Strong economic growth has overtaken infrastructure development in Europe’s smallest member state. While Malta has the infrastructure that anyone would expect to find in a prosperous city-state, an influx of companies and foreign professionals has put pressure on roads, telecoms and energy networks and many other facets of urban living. Transport upgrades are an urgent priority, while recent plans for a number of high-rise buildings have quickly turned into a debate on overdevelopment and capacity limits. Infrastructure construction has been forced back on the political agenda and has become a prominent theme for both government and the opposition.
Malta’s government has been focused on successfully balancing the country’s budget in recent years. Economic analysts are now calling on the government to plan and build for the future. Malta, they say, needs to consider a major infrastructural overhaul and develop visionary projects that will deliver social impact and economic value. The recent establishment of a national development bank is seen as a very promising move in terms of financing the next stage of infrastructure construction. The island’s government would also like to see the private sector take a crucial role in driving this development. There are numerous opportunities for private players to build and operate infrastructure that can generate an acceptable rate of return for investors.
Infrastructure has played a leading role in Malta’s economic development, from the roads and aqueducts created by the Knights of St John to the ports built by the British colonisers. However, it was Malta’s independence in 1964 that stimulated the first real major infrastructure investments. To kick-start economic activity, shipbuilding and ship repair facilities, as well as tourism infrastructure, were constructed. Malta also developed its first industrial estates, while an extensive programme of road and school building followed. A second wave of infrastructure investment followed in the 1980s and 1990s when government began a process of privatisation of state-owned assets in sectors such as telecommunications and port operations, which in the process saw significant upgrades.
Malta’s decision to join the EU in 2004 has influenced developments in the infrastructural space in more recent times. The island undertook wide ranging, and often painful, reforms such as the public transport liberalisation, the privatisation of the shipyards as well as an overhaul of the energy sector and the tariff structure. However, a defining feature of Malta’s infrastructure story is that investment has been largely focused on economic assets, at the cost of neglecting social and urban infrastructure.
Partnership with the Private Sector
The Ministry for Transport, Infrastructure and Capital Projects is responsible for infrastructure construction and delivery. Malta’s government has always seen the private sector as a strong partner in infrastructure delivery and has developed a mixed model approach to funding and finance. In many areas, private investors have been mobilised to finance and participate in infrastructure maintenance and development, with the state only intervening where infrastructure projects are financially not viable or offer little commercial opportunities. Since joining the EU, Malta has also benefited from around €1.5 billion in EU funding, which were primarily invested in infrastructure and development projects.
"We are committed to making good, efficient and full use of EU funds, with a special focus on upgrading our infrastructure so that it reflects our economic growth. Economic and social aspects must also go hand in hand. Prosperity with a purpose is our theme, and we want to take the country forward not just for the few but for many."
Aaron Farrugia, Parliamentary Secretary for European Funds and Social Dialogue
Construction & Development
Malta lacks specialist infrastructure engineering and construction companies. The country’s small and medium-sized construction firms usually form local consortia to deliver infrastructure projects, or if more specialist and technical expertise is required, they join forces with a foreign partner. Malta’s construction firms benefit from healthy order books in terms of residential and civil construction. In many cases, they have reached full capacity and, thus, are not able to take on any new business. This means that, now more than ever, Malta needs to look to the international construction industry in order to contract firms boasting project management and engineering expertise required to implement large infrastructure projects.
From left to right: 1) Ian Borg, Minister for Transport, Infrastructure and Capital Projects; 2) Aaron Farrugia, Parliamentary Secretary for European Funds and Social Dialogue; 3) William Wait Executive Chairman of Projects Malta Ltd.
It is predicted that Malta’s population will reach the half-a-million-mark in a few years’ time. While population growth will most likely increase the productive capacity of the economy, it will put further pressure on the existing infrastructure. In a country of 430,000 people, there are already some 350,000 cars registered. One study has warned that cars will seriously threaten economic production in 10 years’ time as major arterial thoroughfares are stretched beyond the breaking point, while other researchers even point out that by 2050, the amount of productive work-time lost because of traffic will cost the country €1.28 billion each year. While congestion and local transport networks are at the heart of current issues, a shortage of affordable housing and educational facilities, declining air quality as well as a lack of greenery and recreational areas are mentioned too. There is also a need to accelerate maintenance and modernisation programmes in fields such as telecoms and energy distribution.
