Brexit uncertainty: what would a no-deal scenario look like for Malta?

Helena Grech - 21st July 2019 

Leave-supporting Boris Johnson is likely to be elected UK Prime Minister next week. 

From the costly decisions businesses are required to take in the face of a possible no-deal Brexit, to investment opportunities Malta could snag, four key locals with intimate knowledge on the workings of the EU weigh in on what a no-deal Brexit could mean for Malta.

As the likelihood of former foreign secretary Boris Johnson becoming the next Prime Minister of the UK looks to be more likely, questions on whether the country will crash out of the EU continue to grow.

In 2016, Maltese exports to the UK amounted to €106 million, according to the National Statistics Office (NSO). In just two years, this figure dropped to €61 million for 2018. While companies such as Bet365 have declared their intention to relocate to Malta and further opportunities could arise in terms of foreign direct investment, tourism towards the island by British nationals could drop, while imports and exports could be made more complicated and therefore less attractive.

Miriam Dalli

Head of the Labour Party delegation in the European Parliament and Vice President of the Socialist and Democrat Group in the EP, Miriam Dalli, acknowledges that at an EU level, the scenario which is most being prepared for is a no-deal Brexit. “At an EU level, we adopted around 20 legislative instruments to enter into force in case this happens, and many member states have done the same, especially in the area of citizens’ rights.” Dr Dalli does not believe that a no-deal scenario will be necessarily catastrophic, conceding that it will certainly be challenging.

“It will be another step in the process of negotiations with the UK to determine the type of relationship it will have with the EU. In other words, whilst an orderly withdrawal would ensure that we would have a cushion in the form of transitional arrangements in favour of a smoother transition to the future relationship, a no-deal means that we would first need to get assurances on the financial settlements, citizens’ rights and the Irish issue before we can start negotiating how to cooperate further with the UK,” she contends.

Roberta Metsola

Head of the Nationalist Party’s delegation in the European Parliament, Roberta Metsola, strikes a decidedly more concerned tone. She argues that without businesses being able to plan effectively, a raft of measures is taken by companies trading with the UK to cover all possible scenarios. She stresses that “Brexit has been very damaging to the European project as well as for the image of the UK around the globe. I do not think anyone expected it to be plain sailing but the way it has developed politically, socially and economically since the referendum has been very painful for everyone concerned.”

Turning to more practical consequences for Malta, Dr Metsola adds, “the implications for Malta and Gozo remain serious. Our businesses cannot plan effectively, meaning industry is forced to take measures such as to ensure stocks do not run low and to seek alternative routes of supply… it is the uncertainty of it all that is the worst.”

Joe Tanti

CEO of the Malta Business Bureau, Joe Tanti, outlines the uncertainty in relation to how a new British PM will manage to “break the deadlock in the UK Parliament,” as well as the uncertainty on the kind of general approach that will be taken in view of the current Brexit deadline.”

Focusing on the issues local businesses are likely to face in the event of a no-deal scenario, he says “companies importing from and exporting to the UK would be required to face tariffs overnight and must deal with customs procedures.” He highlights that, for companies that only trade with countries within the EU single market, “this would actually be the first time they will be required to do so, and it will be particularly administratively burdensome for SMEs.” Turning to other examples of what a no-deal means for Malta and other member states, he explains that “products certified in the UK will no longer be recognised by EU standards, and therefore Maltese companies using UK components in their production may need to find alternative sources.”

On the future of negotiations with the UK, Mr Tanti stresses that the EU’s position on the matter is clear. He points towards the UK’s need to adopt the current withdrawal agreement if it wants to leave the EU in an orderly manner, by the 31st October deadline.

He explains that “this leaves a new UK Prime Minister with a few options; namely to find an internal compromise to approve which Ms May was unable to achieve; call a general election hoping to tip the balance in favour of the new Prime Minister’s views; call a referendum for the British public to give a new unequivocal mandate; or press ahead with a no-deal Brexit. However, in the event of a no-deal Brexit, the UK government would still return to the EU to start discussing a future economic relationship, for which the EU may consider re-tabling the same agreement as a basis to start a new negotiation. That would be an interesting déjà-vu.”

Stefano Mallia

Stefano Mallia, one of Malta’s five members of the European Economic and Social Committee (EESC) and Chairman of the EESC’s Brexit Group, believes that a no-deal Brexit will have “huge economic consequences for the EU and even more so for the UK”. He commends Ms May for fighting “tooth and nail” to avoid a no-deal scenario but concedes that the option is firmly back on the table. He too stresses that the worst consequence of a no-deal Brexit will be “the huge uncertainty it creates”. He adds that “uncertainty creates fear and that would create a contraction in, for example, tourism, where we [Malta] still depend quite a lot on the UK market. It would also impact the wider European economy with, for example, the car industry in Germany being hit. That too could have repercussions on the Maltese economy.”

Mr Mallia says that as the prospect of a no-deal scenario continues to grow, “the more likely it is that companies will seek alternative arrangements. Reportedly there has already been considerable movement from the UK to other EU destinations. This is likely to become more pronounced with the chances of a no-deal Brexit increasing.”

This is an excerpt of an interview which initially featured in the June edition of Commercial Courier.

Jo Caruana - 27th July 2019

Yacht sales have peaked in the last 24 months too, and it now remains to be seen whether the economy...

Marie-Claire Grima - 20th July 2019

Matthew Scerri, Senior Manager, KPMG Software, and Mark O’Sullivan, Advisor, Gaming, map out what’s ...

Martina Said - 15th June 2019

Co-founders of Forward Architects, Chris Micallef and Michael Pace, share their thoughts on the impo...

Helena Grech - 13th July 2019

After 10 years in business, E&S Head of Legal Anton Mifsud speaks of brain-drain challenges on t...

Brexit uncertainty: what would a no-deal scenario look like for Malta?