ECONOMIC VISION 2021 by Content House

BUSINESS. FINANCE. ECONOMY. €15 (where sold) | NEWSPAPER POST

A SPECIAL EDITION OF THE COMMERCIAL COURIER

Gold Collaborating Partners

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Eco nomic Vision

20 21

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. The annual publication focuses on the macro business, financial and economic outlook for 2021. The publication outlines the country’s annual economic, business and financial projections, focusing on the way these will impact people’s lives and the businesses which operate on the island. On behalf of the Malta Chamber of Commerce, Enterprise and Industry, and on behalf of Content House Group we would like to extend our warm appreciation towards all the people who participated in the Economic Vision 2021 publication. 25

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

contents 28 32

Looking ahead

The Malta Chamber reflects on an eventful year marked by unprecedented changes to the organisation, to businesses and the country, and outlines the priorities to look forward to in 2021.

In figures: The key numbers, statistics and percentages from 2020 and for 2021

A look back at the numbers that defined the past year, and those projected for the new one.

Building a better tomorrow for Malta

2021: The make or break year

Strengthening Malta together

2021: Business projections, forecasts and plans

Strength in solidarity

Driving economic recovery in the context of future challenges

2021: Could COVID-19 be a driver for innovation?

Revisiting Malta’s economic model

Prime Minister, Robert Abela, reflects on the successes achieved over the past year and the roadmap for moulding a better future for Malta.

Leader of the Opposition, Bernard Grech, stresses the importance of banding together to put Malta’s prosperity, and that of its citizens, above all else.

The Malta Chamber President, David Xuereb, discusses the opportunities that lie ahead for businesses against the difficult backdrop of COVID-19.

The Malta Chamber Council members discuss the past, present and future for local businesses and the benefits that stand to be gained with a new approach to doing business.

As COVID-19, along with national and global uncertainties, have shaken the island and left the economy in limbo, the experts share their thoughts about the road to recovery.

As hopes of an imminent COVID-19 vaccine shine a light at the end of the tunnel, experts from the banking to real estate sector lay out their predictions of what the new year may bring.

Outgoing Minister for Finance and Financial Services, Edward Scicluna, is hopeful that Malta’s economy can bounce back in 2021, but cautions against ignoring the changes that lie ahead.

Shadow Minister for Finance, Mario de Marco, discusses Malta’s many hurdles and opportunities in the months to come, underpinned by the need to adopt a new and sustainable economic model.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

PUBLISHER

98 102

At a glance: What will 2021 hold?

Business leaders hailing from a broad spectrum of important economic industries for Malta share their thoughts on the lessons learnt in 2020 and what they’re expecting in 2021.

“GDP will only return to 2019 levels in mid-2022 at best”

Outgoing Governor of the Central Bank of Malta, Mario Vella, discusses his medium- and long-term forecasts, and the continued impact of COVID-19 on Malta’s banking sector.

Content House Group 3, Level 2, Mallia Buildings, Triq in-Negozju, Zone 3, Central Business District Birkirkara CBD 3010, Malta Tel: +356 2132 0713 info@contenthouse.com.mt www.contenthouse.com.mt In conjunction with the Malta Chamber of Commerce, Enterprise & Industry.

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

Edward Bonello

EDITORIAL COORDINATOR Martina Said

106

Strengthening Malta’s FDI attractiveness

CEO at Malta Enterprise, Kurt Farrugia, shares his thoughts about the current climate for securing Foreign Direct Investment for Malta, and new sectors the agency is working hard to attract.

CORPORATE SALES & BUSINESS DEVELOPMENT MANAGER Bernard Schranz

HEAD OF ACCOUNTS & OPERATIONS Marvic Cutajar

CREATIVE DIRECTOR & DESIGN Nicholas Cutajar

110

Overcoming COVID-19 through sustainable development Dr Gordon Cordina, co-Founder and Executive Director at E-Cubed Consultants Ltd, outlines a way forward for Malta, and its priorities within the context of COVID-19.

Content House Group 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 Group 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 distributed to bank branches, government agencies, government ministries, leading cafeterias, and several public places including at reception areas of business centres, hospitals and clinics. The publication is also sold from leading newsagents.

PHOTO BY DAVID PISANI

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Looking ahead It is highly unlikely we will forget 2020 very easily. The year that started quite unremarkably, turned out to be an unprecedented unfolding of events that took the entire planet by surprise. 2020 seriously put world economies to the test and brought global social systems to their knees. With the spread of Coronavirus, in the early months of 2020, the world was forced to rethink its priorities as it grappled with an ignored and forgotten force of nature that took everyone unawares. Locally this was no exception, as the virus forced the country into a partial lock-down. The Malta Chamber, while itself already designing and managing an internal restructuring process, embraced this time to become closer to its members than ever before, as well as reach out to entirely new business sectors which had developed or reorganised over the recent years. The pandemic brought about a positive sense of collegial thinking and a very strong appreciation for aligned personal and business sector energies. AN OPPORTUNITY In fact, 2020 was a year which offered an undeniable opportunity to truly focus on what matters most as driven by the core values of The Malta Chamber. However, it is not the aim of this foreword to dwell on the past. As this publication goes to print, COVID is still very much a reality and numbers are not showing any

sign of slowing down. Yet hope reveals itself bright on the horizon as a number of reputable research institutions are in advanced stages of commercialising their vaccine solutions, with distribution systems being deployed as early as December 2020. This sheds light on a very important matter. As we all look forward to a new form of stability, will we be going back to the ways of old, and simply place this challenging year behind us? Shall we throw away lessons learnt in the past months? We hope not. Shall we benefit from the sacrifices we have made as a business community as derived from strong life principles such as honesty, integrity and respect for each other, our employees and our loved ones? We believe so. COURAGE, INGENUITY AND FLEXIBILITY The COVID-19 crisis pushed us into a tight corner, the only way out of which was a heightened sense of courage, ingenuity and flexibility. Some were agile in pivoting their entire business model from one sector to the next, as they saw opportunities there for the taking. Our Chamber of Commerce has nurtured, supported and motivated this value and will

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

continue to do so even after COVID in order to enshrine this ambition of becoming better at a personal level and also at a corporate level during every day of our lives. This is why the Chamber worked hard to support and promote a Business Re-engineering Scheme to the Government in July. The objective was to ensure that all businesses will embrace the opportunity to analyse and test their economic models led by business leaders who embark on a personalised restructuring journey aimed at smart and sustainable objectives to develop into resilient business models. The scheme was launched in November, and we are convinced that it will make a real difference for businesses, the national economy and the quality of life of our nation. BREXIT Another priority which is expected to characterise our business in 2021 is the UK’s definitive exit from the European Union. Brexit has been on everyone’s mind since 2016, no less for those of us who do business with the UK. With the Brexit transition period approaching its end, businesses need to make sure that they have everything in place, in order to ascertain a continuation of their business come next January. In order to facilitate this transition in the best way possible, The Malta Chamber has teamed up with Government to keep businesses up to date about how best to be prepared for a probable no-deal Brexit, through a number of events which have taken place in the past weeks. The Malta Chamber shall remain available to assist any businesses in difficulty, as it has always done. EU MULTIANNUAL FINANCIAL FRAMEWORK 2021-2027 Following the recent agreement reached by the European Parliament and the Council on the EU Multiannual Financial Framework (MFF) for 2021-2027, The Malta Chamber considers this was a bold step towards helping the EU economy recover from the shortcomings the COVID crisis continues to inflict.

It is now crucial that the deal reached is swiftly ratified by all member states to further ensure certainty for the millions of businesses and other actors that will be able to make use of EU-funded programmes. GOOD GOVERNANCE AS A RUNNING CONCERN One other element which should characterise 2021 is a continued national effort towards good governance and our national reputation internationally. This should not be a priority simply due to some test the country needs to conclude successfully. Good governance must be the underlying foundation for good business in every decision and every activity we embark on, at any level, be it Government, regulators, public organisations or private enterprise. As the country has suffered an unfortunate serious blow in this department, it is in everyone’s interest to restore Malta’s reputation with our international partners to where it should be. The steps taken thus far were certainly commendable and in the right direction, but this is really an ongoing effort and a process which demands commitment from all. A NEED FOR MORAL LEADERSHIP In conclusion, 2021 should be the year in which, as a business community, we continue to ascertain our responsibility in moral leadership and in being able to inspire the correct values to our communities and, most importantly, the younger generation. Today, more than ever, we require leaders who inspire strong values of correctness, honesty, integrity, professionalism, accountability and commitment to our peers and the nation driven by respect for each other and our environment. These values cannot remain a well-intended wish list or merely an expression on paper, but they need to be expressed tangibly and in a credible manner. As major influencers in the everyday lives of thousands of people, we have an important part to play in this objective. EV

To fully address and plan ahead from the present situation, decisive steps are required. The EU budget is one instrument that will assist national economies driven by private business to recover and re-invest into a new economic era. The MFF will need to reflect the new context, and speed-up the important transformations which have been occurring in the EU budget, namely an increased focus on areas with clear EU added-value such as the EU Green Deal and sustainable growth, and a greater role for innovation and digital transformation, whilst linking the whole package with the essential reassurance of good governance within the context of respect for the rule of law.

PHOTO BY ALAN CARVILLE

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

A key lesson is that outlays on health are not spending but a necessary investment that ensures our health system remains well provisioned and ready for action.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Building a better tomorrow for Malta Following the end of a year marked by upheaval and uncertainty, Prime Minister Robert Abela reflects on the successes achieved in times of crisis and the roadmap for moulding a better future for Malta. 2020 was supposed to be the year when the Maltese economy would be the fastest growing economy in the EU. We were projected to receive more than two million tourists, register our fifth budget surplus and our exports were to again exceed our imports. The first two months of the year were exactly that, but then COVID-19 came along. The pandemic found most countries unprepared, with their health systems affected by years of austerity. Luckily this was not the case for Malta. Our health system had its financial resources doubled, with the highest per capita increase in nurses in the EU. Others had criticised us for increasing recurrent expenditure. A key lesson is that outlays on health are not spending but a necessary investment that ensures our health system remains well provisioned and ready for action. The other key lesson is that fiscal discipline matters. Had we not diligently lowered the burden of the national debt, we could not have stepped in to save the productive capacity of the private sector. It is no joke that Government has been for the last months subsidising the wage bill of half of the private sector. We have had to provide guarantees for hundreds of millions of new private sector loans and put up a moratorium on existing loans.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

If there is a forecast that has held true despite the pandemic, it is the forecast that we would have the best labour market performance in the EU. We are one of the few countries that, after the initial spike, has managed to lower the number of people on the dole. We are also one of the few countries that has the luxury of having more people in employment today than there were last year. This is a record that should not just make us proud. It is a record that should make us hopeful. We will start 2021 with the same productive capacity as before. While other countries will start the year with a high proportion of firms that shut down and with millions in unemployment, our firms will be ready to take on the recovery. More importantly, the state will continue to be able to support them. While firms elsewhere will increasingly have to face austerity measures, as governments have to start repaying debts that exceed 100 per cent of GDP, our debt burden will still be below that of 2013. We will be in a position to keep taxation burdens low, while supporting innovation and green investment through the impressive amount of EU funds that we will be benefitting from. In the Budget, we reiterated our economic vision, launched at a Cabinet meeting held at The Malta Chamber in August. The vision is based on five principles: Governance, Quality of Life, Education, Infrastructure and Environment. For our strong economy to be sustainable, it requires that we invest in all five of these dimensions. 2021 will see us continue to reinvigorate governance structures, with further changes to our laws and more resources devoted to regulatory bodies. Having sustained our economic capacity, we will be able to focus on quality of life considerations. Government

The environmental transformation that we are committed to has the potential to also be the greatest economic opportunity for our generation.

will measure progress using comprehensive measures such as the UN’s Sustainable Development Goals indicators. Our education system is the basis for our digital and green transformation. We need a system that moulds individuals capable of valuing learning and using it to improve the world. An economy that has doubled in size needs an infrastructure that does not just cope with increased demands, but which serves as a springboard for further growth. After bolstering our road network, we need to focus on rebuilding our industrial infrastructure. This investment presents us with a great opportunity to do things right. We need to make sure that this investment is done to the highest environmental standards and serves as a way to help change our construction sector towards greener materials and working methods. The environmental transformation that we are committed to has the potential to also be the greatest economic opportunity for our generation. A chance to reverse the mistakes of the past and do good by future generations. Let us make sure that 2021 will be remembered as the year when, together, we started to build a better tomorrow for Malta. EV

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Strengthening Malta together Amid a global pandemic and a time of widespread uncertainty, Leader of the Opposition, Bernard Grech, stresses the importance of banding together to put Malta’s prosperity, and that of its citizens, above all else.

