22 February 2006

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Business Today

Investment and external trade in Malta

Speech delivered at the Mediterranean Economic Forum in Palermo last Monday, bringing together businessmen from around the Mediterranean basin

During the last four decades Malta has undergone dramatic political and economic changes. These opened up new horizons for the inflow of foreign direct investment thus providing a stronger platform for external trade. Attracting investment and enhancing trade are two main strategic objectives to access international markets. In this context, one has to mention that throughout the years Malta has made impressive inroads in international investment and trade flows. This accomplishment has contributed significantly to job creation and economic growth in the country.
As an EU Member state, Malta is determined to make the most of its new status in order to enhance business confidence in the country, irrespective of the exceedingly stiff international competition. It formulated and implemented legislative and regulatory systems to encourage investment and growth in key target sectors. In terms of trade to and from Malta, this increased significantly throughout the years and resulted in a degree of openness that exceeded 100% of GDP. In this sense, trade became an integral part of Malta’s economic activity. Looking ahead, we still envisage a continuing growth in the share of Malta’s trade and investment flows.
Malta’s position in the centre of the Mediterranean Sea makes it ideally placed to leverage maximum advantage from a unique and natural location as a stepping-stone between Europe and North Africa. It also presents a highly interesting proposition to companies seeking the right location for their operations. In this regard, the advantages of investing in Malta are numerous. Investors are offered a favourable environment from where to operate and make profit; this environment is supported by a broad and comprehensive package of incentives and a clear commitment to encourage enterprises to flourish for the mutual benefit of both the investor and the country itself.
Malta benefits from political stability and has strong macroeconomic fundamentals. For the last couple of years it has also been registering fiscal consolidation in line with the provisions of the Maastricht Criteria along accompanied by the restructuring and development of physical infrastructure through EU structural funds and the Fifth Malta-Italy Financial Protocol. Coupled with the economy’s innate cost competitiveness and the ongoing diversification of income sources, Malta has therefore the potential to retain its status as one of the world’s best performing small island economies.
In terms of human capital, consecutive governments have invested heavily in the enhancement and upgrading of local skills at all levels. The government has poured considerable funds into human resources and educational institutions; these include Employment & Training Corporation, the Malta College of Science and Technology and the University of Malta. All work very closely with industry to ensure delivery of the required personnel with competencies and qualifications at different levels. Furthermore, a number of institutions such as Malta Enterprise continuously support this process through their own incentives for industrial training and through ongoing participation in new educational activities. However, this strong accumulation in human capital does not translate in higher labour costs. In fact, Eurostat figures indicate that wages in Malta remain below Western European average. This places the Island as one of Europe’s most profitable investment locations.
I need to underline that Malta has a modern business infrastructure, an excellent telecommunications framework, with competitive labour costs but highly skilled and educated workforce, and a truly good quality of life. It boasts of a thriving and diversified business environment with a large number of operators ranging from production in chemicals and plastics to electronics, automotive components, light and heavy engineering, ship building, medical products, garments and food, to sectors providing services in tourism (such as conference and incentive travel), financial intermediation, maritime and aviation whereas substantial expertise and capabilities have already been developed. Note that service activities in Malta linked to the maritime sector include complex conversion jobs on specialised vessels for the oil industry, the servicing of super yachts, ship repair at the Malta Drydocks, the operation of cruise liners with Malta as their base and the provision of various services in direct support of the oil industry. Substantial work is also being carried out to extend to aviation the services Malta offers to the maritime sector. Many are confident that aviation services have all the potential to be developed on equally successful lines. The Malta International Airport has recently been privatised and its management is benefiting from the experience of Europe’s most successful aviation hub, that of Vienna. Additionally, Lufthansa Technic has established a joint venture with Air Malta to provide aircraft servicing facilities through Lufthansa Technic (Malta), which is currently expanding its operations.
