Afaemme attends Malta Meeting: Does the EU encourage private sector investment?

Finding a way to encourage even more private sector investment in Europe is essential for promoting growth and job creation across the EU. First and foremost, the obstacles to investment, such as lack of stability and predictability, over-regulation and the high cost of doing business, should be removed. Secondly, more efforts are needed to promote private investment both at EU and national level. A legal, regulatory and political stability, a well-functioning, fully completed single market and an ambitious EU trade agenda are © Shutterstock: Looker_Studio Private sector investment in the EU: call for concrete actions! just some elements that could stimulate more investment. These were the key conclusions of the conference "Does the EU encourage private sector investment?" that took place on 11 May in Malta. The conference concluded with the signature of the joint declaration of the Employers' Group, all major Maltese employers' organisations and the Government of Malta. In the document, signatories identified a number of concrete actions that were needed to boost private investment in Europe.

"Nine years after the beginning of the economic crisis, investments in the EU are still 15% below the pre-crisis level," observed Jacek Krawczyk, president of the Employers' Group, in his opening speech. He noted that without private sector investment there could be no growth or job creation in Europe. Openness, including openness to trade, innovation, skills development and the free movement of goods and services, labour, and capital were the drivers of Europe’s competitiveness, growth and prosperity.In her keynote speech, Marie-Louise Coleiro Preca, President of Malta, underlined the importance of investment for sustainable and inclusive development. "The private  sector contributes to well-being by incentivising investments in new learning and education and by encouraging the acquisition of vital skills. It is a sphere of action where the empowerment of individuals and businesses fosters greater diversification within our economies, she said. This was why, in her view, governments should be encouraged to stimulate private sector investment by focusing specific support at the community level and adopting a local approach. "We need essential structural reforms to ensure competitiveness.Now is the time to do this, as we're here to liberate our people's potential and not stifle this potential under overbearing regulation," said Joseph Muscat, Prime Minister of Malta, addressing the participants of the conference. In his opinion, European economies were crying out for breathing space. There was a need to responsibly liberate and liberalise investment strategies. He assured those present that Malta had embraced a pro-business attitude, aimed at supporting businesses to be able to provide investment where it was most needed.

Attracting private sector investment: the example of Malta

The participants of the first panel focused on Maltese examples with regard to attracting private sector investment and attempted to identify the incentives and obstacles to investment. EU membership, together with a relatively young and educated English-speaking labour force, were highlighted by Marisa Xuereb, managing director of Raesch Quarz Malta, as factors that made Malta attractive as a place for investment. She noted that Malta was able to provide an incentive package that lowered the costs of production despite facing challenges as a result of being an island (logistics, more complicated supply chain, etc.) The size of the country enabled businesses to easily discuss policy issues at a high level and have a greater say in implementation. Frank V. Farrugia, president of the Maltese Chamber of Commerce, further elaborated on the benefits of EU membership, such as access to the single market, single currency and free trade agreements at EU level. Moreover, the EU structural funds had a significant impact e.g. on infrastructure, which was crucial for all types of businesses but particularly for tourism. Most of the investment in tourism came from Maltese companies, but this would not be possible without EU investment in infrastructure, said Tony Zahra, president of the Malta Hotels and Restaurants Association. Dolores Sammut Bonnici, president of the Malta Employers' Association, pointed out a number of obstacles that foreign direct investment currently faced in Malta. Relatively high energy prices together with freight charges significantly reduced profit margins. Moreover, Malta was a victim of its own success in terms of the labour market. Companies were suffering from a shortage of labour. A demand-driven labour market artificially increased the level of wages, thus having negative impact on companies' competitiveness. Maltese employers called for the issue of the harmonisation of skills at EU level to be addressed in order to improve employability across borders. Currently there were over 34 000 foreigners officially living and working in Malta. Due to a workforce shortage, Maltese companies often hired unskilled workers and provided the necessary training. Moreover, the employers were already looking to the future of the labour market and challenges emerging from the fourth industrial revolution. As a number of jobs would become obsolete, education needed to focus more on life-long learning, retraining and digital skills in general rather than only on the skills required for a particular job. As 95% of total turnover in the Maltese economy was generated by SMEs, they played an extremely important role as potencial investors. Nevertheless, they faced a number of obstacles such as access to finance. As underlined by Paul Abela, the president of the Malta Chamber of SMEs (GRTU), financing for SMEs dropped last year and there was a visible tendency for banks to give preferente to larger market players when providing loans. In order to create incentives for SMEs, the employers' organisations had called for the Malta Development Bank to be set up. The bank would serve as a second-tier financial institution when private commercial Banks failed to make appropriate financing available, or refused to offer the normal market terms. The bank would be owned by the government and would have an authorised share capital of EUR 200 million. This would eventually allow it to leverage this to around EUR 1 billion in loans. The Maltese employers' organisations had also taken a number of initiatives aimed at facilitating investment for SMEs. The Malta Chamber of Commerce had established a private-public partnership with government focusing on enabling the internationalisation of SMEs. The chamber had created the North Africa Business Council with the aim of promoting Business between Malta and North African countries and, in the process, creating business opportunities for the Maltese Business community. The chamber acted as a facilitator, researched the markets, prepared briefings about political aspects of investing in other countries, invited delegations and set up meeting platforms for both sides to explore potential business opportunities. The participants of the panel underlined the importance of JEREMIE (Joint European Resources for Micro to Medium Enterprises – a joint initiative set up in 2007 by the European Commission in co-operation with the European Investment Bank) and JAIME (Joint Assistance Initiative for Maltese Enterprises) for improving access to finance for SMEs.
The panellists also emphasised the vulnerabilities of the Maltese economy that might undermine its attractiveness for investors in the future. Following customers' expectations, the manufacturing and delivery processes were getting shorter. This trend was difficult to follow for Maltese companies due to constraints related to being a remote island. Because of its size, the Maltese economy could not fully benefit from the economies of scale. Moreover, the financial services and gaming industries that were currently flourishing could easily be lost to another country that provided better conditions.

