The now annual Business & Finance Forum organised by EMCS, which is being held on 3 December, will be placing a distinct focus on how the country can accelerate economic growth and performance.

It will seek to do so within the contexts of global economic performance, how Malta is performing in the World Economic Forum’s Competitiveness Index and the international economic and business climate.

The conference, as in the past, will be addressed by a range of the country’s political and business leaders and international entrepreneurs. Also on hand will be Iain Smith, Convener of the Scottish Parliamentary Committee for the Economy, Energy, and Tourism, Helen Disney, CEO and founder of the London-based leading policy think-tank The Stockholm Network, and Prof. Gianfranco Polillo, head of the Department of Economic Affairs and Parliamentary Advisor in the Office of the Prime Minister of the Republic of Italy.

The speakers are all of the common philosophy that Malta cannot merely wait out the economic storm sweeping across the globe, because an international recovery will not necessarily guarantee economic growth in Malta. Instead, only competitiveness and a drive to succeed can provide such guarantees.

The conference is being set against the following economic backdrop:

Maltese economy trails international

economy’s performance

Malta’s GDP for this year is expected to show a fall of around two per cent and next year is expected to grow by around one per cent. Given these statistics, it does not seem as if Malta has suffered as much economic damage as have much larger and more advanced economies. On economic growth and employment performance, Malta is performing – and expected to perform next year – better than average in the eurozone. Where Malta scores worse than average in the eurozone is in the inflation rate. Although inflation is falling, and expected to fall further next year, Malta’s inflation rate is still expected to hover above the eurozone average. This is a feature of the Maltese economy that needs addressing and correcting, otherwise it is bound to influence Malta’s competitiveness.

The recently announced budget is a sober exercise that is likely to contribute to supporting the expected slow economic growth for the next year. Yet Malta in general needs to be bolder and more focused in its strategy if it is to achieve the acceleration in economic growth necessary to close the gap between Malta’s GDP per capita and that for the average in the eurozone.

Economic performance in negative territory

In the first quarter of 2009, real Gross Domestic Product (GDP) fell by 1.9 per cent, while in the second quarter it fell by 3.3 per cent. If statistically real GDP is expected to fall by 2.2 per cent by the end of the year, the second half of the year is not expected to experience a drop in economic performance as severe as in the second quarter. However, in reality the slowdown in economic performance is generally expected by economic observers, including EMCS, to be more pronounced in the second half of this year. If these observations hold, then it could well mean that the fall in GDP for the entire year will be greater than the expected fall of 2.2 per cent.

Economic growth will

only set in slowly

Although economic growth in 2010 is expected to move into positive territory, with an expected rise in GDP of one per cent, economic performance is expected to experience positive growth only in the second half of the year.

This may signify a time lag in the growth performance of the Maltese economy vis-à-vis the expected and current experience of the major economies in the eurozone. The economic cycle in Malta seems to have been flatter and slower than in the major economies, showing a definite time lag in contrast to those of the main eurozone economies.

Government could influence the general economic environment

While the government can be complimented on a very sober and responsible budget that will likely sustain the positive forces in the direction of recovery, it could possibly do more to stimulate the economy. One specific area that is available to the Maltese government and not to so many other countries is the extensive EU funds available for projects in Malta.

An effort to stimulate the use of these funds will automatically have a multiplier effect on both income and employment and consequently on domestic demand. Unfortunately, many projects are caught up in a lengthy, inefficient and badly managed tender process that has created a long line up of projects that still have to be awarded. This is wasteful and is in itself causing a misuse of available resources that are very much needed at the moment to provide stimulus to the economy.

The government budget puts the correct emphasis on creativity, entrepreneurship and employment generation. It has resorted to a whole network of incentives to seek to both stimulate and reinforce the creation of employment, especially in small enterprises and for the self-employed. This incentivisation in both grants and tax treatment is likely to receive attention and have a longer-term impact.

The government’s effort to stimulate creativity and innovation perhaps needs not only more significant investment of resources but to be better focused on generating productive activities. Malta lacks R&D and investment in creative capabilities and more needs to be done to stimulate this process. But the fact that the government has addressed this dimension in a very structured and systematic manner gives a very positive signal to the economy, the entrepreneurs and investors in general.

Economic activity in most sectors is low – but not everywhere!

Manufacturing, tourism, real estate and wholesale and retail trade have continued to show slow performance, with little hope for a quick recovery. All these sectors are showing clear signs of excess capacity and are facing lower demand.

The financial sector is perhaps the only exception and may have been instrumental in providing a cushioning effect for the downturn in the economy. Although the registration of foreign companies suffered some slowdown at the beginning of the year, this picked up again fairly early in the year.

The registration of companies has an impact on: employment in professional services, the rental of office space and residences and government tax revenue. No doubt this section continues to strengthen. Malta’s outstanding performance in the recent financial meltdown has given the Maltese jurisdiction, regulators and financial system a great deal of credibility and added to Malta’s international visibility. It is essential for the country’s future growth, and the role it can play in the international economy, that this sector continues to grow and flourish into one of the major mainstays of the Maltese economy.

The challenges for the future

Malta needs to achieve an accelerated economic growth performance. This is not going to be achieved by simply riding on the wave of international recovery: it will take much more than that. It clearly requires the Maltese government to engage in a strategy that responds to an ambitious vision that the entire community identifies with and owns.

The government seems to be embarking on such a path, and this is encouraging. There is no doubt that the country has a great deal of latent potential that needs to be unleashed and directed towards a definite goal. This is possible, but needs to be undertaken in as professional and inclusive a manner as possible, in order to ensure that everyone understands and is motivated to pull in the same direction.

The Business & Finance Forum will be held on 3 December at the Grand Master’s Suite, The Hilton, St Julian’s. For further information visit: www.emcsconsulting.com or contact EMCS on 2777 2777.