As Malta prepares to enter the European Union in 2004, its companies are looking to become market leaders across the continent by offering the services in which they have particular expertise
With the EU membership debate squared out the Maltese way, it is all systems go as Malta latches on to a Europe that hurtles towards its destiny.
For a country that has been swimming with the currents of regulatory change that are driving global financial services, taking on the rapids that lead it towards the European integrated market should come as no great challenge. And yet none of the thrill will be lost as Maltese firms prepare to compete in the European Union (EU) when Malta joins on 1 May 2004.
What business and investment is better done in Malta than elsewhere in the EU? Is there any business for Maltese firms in the single market? Firms have been asking these questions for some time and rightly so. But more likely than not, it is those among them that are looking at EU membership as an opportunity to harness change and not as an end in itself, that are likely to succeed.
To start, the EU is driven by the realities of a changing world and has itself evolved from a trade agreement into a model of organisational behaviour and collective governance on the world stage. Businesses, governments and all sorts of social groupings come together in the EU to share ideas and information, set objectives and agree on the norms and standards to move forward, free as can be from the constraints of geographical borders and market barriers.
With its sights set on completing the integration of the financial market by 2005 and becoming the world's leading economy by 2010, the EU will certainly be having something to do with the future of businesses in member countries over the next few years. The euro, the expanding single passport, financial integration and technological change all point to one thing. The environment Maltese firms will be entering upon membership will be one that is as dynamic for established member states as it will be for new ones.
For the EU, the issue of economic competitiveness has become inseparable from the realities of the information society. The introduction of new technologies has resulted in new methods for the supply of financial services, with the consequence that location is becoming less important by the day.
Through initiatives such as the Lisbon European Council (March 2000), the Lamfalussy Report (Feb 2001) and eEurope, the EU has made the development of ICT-based business a central policy platform. This has been great news for countries that are physically cut off from the European mainland and that want to do business in a virtual market environment. Such policies would definitely lend Malta's finance industry more freedom to operate within European markets without losing on the cost-based advantages enjoyed back home.
Before turning to Malta's cost-related advantages, however, it is worth taking a step back to look once more at the broader picture. Studies have shown financial services market integration will bring with it greater cross-border division of labour. The 25 member states will seek to become more efficient by specialising in areas where they have a comparative advantage. Countries that are used to open market environments and have built up their human resource and technological know-how will be well placed to grasp the opportunities.
Some of the conventional and not so conventional resources the Maltese have accumulated over many years include an institutional framework that has developed on western European lines for an uninterrupted period of 900 years, an internationally recognised university that is 400 years old, a British-styled educational system that has been 200 years in the making, and a second language that is in everyday use - English. Malta's recent banking history dates back at least 150 years, has been part of the development of sea-based trade across the Mediterranean in the 19th century and has been instrumental to the industrialisation of Malta in the second part of the 20th century.
But even with an institutional framework such as this, Malta's brand of financial services has taken 10 years of careful building to gain ground starting with the shedding off of its offshore tag (its last offshore-registered bank has just acquired its onshore license one year ahead of the stipulated deadline) and continuing with the assimilation of the entire corpus of EU legislation and standards in the area and the development of a legal, IT and communications infrastructure that can handle any type of mobile commerce such as banking, insurance and investment management. Locals and expatriates alike have grown accustomed to a high standard but low cost of living and to sustain this, the Maltese are increasingly relying on an environment conducive to ongoing personal development balanced by moderate-income expectations and a zest for life.
The graduate effect
The logical consequence of this is that in recent years Malta has seen services overtaking production as the major contributor to the country's economy, something that has been aided in no small way by an increasing number of lawyers, accountants, communications specialists, managers and finance graduates coming out of university over the past decade. Perhaps it is no coincidence either that indigenous firms have started venturing overseas, confident they now have the skills available to tackle the beckoning markets. Much of the same skill set can be tapped by inward foreign direct investment for reasons such as cost and performance benefits, penetrating North African markets or drawing on the universal use of English in Malta to reach high net worth individuals across the EU.
How does the EU impact on all this? The enlargement countries have already gained an insight into the financial market integration process and will become part of the decision making in due course. Barriers to entry resulting from regulation will fall dramatically while EU competition rules will prevent unlawful practices that would be detrimental to innovation, competition and consumer interests. Access to EU structures will allow supervisory authorities to respond faster to new forms of prudential risk in banking, insurance and securities markets while the functioning of the mutual recognition system will iron out many of the glitches that mobile business would otherwise come up against.
The net effect is that the environment for financial services will become more stable, the market more efficient and the players themselves more dynamic. The single passport will apply to Maltese insurance, pension funds, collective investment schemes, banking services and investment service providers. The euro will increase price transparency, giving customers a wider choice. Firms will have the opportunity to compete in places where they do not even have a physical presence and the costs of market penetration will be lower. The downside is that the same applies in the reverse direction. But with a good chunk of insurance policies and investment funds sold locally being of overseas origin and substantial amounts of Maltese money moving between bank accounts across Europe, it is hard to see why 2 May 2004 should not be like any normal business day.
In the engine rooms of the Maltese economy, however, it is full throttle as positions shift to challenge new opportunities while some of the old fishing grounds dry up. And the right layers in the value chain are already revealing themselves. But as the newly-accessed EU markets restructure themselves as much as the players within them, optimum price and performance efficiency must be retained at all cost.
So all in all what kind of deck should one expect to be looking at this time next year? Weather permitting Malta will be cruising along with the rest of the fleet. It is just the changing winds would have made the getting there that little bit more exciting.
he financial services market integration will bring a greater cross-border movement of labour.
Initiatives such as the Lisbon European Council mean countries such as Malta which are not physically attached to mainland Europe, can benefit from a virtual business environment.
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till