How efficient is the EFSI in mobilising private investment?

The participants of the second panel focused on the European Fund for Strategic Investment, its future and how it might be improved. As noted by Alberto Mazzola, member of the Employers' Group and EESC rapporteur on EFSI 2.0, contrary to early fears, the EFSI had effectively fulfilled its role and delivered concrete results. In his view, the EFSI would have a role to play for at least the next 4 years. Afterwards the EFSI could be merged with other programmes and become an integral part of the next Multiannual Financial Framework. Mr Mazzola pointed out that the results could be even better if the EFSI was better promoted. Better visibility and promotion were therefore important, especially among SMEs, and should be a priority for the future. Fabian Zuleeg, chief economist of the European Policy Centre, was also positive about the results of the EFSI thus far, despite the fact that it only addressed some specific types of investment and should not be treated as a solution for all barriers to investment. The EFSI was very efficient in addressing infrastructure projects with high risks and long-term returns. In order to further facilitate investment, a focus on reforms, good regulation as well as competition policies was needed, running in parallel to the EFSI.Unfortunately, the EFSI was barely used in Malta, complained Rene Saliba, chairman of the Malta Development Bank Working Group. He expressed the hope that investments would gain momentum thanks to the activities of the Malta Development Bank. In his view, joint programmes linking structural funds, the EFSI and private sector investment would also be extremely efficient. Merete Clausen from DG ECFIN of the European Commission (EC) elaborated on the role of national promotional banks which she saw as the answer to numerous concerns about the promotion and implementation of the EFSI. These were better able to address smaller projects which the EIB could not cope with. They were also better tailored to the role, as they had better awareness of the local specificities. She also confirmed that the EC was working on boosting investments in education, inter alia through better cooperation between business and academia. Michael Smyth, Vice-President of the EESC in charge of budget, warned against focusing only on levels of investment as this might result in the investment bubbles that we witnessed in the 1990s. It was important to focus on sustainable, high-quality investments, he stressed. He considered the current EFSI model to be the correct one and suggested increasing the fund's core so as to give it more strength. In his view, the EIB should also support a wider range of projects with higher levels of risk. "Investment is important for the whole of Europe. Whether you arein the middle of Europe or in a peripheral region, an urban area or a rural area, investment is key to further economic recovery," concluded Stefano Mallia, Maltese member of the Employers' Group. He recalled the importance of having the propermenvironment for investment. This was why the EU and Member States needed to look closely at the policy framework to make sure that it was fit for purpose, he added.

News Date

July 3, 2017
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