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Just as the economy rebounded last year, with 3.6% growth largely attributed to the financial services sector, Malta found itself in the middle of a humanitarian effort to evacuate people from Libya and now watches from the sidelines as the eurozone debt crisis begins to spread.
But Malta is meeting these challenges from a position of strength. In the 2010-11 Global Competitiveness Index, the World Economic Forum ranks the country in the top third of 139 economies for business sophistication and eleventh for financial market development.
The banking sector by far represents the greatest portion of financial services, estimated by the Central Bank of Malta at 83% of a total €18.3 billion in assets, compared to insurance at 11% and funds at 5%. But it is this latter category that’s driving growth, notes Kenneth Farrugia, chairman of Finance Malta, an initiative established to promote international investment.
He points out that the funds industry has grown from two funds, two asset management companies and two custodians in the early days to 410 funds, 102 asset management firms and 18 administrators, mostly in the years following EU membership.
That is in part because of Malta’s competitive advantage in terms of the speed with which it can transpose international legislation, placing it in the EU top spot jointly with Denmark. “We are efficient in transposing directives of European regulations into our national legislation,” says Farrugia.
“The reason behind this is because we’re small but nimble - we don’t have a significant hierarchy.”
Meanwhile, new markets are in development. After negotiations with the UK’s HM Revenue & Customs agency, pension schemes established in Malta and regulated by the Malta Financial Services Authority (MFSA) are eligible for transfers on a case-by-case basis.
Overall, incentives are challenging such competitors as Luxembourg and Ireland for the fund management sector, particularly as a regulatory framework allows domiciliation without requiring companies to change existing service providers, corporate identity or performance benchmarking.
And there is certainly room for growth in the funds industry - Malta has about €8 billion in assets under management, while Luxembourg and Ireland are at the €2 trillion level.
Mark Watson, CEO of Mediterranean Bank, founded just two years ago as a specialist wealth management bank, admits there is bad and good. “The regulator, certainly at the top, is very good. You’ve got a pro-business environment,” he says. His first day in Malta included meeting the president of MFSA, the deputy governor of the Central Bank and the finance minister. “There is no other country in Europe where that could happen,” he adds.
Human capital stretches thin
If you ask companies that have been around 30 or 40 years why they stay in Malta, their reason, according to Minister of Finance Tonio Fenech, is the quality of the people – committed, flexible, skilled and ambitious. But with a financial services sector growing at 30% a year and 75% of foreign investment directed towards it, human capital can start to stretch thin.
In order to ensure sustainability, aside from training locally, the government imports globally for the gaps, offering tax incentives to qualified foreign personnel that companies want to employ.
Add to that the easy flight connections, an excellent education system, the ubiquity of English and natural beauty and it makes for quite a benefits package. |
