FDI - In and out

In seven years (2004-2011), whereas direct investment in Malta by foreigners jumped 500% from € 2.5 billion to € 12.5 b, investments by Maltese citizens abroad only went up 45% from € 0.9 billion to € 1.36 b during the same period.  At first glance, nothing untoward in such an NSO revelation.

But surely not after a thorough analysis of such statistics - never, to my knowledge, have they been subjected to any study or even commented upon in economic or financial circles or the media.  Only, as usual, cursorily reported on in gist form following the NSO’s yearly handout.  No more.   Not even for academic purposes inside the University’s Faculty of Economics where, it seems, lecturers are more inclined towards praising the government’s economic achievement, for which they are rewarded by lucrative directorships in business units with state involvement, than the pursuit of knowledge.

In my eyes, a baffling state of affairs because potentially the FDI data could be replete with explanations on financial trends, as they often are in most economies, but more so one like ours where the financial services sector hogs a relatively large, and ever-growing, share.

That FDI-Inwards grew fivefold in 7 years is not surprising.  And not unwholesome either, though it may erroneously conjure up ideas of foreign domination akin to colonial times in the eyes of the elderly folks.  One must consider that most of the assets claimed by foreigners are financial ones, very much unlike what Dom Mintoff found when he assumed power in 1971  -  strategic assets, vital to our economy, which he so successfully managed to wrest from the colonial rulers, but which sadly later the Nationalist administrations sold off, mostly at give-away prices to foreigners ( e.g. Mid-Med Bank, Maltacom, Airport and others ) in order to mitigate their irresponsible and uncontrollable spending spree up to the point of admittance to the E U, with an obligation to behave financially to join the eurozone at least two years after, which we did in less than four.

FDI-Inwards’ importance is unfortunately often overrated.  Government spokesmen, naturally, remind us from time to time about their success with FDI-In.  No one denies this, particularly in the context of political stability which is equally credited to both the government and the opposition.  What they fail to state, however, is that very much the lion’s share ( never less than 90% ) of each year’s FDI-In has been in financial services, and very little (sometimes even negative) in manufacturing.

Sometimes I wonder whether an FDI-In equivalent to twice the country’s GDP is healthy.  Like ours.  Surely, an appropriate discussion for among our economists - but only if Malta had been another country where free-thinkers do not fear for their job advancement if they were to criticise prevailing policy.

Be that as it may, it is not FDI-In which worries me, but investment in the opposite direction, FDI-Outward by locals abroad.  Not so much its paucity, absolutely and relatively to FDI-In, but its steep downward sliding over recent years.  During the last six years to 2011 such an investment has always been negative - € 24 million in 2006, € 5 m in 2007, € 20 m in 2008, € 83 m in 2009, € 38 m in 2010 and € 0.4 m in 2011.   Admittedly, these amounts are not frightening, but why should they be so when the economy has been mainly in a growth path?  At € 1.3 billion it is hardly 20% of the GDP ( cx. 200%  for FDI-In ).

I confess inability to provide a credible explanation, or even try to extrapolate one, despite my several endeavours.  Maybe I am not adept enough in economic matters.  Modesty aside, perhaps this state of affairs reflects the unexpressed perplexity of financial analyses. 

The utter silence from economists, and especially from those at the Faculty of Economics, astounds me.  Perhaps a student reading this will propose it for his/her dissertation.

Maynard