Take a deep dive into the Maltese middle market sector
The definition of middle market aims at capturing the segment of companies which fall in between what are defined as small and large entities. In the Maltese context, the definition tends to be more punctuated given the relative size of the economy and of its key players.
However, all non-regulated entities which fall under the SME (micro/small/medium sized) definition fall within the ‘middle-market’ industry segment. The industries making up this segment are mainly coming from the retail, importing and distribution, real estate, manufacturing and other technical business.
The European Commission’s statistics released in 2018 showed that Maltese SMEs generate 81% of value added and 80% of employment in the country’s “non-financial business economy”. In the past five years the economy of Malta has experienced an unprecedented growth, and SMEs have continued to lead the growth of the non-financial sector. These statistics also indicate that value added by SMEs increased by 63% between 2013 and 2017, with small firms generating even greater growth, estimated at 77%.
The real estate sector has clearly been the primary driver of Malta’s economic growth. Property prices have increased exponentially, fueling more investment in property and creating pressures points in the rental market. The boom in the real estate sector unleashed a multiplier effect within the whole economy.
Family businesses play an important role in the middle market sector. According to the European Commission, they accounted for 70-75% of Maltese businesses in 2018. The inherent nature of family businesses creates further challenges, namely succession, corporate governance and the introduction of professional management. It has been further estimated that only 30% of family businesses are successfully handed from the first to the second generation in the family, with less than 10% making it to the third generation.
Other sectors, namely the retail, importing and distributing and manufacturing entities, have experienced stresses on the margins, driven by fierce competition, online shopping and an increasing operating cost-base.
Whilst riding the wave of a booming economy, there are some challenges looming on the horizon for the local middle market. This sector needs to start embracing the digitalisation of its operations whilst securing key talent, enhancing internal governance models, rationalising the cost base and internationalising business.
Territory Senior Partner, PwC Malta
Tel: +356 2564 6892
Assurance Partner, PwC Malta
Tel: +356 2564 7194
Middle Market, PwC Malta
Tel: +356 2564 7804