Issue link: https://maltatoday.uberflip.com/i/1482153
10 OPINION 20.10.2022 E very year, EY Malta does a bril- liant job of bringing us all together to take a snapshot of this miracle economy of ours: our dear Malta. For an economy of such a small size without any natural resources to speak of, we have done well. We do not have many large multi- nationals operating from Malta, but we have a handful of leading names in every sector that we have committed ourselves to develop over the years: from the original economic pillars of manufacturing and tourism, to our fully-fledged services sector driven by financial services, ICT and iGaming in more recent years. e degree of diver- sification of our economy is quite re- markable for a micro island state. Our competitiveness has always rested on a combination of investment-friend- ly government policies and diligent human resources. Every sector that we have managed to establish in our econ- omy has been built on robust fiscal and regulatory incentives coupled with a workforce that delivered good value for money. Our entrepreneurial private sector always sought to make the most of the opportunities presented to it. is recipe served us well for decades but was put to the test in the last couple of years through the FATF greylisting. e resolve of the regulatory authorities involved and the cooperation of private sector operators, particularly those in financial services, has enabled us to get off the greylist within 12 months – a major achievement for all involved that avoided permanent damage to our economy. e lesson learned is that reputation matters, and we should all be mindful of the risks of entertaining easy money. Legitimate business is about hard work and smart ideas. It requires capa- ble people. While Government policies have to fit within the parameters of EU and international law obligations, and the complexity on this front increases every year, the biggest challenge we are facing is that of guaranteeing a capable workforce going forward. Human re- source shortages have been a mounting concern for several years. As our economy grows and demand for labour increases, new entrants into the labour market cannot meet the gaps left by the droves of people who retire and the increasing demand for more complex skill sets. e gains made through a steady in- crease in female participation in the last decade have plateaued, and the declining birth rate coupled with the eagerness of young graduates to seek greener pastures overseas, is making it very difficult for businesses to recruit locally. e international competition for third country national workers is mak- ing it harder to recruit and retain ca- pable foreign workers as well. ere is also a realisation that our infrastructure cannot cope with an ever-increasing population, and the pressures of this are seriously compromising our quality of life. Everything seems to be pointing in the direction of a major rethink of the way our economy functions: how can we do more with less people, and how can what we do be of higher value. In other words: how we can improve produc- tivity and move up the economic value chain. Foreign direct investment has a key role to play in the process of economic transformation that we need to embark on to achieve these goals. A lot of what needs to be done involves significant in- vestment in technology, and the pace at which it will happen greatly depends on our ability to attract foreign investors who are able to bring in know-how that can augment local capabilities and fos- ter synergies with existing technology companies. A decade of near-zero interest rates has seen a proliferation of investment in residential property that has not been matched by investment in infrastruc- ture. is is the unfortunate legacy of lending policy support to speculation instead of systematic urban and infra- structural planning that would have guaranteed a much better quality of life for decades to come. A major determinant of future re- silience is our green transition. Let us be clear. Covid was a major economic shock and a menacing social experi- ment; the war in Ukraine and the ensu- ing energy crisis is one of the biggest po- litical and economic challenges that the EU has ever faced; but climate change remains the biggest long-term threat to human life as we know it. e EU has recognised this and most recent legislative developments, includ- ing those related to state aid and trade, have been spurred by the green tran- sition. It is therefore in the interest of every business to align its investment plans with the ambitions of the green transition to be able to benefit from the funding support available at pres- ent, and to avoid being subject to green taxes, whether directly or indirectly, in future. Admittedly, there is still quite a bit of confusion in the air triggered by the very bold attempt to address the press- ing priority of decarbonisation through a very broad ESG-reporting framework that is highly susceptible to bureaucrat- ic overkill, and risks shifting the focus away from the real carbon footprint of business activities to the asset-pricing interests of large corporates. While the current geopolitical uncer- tainties are clearly impacting businesses and will have casualties, there are a cou- ple of opportunities that require con- certed effort at an EU level to be capital- ised upon. ere are players along the energy supply chain that are benefiting from supernormal profits. e EU has floated the idea of taxing such profits to be able to subsidies energy costs for low-income earners and businesses at risk. An alternative or potentially comple- mentary line of action could be to in- centivise the investment of those profits into renewable energy infrastructure that would help accelerate the green transition and reduce energy depend- ency risks in future. e viability of any action will be grossly dependent on how the EU will strike a balance between its ambitious pre-war carbon-reduction targets and its support of the manufacturing indus- try against the backdrop of spiralling energy costs. e state aid framework will be chal- lenged more than ever before because countries have varying degrees of fiscal manoeuvrability as a result of the Cov- id-induced relaxation of the Stability and Growth Pact rules for fiscal disci- pline that has seen several eurozone Governments accumulate high debts. It is against this fiscal backdrop that the prospect of a looming recession in Eu- rope raises real concern. Economic growth is a universal meas- ure of prosperity. It is subject to the criticism that it says nothing about the distribution of wealth and income, the quality of life of people and the sus- tainability of an economy – all valid points because it is true that economic growth measures none of this. But the real anomaly arises when accelerated economic growth actually results in more pronounced wealth and income disparities, a deterioration in the qual- ity of life of people and unsustainable use of finite natural resources. And we have seen some of this hap- pening in recent years. is does not mean that we must abandon the pur- suit of economic growth for greater prosperity, but it clearly shows that the way we achieve that growth is what re- ally matters. e Malta Chamber of Commerce, Enterprise and Industry published an economic vision for Malta 2020-2025 a couple of years ago. In that document, we had identified human capital, digi- talisation, sustainability and good gov- ernance as the four pillars on which our future economic growth needs to be built. If any of these four are weak, long- term prosperity will be compromised. We are making progress on digitali- sation and good governance, but we are struggling with sustainability and human capital. Digitalisation delivers immediate productivity gains and is therefore the easiest to get decision makers to buy into. e only real con- straint to our progress on digitalisation is the availability of adequately quali- fied and affordable human capital to make things happen. Good governance was given a push by our greylisting experience. Sustain- ability is more challenging because it requires making more judicious use of resources today to improve future outcomes for society at large. e de- ferment of benefit and its accrual to so- ciety at large rather than the individual requires a lot of education and a radi- cal change in our value set to be truly embraced. ere are reasons to believe that the moment we embrace this, even our biggest immediate problem – which is human capital – starts being allevi- ated. Some might argue, yes, because economic growth will stall and we will need less people. At the Malta Chamber we have a dif- ferent understanding: it will happen because economic growth will be driv- en by investment in infrastructure and green technology that will improve our attractiveness to future-minded inves- tors, more discerning customers and better educated human resources that are highly mobile and value sustaina- bility because they understand how it impacts quality of life. Quality over quantity. Substance over form. Long- term vision over short-term goals. A better future realised. Very interesting times lie ahead. e challenges are great for everyone. Let us use our strengths well and work hard to address our major weaknesses, so that we can turn the present threats into opportunities for a more resilient future. Marisa Xuereb delivered this speech during the EY Parthenon Malta Future Realised Conference 2022 Marisa Xuereb Marisa Xuereb is President of The Malta Chamber President Legitimate business is about hard work, smart ideas and capable people