How Malta Is Defying Europe's Economic Odds
WHY YOU SHOULD CARE
Small is successful, sometimes.
By Adrian Brune
When Napoleon expelled the Knights and Dames of the Sovereign Military Order of Malta from their home in 1798, they had to survive. So the archaic order serving the Catholic Church, which had until then recruited only those of noble birth, opened up their tent to the non-noble. They brought in additional recruits, increased their revenue and, therefore, rebuilt their empire. Modern Malta is riding in part on that approach again, this time to beat the odds and emerge an unlikely economic miracle.
Malta — the smallest economy in the eurozone, with a gross domestic product of $11 billion — produces only about 20 percent of its food needs, has limited fresh water supplies and few domestic energy sources. But barely a decade into its European Union membership, the small island nation of nearly half a million people has weathered the eurozone crisis better than almost all the EU member states, and even expanded its GDP by a prodigious 6.2 percent in 2015, during arguably the worst period for small European countries.
Its strategy? A game of chess — opening up like the Maltese Knights did, but limiting exposure to external risks at the same time. Under an Individual Investor Programme (IIP) launched in 2014, Malta has issued nearly 700 passports — and thus, EU citizenship — to applicants who can share their talent, expertise and business connections with Malta. The recipients need to pay 650,000 euros to Malta’s National Development and Social Fund, which has advanced “quality of life projects,” in addition to a 150,000-euro investment in government stocks or bonds and the purchase of 350,000 euros in real estate. In turn, new citizens receive visa-free travel to more than 160 countries in the world, including the right of establishment in all 28 EU countries. Since the IIP’s inception in 2014, Malta has generated at least 200 million euros.
Malta weathered the euro crisis well because its financial setup was less internationally exposed than previously believed.
Michael Bartolo, former Maltese envoy to the U.N.
The other part: a mixture of financial services, including tax havens for outside corporations; online gaming; ship and airline maintenance and tourism — even as the country’s main bank, the Bank of Valletta, and other banks focused their business and reserves toward a domestic market during the stormy years of the eurozone crisis, says Michael Bartolo, the former ambassador and permanent representative of Malta to the United Nations and the World Trade Organization.
“Malta weathered the euro crisis well because its financial setup was less internationally exposed than previously believed,” says Bartolo, adding that the country’s small budget — the $4.37 billion expenditure outlay for 2018 is not much larger than that of major multinational companies — made it easier to manage too. The IIP, in the meantime, he says, has been “very successful, resulting in an inflow of capital and increase in expenditures.”
For sure, the Maltese strategy has critics. The International Monetary Fund in its 2017 analysis of the Maltese economy advised the government to wean itself off the IIP program and to contain public sector spending. Recent charges filed against three men accused of murdering journalist Daphne Caruana Galizia, who had been investigating corruption and money laundering at the highest levels of government, have also led to calls for a closer look at the sale of Maltese passports and the rule of law in Malta.
These factors have dampened the Maltese government’s medium-term plans to maintain a surplus of 0.5 percent of GDP up to 2020. However, according to Carmelo Inguanez, Malta’s current permanent representative to the U.N., the country has been building its market capacity since the departure of the last British troops in 1979. According to him, “when you are successful, people will always say, ‘What is the trick?’ and then throw mud at you.”
The trick, he says, is the full social fund that caters to economic and social gaps and allows for investments. But that isn’t special to Malta. What really props up Malta’s prosperity is tourism — which grew at 4.3 percent in 2015, and injected 1.7 billion euros into the economy. Ruled by a range of ancient civilizations from the Phoenicians to the Normans, Malta is home to a multitude of churches, temples, civil buildings, burial grounds and monuments to the Knights, along with its beach.
Filmmakers looking for a “location double” for ancient Greece, Rome or the Middle East, where it may be cost-prohibitive or too unstable to shoot, often turn to Malta. The country also has a thriving iGaming industry, which has let online gambling companies from Sweden and France — looking to escape relatively restrictive tax regimes in their own countries — set up online poker, sports betting and slots sites and pay only around 5 percent in corporate tax.
To support all this, Malta also imports workers — 18 percent of the workforce, or about 37,000 people, is foreign, according to the Malta Employers’ Association. Additionally, the country caters to thousands of young people coming to learn English. Bartolo, who organized the first English course in Malta for Thomas Cook, says that although the students may not stay in luxury hotels and eat in expensive restaurants, they “take the good experiences with them to their families and their schools — and almost always come back later in life.”
There is a downside. Many Maltese have been priced out of the housing market and will likely face an inflation hike of about 2 percent in the coming year.
Still, it’s a small tariff on the benefits, according to Inguanez, who recalls how just four decades ago, Malta’s economy revolved around British military expenditure, and how the country’s transition to a more diversified economic structure was painful. “But we are now at the table, giving our Mediterranean perspective to the EU, to the U.N.,” he says. “We played our cards very well, and because of this, we will remain a small island nation looking outward.”
- Adrian Brune, OZY Author Contact Adrian Brune