04 Dec Interview with Clyde Caruana, Minister for Finance and Employment of Malta
Malta is undergoing a complete economic transformation on the back of the pandemic and a new government party. The Central Bank expects a 5.2% rise in GDP this year, and many new opportunities are opening as the economy rebuilds. I’d like to start the interview with an overview of Malta’s greater economy. What are Malta’s current industrial strengths, and why is Malta of great regional significance in the context of the EU?
Clyde Caruana: First, the rebound that we had from the pandemic was quite extraordinary, we managed to recover all the lost ground way back in 2021. This year in terms of normative growth, it’s going to be 11.3%, we’re expecting next year to be north of 7%, GDP will roughly be about 3.5% but that is mainly due to the economic slowdown that is taking place in Europe. The Maltese economy is doing great and we’re expecting it to continue to do so in the foreseeable future. In the coming years we’re expecting growth to reach between 3.5% and 4.3%. This is because of what we’re doing in terms of energy whereas elsewhere in Europe they are passing the burden onto businesses and families. In Malta, we made the decision to insulate the economy from the high energy prices and that is not only in respect to fuel but also energy prices. Given that there has not been any increase, we are expecting fuel prices to remain stable in the medium term and that gives an advantage to our economy to keep going at a very healthy pace in this current environment.
You recently published the new Certainty and Stability budget for 2023, which outlines large changes in Malta’s economic positioning. What key changes has the government made to the 2023 budget, and what kind of impact will this new budget have on the country’s industrial framework and citizens?
Clyde Caruana: The main focus at least from the fiscal perspective was to make sure that in the current economic circumstances our deficit keeps going down. This year we are going to be at 5.8%, next year it is going to be at 5.5% but at the same time there was a long list of investments that the government announced from the supply side of the economy in order to make sure that the industrial infrastructure that we need badly to have in place because more investment is coming in and will be there in the coming years because all this is possible given that our labor market is still going strong, unemployment is at a record low at 3.0% and we are not expecting any increases anytime soon. The capital expenditure is still intact, and we are making sure that it remains quite robust and healthy for the coming years, so the productive side of our economy keeps on thriving.
Europe has been hit hard as it pulls out of the pandemic with the conflict in Ukraine, which has quickly disassembled necessary value chains and left many nations vulnerable. What are the largest impacts these recent crises have had on Malta’s economy, and what kind of financial strategies is the government employing to overcome these key challenges?
Clyde Caruana: The challenge like that of every European nation has been the increase in energy prices. With respect to Malta these prices have increased when referring to electricity prices by 130%. We have not passed on a single cent to the consumer. We have been badly hit by the increase of energy prices in Italy because we import about 20% of our electricity needs from Italy. Just to give you an idea, whereas we used to pay about 6-7 cents per kilowatt unit back in 2019, this year that has averaged about 50 cents per unit, at times the increase was tenfold, so you can understand the significance of the impact, but nevertheless the government has cushioned all that impact, Of course it has come with a significant burden just to mention that between this year and the coming year we are going to spend about €1.2 billion euros in energy subsidies.
Currently Malta’s employment rates are at an all-time high. However, you mentioned recently that the need for local talent and innovation may quickly outgrow the country’s current capacity. What kind of support is the government giving to education and entrepreneurship to meet the new demand, and what new focus sectors is the government concentrating on?
Clyde Caruana: One of the biggest challenges we have is regarding talent. Talent numbers in terms of quantity of workers given that the native population is aging at a very fast pace, the shortage of labor is quite significant and felt across the board. The shortage applies to both to blue- and white-collar workers so it’s not just focused in one area but it’s across the board. What is the government doing? With respect to education, I would say that the numbers in tertiary enrollment are quite high as are the numbers in vocational education but still the issue that we have is with respect to numbers. The numbers are not up to the demand that we have in industry. One of the things that we are going to do in the coming year, and it falls under my ministry is coming up with an economic migration policy. The mechanics of importing labor from abroad are there but we need to fine tune that and make sure we get the right talent given also this island is 316 square kilometers and therefore we must get our priorities right. With respect to skills also, we’re doing a first in Europe, we’re doing a census about skills because we really want to map the skills that we have. Following this we are going to follow up with a digitalization audit so that we make sure that in the key areas where they are going to face upcoming challenges with respect to digitalization, we will have framed a true picture of whether our workers are up to scratch with respect to digitalization and whether we need to invest more. At the same time, it will give us a bit of perspective of how big the challenges are and in which areas and sectors. The census is already taking place and the challenge should be concluded within the coming year. Following the census, it covers the entire population, following the population census, we’re going to do the skill census and the idea is that we’re going to have a 100% coverage of the population so we will know exactly what kind of skills we have on this island, and that will put us in a better position to see what kind of investment we should attract and perhaps if there are investments for which we have no skills and then we decide whether it’s worth going for those investments or not.
