EMCC European Monitoring Centre on Change

Malta: ERM Comparative Analytical Report on ‘Public policy and support for restructuring in SMEs’

  • Observatory: EMCC
  • Topic:
  • Published on: 13 May 2013



About
Country:
Malta
Author:
Clyde Caruana
Institution:

Disclaimer: This information is made available as a service to the public but has not been edited by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.

Support schemes for the restructuring of SMEs were limited in the pre-recession years. However, as Malta was about to join the European Union in 2004, and especially during the recent economic recession, the need for restructuring received a lot of attention by government and social partners. To help local industries and especially SMEs to thrive, government has launched a myriad of schemes through its agencies. Since 2007, entrepreneurs and employees have benefitted significantly from European Social Funds (ESF) and European Regional Development Fund (ERDF) administered by Malta Enterprise (ME) and the Employment and Training Corporation (ETC).

QUESTIONNAIRE

Part 1: Overall policy context

1.1. Has there been public or policy debate on the specific challenges for SMEs and/or their employees in restructuring before the global recession of 2008/09? Please specify, for example:• If so, since when (e.g. up to 3 years before, 3-10 years before, longer), at which level (national, regional, sectoral, all of them) and in which form (‘real’ policy debate mirrored in policy documents or rather public debate mirrored in media, or both)?

Similar to other EU Member States, small and medium enterprises (SMEs) in Malta are conducive to economic growth. According to a European Commission (EC) – Enterprise Industry communication (EC, 2012), 99.9 % of Maltese enterprise falls within the definition of SMEs. The fact sheet presented by the EC confirms that the presence of micro firms (employing less than nine persons) in Malta is the highest among all Member States. While in Malta micro firms account for 95.8 % of enterprise, the EU27 average is 3.7 percentage points lower at 92.1 %. In terms of jobs, the share of employment provided by SMEs in Malta is more substantial compared to the EU27. Maltese SMEs are responsible for 77.4 % of private employment in contrast to EU27 SMEs which account for 66.9 % (Eurostat, 2011). Simply put, the role of SMEs in Malta is pivotal to the economy.

Malta’s economic growth was always dependent on exports. The small size of its population – less than half a million – makes it very difficult to generate enough domestic economic activity to guarantee a livelihood for those who are economically active. Conscious that the local protected industry could not survive the competition of the EU’s single market, government set up the Institute for the Promotion of Small and Medium Enterprise (IPSE) in 1997 to help small entrepreneurs to face future challenges. In 2002, IPSE together with other government trade related corporations merged to form Malta Enterprise.

The run-up to EU membership (2004) was characterised by an intense national debate on the need to restructure. Restructuring was an inevitable process for many firms, as their inefficiency could no longer be sustained by the imposition of tariffs on imported goods. Pre-accession funds topped with national funds were made available to entrepreneurs to ease the financial burden of restructuring. Nonetheless, the transition proved to be a painful process, especially for the manufacturing sector which shed more than 16 % of its workforce between 2000 and 2006, as the number of full-time jobs declined from 26,700 to 22,315 (NSO, 2005; NSO, 2010).

• Which policy areas (for example, SME policy, entrepreneurship policy, employment policy, social policy, regional policy etc.) were involved? Particularly: Does SME policy specifically deal with restructuring? Does ‘restructuring policy’ specifically deal with SME issues?

The Ministry for Economic Services who was responsible for SMEs and the economy in general, piloted the restructuring process. Prior to the 2008/2009 events, the emphasis on restructuring was more focused on helping firms adapt their production processes to face-up competition, rather than on the retraining needs of workers. The role of the Ministry of Education, Youth, and Employment with regards to the retraining needs of the workers became more prominent during the recession period.

• Did the public and policy discussions deal with restructuring as such or were specific types or phases of restructuring covered?

During the pre-accession period, the ‘restructuring’ issue was politicised and it often revolved around how many potential jobs could be lost, especially in the manufacturing sector.

• Which were the issues/contents that have been discussed? Which specific characteristics of SMEs in restructuring were considered in this context? Was the specific case of SMEs as subcontractors a topic for discussions?