The quality of Malta’s transport infrastructure ranges from world-class to sub-standard. The island has a relatively sophisticated infrastructure for international transport compared to an underdeveloped local road network and public transport system. Throughout the years, Malta has seen constant investment in port infrastructure. Malta Freeport Terminals were privatised in 2004 and are today owned and managed by French line CMA CGM and the Yildirim Group, a Turkish container port operator. The Mata Freeport ranks as one of the leading transshipment centres in the Mediterranean region. While the port’s operators are keen to expand their capital investment programme in the years ahead, space constraints in the area are limiting the Freeport’s ability to grow. Malta International Airport (MIA) is facing similar challenges. The airport, which has Vienna International Airport as a major shareholder, is operating close to its capacity limitations, handling more than 5 million passengers in 2016. While MIA offers a fast and efficient service and is currently investing some €28 million to refurbish the terminal and create additional check-in desks, in the longer term, Malta might need to look at building a competing terminal. The island aspires to host as much as three million visitors in a few years’ time, and there is no doubt that the number of locals flying for business and leisure will increase rather than decrease in the future.
Traffic congestion is often singled out as the most pressing infrastructural challenge. While the island has a road network of some 3,000 kilometres, most roads are small, and there are not many dual carriageways. Population growth and rising vehicle ownership have become concerns, while a booming tourism sector is placing an additional strain on the bus system, which is operated by Spanish transport company ALESA. To address the situation, the island is in the process of building new flyovers and tunnels to remove bottlenecks, while also introducing initiatives to reduce the number of cars on Malta’s roads such as bike-sharing systems and free public transport for certain age groups. While passenger numbers have been on the rise, the majority of Maltese say a lack of priority bus lanes means public transport is neither more convenient nor faster than travelling by car. Proposals to build a monorail or light rail system involving over-ground and underground lines are forming part of a list of potential future projects, and Malta’s Government has already announced its intention to identify a suitable mass transportation system by the end of the legislature. Traffic could also be optimised with intelligent solutions, and works on a more intelligent transport system have already begun. The idea is to make better and more efficient use of Malta’s existing road network and transform transportation into a smart service.
Malta’s telecoms sector has received significant attention and interest in recent years. UK’s Vodafone Group was one of the first companies to enter the island’s telecoms market, which in subsequent years attracted further foreign investment. While in March 2017 Vodafone Malta and Melita announced their intention to merge, Tunisia’s national telecom company, Tunisie Telecom (TT), recently became GO’s majority shareholder. Malta’s telcos have been instrumental in ensuring that the sector is one of the most advanced in Europe. Mobile and broadband penetration are both relatively high, while ongoing investments in networks have helped attract strong internet-relying industries such as iGaming and financial services. The island has also attracted Chinese telecommunication giant Huawei, who started testing the new standard of 5G in Malta. Concurrently, the Malta Communication Authority (MCA) aims to make the island the first wifi-state and already operates some 300 wifi-hotspots across the island. Five submarine cables, owned by the telecoms operators, link Malta with Italy. With the help of EU funds, Malta’s government plans to invest in a new fibre optic cable to France to reduce the reliance on the existing links. The task for the future will be to improve so-called ‘last mile’ connectivity, as well as reducing the cost for both voice and data services which are still higher in Malta than in other EU countries.
The next stage in the sector’s evolution could include developing the infrastructure for an emerging gigabit economy. Services need to be fast enough to handle massive amounts of data and fuel previously impossible growth in industries such as health care, education and manufacturing. While this would mean a major investment, and Malta only has a small population to reclaim that investment from, the bottom line is that there are huge opportunities in this space.
Energy & Green Transition
Malta’s energy sector is in the midst of a radical transformation. An interconnector cable to Sicily has been laid, which allows for the import of electricity. Shanghai Electric Power of China has brought a stake in Enemalta, Malta’s main power generation and distribution company, which was previously struggling under heavy debts and is now running a surplus. The island also made the decision to shift electricity generation from oil to gas. Germany’s Siemens and Azerbaijan’s Socar are among the shareholders of a new company called ElectroGas Malta, which built a new gasfired power station and a liquefied natural gas terminal. Enemalta is now buying electricity from ElectroGas’ power plant. In addition, Enemalta is in the process of converting its older oil-fired power plants to gas. In recent years, EneMalta has also channelled some €100 million into Malta’s distribution network; however more needs to be done as the island’s aged above-ground power lines need to be replaced. There is also the need to realise and finance the green transition. Malta’s Water Services Corporation already implemented a project to recycle water in an effort to address water scarcity, while a network of underground tunnels, canals and bridges has been built to address the issue of flooding when heavy rain occurs.
