Interview with Prof. Edward Scicluna, Minister for Finance, Malta

MALTA: Interview with Prof. Edward Scicluna, Minister for Finance, Malta


WORLD FOCUS: Let us begin by talking about Malta’s relationship with Spain. What types of attractive investment opportunities exist today for Spanish investors?

SCICLUNA: Over time, Malta’s links with the United Kingdom have declined. Instead, our connection with continental Europe has been strengthened – particularly with. Germany, France and Italy. We can speak about the relationship with Spain in the same way. Spain was, still is and will continue to be a very valid partner. However, it’s a partnership whose full potential has not been exploited yet. The Maltese economy is very well diversified. For example, Malta is strong in manufacturing as well as in services, such as tourism, financial services, gaming and others. So, it’s difficult to pinpoint precisely why Spain is not a central partner for Malta in such sectors. Limited air travel connectivity may be a possible reason. In any case, the partnership between Spain and Malta has been underexploited. While both sides could have benefited much more up until now, we should look to the future and see the potential that exists.

I think Spain’s business sector will discover that Malta, in spite of its small size, delivers more than first meets the eye. Malta is used as a business base – especially for North African and countries in the Maghreb region. Of course, Spain is also a part of this because of its proximity and historical ties. I also include Libya in this closely connected group of countries in spite of the challenging times the country continues to face. Besides being geographically close, Malta and Libya are also close in terms of speaking English. To their benefit, Spanish companies will discover that Malta is a regional business centre – one where it’s straightforward to do business because – whether we’re talking about shipping, manufacturing services, financial or maritime – our practitioners understand business and its multifaceted nature.

We also have many double taxation agreements because this formed part of the building of our network. The smaller the country, the more motivated it is to survive. Without natural resources such as oil or gas, the country needs to be smarter about discovering and using its full potential. This is what happened with Malta. Local business practitioners and companies have adopted English, which is the international language of the business world. Moreover, the legislation in the Maltese legal frameworks is also all in English. This is advantageous for doing business with ease. Whether it is corporate law, mergers and acquisitions, or other transactions, businesses will find three fundamental support services in Malta: accountancy, legal and IT – and all of a high international standard. There’s no problem too big for Malta. For example, Malta has a dockyard where a ship enters, finds all the spare parts it needs, and all the expertise it requires. So, the crew can rest assured that the vessel will be excellently repaired. In the business context, this is precisely the kind of comparable service and expertise that Malta offers. It’s a first-class service with the added value of having an established network in and around the Mediterranean. In this context of new markets for expansion and success, both Spain and Malta can benefit. One of Spain’s advantages in this scenario is its links with South America – a region where Malta has very poor connections.

This is without even mentioning the world of blockchain and artificial intelligence. Here, Malta is at the forefront in terms of regulation, which – in addition to the adaptation of new disruptive technologies – attracts these companies to Malta. When the big blockchain companies learned about Malta and its innovative regulation, they chose to come here. It’s key to attract big businesses. Very often, some advanced countries – including Spain, Israel and others – can be very innovative. However, they are not advanced in regulation. The administrators are too bureaucratic or too set in their old ways, which they used to do well. However, they’re now finding it difficult to adapt to the new mindset and environment. Very few countries have been as nimble as Malta in this regard. We have the ability to set up legislation within parliament and have new regulations in place within six months. Other countries would take two years. Within those two years, a country can attract the big names in the business – the names that are themselves are a resource.

In the iGaming sector, Malta is hosting many Swedish companies, who want to stay because they have adapted to the Maltese environment and they’re happy in Malta. There’s an understanding that this is a new phase. The regulator knows they are going through this new phase, and they understand each other, so they’ve changed regulations to adapt to the new environment. However, this sector is highly competitive, and this is one of the reasons why we are growing so fast and why Malta is so competitive. At this point, rather than Malta doing the chasing, investors come to us.

Whenever the Prime Minister of Malta or I go to London or New York, there’ll be a queue of people asking, “I’ve got an idea, and nobody wants to listen here. But I’ve heard about Malta. Would you be interested? Can I implement my idea there?” And this is what investment is all about. We are fortunate to have intelligent and successful people with good ideas who are attracted by Malta’s small size and all that it has to offer. Our investors highly value the fact they can talk to the minister or the Prime Minister – and, we understand them, believe in what they are doing and will support them all the way. This is how success comes to fruition, and we are very pleased with our performance over the last six years.

