Innovation and competitiveness have been the hallmark of Malta’s development strategy for the past 20 years. This has encouraged international investors to do business in the favourable environment created and maintained by the Maltese authorities. Investors who have located their operations on the island praise the modern business infrastructure, excellent telecommunications, competitive labour costs, the highly skilled and educated workforce and the enviable quality of life. In seeking new investment, Malta is targeting companies that can help to fulfil the country’s economic aspirations and strengthen its position as a centre for advanced manufacturing, financial services, maritime services, life sciences and creative industries. The role played by foreign direct investment (FDI) in Malta’s economic development has always been a central one, and the country’s ability to continue to attract significant levels of investment from some of the world’s best-known companies will be a critical factor for future economic growth.
Changing FDI Landscape
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 after 150 years of reliance on the British forces stationed on the island to keep the economy afloat, in the 1960s 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 to knowledge-based industries and high-end manufacturing in order to keep up with global developments and remain competitive as an investment location.
Open for Investment
Virtually all economic sectors are open for FDI, and it is hard to envisage Malta’s economic success story without the presence of foreign investors. Political stability and a solid legal system make investing in Malta attractive and safe. As home to a major international financial services sector, the country has one of the most developed business infrastructures in the world, offering investors a state-of-the-art IT and telecoms network, a highly skilled and English-speaking workforce, and a competitive operating environment. With its relatively small but innovative population, Malta sees the following services as major engines for growth in the future: financial, medical, bio-tech, pharmaceutical, film, maritime, aviation, eBusiness, iGaming, ICT and digital media.
In recent years, the island has attracted investment across a wide range of economic activities, including financial services, digital gaming, high-end manufacturing and aircraft maintenance. At the end of June 2014, FDI was estimated at €136.8 billion. Much of the FDI goes into Malta’s financial sector. In fact, financial and insurance activities account for over 90 per cent of total FDI stock. Malta’s outward FDI was estimated at €1.1 billion, of which some 50 per cent was invested in the EU.
Some 250 FDI companies operate in Malta. German toy manufacturer Playmobil and French-Italian electronics manufacturer ST Microelectronics were among the first to arrive in the 1970s and 1980s. 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. Malta’s pharma and biotech sector has attracted a host of companies, including Actavis and the Arrow Pharmaceutical Group, both owned by US-headquartered drug giant Watson Pharmaceuticals.
With finance accounting for the lion’s share of FDI in Malta, it comes as no surprise that international banks such as Deutsche Bank, HSBC and Banif Bank, and insurance companies like Munich Re, Aon and Marsh have set up operations in Malta. Fund administrators Amicorp, Citco, TMF 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 like Uniblue, many iGaming companies have chosen Malta because it was the first EU country to regulate online gaming.
Spreading the Message
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. Malta has introduced a wide range of incentives related to R&D which have attracted investment to this area. While incentives are important elements, Malta’s attractiveness for FDI is underpinned by 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, are enhancing Malta’s role as a hub for trading, distribution and marketing for international operations in Southern Europe and North Africa.
Malta’s approach places a strong emphasis on meeting the requirements of the knowledge economy through the creation of clusters of related activities. It already boasts 10 industrial parks and is now focusing on the provision of sector-specific infrastructure and the associated value chains. A cluster development dedicated to the aerospace industry, the Safi Aviation Park, has already been completed, and some €35 million is being invested in the Life Sciences Park, a biotech park that will provide laboratory space to life sciences companies. A Dubai-style IT and media village, SmartCity Malta, is also under development.
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. The authorities have encouraged students to take up technology-related subjects, particularly at tertiary level. Combined with competitive personal tax rates, and an overall high quality of life that comes with the Mediterranean environment, companies find Malta a particularly attractive place to assign personnel with highly specialised or expert skills who cannot be sourced locally.
The island is keen to direct future foreign capital into infrastructure-related projects. Public-private partnerships (PPPs) are seen as essential for encouraging FDI. Sectors such as energy, waste and transport may be developed on a PPP basis. With a host of other sectors, among them education and health, offering similar opportunities for investment, Malta welcomes any foreign companies wishing to set up on the island. Attracting FDI from non-EU countries will be Malta’s biggest challenge. Traditionally Europe has been its core market for FDI. However, given the severity of Europe’s debt crisis, broadening Malta’s geographical investor base and attracting capital from outside Europe, specifically from growth markets in Latin America and Asia, will be crucial if FDI inflows are to be sustained.
Despite the global decline in investment caused by the international recession, Malta has been successful in sustaining steady inflows of foreign direct investment over the past few years. This bodes well for the island’s future performance in attracting FDI. Now also targeting investment in sectors such as creative industries, sciences and technologies, the path for the years ahead has already been laid. The island is confident that it has found the right niches to compete in for global investment on a level playing field.