Professor Edward Scicluna
Minister of Finance, Malta
Professor Edward Scicluna, Malta's finance minister since 2013, shares with The Report Company the country's policy priorities for its upcoming EU Council presidency, his outlook for the impact of Brexit on the Maltese economy, and an overview of the future of its financial services sector.
The Report Company: At a time when EU citizens feel disconnected from each other, what are Malta's plans to unite them through its presidency of the Council of the European Union?
Edward Scicluna: Our small size and our distance from the core of Europe allow us to look at European problems more objectively. We see things which unfortunately big countries closer to the problem don't see. We point this out over time. It is not a question of being proved right or not, but the point is we have this advantage. We are seeing this now. It is no good now talking about the lacklustre performance of the Eurozone; we could see it coming, because to ask every country, including the strong countries, to undertake austerity programmes didn't make sense at the time and doesn't make sense now. Afterwards, everybody was wiser and started turning towards growth and consolidation, and now we are talking about investment.

Coming to the present, and this is tied to our priorities in the presidency, we will be pushing as a first priority our competitiveness and investment and growth. The problems we see in Europe are caused by lack of growth because of lack of investment and a lot of obstacles.
TRC: What enabled Malta to come through the economic crises unscathed?
ES: First and foremost, we put more emphasis on growth as a remedy and assistance to cutting deficit and debt. Of course, our problems would have been different from those of other countries, but in our case, we created a lot of incentives for first-time buyers, such as tax cuts and duty exemptions, and that started to turn the wheel slowly. On the supply side, we did a lot of reforms to make work pay. We cut income tax and got revenue from consumption taxes. That started the wheel turning. We started making improvements on the deficit, without creating any jolts in terms of growth. We let the economy grow. When we were pushed to do more, we said no. We did it very slowly.

What has happened recently in many countries is the enormous consolidation was a shock. Cutting pensions, cutting wages, has brought economies to their knees and ironically exacerbated the debt and deficit problem. We have seen from our own experience how nothing is easy, but how it is much better to work on the deficit and the debt, but with growth helping out as well. I think that is the solution. Now, all of Europe is talking about it, but doing very little about it. There are a lot of obstacles to investment. What we observe is there is too much concentration on a particular area, ignoring the bigger picture. We are concerned with competitiveness between one member state and another, but we don't look at Europe being competitive in the world. We don't even have it on the agenda.
TRC: Does Malta intend to use its EU presidency to bring these issues to the forefront?
ES: Our priority is for the Capital Markets Union, because as banks are de-risking, the problem has arisen that instead of managing risks, they are avoiding risks, so they are dropping correspondent banks. And as a result, people can't open an account, they can't make a transfer, and so on. Our concern is that we don't lose sight of investment as the instrument to growth. This is what Malta observes from here. We are doing very well. But the point is, we would like the European Union to do similarly. We don't like seeing 20 percent youth unemployment in Spain, for example.
The problems we see in Europe are caused by lack of growth because of lack of investment.

Professor Edward Scicluna, Minister of Finance
TRC: What can you tell us about Malta's economic diversification?
ES: The financial industry has contributed to Malta in that it encouraged young people to go into the professions, as accountants and auditors, legal, and IT professionals. They go and study abroad and come back. So in all, we have very strong support for companies, for any type of business, at an international standard. Now, having reached that, our human resources are not only supporting financial services and i-gaming and shipping, but also new sectors. And the new sectors are broad.

Malta, being a peaceful place in a very troubled area, is being seen as a base where you can do business and operate in these difficult countries. We are seeing, for example, investment in education and health for the region, as well as logistics. European companies are eager to invest in North Africa and beyond if there are not too many obstacles. They know that that is a growing place. Europe at the moment is not growing, so the demand will be in these countries.

The German chamber of commerce came recently to Malta because they are waiting for Libya to settle down and they are waiting to invest there. I have met with the American Chamber of Commerce. I have met recently with a big group of leading French companies. They are all here trying to see what is so special about Malta, why Malta is so successful, and therefore they find that doing business here should be quite straightforward. The language is English, it's the business language, the mother language is Maltese, which is related to Arabic, and that helps in terms of the perception by the Arab world of Malta.

As a result, we are seeing investments such as the American University of the type that you find in Lebanon which is going to open here in Malta in the coming October. There are hospitals, not for the Maltese, but for people from outside. There are partnerships being set up with Harvard and with Barts Medical School. Barts will open a school for 400 students in Gozo and at the same time they will have a university for foreigners.