Many other European countries, including Spain, have had challenging fiscal problems. It was also difficult for Malta as we were faced with a big deficit and an excessive deficit procedure. We also had a macro instability procedure since we had substantial debt that grew to over 70%. However, we immediately addressed these issues. Luckily and to our advantage, we didn’t need a bailout from any banks. In a six-year period, we chipped our deficit away to zero, and then even transformed it into a surplus. We have now had three consecutive years of surplus, with 2018 being the latest. I’m confident this year will be the same. Thanks to the surplus, we have also shrunk our debt from around 72% debt-to-GDP to 45%. This gives us a lot of fiscal space, and therefore room for manoeuvrability. The fact that the country isn’t facing fiscal problems is very encouraging for investors. It paves the way for business to be conducted without such worries. Investors want a government that is smart and in control of its own debt and expenditure. This is the reason why I have managed to convince the cabinet about the advantage of being careful and reaching targets because that is what determines the fiscal reputation of our country. Good fiscal governance is paramount.

To arrive at our current state, we have also carried out key reforms, of which we’re very proud. During this administration’s first term, we didn’t call these changes ‘reforms’; they were just changes that made sense to us. For example, facing the lowest female participation in the labour force, we did everything we needed to do to tackle this problem. We did so through simple changes like increasing free childcare and creating incentives – such as tax breaks – for women to return to the workforce after looking after their families. We took action that told women, “Don’t stay at home. Come, work and we’ll compensate you.” For those who were surviving on benefits or who were long-term unemployed or single parents, we encouraged them to join the labour force. We created schemes through which their children would be looked after, and they could even keep some of their benefits. Normally, there’s no incentive for these kinds of workers to return to work. However, they’ll be paid a market salary and also keep 60% then 45% and 25% of their benefits over three years. About 5,000 families have joined this scheme. And, today, there is no unemployment, and we have the highest percentage in the EU of graduates successfully finding work. This is a fantastic achievement because, after investing years in their studies, it is incredibly frustrating for young people when they cannot find a job.

WORLD FOCUS: And these are the people that must then go abroad to find a job. But in Malta’s case, as a fast-growing economy, it’s quite the opposite, there is a shortage of labour. How is Malta tackling this and other issues that come with rapid growth?

SCICLUNA: Malta has had an average 7.1% growth rate over the last six years. This fast growth has brought a new set of challenges, and one could say that growing pains have emerged. For example, infrastructure must keep up with economic growth. In Malta, roads are congested; construction supplies are limited; and, in general, infrastructure is feeling the pressure. Before our fast growth, we had problems like being able to find a job for oneself or one’s children, having a business, finding clients, and supplementing income. For several years, we’ve been investing in infrastructural upgrades, to protect our environment, clean air, waste and waste management, and a clean sea. We now also have special roads for cyclists and pedestrians. These are the kinds of new challenges a country must face when, after such growth, the focus shifts to quality of life. We understand that these are our electorate’s new requests, and we are ready to deliver. Of course, these demands are challenging because it’s not a simple question of money. This is intangible because it involves lifestyle. If the population is eating things that are harmful to the body, it is the government’s responsibility to supervise this and make sure the population, for example, eats more vegetables. So, for example, we run programmes to encourage people to do more exercise and to encourage children to play outside in the fresh air. However, this all requires investment – an example being investment in alternative energy sources.

WORLD FOCUS: Your government was very successful in expanding the labour force.

SCICLUNA: In the first three years, we cut workers’ income tax. We believe that a tax on work is a burden, and if you want to make work more attractive, taxation should be lowered. But we didn’t do it by borrowing. We made up for it with consumption taxes over and above VAT and excise taxes, specifically on things with an environmental impact, such as plastic, cement, iron, glass and chewing gum. If we didn’t derive revenue from other sources, the deficit would have increased. In the end, with measures like switching taxation from work to consumption, the deficit decreased.

WORLD FOCUS: The IMF was in Malta not too long ago and hailed the country’s economic journey but at the same time highlighted different risks that might affect future growth. Pressure on infrastructure is one, as you already pointed out. Another one is related to regulation of financial services and implementation of the EU AML/CFT framework. Could you tell us more about how you’re leading these efforts to safeguard financial integrity and stability?

SCICLUNA: As I mentioned, as you grow, you need more infrastructure, and that’s easy to understand. A lack of adequate roads, office space or residential housing for tourism is there to see. We’ve also got a very high rate of workers coming from abroad, and this is how Malta continues to grow. It’s attracting an increasing number of people from Europe and outside Europe. We’re becoming very cosmopolitan, and the population is very receptive – it’s a partnership that’s important for Malta’s standard of living. The Prime Minister has always said that if we want our standard of living to continue increasing, we need people from abroad to come to Malta and partner up with us. This is how growth will continue to happen.