We must work to strengthen a beleaguered economy, one which has been severely challenged due to the COVID-19 pandemic and which even before that was already turning a corner not many of us want to look around. We must work to strengthen the economic prosperity of every person because no single one of us, no lone individual can move forward and succeed, if there are those amongst us who are left behind. This is why we require an economic model that talks about inclusivity, because we must strive

for economic results that result in an upward trend in social well-being and standard of living, see that people are lifted out of the risk of poverty and not remain stuck in this poverty trap. Our vision lies on an economy with a social heart, one that awards hard work and is able to sustain the most vulnerable, one that not only generates wealth but also creates investment in our people, in their education, in their skills and in their future potential. Our vision is an economic model that embraces quality, not quick numbers; quality – not just quantity. We need an economy that is also green and sees the environment as a critical and integral pillar, and not just as a passive and extractive resource, one that invests and promotes our heritage, culture and arts as they can support the establishment of a creative and innovative economy. We need an economy that is digital to the core in which citizens, businesses and visitors can interact and access services through digital channels. We need an economy that is built on good governance, robust regulations

PHOTO BY RENE ROSSIGNAUD

In the run up to Budget 2021 and in the aftermath to date, I have been underlining a new political and economic vision which is needed for Malta and Gozo. An economic vision that can no longer rest on its laurels, especially in these challenging and uncertain times, and one which reflects a robust and common ambition – that of strengthening ourselves, together. This encapsulates the vision of the Nationalist Party.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

We must work to strengthen the economic prosperity of every person because… no lone individual can move forward and succeed, if there are those amongst us who are left behind. 37

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

and working institutions, one which is built on values and that places human dignity before human greed. Above all, we need an economy that works for people and not people that work for the economy. An economy that works for every individual. Since my election as Leader of the Opposition, together with the members of our Parliamentary Group, we have been regularly meeting with all the social partners and stakeholders since, without their invaluable input, we cannot move forward, particularly post pandemic. The impact is now being felt more, as our country had developed an economic model which was based on excessive consumption with minimal attention being given to the creation of new high value-added sectors. The Nationalist Party will continue to position itself as a credible alternative to Government. We will continue reaching out to all the relevant stakeholders in drawing up our priorities for the coming years, among which are the

Our vision is an economic model that embraces quality, not quick numbers; quality – not just quantity. 38

environment, competitiveness, attractiveness and political stability, but will also map out the aspirations we have for our country, for our people and for our future generations. I am firmly committed to put the person as the focal point of our policies, indeed right at the centre of our politics. The task may be ardent, but I am determined. I want to take this country forward in the next phase of its development. I am intent on leading forth a united and renewed front which will finally put a close to this dark chapter in our political history and start anew whilst working for our nation to regain the respect it duly deserves. This is the time for change. This is a national effort which entails us to put the interests and needs of the Maltese people at the forefront of our politics, and one which requires us to work for the common good. This is our vision, for a better tomorrow. Together we can make it happen. EV

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

PHOTO BY JUSTIN MAMO

Our ambition is to shape an economy that not only grows our numbers and improves the quality of life and wellness of our people, but also improves the quality of what it is that we do.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Strength in solidarity Malta Chamber President David Xuereb discusses the opportunities that lie ahead for businesses against the difficult backdrop of COVID-19 with Sarah Micallef, highlighting the importance of business re-engineering, and a well-defined vision for the future. “Our ambition is to shape an economy that not only grows our numbers and improves the quality of life and wellness of our people, but also improves the quality of what it is that we do,” says Malta Chamber President David Xuereb, in no uncertain terms. Reflecting that 2021 will be a formative year, with all the mitigation measures we have become accustomed to forming part of what businesses need to move forward – as well as what customers will expect – he believes that now is the time to drive things forward, based on the principles drawn up in The Malta Chamber’s Economic Vision for 20202025. Speaking of the vision as one that is driven by the pillars of education, digitalisation and a zero-carbon economy, Perit Xuereb feels that it is high time we hit the ground running. “There is so much that we can be engaged in, and that is what we are working towards through a business re-engineering process with our members, so as to ensure that our business leaders are able to read the signs of the times, having a set of rules and opportunities that will get us going,” he says. Elaborating on the key elements of this vision, Perit Xuereb affirms that, from a zero-carbon economy perspective, there are two elements which will act as frontliners to make this vision work: “the change of our transportation to electric vehicles and using systems that move us away from our personal cars.” Apart from that, he considers digitalisation and education as particularly important. “We’re working with a number of stakeholders to have an education system that befits the

industry as we imagine it. We’re linking the dots between educators and business, so that we are able to develop curricula for kids that give them the skills that are able to drive AI, programming, Industry 4.0, 3D printing and other technologies that we know will be influencing our daily lives, and therefore our work and economy, in the future,” he continues. Certainly, quality is an important part of this, and the Chamber President emphasises quality as a key driver in the steps the country needs to take in areas like tourism, manufacturing, services and retail, among others. “We have to remember that we are in competition with other countries, and our ability to rank high in the competitiveness index has to do with our intelligence, ambition and persistence to be able to make the right decisions now before COVID-19 becomes a thing of the past,” Perit Xuereb maintains, highlighting the importance of acting today before tomorrow. The Malta Chamber has played a pivotal role in this trying time for the country, working towards rallying and aligning the energies of business leaders into an analysis of what can be done better; how best to fight the pandemic and emerge stronger than before. “I think we managed to do this very well – we’ve never had as much engagement with our members,” the President says, referencing the continued strength of the Chamber’s vision as the reason behind the Government and the Opposition both lending their support. The Malta Chamber has also rallied energies into other aspects within which Perit Xuereb says it would normally not get involved. Championing the importance of good governance was one such area, and here, he says, “we

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

came up with 65 proposals and continue to drill principles of good governance into the minds of the nation and business leaders alike.” Apart from this, he continues, The Malta Chamber developed some 20 thematic committees in 2020, tackling areas such as transportation, the circular economy, education and HR, among others. But certainly, the big story was COVID-19, and here, The Malta Chamber was the frontrunner in convincing other social partners, as well as Government, on the various economic measures that needed to be put in place. This started with conserving the relationship between employers and employees through measures such as the wage subsidy, voucher schemes and bank loan extensions – measures which, Perit Xuereb maintains, “saved the day and enabled us to be where we are today – which is far better than where we thought we would be back in March and April of this year.” Against the backdrop of the pandemic, Perit Xuereb says that The Malta Chamber always took a mature stance towards the re-opening of businesses, working with the Superintendent of Public Health, the Health Ministry and all stakeholders to ensure that this happens safely. “Another factor was our leadership, even at MCESD level, to ensure that schools re-open sustainably,” he continues, referencing a meeting attended by the Prime Minister on the subject. The work is far from over, however, and while The Chamber has lobbied to extend these measures, the President says that it is also thinking a few steps ahead. Highlighting the importance of business re-engineering, he says, “where we were

PHOTO BY JUSTIN MAMO

We came up with 65 proposals and continue to drill principles of good governance into the minds of the nation and business leaders alike.

may have made us money, but it also made us comfortably numb – we were not sensitive enough to identify what was working well as distinct to what could be corrected, or new areas of business which we could get involved in to keep growing our economy in a sustainable manner.” To this end, The Malta Chamber has recently launched a business re-engineering scheme together with the Ministry for the Economy and Malta Enterprise as part of national SME Week 2020; while also taking stock of the potential effects of Brexit on the country, with a view to launch further initiatives to support Malta’s economy and business leaders. Turning his attention to how local businesses are currently faring, the Chamber President affirms that it’s a mixed bag,

Businesses that were agile enough to read the signs of the times and re-engineer fast enough are probably the ones that are stronger than last year.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

If the time is used well and our energies are used appropriately to help and support each other, we can only stand to gain. with some sectors understandably struggling, while others are doing better than expected. “Businesses that were agile enough to read the signs of the times and re-engineer fast enough are probably the ones that are stronger than last year,” he says, highlighting the gaming industry as one such sector that is doing better. Meanwhile, he considers retail, hospitality and tourism to be on the other side of the spectrum, with the financial services sector falling somewhere in between – having taken a hit by both COVID-19 and Malta’s impending Moneyval evaluation. “Manufacturing on the other hand, is a side of the economy that was initially unaffected, but started to feel the effects a few months into the pandemic,” the President continues, pointing to a reduced order book and issues with testing and contact tracing affecting people working in the sector as primary reasons. “Order books may be dwindling by the day, but physical, on-site resourcing to deal with them is not enough – because so many employees are needing to be quarantined at home or have been infected. So, while for the manufacturing industry revenues have gone down, their costs have gone up,” he laments. Warning that “we risk having a resilient part of our national economy being driven out of business because of lack of reliable and tangible actions taken by various ministries,” Perit Xuereb reveals that The Chamber is currently discussing the matter with Economy Minister Silvio Schembri and Deputy Prime Minister Chris Fearne so as to prioritise testing and contact tracing for those working in manufacturing.

Discussing his plans and ambitions for 2021, Perit Xuereb emphasises the need for business reengineering as not one that is necessarily generated by COVID-19, but as a tool that will encourage entrepreneurs to think outside the box and ensure they are on top of their game and a few steps ahead of the curve. “If we do that in 2021, then we are not only able to emerge in a resilient manner, but what I am hoping is that we will have business leaders who are able to appreciate value in the conversations to be had with consultants, so as to grow their business in a resilient manner that is protected against external shocks. This will lend itself to the better resilience for our economy.” The second important ambition for The Malta Chamber and its President is to go on championing good governance by being driven by positive values; as well as a zero-carbon economy. “The way we see it, a zero-carbon economy is one that is built on strong moral values, that is focused on the needs of today but more importantly, those of tomorrow; that goes beyond the protection of our environment to offer a strong and sustainable framework for developing our business models around what is truly important,” he maintains. In conclusion, his final message to businesses in these trying times is one of strength in solidarity. “We need to appreciate what we’ve been going through and what we will continue to go through in the coming months – these are times that are hard, damaging and sad, but it is in these times that people rally. They huddle, think and re-invigorate themselves to be able to emerge stronger. This is the journey of any successful entrepreneur. If the time is used well and our energies are used appropriately to help and support each other, we can only stand to gain. After the storm, I expect to see the sunshine, but we cannot afford to be complacent.” EV

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

PHOTO BY BERNARD POLIDANO

2021 will certainly be another COVID year in relation to the way our economy is going to be shaping itself moving forward.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

2021: Could COVID-19 be a driver for innovation? As the turbulent waters of 2020 make way for what many hope will be a light at the end of the tunnel in 2021, Sarah Micallef discusses the past, present and future for local businesses with the Board of Management and CEO of The Malta Chamber.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

PHOTO BY INIGO TAYLOR

In a post-pandemic world, the winners will be the businesses and the economies which will best drive the values of resilience, sustainability and flexibility.

Edward Chetcuti CEO

“We want to be better equipped than ever before to be the thought-leaders at national level when it comes to economic and business policy in the country,” says Edward Chetcuti, Chief Executive Officer at The Malta Chamber of Commerce, Enterprise and Industry. “2020 was the year no one expected,” says Ing. Chetcuti, speaking of the unprecedented circumstances that catapulted the world into unchartered territory in a matter of a weeks. “As The Malta Chamber, we have taken the COVID-19 crisis extremely seriously, positioning ourselves as closely to our members as possible.” Ing. Chetcuti affirms that, throughout 2020, The Malta Chamber was approached by a large number of businesses and associations hailing from every economic sector, who turned to The Chamber for help and guidance during a period where there was no blueprint to follow. “From driving the inclusion of entire business sectors into the notorious wage-subsidy annexes, which determined the survival of so many businesses through the pandemic, to the

introduction of the business re-engineering and transformation scheme in preparation for postCOVID-19 realities, The Chamber managed to make itself heard through the chaos, and made a difference for many businesses,” the CEO says, noting that the future is full of opportunities. As The Malta Chamber carries out its own reinvention and re-investment process, Ing. Chetcuti states that the growth journey will see the organisation better positioned to add value to its members and be an even stronger voice for business. “2021 is a very important year for us, as we progress through our exciting journey,” he says. Highlighting the potential opportunities brought about by COVID-19, the CEO believes that in a postpandemic world, the winners will be the businesses and the economies which will best drive the values of resilience, sustainability and flexibility. “This is where we can make some serious headway, and we are only excited to be part of this wonderful journey towards a Smart Sustainable Island,” he continues, adding that the business that will survive and thrive is the one able to best adapt and adjust to the changing environment in which it finds itself.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Marisa Xuereb Deputy President

“The major challenge lies in overcoming populist temptations and seeking national consensus on issues that will shape our future but will also require us to spend money on programmes that will not provide instant gratification,” says Marisa Xuereb, Managing Director of Raesch Quarz Malta Ltd. On a Chamber level, Ms Xuereb looks back on 2020 as a productive year, noting that from the onset, it was apparent that COVID-19 could be viewed as an opportunity to transform businesses that had settled into a comfort zone over years of buoyant economic growth.

Describing 2020 as a year that will go down in history for the unprecedent economic crisis that was precipitated by the COVID-19 pandemic, the Deputy President of The Malta Chamber goes on to explain that while the majority of manufacturing companies found ways of adapting to their new reality, the biggest challenge remains how to keep costs from spiralling when rates of absenteeism are high due to quarantine. Despite these challenges, the work of The Malta Chamber proved crucial, she says, and continues to be so moving forward. Looking towards a postpandemic future, Ms Xuereb says, “The Chamber brought together business leaders from all sectors as well as professionals from various fields to rethink the future with more consideration for the

The next couple of years are likely to see major systematic changes in the way we live and work. 50

PHOTO BY JUSTIN MAMO

Zooming in on her sector, she notes that, “as is typical of the local manufacturing sector, it showed resilience in carrying on uninterruptedly with operations throughout the partial lockdown of the first phase, and held onto its employees even when the second wave started approaching and it became evident that it will have a more pronounced impact.”

environment and sustainability, the importance of using technology to maximise potential, and the key role of businesses in driving the future prosperity of a country that needs to make a qualitative leap to be able to attract talent and restore its international reputation.” “The local business landscape in recent years was significantly dependent on a booming construction industry that crowded out investment in other sectors of the economy and, due to weak regulation and uninspiring planning policies, impacted the residential and recreational environment of the local population – as well as our tourism product – negatively,” Ms Xuereb notes, adding that the challenge moving forward is to find a way of making investment in other sectors more attractive and accessible for both the foreign and the local investor. Meanwhile, she continues, COVID-19 has forced businesses to think about the huge potential of digital technologies in terms of work organisation and delivery channels. “The next couple of years are likely to see major systematic changes in the way we live and work. Those who are able to look beyond immediate survival and reengineer their businesses for a significantly different future will be the biggest winners.”

