Malta

Main Industry Sectors

The island’s economy is primarily based on tourism (which accounts for almost 30% of the country’s GDP, with over 1 million tourists visiting Malta annually), on manufacturing (electronics and pharmaceutical products) which accounts for 20% of the GDP and 75% of the total exports and on financial activities (which account for 13% of the GDP).
Malta does not have any mineral or energy reserves and it is completely dependent on imports in this field.

The crisis affected the tourism sector due to a decrease in visitors which was clearly noticeable in 2009-2010, notably the European visitors. In 2011, this sector is expected to renew its growth.

Economic Overview

Malta has achieved an exceptional economic development during the last 40 years. The country managed to maintain an average GDP growth rate of 5% during 1990s, mainly due to large investments in infrastructure projects. However, the economy experienced a global slowdown at the beginning of the second millennium.

The economic crisis affected the country but to a lesser extent than the rest of Europe. Malta has a solid financial¬†foundation, with little inclination for toxic loans, the country came out of the crisis relatively well. The only sector that was really affected by the crisis was the tourism sector with a reduction in foreign visitors into the country. The only damper is still its excessive budget deficit, which is over the 3% threshold imposed by the European Commission. The European Commission has insisted that this deficit must be reduced by 2011. The country’s budget for 2011 anticipates a growth and includes measures aiming to attract FDI.

 FDI in Figures

Malta ranks amongst the first ten countries in the world in terms of direct foreign investment appeal. The country offers a certain amount of advantages to foreign investors:

- The competitive cost of a highly-skilled English-speaking labour force;
- The geographical position of the country which gives a privileged access to the Mediterranean and North African markets;
- The government has established a global pro-investment policy;
- The country has developed a niche economy, which is favourable to foreign investments, especially in the area of pharmaceuticals.

However, FDI flow has decreased due to the international economic crisis.

FDI Government Measures

Malta provides incentives in many sectors, to attract foreign direct investment mainly in manufacturing, transhipment and servicing industries, in particular the manufacturing of generic pharmaceuticals, information technology and financial services. The government offers generous tax incentives for investments in industrial projects:

- Preferential taxation rates (5% instead of 35%);
- Tax credit on investments (up to 50% of the amount invested or 50% of the first two years’ salary of new jobs created);
- Reduced tax on reinvested profits;
- Incentives for job creation;
- Soft loans for promoters of industrial projects; and
- Indefinite work permits for shareholders with more than 40% share.
Additionally, Malta has a customs-free zone, Malta Freeport, which offers companies operating within it, reduced taxation and investment tax credits.

The country also benefits from structural EU funds for the period of 2007-2013, which will allow it to sustain its economic development, improve its competitiveness and thus attract new foreign investors.

Country Strong Points

Geographical location (making it a natural “hub” for companies seeking to do business with the southern part of Europe and Northern Africa), a stable political environment, competitive labour costs (compared to other European Union countries), fiscal and investment incentives, a modern infrastructure (Malta Freeport services 115 ports worldwide, the international airport has direct flights to 37 major cities in the world) and telecommunications system (wireless internet connections, VOIP, Wimax). In its 2006 report, the United Nations listed Malta as a “frontrunner” in the high foreign direct investment potential category. Over the past 5 years, foreign direct investment in-flow has generally followed an upward trend, reaching 10% of the GDP in 2005.

 

Foreign Trade Overview

Being centrally located in the Mediterranean, Malta has, for a long time, portrayed itself as a bridge between Europe and North Africa, particularly with Libya with which it has always maintained positive diplomatic and commercial ties. Foreign trade represents more than 150% of Malta’s GDP. Its three main export partners are the European Union, the United States and Singapore. It exports mainly electrical and electronic products, machinery, textile products, books and newspapers. Its three main suppliers are Italy, the United Kingdom and France. Malta mainly imports electrical and electronic components, machinery, mineral fuels and oil, vehicles, plastics, and food products.

The country’s trade balance has, for a long time, been in the red. However, the situation improved in 2008-2009 due to exports picking up again, propelled by the development of a large export pharmaceutical industry. In 2011, a series of measures favouring the internationalization of Maltese companies will be conducted.