Economist Gordon Cordina says that it is ‘quite obvious’ that Malta is doing very well from the perspective of macro-economic headline indicators. “We’re experiencing what I like to call a ‘virtuous triangle’ of strong economic growth, low unemployment and price inflation, and a balance in Government finances,” he says, citing the real GDP at 4.6 per cent in 2017 and is expected to be 4.4 per cent in 2018, and that inflation is 1.6 per cent in 2017 and expected to be 1.8 per cent in 2018.
“At the very least, this situation indicates that our growth is not simply being fuelled by fiscal injection and Government dishing money into the economy, but rather genuine business growth that is mainly underpinned by an expansion in employment.”
Taking a look at how the economy is growing, Mr Cordina explains that €9.9 billion of economic value was added in 2016. Currently, 160 firms generate 30 per cent of the economic activity on the island, and 29,500 firms employ an average of 2.5 people. Gaming makes up 13 per cent of the economy (with 800 firms generating 6,500 jobs), while the consumer and tourism sector and the public sector both make up 21 per cent, and the financial services sector makes up seven per cent.
“Recent economic growth was balanced between ‘new economy’ and ‘traditional economy activities. That growth is being strongly sustained by consumption expenditure (including by tourists) and investment growth, while investment was sustained by public sector projects, as well as private sector business development in equipment and dwellings.”
However, as always, the big question is whether this growth is sustainable when there are a number of risks and opportunities that the economy is currently facing.
“Reputational risks certainly need to be considered,” Mr Cordina continues, “especially as Malta is very much dependent on the perception and actual reality of being a place that you can visit and do business in a safe and secure manner, and I think a lot of our success so far is down to that. Both when it comes to tourism and foreign investment, our economy’s sustainability is very much hinged on this issue.”
“With that in mind, it is critical that we continue to sustain our image as a good place to do business in the international arena, which we have so far achieved by joining the European Union, joining the Eurozone, modernising our economy, building infrastructure and regularising mechanisms that are attractive.”
Beyond that, Mr Cordina also stresses that our international tax system should be transparent and compliant. “We cannot really compete when it comes to businesses that require huge economies of scale or a proximity to the rest of Europe, so there should be the possibility to rely on other instruments for us to build competitiveness providing they are compliant with international legislation, especially with regards to international money laundering and transparency. However, it is important to separate between perceived problems and actual problems in this regard. So, we have to do our utmost on all fronts to safeguard and sustain our image abroad, whether it is related to the financial, tourism, ICT or gaming sectors, or even when looking at Malta as a place to build a certain type of lifestyle.”
There are a number of other risks too, including the possibility of EU-wide corporate tax reform, excessive inflation in housing prices, environment issues and climate change, population ageing, trade and globalisation factors, and ongoing public sector restructuring. However, on the flip side, Mr Cordina details possible opportunities too, including our strategic geopolitical location, Malta’s well-trained and motived workforce, the low-cost environment, advantageous tax arrangements, our ICT infrastructure, our enviable climate, and our vision for a global lifestyle hub.
Meanwhile, when it comes to the property market, it seems prices are showing a relatively stable rate of increase on average, which Mr Cordina says is not indicative of a speculative bubble for the market as a whole. With that in mind, the transactions-based property price index shows relatively stable growth since 2012 – although rental prices have increased at a faster pace and may be subject to more instability due to international client demand.
“At present, I don’t think we’re looking at a property bubble – that would happen if people were buying just to sell, rather than as a genuine investment. At the moment, the fundamental demand is being underlined by increased numbers of migrants moving to Malta, as well as locals diversifying into real estate. That said, risks do exist – for instance, if the demand were to suffer some fundamental shock, there would be a risk to property investment.
“Beyond that, one should also make sure that investment is properly balanced, especially as this is a small economy. First of all, it’s a question of bringing new real estate onto the market in a phased manner so the market can absorb it; one wouldn’t want to see supply without demand, so it’s more prudent to phase in large investment projects. Secondly, we need to balance real estate with the infrastructure needed and our environmental management such as waste, water and electricity, as well as our landscape investment, traffic management and the need for open spaces. I hope that this latest Budget has started to place some importance on this issue but much more definitely needs to be done in this regard, not just by the Government but by the planning function, which needs to go into these issues in a much more fundamental way. I very much believe in a proactive planning approach that specifies what is expected from any given project rather than just prohibits a project from doing certain things.”
Looking to the future of 2018 and beyond, Mr Cordina says it’s important for Malta to develop a long-term economic and spatial strategy for balanced development to invest in Malta’s economic, human, environmental, anthropogenic and cultural capital, as well as distinctive characteristics to sustain medium-term growth. “Development planning has to take a more proactive and enabling approach to bring about desired socio-economic and environmental deliverables, rather than just limit construction activity. Beyond that, economic strategies are needed for diversification within and away from overweight sectors, to maximise opportunities from Brexit, and to diversify away from excessive dependence on tax competitiveness.”
Finally, he also suggests a strategy for maximising human capital value, with a better use of EU funding for learning and continuous training, and the reaping of opportunities for the availability of foreign labour, as well as a renewed focus on housing as a determinant of poverty and on more cost-effective solutions for poverty reduction. “I look forward to a longer-term vision where this balanced approach is being achieved.”