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Malta's attractiveness for business bounces back after grey list removal

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Maltas attractiveness for business bounces back after grey list removalMalta's attractiveness for foreign direct investment has been given a boost by the country being taken off a global financial grey list earlier this year, according to a major annual business survey.

The EY Malta Attractiveness Index found that 58% of companies surveyed say Malta is currently attractive for business – an increase of 21 percentage points over last year's levels.

But attractiveness is still far below pre-2020 levels with businesses raising concerns about the possible impact of international tax policy developments and concerns with finding workers locally.

The study is the 18th annual attractiveness survey conducted among 120 foreign investors and companies in Malta by the business strategy and consulting firm.
This year’s data was collected in June, just after Malta was taken off the grey list.

Ronald Attard, EY Malta Country Managing Partner, told the Malta Future Realised Conference that the removal from the Financial Action Task Force list had "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.”

Corporate tax risks
As with previous years, investors found that Malta's corporate tax rate is the most attractive parameter for investing in the country (71%) and so also identified it as its biggest risk.

Some 58% of respondents saw changes in international tax law as the biggest risk to Malta’s attractiveness over the next three years.

“As in recent years, our strongpoint for FDI remains our tax regime," Attard said.

"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?”
The second largest risk to attractiveness identified by investors was skills shortages (54%) followed by banking challenges (38%), cost competitiveness (36%) and reputational concerns (36%). Only 5% believe the war in Ukraine will affect Malta’s FDI attractiveness.

Attard said the natural reaction to concerns about skills shortages and labour costs would be to try to bring in more people to the country.

"But with the island being so small, with bottlenecks in infrastructure cropping up and virtually full employment, is that the wisest of moves? Especially if we are trying to look beyond GDP as a measure of success and instead champion a better quality of life for our inhabitants.”

The attractiveness of labour costs (35%) saw the biggest decline, with a 12 percentage point decrease, followed by local labour skills level (40%), which decreased by 10 percentage points, and flexibility of labour legislation (41%), which decreased by 4 percentage points, the study showed.
The study also found that the country has been unable to keep up with the increasing demand for specialised skills. 66% of companies reported not being able to find the specialised skills they needed in the local labour market.

“However, this is a slight improvement on the last year, which indicates that the challenge is being tackled on several fronts and, positively, not worsening further,” the study said.

Long-term future
The majority, 69% of companies surveyed, believe their long-term future is in Malta, although the figure has been slowly declining over the past years. And almost half of the companies have some form of expansion plans for the coming year.

“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,” the study said.

“While 41% still state that it is not attractive, this compares with 64% in 2021, at the time of Malta's greylisting.”

Companies said they are suffering the largest impact on their financial performance due to increased costs brought about by the pandemic and the increased operating costs due to inflation following the war in Ukraine.

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

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ARTICLE WRITTEN BY TIMES OF MALTA

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