What is less obvious – but is now becoming more evident – is infrastructure in terms of regulatory frameworks. We always thought that, once an institution is in place with officials and regulations, then everything is passed through parliament and regulations are published. But, I’m talking about prudent financial supervision and safeguarding against things like money laundering and terrorism-related instances. Much more investment is needed in this regard, and so this is what we are doing. The regulatory framework must be proportionate to the size of the jurisdiction. This is not the physical size, but the business size. Malta is an exporter of financial services and iGaming. So, just like Germany is an exporter of motorcars, we’re an exporter of services. Consequently, our regulatory capacity and institutions must grow and be proportionate to the size of the business we are involved in. We have realised that we need to invest much more.

In 2013, after the crisis in Cyprus, for the first time we conducted a very comprehensive national risk assessment (NRA). This was an opportunity to examine all sectors and institutions, including NGOs, practitioners, intermediaries and so on, to discover the areas where risks are high. Then, in 2017, we updated this NRA. And, based on these analyses and with the help of experts, in 2018 we devised an action plan to upgrade whatever needed to be addressed in a very big way, especially with regards to NGOs, real estate agents, lawyers, and whoever deals with business people, money and transactions. For example, we created a new and empowered institutional framework in the asset recovery bureau, to impound assets belonging to criminals, or businesses of dubious origin. We are now planning on setting up a financial crime agency. We are working very closely with the British authorities in this regard. Europe and the whole world are discovering a type of crime through which billions are passing through banks over several years. This could happen to us too, so we have to be fully prepared and highly vigilant. To achieve this, a country needs people with expertise and with a forensic background – people who can take the intelligence discovered by banks or institutions to the right supervisors to examine and effectively follow prosecution procedures.

Just like in football, it’s not only about how well you play; it’s about how much you score. The new benchmark for Malta and many other countries is how much have you scored? How many cases have you brought to justice? How many people are behind bars? How many fines have you imposed? Previously, after checks, we’d be notified about certain regulations and procedures being missing or not properly in place – procedures for the regulatory authority or institutions. Of course, those are important to have in place. However, once you have them in place, the question is, what effect do they have? For example, in the context of a big sector like iGaming, we are asked about the number of licences that we’ve cancelled. The Malta Gaming Authority is very strict and, without any hesitation, it will compel the withdrawal of licences if companies in question display suspicious or dubious transactions. This would be an example of successful regulation.

The same goes for the Citizenship by Investment programme. The programme itself isn’t risky, but of course, we are asked about how rigorous our due diligence is and what the results are. Between 24–25% of applications are refused. This does not mean that criminals are applying. It simply means that the applicants have not given satisfactory answers about their money and where it comes from. Many who are accepted have very valid reasons for wanting to receive citizenship. This is often because they come from authoritarian countries and, as successful business people, they fear for themselves and their families. For them, having another passport is insurance. These are very successful people with big ideas, and we have also benefited from them because they share their ideas. This is how we became involved with blockchain, and it is now very important for our country. Of course, risk is everywhere, so it is crucial to manage it. If you want to succeed, you have to go for it, but you do need to know the risk you’re taking. Depending on the level of risk – high, medium or low – you need to act accordingly.

Another innovation is medical cannabis. Because of its history and because it’s illegal in most countries, the thought of manufacturing a drug but for medicinal use shocks people. But the point is how well managed the process is. We also have a money-printing industry in Malta. There are big companies in Malta that print passports and money, and they, of course, have high-security production plants. Most African money is printed in Malta, and we have Crane Currency, De La Rue and an American company that prints dollars. These are high-security businesses, and so is medical cannabis.

WORLD FOCUS: What are your views on a stronger alliance for EU countries in the Mediterranean?

SCICLUNA: I was involved in the Mediterranean Action Plan, which was a result of the Barcelona Convention for the Environment in 1975. Since then, we have had a very cooperative programme amongst Mediterranean countries. It was financed by Mediterranean countries, and it covered environmental (mostly sea-related), social and economic issues. And, we had a Blue Plan that looked at how we can prepare for the future. The Spanish members were very active in the programme, so we got to know each other well.

