Malta: Out of the frying pan into the fire. (2 of 2)

Malta: Out of the frying pan into the fire. (2 of 2) - The Maltese Government is trying hard to attract more investment. The Malta Development Corporation calculates that industrial costs run at roughly a third of Britain's, and hopes that this, together

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Last Updated: 31 Aug 2010

The Maltese Government is trying hard to attract more investment. The Malta Development Corporation calculates that industrial costs run at roughly a third of Britain's, and hopes that this, together with the substantial tax incentives on offer, will lure investors. In particular, the island is trying to sell itself to the small businessman of northern Europe, stressing the climatic and linguistic advantages to German and British high-tech and cottage industries. The reasons for this are not hard to explain. With such a small workforce, the Government wants to keep the size of its companies down. The British engineering firm Dowty and the French giant SBS already employ 650 people (or 0.5% of the entire workforce) each, making the abrupt departure of either almost a major economic crisis.

The Government also hopes that it can turn the island into a trade distribution point for goods destined for southern Europe. Basing its optimism on Malta's location on the trade route from Gibraltar to the Suez Canal, the Maltese are busily constructing a freeport at Marsaxlokk, the island's second major deepwater harbour. The hope is that ships from the United States and the Far East will unload their cargoes in the tax-free port, prior to redistribution in smaller ships around the northern coast of the Mediterranean. Unfortunately, Cyprus has already proceeded fast down this avenue and has the advantage of the wealth and skill of the Lebanese business community in exile. Unlike Malta, the Cypriots already have a thriving port and it will be hard for the Maltese to convince shipping agents to abandon Cyprus.

In addition, full entry to the EC (it already has associate member status) will present problems for the scheme. The European Commission is unlikely to smile on the idea of a tax loophole into Europe. Even if the Maltese manage to persuade the EC to allow the anomalies to continue after entry, Europe-wide harmonisation of taxes threatens the viability of the scheme.

The Government's plans for economic development are also threatened by the fragility of its one natural resource - people. In common with so many of the smaller European countries, there has been steady emigration from the island, draining the young labour pool of its most talented members. In addition, the strong Catholic conservatism of the island hampers full female employment, restricting the workforce to 140,000. There is also an acute shortage of skilled middle management - a shortfall that even Malta Development Corporation's chairman, Philip Rizzo, admits to.

To add to the difficulties, much remains to be done to improve the island's infrastructure. International telecommunications are still appalling; tarred roads barely exist; power cuts are less frequent than previously, but the new generating plant has yet to pass the test of time.

Although Malta is almost certain to be admitted to the EC, events in Eastern Europe are likely to delay the procedure. In the interim the island searches desperately for an economic niche that will protect its future when pitted against the economic giants. The danger is that unless it finds answers quickly, membership of the EC may lead to the island's newly discovered identity being swallowed up again by its powerful neighbours.

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