“2020 brings with it a strong element of uncertainty,” Dr De Marco contends, emphasising that, despite our geographical location, we cannot pretend that Malta exists in isolation.
Dr de Marco gave his comments to Economic Vision, the Malta Chamber of Commerce’s annual publication.
“Events out in the world bring unknowns into the Maltese context. Global economic forecasts predict that international economic growth will slow down, and Malta is not immune to these trends. Global trade is being influenced by, for example, Brexit, the US-China trade war, and the revival of protectionist trade policies and threats of tariffs. Malta is part of the global village, so what happens out there will inevitably affect us.
“Having said that, I believe that the Maltese economy will continue growing – but, at an altered pace. Over the past decade or so, we’ve experienced a growth rate that is higher than the EU average, but it’s now tapering off – after a decline from 6 per cent, we’re now predicting 3 per cent. Ours is certainly still a growing economy but – for reasons both within and out of our control – growth will decelerate.”
In fact, the construction and development sectors are already showing tell-tale signs of a slowdown. Until recently, Malta had been jolted by an unprecedented rate of development, but this has tapered off somewhat. “Some will tell you this is a good thing,” remarks Dr De Marco, “because we know that overdevelopment has taken us beyond sustainability, and it’s en-route to impacting other sectors, such as tourism.”
Prudence may be the order of the day, but Malta cannot afford to rest on its laurels. A case in point is the financial services sector. In July 2019, Moneyval – Europe’s anti-money laundering and counter-terrorist body – released a report indicating that Malta’s institutional weaknesses put it at significant risk in the fight against money laundering. Malta has been warned that policies such as the investor citizenship scheme, together with regulatory shortcomings, expose the entire EU to money-laundering risks.
“Indisputably, one of the major influences for 2020 depends on how we tackle the findings of the Moneyval report. If we get blacklisted, the financial services names that matter will avoid Malta at all costs. Our reputation has already been tarnished, so, to avoid being completely submerged in a bad reputational situation, we must address the failings in our institutions.
“There’s a lot at stake. We’ve already heard financial services practitioners complain that some clients have cut ties with Malta. And the tendrils of a bad reputation are reaching into other sectors, too. For example, we must keep a watchful eye on the gaming industry because several companies have already either relocated or reduced in size. We need to scratch beyond the surface to comprehensively understand why companies are leaving.”
The banking sector is the thread running through the different components of Malta’s economy, so the impacts of changes in banking are far-reaching. Following HSBC’s branch closures, Bank of Valletta’s loss of correspondent banking and cessation of the accounts of some gaming companies, Deutsche Bank’s halt to any correspondent banking with local Maltese banks, the regulatory gaps in Malta’s handling of the Pilatus Bank scandal, and the ongoing Satabank saga, Malta is unquestionably facing the heat.
“Look at the impact that the nature of local banking has had on blockchain in the country,” Dr de Marco continues. “In recent years, the Government has tried to launch Malta as a blockchain hotspot. But the hype is fizzling out. Operators who were interested in Malta couldn’t find a banking network to support them. It’s becoming near impossible for foreign operators to open accounts here.”
It has indeed been difficult not to succumb to the blockchain buzz that has swept the nation, and any voice of cynicism or criticism has been quickly drowned out. “As the Opposition, we supported the necessary legislation for blockchain and cryptocurrency, but we also warned that this is a very high-risk industry,” explains Dr De Marco.
“For example, cryptocurrency is not recognised by the World Bank, and it has made headlines for being used for the wrong reasons. Simply put, if you’re not one step ahead, it’s the people using cryptocurrency who’ll be running ahead of you. To deal with these types of naturally high-risk industries, the presence of a strong, high-tech regulator is required.”
The question is, are our regulators up to scratch? “To regulate and excel in high-tech, high-risk industries, we need human capital with the right qualifications, training and experience – of which we’re currently lacking. Beyond that, attracting new industries is useless if our banking sector does not have an appetite for them – or even for economic growth. We need to determine the exact state of our banking sector and work closely with our banks to determine the industries that they’re ready to support.”
While the Opposition has pushed for discussions around new business sectors, Dr De Marco explains this does not mean that traditional industries should be overlooked. “The financial services and tourism sectors of today are different to those of yesterday, so we’ve got no choice but to keep up with changes, continue strengthening our traditional sectors and elevate them to the next level and beyond.
This is an extract of an interview which initially appeared in the Economic Vision 2020.