Innovation – can we grasp the nettle

The electoral result gave the thumbs up for the unrelenting initiatives of the Labour party and reflects the appreciation of the direction given by Finance Minister Edward Scicluna and Prime Minister Joseph Muscat to navigate the ship of state out of choppy economic waters amid the recent uncertainty of a faltering eurozone, the effect of Brexit and the fallout from a devaluing sterling.

The electorate has voted in for the second time the Labour government (now with a greater majority) and no doubt this can be attributed to a sense of feel good factor due to better jobs and the reduction of utility tariffs which has increased consumers’ purchasing power and boosted business competitiveness.

This contrasts with a different policy of tax and spend so popular under previous administrations with an over-riding overture of a borrowing instinct – under the merry slogan of “money is no problem”.   Yet, it is spurious to attribute the secret of our economic miracle in four short years exclusively to beginner’s luck aided and abetted by an increase in tourist arrivals or the low price of oil.

This is because other European economies registered lacklustre performances but equally benefitted from the low price of oil, yet none reached an impressive 6.5% real growth in GDP.  In a patronising note, critics of this administration warn that the economy is fragile and the boom cycle will shortly lead to a bust scenario. 

Thus the PN/PD coalition harps on that only further diversification can be the elixir which guarantees continued success, and so far there has been little or no effort in this direction – apart from the IIP scheme (the latter boycotted by the Coalition).

Therefore such critics lambast the economic success saying that it is only paper-thin as pitfalls can be found at every corner. They warn that the government has not concentrated enough in encouraging and identifying new and sustainable forms of economic stimulus. A thorn in the side of the economic boom is the frenetic building boom which on paper shows solid enthusiasm by local developers to splurge in excess of two billion euros in a concerted drive to develop high-rise towers – all catering for upper class tourists and super rich foreign residents to the detriment of an over-stressed environment. This building frenzy came under heavy attack from environmentalists and Church authorities lamenting that confidence in Dubai-ification can only be wanton greed which will end up being the ruination of our traditional core values and way of life.

In short, there is certainly a lot of work to be continued by the recently elected cabinet. Sceptics are quick to retort that we are fighting windmills by painting a fairy tale picture that the economy is strong but in their opinion it is tottering on weak foundations. But international agencies beg to differ.

Our growth potential has been highlighted by the recent favourable upgrade by Standard and Poor’s agency to a stable outlook BBB+/A-2. The Fitch credit agency also upgraded our ranking based on government policy to gradually reduce the debt ratio to below the 60 per cent of GDP and in the medium-term aim for a budget surplus.

Party apologists blow their trumpets and rub their hands with glee, saying that the economy continued to expand robustly in 2016, with real gross domestic product (GDP) reaching 6.3% in 2015, reflecting superlative results gained by both the tourist industry and the gaming sector.

So where is our Achilles heel?  In my opinion it is the lack of an active ecosystem for a well-funded innovation and R&D centre strong enough to anchor our industry. The good news is that both political parties promised in their manifesto to substantially increase investment in innovation and consequently PKF thinks that any effort to attract a world class organization in this field does not come a moment too soon.

Alas the dream of having an innovation and business accelerator centre of calibre may prove to be a true catalyst to attract new investment. This roadmap is an ambitious one as European governments are in competition to attract international companies and start-ups, particularly in fintech and blockchain technologies.

Last year a delegation from PKF visited Massachusetts Institute of Technology (MIT) in Boston, USA to explore links to promote Malta as a potential business accelerator and/or Life Sciences hub for innovators, inventors and entrepreneurs. This was a private initiative undertaken with the blessing and patronage of Chris Cardona, minister responsible for the economy and start-ups.  He offered the services of a technical representative from Malta Enterprise based in New York to join in the discussions – although each party catered for its own expenses.

The uniqueness of MIT is in its appetite for problem solving – especially those intractable technical problems whose solutions make a tangible difference. As can be expected, Malta will smell the coffee and consolidate its economic status by funding a centre of excellence. Fortune favours the bold...

George M. Mangion

George Mangion is a senior partner of PKF, an audit and consultancy firm. He may be contacted at [email protected] or on +356 21493041.