Malta’s economic diversity strategy of recent years has paid off in spades but analysts and international institutions all agree that the island’s investment appeal has been the key in unlocking its full potential. The country’s world-class business environment, cutting-edge technology, competitive labour costs, highly educated workforce and gateway position to European and African markets have helped Malta attract companies and capital from Europe, Asia and the US. Today, Malta has a global reputation for being a high-quality hub for the maritime, manufacturing, ICT and financial services industries, but investors are also becoming increasingly upbeat about the opportunities that the island offers in emerging areas such as education, health, life sciences and research and development. Acknowledging that Malta’s infrastructure sector is lagging behind, many in Malta’s public and private sector believe that modernisation and upgrading of the transport, waste and water networks have the potential to become key drivers of future growth and attract significant investment. Gozo is also being pitched as a location for foreign investment as Malta’s sister island is addressing its connectivity challenges.
A Vision for FDI
Malta recognised early on that for a small open economy with few natural resources, FDI could be an important engine of economic development. Faced with the challenge of building up a private sector in the 1960s to keep the economy afloat after 150 years of reliance on the British forces stationed on the island, Malta began setting up labour-intensive manufacturing businesses in the textile and clothing industries and marketing itself for mass tourism. Two decades ago, the country took a strategic decision to transform its economy by shifting the focus away from low-cost manufacturing and package tourism and instead towards knowledge-based industries and high-end manufacturing in order to keep up with global developments and remain competitive as an investment location.
"Malta offers a competitive base that enables companies to be profitable. It is as simple as that, and we are doing our utmost to ensure that this remains the case. Electricity tariffs for businesses have been reduced and administrative charges have been lowered, while our social costs are contained at 10%. Our cost base is very stable and predictable, which gives investors long-term certainty."
Mario Galea, CEO of Malta Enterprise
The island’s visionary strategy proved successful and today some 250 FDI companies operate in Malta. The country scores high in terms of FDI diversity and has been ranked third, after Sri Lanka and New Zealand, as one of the most economically diverse islands in the 2016 Diversification Index by fdi intelligence. According to this study, Malta has been able to attract 114 projects across 22 different sectors.
During the first six months of 2016, FDI flows in Malta went up by €1.9 billion. This is equivalent to an increase of €455.6 million over the corresponding flows in 2015. The main contributors to total FDI flows were financial and insurance activities with a total contribution of 95.6%. The total stock position of FDI in Malta stood at €156.7 billion at the same date, an increase of €10 billion over the corresponding month in 2015. The stock position of direct investment abroad stood at €61.8 billion in June 2016, up by €676 million over the stock position in June 2015.
Manufacturing continues to be a crucial part of Malta’s FDI fabric, with high value added quality engineering enjoying a dominant position. German toy manufacturer Playmobil and French-Italian electronics manufacturer ST Microelectronics were among the first to arrive in the 1970s and 1980s. In more recent times, German heavyweight Lufthansa Technik chose the island as a location for a multi-million euro aircraft maintenance centre, and was followed by Swiss-based aircraft maintenance company SR Technics. In the pharma sector, Malta has also attracted many of the global leaders, while a new life sciences park is set to help develop the biotech industry further.
"Foreign direct investment has been welcomed to Malta for the past 50 years and companies who came in the very beginning are still important players in Malta’s economy. The durability of such investment shows that Malta is a location the investor can trust and that our sustainable environment offers companies the opportunity to flourish and succeed."
William Wait, Chairman of Malta Enterprise
Finance and ICT
With a growing financial sector, it comes as no surprise that international banks such as HSBC and insurance companies like Munich Re, Aon and Marsh have set up operations in the country. Fund administrators Amicorp, Citco and Custom House are also present on the island, as well as a selection of Fortune 100 companies that have structured financial operations in the country. Malta’s IT sector has probably attracted the largest number of companies. In addition to software developers, many iGaming companies have chosen Malta because it was the first EU country to regulate online gaming. The island is also increasingly ranked on decision makers’ shortlists when it comes to choosing the location of their international and regional headquarters. Konica Minolta, FimBank and HeidelbergCement are just some of the corporations that have located corporate management functions on the island.
Welcoming New Investors
Leading the way in attracting foreign investment to the island is Malta Enterprise. The agency is armed with an attractive package of incentives, which includes soft loans, investment allowances, training grants, tax incentives and the provision of ready built specialised factory space. Over the past two and a half years Malta Enterprise – true to its vocation to think outside of the box – has ventured into the promotion of foreign direct investment in the field of education and health. The decision by one of the UK's finest medical schools, Barts and the London School of Medicine and Dentistry, to set up a fully fledged medical college on the island of Gozo, is certainly a major success for the island. In addition, Jordanian group Sadeen has been granted a licence to set up a higher education institution focusing on Engineering, Communications, Information Technology and Medical Science in Malta.
"We are actively promoting a number of important sectors beyond our shores. These are Information Communication Technology (ICT), Training and Education, Advanced Manufacturing and Food & Beverages (Manufacturing), Medical Tourism, Maritime and Aviation. There are businesses who have developed products and services within these sectors which are attracting significant interest from international buyers."
