Why Malta wins in the globalisation stakes

In the global debate around winners and losers of globalisation, rarely does the name of Malta emerge. However, the small Mediterranean archipelago’s sound economic performance throughout the past couple of decades does bear some lessons, showing as it does that an open and diversified economy can truly transform a country into a winner of globalisation, regardless of the size of its population, land mass and economy. 

Located in the middle of the Mediterranean, just 80 kilometres south of Italy (one of the countries most hit by the 2008 financial crisis), Malta has recorded the second largest GDP growth of any country in Europe over the past decade, according to the IMF.  

Out in front

The Index of Globalisation, published in March 2016 by Italian think tank Istituto Bruno Leoni (IBL), highlights the extent to which Malta has 'won' when it comes to globalisation. The country is the top performer in 10 out of the 22 years examined. The index covers 39 countries, including members of the G20 and the EU, and assesses the period from 1994 to 2015. It is based on three macroeconomic indicators strictly related to the openness of a country to the global market: the exposure of countries to global trade, the ability of countries to attract or generate FDI, and the degree of connectivity of countries and their participation with the knowledge economy. 

“The index is positively correlated with GDP per capita, gender equality in access to education and environmental quality, while it is negatively correlated with unemployment, in particular youth and female unemployment, and inequality,” says Serena Sileoni, deputy director-general of IBL. In other words, the countries with a higher score in the index tend to have a higher GDP, higher social equality, higher environmental quality, lower unemployment and fewer inequalities.

In Malta's case, the IMF reports an average GDP growth of 2.6% from 2001 to 2015, above an EU average of 1.4%. In 2009, its unemployment rate was 6.9%, whereas in 2016 it had decreased to 4.7%, according to Eurostat. Malta ranks 33rd out of 188 countries and territories in the Human Development Index. Meanwhile, “between 1990 and 2015, Malta’s life expectancy at birth increased by 4.7 years, mean years of schooling increased by 3.9 years and expected years of schooling increased by 1.7 years”, says the UN Development Programme. 

A diversified economy

One of the reasons for Malta's above average performance is its move towards a more diversified economy, with the expansion of its services sector and the emergence of a number of new operators in this field. “This is a major cause of the resilience of the Maltese economy in the face of the protracted subdued economic conditions of its European trading partners,” says the Central Bank of Malta. 

Philip von Brockdorff, head of the economics department at the University of Malta, says: “In the past 20 years, the main drivers of economic development have been tourism, IT, retail, financial services and i-gaming. Whereas the services sector has seen rapid expansion, the manufacturing sector has continued to decline in terms of its economic importance. The economy today relies very heavily on the services sector.”

According to the central bank, total value added generated by sectors such as computer programming, professional services and administrative services has increased to more than one-quarter since Malta's EU accession in 2004, when the figure stood at just 9%. Malta recorded the greatest rise in the share of services between 2004 and 2014 across all EU countries.

Tourism focus

As the Maltese economy underwent a meaningful transformation, so too did its tourism sector. “Malta is not only about seaside tourism, it has understood the importance of culture,” says Beppe Costa, chairman and CEO of Genova-based Costa Edutainment, which in 2012 acquired Malta's Mediterraneo Marine Park.

Indeed, Malta has developed specialised forms of tourism, such as language schools and dive centres. It boasts a wide array of cultural events, from the Valletta Film Festival to the Malta International Arts Festival. In 2018, capital city Valletta will be the European Capital of Culture.  

According to the Ministry of Tourism, Malta's tourism industry sustains about 20,500 jobs directly, and a further 7300 jobs through supporting activities, which adds up to one in every seven jobs in the country. Tourism directly contributes to roughly 15% of the country's GDP, according to the World Travel and Tourism Council. 

Overseas investment

Malta ranked fourth in the fDi Island Economies Diversification Index 2017, which analysed island economies and uncovered the link between diversification and levels of overseas investment. As a result, the more open an economy is to foreign investment, the more diversified it is likely to be.

“Not only do large companies tend to bring about more stable employment with higher wages, they also are key [when it comes to investing in and transferring technological know-how], and eventually in spreading the culture of globalisation,”  says Ms Sileoni.

According to Malta Enterprise, the country's national development agency, total FDI projects coming into Malta amounted to €620m in capital expenditure between 2006 to 2014, generating more than 9000 jobs. “We offer stability, peace of mind and the possibility of long-term planning. We do our utmost to support companies to be profitable because they are our best testimonials,” says Mario Galea, CEO at Malta Enterprise. 

One such testimonial comes from Mr Costa at Costa Edutainment, who says: “In Malta you can run your operations smoothly. It is freer than Italy, it is less stuck on preconceived ideas. It strives to be international. It believes in the future, and it wants to grow. It definitely is a winner of globalisation.”

The place to be

And Malta is proving to not only be a draw for foreign companies, it is popular among foreign workers too. “There are now 35,000 EU and non-EU citizens working in Malta. When you consider that economically active people [in the country] number around 190,000, it is evident that reliance on foreign workers in sectors such as tourism and catering, construction and social care are changing the face of the labour market,” says Mr von Brockdorff. In 2016, Malta ranked second in the Top Expat Destinations survey by InterNations, a global network of expatriate workers.

A truly diversified, open economy, with inclusive political and economic institutions, Malta has so far been able to reap the benefits of globalisation, thanks largely to its impressive human capital. “If one had to survey the existing stock of FDI in Malta, [those involved] would immediately tell you that Malta’s biggest asset is its people – good education, good vocational colleges, good interaction between industry and learning,” says Mr Galea.