George Mangion

Senior Partner, PKF Malta

George Mangion has over thirty years’ experience in the financial services industry at large, with a special focus on the founding spheres of accounting, auditing, and taxation. He was one of the pioneers behind the local remote gaming industry and over the past years has actively been promoting the honing of a research and development ecosystem for innovation in Malta with the support of industry world leaders. He is the registered and licensed Accredited Agent for PKF Malta under the Malta Citizenship by Investment Programme (MIIP), the Malta Residence and Visa Program as well as the Global Residence Program Rules and Highly Qualified Person Rules.

Population Growth – A Mixed Blessing

Friday 03rd August 2018

Population growth is a matter that has lately been rising to the top of the country’s agenda. This phenomenon has two opposing effects on a country’s economic growth. From one aspect, a sudden high rate of population growth hinders the ability of an economy to develop. On the other hand, population growth is also a driver of economic development as it allows for a larger labour market and more demand in all markets.

The Malthusian theory of population growth argues that population grows at a much faster pace than the resources available. More specifically, it states that the population tends to grow at a geometric rate, whereas the food supply increases in an arithmetic way. Thus, according to Malthus, with time, populations can outgrow their resources. For this reason, he argued that two checks must be in place to reduce such growth, being the preventive checks and the positive checks. Let us discuss both types.

Preventive checks involve voluntary actions by man to reduce the birth rate, while positive checks are undertaken by nature which accelerates the death rate. Let us explore local facts relating to this subject. Starting from 2006 to 2017, Malta has experienced a considerable increase in its population, especially in the last four years where such growth spiked up. In fact, publications from NSO show that from 2015 to 2016, the population in Malta grew by 9,882 individuals, whilst from 2016 to 2017, it grew by 15,404 individuals, implying a growth rate of 55.9 per cent. This significant increase in population growth is mainly attributable to net migration flows, notably driven by the increase in foreign workers in Malta and the increase in labour demand by the gaming and financial services sectors. Additionally, the country is also experiencing an influx of illegal immigration, which also adding to the numbers.

The economic implications of a higher population are various. Higher population naturally puts further pressure on the country’s aggregate demand for the basic necessities, including food, housing and clothing. This leads to a derived demand for additional labour, leading to a higher labour wages and consequently, a higher drive to create more jobs. However, higher employment and an increase in a demand for labour leads to unions having more bargaining power which can in turn opt to negotiate higher wages for their members.  Higher aggregate demand leads for products and services, which leads to higher inflation levels within the economy, unless these higher wages are matched by a higher labour productivity.

Moreover, given Malta’s limited natural resources, imports are expected to increase to match the higher demand, especially for food and other basic commodities, which negatively affects a country’s balance of payments. However, despite these negative effects of a high population growth, it is not all doom and gloom as the standard of living seems to be improving from one year to another. Measured in terms of GDP per capita, this has been increasing, and in 2017 it stood at €23,888 implying that there was a 6.75 per cent increase in 2017.

Let us consider health. In Malta, health services are free and are financed out of taxes. The higher the population rate, the more people will need to utilise hospitals and other health-related services. This is especially the case when migrants come in, as they require medical attention, and also due to inflation in medical products and services. Mater Dei hospital is running at full capacity and various local health centres are already fully saturated. 

Another aspect is a social one. A higher rate of migration leads to more diversity within a country as people with different backgrounds and culture come together. This greater diversity enhances the possibility of having diverse ethnic groups. A conflict may be created if these disparate groups do not easily mix and feel welcome. This can be especially important when it comes to religious beliefs and other core social values. A barrier that can make it even harder is language. Although one assumes English is a common language, in practice, some foreigners are not able to communicate in another language rather than their own.

Population growth also has its own environmental impact. More people implies a higher demand for resources to be able to sustain themselves, thus enhanced use of non-renewable energy sources, such as fossil fuels. Malta already has a high emission rate due to the amount of large number of vehicles, especially private cars and transport vehicles. Quoting Eurostat, Malta experienced the highest increase in CO2 emissions amongst European countries at 12.8 per cent, which is 1.5 per cent higher than that of the higher polluter country, which is Estonia. As population grows, the impact of more imported second-hand cars is quite high, which directly increases the country’s GHG emissions. Another environmental issue is the lack of land available to accommodate people. A large amount of people concentrated in a particular area leads to the country becoming densely populated. Therefore, in terms of environment, as population grows, the environment is negatively impacted, unless there are enough resources to sustain such growth.

This short analysis begs these questions as food for thought: is our country with a total area of 321 square kilometres able to accommodate and sustain a high population growth which is forecasted to reach 700,000? Are we at that point where we are overcrowded, which is hindering our recreational and work-life balance? One consolation is reading Adam Smith, an eminent economist who has faith in the invisible hand that regulates population and economic growth to maintain a healthy equilibrium.