Around the time that Malta joined the EU, the main contention was the inability of a number of smaller local firms operating in specific sectors like the manufacturing of wooden furniture, rubber and plastic products, textiles and wearing apparel to withstand foreign competition after the removal of the protectionist tariffs. These tariffs had been put in place in order to ward off competition from foreign firms. The restructuring process for a number of manufacturing firms resulted in the complete closure of their business, although the majority of companies rose up to the occasion and restructured their business and continued to operate successfully. The case of SMEs as subcontractors was more of a sideline issue during the debate.

• Did the discussions rather deal with the enterprise perspective or with the employee perspective or both?

The discussions addressed situations of how particular industries could be impacted by EU single market rules and as such, issues relating to both employers and their employees were discussed.

1.2. Did the global economic and financial crisis of 2008/09 cause any change in focus of the above (for example, increased/decreased focus on SMEs and their employees in restructuring, change in policy areas or issues covered)?

Being an open economy were exports as a percentage of GDP are in excess of 90.0 %, Malta suffered from a slowdown in aggregate demand for its goods and services during the recession. To avert unemployment, government promptly intervened and gave temporary assistance to firms facing difficulties. The assistance consisted of subsidies to upskill workers with new abilities, grants to invest in new machinery, and funding to research for new markets and to develop new products. This type of assistance, supplemented with EU funds, meant that SMEs could tap into a windfall of schemes. In fact, Malta was among the three European Member States that managed to increase (though slightly) the absolute level of employment during 2009 (Eurostat, 2012).

1.3. Are social partners or employers’ and employees’ organisations involved in public and policy debate on restructuring in SMEs?• If so, which (types of) organisations and at which levels?

In Malta, social dialogue is considered an important part of the policy formulation process. The Malta Council for Social and Economic Development (MCESD), brings together the tripartite, that is, the government, the employers and trade unions. Prior to 2004, the difference of opinion between MCESD members and political parties was mainly about the restructuring pace. Today, the need to continuously restructure the production process at all levels of the economy is universally accepted. This wider consensus leaves no scope at all for any policy debate on restructuring.

• What are their opinions, perspectives, recommendations?

The employers’ representatives often stress the importance and need of continuous restructuring. Now that Malta is part of the single market and state aid is regulated by EU laws, employers are aware more than ever before that they need to be competitive in order to stay afloat. The Malta Hotels and Restaurants Association (MHRA) for example, incessantly urges government to provide funds to the industry to restructure itself following the increase in utility bills. The high cost of energy reduced the industry’s profitability and consequently its retained earnings. If hoteliers fail to generate enough capital to finance future improvement in their investment, they risk losing the market share to other Mediterranean neighbouring competitors. In fact, since 2009, many entrepreneurs opted for grant schemes, which make it possible for firms to economise on their energy bills. Other recommendations that were touted by employers’ representatives were the creation of financial/tax credit schemes to help SMEs invest in new capital and government guarantees on SMEs bank loans to facilitate and encourage credit issuance by banks.

• Did they succeed in convincing governments or public authorities at various levels of their viewpoints?

Unlike other European Member States, the Maltese economy weathered the recession quite well. As a matter of fact, according to Eurostat figures, the employment ratio in Malta between 2008 and 2011 increased by 2.4 percentage points while the EU27 average employment ratio retreated by 1.7 percentage points (Eurostat, 2012). This positive result can be in part accredited to the number of restructuring schemes that the government launched after heeding the advice of both employers and employees’ representatives. One such scheme that was oversubscribed was an ERDF project specifically targeting investment in energy cost-cutting technology. Over €14.7 million were distributed through this scheme to 264 firms.

Part 2: Support instruments

2.1. Please provide an overall assessment about how accessible and suitable public and social partner based restructuring support for companies in general are for SMEs or their employees.• Do SMEs and/or their employees generally have access to the available instruments and are these suitable for their specific needs in restructuring?

Restructuring measures target various entrepreneurial needs; however, it is the employer who can apply for them. Employers can benefit from wage subsidies if they employ workers who are either at a disadvantage or have been long-term unemployed. Funds for training purposes are available through the Training Aid Framework. Those employers who want to invest more in their workforce skills can apply for these funds.

