Malta’s overall Foreign Direct Investment (FDI) attractiveness rating has bounced back to the results seen in 2020, standing at 58%, the EY-Parthenon’s 18th Malta Attractiveness Survey revealed.

During the Future Realised Conference on Tuesday, the results of the survey revealed what current investors think about investing in Malta, and what makes the island an attractive location to invest in, or the areas for improvement.

It showed that there was a bounce back in confidence by investors and policymakers alike after the country was taken off the FATF grey list in June 2022. There was also a decrease in the number of respondents who said that Malta is not attractive.

The survey showed, however, that despite the improvement in perceptions, the rating still falls short of the very high confidence levels achieved prior to 2020.

The parameter which is considered as the strongest and most attractive to most existing foreign investors is corporate taxation, which now stands as 71%, the survey showed.

Stability of social climate marked the second-strongest parameter (69%), an increase of 11 percentage points compared to that of 2021.

The survey also showed that telecommunications infrastructure (68%), has been another strong parameter over the last few years, ranking third on the scoreboard.

On the other hand, the survey showed that the stability and transparency of the political, legal, and regulatory environment, a parameter that used to score highly on Malta’s attractiveness scoreboard, is now seen to be attractive by 31% of respondents, up 14 percentage points from 2021.

While 41% still state that it is not attractive, this compares with 64% in 2021, at the time of the island’s grey listing, it revealed.

The survey also revealed that the attractiveness of labour costs (35%) saw the biggest decline over one year, losing 12 percentage points from that of 2021. Local labour skills level decreased by 10 percentage points, now at 40% attractiveness, and flexibility of labour legislation decreased by four percentage points, with 41%.

Malta’s greatest risk for the next three years are the changes brought about by international tax policy developments, where 58% of respondents believing that this is the biggest risk facing Malta’s FDI attractiveness, the survey showed.

These are followed by skills shortages (54%), banking challenges (38%), cost competitiveness (36%) and reputational concerns (36%). The survey showed that only 5% believe the war in Ukraine will affect Malta’s FDI attractiveness.

69% of existing FDI companies surveyed, totalling to a majority, still believe that their future is in Malta.

There was a decrease in the number of “no” responses, and an increase in the number of “don’t know” responses, with many respondents commenting that, in today’s fast-changing economic and geopolitical environments, a 10-year prediction has become increasingly difficult to make. The number of those who say “yes” has been slowly declining over the last few years.

On skill challenges, the survey showed that companies’ ability to retain specialized personnel has remained high and in line with the last year and pre-pandemic levels.

Due to the country’s economic expansion, however, Malta’s skill supply has been unable to keep up with increasing demand for specialized skills.

The survey showed that in 2022, 66% reported not being able to find the required specialized skills in the local labour market. This is still a slight improvement on the last year, which indicates that the challenge is being tackled on several fronts positively, and not worsening further.

The survey also asked respondents how their financial performance is currently being impacted by various external factors. The largest impact on financial performance was due to increased costs (excluding logistics) as a direct result of Covid-19, which impacted 66% of investors to a large or some extent.

60% were impacted because of increased operating costs due to inflation following the war in Ukraine, while 58% were impacted due to increased logistic costs as a result of Covid-19 and ongoing supply chain challenges.

The survey showed that 29% are experiencing a loss of revenue from source markets as a direct result of the war in Ukraine.

2022 respondents said that the top priority to remain globally competitive is education and skills, followed by ease of doing business and developing new economic sectors. The least prioritized was the shift to a low-carbon economy.

In his opening address during the Malta Future Realised Conference, EY Malta Country Managing Partner Ronald Attard said that the “Removal from the grey list has helped to restore investor sentiment. Although back on the right path, it is worth noting that at 58%, it still falls short of the extremely high confidence levels Malta was reaching a few years ago.”

He said that the country’s most attractive FDI feature could be impacted by external factors which may soon come into play.

“As in recent years, our strongpoint for FDI remains our tax regime. Survey respondents are clearly aware of the risks of this changing. If our biggest pull factor is potentially coming to an end, what is our attractiveness offer going to be in a new global tax environment? We have a great social climate and telecommunications infrastructure, but is it going to be enough?” Attard said.

Attard questioned whether attracting more people to the island would only serve to exacerbate other challenges, instead of providing a solution to the current skills shortages and labour costs. Attard said that this may not be the wisest of moves due to the small size of the country, and setbacks in infrastructure.

Attard spoke about balancing the economy with growing environmental pressures, where he said that friction is developing in the current economic model. He said that surveys indicate that people are tired of overdevelopment and construction, yet the country’s legal and tax framework prioritise property development as opposed to other activities.

“Even foreign investors on the island believe that to increase Malta’s investment attractiveness, the country should prioritise the quality of its built and urban environment, and the preservation of rural and natural areas,” Attard said. One-third of companies believe that environmental sustainability is critical for their investment strategies.

 

On the war in Ukraine, Attard said that the conflict is having far-reaching consequences, with record inflation and recessions impacting economies all over the world. He said that many of Malta’s challenges arise from the international context and geopolitical situation the country finds itself in.