Anton Buttigieg, Chief Executive Officer of Trade Malta Limited
A Base for R&D
Providing research and development incentives, information security and intellectual property rights, Malta has also begun to exploit its advantages as a base for science and technology companies, aiming to attract a diverse range of biotech firms, IT start-ups and corporations engaged in other knowledge-intensive activities. Malta is particularly attractive to companies seeking a test bed for research and innovation, and the government is encouraging research activities and development, as well as product and process (re)-design. Malta has already succeeded in attracting Chinese telecoms giant Huawei Technologies to its shores. In 2015, the company committed to start testing 5G technologies in Malta.
"Technological advances are disrupting the way we work and live. Malta needs to position itself on the cutting edge of innovation. The island has the potential to become a test bed for new technologies. Given the size of our population, human capital is limited but companies as well as the country in general can grow by embracing new tools that improve efficiency."
Tonio Zarb, Senior Partner of KPMG Malta
Growth in Real Estate
As a small country, Malta has long considered wealth migration vehicles as an important economic tool to attract foreign investment and high-calibre people to its shores. Recently, Malta also introduced a citizenship-by-investment programme, the so-called Individual Investment Programme, to achieve increased FDI levels and attract high-net-worth investors to the island. In particular Malta’s real estate sector has benefited from this programme as investors are required to purchase or lease property of a certain value on the island in addition to fulfilling a number of other conditions.
"We act diligently, but promptly, in providing space to reputable investors. Malta can offer good quality premises at reasonable rates through which we create economic value and growth."
Karl Azzopardi, CEO of Malta Industrial Parks
Servicing World Markets
The underlying strengths of Malta are its location and the ease of access that it offers into surrounding markets. Situated two to three hours by air from Europe’s major cities and well connected to other parts of the world, Malta’s EU membership provides companies with access to the Union’s massive internal market of over 500 million people. At the same time, the country has sought to promote itself actively in overseas and developing markets and is an ideal jumping-off point for accessing the growing markets of the region. The island’s proximity to, and cultural links with, Libya, Egypt and Tunisia, and with the Middle East in general, enhance Malta’s role as a hub for trading, distribution and marketing for international operations in Southern Europe and North Africa.
Foreign companies based in Malta comment favourably on their experiences with the local employees in terms of productivity, profitability, dependability and rapid response times. Indeed, Malta’s flexible, highly trained and multilingual workforce is the country’s most valuable asset, with wages below the Western European average. Maltese workers are well educated and qualified, as a result of recognition on the part of the Maltese authorities that higher value-added products require better and more flexible workforce skills.
"We are blessed with an excellent geographic location. Malta can act as a strong conduit to the North African market and vice versa to the European market. We are an ideal entry point to Europe for companies based in the south and south-east fascia of the Mediterranean."
Dr Christian Cardona, Minister for the Economy, Investment and Small Business
Malta has long been focused on creating tailor-made space in order to host some of the world’s biggest companies. However, as investors’ interest continues to grow there is a strong desire to take the island’s industrial parks to the next level. There are currently 10 industrial parks in Malta and Gozo, designed to make starting a business easy and reducing the time it takes for an investor to get up and running. The parks are administered by Malta Industrial Parks (MIP), Malta Enterprise’s right arm which is responsible for the allocation of factories for new economic investment projects, as well as the management of all government-owned industrial estates in Malta and Gozo.
Malta’s approach also places a strong emphasis on the creation of sector-specific infrastructure. A cluster development dedicated to the aerospace industry, the Safi Aviation Park, has been completed, while some €35 million has been invested in a Life Sciences Park providing laboratory space to biotech companies. MIP is now seeking to up the ante in what these zones offer in terms of amenities and support services, ranging from childcare centres to recreational areas. As industrial parks around the world increasingly draw in foreign investment, MIP is also considering strategic alliances and partnerships with specialised industrial park firms to help develop the next generation of economic zones
Growth Prospects for Malta…and Gozo
For the future, the island is keen to direct foreign capital into more infrastructure-related projects. Sectors such as energy, waste and transport may be developed on a public-private-partnership-basis. Malta’s road infrastructure is in desperate need of upgrading, while investment could also be channelled into intelligent transport systems, along with making renewable energy, waste and water projects a priority. 2017 will see the introduction of Malta’s solar farm policy, as well as the increased treatment of wastewater. In the future, areas such as green-tech and clean-tech could provide a boost to Malta’s economy. After securing a large project in the health arena, Malta’s government is focused on further strengthening Gozo’s economy, along with the island’s attractiveness as a location for FDI. Studies are underway to assess the impact of improving both the island’s physical accessibility through the potential construction of a tunnel and its digital connectivity through the laying of a second fibre optic cable.
Traditionally, Europe has been Malta’s core market for FDI, and the majority of investors and capital are still being sourced in Europe. However, in recent years, Malta has made progress in attracting FDI from non-EU countries, with US investment in Malta’s healthcare sector and Jordanian investment in the education sector being two examples. Going forward, public-private-partnerships (PPPs) are seen as essential for encouraging FDI. The government has already announced its intention to extend the PPP concept to a host of new sectors, including infrastructure and tourism. Malta believes that flexibility and adaptability are essential in further diversifying its investment landscape – both geographically and sectorial. Moving forward with confidence, the country is reaching out to key innovative players in Europe and beyond to help realise this vision.
"What we lack in size, we make up for by offering a solid and comprehensive European package, which is so crucial to attracting investment. Being a small country only allows a high degree of nimbleness. In an increasingly digital and connected world, Malta may well offer an ideal test bed location for implementation of new technologies. I would really love to see more of this in the future."
Ronald Attard, Country Managing Partner of EY Malta