By the end of 2018, FDI flows into Malta grew by a year-on-year €353m to €3.3b, up from 2017’s €3b, offering a slight rebound. Nevertheless, according to NSO figures, FDI inflow had been dropping from 2014’s €8.5b to €4.6b in 2015 and €3.7b in 2016, as the cover image of the present article shows.

On the other hand, ODI flows had been on the rise, from -€1.7b in 2014 — which signals divestment — to €4.6b in 2015, €4.8b in 2016, €6.3b in 2017, reaching €6.2b by the end of 2018.

Despite ODI flows outpacing FDI flows, the country’s total foreign direct investment stock was on a gradual rise by the year, while direct investment stock position roughly stagnated, chiefly due to divestment in manufacturing, NSO statistics suggest.

By the end of 2018, Malta’s FDI stock reached €180.9b — a year-on-year increase of €8.8b —, while the ODI stock dropped by €0.7b to €61b, NSO figures suggest.

Financial and insurance activities dominated both FDI and ODI flows in 2018, by covering 97.1% and 99.4% of the total, respectively. The vertical was the most significant contributor of both FDI and ODI between 2014 and 2018 with its share remaining well above 90%.

In foreign direct investment flows terms, financial and insurance activities roughly halved from 2014’s €8.4b to 2015’s €4.2b, dropping further to €3.2b in 2016, €2.7b in 2017 and €2.9b in 2018.

In an outward direct investment flows approach, however, after 2014’s -€1.7b — signalling divestment —, the financial and insurance activities sector jumped to €4.7b in 2015, growing further to €4.8b in 2016, €6.3b in 2017 and another €6.3b in 2018.

EDITORIAL NOTE: The present article is based on figures the National Statistics Office (NSO) has recently published in its annual publication, available for public view on their official website.

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Total foreign assets increased by €6.3bn in 2018, as compared to the preceding year, while total foreign liabilities increased by a year-on-year €5.5bn, adding up for the overall growth, the NSO said.

The level of Malta’s total foreign assets abroad amounted to €248.9bn as at the end of 2018, according to figures by the NSO. Portfolio investment accounted for 46.4% while direct investment represented 30.1% of total foreign assets. An increase of €3.2bn in other investment and €2.4bn in portfolio investment characterised Malta’s foreign assets growth for the year.

Foreign Direct Investment (FDI) totalled €193.7bn by the end of 2018, growing from €184.8bn recorded the end of the preceding year. FDI accounted for 80.4% of total foreign liabilities, according to NSO data. At the end of 2018, other investment represented 17.4% of total foreign liabilities amounting to €42bn, NSO added.

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Financial and insurance activities significantly fuelled the FDI stocks in June, garnering a contribution of 97.3% to total.

In the first half of 2018, FDI inflows went up by €1.9 billion, chiefly boosted by financial and insurance activities with a total contribution of 84.1%, according to figures by the NSO.

FDI outflows, however, dropped in the first half of 2018. Direct investment abroad by Maltese companies decreased by year-on-year €35.8m to €3.1bn. NSO statistics attribute the fall to decreases in equity capital.

“Stock position of direct investment abroad was registered at €61.5bn in June 2018, down by €1.4bn over the stock position in 2017,” the NSO report says. Financial and insurance activities accounted for 99.5% of the total outwards FDI, NSO figures reveal.

The full report including charts and visual representation of data is available for download at the website of NSO.

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Figures for the past five years draw up a declining curve in terms of attractiveness for FDI, yet pundits find Malta can still be bullish about the upcoming years. In 2013, EY reported that 88% of the investors included in their survey found the country attractive for FDI. Although the figure dropped to 79% in 2014, it started climbing up step-by-step to 84% and 87% in 2015 and 2016, respectively, before taking another downslide. In 2017, some 78% of the consulted investors found the archipelago attractive, before last year’s 74%.

“Although there was a decline, three out of every four investors still believe that Malta remains attractive to their business,” Ronald A. Attard, Malta Managing Partner at EY, says in the foreword of the report. “Equally significant, four out of every five are committed to remaining here in 10 years, while 65% have expansion plans, the highest in the last three years,” the managing partner adds.

