A survey conducted by EY gave a snapshot of Malta’s attractiveness for foreign direct investment.
At a time when Malta needs to be focusing on attracting new less-labour intensive sectors, the country’s attractiveness for foreign direct investment is still far lower than in was pre-pandemic.
The results emerge from the 2023 EY Malta's attractiveness survey - an annual study conducted among existing FDI companies in Malta.
59% of existing FDI investors affirm Malta's investment appeal, EY said, which is roughly the same as 2022 (58%). But in 2019, this figure stood at 77%.
As in previous years, corporate taxation (73%) is viewed as the parameter that makes Malta attractive as an investment destination, EY said. But this being of such high importance for foreign direct investors could be worrying due to eventual regulatory changes. “With corporate taxation ranked as Malta’s strongest FDI parameter, the changes being brought about by international tax policy developments are considered by 61% of respondents to be Malta’s greatest FDI-related risk for the next three years.”
Known as the EU Minimum Tax Directive, new rules will see companies with a turnover of over €750 million have to pay 15% tax. While not impacting all foreign companies, it will affect the big ones.
The second and third biggest risks facing Malta’s attractiveness over the next three years were listed as skills shortages (by 48%) and reputational concerns (by 37%). One of the biggest changes compared with last year’s results is an increased importance being placed on quality of life factors (from 11% in 2022 to 24% in 2023), EY said.
Aside from the corporate tax regime challenges the country will face in the future, one must highlight the importance of ensuring that Malta fixes its reputation. Not too long ago, the country was on the grey list. Regardless of how Malta getting off the list in one year is painted, having been on that list is damaging. The constant scandals the country faces surely doesn’t help, and this is why we must ensure that Malta is cleaned up. The only way for that to happen is for the enforcement authorities to wake up. The police, the Attorney General must take action where it is clearly called for.
As for the skills shortages, this will be a tough one to tackle. Firstly, because Malta has an overpopulation problem. Yet, clearly, there is still a skills shortage. 69% of respondents said that they have not been able to find or recruit the required specialised skills they needed in the local labour market.
Malta cannot sustain an increase in population at the rate that it has been going. So tackling the skills shortage will prove to be tricky. Perhaps a focus on moving away from human resource heavy sectors to ones which are less so, while employing a strategy of training for the skills new sectors would require and education could help. Another idea could be to further employ technology where this can be used.
Indeed the survey found that almost half (49%) of foreign direct investment companies described Malta’s planning and preparedness for population growth in terms of infrastructure as ‘very inadequate,’ while a further 37% said that it was ‘inadequate’. Even companies have realised that the situation wasn’t well planned.
An issue facing most of the respondents in inflation. “Respondents were asked how their financial performance is currently being impacted by various external factors. Increased costs due to inflation impacted 92% of investors,” EY said. This clearly shows that the government needs to do more to try and mitigate the impact of inflation.
Looking ahead, the government needs to plan carefully. Malta must remain attractive to foreign direct investors. At the same time, it cannot continue to rely on growing the population and must always keep the quality of life of citizens in mind.