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

We will no doubt require much more digital means within each of our businesses.

Andrew WJ Mamo Vice-President

“The Malta Chamber is a forum through which those in business can come together to have a respected voice that speaks clearly and, on their behalf,” says Andrew WJ Mamo, Managing Director of Galdes & Mamo Ltd. “2020 was certainly a year like no other,” says Mr Mamo, affirming that “any plans simply went out the window.” Deeming 2020 and the effects of COVID-19 as substantial enough to cause rapid and permanent change, he notes, “we are in survival mode to get through this time as the effect has been devastating on too many sections of the economy,” lamenting that 2021 is also squaring up to be a difficult period. Speaking of the integral role of The Malta Chamber throughout the difficult situation brought about by COVID-19, the Vice-President describes the entity as “an organ from civil society that stepped up to the plate to argue the case for businesses” as well as “the overall environment that one has or will have to conduct their business while sailing through this strong headwind and once we get through it.”

PHOTO BY JUSTIN MAMO

Highlighting the changes brought about within the local business landscape in recent years, particularly given developments in 2020, Mr Mamo says that primarily, the pace of doing things has changed. “We want to do so much so quickly – very often without the adequate means to do this as well as we should – unfortunately, in many instances,” he laments. And while the challenges brought about by COVID-19 are doubtlessly numerous, Mr Mamo is also of the opinion that there are certainly opportunities to be had. “We will no doubt require much more digital means within each of our businesses,” he affirms, adding that businesses will also have to strive harder to raise their game in order to stand out – “probably there will need to be more consolidation between businesses.”

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Liz Barbaro Sant Vice-President

“As we emerge from this pandemic, it goes without saying that there will be a lasting impact to our economy, so we must plan today for a robust economic recovery,” says Liz Barbaro Sant, the joint CEO and Member of the Board of Directors of Alberta Group.

Looking at the ways in which the business landscape has changed in recent years, and what she expects given developments in 2020, Ms Barbaro Sant believes that business has undergone a major facelift, particularly with the advent of social media, the app revolution and cryptocurrencies. Predicting a move towards an ever more digital approach, and, mostly due to COVID-19, with most business interactions also shifting to digital means, she warns “we must, however, make sure that the human element remains present; that

PHOTO BY JUSTIN MAMO

It is during this time that The Malta Chamber can make the biggest difference and live up to its reputation for being nucleic to business sustainability and resiliency, the Chamber Vice-President attests, maintaining that “businesses are looking for leadership to navigate the crisis and emerge intact and even stronger on the other side, and The Malta Chamber is uniquely positioned to provide that.”

COVID-19 will probably go down in history not only as a large health and economic crisis but also as a driver for digitalisation and innovation in fields ranging from healthcare to manufacturing. 54

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

we remain close to our clients and that it does not all come down to numbers and data.” Looking at the effects of the pandemic on her business, Ms Barbaro Sant notes that, despite the fact that the services that Alberta Group provides are essential to clients’ operations, there is concern over future projects, particularly those originally planned for 2021 as investors are ever more cautious. “We will only realise the impact on our business at the end of 2021, beginning of 2022,” she reveals, adding that sister company International Safety Training Centre (ISTC) has been hit badly, with the current focus being to revive business as from the second quarter of next year. Despite this, The Chamber Vice-President believes that crises such as these create a far more stimulating environment for change than economically stable times. “COVID-19 will probably go down in history not only as a large health and economic crisis but also as a driver for digitalisation and innovation in fields ranging from healthcare to manufacturing,” she posits, adding that the extent to which people have been uniting around the pandemic and seeking new solutions is a vivid manifestation of this.

“A crisis presents a choice. This is particularly true today; for some the main focus is maintaining business continuity – especially of core business – cutting costs and driving productivity, and for others, it is to reshape in order to survive and to make use of technology to provide their service and products to the everincreasing consumer demand.” In this way, Ms Barbaro Sant feels that the pandemic stands to change the way we work. “If we can move past decades of orthodoxy about nine-to-five, officecentric work, there’s an opportunity to retain the best parts of office culture while freeing ourselves of bad habits and inefficient processes, ineffective meetings and unnecessary bureaucracy. If we want things to move faster: this is our chance,” she urges, adding that face-to-face interaction is still required to facilitate collaboration, build relationships, solve complex challenges and generate ideas. “This re-calibration will eventually settle on a sustainable new normal – likely a hybrid workforce and distributed workplace,” she concludes.

Ian Casolani

Member of the Board of Management “If one looks at the economy as a whole, The Malta Chamber has been extremely effective in facilitating measures to counter the hardships brought about by COVID-19,” says Ian Casolani, Managing Director at Belair Property. “The Malta Chamber has proven to be a strong voice for numerous sectors during this pandemic and is all set to continue doing so,” Mr Casolani continues, admitting that, despite its best efforts, support for the real estate agency sector has not been forthcoming. “When considering that the real estate agency sector is very much a business that revolves around interaction with people, and is also very dependent on expats living or working in Malta, I can definitely say that 2020 has not been anywhere near what anyone had forecasted it to be,” he expounds. Highlighting the fact that a number of foreign workers either

The fact that many businesses (as well as individuals) were operating with absolutely no cushion or reserve and living in hope that the next year will be better than the last is simply not healthy or sustainable. 57

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

stopped travelling to Malta or left the island completely, which impacted the rental market for a significant period of time, Mr Casolani also points out that people were – and in some cases still are – reluctant to meet people and look around for property. Describing Malta’s level of economic activity and growth in recent years as “too fast and rushed”, Mr Casolani condemns placing arrogance and greed over rationale and sustainability, and believes that 2020 and the immediate years ahead will push people to re-think and help put things back into perspective. “The fact that many businesses (as well as individuals) were operating with absolutely no cushion or reserve and living in hope that the next year will be better than the last is simply not healthy or sustainable, and I would like to hope that this year will be an eye-opener for many in the years to come,” he says. “The challenges will remain cashflow, motivation of the team and for those businesses who were in the middle of growth or expansion, following this through might be harder than envisaged,” he continues, but is quick to point out that in every crisis there are also opportunities, and if one can be prepared to identify and act swiftly on an opportunity as it arises, it need not be all doom and gloom. “Mergers, acquisitions and access to previously inaccessible HR could also be opportunities brought about by the current scenario,” Mr Casolani asserts.

PHOTO BY BERNARD POLIDANO

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Christopher Vassallo Cesareo

Member of the Board of Management

The main opportunities are for those who are focused and professional in how they manage and provide their services and products to the market.

“Local businesses saw substantial growth in recent years, which in reality could have kept on, even if at a slower pace. However, COVID-19 has dented this growth rate and we would expect 2021 to be a rather challenging time,” admits Christopher Vassallo Cesareo, Managing Director of Domestica Ltd.

Being involved in both retail and manufacturing – two sectors which were differently hit by the pandemic in 2020, Mr Vassallo Cesareo explains that the two necessitated different reactions. “Retail was closed for around two months and we had to move quickly to selling through various online means. This was done both with an investment in our IT infrastructure and our web and social media presence,” he explains, adding that on the production side of the business, even though this was not in lockdown, 30 per cent of the company’s staff was in quarantine due to age or family restrictions/ vulnerability, with clients raising concerns over deliveries and installations. “We kitted out our installers with extra safety equipment and cleaning materials to sanitise after installation,” he says.

PHOTO BY BERNARD POLIDANO

Speaking of the role of The Malta Chamber at this difficult time, Mr Vassallo Cesareo deems it “instrumental in facilitating and expressing the pulse of the business community to Government” and believes that despite the challenges, the coming year is not without its opportunities. “The main opportunities are for those who are focused and professional in how they manage and provide their services and products to the market,” he affirms, noting that there is certainly opportunity in the tendency of people becoming more patriotic and loyal to local products and suppliers. EV

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

In Figures Key figures for 2020

7.4 per cent

4 per cent

0.6 per cent

62 per cent

9.4 per cent

583,776

expected decrease in Gross Domestic Product in 2020.

the number 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 2020.

unemployment rate (September 2020).

a deficit amounting to 9.4 per cent of GDP is expected for 2020.

increase in employment level until Q2 of 2020, making Malta the only EU member state to register an increase in employment levels during this time.

inbound tourist trips from January to September 2020, a decrease of 72.7 per cent over the same period in 2019.

55 per cent Government debt at the end of the first quarter of 2020 stood at around 44.4 per cent of GDP and is expected to increase to 55 per cent of GDP by the end of 2020.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Projections for 2021

5 per cent

6.4 per cent

€751.1 million

2.3 per cent

4.5 per cent

€6.3 billion

5.5 per cent

1.3 per cent

€450 million

projected growth in GDP in real terms.

the expected increase in employment.

the rate at which exports are forecast to increase next year.

projected growth in GDP in nominal terms.

the growth in imports for 2021.

the inflation rate predicted for next year.

7.5 per cent

the deficit in Government’s Consolidated Fund.

the total revenue Government is expecting in 2021.

the investment in industrial estates over seven years.

the increase in investment Government expects to take place next year.

Sources: NSO, ARQ, EY Malta Attractiveness Survey 2020, Eurostat, Budget Speech 2021, Draft Financial Statement 2021, Economic Survey 2020.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

2021: The make or break year COVID-19, along with other national and global uncertainties, have shaken the island and left the economy in limbo. Noella Abramovic speaks to leaders from various business sectors about the road to recovery, along with the importance of having a holistic postpandemic approach towards a thriving and more sustainable Malta in 2021 and beyond.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

We need to look at health, education and mobility, and areas where we can use our size as ideal test cases for larger players.

Ronald Attard

Country Managing Partner, EY Malta “We need to think about a Malta strategy post COVID-19; more digital, less barriers, greater focus on value-adding services, importance of quality of life and moving beyond GDP,” says Ronald Attard, Country Managing Partner at EY Malta. Financial projections published by the European Commission and Government indicate that, whilst the impact of COVID-19 has been curtailed through various short-term mitigation measures – from wage subsidies to moratoria on borrowings, and additional funding guarantees – the length of recovery will vary according to the industry. Nonetheless, the key to restoring confidence will ultimately be a vaccine. Meanwhile, Mr Attard stresses the importance of implementing a long-term plan whilst embracing opportunities and not resisting change. “We need to be careful not to lose the opportunity to reset,” he emphasises. COVID-19 has radically transformed global industrial thinking and highlighted the risks of putting all eggs in the same basket, leading many companies to onshore or nearshore part of their production, supply chains and back and middle-office functions, in order to increase flexibility and resilience, Mr Attard explains, adding, “Malta is small, and agility should be a key competitive advantage.” A future Malta is likely to be more digital, focusing on value-adding services, and on the islands as distinct tourist and investment locations, with increased

environmental consciousness, he believes. As for other opportunities in 2021, he’s of the opinion that Malta should not only be looking for new niche markets, such as AI and blockchain, but also focusing on where it is best placed to service each industry in its supply chain, whilst finding ways to incorporate research, product design, engineering and tech development across the core industries. “We need to look at health, education and mobility, and areas where we can use our size as ideal test cases for larger players. We also need a proper budget for research funding and a lot more STEM (science, technology, engineering and mathematics) graduates,” he states. Most importantly, however, a good quality of life and environmental consciousness seem to be high on everyone’s agenda in 2021 and beyond, Mr Attard observes, quoting the results from an EY survey carried out in 2020 on Malta’s attractiveness as an investment destination. According to the findings, there is a propensity to look at the wider picture and challenge the status quo; the way we do business, our choices in terms of work vs leisure, the way we travel and our attitude towards the environment. “On the latter point,” Mr Attard ends, “this willingness to finally seriously consider climate change is a key finding of our surveys.”