What has happened is that the EU has grown so big that it has taken over this independent Mediterranean Action Plan. The programme still exists, but the EU is doing most of the work. The problem is that the EU is made up of 28 countries, including countries in northern Europe. So, when the Russia–Ukraine problems took over, the Mediterranean was forgotten. Now, Macron is once again trying. There’s a very strong socialist government again with cooperation 5+5 with the Maghreb. Now, we’re again drawing the attention of the EU because there is a very interesting region at stake – and not an easy one. Of course, I’m referring to the enormous potential in the Maghreb. And beyond the Maghreb is the rest of Africa – the new, up-and-coming continent and the EU wants to be there first. It’s not a question of just one country; there needs to be the support of all the EU member states – Spain, Portugal, Malta, and Italy especially, but also the eastern side with our colleagues in Cyprus and Greece.

We need to continue working on improving connectivity between Spain and Malta. Without improved transport links, getting from Madrid to Malta may require a stopover in Frankfurt, which is not right when we’re both Mediterranean countries. Connectivity is crucial. With improved connectivity, the Maltese can discover Spain’s potential and its advanced technology. Once the two countries get to know each other, it will be fantastic. We think very much along the same lines, which is very useful and practical when it comes to conducting business. We both rely on the importance of giving our word and being fair, and that’s important. I find most Spanish businesses to be like that. I’m very hopeful that we will have improved sharing of information regarding what’s happening both in Spain and in Malta. Preconceived notions often get stuck and are difficult to change, so I also want such prejudices to be removed. You have to visit a country, to see for yourself how different it is from what you know of the country from 20 or 30 years ago.

WORLD FOCUS: Malta is a frontrunner in the regulation of new technologies. Spain is a strong supporter of Europe’s digital agenda and Spanish companies are hungry for new technology and have their eye on what is happening in Malta. Your country has been savvy and brave and your vision has been ahead of the rest of Europe in the blockchain and now AI spaces.

SCICLUNA: Every advancement or invention has two sides. One is the technical and the scientific side, and this is where Spain is very strong. But, on its own, that aspect is not enough. It must be translated into a business initiative – a proposal – that is then financed. And, above all, it needs a legal framework that is suitable for that kind of technology. This is what Malta offers – a legal community that is very aware of these scientific ideas. I’ve been to Tel Aviv in Israel, which is a hub for scientists and creating innovations, such as driverless cars. In Tel Aviv, they have ideas, space, proximity to the U.S., and interested parties coming and going from universities all over the world. However, they’re looking to Malta because they’re seeing something on the island that is missing in their country. They see a legal community that is ready for their ideas. These are mostly scientists, and their ideas often get lost in translation. Very often, they sell their idea for money and then stop there. Some of them, though, want to take it further. They want the idea to be well regulated, and they want to stay on and continue with this idea and maybe exit at a later stage. When I’m in places like New York or Tel Aviv, and I hear investors talking about Malta, I’m often very surprised. If they believe in the country and they’re very pleased with it, they’ll tell me, and they’ll mean what they’re saying. These are not tourists going to Malta on holiday. They are scientists and serious business people with a lot at stake.

With some exploration and analysis, I’m sure that the Spanish business community will find reasons for wanting to be in Malta. The country’s potential is big even though the base is so small. It is bubbling over with practitioners, so finding like-minds in such a small space helps in getting an idea translated into a business concept. For example, pharmaceutical companies are also using Malta as a base, thanks to the legal community.

WORLD FOCUS: In what specific areas can Malta and Spain foster tighter links? Are there any specific sectors you would like to highlight?

SCICLUNA: The relationship between Spain and Malta is just like two friends who don’t know each other very well but have that gut feeling that, once they come together, it will be like they’ve been friends forever. It’s in our interest to keep each side informed and to have more initiatives for delegations to visit just as they do from other countries like Germany or Italy. I think that our embassies should make a more concerted effort to organize and improve our delegations with the chambers of commerce and so forth. These are important initiatives. It’s also in our interest to make Malta known in Spain and vice versa – that is, for Spain to make itself known in Malta. Don’t be fooled by the size of Malta because if you don’t look past its size, you’ll miss the true greatness and potential of the island.

WORLD FOCUS: Please share a final, insightful message with the readers of Capital, the business and investor community of Spain.

SCICLUNA: Every Spanish ambassador who has come here to Malta at first has said, “I’ve been posted to Malta – what am I going to do?”. Three years later, none of the ambassadors or CEOs of big companies wants to leave. We have two ex-HSBC CEOs in Malta, who returned to the island semi-retired because they’re very successfully doing business in Malta. I also know other ambassadors who have bought a property and want to stay in the country. There is something that attracts them – you can do business with pleasure. Family or partners also find it a very pleasant place to live. You can always somehow manage to do business in very difficult countries, but in Malta, you have the added advantage that you can work and also have a pleasant time. Whether it’s sailing or golf or just spending time with your family, you’ll enjoy your stay in Malta.