ACCSPRING18_ONLINEVER

ECONOMY
Sustainability of Malta’s economic
growth and the role of SMEs
DR AARON GRECH
DR AARON GRECH IS THE CHIEF
OFFICER OF THE CENTRAL
BANK’S ECONOMICS DIVISION
AND DEPUTY CHAIRMAN OF THE
MALTA STATISTICS AUTHORITY.
In recent years, the Maltese economy has
expanded very strongly. Since 2010, Malta’s
gross domestic product has grown by 46%,
whereas in the European Union the increase
was of just 10%. Furthermore since 2012 Malta
has consistently had the highest growth in
employment amongst all European Union
countries, such that the unemployment rate
has fallen below 4%.
This growth has been accompanied by a significant
turnaround in the country’s balance of payments, which
now features a considerable surplus which contrasts
with the deficits that had characterised previous years.
At the same time, rapid growth has also resulted in a
large fiscal surplus, as buoyant revenue has offset rising
government expenditure.
Malta was largely unaffected by the financial crisis of
2007-08 and the subsequent European sovereign debt
crisis. One of the main reasons for this was that Malta’s
economic growth is based on a significant restructuring of
the islands’ economic structure. Whereas in countries like
Ireland, Cyprus and Spain, high economic growth before
the crisis was due to the accumulation of macroeconomic
imbalances, such as fast credit growth and a significant rise
in consumption, in Malta most of growth has reflected
an increase in exports. The latter reflected the fact that
after accession to the European Union, a number of new
high value added export oriented services were attracted,
which complemented the islands’ strong manufacturing
and tourism sectors. Access to the European Union’s
single market, combined with flexible, well-trained and
competitively priced labour resources and a businessfriendly
environment, led to increased foreign direct
investment, while reforms to liberalise the economy
strengthened existing sectors. The resulting diversification
of economic activity made the country more resilient
and less dependent on sectors such as semiconductor
manufacturing and package tourism, which are more
prone to cyclical fluctuations in demand.
When analysing recent economic developments, there
has been a tendency to overemphasise the contribution
of certain large foreign direct investments and particular
sectors. However a closer look at official statistics
paints a rather different picture where small and
medium-sized entities accounted for the lion’s share
of growth.
Between 2012 and 2016, the number of enterprises
in Malta grew from just over 72,000 to nearly 95,000.
This reflects the fact that the rate of new businesses
being established nearly doubled to more than
11,000 a year, while the rate of business closures
remained relatively stable.
Data published by the National Statistics Office 1
indicates that the bulk of the increase in business
units in Malta was due to small- and medium-sized
entities. In fact, 99% of the overall increase was
amongst firms that employ fewer than 10 persons,
so-called micro firms. Overall the number of firms in
this category grew by 32% in just four years. That said,
there has also been significant growth in the amount
of firms employing between 10 and 49 employees,
which was up by 16%, and in the number of firms
employing more than 250 employees, which was up
by 22%. By contrast the number of firms employing
between 50 and 249 employees rose by just 2%.
Official statistics show that small and medium sized
entities in Malta are very diverse. Micro enterprises
are dominated by the wholesale and retail sector,
which comprises nearly a fifth of all micro firms. This
is followed by the financial and insurance sector, at
16%, and the professional, scientific and technical
activities sector, at 12%. While micro wholesale and
retail firms have continued to grow healthily, rising
by nearly 16% between 2012 and 2016, the largest
relative growth has been amongst administrative and
support services micro firms, whose numbers were
up by close to 69% over their 2012 level. The number
of financial and insurance micro firms, together with
professional, scientific and technical micro firms also
grew very strongly, with growth rates of 62.8% and
56.1%, respectively. Other services sectors, such as
information, communication, education, remote
gaming and real estate, also showed strong double
digit growth in the amount of operating firms.
1
https://nso.gov.mt/en/News_Releases/View_by_Unit/Unit_B4/Business_Registers/Documents/2017/News2017_075.pdf
10 Spring 2018