Malta has joined the EU in cutting down on carbon emissions, with an ambitious national reduction goal of 40% by 2030 compared to levels in 1990. How is the government of Malta funding its green agenda, and what kind of new opportunities are becoming available in its drive to up renewables and cut its carbon footprint?
Clyde Caruana: That is very interesting, and exciting and it is something which is coming up because throughout the coming months we are going to issue expressions of interest following the conclusion of a preliminary monetary conservation process with respect to our exclusive economic zone that is, Malta in terms of land size is quite small, 316 square kilometers but our sea is quite sizeable in 20,000 square kilometers so what we are seeing in technology in respect to renewables in principle, wind energy has evolved significantly. We’re seeing that a sizeable part of our electricity generated should come from wind energy. We have received as well preliminary consultation, applications from serious companies about solar energy, floating solar energy and it is quite exciting. I would say that within the coming months we should have an expression of interest which would be available for global players and the idea is to rent or lease sizable areas at sea, so that these firms would be able to develop large scale farms such that they would not be only positioned supply Malta with electricity but given that we’re connected with European grid if there is any surplus they would export it to Europe as well.
According to the UN, FDI flows into Malta reached 3.9 billion dollars in 2021, an increase from the previous year despite the COVID-19 pandemic. What makes Malta an attractive market for FDI, and what opportunities are there currently in the market that Japanese and foreign investors might take advantage of?
Clyde Caruana: What makes Malta interesting? First, it’s our size which makes us more agile in respect to our competitors so the fact that we’re small, true it may have certain disadvantages such as higher costs in transport but on the other hand it makes it much easier for whoever relocates to Malta to get access to everything. When I say everything, I mean institutions, funding, help from government institutions, talent, although sometimes it can be a challenge, everyone has access to talent, both local and from abroad. We’re also connected to the European market, so Malta is interesting, apart from the weather which makes it quite wonderful to be stationed over here. The access to the European market from a small island state like ours, I would say that is quite a good plus. What’s in it for Japanese investors, I have said, with respect to energy, we’re seeing that we develop our exclusive economic zone but not only in terms of energy, we’re seeing that other opportunities and business activities that can thrive at sea, we’re welcoming as well that kind of investments.
You stepped up as Minister for Finance and Employment in November 2020 during a fairly tumultuous time for the country. As an economist, you worked as executive chairman of the state employment agency and more recently as the Prime Minister’s Chief of Staff. As Minister for Finance and Employment, what more needs to be done for Malta to achieve its economic potential, and what are your current top three priorities?
Clyde Caruana: Let’s start with the top 3 priorities, one, make sure that the deficit and debt ratio remain stable. The deficit keeps on going down. Two, make sure that we have enough resources for the coming five years to address the energy crisis that is taking place. At the same time, make sure we have enough resources for capital investment. Three, see what is going to happen on the European level with respect to taxation policies. There is a lot that is going on starting with minimum level of taxation. It seems that, at least from where I stand, the momentum has slowed down significantly. It could be that all the energy that has been put in place so far goes nowhere because of the veto from the Hungarians. The change that may take place at US government level following mid-term elections, but still the environment out there is very much challenging with respect to tax policy. Taxation has always been I would one of our advantages, the way our tax regime is constructed. I wouldn’t say it is a predatory tax regime, far from it, but it is quite flexible with respect to other tax regimes and that given that we are an island, of course, it gives certain preferences. We will have to see how that regime continues to cater to our economy in the coming decades. What else needs to be done? I would say that one of the most important things in the coming years is that I have to make sure that government continues to remain lean because that perhaps has been the most successful thing in weathering the pandemic and navigating these rough seas now that there is the war, being lean is of the utmost importance because that gives you the necessary cushion when challenging times come by.
Final message for the readers of Japan Times.
Clyde Caruana: Malta has profitable businesses. I mentioned earlier the exclusive economic zone provides business opportunities that can be done at sea and we are quite open to it so if there is any Japanese investor who would like to carry out a business activity at sea, they are more than welcome to explore that kind of activity.