This article appeared in the May edition of The Malta Business Observer
Finance Minister Edward Scicluna has reiterated the importance of managing success, be it personal or national, as failure to do so may lead to ruin, he said in comments to The Malta Business Observer. “As a country, we must face this reality. This drives at the core of what sustainable development is all about,” he underlined.
Questions were sent to the Minister in reaction to remarks he made last month, when he said that Malta was not ready for the rapid economic growth it has experienced over the past few years. Indeed, while the Government has been heavily praised for its successes in creating job opportunities, historically low unemployment, a national Budget surplus and attracting investment, it has also been criticised for failing to address the growing pains associated with this level of growth.
“As a Government, we always believed that our formula for economic growth would work. What perhaps we were less prepared for was that this success would feed on itself and produce a consistent year-in year-out stellar performance,” the Minister said, while explaining that the principle challenges facing the island included its finite resources, particularly land, and the effects of growth on public finance. “Physical resources, especially land, are a very scarce resource and they should be tackled head-on. The conflicting uses for a small parcel of land are mind boggling and the pressure from potential users is overwhelming,” he continued.
Moreover, the Minister made reference to the Government’s initiatives to tackle the corollaries resulting from Malta’s steep economic growth, such as traffic, the increasing strain on Malta’s schools, roads and other vital services, as well as the significant price increases in the rental and property market. “Indeed, we allocated €700 million for a seven-year road works project, where the envisaged investments are being planned, overseen, and implemented by a newly-established Government agency, Infrastructure Malta. Further investment will also be made in the waste management sector, especially the waste-to-energy plant and the water distribution and sewerage network,” he explained.
With regards to property, the Minister spoke of implementing measures to ensure affordable housing through the first-time and second-time buyer and the equity sharing schemes, underlining that “we have also invested in social housing with the aim of increasing the social housing stock by 1,700 units.” He also made reference to the high costs in rent, saying that the Government was “addressing challenges through the necessary legislation to properly regularise the rental market and the affordable housing benefit,” though he did not expound.
Due to the investment required, the Minister also acknowledged that further Government expenditure was necessary in addressing the pressures associated with growth. “But, so long as expenditure growth is in line with economic growth, then there is no cause for concern. Indeed, when looking at the share of Government expenditure, as a percentage of GDP, one notes that the share has actually decreased from 42.7 per cent in 2012 to 36.8 per cent in 2018,” he underlined.
The importance of attending to the challenges brought on by Malta’s economic growth was also stressed by David Xuereb, President of the Malta Chamber of Commerce, Industry and Enterprise, who remarked that now is “the time to capitalise on the present economic resilience to invest in the necessary infrastructure and safeguard long-term fiscal and economic sustainability.” He said that while the Malta Chamber welcomed such progress, there was a definite need for “a holistic plan that would ensure sustainability, and the future-proofing of the country's economy.”
He noted that the successes experienced by the jurisdiction have not been consistent across all sectors, highlighting that “not all sectors and industries are growing at the same pace and specific sectors are experiencing very real challenges.” He went on to say that the Chamber has consistently called on Government to ensure it takes advantage of Malta’s strong position through long-term planning and also referred to the risks posed by the “volatile” international situation, stressing that Malta “must remain nimble and efficient” to respond to internal and external shocks.
“This has been the Chamber’s mantra for a number of years now, and it is more relevant than it ever was before. We need to sit down and take stock of the current situation while it is favourable and analyse the strengths and areas for improvement that are characterising our economy. We also need to map out a long-term plan of where we want to take our country in the next five to 10 years,” he underlined.
To this end, he said Malta Chamber had been busy laying out its “blueprint” for the island’s economy, including business’ ambitions for the Malta of tomorrow. This document, which he described as a “pro-active stance”, is a “second Economic Vision for Malta”, being designed together with several of Malta’s foremost entrepreneurs and business leaders.
“The Chamber is proud of Malta’s achievements. Indeed, these achievements are the result of meticulous planning and the hard work of our entrepreneurs, our workers as well as our political leaders. But we must not take these successes for granted. These successes were achieved because we provided the right conditions for them to materialise – and we must continue to do so,” he said.
Echoing many of these thoughts, Gordon Cordina, economist and Executive Director of E-cubed Consultants, commented that sustainable economic growth necessitates a balancing act between demand and the supply capabilities of the economy. “Demand arises from a number of sources, be they tourism, new economy services, domestic consumption, and to a lesser but interesting extent, manufacturing. Supply entails human capital and productive capital, but also environmental, social and institutional aspects. Economic policy must balance all these issues to ensure sustainable growth, that is furthermore resilient in the face of shocks,” he asserted.
He remarked on Malta’s economic policy over the past few years, which has focused on increasing demand, though stated that the upcoming challenge will be to see supply shortfalls addressed. Resolving this issue, he noted, required “investment in all aspects of capital”, including the environmental, social and institutional aspects. “This will be crucial to ensure that the Maltese economy remains attractive to demand in the long term, but this may also require a period of slower demand growth for the supply side to catch up.”
Asked about whether he would recommend actually slowing down the fast pace of growth, Dr Cordina was quick to say that it “is not wise to advocate a slowdown in business investment, but possibly a more selective approach, which focuses on higher value-added activities, that are best suited to the characteristics and need of the country, is warranted.”
Furthermore, there is also the need to safeguard “Malta's fundamental unique selling proposition,” namely, its land, climate, as well as its natural and historical heritage, he said. Indeed, “whatever the line of business, economic activity can in good part continue to be attracted to Malta only if the country remains and is valorised as an ideal place to live, work, learn, heal, enjoy recreation and engage in creativity,” he said, while underlining that mentalities need to change to “embrace the changes that are required to develop the true potential of our economy.”