The restructuring instruments are very useful to employers as these are encouraged to take on additional investment. Some of the instruments target particular sectors such as subsidies on interest rates incurred by hotels and restaurants on refurbishment expenditure, while there are others open to all economic sectors such as MicroCredit and MicroInvest. These two schemes enable SMEs to finance capital injections in their business that range between €25,000 and €80,000 (MEA, 2011).

• Are there specific (types of) instruments (for example, targeting specific types or phases of restructuring, offered at specific administrative levels) that are more/less accessible and suitable for SMEs and/or their employees that for larger firms? If so, why?

Many of the schemes administered by Malta Enterprise are only intended for micro, small and medium sized enterprises. In general, the schemes do not target or specify on the type of restructuring which can be done, but these are open to any type of capital investment that is carried out.

2.2. Do there exist specific public or social partner based support instruments explicitly targeting at SMEs and/or their employees in restructuring? Please specify, for example:• If so, by whom are they offered (public vs. social partners/employers’/employees’ organisations) and at which administrative levels (national, regional)?

Public support instruments in Malta are administered at the national level. Support measures can be broadly classified in two main areas: those targeting capital investment and those aimed at increasing labour productivity through the upgrading of skills or by improving the employability prospects of active persons who are at risk of marginalisation.

The administration of capital investment schemes falls under the remit of ME as it fulfils the role of a one-stop shop for SMEs on investment and business affairs. In addition to this, Malta Enterprise is also responsible for overseeing foreign direct investment and R&D matters. On the other hand, ETC deals with labour market issues. It administers both national and EU funds related to training and employment programmes.

• Are the activities of different support service providers coordinated? If so, how and how well does this work?

Support measures are administered by ME and ETC. The staff compliment responsible for managing these schemes is limited and this means that the exercise is highly centralised and coordinated. The bureaucratic system seems to work fine as it is not the first time that these schemes were over-subscribed. Nevertheless, many entrepreneurs feel it is not worth their while to apply for such schemes because of the red tape involved.

• Which phases of restructuring do they target?

Most of the targeted projects can be categorised as proactive investment (in anticipation of change). After the recession, government together with the social partners stressed the importance of investing more in product quality. Being so trade dependant, it is essential that Maltese goods and services remain competitive in the market in terms of uniqueness, quality, and price. Thus, investment in new machinery and the upgrading of workers’ skills is becoming a routine expenditure of Maltese businesses, especially in medium sized firms.

• Which types of restructuring do they target?

The ongoing restructuring process consists mainly of business expansions and internal restructuring. Maltese entrepreneurs are greatly encouraged and assisted to embark on one of the following four strategies, namely: i) market penetration, ii) market development, iii) product development and iv) diversification. Malta is relatively one of the smallest nation states in Europe, so it does not take much to generate enough economic activity for all local business activity.

• Do they target SMEs in general, or specific size classes, sectors, regions, legal forms, roles (for example, as subcontractors) etc.? Do they target employees of SMEs in restructuring?

The majority of support instruments cater for all SMEs. However, there are schemes that are specifically intended to support micro enterprises such as the ‘MicroCredit’ scheme or the hotel and restaurant sector such as the ‘Refurbishment subsidy’ and ‘Energy efficiency loan’. MicroCredit grants offer up to €25,000 in the form of tax credits to those micro firms that carry out capital outlay investment.

Employees are targeted by the ETC. During the past few years, ETC supported the training of workers of SMEs through the Training Aid Framework. Since February 2009, 23,000 workers benefitted from €10.8 million worth of training under this scheme (Di-ve.com, 2012; DOI, 2012).

• What type of support do they provide? What specific challenges for SMEs in restructuring do they address?

SMEs can benefit from a myriad of services, which range from financial support, to technical assistance related to business advisory services, business start-up support, and exploration of new market routes. The grants and credits that firms receive seem to be the most important. In the absence of enough liquidity, businesses may otherwise simply prolong the time until new investment is made and this may possibly leave space to competitors to gain an edge in the market, in the meantime. To facilitate even further the take-up of credit, starting from 2012, micro and small enterprises can also benefit from government guarantees on loans in order to encourage credit issuance by banks (MFEI, 2011).

