Across Europe, the question of how to deliver economic growth through turbulent times is a source of serious headaches for political leaders.
In the absence of growth, they find themselves unable to meet the expectations of citizens and facing the politically challenging prospect of raising additional revenues via taxation, which in many cases only serves to further undermine long-term economic prospects.
While the UK is no longer a part of the European Union (EU), it has not escaped this dilemma even as it pursues its ambition to have the highest growth in the G7.
Yet there are some clear exceptions to the general doom and gloom. With one of the strongest growth rates in Europe, Malta is bucking the trend. In fact, the Maltese economy has grown 70% since 2015 versus the eurozone growth rate of just 13%, at an average rate of 6.5% over the same period.
These results are no accident. Rather, they are the product of deliberate efforts to drive foreign direct investment (FDI) and propel the growth of Malta’s financial services sector, which recent data estimates now accounts for 97.5% of total FDI.
Chief among these factors is an enduring and cross-partisan commitment to maintaining a business-friendly environment.
In addition to an ever-growing expat community that complements the island’s own resourceful and solution-oriented talent pool, Malta continues to roll out a suite of incentives for start-ups and investors that gives the country an edge and have helped position it at the forefront of fast-growing industries such as FinTech, esports and iGaming.
In October 2022, as countries across the continent sought to breathe new life into their economies in the wake of the Covid-19 pandemic, Malta launched a Start-up Residence Programme for founders, core employees, and their families, promoting and attracting new talent. One year later, government put its money where its mouth is and created a Malta Venture Capital Scheme.
Equally important has been an embrace of innovation. The culture of innovation is deep-rooted in Malta. A product of our rich history and location at the crossroads of Europe, Asia and Africa, this culture is one that has been applied to our approach in capitalising on and catalysing emerging sectors.
In the case of crypto assets, for example, Malta moved with lightning speed to roll out its Virtual Financial Assets Framework in 2018. Devised by the Malta Financial Services Authority (MFSA) several years before the EU’s Markets in Crypto-Assets (MiCA) regulation, the framework ensured we were ahead of the curve, enabling us to quickly establish ourselves as a European hub for the sector. We continue to attract firms on this basis.
As one of Europe’s smallest countries, in charting a path for sustained economic growth, Malta has had to be strategic and targeted. This is one of the reasons why supporting the growth of the financial services sector has been so important, rather than more land and space intensive alternatives.
Nonetheless, we do not for one minute consider our size to be a weakness. Instead, we have sought to use it as an advantage which enables us to offer investors agility and accessibility.
Being small helps us to be responsive to industry and when we identify a challenge or an opportunity, the authorities can move quickly to roll out the necessary initiatives and regulation.
Reform has been central to these efforts and an extensive process has been undertaken to ensure that Malta has a robust and attractive regulatory environment. Recent examples include the introduction of the Notified Professional Investor Fund (NPIF) framework in 2023, which was designed to reduce regulatory complexity and operating costs, thus enhancing Malta’s attractiveness as a fund jurisdiction.
Malta also established Limited Partnerships without legal personality which offers an additional legal form for collective investment schemes.
In developing regulation, the focus has been on maintaining a business-friendly environment and driving efficiency by reducing complexity, simplifying processes and harnessing the benefits of digitalisation.
We have also invested heavily in compliance, with a marked increase in supervisory engagements in recent years, as well as wider efforts to support our license holders to meet essential requirements.
As we look to sustain current growth rates, Malta has been carving out certain niches, for example in the insurance sector where it is the only full EU member state with Protected Cell Company legislation and the only European jurisdiction to have enacted legislation facilitating the establishing of Securitisation Cell Companies (SCCs).
While in general Europe remains behind its counterparts in Asia and America when it comes to attracting private wealth, Malta is defying the trend.
With the number of multimillionaires expected to surge by 75% or more by 2040, Malta has recently updated its family office offering by amending the Investment Services Rules for the NPIF and Related Due Diligence Service Providers, as well as the Trustees of Family Trusts Rulebook. These amendments sought to facilitate the establishment of family offices in Malta.
So, what can the UK and Europe do to unlock similar growth rates? First and foremost, they must embrace innovation and maintain a business-friendly approach that is not subject to partisan politicisation.
New technologies that can both strengthen regulatory compliance and, at the same, time make it more efficient and less burdensome, need to be adopted as a priority.
While global uncertainty persists and Europe can benefit from working in close partnership and collaboration, every country must nonetheless play to its distinct advantages and be unafraid to lead the way where it finds a niche or opening.
Joseph Zammit Tabona is the former Maltese High Commissioner to the United Kingdom & Northern Ireland and Chair of the Malta Financial Services Advisory Council
