Breakfast Meeting Recap | David Xuereb

The United Kingdom’s exit from the European Union will bring about a number of challenges and opportunities for our country.

For Malta especially, this will be a tough milestone to cross, since our connection with the UK goes way beyond a simple healthy economic relationship.

We are on the eve of a historic event, unless we see a repeat of last March when the exit was postponed, the UK will be leaving the European Union in three weeks’ time. At this juncture, it is important for the British Parliament to decide whether it wants to continue down the path of a hard Brexit without a deal or a soft transitional one.

As things stand, one could say that there is very little to discuss given the fluid situation we are facing on a daily basis. As the days go by, however, a ‘no-deal BREXIT’ seems to have become the only true option at this stage.

The Malta Chamber has stated from the onset of negotiations that this would have been the worst-case scenario, but here we are.

The new proposals tabled on the 2nd of October to the European Commission by the British Government. Without entering into the technicalities of how the new deal differs from the backstop proposed last year, the new proposals show a willingness from the British side to make concessions.

Now we’ll have to wait and see the EU’s response to the latest proposal and how the British Parliament will vote. I can only hope that we do not end up with the alternative to a deal which in Prime Minister’s Johnson’s words “is a hard Brexit on the 31st of October”.

I refer to the words of the British Chambers of Commerce Director General Adam Marshall who said that “businesses across the UK want the Prime Minister to get a BREXIT deal, not just get BREXIT done”. A hard BREXIT would not solve anything but rather create the unwanted prospect of a messy and disorderly exit.

Our two countries have ties which go back hundreds of years. The British left their mark on the Island, from our parliamentary system to our financial and company law, educational system and our bi-lingualism.

The macro - economic impact of a hard vs soft BREXIT

According to an economic study  carried out by KU Leuven University on BREXIT’s impact on all Member States, it is estimated that “the losses that the EU-28 face under a soft brexit are significantly smaller than under a hard brexit. A soft brexit for the EU-27 implies a loss of 0,38% of its GDP and around 280 000 jobs lost, while for the UK 1.2% of GDP and around 140 000 jobs would be lost. A hard brexit for the EU-27 implies a loss of 1,54% of its GDP and 1 200 000 jobs lost, while for the UK 4,4% of its GDP and around 525 000 jobs would be lost”.

This clearly shows that Malta and the Republic of Ireland will be the hardest hit in terms of loss of employment and value added when compared to their economy size and exposure to the British economy.

Short- to medium-term impact of no-deal (hard Brexit) scenario

A no-deal Brexit would be a blow to the Maltese economy, but the extent of its impact is difficult to determine at this stage.

Companies in the tourism sector, financial services, IT and gaming, and businesses that trade with the UK might feel the greatest impact when Britain leaves the bloc. However, a no-deal Brexit will also have an impact on the local workforce if British expats would need to relocate.

Maltese businesses cannot plan effectively until a deal is struck. This means that industry is being forced to ensure stocks do not run low and seek alternative routes of supply, among other things.

This uncertainty brings fear amongst investors and consumers which could have an indirect ripple effect on the Maltese economy in terms of goods and services sold to the rest of the single market.  

In the short to medium we are expecting the British economy to contract and the pound to weaken further. This will have an impact on British citizens’ purchasing power, and therefore also on tourist numbers and expenditure in Malta.

The degree to which a no-deal Brexit will affect the buoyancy of local markets depends on the consequences it would have on the EU economy as a whole. For example, if the German car industry is hit by a slowdown in sales to the British market this would be have repercussions on Maltese manufacturing components plants which supply German producers.

Trade (Total Imports and Exports) in the last years amounted to 500 to 600 million euros, which is approximately 16% of total trade. We saw a recent increase in trade between the two countries.

A number of British registered aviation and maritime companies are relocating their assets such as sea vessels and aircraft to Malta. We are also informed that many 2nd hand car dealers whose main source market was the UK were bringing a higher number of vehicles.

Companies importing from and exporting to the UK would face tariffs overnight and must deal with customs procedures.

Administratively a no deal BREXIT is seen as a nightmare.

In fact, the overall administrative burden for Customs and businesses trading with the UK are expected to increase considerably.

These are just but some examples we are foreseeing, I’m sure Dr Xuereb from the MFSA will be entering into great detail on the effects it will have on the Financial services segment especially in terms of passporting of products and services from Malta to the UK and vice-versa and also in terms of co-location opportunities for British firms.

Opportunities post-BREXIT

Since the Maltese economy is currently in a healthy position, it should be able to absorb any negative shocks from Brexit. The Chamber notes the productive work done by the Malta-UK trade promotion task force over the past two years, which has attracted new Brexit-induced business to our shores. Many companies in the shipping, education, aviation and tech industries are expected to relocate to Malta.

Malta’s proposals to UK-based financial service operators to help them sustain their business in Europe through a co-location arrangement, is also another step in the right direction to attract certain players to the local market.

Long-term economic relationship with the UK

Again, it is a very difficult prediction to make. It will depend on the relationship the UK will wish to maintain with the European Union after BREXIT.

No matter which way we go, there will be a transitional period but I’m confident that the strong ties between Malta and the UK will not be negatively impacted in the longer-term.

To the contrary, I believe that the UK’s exit from the EU could give both countries the scope to strengthen existing ties also by way of Malta being a member of the Commonwealth alongside the UK.