We have already had success with English-language schools; even members of the European Parliament come here to study English.

And then in logistics, we will have anchorage for customs between the airport and the Freeport and there will be warehousing transhipment for high-value items which come, say, from South America or Asia with containers, and then they will be taken apart and flown to their destinations. Malta's location is ideal for this.
TRC: What is the status of British investment into Malta in light of Brexit?
ES: The truth is that at this point in time today, everybody knows so little, unfortunately. However, we have done so much business with the UK. Our historical ties with the UK are there. We understand each other so well. Even our parliament is built on the UK model. We are part of the Commonwealth. In the case that the British need a parachute or a gateway, they are going to find Malta really available, and we would welcome them. We are here if they need us, and that is our attitude. We are currently meeting with the Bankers Association, and the Mayor of London to allow them to see for themselves what Malta can offer.
TRC: What kind of size of investment does Malta tend to target?
ES: As a small island economy, you have to be careful of how big you go. During the Second World War, convoys saved the island from starvation, and we have a saying, which is "You don't refuse wheat when it is offered to you." That is the attitude we have in our mind all the time. So although we don't turn investors back, we do try to diversify. For example, in the airline business, it's not just that we have an international airport that is obvious for tourism and so on, but we have Lufthansa Technik, which carries out high-level engine maintenance.

We have some manufacturing, which hasn't had any net loss in employment yet. We haven't turned our back on manufacturing, especially in pharmaceuticals and chemicals and other related areas. We need to keep a very diversified economy where we excel, and where we have certain competitive advantages. And these are mostly in services, and also related to the sea around us. That is how we keep the economy growing.

We are receptive. People come with ideas, we choose which one suits us, and run with them. For example, just the latest example, one British firm which prints currency decided to change from printing of currency to printing of documents. That meant laying off 300 very experienced people. A currency printing firm in Boston heard of this and asked, "what if we were able to set up in Malta and get those employees?" So we created a package and arranged everything, they started building, and in about eight months they will be up and running.

It's a question of being small; you take these opportunities and grab them. This is in our blood. It's survival. We don't have resources, but these opportunities which come to us are our resources.
Although we don't turn investors back, we do try to diversify.
Professor Edward Scicluna, Minister of Finance
TRC: What do you see as Malta's competitive advantages as a potential base for start-ups?
ES: The business side in Malta feels very listened to by the administration. This doesn't happen in in lots of other countries. The fact is that a businessperson can have an idea and immediately go to the relevant minister or prime minister and discuss it. If it might require a tweaking of the legislation, we can do it in a matter of months. One concrete example is that of the insurance industry, where we carried out the first legislation in the whole of the European Union to create cell structures. This is the quick turnaround which businesspeople find so exciting. They wouldn't dream of having that in the States or in the UK.
TRC: What is your outlook for next year for Malta as it holds the EU Council presidency? What are the challenges the country will face?
ES: I hope that by the end of those six months we would have surprised people. We are observant, sensitive, and very fair. I think people will find that if they had to choose, they would not have found a better country to lead them as a very fair and honest broker during those six months.

We are aware that there are some topics which big countries find awkward at this time, and it is a delicate balance to keep between keeping to regulations so that they remain meaningful, while at the same time, many countries are having difficulties. If you step on the brake too much in these countries, you are going to hurt them. At the same time, you don't want to alienate the people any more with dreams of things which would never come around. I can explain Brexit because of that, I can explain Le Pen; it's all about people being frustrated and fearful.

There are core things for us, beside the economic side where we believe in the Capital Markets Union, but I think we need security and migration on top, because unless we address those issues, we cannot talk of other things.
A businessperson can have an idea and immediately go to the relevant minister or prime minister and discuss it.
Professor Edward Scicluna
Minister of Finance
TRC: On a political level, how will the bilateral relationship with the UK look post-Brexit?
ES: As members of the European Union, I'm afraid if we are not careful that we are going to have wasted years with ups and downs because it is so big. It is not like the Canada-EU deal which went on for eight years and no one even noticed. Brexit draws attention on a daily basis. Europe will be standing still for such a long time. Is it going to be doing so for the next two years? That will be the challenge. How will we avoid running on the spot? Just like a divorce, it is better that it be an amicable one, and the quicker we get on with it the better. I think that is the best way forward.
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