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Rick Hunkin

CEO, Bank of Valletta “The financial sector is instrumental in supporting the economy during these difficult times,” says Bank of Valletta CEO, Rick Hunkin, when speaking about the Bank’s support during COVID-19. COVID-19 has already had a huge impact on the global economy and this will surely affect profitability levels come 2021, he asserts. Nevertheless, from the onset of the pandemic, Bank of Valletta showed full support to the business community and partnered with the Malta Development Bank whereby, through the COVID-19 Guarantee Scheme, the Bank had, up to October 2019, extended close to €252 million in loans to nearly 400 business customers. “COVID-19 has driven us into unexpected headwinds,” he admits, but this did not deter Bank of Valletta from delivering a clear strategic plan that ensures its long-term sustainability. When asked about possible scenarios following the Moneyval assessment, Mr Hunkin warns that a negative outcome would have an adverse effect on Malta’s financial sector. “If such a situation materialises, Malta’s trust rating on an international level will suffer a blow which will inevitably cascade to banks and other operators in the sector.” He adds that, if Malta’s reputation falls, there will be more scrutiny and possible refusals on payment transactions, particularly in USD. Aside from that, foreign financial services companies operating from Malta, or contemplating relocating here, may find themselves considering alternative jurisdictions. With regards to Brexit, on the other hand, Mr Hunkin says that while it is still difficult to state the net effect it would have, the impact on Malta will ultimately depend on the outcome of the EU/UK negotiations and the kind of agreement reached with respect to the movement of goods. He foresees an increase in bureaucracy and costs for Maltese companies when trading with the UK, however, if there is any significant downward movement in the

The financial sector is instrumental in supporting the economy during these difficult times. 68

value of the Sterling Pound, Malta will gain from cheaper imports. On the other hand, inbound tourism from the UK will be negatively hit. Mr Hunkin believes that, overall, following Brexit, there’s opportunity for Malta to attract further investment, placing it on the map as a location for businesses seeking a European base. Trying to mitigate the economic impact resulting from the pandemic, as well as dealing with other global uncertainties were not Bank of Valletta’s only challenges in 2020, having lost their last correspondent bank for USD transactions. Mr Hunkin assures that, whilst still in discussion with their correspondent bank to satisfy any concerns and restore their position, Bank of Valletta is also considering alternative routes and service providers in order to diversify the available channels for the payment of USD. Aside from that, a big part of Bank of Valletta’s focus in 2021 and beyond will be to continue extending its digital services, particularly since, Mr Hunkin reveals, COVID-19 accelerated the shift from traditional to digital banking channels.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Benjamin Tabone Grech CEO, Engel & Völkers Malta

“The pandemic has given us time to think and reflect. We will see changes,” Benjamin Tabone Grech, CEO at Engel & Völkers Malta, anticipates. “Building typologies are going to be rethought and real estate will be given new uses that we are not yet even aware of.” While the Malta Developers Association might be boasting an exceptionally successful 2020 for real estate sales in Malta, Mr Tabone Grech does not share the same sentiment. “This has been one of the worst years in my 17 years working in real estate,” he says when asked if he believes the Government’s COVID-19 incentives were behind the surge in demand in property. He adds that until he knows exactly what type of promise of sales have been signed, it’s hard for him to comment on any figures or statistics. What he does comment on with certainty, however, is how the pandemic affected both Engel & Völkers Malta, and the market demand in 2020. “It’s been a very challenging year,” says Mr Tabone Grech, explaining that, even though the company’s turnover was stable, its cash flow was heavily impacted in the couple of months the banks were not accepting meetings. Whereas 2020 saw an adjustment in rental prices, sale prices remained the same. “But,” he adds, “there is typically a nine month lag for the changes in the rental market to affect the sales market,” and even though demand remains strong, he defines the current market as a “window shopping market”; one where buyers are keenly waiting for a greater adjustment in prices or better value for money. Asked what major changes are to be expected in 2021, he foresees that if banks lend well and developers do not overstretch and focus on delivering a product in

The market will speak for itself, and it will make policy-makers listen. I have come to learn, over the past year, that many people with influence share the same views.

time, the market will remain stable and prices will alter with a more educated buyer. “Buying power will remain strong but only for a few,” he adds. Furthermore, if demand locally changes, for example, outside space becomes indispensable for a buyer, then adjustments will also be on the cards. Most importantly, however, it is time to focus seriously on quality and sustainability within the industry in 2021 and beyond, he argues. “Our first hurdle is the planning process, which has affected most of us negatively in the past few years,” he says, referring to the quality of properties being built and the overall construction frenzy. “The market will speak for itself, and it will make policy-makers listen. I have come to learn, over the past year, that many people with influence share the same views,” Mr Tabone Grech says, indicating that change is now inevitable, and is fuelled by those who want good, value-for-money properties and an overall better quality of life.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

George Gregory Partner, RSM Malta

“Malta has always been nimble and fast to react and I believe the advantages that we had in the past should remain as an attraction to Foreign Direct Investment (FDI),” says George Gregory, Partner at RSM Malta, providers of audit, tax and consulting services. Mr Gregory’s outlook on the economic situation come 2021 is largely dependent on the extent of the pandemic. Should the current situation persist till March, he believes that 2021 will be just as bleak if not worse than the one Malta is currently facing, and, all things being equal, he expects a certain level of recovery at some point in 2022.

Malta does not need large numbers, but a select few, important names that have a base here and make it their home.

In the short term, he says that the economy will continue to require an element of Government intervention, such as the continuation of the COVID-19 wage supplement, however, this needs to be done in a manner that ensures assistance is only given in situations where the recipient party is doing its utmost to re-engineer and restructure with the aim of hitting the ground running once the pandemic starts to subside. Speaking of future opportunities Malta might benefit from with regards to companies looking for an alternative address in the European Union following Brexit, Mr Gregory is clear; “I don’t like the term ‘alternative address’”, he says, before elaborating that Malta has always excelled in areas it has developed, be it financial services, iGaming and medical cannabis, to name a few, and if we continue to nurture these sectors whilst seeking others out, Malta can be an alternative ‘home’ for such businesses. Having said that, he continues that it is not a numbers game. “Malta does not need large numbers, but a select few, important names that have a base here and make it their home.” The focus, he believes, should be on a number of niche sectors where technology can help us leverage our national advantages, particularly AI and Augmented Reality, which are fundamental components that will significantly affect various industries for a more impactful, faster and smarter outreach. Furthermore, industries such as entertainment, education, and health, in its wider sense, are going to experience an accelerated transformation in the coming years, he predicts.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

I am confident that Air Malta will weather this storm.

at Mater Dei Hospital, and other lifesaving medication. In 2020 the airline also carried the influenza vaccine. Moving forward, Dr Mangion explains that during this time of uncertainty, Air Malta launched a ‘Business Guaranteed’ winter flight schedule; a timetable intended to secure flight connectivity for the season, unless circumstances such as adverse weather conditions and airport closures are beyond the airline’s control. Dr Mangion continues that safety remains the airline’s top priority, stating it is enforcing strict COVID-19 safety protocols on all aircrafts, along with establishing procedures in the event of spreadable diseases on board. Air Malta is further backing calls headed by the IATA for the development and deployment of a co-ordinated rapid, accurate, affordable, easy-to-operate, scalable and systematic COVID-19 testing for all passengers before flight departure, as an alternative to quarantine measures.

Charles Mangion Chairman, Air Malta

2020 will go down as the worst year in the history of aviation, according to the International Air Transport Association (IATA). However, Charles Mangion, Chairman at Air Malta, is clear: “Air Malta is here to stay.” COVID-19 has had an unprecedented negative effect on travel and tourism, being one of the worst hit industries during the pandemic. The drop in the number of people travelling, lockdowns, and the ever-changing travel restrictions have made it difficult for airlines to keep on the scheduled flight commitment towards customers. Airlines have seen passenger numbers declining by around 85 per cent, and, on average, every day of this year €193 million will be added to industry losses. “In total that’s a loss of €70 billion in 2020,” says Dr Mangion. When Malta International Airport was closed for commercial traffic, Air Malta maintained connections to major European hubs and repatriated over 12,000 passengers whilst operating over 500 flight sectors. On these flights, the airline carried over 600 tonnes of cargo including medicine, vaccines, personal protective equipment, microelectronics, mail and perishables. The airline also organised special freighter services for Government, to carry 1,100 tonnes of additional medical supplies, radioactive material required for several treatments

The airline is also keeping up with its objectives and Corporate Social Responsibility obligations. “In this regard, we have stepped up our efforts to keep the islands connected to mainland Europe and ensure a seamless flow for all customers that need to travel and also to secure stability in the cargo supply chain,” says Dr Mangion. As the much-awaited return to normality seems to remain a distant prospect for now, Air Malta has formulated a seven-year strategy which covers the COVID-19 period and beyond. Initiatives from this plan are already being executed and a new portal, booking engine and a mobile app will be launched by the second quarter of 2021, according to Dr Mangion. In the meantime, the fleet replacement programme continues with the arrival of the fourth brand new Airbus A320Neo. “We are thus maintaining our drive to reduce emissions and become one of the most environmentally sustainable airlines in Europe,” he states, adding that the airline is reducing fuel consumption while integrating further within the Pan-European Strategic Framework for Greening the Economy. While Dr Mangion doesn’t deny the challenges ahead, he remains optimistic, saying, “I am confident that Air Malta will weather this storm and be in a position to continue rebuilding the international network for the benefit of the economic development of the Maltese islands, the tourism industry, stakeholders and its dedicated employees.” EV

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

2021: Business projections, forecasts and plans

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

After a tumultuous year, marked by the economic fallout from COVID-19, many businesses in Malta are looking to 2021 with hope of a vaccine to alleviate the challenges. Here, leaders across various sectors lay out their predictions of what the new year may bring.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Prof. Josef Bonnici

Chairman, Malta Development Bank News that vaccine trials are producing successful results has been heralded as the beginning of the end to the COVID-19 pandemic, which has crippled businesses across the globe. Yet, despite the buoyant outlook that such developments may engender, Prof. Josef Bonnici, Chairman of the Malta Development Bank, cautions against raising our expectations too high. “Hope is tempered when one considers that it would take time to fully test the vaccine, manufacture it, distribute it, and vaccinate those willing to be vaccinated,” he says, adding that the economy may, indeed, recover haphazardly in 2021, if certain precautions are not taken. “We caution against a possible K-shaped recovery, where different parts of the economy would recover at different rates, times, and magnitude. We are aware that certain pockets of the economy, particularly those closely linked to the travel, entertainment, hospitality, and food services, may see a more prolonged recovery period. Hence, we believe that economic momentum will be visible from mid-next year, before reaching a more solid and equitable growth path in 2022,” he explains. Homing in on the 2021 outlook for the MDB, Prof. Bonnici says that although he heads a “relatively young promotional institution”, the past two years have seen the successful launch of schemes to address specific market gaps. He mentions the COVID-19 Guarantee Scheme as being instrumental to helping businesses survive a horrific year, as

We caution against a possible K-shaped recovery, where different parts of the economy would recover at different rates, times, and magnitude.

well as the Small Loans Guarantee Scheme which helps SMEs access finance at lower soft collateral requirements. “In 2021, we will continue to keep our ears to the ground by engaging with the business community to better understand the challenges they face and endeavour to create effective new products and improve existing schemes accordingly. As Malta’s promotional bank, the MDB will continue to play a central role in accelerating the recovery phase by facilitating the mobilisation of bank liquidity to ensure that credit keeps flowing to the real economy,” he says. Elaborating on his predictions for next year, Prof. Bonnici says that 2021 is likely to be “a challenging year characterised by a fluid economic landscape.” Yet, the institution will retain its focus on helping companies navigate the choppy waters. “We are committed to helping businesses navigate uncertainties, and together with their entrepreneurial mindset, we are confident that the large majority of them will not only brave this storm, but also seize opportunities to reframe a future economy that delivers sustainable growth. The key is to adapt the business model to the new realities and to re-engineer processes to sustain efficiency and competitiveness,” he concludes.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Dr Malcolm Mifsud

Founding Partner, Mifsud & Mifsud Advocates, Aegis Corporate Services The financial services industry has been a sector mired in difficulties over the course of 2020, as Dr Malcolm Mifsud, the founding Partner of Mifsud & Mifsud Advocates says, pointing to the challenges brought by the pandemic as well as “the slump” in Malta’s reputation. He looks to the future vaccine rollout with optimism, saying that “there is hope that staff will more readily work from the office, and business trips will take off, thus allowing personal contact to be more personal.” In other words, for Dr Mifsud, “2021, will, hopefully, be the year of recovery, where the economy will return to be confident”, though “it will take time for this recovery to have its effect.” Moreover, “this is subject to the country taking the right decisions to allow the economy to take shape again.” With regards to Malta’s reputation, Dr Mifsud reckons “this needs a longer cure”. He refers to the Council of Europe’s Moneyval report which, he underlines, “has to be embraced, wherever Malta is placed, and the anti-money laundry enforcers have to take up the task, without giving shocks to the industry.” He stresses that the Malta Financial Services Authority and the Financial Intelligence Analysis

PHOTO BY ALAN CARVILLE

Unit “must assist the industry in keeping the jurisdiction’s nose clean. They, and other regulators, must keep a fair and equitable watch over all the players,” he says. In such a challenging climate, Mifsud & Mifsud Advocates, as well as Aegis Corporate Services, will be focusing on client services, and ensuring the bar is raised when it comes to client relationships. “The companies’ reputation has to continue to be paramount, where clients will feel confident that their investment is in good and safe hands. We are making sure that all our procedures will be compliant with all regulations and that clients are all in line with what is expected,” he says. To this end, the firm plans to continue training all members of the team “to offer the highest level of service to clients and to advise them on any issue on compliance. We are in a position to guide clients in compliance procedures, and to assist other organisations in AML compliance issues so that they would be also in a position to assist their own customers,” he explains. Concluding, he underscores his optimism in his outlook for the year ahead, albeit with some caveats. “I am optimistic in nature and, therefore, I look at 2021 as a year that will be a step forward and not backwards. However, I do not see 2021 as a year where the economy will flourish, but it will be more of a year to recover from the devastation from COVID-19. Hopefully, 2022 and 2023 will be the years where the economy will truly flourish and boom. This is subject to the country having a robust long-term economic vision,” he warns.

