We need more entrepreneurs – The Malta Independent

Entrepreneurs are few, but their impact is outsized. In most economies, only about 1–2% of workers launch a business each year, yet it is these risk-takers—especially the innovators—who power competitiveness and job creation. Their success, however, depends on a business environment that welcomes new ideas and enables them to scale.

Why innovation matters

Innovation lifts productivity: with the same inputs, economies produce more. When productivity rises, wages tend to follow, putting more spending power in people’s pockets. Businesses also benefit—higher efficiency boosts profits, which can be reinvested in expansion and new hiring. As novel technologies spread, costs fall and competition intensifies, pushing incumbents to modernize. New or improved products grow markets and raise living standards.

New firms add jobs directly and indirectly through multiplier effects across supply chains and services. Where entrepreneurship is vibrant, both firms and entire economies become more productive.

Breakthroughs often make headlines, but modest, incremental improvements—better components, smarter processes, more reliable services—can transform everyday life just as profoundly. We should celebrate both.

The risks and the reality

Entrepreneurship is hard. A significant share of startups fail early: roughly one in five in the first year (about one in seven in Malta). Survival remains challenging as time passes: around half close within five years and about two-thirds within a decade. New entrants can also disrupt sluggish incumbents, triggering layoffs when older firms fail to adapt. Organizational inertia, fear of cannibalizing existing products, and stakeholder pressure often slow incumbents’ response to change.

Rules that enable—or suffocate—entrepreneurship

Entrepreneurs thrive when opportunities and incentives align. That depends on a nation’s institutions—both formal rules (laws, regulations) and informal norms (values, trust, acceptable practices). Formal rules can be adjusted relatively quickly; informal ones evolve more slowly but are just as powerful.

Excessive or poorly designed regulation can sap dynamism. Analyses have shown that regulatory burdens can shave notable fractions off GDP, with large differences across countries. Where rules are clear, proportionate, and consistently enforced, most entrepreneurs choose the productive path—paying taxes, complying with standards, and building value. Where rules are murky or the rule of law is weak, unproductive behavior (like rent seeking and regulatory evasion) or even destructive activity can crowd out genuine innovation.

Europe also suffers from fragmentation. Barriers in services and administrative frictions in the single market have constrained dynamism. Another handicap: the absence of a single, continent-leading innovation hub on the scale of Silicon Valley, which, despite a tiny share of the world’s population, has produced a striking share of the world’s most valuable tech firms.

Malta’s mixed picture

Malta shows strengths in generating intellectual assets, yet innovation among SMEs is limited. The signals are mixed: employment in knowledge-intensive sectors is high, but job growth in innovative businesses has been declining since 2017. Sales from new-to-market and new-to-firm products, as well as exports of knowledge-intensive services, remain among the lowest in the EU.

Only about 10.7% of Maltese enterprises applied for intellectual property protection in 2022, suggesting that many firms are not formalizing or monetizing their ideas. Businesses cite intense competition and the high cost of innovation as major obstacles.

R&D spending reached about €99.9 million in 2021—roughly 0.67% of GDP—with the private sector contributing the bulk. That was an increase on the previous year but still places Malta near the lower end of the EU in R&D intensity. Meanwhile, startups report that access to finance remains too limited, and stock option frameworks for employees could be more attractive to help young firms recruit and retain talent. Public finance institutions should be rigorously evaluated for their impact in closing these gaps.

Structural constraints are real. The domestic market is small, forcing startups to think internationally from day one. That mindset can be an advantage, but it also raises the cost and complexity of scaling. Too much of the public narrative around entrepreneurship is dominated by traditional property and construction plays—important businesses, but not the sort of innovation that drives frontier growth. We need to spotlight and support founders building new products, new technologies, and new models.

The mindset shift we need

Education is central. Malta must do more to cultivate creative problem-solving, critical thinking, and interdisciplinary collaboration from early schooling through higher education and lifelong learning. Students should be encouraged to test ideas, learn from failure, and build prototypes—not just memorize content. Stronger university–industry links, modern IP policies, and easier pathways to spinouts can turn research into real-world impact.

A practical agenda for action

• Cut friction: streamline licensing, reduce duplicative compliance, and deliver predictable, digital-by-default services for company formation, contracting, and payments.
• Back R&D with focus: increase public and private R&D investment, co-fund mission-driven programmes, and support testbeds, sandboxes, and standards that accelerate adoption.
• Mobilize finance: expand seed and growth capital, improve stock option policies, crowd in private investors, and ensure public instruments truly de-risk, not displace, the market.
• Attract and retain talent: simplify visas, recognize qualifications, and promote Malta as a hub for specialized skills and remote-first teams.
• Empower SMEs: provide vouchers and advisory services to help traditional firms adopt digital tools, IP strategies, and export-readiness plans.
• Celebrate builders: showcase role models beyond real estate—deep tech, green tech, health, creative industries—and build communities that mentor the next generation.

Malta can move from a consumption- and construction-led model to an innovation-driven economy. That requires a coalition: policymakers who remove obstacles, educators who nurture curiosity, investors who back ambition, and founders who take bold, informed risks. With the right rules, resources, and culture, we can turn more good ideas into growing companies—and more growing companies into quality jobs and sustained prosperity.