The bases of Malta’s economy stand firm, aside from one pillar – banking – holding the country back. What is it about investment banking that keeps Malta from moving forward? In a period of stagnancy, investors take to tourism and manufacturing to see higher profits.
Economic diversity results in high achievement
Malta has an impressive collection of profitable business sectors. The country has a firm establishment in various areas, including dealing automobiles and electronics, importing chemical resources and mineral fuels, manufacturing pharmaceuticals, and building and repairing ships.
Because of its vast economic success, the government established further benefits for Maltese citizens to expect in 2023. Some of the advantages, as per PwC’s “Trend Talks,” in their Special Edition on Malta’s budget toward the end of 2022, include a reduced tax rate for part-time work (down to 10%), free public transport, exempt pension for incomes up to EUR 14,318, and increased aid when acquiring new electric vehicles or plug-in hybrids.
According to a Britannica article on Malta’s economy, “The Maltese government encourages and facilitates direct foreign investment, which began to increase in the early 2000s.
Although a once-promising investment, banking in Malta experienced money laundering cases that swept the country, most notably in cases such as Pilatus Bank in 2018. Legal cases such as this damaged the reputation of Malta’s economic status, despite other sectors continuing to grow.
Tourism industry lures more crowds
According to the Organization for Economic Co-operation and Development (OECD), in their 2022 Tourism Trends and Policies regarding Malta, 40,568 “direct tourism jobs” made up 16.9% of the country’s total employment and tourism expenditure (EUR 2.2 billion) in the year 2019.
Malta experienced a 7.8% GVA drop in tourism in 2020, most likely due to the COVID-19 pandemic. Despite this downfall, the country experienced a 51.9% increase, compared to 2019, in domestic tourist overnight stays. In 2021, the numbers started to rise in hopes of seeing the same pre-pandemic results as in 2019.
As a country that relies heavily on tourism for economic support, Malta still sees hundreds of thousands of tourists traveling to the Mediterranean destination for their fair share of architecture, history and boat tours. Compared to destinations like Barbados and Seychelles, with almost a 90% decrease in tourists at the beginning of the pandemic, Malta’s 70% decrease in 2021 doesn’t pale in comparison to the downfalls COVID-19 presented elsewhere.
Investment banking loses touch
Established in 2002, the Malta Financial Services Authority (MFSA) became the “autonomous body and the single regulator for financial services, taking over supervisory functions that were formerly carried out by the Central Bank of Malta, the Malta Stock Exchange, and the Malta Financial Services Centre,” according to Britannica.
Many legal cases involving banks have unraveled since 2018. The MFSA’s intention of combining financial services into one entity took a turn for the worse in cases such as Pilatus Bank. Despite the possibly well-intended merger of the MFSA, taking on multiple financial entities proved overwhelming for their system.
Pilatus Bank and the MFSA continue to hide information and funds from the bank’s clients. Key stakeholders still have not received validation on the location of their money or why it has remained withheld for the last five years. As the case is still open, the MFSA deflects responsibility and takes no action against the injustice.
Foreign investment risk surpasses such legal cases. According to a graph from The World Bank, Malta is experiencing a period of stagnancy in foreign direct investment. Since 2015, the net inflow of foreign investment in percentages of the GDP between 2015-2021 ranged from 25.1% to 32.8%. Since the Pilatus Bank case in 2018, the number has decreased from 29.2%. to 25.1%. At the country’s peak, in 2007, the percentage was 449.1%.
The lack of investor interest is fair. In cases like Pilatus Bank, investors experience exclusion from vital, relevant information involving their business dealings and the country’s economic well-being. In this period of stagnancy, business dealings in other industries, such as manufacturing and tourism, may result in higher profit margins.
Manufacturing imports high profits
Malta imports an array of products, including petroleum oil, boats and metals. Astonishing economic benefits from imports and exports alone support the country in caring for its citizens and stimulating many financial sectors.
Petroleum oil makes up about one-third of Malta’s economy, much of which propels the country’s bustling nautical culture. According to an article in Times of Malta from 2021, the country’s “maritime sector now accounts for 14% of [the] GDP.” Moreover, the varied industries that make up the economy, such as boating and cruising, provide a more promising financial future.
Investors looking to contribute to Malta’s imports and exports economy might find success in areas such as pharmaceuticals, foods, textiles and products such as toys. Manufacturing and tourism are among the most promising and stable business sectors of Malta’s current economy.
Investors find promise in alternative categories
Low taxes, financial benefits, and diversity in imports and exports lure foreign investors to Malta annually. In addition, its “location between Europe and Africa makes it a crossroads for several cultures” and provides more lucrative dealings in many different business divisions.
Although investment banking in Malta projects low profits for 2023, high-tech electronics, agriculture, real estate, and many other investment opportunities, as discussed, persist as promising return potential. As a result, foreign investors will most likely benefit from Malta’s diverse business playing field, while some banks scramble to determine their next steps.
