There is no doubt that Malta is one of the most advanced and respected gaming jurisdictions in the world, as well as having the most licensed operators. In fact, in spite of COVID-19 pandemic, indicators for 2020 performance of the sector have been excellent. According to the Malta Gaming Authority (MGA)’s Annual Report, during an exceptional year where the total economy value added fell by 4.3% in Malta, the gaming industry has recorded one of the highest growth rates in value added relative to other sectors, which growth rate is equivalent to 15.3%. The total Gross Value Added (GVA) generated by the gaming industry during 2020 was €924 million (USD 1.058 billion), around 8% of the economy’s total. At the end of 2020, the number of companies licensed by the MGA, including both online and land-based entities, stood at 323, holding a total of 328 gaming licenses and 357 game type approvals to offer various types of games under the B2C license. During the twelve-month period of 2020, the MGA collected a total of €73.5 million (USD 84.2 million) in terms of compliance contribution fees, levies, and consumption tax. The sector directly generated almost 8,300 jobs in FTE (full-time equivalent) terms, with 91.1% of these employees engaged in the online sector. In addition, when considering the employment produced by activities in or associated with the gaming industry (professional services, financial and ICT activities, hospitality and catering services, distributive trades, and real estate), the total employment in the gaming sector in Malta during 2020 was estimated to be 12,398, approximately representing 4.7% of the total workforce. As at the end of 2020, the number of employees directly working with online gaming companies licensed by the MGA on the activities covered by the Authority’s licenses stood at 7,557. Of that total, 60.4% of all employees were male, with 69.6% of all employees in this sector constituted by non-Maltese workers. The number of active player accounts registered on the websites rose by 18.1% during 2020 when compared with the corresponding period of 2019, reaching 36.2 million. Growth in the number of active players therefore continued in 2020 at very much the same pace of earlier years. The estimated number of new active players’ accounts stood at 15.9 million, showing a 15.5% year-on-year evolution. This was also reflected in the 41.4% increase in the number of new registrations. Over the past three years, players from the 25-34 age group constituted the largest category, accounting for 38.6% of all the customers playing on the websites regulated by the MGA during 2020, followed by the 35-54 age group (32.1%) and the 18-24 age bracket (22%).
MALTA ON THE GRAY LIST
However, everything changed on June 25th, 2021. That day, the Financial Action Task Force (FATF) decided to place Malta on its so-called gray list, reflecting significant deficiencies in Malta’s anti-money laundering and funding of terrorism framework (ALM/CFT). Of course, this news had a global impact, and hurt the Maltese economy; especially, the confidence of international markets, also affecting the gaming sector, as well as advanced areas like cryptocurrency, blockchain, and emerging technologies (AI).
Immediately after this, the Maltese government (Robert Abela -Labour Party- is current Prime Minister) set to work on a scheme to adjust and control its financial and fiscal processes. In September 2021, they presented an action plan to the global watchdog to get off the regulator’s gray list of jurisdictions. The action plan was drawn up by Malta National Coordination Committee (MNCC), chaired by Alfred Camilleri, the permanent Secretary at the Finance Ministry, and includes the heads of the island’s main regulatory and law enforcement entities in the financial sector. At the heart of the plan is an improved commitment to effectively fight tax crimes by using intelligence to catch tax cheats and better policing of ultimate beneficial ownership rules. Marcus Pleyer, president of the FATF, said that Malta has made “good progress” in implementing a plan to solve its deficiencies. “More intelligence had been disseminated to police about potential tax crimes, leading to more tax investigations, and dissuasive fines had also been issued for the filing of incorrect companies’ ownership details with the Malta business registry. There’s still lot of work to be done,” he stated.
On late October 2021, FATF representatives indicated: “Malta should continue to work on implementing its action plan to address its strategic deficiencies, including by continuing to demonstrate that beneficial ownership information is accurate and that, where appropriate, effective, proportionate, and dissuasive sanctions, commensurate with the money laundering and terror financing risks, are applied to legal persons if information provided is found to be inaccurate.” MNCC has given no timeline of how long Malta expects to take to instrument the necessary changes. Government sources revealed they think the process could stretch until mid-2022, or even 2023.