EY describes the current times as “transformative age”, with increasing global competition. EY sees that Malta must consolidate its position at the forefront of innovation to remain attractive for FDI. Malta’s most attractive FDI parameters include corporate taxation (mentioned by 88% of the asked investors), the stability of social climate (75%) and potential productivity increase for a company (67%).

Transparent and well regulated

At the same time, investors involved in the survey pinpointed some areas for further improvement. Stability and transparency of political, legal and regulatory environment appear to be the most crucial aspect mentioned by 44%, the R&D and innovation environment named by 37% and transport and logistics infrastructure singled out by 26%.

Some 83% say that Malta does keep the pace up with regulatory changes, and the regulatory environment offers an international advantage according to 56%. As such, EY finds that effective and efficient legislation will continue to play an essential role in attracting more FDI.

The labour market is also going through some spectacular transformation due to disruptive technologies. “As Malta’s economy continues to flourish, the ability to source skilled and unskilled labour is becoming increasingly challenging,” EY says in the report. Malta resembles EU trends in labour shortage and difficulties in finding skilled labour. Some 81% believe that they can manage to retain specialised personnel; however, only 36% manage to find and recruit the required specialised skills in the local labour market. Still, 63% believe that Malta has the right skills in place to keep up with technology.

Standing still in uncertainty

Although the Brexit is still not in the books and uncertainty surrounds it domestically and internationally, EY finds that Malta has not been affected by it, for the time being. While 77% of businesses included in the survey say the Brexit referendum did not have any effect on them, 19% claim they improved and 4% say they deteriorated in some ways.

International risks keeping companies located in Malta alert include the talent shortage (mentioned by 57%), the economic and political instability in the EU with the exception of Brexit (26%), the competition from emerging markets (22%), the rise in populist and protectionist feelings among politicians and populations (22%) and the impact of Brexit (19%), according to data by EY.

Looking into the future, 78% of the companies included in the survey said they expect to stay in Malta for the upcoming decade, 18% said they might stay, while only 3% said they would leave. Also, 65% expects to expand over the next year, 17% do not plan to expand, and another 17% could not say.

To remain competitive on the global scale, however, 70% of the respondents underlined the importance of improving education in Malta. Investors would also like to see more support for high-tech and innovation industries (61%) and small and medium-sized enterprises (59%), according to the survey,

Technology and iGaming leads

The EY report also singles out Malta’s iGaming sector as a significant contributor to the local economy. After being the first EU member state to regulate the online gaming market in 2004, Malta has become a significant iGaming hub with global relevance. The sector directly accounted for 11.3% of Malta’s gross value added — more than €1.1bn — in 2017 according to Malta’s National Statistics Office (NSO) statistics. The same year, the watchdog Malta Gaming Authority (MGA) issued a total of 165 new remote gaming licences.

“The contribution of the gaming sector to the Maltese economy is now entrenched at around one-eighth of the total, following a period of year-on-year growth in excess of 10%,” says Heathcliff Farrugia, CEO at Malta Gaming Authority (MGA). As well as Malta, as an early adopter, stood at the forefront of the iGaming industry, latest progress has shown that the same approach is being applied towards distributed ledger technologies, blockchain and artificial intelligence.

Prime Minister of Malta Honorable Joseph MMuscat notes the country’s progress made in distributed ledger technologies (DLT) and blockchain, placing the country at the forefront of regulating operations previously hovering in an unregulated space. Demonstrating what EY tags as “notable increase”, 50% of the respondents said that they believe the way forward for Malta is to tailor its regulation to keep pace with technological and other disruptions.

‘Quick’ and ‘rational’ actions in need

EY believes that to capitalise on the opportunities in this transformative age; Malta needs to act “quickly” and “rationally”, with a particular focus on the areas in which its competence will stand out against stiff international competition. The firm also warns that skills shortages remain a principal issue to be dealt with.

“Positioning the island at the forefront of innovation, while remaining true to the principles and values that the country has grown accustomed to, will be even more relevant going forward than ever before,” the report concludes.

EY’s attractiveness surveys apply a two-step methodology analysing both the reality and perception of FDI in the respective country or region. Findings are based on the views of representative panels of international and local opinion leaders and decision-makers, EY says.

The full report is available for download on EY’s website.

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