Malta is also committed to attract new industries, new technologies, and to open new markets and business opportunities be it in manufacturing, services, back office or regional operations. In the case of the manufacturing sector, new companies setting up in Malta are more likely to be in information technology including software developers, pharmaceutical and healthcare companies or manufacturers of high value electronic components and precision engineering. Malta offers a highly competitive investment location for niche manufacturing, testing and R&D particularly in the medical, bio-tech, pharmaceutical and automotive sectors. Film productions, maritime activities, call centres, aviation services, e-business, back office services, electronics and software industries are also target sectors for Malta. The Island’s proximity to and cultural links with North African markets and the Middle East is attracting companies that are using Malta as a stepping-stone for their trading, distribution and marketing operations in Southern Europe and North Africa.
The Island is fast becoming recognised as a particularly attractive centre for the generic pharmaceuticals industry. Its robust and favourable legal environment for generic pharmaceutical and active ingredients producers has attracted a number of leading international names to migrate to Malta. All of these operators benefit from the fact that the insignificant size of the domestic market has resulted in the registration of comparably few patents, thus allowing generic manufacturers to develop and produce in Malta a large number of medicines for launch on EU and other markets upon expiry of the patent protecting the innovative drug elsewhere. Malta’s patent and design legislation also incorporate Bolar provisions. Though the sector is still relatively small, in just a couple of years, the Island developed into a very attractive place from where leading generic manufactures can operate. Indeed, there are already 15 generic pharmaceuticals manufacturers already in place and another 8 on the way in, and there is a clear self-sustaining cluster in the making. The 15 companies currently in operation represent an investment of around €100 million; this investment is expected to double by 2007. Eventually, exports from the sector should grow from 33 million in 2003 to 150 million in 2007.
The IT industry represents another area of huge potential to the Island’s economy. Encouraged by government initiatives and the state-of-the-art telecoms infrastructure, Malta offers one of the most progressive environments in the world for IT and e-Business activities. Investment in this area is increasing at a rapid pace, attracting significant foreign investment from around the world, and contributing robustly to the economic development of the Island. Built upon a solid foundation of education, technology infrastructure, legislation and services, the landscape of Malta’s IT industry offers a unique opportunity to investors seeking the ideal environment to establish IT and e-business enterprises. Currently ranked 28th out of 104 countries in the world according to Network Readiness Index Rating 2004 in its potential for IT development, Malta’s IT industry is dominated by software activities. Microsoft, Cisco, and Oracle have all established a significant presence on the Island.
Concurrently, Malta is targeting the services industry where it can impact either through intellectual or knowledge input or else through its geographical/logistic position. In this regard, target areas for investment include disaster recovery, data processing, data storage, payment gateways, digital rights and intellectual property management, online reservations, education and internet-based training, data warehousing, database management, supply chain management centres and a variety of related services.
Malta can also lay claim to a growing financial services sector, increasingly geared towards providing a wide range of services in support of business activity within Europe, North Africa, and beyond. Today, many companies operate from Malta to provide a wide range of these services to the international market. A number of other important opportunities for investment are also expected to arise over the next year or two, especially in the privatisation and liberalisation fields. The privatisation of a number of public entities and the liberalisation of public services offer good prospects for bringing in new foreign investment carrying a lot in terms expertise, and a potential for growth and expansion. Longer-term gains are also possible from the continuation of the reform and liberalization process, which should lead to higher productivity and GDP growth. These effects have also the potential to lead to a more efficient allocation of resources. These benefits are potentially much more significant than the benefits flowing from increased trade, and provide the most promise of gains in the long run.
To summarize, there are many attractions for overseas companies to do business in Malta and for companies located in the Island to do business abroad. Malta offers political and macro-economic stability, a skilled and educated workforce, a strategic geographical location close to the EU but in close proximity to Africa and the Middle East, and labour costs that are competitive compared with much of the current EU. My last message is that Malta is a place from where potential gains from business opportunities can really come true.

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