Going forward, sewage pipes, waterlines, the electrical system and telecoms cables have to be equipped to meet the requirements of a new Malta. Network expansion generally requires wires to be run underground or on poles. Crucial to Malta’s future will be the island’s ability to plan infrastructure holistically, with many pointing to ‘big dig’-projects that would see much of the island’s infrastructure go underground. Going underground is often seen as an opportunity when land is scarce. Experts believe that subsurface Malta offers tremendous potential. Malta’s Enemed, which is responsible for the importation, distribution and wholesale of petroleum products for the Maltese market, for instance is currently constructing subterranean fuel storage facilities, and this is an area that could probably be expanded in the years ahead. Singapore, which faces similar land constraints, is pioneering subterranean urban development, starting with storage and transportation systems but with a possible expansion to power plants, sports stadiums, libraries and more.
Traffic congestion is often singled out as the most pressing infrastructural challenge. While the island has a road network of some 3,000 kilometres, most roads are small, and there are not many dual carriageways.
The Social Dimension
Infrastructure investment is considered more than an engineering prospect, and the need for renewal extends beyond the most obvious economic assets. The country is also looking at the soft elements as it needs more housing, educational and healthcare facilities as well as other urban infrastructure to support more people. There are plans for a number of high-rise buildings to be used as offices and residences, as well as for new international schools. Malta’s healthcare sector has already seen a major injection when parts of the public healthcare system were privatised. Vitals Global Healthcare took over three hospitals in 2016 with government buying a percentage of the medical care provided. However, various surveys show that demand for medical services will likely increase in the coming years. The goal is for infrastructure to help propel Malta into the next stages of growth. Constant physical renewal is being seen as crucial in attracting highly qualified people and high-profile companies to the island. Yet, many on the island emphasise that this also needs to include a stronger focus on green areas and recreational opportunities, which would add to Malta’s emerging status as a magnet for talented professionals who are seeking dynamic careers outside of the world’s typical centres.
Welcoming Infrastructure Investors
The desire and will to upgrade the country’s infrastructure are expected to make private investment in infrastructure popular for years to come. Malta’s small, open economy has been among the best performing economies in the EU in recent years and as such presents a secure investment environment. The island’s attractiveness as an infrastructure investment destination has also been boosted by recent high-profile investors such as Vitals Global Healthcare in the health sector, French line CMA CGM in the port sector and France-based Apax Partners in telecoms. This should go a long way towards widening the island’s appeal to institutional investors including pension funds, sovereign wealth funds, insurance companies and global asset managers. Public-private partnerships have long played an important role in terms of building and operating infrastructure, however, the sheer volume of required upgrades meant that Malta had to rethink the way infrastructure projects are being financed. One major initiative was the recent launch of the Malta Development Bank. Its main aim will be to promote socio-economic development by offering finance to SMEs and large infrastructural projects, without distorting market competitiveness. The Development Bank will serve as a second-tier financial institution when private commercial banks fail to make appropriate financing available or when normal market terms are not given.
"We wish to develop a more visionary approach to infrastructure development. We are currently evaluating options for a mass transport system, including underground and monorail systems. We know that we need to come up with sustainable financing models for this proposal as well as for other projects, and we see the private sector as a strong partner in delivering unique infrastructure solutions."
Ian Borg, Minister for Transport, Infrastructure and Capital Projects
Closing the Gap
To improve Malta’s infrastructure in quality and functionality, the Government of Malta has set up Projects Malta, an agency responsible for promoting, developing and facilitating sustainable private/public sector joint venture initiatives. The challenge for Malta will be to make all infrastructure updates concurrently, as well as to find the personnel resources to manage these projects. Given the variety of projects, and the size and scale of the infrastructure overhaul required, keeping costs in check will need to be a priority. Malta’s economy is also heavily reliant on services, and particularly on sectors such as financial services, iGaming and tourism. Should any of these industries experience an economic shock, it could derail planned infrastructure projects significantly. However, taking no action and not addressing the infrastructure deficit is not an option. The island is already exporting jobs due to capacity constraints, and this trend could accelerate if Malta does not unlock its full potential.
"Malta is open for business, we are interested in more PPP ideas with local and foreign investors. Education, health and energy are all areas of interest. We are looking at opening new schools to cater for the needs of the ever-increasing expat community. Government is also interested in the construction of new sports facilities for several disciplines, and the improvement of landscaping at existing beaches as well as the creation of new ones."
William Wait, Executive Chairman of Projects Malta Ltd
Quality of infrastructure is a decisive factor when businesses plan investments, and Malta’s future prosperity is linked to the way infrastructure will be deployed. A thorough infrastructural overhaul will place Malta in a better position to compete and challenge other countries for the highest value investment. Malta has never been so wealthy in its entire history as it is today, which means many believe that now is the ideal moment to develop and finance infrastructure works. The sector is poised for significant near-term growth, with private investment set to rise on the back of a bold agenda. The island’s leaders will be required to make tough decisions about infrastructure that will affect generations to come. Their choices will determine whether Malta can position itself as truly global hub for business as well as a very liveable place to work and raise a family.