The Malta Independent on Sunday
Observers agree that since Independence, it has not been based on attracting cutting edge technology and transfer of intellectual talent but took the easy option to open the doors to investors giving tax perks, including 10-year tax holidays and various i
preferential rate. This means that instead of taxing the full amount of such profits at the general corporate income tax rate of 25 per cent, only onefifth of such profits would be taxed at that rate. It simply means charging an effective tax rate of five per cent.
The report identified a number of bottlenecks that continue to hamper our knowledge-driven growth potential, such as meagre public spending (0.34% GDP in 2014 versus a recommended EU average of 2.0%), a low level of scientific excellence, a weak human resources base in the sciences and technology, and the declining innovation performance of the private sector with the strongest relative weakness in patent applications. Declining performance was also observed for licence and patent revenues from abroad and the sales share of new innovations. Removing the tax advantages of the Patent box last year has not improved matters. The Country report mentions that conditions for firms remain a key challenge for competitiveness as shown by the performance in the overall ease of doing business indicator where Malta is ranked with the lowest EU performers – Greece and Luxembourg.
Strengthening linkages between the academic and the private sector for effective knowledge transfer is essential, as well as investing more in academic research. It goes without saying that there is scope to reduce the fragmentation and dearth of R & D tax instruments. For this purpose, we need a paradigm shift in our mentality to attract FDI that is sustainable and is anchored on fundamental research conducted through top-notch business accelerators. But simply throwing money at the national start-up scene will not automatically create more members of that Billion Euro Club, whose members are known as “unicorns”. These start-ups don’t exist in isolation and it is true that many of them fail to create instant success.
Sometimes the causes of such failure are the lack of careful nurturing in an ecosystem, which comprises a mosaic of venture capital, angel investors, mentors and the bricks and mortar where the start-ups create their magic. For many a year we have run incubators – which are more about providing bricks and mortar and a place to work and not so successful as they still have the connotation of “life support” rather than inculcating the ambition to innovate and do something bigger and better.
The alternative which proved successful in the USA was the accelerator business model, whose origins are most often attributed to a vibrant start-up scene. These formed part of an effective ecosystem that fostered Airbnb & Uber (so-called Unicorns now worth billions). Why is it so hard for Malta to start enjoying the success registered at other innovation centres run by universities such as MIT, Harvard, Stanford, Oxford, Leiden and others? Now that we are hosting two new educational institutions such as Barts medical school (degrees certified by Harvard) and AUM, we may take heart and try to attract more universities to create a nucleus of talent. Naturally, the future output of graduates from these institutions can either result in a brain drain or, ideally, they stay to populate innovation/research centres of international repute. As stated earlier, there is no impetus to sustain cohorts of talented graduates who simultaneously receive seed money, office space and mentoring in exchange for a percentage of equity.
The report says: “Malta presents a mixed record regarding the environment for business. The World Bank’s 2016 Doing Business survey ranks Malta 80 out of 189 economies in the ease of doing business. A detailed look in the different areas of the survey shows a mixed record: relative strengths in terms of paying taxes, protecting minority investors and trading across borders are offset by problems in starting a business.”