26 FEBRUARY 2003

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Investment, FDI to benefit from membership

Head of the EU Delegation to Malta, Ronald Gallimore, gives his views on Malta’s accession to the EU. Gallimore contends that investment and FDI both stand to benefit to no small degree with membership, while Malta also has an important contribution to make to the Union.

How does the European Union view Malta’s entry into the EU?
Very positively. In all the Eurobarometer polls Malta is consistently recognised as a candidate country and EU citizens have given positive comments about Malta.
Member States, meanwhile, consider that Malta has an important contribution to make to peace in the Mediterranean region.
Will Malta’s decision on EU accession have an impact on future investment from Europe?
One can answer this question by looking at pointers from the recent history of the EU.
One of the principle aims of the European Union is to increase the prosperity of the people living within the Union. This has been achieved through various EU initiatives, such as the single market in 1993 and the single currency in 2002.
About 2.5 million jobs have been created in the EU thanks to the Internal Market, since the opening up of frontiers on 1 January 1993. The European Union's GDP in 2002 is 1.8% or EUR164.5 billion higher than it would be without the Internal Market. Extra prosperity to the value of EUR877 billion (calculated by adding together the additional annual GDP generated by the Internal Market since 1992) has been created. That means EUR5,700 per household on average. (European Commission ‘The Internal Market – ten years without frontiers’)
Foreign Direct Investment is vital to ensure economic prosperity in a country and Malta is no exception. But FDI is dependent on policy stability, an educated workforce, and access to a large market, amongst others. Membership of the EU offers many of these advantages, especially policy and monetary stability.
Since the introduction of the Single Market, cross-border investment within the EU has increased rapidly resulting in many European countries investing in other EU countries. This was still very high, in 2001, even though there was the global economic downturn.
Moreover, the internal market has made Europe a much more attractive location for foreign investors. New inflows of FDI into the EU were four times higher in 2001 than they were in 1992, despite the fact that 2001 was generally a weak year for FDI. Increase of investments outside the EU into the Eurozone countries by 17% since the introduction of the Euro, largely due to the elimination of exchange risks. FDI brings enormous advantages, it not only increases but it also helps to diffuse innovation and increase productivity, and in so doing foster growth’ (EC ‘Internal Market’)
Access to an internal market of 500 million citizens, stable marco-economic policies as well as a highly organised and functioning regulatory system makes investment in EU countries highly attractive. And some of the countries to gain mostly from this fact are those countries who joined in the last few expansions and which are often considered on the ‘periphery’ of the EU. In this way countries such as Ireland, Spain and Portugal have seen huge increases in FDI since joining the EU.Continues on page 6
Since Spain joined the European Community in 1986, the country has enjoyed the most consistent growth of all the EC countries, almost double the EC average. This figure coupled with the attractiveness to insurmountable foreign direct investment shows that Spain has been preparing itself for a more competitive European market. (Mary Catherine Heard ‘Spain FDI, past and present’)
Ireland is another case in point. As the Irish prime minister pointed out:
"We have learned the hard lessons of protectionism in the past. We correctly decided to leave behind the unsuccessful protectionist era and to embrace the open global market; at the heart of that commitment is our membership of the European Union."
Ireland received 10% of all FDI into the EU from outside the EU in 2000, while accounting for only 1% of the EU population. Its growth since membership has been impressive (see chart on page 6).
But Ireland is just one of the current 15 member states. EU membership offers many advantages to the citizens of those countries that are members. It offers advantages to consumers, to workers, to students but it also fosters a market of confidence into which FDI can flow. Malta will be able to take advantage of this.
How would investment from the EU fare in the future, should Malta choose not to join the EU?
It is salient to mention that member states like Ireland and Spain have already undertaken studies to see if their FDI will be affected by the ten new accession countries once the EU enlarges.
The Irish Development and Investment Agency states that ‘there will be more competition for FDI and some of the new member states are likely to be more attractive for investment because of their new status within the Union’.
If Malta should decide not to join, it is possible that it will lose out on this ‘attractiveness’ and also lose out on FDI.
How would Malta’s relationship with the EU change with accession?
Malta would no longer be a third country but would be an integral member of the family of European nations. This would mean that Maltese citizens would have all the rights of other EU citizens as well as all of the obligations in terms of applying the acquis communitaire.
An important change in the relationship between the EU and Malta will be that Malta will be sitting at the table when new EU policies are being decided. This means that Malta will negotiate from within the group and will not have to react to changes in EU policy, for example in the area of trade policy.

Copyright © Newsworks Ltd. Malta.
Editor: Saviour Balzan
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