The geopolitical landscape, notably the situation in Ukraine and the Middle East, and Trump's tariff wars has significantly influenced business particularly tourism sectors. While some regions encounter reduced visitor numbers, Malta benefits from its relative geopolitical stability. Yet, economic concerns, such as inflation, remain pressing.
As travel costs escalate, tourists seek destinations that promise substantial value - a niche that Malta effectively occupies through its competitive service offerings and appealing attractions. This balance is crucial for maintaining the growth momentum in an economically volatile environment.
Malta in the past, was very conscious of attracting quality tourism, yet one notices a gradual degradation in quality tourists. Last year, as has been the case with other Med resorts (particularly Spain), Malta had a remarkable increase in arrivals. This is expected to reach 4.5 million in the next decade (currently 3.4 million).
Statisticians tell us there is safety in numbers, yet so far nobody bothers about over capacity. Malta Hotels and Restaurants Association, (MHRA), woke up to point out the danger of over tourism and the need for better control on new licenses for hotels. The island could see an additional 483 hotels crop up if all the planned tourism accommodation projects in the pipeline ever come to fruition. But who cares. Inter alia, a Deloitte study revealed how a vast majority of planned new accommodations (41%) are designed to be 3-star offerings, which means such projects might not necessarily align with the national vision to accommodate "high quality" tourists.
Currently the per capita spend by tourists is a low €149 daily. At this junction, the reality of hosting a deluge of "hamburger" class arrivals, one may stop and question why are we kicking the can. Doing the sums, unless hotels and restaurants employ more low-wage TCN's, even new 5-star accommodations may not be sustainable. For years, established hotels and other stakeholders are concerned seeing their share of the cake dwindling. This share is diminishing with the planned permits for large scale new builds. Improved travel connections (mostly low-cost airlines) have played a crucial role in Malta's tourism recovery, facilitating higher visitor inflow. However, with rising fuel costs and capacity constraints, the sustainability of this growth encounters challenges. How do we compare ourselves with the champions - Spain.
The country is brimming with optimism as economy grew by 3.2% last year, nearly four times the euro-area average, while France's expanded only slightly and Germany's shrank.
The tourism industry in Spain, which was hard-hit by the pandemic, welcomed a record 94 million visitors to a country of 48 million people. It expects 100 million this year. Tourism contributes 13% of GDP directly and 20% indirectly, through spending on restaurants, transport and retailing. But this success has spread on to other sectors such as manufacturing and recently large-scale renewables.
The Economist paper quotes how Spain is also home to two of Europe's top ten banks by market capitalisation, as well as leading construction and infrastructure firms. Repsol is one of Europe's oil majors and Iberdrola one of its biggest electric utilities.
At the political centre, a fragile Socialist-led coalition has been unable or unwilling to pass urgent business-friendly reforms. Yet, it is surprising, how progressive is a milestone legislation passed recently to shorten the working week from 40 hours to 37.5 hours without loss of pay.
In Malta, by contrast, the GWU is warming up to introduce a four-day week national working scheme. Currently, we are facing the closing down of a major bank - HSBC and hope that Malta Enterprise will succeed to attract and sign in an equally impressive substitute.
One finds comparisons can be odious but we need to emulate the best in the Med. Malta has started late to attract investors in producing hydrogen out of its vast waters (except using a low water - Hurds Bank for ship bunkering). Spain in contrast started early in tandem with investors to meet its vast electricity consumption. They were wise to exploit the renewables card to produce cheap electricity, with competitive prices (without the need for direct annual subsidies that we do). It was not always like this, since during Franco's dictatorship, Spain had to import 50% of its electricity.
Today it has achieved a high degree of self-sufficiency by harnessing solar, wind and hydroelectric power. This is a smart move by their political leaders which Malta could have tried to emulate ten years ago, when Electrogas was bidding for a quasi-monopolistic tender to become energy provider by an LNG powered plant.
We started late in the game. Now, Spain enjoys growth in the use of renewable energy sources (RES). It has diverse benefits for society such as mitigating climate change, reducing the emission of air pollutants and improving energy security.
The EU formally adopted an update of the Renewable Energy Directive in 2023 stating that, among other measures, increases in the binding 2030 targets on RES, from 32% to 42.5%, with the aim of achieving 45%. Each Member State will contribute to this common target, while no targets were introduced for individual countries.
Sadly, Malta and Belgium reported the lowest penetration of renewables, representing around 13% of their respective total energy consumption but the trophy goes to Sweden, Spain, Denmark and Estonia. These have experienced the highest growth in RES shares, with more than 20 percentage points increase since 2005. Romania and Slovenia, on the contrary, have seen an increase of less than six percentage points between 2005 and 2022. But what is the trend now?
According to EEA early estimates, at 22.5% in 2022, the share of renewable energy in the EU increased slightly (+0.6%) from 2021. By 2035, employing foresight, some 90% of Spain's electricity will come from renewable sources.
Not unlike Malta, Spain faces high levels of immigration expected to continue and grow. Naturally, this has fuelled demand for more social housing, which is already outstripping supply. Tens of thousands took to the streets of Madrid last year, to demand affordable homes. A report by Spain's central bank found that nearly 40% of families who rent spend more than 40% of their income on housing.
We have our own peccadilloes as the number of people feared to be approaching the poverty trap is now reaching one in six. Like Spain, Malta needs to spruce attraction of better FDI, and perhaps the newly restructured Malta Enterprise, aided by the creative 2050 Vision will generate a better business in the future.
George M Mangion is a Senior Partner at PKF Malta
gmm@pkfmalta.com