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Network News • 10-11-2022

Anyone recall the slogan 'Think Small' now?

Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 10th November 2022

The Small Business Act (SBA) was piloted by the PN government in 2011 and among other things decreed that a College of Regulators be convened at least three times annually.

The SBA had a late start under the government headed by Joseph Muscat, so much so, that he triumphantly announced the holding of the first meeting of the College of Regulators six years later in April 2017. This speaks volumes for the esteem which is evident for small and medium sized enterprise.

We remember the euphoria of setting up a mega “Private Public Partnership” with Vitals Health Care (later the three properties ceded for €1 to Steward Healthcare) to revamp hospitals. The lofty esteem for mega business dwarfs the significance of SME’s which contribute substantially to the domestic economy. What is the need to shore gold plated regulation, which in practice shuns start-ups?

Understandably, we have a myriad regulating bodies - sometimes overlapping in their respective agendas. The uniqueness of the College for Regulators (see Small Business Act Chapter 512 Article 13) is that it aims to simplify the regulatory burdens on SMEs by increasing cooperation by building synergies among the regulating entities.

Why have meetings of The College of Regulators not been irregularly convened as stipulated at law? The answer is that the spirit is willing, but the body is weak.

Perhaps the SMEs in Malta can earn the attention of Castille to inculcate a Think Small concept as was originally mandated by the EU directives. It is good to know that the promulgation of the monolithic Small Business Act was piloted with much fanfare in July 2011. Historically it formed part of the ubiquitous Small Business Act for Europe (SBA) endorsed by the European Council in December 2008.

It now sits silently in a library of dead letter legislation which is gathering dust on some nondescript shelf in a majestic building called the Main Guard - stoically facing the Grand Palace in Valletta. Observers lament that the “Think Small First” principle is not a reality and the toolbox for SMEs is spartan.

Theoretically on paper SBA is the sole guardian for SMEs as it targets small enterprises (employing less than 250), ie the overwhelming majority of enterprises.

It is a pity that ten years down the line and really and truly the ‘think small first’ concept has never quite taken off the ground (a Dodo). Some argue this needs a cultural change in local politics and therefore is difficult to achieve - sympathizers please act contrite and take a deep breath. Just grin and bear the agony that SMEs in Malta have for a long time been seen by the State - as the Cinderella of the business community.

But as the pandemic attracted millions of funds from EU to stimulate the flagging economy, this opened the floodgates and a new €1.5 million fund is allocated to enable newly developed technology make it to the market. Another bold attempt to launch a ‘one-stop shop’ through ‘BStart’ scheme aims to assist start-ups in establishing their business in Malta including assistance with applications to benefit from existing incentives.

BStart 2021 will be divided into two parts, the “Pre-Business Plan”, where a company can benefit up to €10,000 on each project and the “Post-Business Plan”.

For those startups that present an economically viable business plan, a maximum grant of €200,000 can be awarded. This grant will be spread over a period of not more than 36 months, with €20,000 distributed quarterly.

Complementing the BStart 2021, there is Start-Up Finance. An enterprise can receive the assistance of up to a whopping €800,000 for innovative enterprises.

Five years ago, PKF attracted the attention of a world-famous Business Incubator and Accelerator with its roots in Boston, US and by now spread successfully to various branches in Europe and Australia. When introduced to the minister with responsibility for Malta Enterprise it gravitated a visit by the economy minister and his secretary to a new branch in the Netherlands.

With hindsight PKF regrets the seed fell on infertile land and withered away. Back to the present and a fund is being operated by the Malta Council for Science and Technology together with the Malta Development Bank and forms part of the FUSION national fund which helps finance research and innovation.

The scheme is split into two tranches: the Accelerator Programme, which provides financial assistance to help validate products and get them onto consumer shelves; and the Loan Assistance Programme which helps start-ups cut through red tape and overcome banking obstacles. Between 2015 and 2020, through the aid granted under the BStart scheme, Malta Enterprise assisted 62 companies with individual incentive could be paltry sum of €25,000.

On paper, rules written for a small business can be easily scaled up to cover bigger enterprises, while doing the contrary is terribly complicated. Ideally, this motto should be used consistently and with more determination throughout the whole regulatory and implementing process.

Applying this principle will dramatically ease administrative burdens. Government departments FIAU, MFSA and MCESD are encouraged to respect the proportionality principle when it comes to judge SMEs in areas of compliance and administrative requirements (including AML/CFT rules). This means that legislative or political provisions should scale down demands posted on SMEs, since as can be expected the impact on their activities is disproportionally high.

But this is Utopian. In fact, the six-year hiatus in setting up an active College of Regulators did not help the SBA’s cause. Unless regulators meet frequently to shift through thousands of acts that generate unnecessary bureaucracy - then the molehill turns into the proverbial mountain and no Colossus will be strong enough to tame it.

Undoubtedly, our political mindset is undeniably tinged with a colonial past and sometimes it harbours an ingrained prejudice against the motto ‘small is beautiful’. In the vote-catching arena, politicians tend to support anything that is larger than small which in their own misguided perception leads to the hubris when big numbers are broadcast to the masses (eg the kid glove treatment afforded to a select number of high rise developers).

Last, though not least, the now archaic SBA provisions mandate that any public sector entity rendering services and charging tariffs to the public shall carry out a customer satisfaction survey every two years, with the aim to modify the impact on the business community.

It is the least one expects in the post-Covid roadmap while appreciating the tenets of a unique budget with a true social conscience.

Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 10th November 2022
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