I am optimistic in nature and, therefore, I look at 2021 as a year that will be a step forward and not backwards.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

from independent estate agencies to join Alliance Group. However, “as encouraging as this is, franchising growth is not in our immediate plans right now, at least not until we consolidate all that we have built so far. In effect, one of our biggest challenges is exactly this process of consolidation and ‘taking things to a higher level’. Together with my partners and my management team, I am mindful that we are in the early stages of our exciting new journey, in a market that is very dynamic for various reasons. So, cautious optimism is the order of the day for us,” he insists. In order to continue building the brand, the firm has “several exciting developments going on in various areas. We are supporting all our property advisors to qualify for their warrant before it becomes mandatory at the end of 2021 and we are launching new training programmes to continue improving our operating procedures and level of customer service. In the meantime, we are also investing in new technologies that will continue consolidating our position with the objective of becoming the recognised market leaders in our field,” he explains.

Michael Bonello

Chief Executive Officer, Alliance Real Estate Operating in the real estate sector, Michael Bonello, the Chief Executive Officer of Alliance Real Estate, is also looking at a potential COVID-19 vaccine with a sense of anticipation. “Nearing the end of a most eventful 2020, we are all hoping to have at least one widely available and effective COVID-19 vaccine within weeks now. If this happens, I expect things to start to return to some normality within a very short timeframe, as everyone seems determined to put this behind us and start looking forward to new future possibilities. However, at this point, this is, of course, just hopeful speculation,” he says. Focusing on Malta’s sector, on a general level, he says industry players “trust that the stimulus of Government incentives announced this year will continue to have a positive effect on buyer and seller sentiment over the coming months and well into the new year. Once the pandemic is brought under control, things can only get better,” he says. With regards to Alliance Real Estate, a brand which was launched earlier this year, the CEO sees myriad opportunities opening in 2021, with a growing interest

However, resilience will need to be the cornerstone of any plans. Indeed, the CEO says, this year has “given us more appreciation of what really matters and how things could change so drastically without any warning.” And it is this inherent uncertainty over what lies ahead which demands flexibility for companies, who need to be nimble, Mr Bonello insists.

In effect, one of our biggest challenges is exactly this process of consolidation and ‘taking things to a higher level’. 83

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Kenneth Farrugia

Chief Business Development Officer (Investment Services), Bank of Valletta For Kenneth Farrugia, Bank of Valletta’s Chief Business Development Officer, Moneyval is of prime concern for all financial services industry players – as well as companies operating in other sectors – as they look ahead to 2021. “The industry is going through mixed emotions, given the state of flux caused by a number of known unknowns. Undoubtedly, the current overhang, insofar as the outcome of the Moneyval report, is negatively impacting certain sectors, some more than others. The scenario of Malta being grey-listed has significant ramifications at both the macro and micro economic levels and the repercussions may be significant across the various economic sectors, particularly as this may negatively impact foreign direct investment,” he says.

PHOTO BY DANIEL’S STUDIO

The pandemic, and concomitant health directive, will also continue to impact businesses, he insists, which “in turn can negatively impinge upon the banking sector.” However, he, too, sees the country emerging from the difficult times. “Despite these challenges, Malta’s economy has remained relatively resilient and the initiatives undertaken so far have cushioned the impact on the wider economy particularly when comparing ourselves to other EU member states,” he explains. In terms of the opportunities open to businesses in 2021, Mr Farrugia says that digitalisation is at the forefront, with the “application of sophisticated technologies and the digitalisation of banking services” opening up a “new world of transformation opportunities which is beneficial to both the financial sector and equally the client segments they are servicing.” To quote a few examples, he says that “the automation of paper-based and laborious processes; the migration of over-the-counter transactions to digital channels; and the use of technology to manage AML obligations and other regulatory driven requirements bring about significant process efficiencies as a result of the use of Big Data, AI and Machine Learning. From the customers’ perspective, the user experience is positively impacted as multichannel banking enables ease of access to a wider breadth of financial services offerings,” he explains.

Despite these challenges, Malta’s economy has remained relatively resilient. And, with this in mind, the Bank, is currently going through a “two pronged transformation programme which will see the onset of a programme of digitalisation initiatives aimed at improving the delivery of its products and services, a series of initiatives aimed at strengthening the customer experience across its physical and digital touchpoints all supported by a professionally trained human resource complement.” However, looking beyond digitalisation, the Chief Business Development Officer underlines the pivotal role Bank of Valletta plays for the Maltese economy, stressing that the institution’s ambition is to further strengthen its role in the national economy. “This can only be achieved by ensuring that the Bank’s business remains on sound capital foundations and continues to be managed in a prudent manner to ensure its sustainability going forward,” he concludes.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Christian Sammut Chief Executive Officer, BMIT Technologies

The technology sector, contrary to many other industries, has seen an upswing of activity as a result of COVID-19. Indeed, as Christian Sammut, the Chief Executive Officer of BMIT Technologies says, while “it is difficult to predict how the post-COVID reality will look”, it will definitely be different to what came before. “And this ties to the information and technology sector in which BMIT Technologies operates. We will see more businesses embracing online as their mainstream way of doing business, as we will see more employees opting for remote work, at least for a few days a week. We will see more companies opting to outsource critical IT system hosting and operations to experts in the field such that, in the case of similar disruptions in the future, they can focus on their core business whilst having the ability to maintain their systems operating, scaling up or down as necessary and seamlessly,” he says. As a result, BMIT Technologies, “are expecting this to present new opportunities for the IT and technology sector, including in a number of related services and solutions.” The firm, he continues, “is cognisant of this new reality and we are there to help our customers adapt and transform to the new challenges and opportunities the pandemic has brought about.”

PHOTO BY RENE ROSSIGNAUD

Looking ahead to 2021, the firm wants to “leverage our technical expertise to tap into new markets and verticals, and also add new offerings. These will be done either organically, through partnerships or investments.” Indeed, “during 2021 we will be expanding further our product and solutions portfolio, both in our core data centre and cloud categories as well as in new areas of business.”

We will see more businesses embracing online as their mainstream way of doing business.

Yet, COVID-19 is not the only motivation for such investment. “A changing regulatory landscape in key industries can see Malta’s business attractiveness being negatively impacted, with a ripple effect on our economy, across many industries. This, particularly, applies to the financial services and gaming segments. As BMIT Technologies we are seeking to address this through further industry diversification, as well as looking at tapping into new markets. In parallel we are enhancing our solutions offering, to be able to help and support our customers better,” the CEO outlines. For, from now onwards, “technology will play an even more central role than before, with a connected society shaping up out of the ‘habits’ adopted during the pandemic,” he says. And, in line with this approach, “BMIT Technologies is investing in people, systems and products to ensure that we are ready for the new opportunities this new normal will bring with about.” This, in his view can truly be “the start of something new, built on what we learnt during 2020.” EV

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

PHOTO BY TYLER CALLEJA JACKSON

It is a reasonable expectation that 2019 levels would be regained in 2021.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Driving economic recovery in the context of future challenges Amid a worldwide pandemic, unrelenting economic pressure, and global political shifts, outgoing Minister for Finance and Financial Services, Edward Scicluna, is hopeful that Malta’s economy can bounce back in 2021. He chats to Martina Said about his projections and the challenges that lie ahead. Following the announcement of the fiscal figures for Malta in the 2021 Budget by the outgoing Minister for Finance and Financial Services, Edward Scicluna*, Malta’s economic realities were swiftly brought into focus. A decrease of 7.4 per cent in Gross Domestic Product (GDP) is being anticipated in 2020, followed by a projected rebound of 6.4 per cent in nominal terms in 2021. Prof. Scicluna, who stepped down from his Ministerial role in November 2020 to take up the position of Central Bank Governor on 1st January 2021, begins by saying that, in all his political and professional career, he has never experienced undertaking an economic forecast amid such uncertainty. “One day you’re so hopeful and the next you’re so despondent,” he says, adding that recent successful vaccine trials have raised hopes in the fight against COVID-19, which in turn will raise confidence. “I think we’re now safe to say that, whether early or late in the year, 2021 should see us slowly getting back to normality.” The recovery will not be complete, however – “the repair of the economy and public finances will take some time, but repair we must.” Diving into an assessment of the current state of Malta’s economy, Prof. Scicluna separates the tourism sector from the rest. Beginning with other economic sectors that are strong contributors to Malta’s GDP, he says that manufacturing has been adversely affected due to impacts on the global supply chain, but while serious, it hasn’t suffered a complete shutdown.

Other sectors, namely financial services – particularly insurance – the maritime industry, and iGaming, have been coping fairly well. “For these sectors, in 2021, even if the first quarter is slow, there are another nine months to make up,” he asserts. “As for the tourism sector, we are expecting the recovery to be longer. However, I am hopeful that people will want to travel again soon and make up for all the restrictions they’ve been subjected to over the past year.” On the fiscal side, Prof. Scicluna has reason to believe that Malta’s economy will pick up once a vaccine becomes widely available. “It is a reasonable expectation that 2019 levels would be regained in 2021,” he asserts, but is under no illusion that the projected Government deficit – of 5.9 per cent in 2021 – is a reality that needs to be contended with. “When we talk about a deficit, we’re saying that there aren’t enough revenues this year to meet the recurrent expenditure and thus we need to borrow. It’s a serious decision – borrowing means postponing the revenue burden to the future; not necessarily in the form of taxation, but expenditure in the future will be constrained. We took the decision seriously, but we had to take it,” he says. He adds that the Government wage supplement for businesses was critical, “like giving oxygen to someone who would die without it. The same applies to the voucher scheme. Such measures cost money, but they are needed to keep confidence,” he asserts. “They won’t make people rich or compensate for the loss of demand, especially the millions of euros lost from the tourism sector and the many

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

businesses tied to it, but they are a necessary sacrifice, and we hope that they will help see us back to normality with as little permanent damage as possible.” Prof. Scicluna asserts that Government is preparing for a fiscal deficit in 2021 and possibly for the following year or two, until a return to a balanced budget is foreseen. “The aim is to keep the deficit within reasonable margins. Although our projection is over 3 per cent by far, we should ideally stay below the 60 per cent debt to GDP ratio, which is crucial,” he asserts. “It’s psychological, it’s correctible, and the effort required by the taxpayer will not put us in the same situation that the UK is in today, where debt has exceeded the 100 per cent mark, and so you face the inevitable, taxation, which doesn’t encourage business and the workforce.” The projected economic rebound of 6.4 per cent in 2021 is based on some optimism, and Prof Scicluna believes such a bounce back is possible because “we have avoided so far inflicting irreparable damage to the economy. A total lockdown has done irreparable damage to whichever country undertook it. I’m not saying it could have been avoided, but it is a break peddle that you press in a state of panic,” he asserts. “The threshold is the capacity of the health system to cope – it’s as simple as that.” Prof. Scicluna adds that a partial lockdown, as Malta undertook, also appears daunting to the average citizen – “empty streets, empty hotels, empty shops – but that’s

PHOTO BY OMAR CAMILLERI

Although our [deficit] projection is over 3 per cent by far, we should ideally stay below the 60 per cent debt to GDP ratio, which is crucial.

just on the surface,” he asserts. “We shouldn’t be fooled that the whole economy is at a standstill because a curfew is introduced or restrictions are imposed. The main beehive of activity is still going – insurance, financial services, the banks, manufacturing, construction; all these industries kept going, which kept the engine warm and active.” Looking ahead towards long-term challenges, Prof. Scicluna cautions against Malta dragging its feet on some of the most pertinent global issues of our time – notably climate change. “All around us, things are changing,” he says, and references the European Investment Bank (EIB), which is debating whether to withdraw support for new airports, according to a new strategy that seeks to align the bank’s investment planning with the Paris Agreement by the end of 2020. “When we talk about climate change and the green economy, these involve drastic changes that will affect our lives and our businesses. I fear sometimes we get too distracted by petty local things to consider properly the world beyond us,” says Prof. Scicluna. “The same goes for digital – it’s not just about using technology for a particular sector such as exports; we have to undertake it within our society, our businesses. How much are we moving towards this paperless economy? It merits a lot of

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Insurance, financial services, the banks, manufacturing, construction; all these industries kept going, which kept the engine warm and active.

training, investment, and thought. As I mentioned in the Budget, the two big issues of the future are the green economy and digitalisation. But a lot of work needs to be carried out still.” Prof. Scicluna believes that COVID-19 will be a watershed, and likens it to the aftermath of WWII, which saw the setting up of major international institutions like the United Nations and the IMF. “Till this day, we talk about ‘before and after’ WWII. I think the same will happen with COVID-19, and, just like after the war, there are going to be big changes. I would expect the leaders in the private sector to come together with Government, and for everyone to put their heads together and discuss these major changes.” Singling out another area that stands to benefit from drastic changes, Prof. Scicluna points towards the judiciary, adding that he refuses to accept Malta placing last in the list of EU member states for the efficiency of its justice system. “No one should interfere with the independence of the Court, but we need to address its stark inefficiency. Nobody should wait years and years to know the outcome of a case – it complicates matters in every sphere of our lives. We should introduce night courts and distinguish between serious and less serious cases. This needs to come from the administrators within the judiciary, and we should have targets to scale our ranking by at least two or three places.” Turning our attention towards Moneyval and the impending outcome of Malta’s assessment – which, in a worst-case scenario, could see the country greylisted by the global anti-money laundering watchdog, the Financial Action Task Force (FATF) – Prof. Scicluna states that both the private sector and the two political blocs in Malta need to be more objective about the issue. “We are not the first country to pass through such a crisis. Germany, one of the best, biggest, and richest countries in Europe had a fraud scandal that exceeded