ECONOMIC STABILITY AND GOOD RECOVERY PERSPECTIVES
Five months after Malta was placed on the FATF’s list of jurisdictions under increased monitoring, much has been said about some delays in banking transactions, amplified scrutiny and plummeting foreign investment. So far, at least 45 financial services companies have surrendered their licenses to operate companies or sub-funds in Malta. However, various international financial organizations have carried out studies and reports that confirm the stability of the Maltese economy, despite all the obstacles mentioned. It is convenient to review the data of each one.
For instance, the European Commission highlighted that Malta’s economy grew at a solid quarter-on-quarter rate of 1.9% in the first quarter of 2021, driven mainly by service exports. After a considerable decline (-7.8%) in 2020, real GDP is forecast to rebound to 5.6% in 2021. Estimations for 2022 are similarly strong, at +5.8%, which means that Malta’s economy is on a path to a solid recovery, expecting to reach pre-pandemic levels of activity around mid-2022. About the International Monetary Fund (IMF), directors noted that the banking system has proved resilient, but stressed the importance of safeguarding financial stability. They encouraged the authorities to closely monitor banks’ financial positions and risk management, continuously analyze vulnerabilities from the corporate and real estate sectors, and enhance data collection. While noting recent progress in strengthening the AML/CFT framework, IMF’s directors called for urgent action to address the remaining deficiencies and exit the FATF’s gray list. They recommended prioritizing the areas of transparency on beneficial ownership information and financial intelligence related to money laundering and tax evasion.
As for Fitch Ratings, this financial corporation considered that FATF’s graylisting of Malta has no immediate impact on the country’s ratings or those of its domestic rated banks. The group insisted that the effectiveness of the authorities’ response will be important in assessing any potential credit impact. Maltese financial supervisory authority has developed a set of action points to support the financial services industry and ensure that Malta’s payment infrastructure remains uninterrupted. The Central Bank can offer payment clearance for foreign currencies to corporate clients to ensure the functioning of clearing and settlement activity within the financial system. Besides, the banking sector demonstrated resilience during the COVID-19 recession. Talking about the Central Bank of Malta (CBM), on the last week, this institution published the fourth issue of its Quarterly Review for 2021. Real GDP increased by 13.4% over the corresponding quarter of 2020. This followed a contraction of 1.3% in the previous quarter. On an annual basis, GDP growth was driven by domestic demand and, to a lower extent, net exports. The labor market continued to recover, with employment returning to pre-pandemic levels and unemployment falling further. The unemployment rate stood at 3.5%, lower than the 4.0% registered in the previous quarter, and the rate of 4.6% recorded a year earlier. It also stood below the average rate of 7.9% in the Euro area. During the second quarter of 2021, general Government finances improved, even though they remained in deficit.
TOURISM, VIDEO GAMES AND OTHER SECTORS
General reactivation of the Maltese economy was also manifested in some industries, as well as has encouraged the development of traditional sectors and other incipient ones that have huge growth potential. Now, tourism in Malta is beginning to see the first signs of recovery. In order to reinvent their selves in this new normal era, it will be a key for tourism operators to grow their projects with a vision of sustainable development. For these reason, the Mediterranean Alliance for Sustainable Tourism (MAST), a program funded by UfM for Employment Promotion, has been launched. The idea of Malta will be to work together with other countries for this purpose, such as Greece, Italy, Tunisia and Morocco.
Moreover, on the last week, after an absence of a year due to the pandemic, VisitMalta participated in the 2021 Edition of the World Travel Market, which was held in London, UK. Over the course of the three days, the Malta stand was buzzing with activity as travel agents, tour operators, bloggers, content creators and destination management companies took their time to meet with representatives from the Malta Tourism Authority’s Head Office, as well as with the staff at the VisitMalta UK Office, under the direction of Tolene van der Merwe, to truly find out just why there is more to explore when a tourist chooses to travel to Malta. As the world continues its road towards normality, there is a commitment to turn Malta again into a hub of tourism excellence for the years to come. Attendants to the fair shared the feeling that there is a strong positivity in the market for 2022 and beyond. Taking advantage of this atmosphere, Malta will strengthen its position as an ideal location for tourism and business.
