if an event as monumental as Brexit can do little to halt the forward progress of Maltese tourism, there may be little that conceivably can. However, this formerly unstoppable growth may well have a limit, one which is already starting to have an impact across the islands. Alex Incorvaja, General Manager of the soon-to-be rebranded Malta Marriott Hotel & Spa – believes that, to some extent, the issues

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around infrastructure and overtourism are ruining the many attractions Malta has. “Here in Malta we have a fantastic tourism product, not just in regular tourism but also in business tourism. We have a great location with connections to all of the Continent as well as North Africa, not to mention the climate, language, culture and history. Malta is a viable destination whatever segment you look at. The fact that such huge brands like the Marriott have presence in Malta shows just how much potential the country has as a tourist hub.” Indeed, Mr Incorvaja’s words are reflected in the summer occupancy rates across hotels which hover between the 90 and 100 per cent mark. Even in the quieter shoulder months, hotels recorded an average of 75 per cent occupancy, with the earlier off-peak months still reaching over 50 per cent. However, Mr Incorvaja raises some red flags. “Locally, overtourism is already affecting us. It may be time to start looking into controlling the intake of tourists, as the current infrastructure is certainly feeling the strain now. If we want to keep pushing for higher numbers, then we definitely need to start addressing the infrastructural problems, including everything from the roads to the collection of garbage. Here in Malta we have a fantastic range of accommodation from four-star and five-star hotels to townhouse boutique hotels, but tourists don’t come just for the hotels. It is currently the case that when guests leave these hotels they quickly find areas that need improvement in terms of management.”

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There is a growing sense among various members of the industry that several areas are reaching a critical point in terms of sustainable development. Mr Zahra of Alpine Holdings notes one particular area where limitations are already evident. “For example, until some years ago the Hypogeum did not have a limit to the number of visitors but damage was being done and that level of intake was not sustainable. Today a maximum of 10 visitors are allowed in an hour. We have to look at the product and see what is sustainable and then go for it,” he says.

The Malta Tourism Authority has done a great job, together with incoming agents and destination management companies, in marketing Malta to a good number of different niche markets and tourist types. Alan Arrigo, Director, Robert Arrigo & Sons Ltd

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Overtourism is already affecting us. It may be time to start looking into controlling the intake of tourists as the current infrastructure is certainly feeling the strain now. Alex Incorvaja, General Manager, Malta Marriott Hotel & Spa (formerly Le Méridien)

It is not only the attractions themselves which are reaching or possibly exceeding capacity. Mr Zahra states that, after 10 years of “phenomenal” growth, the issue is now how to deal with the finite capacity of Malta as a destination. For Mr Arrigo, this is reflected in one of the less immediately obvious areas of the industry. “The industry’s biggest challenge is finding staff able to speak languages other than English and Italian. We see this particularly in the lack of guides specialising in different languages and the lack of drivers to carry tourists around the island to enjoy its beauty during tours and excursions,” he continues. A more pressing issue, and one that is familiar to all and sundry, is the mounting pressure on Malta’s transport network and concerns about its efficacy. While there have been improvements to the road transport network – with an international award for Bus Excellence in 2017 based largely on growth and improvement of quality – some fear that the public transport service, as well as other land transport means, have a hard limit in terms of pure capacity. Joe Cordina, Chairman of Gozo Channel, the company responsible for the vital ferry service between Malta and Gozo, has seen first-hand the dramatic growth in tourist traffic which continues to impact upon land transport as well as the ferry service. “On the ferry service alone, we have seen an 8 per cent year-on-year increase and we have every reason to believe this growth will continue in the future. We are even considering adding a third vessel to our fleet and updating the journey timetables significantly,” he maintains. However,

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“ while increasing the capacity to carry more vehicles on the ferry may help to address one issue, the situation on land is more complex owing to the restrictions of space and the public’s frustration when arterial roads are closed off for development, as has been seen in recent projects around Kappara and the current MarsaHamrun Bypass. For decades, a number of more radical suggestions have been floated around to solve these issues, including a land bridge between Malta and Gozo, and a tram system, among others, although Mr Cordina points to one suggestion that has gained a good deal of momentum in the past few years. “Over the last years, we have focused more on extending and widening our roadways to their absolute maximum. However, at a certain point we cannot continue doing this; we need to go underground. The population is increasing faster than ever now, with so many foreign workers moving to Malta, and the problem is only going to get worse. We have never had a complete overhaul or rethink of the system and this is what we need now,” he asserts.

On the ferry service alone, we have seen an 8 per cent year-onyear increase and we have every reason to believe this growth will continue in the future. Joe Cordina, Chairman, Gozo Channel

Mr Cordina is far from the first to bring up the idea of underground expansion – talk of underground rail and metro networks has been around since the closure of the Malta Railway in the 1930s, although nothing has come from these discussions as of yet. However, discussing the issue is very different from taking action, and while most in the country agree that something needs to be done, it is clear that any movement forward will need great investment and consideration. This applies to the entire tourism sector, which will need to find a way to continue reaping the rewards of healthy profits, without killing the golden goose. EV

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