€1 billion. It embarrassed their government and their FIU, but they addressed it and moved forward. Going in circles and pointing fingers, where will that take us?” he asserts. “The Moneyval test is an occurrence in every country’s calendar every two to three years, and given how the world landscape has changed in terms of money laundering and the funding of terrorism, regulators are now looking at effectiveness and not just legislation.” Prof. Scicluna says that all local institutions have come together to implement the necessary changes to Maltese legislation, regulations, MOU and public registers but such changes are not the only pre-requisites required by the public sector, as private firms, including legal firms and corporate service providers, also need to pull their weight to stop the “bad apples” from investing and transacting in Malta. “Moneyval is all about striking a balance between regulation and allowing legitimate business activity to survive. At the technical level, we have checked all the boxes and done what was required. But how many cases have we witnessed going through the Court system and persons prosecuted? This is one example where upgrading the judiciary is necessary. It is going to take time to work through the whole system and gain effectiveness in all areas, but we have to show that we are serious and that we’re moving forward.” On the global stage, significant political shifts are taking place, not least a turbulent US election which has seen a change in administration. Sharing his views, Prof. Scicluna says that, despite a change in the president, he believes the US will continue to seek its own interests first and foremost, but certainly hopes to see multilateralism return to some normality, with a generally improved attitude towards major institutions such as the World Health Organisation and World Trade Organisation, and on such pertinent issues as climate change. “Brexit will shock us more, and given our friendship with the UK, we have more obstacles to overcome here,” he says, likening the new relationship between both countries to social distancing; “we’re friends but we can’t hug. Just as we have to cope with a new normal caused by the pandemic, the same will apply to how we deal with the UK after Brexit. However, I think we can seek out certain advantages, and work is already being done in this regard.” EV *The interview with Prof. Edward Scicluna was carried out in November, before Government’s announcement of his new role.

PHOTOS BY ALAN CARVILLE

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

We really need to work hard as a nation to restore and regain this reputation. Failing to achieve this, Malta cannot expect to remain attractive to foreign investors.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Revisiting Malta’s economic model Mario de Marco, Shadow Minister for Finance, chats to Noella Abramovic about Malta’s many hurdles and opportunities in the months and years ahead, underpinned by the need to adopt a new and sustainable economic model. “2021 will be a year of crisis, but I strongly believe that it will be the year that we will start emerging from this crisis, because as a country, we always managed to prove ourselves a resilient nation,” asserts Mario de Marco, Shadow Minister for Finance, in light of all the hurdles Malta is currently experiencing, and is still trying to overcome. Putting his optimism aside, he dives into discussing “the need for a sustainable economic model” for Malta, which “was becoming even more pressing, irrespective of the outbreak of COVID-19”, when the economy was already showing signs of a slowdown. Dr de Marco says that relying on the sale of passports and an unstudied and possibly unsustainable increase in population led to “short-term gain but long-term pain”. Economic agents were deprived from having a realistic picture, and some investment decisions were taken on the “feel good” factor of the moment more than anything else, he continues. To further establish his point, he draws on the findings from the EY Malta Attractiveness Survey 2020, which found that Malta’s overall Foreign Direct Investment (FDI) attractiveness index declined by 15 per cent over the previous year – the largest decline ever recorded – and the number of investors who said Malta is not attractive now comprises a quarter of total respondents. “We need to improve governance and tackle reputational issues. We really need to work hard as a nation to restore and regain this reputation. Failing to achieve this, Malta cannot expect to remain attractive to foreign investors,” he warns. Moreover, what would further dent the country’s ability to continue to attract foreign investment, according to Dr

de Marco, would be a grey-listing for the country by the Financial Action Task Force (FATF). That said, however, “irrespective of whether Malta will be grey-listed or not, the damage to our economy unfortunately has already been done. If we look at the local commercial banks’ pressing difficulty to retain their corresponding banking; the higher compliance costs local businesses are being challenged with; and the laborious process they have to go through to open new bank accounts – these are a direct result of the Government’s failure in this respect.” He further elaborates that, should Malta become greylisted, the country will potentially have an even weaker bargaining power at international level, whilst facing a more bureaucratic process to do business. Malta could suffer from a sovereign rating downgrade, and the cost of borrowing will be expected to rise as a result of a higher risk profile. This may have dire consequences, especially on small open economies that depend on high import content like Malta, he goes on to say. The way forward, according to Dr de Marco, is to primarily restore Malta’s reputation. “In the meantime,” he adds, “we should remain vigilant and create policies aimed at enhancing our competitive advantage on the skills, geographic position and the country’s capacity building, rather than relying solely on the tax regime Malta offers to foreign investors.” Dr de Marco expresses his belief that we need to nurture new industries, and that high value-added sectors should be offered the right environment to set up business in Malta. “The vision needs to be centred around the common good

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Adopting a proactive approach is a must because in life there is always light at the end of the tunnel.

and definitely not for the benefit of the selected few,” he goes on, stressing that, what’s most imperative is that whatever we do should be complementary to Malta’s reputation and that we should shy away from other agendas. “I am of the opinion that health and well-being, digital technologies, digital transformations, smart manufacturing, clean energy, high value-added tourism and the green economy are the areas where Malta should invest and be actively involved in,” he declares, adding that the success in attracting these new industries will help us attain a speedy recovery as a nation following COVID-19. “The pandemic is usually referred to as the perfect storm, with unfortunately devastating effects on consumers’ behaviour and confidence in the markets, which are not expected to be restored overnight,” he says, as we put

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

We should remain vigilant and create policies aimed at enhancing our competitive advantage on the skills, geographic position and the country’s capacity building, rather than relying solely on the tax regime Malta offers to foreign investors.

as broad a reach as one would expect, leaving most businesses dry and without any new assistance.

local challenges aside and move on to other equally pressing matters. According to Dr de Marco, the required economic efforts to help businesses navigate the pandemic are classified into three stages: respond, recover and thrive. In terms of response, with regards to his views on the Government’s aid during the pandemic, Dr de Marco agrees that extending the employee support measures up to March 2021 is positive, along with the extension of the vouchers, which will give the much needed stimulus to the hardest hit sectors, such as hotels, restaurants and retailers. However, he continues, both these extensions are targeted measures and will not have

Dr de Marco points out that the Opposition’s pre-Budget document outlines more than 100 proposals for Government to consider, including a temporary reduction in the VAT rate for vulnerable sectors, a reduction in utility rates for households, and a tax rebate scheme to encourage landlords to reduce rents for tenants, along with assistance schemes for the culture and creative sector, and grants for start-ups, with emphasis on technology and/or ecorelated sectors. Recovery in critical sectors such as tourism is expected to take between two and three years, according to Dr de Marco. “Tourism is one of the main pillars of the Maltese economy, and with a practical wipe out of the sector, the situation is not only worrisome for hotels and restaurants, but also for other important economic sectors which rely heavily on tourism or support tourism, including transport operators, retail, real estate and to a lesser extent, gaming.” However, even though the outlook for these sectors can be relatively complex and tricky, and that there are leading

indicators hinting at a relatively long recovery, they are traditionally the most buoyant and quickest to bounce back, he says, adding that the new reality postpandemic might call for the need to pitch our efforts towards attracting “high value” tourism, rather than just volumes. A thriving post-pandemic Malta would then see us taking advantage of the demand for sustainable tourism, following what will be a global growing awareness on environmental sustainability and climate change. Malta’s success to attract high-net worth tourists will rest on the country’s efforts to offer this particular product, he foresees. Whilst Dr de Marco is realistic about the pressing challenges ahead, he is a firm believer that staying hopeful is the key to grasping new opportunities. “Adopting a proactive approach is a must because in life there is always light at the end of the tunnel,” he says, when speaking about the prospects for 2021. “If we rise to the occasion and succeed in turning these challenging times into an opportunity by having the gravitas to reflect, and proactively change our economic model to factor in the new reality postpandemic, it would be paramount to recover as a nation,” he concludes. EV

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

At a glance: What will 2021 hold? Martina Said reaches out to business leaders across a spectrum of industries to learn what’s in store in the months ahead. Nikhil Patil CEO, GO

As one of Malta’s leading communications services companies, GO provides mobile, fixed line, internet and TV services to customers across the islands. “2020 has certainly been a challenge, not only for the telecommunications industry but for the economy as a whole,” says Mr Patil, who believes that with each challenge comes an opportunity. “As we look towards the immediate future, we shall continue to embrace every opportunity to support Maltese businesses as they continue on their digital transformation journeys; to obsess over our customers and their

Albert Cilia

Managing Director, Trident Trust Malta

Karl Azzopardi

CEO, INDIS Malta Ltd

With a footprint that spans Africa, the Americas, Asia, the Caribbean, Europe and the Middle East, Trident Trust is a leading global corporate, fiduciary and fund administrator. “2020 has been challenging for everyone, but we are upbeat about 2021,” says Mr Cilia, who explains that the prospect of an effective vaccine for COVID-19 should enable societies and their economies to return to a degree of normalcy, perhaps even with some improvements catalysed by this intense period of change. “And although 2020 has been very busy, we believe there is a lot of pent-up demand that will be released in Q1 or Q2 2021,” says Mr Cilia.

“When I think about our business, our team has been extremely resilient over the last 10 months and they have been relentless in their focus to ensure continuity of client service,” he asserts. “We think this will put us in a very good position to take on the opportunities which will present themselves next year. It’s our 10-year anniversary in Malta in 2021 and we are intent on making it a year to celebrate!”

INDIS Malta Ltd is responsible for the administration of the Government-owned industrial parks and related facilities around Malta and Gozo, as well as promoting their further development. “As the organisation responsible for the administration of the Government-owned industrial estates and related facilities around Malta and Gozo, INDIS Malta Ltd (previously Malta Industrial Parks Ltd) has launched a €470 million infrastructural investment programme in late 2020,” says Mr Azzopardi.

needs, continuing to deliver innovative products and services, at price points affordable to everyone, with a customer experience that is second to none so that no one is left behind; and continue on our ambitious True Fibre network rollout plan. Of course, one cannot look at the future of telecoms without consideration to IoT and 5G.”

“This will not only inject a much needed impetus in the local economy and help overcome the challenges brought about by the pandemic, but also address the shortage of industrial properties that often proves to be a stumbling block for further investment as well as future-proof the industrial innovative properties it offers to its clients and other prospective investors.”

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Angelique Maggi Deputy Chairperson, MMH Malta Ltd

MMH Malta Ltd is the core service provider of the Mediterranean Maritime Hub, a regional centre of excellence for the key requirements of the maritime industry. “The global news that the COVID-19 vaccine is expected to be available in early 2021 is a boost to all economies,” says Ms Maggi, “however, rapid growth will be experienced by those who best managed the pandemic with the least damage to their economic stability. Malta is well placed in this category.” The MMH Deputy Chairperson asserts that this reality should not overshadow the fragility of various economic sectors which were decimated during the pandemic, and future economic planning should factor in alternative opportunities to spread the risks. “It is also vital to build further on those sectors which managed to keep buoyant during the pandemic, and one of these sectors is the maritime industry, in particular, shipping and logistics.”

Christopher Busuttil Delbridge Managing Director, Evolve Ltd

Whether lab supplies or specialist scientific equipment, Evolve offers custom-made solutions for, among others, pharmaceutical companies, hospitals, universities and public laboratories. “Malta’s economy as a whole has always been heavily reliant on the tourism sector – now almost at a standstill,” says Mr Busuttil Delbridge, who believes a resurgence of this sector will likely take place towards the last half of 2021, but it will take a minimum of three years to reach pre-COVID levels. “It was very wise of successive administrations to commit to a diversification programme in our industry mix. In fact, the local scientific sector has

Jimmy Cutajar

General Manager, Global Freight Solutions

She adds that while the cruise industry came to a grinding halt, freight and logistics kept the world supply chain going, mapping a new reality of the significance of sea and ground logistics in challenging times. “As a maritime hub, we are optimistic for growth in 2021 and beyond. The Mediterranean Maritime Hub shall be a contributor to the strengthening of the maritime sector in Malta as one of the pillars of the local economy and to which the Government is giving its due significance, also in light of the pandemic experience,” says Ms Maggi. “We look towards 2021 and beyond with courage and determination to embrace change and implement new ways of fulfilling our role as key players in the maritime sector.”

proven to be very resilient throughout 2020, despite intense logistical and human resource issues. Capex projects have understandably been mostly shifted to 2021, so we expect to see a good focus there locally, especially in the new industry related to medical cannabis processing. As for the healthcare environment, spending has shifted mostly to COVID-related priorities and in 2021, a return to the projects which have slowed down is on the books.”

As an operator in the logistics sector, Global Freight Solutions provides a range of professional services that cover freight movement by air, sea and land to and from Malta. “2020 will go down in the history books as the year of the infamous COVID-19. The pandemic has struck globally and indiscriminately, leaving everyone baffled,” says Mr Cutajar, who adds that every business is suffering, with some industries worse-off than others, namely tourism and hospitality. “The negative effects are being felt across the board and everyone is doing their utmost to get out of these difficult times still standing tall.” Despite the uncertainties, Mr Cutajar is optimistic that there is always light

at the end of the tunnel, and that the latest figures and projections for 2021 indicate a good recovery by Maltese businesses, who are resilient and able to adapt to the negative economic fallout caused by COVID-19. “In looking towards the challenges that 2021 may bring, I believe that having a positive attitude is key. Post-COVID, I am confident that Maltese businesses will fire up the economic generators very quickly, and continue making progress and gaining achievements.”

