During 2010, the Maltese economy registered a positive real Gross Domestic Product growth rate of between three and four per cent, according to recently published data. It is expected that the last quarterly data will be published later this year. The main contributors to this positive rate growth, when compared to the 2009 shrinkage in the Maltese economy, are the financial services, tourism, manufacturing and the services industry – remote gaming in particular.

Malta’s tourism industry has certainly registered record-breaking results, with the arrival of over 1.3 million visitors and a tourist expenditure of €1.1 billion. On average, tourist per capita expenditure is estimated at €850 and to this has to be added the contribution of the cruise liner business to the Maltese tourism industry. It has been estimated that cruise liner passengers contribute an average of €60 to the economy during an eight-hour stay in Malta. All things being equal, this amounts to over €29 million a year.

Certainly, 2011 is going to be a very challenging year for all Maltese economic operators, particularly small and medium-sized enterprises. The increase in the price of commodities such as cereals and petroleum, and the related energy prices, the austerity measures being taken by European governments endeavouring to balance their books by reducing expenditure and increasing general taxation in order to boost revenue streams, and the general fragile economic recovery are having a direct and indirect impact on Maltese SMEs.

Taking the tourism industry as a case in point, Maltese operators are faced with the challenge of strengthening Maltese connectivity with main and regional airports, the increased airport tax imposed by some EU member states as part of their austerity/environmental measures, the sovereign crisis through which the eurozone is passing with the volatility of the euro against the dollar and sterling and the increase in general operating costs as a result of international developments.

In this context, Maltese SMEs and new businesses have to continue with their endeavours to further strengthen their strategies, operational management and competitiveness in relation to local and international operators. Environmental sustainability today plays a crucial part in enhancing an organisational business model. Being environmentally responsible has a significant number of benefits in terms of cost management, resource utilisation, business generation and relationship management, marketability and enhancement in the year-end figures.

Market forces are pushing Maltese SMEs to move up the value chain. The emergence of Asia, particularly China and India, as manufacturing and, to a certain extent, service hubs, the relocation of labour-intensive production facilities away from our islands, particularly in the textile sector, the increase in Malta’s standard of living and operating costs are all pushing our economy in this leap up the value chain. The leap up the value chain has a high investment cost in terms of finance, infrastructure and human resources management.

This investment is coming from both the public and the private sector. Being a small island economy, the public sector will always remain a key player in the development of our economy. Currently, the public sector is investing heavily in strengthening our energy, road network, health care, industrial factory stock, and educational and social network infrastructure. This investment runs into millions of euros and is part financed by the Maltese taxpayer, the EU Structural and Cohesion funds for the programming period 2007-2013, the local financial services industry and the European Investment Bank.

Local SMEs are also investing and reinvesting in their operations, and what used to work during the 1960s, 70s, 80 and 90s is being revisited. It is widely accepted that the typical Maltese business is very price-conscious, but the importance of investing in quality facilities and capital expenditure is on the increase. SMEs are seeking to diversify their revenue generation by operating in niche markets and in general having three markets. These are the local private sector, the Maltese public and parastatal sector and the overseas market, be it servicing the foreign direct investment and tourism market in Malta or exporting products and services internationally. Malta Enterprise, the Maltese Foreign Service through its network of embassies and high commissions, and the domestic banks through their representative offices and international networks are all helping SMEs internationalise their operations.

Currently, there are a number of national and EU funding schemes and initiatives that are intended to assist Maltese SMEs and start-ups to address the current challenges and emerging opportunities. Malta Enterprise has an interest rate subsidy scheme for restaurant and hotel operators; SMEs can take advantage of a tax credit system worth up to €25,000; an internationalisation scheme is currently being formulated; the Employment and Training Corporation has a number of employment and training grant opportunities and a number of EU financing, co-financing and loan guarantee opportunities have been launched and others are being launched.

It is recommended that SMEs seek further information and assistance from the Bank of Valletta’s EU and SME adviser.

Peter James Sant is a senior manager with the EU and SME desk of Bank of Valletta plc