These measures are intended to support entrepreneurs in their decision-making process and to encourage them to embark on new ventures without putting at peril all their personal belongings as a loan guarantee. According to a survey carried out by the National Office of Statistics in 2011, 94 % of owners or directors offered personal guarantees in exchange of business loans in 2010 (NSO, 2011).

Market facilitation contacts and financial grants aim to increase the success rate of firms and subsequently the creation of employment. In fact, according to the Minister for Fair Competition, Small Businesses, and Consumers, micro enterprises generated 247 new jobs thanks to the MicroInvest scheme (TOM, May 2012).

• Is there some information about how well they are known among SMEs and their advisors and about how they are generally assessed by the SME sector? What are their strengths and weaknesses? Are there recommendations for improvement?

The schemes are still ongoing hence, no evaluation has been carried out yet. Nonetheless, the research unit of the General Retailers and Traders Union (GRTU) commissioned a study in January 2012 in order to find out more about the experience of entrepreneurs with EU funds. The findings indicate the need for more marketing of the schemes and less bureaucracy in their administration.

Results show that one-third of respondents did get some form of assistance, while thirty-nine % have never heard of any incentives that SMEs can benefit from. One-third of those who applied but where not successful, renounced at the early stages of the application because they felt it was not worth it to deal with so much bureaucracy. Bureaucracy together with the limited amount of funds available were cited amongst the top reasons why businessmen tend to renounce to such schemes.

Part 3: Good Practice

The schemes discussed hereunder are still ongoing hence; the proper evaluation studies will be carried later on. Nevertheless, the popularity of such schemes due to the high number of participants makes them eligible to be considered as good practice schemes.

  • Name of the instrument in national language and English: MicroInvest
  • Justification for selecting this measure as Good Practice: Popular with entrepreneurs.
  • Date of launch of the instrument and end date (if applicable): January 2010, ongoing
  • Initiator/administrator (organisation): Malta Enterprise
  • Other involved actors and their roles: not applicable
  • Source of funding: European Structural Funds cofinanced with National Funds.
  • Target group/eligibility/coverage: Micro and small enterprises with less than 20 employees.
  • Phase of restructuring targeted: Anticipation of change
  • Type of restructuring targeted: Business expansion and internal restructuring
  • Purpose/content/characteristics/description of services provided: Tax credit up to € 25,000 for
    • -Furbishing and upgrading of business premises for improved operations;
    • -Machinery or technologies to improve operations;
    • Machinery or technologies which save or generate energy;
    • Investments which enable compliance with regulations, including Health & Safety, Environment Directives and Physical Access;
    • -Cost of one commercial vehicle as long as such vehicle is involved in the transport of goods as specified in the guidelines;
    • -Wage costs for new jobs created and/or apprenticeships taken, as long as these constitute a net increase in the total number of employees as of the 10th November 2009.Outcome of the instrument (e.g. number of beneficiaries, effects): 1,000 micro beneficiaries, €15.7 million of investment and 235 jobs created
  • Strengths/success factors of the measure: not yet available
  • Weaknesses/bottlenecks of the measure: not yet available
  • Was the instrument formally monitored/evaluated? If so, please specify (by whom, how, what were the finding and how were the findings used etc.) not yet available
  • Weblink: http://support.maltaenterprise.net/index_files/MicroInvest.htm
  • Information sources used for filling this section: http://support.maltaenterprise.net/index_files/MicroInvest.htm
  • http://www.timesofmalta.com/articles/view/20120308/business-news/MicroInvest-scheme-reaching-the-1-000-mark.410233
  • Name of the instrument in national language and English: MicroCredit (JEREMIE)
  • Justification for selecting this measure as Good Practice: Popular with entrepreneurs.
  • Date of launch of the instrument and end date (if applicable): April 2011, ongoing
  • Initiator/administrator (organisation): Bank of Valletta
  • Other involved actors and their roles: not applicable
  • Source of funding: European Structural Funds cofinanced with National Funds.
  • Target group/eligibility/coverage: All SMEs except those in Agriculture & Fishing, Construction, Real Estate and Transport
  • Phase of restructuring targeted: Anticipation of change
  • Type of restructuring targeted: Business expansion and internal restructuring
  • Purpose/content/characteristics/description of services provided:Favourable interest rates and advantageous collateral requirements to
    • -Improve the performance of their operations through capital investment in plant and equipment;
    • -Launch new products and services in new niche markets through capital investment;
    • -Tap into new export markets by improving the Malta-based operations;
    • -Enhance the presence on the World Wide Web;
    • -Invest in Green Technology; and
    • -Promote and transform Gozo as an ecological island
  • Outcome of the instrument (e.g. number of beneficiaries, effects): 110 SMEs, €16.0 million of investment
  • Strengths/success factors of the measure: not yet available
  • Weaknesses/bottlenecks of the measure: not yet available
  • Was the instrument formally monitored/evaluated? If so, please specify (by whom, how, what were the finding and how were the findings used etc.) not yet available
  • Weblink: https://www.bov.com/filebank/documents/BOV%20JEREMIE%20A4%20Flyer%20Eng.pdf
  • Information sources used for filling this section: http://www.maltaemployers.com/Portals/22/Micro%20Credit,%20Micro%20Invest%20ARTICLE2.pdf
  • http://www.timesofmalta.com/articles/view/20111014/local/Benefits-from-microcredit-scheme.389120
  • Name of the instrument in national language and English: Training Aid Framework
  • Justification for selecting this measure as Good Practice: high number of participants
  • Date of launch of the instrument and end date (if applicable): May 2010, temporarily closure as from June 2012 due to full utilisation of available funds
  • Initiator/administrator (organisation): Employment and Training Corporation
  • Other involved actors and their roles: not applicable
  • Source of funding: European Social Fund
  • Target group/eligibility/coverage: All private industry
  • Phase of restructuring targeted: Anticipation of change
  • Type of restructuring targeted: Business expansion and internal restructuring
  • Purpose/content/characteristics/description of services provided: To promote access to training to improve the skills of persons actively participating in the Maltese Labour Market subsidies to cover training costs are provided.
  • Outcome of the instrument (e.g. number of beneficiaries, effects): 23,000 persons
  • Strengths/success factors of the measure: not yet available
  • Weaknesses/bottlenecks of the measure: not yet available
  • Was the instrument formally monitored/evaluated? If so, please specify (by whom, how, what were the finding and how were the findings used etc.) not yet available
  • Weblink: http://etc.gov.mt/etc-portal/Page/55/taf-employers.aspx
  • Information sources used for filling this section: http://www.doi.gov.mt/en/press_releases/2009/04/pr0744e.asp
  • http://www.di-ve.com/Default.aspx?ID=71&Action=1&NewsId=92318