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Dana Farrugia CEO, Tech.mt

Created by Government and The Malta Chamber, Tech.mt assists tech companies based in Malta to expand their operations while promoting Malta as a centre for innovative technologies. Malta’s tech sector displayed strong resilience during 2020, both in infrastructure and in Gross Value Added (GVA) terms, says Ms Farrugia. “In fact, it is one of the three sectors locally that still experienced growth during this turbulent year, given that investment in innovation and R&D did not halt during the pandemic.” Undoubtedly, there is hope and expectation that 2021 will be a rebound year, Ms Farrugia continues, and the shift to digital transformation will continue in earnest. “Behaviours such as remote

George Mangion

Senior Partner, PKF Malta

A specialised firm in audit and assurance, tax, advisory services and internal audit insurance, PKF Malta provides a wide range of services to clients hailing from a variety of sectors. “One augurs that next year, the certification of an effective vaccine against COVID-19 will be announced and the first inoculations be given to all frontliners,” says Mr Mangion, who believes this will usher a ray of hope “that the deadly virus has been controlled and business confidence will return with curtailment of present lockdowns and curfews in certain parts of the world.” Mr Mangion adds that the progression of this antidote will open the way for increased travel flows, which can relieve the dire financial problems of world aviation companies and revive prospects of a gradual build-up of the tourism sector.

Joseph Gerada Regulator, Family Business Office

“The other ray of hope is the election of a new president in the USA, who has shown a more friendly approach to important issues such as climate change, apart from improved trade relations with the EU and China,” says Mr Mangion. “The news that Pete Buttigieg, a former US presidential candidate has joined the transitional team of the president elect augurs well since he has direct Maltese parentage, and this may in the near future continue to strengthen our trade and diplomatic relations with a resurgent US economy. Finally, one hopes that enhanced regulatory reforms at MFSA and FIAU will meet with the approval of the Moneyval inspection team.”

The Family Business Office assists in the transfer of family businesses while also providing regulatory and governance support, as well as assistance to enhance their internal organisation and structure. “When Malta had to implement precautionary measures as a result of COVID-19, numerous businesses suddenly became conscious of the fact that taking a comfortable back-seat, simply because business is doing well, often results in the business having to struggle for survival when unexpected events which disrupt the economic environment occur,” says Dr Gerada, who adds that, for this reason, all businesses need to be open to innovation and transformation which will help them adapt to new realities. Dr Gerada asserts that 2020 has led many family businesses to come to realise

100

working herald the importance of having digitally connected societies that will stimulate the demand for tech-powered economies. Although the sector did not sit on its laurels, I believe that Malta has further untapped potential which can be attained through further collaboration with stakeholders and the push for diversification of our other economic pillars. This, together with the launch of the National Digital Strategy and the various economic support measures rolled out, will allow Malta to rebound at an accelerated pace.”

the importance of innovation and digital transformation, having an online presence, resorting to ecommerce to give them access to a larger, global market, as well as the importance of re-skilling and creating alternative revenue streams, through the use of modern technologies. “It is my hope that over 2021, more businesses will consciously decide to prepare for transformation and adaptation, whether digital, technological or as a result of a change in the market’s demand. This is a necessity on which the very survival of every business depends. It is not a matter of choice.” EV

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

“GDP will only return to 2019 levels in mid-2022 at best”

While we have not been spared the economic consequences of the pandemic, Malta remains better placed than many other member states to take advantage of the recovery.

102

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

As the global economy reels from the unprecedented crisis brought about by the COVID-19 pandemic, outgoing Governor of the Central Bank of Malta Mario Vella discusses his mediumand long-term forecasts with Sarah Micallef, and looks into the continued impact on Malta’s banking sector. “The economic shock triggered by the pandemic has led to sharp losses in output across the globe, and Malta is no exception,” says outgoing Central Bank Governor Mario Vella, admitting that the related containment measures, as well as the uncertainty surrounding COVID-19’s evolution and absence of a medical solution, have led to significant confidence effects that negatively impacted activity, with real GDP contracting at an annual rate of 16.2 per cent in the second quarter of 2020. Viewing this figure against that in the second quarter of 2009 during the global financial crisis, when GDP fell by a comparatively modest 2.2 per cent, the outgoing Governor, who will be taking on a new role as special commissioner for economic, financial and trade relations with the UK as of 1st January 2021, deems the contraction as “truly significant in terms of both scale and scope.” Still, drawing attention to the fact that activity has declined in most sectors of the economy – with the greatest losses in gross value added registered in the wholesale and retail sectors and the sectors with the closest links to tourism – Dr Vella notes that there were also sectors that continued to expand, notably the ICT sector and financial services. “Survey indicators as well as the bank’s Business Conditions Index indicate that activity is likely to have remained subdued in the third quarter of the year, but they also indicate improvement compared with the second quarter,” he maintains, adding that the drop in output was not accompanied by a corresponding increase in unemployment, as fiscal support managed to contain the decline in the country’s productive capacity. “The resulting low level of unemployment, even lower than pre-2016 levels, coupled with liquidity support to firms provided by the moratorium and Government guaranteed lending, means that firms will be able to respond quickly once foreign demand starts picking up in 2021,” he forecasts. Highlighting the fact that in recent years, Malta was among the best performers in the European Union in terms of GDP growth, public finances and labour market conditions, Dr Vella asserts that while we have not been spared the economic consequences of the pandemic, Malta remains better placed than many other member states to take advantage of the recovery. “In the second quarter, Malta was one of the few euro area economies where employment income showed a good degree of resilience,” he says, adding that in September, the unemployment rate, at 4 per cent, was still less than half that in the euro area (8.3 per cent) and the lowest rate. Meanwhile, the Governor continues, the fact that Government debt as a share of GDP remains below the

euro area average, the banking sector remains liquid and well-capitalised, and the private sector enjoys generally high liquidity levels, should mitigate the disadvantage that may arise from the country’s greater reliance on tourism, relative to many other member states. Drawing on the Central Bank of Malta’s latest projections, which were published in August, the Governor says that at the time, the bank expected Malta’s GDP to contract by 6.6 per cent in 2020 and to grow by 6.1 per cent in 2021, with GDP returning to its 2019 level around mid-2022. Since then, national accounts data for the second quarter of 2020 surprised on the downside, particularly in respect of private consumption, while the outlook for foreign demand in recent weeks has weakened amid rising infections and the reinstatement of various containment measures across Europe. This, he points out, is on top of the uncertainty surrounding Brexit. “These factors are likely to be reflected in a downward revision in GDP growth for 2020, which will have some spillover effects into 2021 in the next projections update that will be published in December. However, the negative impact of the containment measures will be partly mitigated by the positive effect on domestic demand from the additional fiscal stimulus announced in the Budget for 2021, including a number of announced investment projects. Thus, on balance, we still expect the economy to return to growth fairly rapidly once external demand starts to recover, but this may take longer than previously thought to materialise,” Dr Vella says. Indeed, the situation is still subject to a high degree of uncertainty, and the Governor admits that the bank’s central scenario is predicated on the assumption that containment measures imposed globally will be partially successful in containing the virus before the rollout of a vaccine, expected at some point in 2021. Still, given the elevated uncertainty, the bank has also published an adverse scenario in which COVID cases would only decline in early 2021 and the recovery in tourism would be delayed further, he reveals. “In that scenario, GDP was set to contract by over 9 per cent in 2020, before growing by 5.5 per cent in 2021. In both scenarios, the worst outcome for GDP growth was seen as occurring in 2020,” he affirms, adding that “with employment levels remaining stable, the prospects for domestic demand remain strong, while foreign economies have shown good signs of resilience thanks to supportive fiscal and monetary policy.” Turning his attention to the impact of COVID-19 on commercial banks, Dr Vella says that the moratorium extended to customers due to the pandemic gave essential

103

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

In the local context, resident moratoria uptake was around €1.9 billion, or around 16.9 per cent of the total number of outstanding loans. This measure is supporting 7,207 Maltese households and 2,611 Maltese companies.

breathing room to firms whose liquidity dried up as a result of the sudden stop in activity in several sectors. “In normal times, banking regulation obliges banks to review their loan books and make accounting provisions for such borrowers requesting a moratorium. However, given the exceptional circumstances of the pandemic, the European Banking Authority provided guidance to national supervisory authorities to allow banks to postpone the requirement of provisioning for loans with moratoria until the end of the legal moratoria,” he explains, affirming that while granting of moratoria would temporarily decrease liquidity for banks, higher savings reflected in higher deposits more than compensated for the reduction in inflows of cash from suspended loan repayments. “In the local context, resident moratoria uptake was around €1.9 billion, or around 16.9 per cent of the total number of outstanding loans. This measure is supporting 7,207 Maltese households and 2,611 Maltese companies. It is also worth noting that despite the extension of the application period of Directive 18 from June 2020 to September 2020, volumes peaked in July and have been declining since then,” Dr Vella maintains.

104

Having said that, the Governor notes that the moratoria tool was applied on the assumption that the pandemic would be temporary, so that once activity is restarted, bank customers would be able to start repaying loans. And, since the sharp resurgence of the pandemic in recent weeks and the reinstatement of some containment measures are likely to slow the recovery, there could be some sectors that may benefit from further forbearance. As for the pandemic’s effects on non-performing loans (NPLs), Dr Vella admits that, while it is still too early to predict the adverse impact on banks’ asset quality, the overall NPL ratio for the banking system increased marginally to 3.2 per cent in June 2020, while when it comes to the core domestic banks – those intrinsically linked with the Maltese economy – their NPL ratio increased by just a 0.3 percentage point to 3.5 per cent. “One also needs to take into consideration that moratoria are still in place at the moment, which effectively limits the rise in NPLs,” he posits. Despite this, Dr Vella continues, with some economic sectors expected to remain weak for some time, and subsequent

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

adverse repercussions on revenue generation for various firms, their solvency could potentially be threatened if the current situation is prolonged. As a result, he says, “a deterioration in asset quality is to be expected, particularly when the moratoria period ends and especially if the post-pandemic recovery turns out to be much slower than expected. The extent of deterioration, however, may be mitigated by fiscal measures targeting affected economic sectors as announced in the 2021 Budget.” Looking at the state of public finances and the level of public debt, the Governor maintains that the pandemic has been a stark reminder of the importance of fiscal policy as a counter-cyclical tool – which means fiscal discipline and responsibility in times of economic growth to create the necessary fiscal space for action during economic shocks, such as that we are currently experiencing. “It is certainly the time to use such space,” he affirms, pointing out that the initial conditions for Malta were favourable – with the country having managed to cut its public debt significantly from almost 70 per cent to less than 43 per cent of GDP over the past eight years. “This has allowed significant leeway to Government to provide the necessary fiscal support to mitigate to some extent the effects of the pandemic. Without such support the situation would have been far worse. Malta’s ample fiscal space has allowed it to increase public debt to around 51.1 per cent of GDP from 42.6 per cent in December 2019, while in the euro area, public debt increased from 84 per cent to 95.1 per cent, so the increase in the debt ratio locally was more contained,” Dr Vella highlights. Drawing once again on the Central Bank’s August projections, the Governor says that public debt was expected to reach 56.1 per cent of GDP in 2021, though given the recent resurgence of infections and the measures announced in the 2021 Budget, public debt is likely to be revised upwards. Despite this, he assures, “our debt sustainability analysis has shown that Malta’s public finances can withstand the protracted impact of quite severe economic shocks. The debt that is being issued, moreover, carries a rather low interest rate cost, which means that the rise in debt will not increase the debt servicing burden significantly.” As for what’s in store for the banking sector moving forward, Dr Vella believes that it all depends on the speed and path of the country’s recovery. “The longer the pandemic persists, the more severe the strain on the banking sector,” he warns. However, despite the downside risks, the Governor states that the economy is expected to be in better shape next year. “As recovery gets underway, it will shore up bankable activity. Secondly, according to the stress tests we conduct regularly, banks are seen to remain generally resilient and hence could weather this storm without needing to resort to decreasing their lending to the real economy. Hence, they can continue to support future growth,” he maintains, adding that this, in turn, is attributable to the strong financial standing with which our banks started the pandemic period.

Our debt sustainability analysis has shown that Malta’s public finances can withstand the protracted impact of quite severe economic shocks.