On the other hand, in segments in which the country has been showing its development for years, there are still achievements and recognition. For instance, on late July 2021, Malta was confirmed as the first EU Member State to join the European Union Intellectual Property Office (EUIPO) and go live with the IP Register in blockchain. Blockchain technology increases speed while maintaining high quality data transfers. Data integrity and security are taken to another level, opening the door to new services that improve connectivity between users and their IP rights, and speed up the connection between IP offices. In relation to Artificial Intelligence (AI), in September 2021, a Global AI Index carried out by Tortoise Media has ranked Malta’s National Artificial Intelligence Strategy in 10th place out of 54 countries, significantly surpassing territories such as Estonia, Sweden and Austria, amongst others. The Index investigated seven key indicators: Talent, Infrastructure, Operating Environment, Research, Development, Government Strategy and Commercial, which Malta received a very positive scoring on. The vision is for Malta to become ‘the Ultimate AI Launchpad’, a place in which local and foreign companies and entrepreneurs can develop, prototype, test and scale AI, and ultimately showcase the value of their innovations across an entire nation primed for adoption.
About video games and Esports, the Government of Malta has presented plans for developing these attractive entertainment segments. The video games industry is expanding in Malta, with companies providing exciting opportunities for young Maltese, and exposing them to the latest platforms and practices to increase competitiveness. Maltese authorities are promising financial and tax incentives for new video gaming projects in order to appeal innovative start-ups. The country is also establishing a promotion policy to host thought leadership conferences and events, and foster co-development with other international video games regions. It’s also planning to promote the Maltese video gaming sector at global events. About Esports, Malta wants to build a strong local ecosystem, helping local talents to grow and succeed, attracting international competitions well as niche tourism. These programs would also help to provide new job opportunities in Digital Arts, Media and Esports Business.
TIME FOR GROWTH AND GREAT FUTURE POSSIBILITIES
It is clear that the gaming industry understands the dilemmas Malta faces, but it also views the future with logical optimism. In that sense, Carl Brincat, CEO, Malta Gaming Authority (MGA), has declared: “We know that the graylisting of Malta as a jurisdiction may trigger a re-assessment of the risk posed by Malta-based entities by several stakeholders, such as international banks. Therefore, our licensees may be faced with additional queries and requests for information by international partners. We are in fact prioritizing outreach to the most relevant stakeholders in order to explain, through ever-increasing transparency, that the shortcomings identified in Malta’s regard do not relate to the gaming sector in any way, and should, in practice, not alter the manner in which these international stakeholders perceive and relate to our licensees.”
In parallel, from today until Friday, SiGMA Group organizes the ‘Malta Week’, with four events in one: the SiGMA gaming conference, Affiliate Grand Slam, AI and Blockchain Summit, and Med-Tech World, at the Malta Fairs and Conventions Center (MFCC), in which it will bring together thousands of executives from around the world who will be there to close business deals, meet with their peers and support once again this great market.
Concerning the prospects for the country’s economy, indicators are clearly favorable. According to FocusEconomics, the Maltese economy should expand robustly this year and next, as domestic demand revives amid unleashed pent-up spending, incoming EU funds and supportive fiscal and monetary policies, while a brighter international backdrop will boost tourist arrivals. The company sees GDP expanding 4.9% in 2022, and 3.3% in 2023. For its part, the European Commission has forecasted for Malta a GDP growth of 5.8% for 2022, with an inflation of 1.6%. The Central Bank of Malta’s outlook for 2021 is that GDP should increase by 4.9% in 2021 and a further 5.4% and 4.7% in 2022 and 2023, respectively, driven mainly by pick-ups in domestic demand. At this rate, Malta’s economy is set to reach (and slightly exceed) its pre-pandemic level in 2022.
Besides, in October 2021, the Minister of Finance of Malta, Clyde Caruana, presented the Budget 2022, divided into several chapters, ranging from social to labor, through technology, training, infrastructure, health and sustainability. Some announced measures that should be mentioned are the following: a) a national plan to support employment; b) more financial support to encourage the commercialization of technological products; c) businesses will be monitored on the level of digitization; d) two million training program for employers to support employee retraining and growth; e) tax reduction from 15% to 10% for part-time employees; f) new strategic plan for the financial services sector; g) €470 million (USD 538 million) for the modernization of industrial areas; h) new incubator and further incentives for the video game and Esports sectors; i) new agency for the regeneration of tourist areas starting from the north of Malta; and j) a ‘green fund’ will be launched to help Maltese companies invest in environmentally sustainable projects, and another fund for investments in public open spaces and green infrastructure.
For all the aforementioned, an improvement in fiscal and tax control in the country can be expected, in order to leave the gray list of the FATF as soon as possible, an evolution in the business of gambling, iGaming and video gaming, and economic strengthening that will improve the life of the Maltese population and expand the commercial possibilities of companies installed in the country.