Commentary

During the last decade, Maltese SMEs underwent an intense restructuring phase that led to the closure of some firms. As a result, present SMEs across all sectors of the economy are much more efficient and dynamic. Support schemes funded by European Union programmes together with national funds have facilitated the restructuring process by making it possible for many SMEs to invest and to continue operating. Today these funds are not limited to investment in machinery but can also be used to address human capital needs. It is likely that government will continue to sustain SMEs, as these are deemed fundamental for the creation of additional jobs.

Clyde Caruana, Centre for Labour Studies, University of Malta

References:

  • Department of Information (Doi, 2012). ETC schemes and services in Gozo.
  • Di-ve.com (2012). ETC suspends employment aid scheme.
  • European Commission, Enterprise and Industry (2012). Small and medium-sized enterprises, SME Performance Review.
  • Eurostat (2011). Business economy – size class analysis.
  • Eurostat (2012). Employment by sex, age groups and nationality.
  • General Retailer and Traders Union (GRTU, 2012). GRTU survey suggests room for improvement for funds applicable to SMEs.
  • Malta Employers Association (MEA, 2011). MicroInvest and MicroCredit Explained.
  • Ministry of Finance, Economy and Investment (MFEI, 2011). Budget Speech 2012.
  • National Statistics Office. (NSO, 2005). Sectoral Distribution of Employment Classified by N.A.C.E. Standards.
  • National Statistics Office. (NSO, 2010). Gainfully Occupied Population 2005-2007: Revised Quarterly Figures.
  • National Statistics Office. (NSO, 2011). Access to Finance: 2007-2010.
  • Times of Malta (TOM, 12th May, 2012). We owe it to businesses.
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