“This strength has also permitted banks to play a crucial role in supporting the economy during these difficult times, mainly through their granting of moratoria and participation in loan guarantees within Government guaranteed MDB schemes,” he continues, going on to warn that moving forward, banks need to continue to look for alternative income sources to further diversify their revenue streams, while seeking cost efficiencies to support their bottom line. All things considered, Dr Vella maintains that the Central Bank foresees growth for Malta in 2021, although “the GDP level will only return to 2019 levels in mid-2022 at best, so while we see positive growth next year, in level terms the recovery will be completed later.” Discussing the challenges that stand in the way of recovery, the Governor believes that, following the sizeable fiscal response to the crisis, risks to public finances have increased compared to the situation pre-pandemic. However, he says, they still remain relatively contained given very strong initial conditions. Another challenge relates to the labour market. “While the unemployment rate remains low, it is important that employees in sectors worst hit by the pandemic do not become overly dependent on Government support and be prepared and equipped (through re-skilling) to integrate in growth sectors, should the recovery of such sectors become more gradual and prolonged,” he warns. Apart from this, he continues, “the economy may also have to brace itself to a tourism sector that is characterised by excess capacity for a prolonged period of time which would imply a need for investment to put such excess capacity to more productive use. This usually requires time and resources.” However, given the high degree of openness of Malta’s economy, Dr Vella considers a major challenge to be that of maintaining competitiveness to continue to attract foreign demand across various sectors at a time when world economic recovery, especially in Europe – our major trading partner – may take longer to recover than hoped for. EV The interview with Dr Mario Vella was carried out in November, before Government’s announcement of his new role.

105

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

PHOTOS BY JASON BORG

Strengthening Malta’s FDI attractiveness

106

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

CEO at Malta Enterprise, Kurt Farrugia, chats to Martina Said about the current climate for attracting Foreign Direct Investment to Malta, new sectors that could change the country’s FDI landscape in the coming years, and the challenges and opportunities that lie ahead in 2021. Despite the currently tumultuous climate for investment and an ongoing health crisis that is still far from over, Malta’s track record for attracting Foreign Direct Investment (FDI) to its shores has continued showing its strength. In October, Government announced during an industry conference that Malta Enterprise, the national agency for investment promotion, confirmed the commitment of 35 FDI companies in 2020 – three more than 2019, with three months still to go till the end of the year. Kurt Farrugia, CEO of Malta Enterprise, expects the number to increase by the end of 2020, and credits years of hard work for such fruitful outcomes. “The process for companies looking to relocate or expand their operations in Malta is lengthy, and the companies we confirmed this year are a ripple effect of the good years we had in 2018 and

In 2020, we started working on leads in the fields of medical technology and Artificial Intelligence – sectors which are thriving currently.

2019,” he says, adding that “pinning companies down in the midst of a pandemic is much harder.” While FDI has taken a hit globally – Mr Farrugia says it has dropped by 40 per cent on an international level – he asserts that the number of confirmed foreign companies looking to set up or expand in Malta shows that the climate for doing business locally is sound, and that Malta’s unique selling propositions are still attractive. However, being strategic in approach is key. “The markets are volatile and we need to grab opportunities as they come. In 2020, we started working on leads in the fields of medical technology and Artificial Intelligence – sectors which are thriving currently. Companies operating in these sectors can project their investments for the next few years and commit to expanding their operations either in Europe or in an EU country to reach other geographical areas, such as Africa and the Middle East.” Mr Farrugia says that the work of Malta Enterprise endeavours to attract companies that will not only headquarter in Malta but establish a complete operation, generating employment opportunities at a local level. This materialises, however, following an intense evaluation process of the company’s business plan by Malta Enterprise, and, in the case of third countries, an audit by the new National FDI Screening Office, established in 2020, with the aim of reviewing companies looking to set up in an EU jurisdiction. Zooming in on the industries which could be transforming Malta’s FDI landscape in the years to come, Mr Farrugia singles out the life sciences and aviation industries, collaborations with training and education institutions, the testing and training of drones, alongside growth in the maritime and logistics sectors. “We’re also attracting companies in software solutions, namely cybersecurity and identity solutions that operate in the sphere of AI and blockchain. For new technologies, however, the necessary regulatory framework needs to be in place to allow companies to set up, and this takes time.” Sharing his thoughts on the prospects for Malta’s economy in 2021, Mr Farrugia draws on Eurostat and European Commission forecasts which project a good level of growth, in the current circumstances, for Malta in the months ahead compared to the EU average, but cautions against being complacent about it. “I don’t think we’re out of the woods yet – the prospects of a vaccine are positive and inspire confidence, but I would be cautious about putting businesses’ minds at rest that all will be well after we have a vaccine,” says the CEO.

107

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

“We’re at a stage where everyone needs to look at the business model of the company they’re operating. I believe this disruption should be a wake-up call, rather than thinking it will be over in a few months. Disruptions will continue to occur, and businesses should ensure their model is resilient in the face of adverse conditions that might happen in the future,” says Mr Farrugia. “Through our schemes, we are not only trying to contain the damage caused by COVID-19 through incentives that will help keep businesses alive, such as the wage supplements, but also to give companies the opportunity to improve their processes, digitise, and become more sustainable for the long term.” Among these schemes are the Business Reengineering Scheme, a collaboration with The Malta Chamber, as well as the Micro Invest scheme, among others. “At an extraordinary time like this, it’s also important that our workforce is upskilled and reskilled according to the needs of companies. It is useless for a company to go digital if its workforce is not prepared to operate its new systems. We’re also able to assist here through the Skills Development Scheme offered by Malta Enterprise.” Turning towards Malta’s attractiveness for FDI, last October, statistics published in the EY Malta Attractiveness Survey 2020 revealed the largest ever decline recorded in Malta’s overall FDI attractiveness, which dropped by 15 per cent – from 77 per cent

in 2019 to 62 per cent in 2020. While Malta’s corporate taxation continues to be a top scorer, followed by telecommunications infrastructure and the stability of the country’s social climate, the country’s biggest pitfalls for investors centre around transport and logistics, the R&D and innovation environment, and the stability and transparency of the political, legal and regulatory environment. Reacting to this, Mr Farrugia asserts that Malta Enterprise is aware of certain nodes of Malta’s attractiveness that need work, as well as the unblocking of bottlenecks, primarily to do with the ease of doing business in Malta. “Investors cite a lack of coordination and variances in the bureaucratic processes of different entities as one such issue, and although there have been improvements over the past years, there’s still a long way to go to ensure a smoother way of doing busines in Malta.” To this end, Malta Enterprise is currently working on a new portal that will provide businesses with all the necessary avenues for setting up here. Mr Farrugia also draws attention to the banking obstacles investors face, which hinder their operations from getting off the ground in Malta. “Investors are subjected to incredibly laborious bank processes, and after we succeed in attracting companies to our shores, they encounter the toughest hurdles when opening a bank account and completing the due

Through our schemes, we are not only trying to contain the damage caused by COVID-19... but also to give companies the opportunity to digitise and become more sustainable for the long term.

108

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Demand for automation solutions and robotics will also continue growing in 2021, which will contribute towards diversifying Malta’s economic ecosystem.

diligence process required by banks,” he explains. “Of course, we expect banks to have their checks and balances, but there’s need for greater dialogue on this matter, particularly as companies would have already gone through stages of due diligence under Malta Enterprise.” Another critical factor for retaining Malta’s attractiveness as a jurisdiction is fostering the right talent in the younger generations, preparing students to have the necessary skills for the workforce of the future, including students taking up STEM (science, technology, engineering, and mathematics) subjects, and getting both young boys and girls to take an interest in technology-related subjects. “There are also good governance and rule of law issues which have impacted our image internationally that need to be addressed, to put the message out there that, like every other country, we have our issues but we are realistic about them and we are tackling them,” says Mr Farrugia. “We’ve seen considerable improvements here to ensure that, as a modern European state, we are in line with businesses’ needs that are looking for a home for their company. On a more positive note, the same EY survey found that 80 per cent of investors still see their company present in Malta in 10 years’ time.” Looking ahead towards the impacts of the health crisis on specific sectors in 2021, Mr Farrugia says that, without doubt, the tourism industry will take the longest to recover. Given its importance for the Maltese economy, this will be a challenge, however, it is an also an opportunity to adopt a tourism regeneration model, says the CEO. “The footfall and numbers are very important, but it’s time to upgrade the Malta product and attract new tourism segments, such as medical and cultural tourism, and thus prepare the country for them.” Attracting business travel to Malta will also be a challenge, he asserts, now that video conferencing

technologies have shown the ease with which overseas calls could be set up, making this area of business one that will require further attention. Additionally, the aviation sector in Malta, with respect to maintenance, repairs and overhaul operations, is experiencing difficulties – “it is crucial that the sector restarts as soon as possible and, ideally, new companies will be attracted to move to Malta through our aviation proposition.” Conversely, Mr Farrugia eyes the life sciences, including pharmaceutical products and medical devices, and medical technology sectors as ones that will experience growth in 2021. “Demand for automation solutions and robotics will also continue growing in 2021, which will contribute towards diversifying Malta’s economic ecosystem,” says Mr Farrugia. “This is what I believe kept Malta afloat throughout various crises, including COVID.” Commenting on global political events that could impact Malta and its economy, Mr Farrugia asserts that “insecurity is not good for business, but it can open new opportunities. While it would have been ideal if the US had a grounded and experienced president at the helm, if Brexit didn’t happen and if the pandemic didn’t hit, it would also be naïve to think that we won’t be dealt other shocks and disruptions on the global economic stage. Of course, having them all together is another issue.” Speaking specifically about Brexit, Mr Farrugia says Malta Enterprise has been approaching UK companies with a proposition that Malta can serve as a colocation, in order for UK or UK-based companies to keep a foothold in the EU. “This is where I believe we could be very attractive for companies that operate within the UK. As for the US, we have yet to assess the policies of the new US president. However, the Biden administration will hopefully be less volatile and perhaps we can look forward to the effects of the de-escalation of trade tensions that we’ve seen with China and Europe, among others.” EV

109

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

Overcoming COVID-19 through sustainable development Gordon Cordina, co-Founder and Executive Director at E-Cubed Consultants Ltd, outlines a way forward for Malta, and its priorities within the context of COVID-19. The COVID-19 pandemic will probably wipe one half of one-third of our economy in 2020. That is the equivalent of around four years of past economic growth. Our dependence on mass tourism is a particular source of vulnerability in this context, but other sectors including manufacturing and professional services continue to thrive. A full recovery may well extend into late 2022 or early 2023, as the economies providing us with tourism income continue to struggle under the burdens of the economic shock and the resulting increase in public debt. The latter will also be an issue in Malta, but we start from a position of strength. The fiscal cost of sustaining the integrity of firms and households is well worth incurring, but cannot be maintained indefinitely. The quality of our living spaces will possibly be the most significant determinant of Malta’s economic success over the coming decade. As a small Mediterranean archipelago, the attractiveness of the quality of life which Malta can offer will always remain the unique factor in competitiveness. It would compensate foreign investors for other shortcomings, including small economic size and peripherality from the main centres of economic activity. But on its own, it would not be sufficient, as it needs to be complemented by efficient operating costs, including those that may emanate from lean taxation and rational regulation, and effective communications and

110

The quality of our living spaces will possibly be the most significant determinant of Malta’s economic success over the coming decade.

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

PHOTOS BY TYLER CALLEJA JACKSON

111

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

The need to shift to higher quality tourism has been mooted for decades: the COVID experience is intensifying this need, and perhaps castigating past procrastination.

This implies a possible re-think of a number of major investments in tourism and in retail, within a rational view of the carrying capacity of the Maltese islands in terms of resident population and tourists, and business models which maximise the economic value that can be derived from it.

access by sea, by air and in the digital space. These often-emphasised complementary factors by no means constitute in their own right unique selling propositions on which to solely base any long-term competitive advantage. Against this backdrop, it may be worthwhile to assess the viability of business models based on demographically-dense tourism and inward labour migration. The need to shift to higher quality tourism has been mooted for decades: the COVID experience is intensifying this need, and perhaps castigating past procrastination. Inward labour migration, particularly for low-level skills, especially in areas related to construction and tourism is always seen as a temporary growth measure to be later replaced by higher value activities. The pandemic appears to have illustrated this point, though it unfortunately also resulted in a loss of immigrant workers with higher skills.

From the perspective of economic policymakers, longer term strategic planning is key. Strategic planning is not to be construed as a dirty expression, a euphemism for economic control. Rather, it is a process which defines the socio-economic development targets which the country can reasonably aspire to, in terms of economic, demographic, social and environmental outcomes. It defines the contribution of economic policy and the efforts of relevant public sector agencies towards these ends. It would consequently leave the required space for private investment to take place within a greater degree of certainty regarding the path which the country is embarking upon. This approach is always rational, but with the uncertainties created by COVID and its aftermath, it has become essential. And I would particularly emphasise that the capabilities, needs and aspirations of our population need to be fairly balanced with the economic fabric of our country. We cannot go for a totally digital world, leaving behind a significant part of our population.

113

Economic Vision 2021: BUSINESS. FINANCE. ECONOMY.

I hope that this approach will capitalise on the quality of the living spaces that Malta can offer, through environmentally- and socially-sensitive modern infrastructures, environmental amelioration, and economic circularity to sustain longer term competitive advantage. Sacrifices will be necessary, including changes to the ways in which we normally approach the use of land. Yet, I believe that the resulting opportunities are greater still, especially if viewed within the context of a longer-term plan with fair dividends to all stakeholders, including the potentials for job creation in green and blue economic sectors. The COVID experience beckons us to reshape our economy in a way that changes which would have taken decades, would have to be accomplished in a few years. This means that the attainment of sustainable development, premised on win-win situations for all stakeholders involved, cannot wait for us to make up our minds and take the necessary actions any much longer. If in the past, we did not have the altruism and foresight to pursue sustainable development for future generations – we are now compelled to do so for our very own livelihoods. EV

114

If in the past, we did not have the altruism and foresight to pursue sustainable development for future generations – we are now compelled to do so for our very own livelihoods.