[WATCH] ‘If you show a clear vision, investors will respond’ - Silvio Schembri

Economy minister Silvio Schembri speaks to Saviour Balzan about the challenges he faced when taking on his new portfolio in January 2020, how COVID-19 necessitated a strong reaction from government and the main challenges the economy faces in the years ahead

We’ve just gone through a very difficult time and we can safely say that without the government’s intervention to mitigate the effects of the pandemic, many would have been much worse off. So what exactly happened?

I was appointed minister for the economy in January 2020 and in March COVID reached our shores. We went from enjoying an economy with one of the highest growth rates in Europe, low unemployment and high foreign direct investment to having everything on the brink of coming to a halt. This was something none of us had experienced before and it was affecting practically the whole world at the same time. This pandemic had multiple effects: economic, healthwise and social. It was the perfect storm targeting everything, everywhere, at the same time. Our biggest challenge was to safeguard the economic gains we had made while guided by public health concerns. We wanted to be sure to intervene strongly but in a manner that would be sustainable. We could not afford to give away all our reserves and disburse all we could without leaving any funds for further future contingencies.

Because, quite frankly, you could not say what would happen the day after…

There were various predictions, because at the end of the day, all you have in such cases are predictions. And you must have the instinct and the vision to determine which measures to implement and how. I remember when we announced the plan for economic regeneration, some measures were introduced on a three-month basis, but the situation was so fluid that some measures needed to be tweaked or replaced as things progressed. If we did not do that, we would not be here today. Today, a year and a half later, I think everyone can look back and realise that if we had not done what we did, we would be in a much different situation today.

The government’s response, as with the wage supplement, assistance, contributions, moratoria on payments for companies, and so much more, will obviously have an impact. Today there’s some optimism again, because of the vaccine and the low rate of infection. But what will be the effect of all this on the country’s economic growth?

The expenditure was enormous, it’s true, but if we had not made that expenditure, we would face a bigger expenditure and worse effects later on. Why? Our country has no natural resources. Our only resources are our human resources and so we wanted to protect our employees. Our major expenditure – the wage supplement – was solely intended to help safeguard jobs and it affected nearly 100,000 people.  On this measure alone, we were spending between €35 and €40 million each month. Today, as we approach the end of the pandemic, we still enjoy the lowest unemployment rate in the European Union and we have more people gainfully employed today than we have before COVID. This gives us an advantage over other countries that are now starting to look on how to get people their jobs back. Of course there are financial effects, but that is why I said earlier that we made sure that the measures we introduced were sustainable. Our unemployment rate is lower than it was in 2013. You might ask why I make this comparison. In 2013, unemployment stood at more than 5,000, our debt exceeded 70%, the deficit was out of control and the rate of economic growth was less than 1%. On the other hand, today we have much lower unemployment, our debt is lower than 70%, and the economy is expected to grow by 5%. This means that we have managed to keep our economy on a solid foundation and we can build on that and do not need to start from scratch.

In the seven years prior to COVID-19, the rate of investment in our country had spiraled, as seen in the tourism, construction, financial services, gaming and other sectors. There was also extensive foreign direct investment. Where do we stand now, after these months of uncertainty? Can we remain competitive after all we went through?

One major challenge I faced when I was appointed economy minister was the fact that we did not have enough space to cater for the foreign direct investment. There were a number of companies that had gone through the process with Malta Enterprise and had been issued a letter of intent and were seeking space to set up their businesses in Malta. At that moment, I only had enough industrial space to satisfy only 4% of the demand. And some investors had already been waiting for three years. One of the very first decision I too to Cabinet was to launch an investment programme in our industrial infrastructure to be able to accommodate this foreign direct investment. We also wanted to introduce a shift in mentality in the industry, namely introducing business clusters and vertical expansion, where light industry would be accommodated on upper floors. In the midst of a pandemic we launched a €470 million programme to accommodate this investment. Try and picture this. Take all the investment our country made since it existed up to 2013 – be it construction, gaming, services – take all of that. Since 2013, in seven years, we have already managed to double that investment. So you can imagine the economic growth our country enjoyed.

