Cheaper and easier are the watchwords as Lawrence Gonzi sets about improving Malta’s business climate. “We are restructuring and reforming the economy to make business cheaper and easier to do in Malta,” the prime minister explains, sitting in his sunny office in the Auberge de Castille, a grand-looking 18th century baroque-style building located on the highest point of Malta’s picturesque capital city of Valletta.
“And we are reforming port and harbour operations to make using them cheaper and easier.”
Dr Gonzi says he intends to slash the size of the government to make room for the private sector; he also wants make the government more efficient, cut public sector expenditure, and reduce bureaucracy to inspire more business confidence. He plans to consolidate the country’s fiscal position with an eye to introducing the euro, possibly by 2008. Joining the European Monetary Union, he says, “will allow business to flourish” in Malta.
Dr Gonzi himself comes from the private sector: he served as chairman of a commercial company between 1989 and 1997. A lawyer by training (he is a doctor of law), he had also previously been active in the voluntary and non-governmental organisation sectors since the mid-1970s.
Making the move into politics, he became secretary general of the Nationalist Party in February 1997. He was elected deputy leader of the party in 1999 and later deputy prime minister. He became party leader in March 2004; this made him prime minister.
It was on Dr Gonzi’s watch that Malta, along with Cyprus and eight central and eastern European countries, became a member of the EU. Almost 18 months later, membership has already made FDI promotion easier just by making Malta more visible on the world scene, which for a tiny island country is hugely beneficial.
“It’s the best marketing we could ask for,” says Dr Gonzi. “Sitting at the table where decisions are made has made a big difference for Malta.”
He insists that the benefits flow two ways and Malta has something to bring to the table, too. “We contribute a Mediterranean dimension to the EU. This role is shared with Italy, Spain and Greece and is something positive we can contribute,” he says. He cites the example of Malta’s encouragement of US-EU efforts to work with and open up Libya, nearby in north Africa.
Separated from the rest of the EU by the Mediterranean, Malta, like Cyprus, will always be a slightly different case. But this is more a help than a hindrance, says Dr Gonzi: Malta enjoys all the perks of being in the EU market yet is also close to the emerging markets of Africa and the Middle East.
Malta plays heavily on its location as part of its investment promotion strategy. “We are strategically placed in the Mediterranean and sit at the crossroads of one of the most commercially active parts of the world,” Dr Gonzi says. Lack of land connections to other markets is a problem that can be glossed over: the country compensates by having an excellent freeport and good air links, and it is working to create a “hub concept” for sea and air connections which should further improve accessibility, he says.
Perhaps because it is an island, Malta places an exceptionally high value on connectivity, thereby driving government interest and investment towards that end – and that includes IT infrastructure most of all. “We have one of the best information communication technology systems in the world and we are improving on that. Our e-government process is very advanced, which facilitates the way business is carried out,” Dr Gonzi adds.
To woo foreign investors, the Gonzi-led government is investing in IT, and in workforce training and education. Although Malta’s labour pool is not shallow, it is small. The country has the EU’s lowest population, at 400,000, with a labour force of about 145,000.
However, the US State Department reports: “Foreign companies that have invested in Malta have a high regard for the ability, productivity and learning potential of Maltese workers, nearly all of whom speak English.”
Fluency in Italian and, to a lesser extent, French is also common.
Malta can also claim one of the lowest labour strike rates in western Europe.
The Maltese economy once depended on industries that needed low-cost labour but the government wants to make use of its highly skilled workforce to move up the ladder.
“Factories have been here 20 and 30 years, and have increased their production and investments. Manufacturing continues to be extremely important – it’s a driving force of our economy and a major priority,” Dr Gonzi says. Most existing investment comes from Germany, Italy and France, with some British and American input as well.
But the government’s expressed FDI strategy is now to target source countries whose companies can pour investment into its priority sectors. These sectors include pharmaceuticals, semiconductors, automotive parts and other types of high value-added manufacturing.
Malta’s financial services sector is poised for expansion as the island exploits its ability to offer services to other EU members, with which it shares business standards and style, and to growing north African markets, with which Maltese businessmen are more familiar than most. Ship repair and tourism are among the other potential growth sectors.
Strong pharma pull
Malta has a particularly strong pull for pharma companies because of its rare combination of stringent intellectual property protection laws and lax interpretation of the Bolar provision on the production of generic drugs. The Bolar provision allows companies to start developing copycat drugs six years after the company that produced them applied for marketing authorisation, even while the drugs are still patent protected. In the EU, such development is not allowed until patent expiry. Malta’s minuscule size has worked to its advantage on this point: because it is so small, few pharma companies have bothered to register patents in the country, allowing competitors to rush in to manufacture copycat drugs sooner than they could elsewhere.
Rise in FDI
According to the government’s National Statistics Office, FDI inflows increased 30% from 2003 to 2004, from Lm111m (€259m) to Lm140m (€326m). MaltaToday newspaper reported that in 2004 up to 27 projects of foreign shareholding were approved by Malta Enterprise, the national investment promotion agency, with the sector breakdown as follows: pharmaceuticals 7; automotive 2, electronics 4, printing 2, metals 3, aquaculture 1, cosmetics 1, software 1, non-metals 1, ICT 1, marine 1, and others 3.
The numbers are hardly spectacular but are nonetheless respectable considering Malta’s size and, more importantly, its dearth of revenue-driving natural resources. They also seem to roughly reflect the government’s priority sectors, with the notable absence of a financial services investment in the mix.
The Ministry of Investments pointed out that the list is not necessarily conclusive because not all investors seek support from Malta Enterprise. Regardless, the 30% increase in FDI inflows shows that the trend is going in the right direction.
This newest batch of foreign investors can be the judge of whether Dr Gonzi has made Malta cheap enough for foreign investors to do business in and easy enough to get them to stay.