You mentioned something important: we had companies wanting to invest here and we did not have enough space to accommodate them all. But is this still true today? Is there still foreign interest in investing in Malta?

Surprisingly, FDI interest in Malta never slowed down. Just some weeks ago, I announced six new investments in one area of Bulebel alone. These will be in operation by the first quarter of next year. Five of them are five new companies, foreign direct investment, and one plant expansion. These five investment cover different sectors: security, food production, technology…  and this diversity is further proof our economy’s strength, as it is not relying solely on one sector or another.

What makes Malta so attractive for investors? We are not living in the 70s when our salaries were very low compared to other countries…

We are today living the fourth industrial revolution, which places great emphasis on robotics, artificial intelligence, automation and similar technology. Where older factories were strictly labour intensive, today’s plants are more like laboratories than anything else, with more integration automation and employees that are more skilled – and better paid – than ever before. This is the model we are looking at, going forward. So we are now in a position that we do not necessarily approve every FDI proposal we receive. Instead we accept FDI that will bring higher value added to our country. Even because – even during the pandemic – we do not have enough people to fill all vacancies. It is true that some industries do not pay enough and therefore struggle to fill vacancies. And that is why we want to focus on attracting investment that will provide job opportunities that come with high salaries. The services sector, for example, like communications, gaming, financial services, these offer high wages and therefore find employees as needed, in most cases. And they can afford to offer high wages because they offer value added. This template must be replicated in other sectors, such as hospitality, where I believe much improvement is warranted.

You are often out and about and you of course also work on a local level. You must have heard some pretty colourful language when some people talk about the number of foreign workers in Malta. Am I right in saying that people do not necessarily have enough appreciation for the work these foreigners do here? For the contribution they make to the economy?

It is a number of things. Primarily, most often, the issue of illegal immigration ends up overshadowing any reference to foreign workers in Malta. But there also some examples, for instance in the hospitality and construction industry, where the reality is that some foreigners are employed at lower wages than Maltese workers would accept. And these Maltese workers therefore feel threatened. But we must understand this is not the reality across the board but is limited to a handful of pockets that need to be tackled. In most cases, even foreign companies would prefer to employ Maltese workers as they would not have to spend money on relocations, lodging, etc.

Back to government’s measures during the pandemic. Besides the wage supplement scheme, you also introduced the voucher scheme, under which anyone over 16 received cash to spend on local businesses. What effect did these vouchers have?

The vouchers had two functions: a social one because when in time of need, the vouchers were a bonus for everyone to spend as they saw fit. They also served an economic function, in that they helped to recreate confidence in spending and helped restart economic activity. The first round of vouchers cost €45 million but left double that amount in transactions. So for every euro the Maltese used in vouchers, they spent an additional euro of their own. Now we are giving out a second batch of vouchers at a time when we have reached herd immunity and we now expect the multiplier effect to be higher than in the first round. When we were drawing up the economic regeneration plan, we realised that deposits during the pandemic had increased nine-fold. In the first nine months of the pandemic, deposits increased by €900 million over the normal growth. Today these deposits have reached €14.5 billion. So we were certain that the vouchers would help regenerate economic activity, especially now when most people have been vaccinated and there is therefore greater confidence.

In the coming days, we will be discussing the country’s economic vision for the coming years. If you could only mention three challenges the country will face in the years to come, what would those be?

The biggest challenges will be attracting talent to our country, ensuring our business embrace technology more, and maintaining market confidence. If you start painting a picture that is only about doom and gloom, investors will hold back, saying that even the government does not have confidence. This was the situation in 203, when investors did not have confidence in the government’s economic strategy and investment dried up. If on the other hand, government manages to maintain investors’ interest, by being strong and confident, investment will come in. This, what we call expectation economics, will have a multiplier effect on the economy. If you clearly demonstrate that, whatever the obstacle, government will remain strong and prop up the economy, investors will respond.