Article featured in our latest issue of the Business Agenda.
On 1st May 2004 – 14 years after its initial application – Malta formally joined the European Union, opening up its borders and economic prospects to the bloc. Rebecca Anastasi speaks to the President of the Malta Business Bureau, Simon De Cesare, the President of the Malta Chamber of Commerce, Enterprise and Industry, Perit David Xuereb, and the MHRA President, Tony Zahra, about the significance of this momentous event in Maltese history.
On 8th March 2003, the Maltese electorate went to the polls in a referendum to decide on one of the biggest political, economic and cultural issues in a generation: European Union membership. With each of the two main political
parties lobbying for a different outcome – and some trade unions also stepping into the discursive fray – the result was far from certain. But, with 53.6 per cent of the votes in favour, and 46.4 per cent against, the smallest country in Europe took a leap into integration with the bloc.
“Membership of the European Union was possibly the most divisive political question since our independence,” Simon De Cesare, President of the Malta Business Bureau, says. “Once the decision was taken, Malta embarked on a process which saw us officially join the ranks of fully integrated members of the EU some 15 years ago. Since then, Malta undertook a complete process of modernisation, in terms of economic activity as well as its people’s mindset.”
“Malta needs Europe to do well, and,
therefore, this is an appropriate time to
use all our resources in Brussels to ensure
that competitiveness is put at the centre
of EU policy making.”
SIMON DE CESARE
Opening the island up to a market of 500 million consumers “brought competition challenges”, he continues, but it also brought about “ample opportunities for our businesses to internationalise.” Indeed, the MBB President notes the advantages being part of the Union brought with it, including the necessity to adopt “common rules of the highest standards” which “brought consistency and strengthened our credibility in key sectors such as financial services.”
Moreover, the benefits experienced by the island’s citizens have had a knock-on effect on the economy, he says. “Thousands of students have gained valuable exposure while studying and living abroad and this, in turn, gave our youth a wider view of the world that was challenging the ‘island mentality’ in the context of a globalised world. As a result, Malta has also embraced the digital revolution, taking leadership in new niche sectors such as blockchain and artificial intelligence (AI), and various programmes have been implemented to upskill workers and provide life-long and digital learning to adults and senior citizens.”
In terms of the island’s wider economy since EU accession, Mr De Cesare notes that, despite membership, Malta “remains a small, open economy subject to international volatilities”, and, thus is, today, dependent on the financial performance of bigger countries in the bloc. “Economic forecasts for Europe already indicate smaller growth in the coming years, but Malta needs Europe to do well, and therefore, this is an appropriate time to use all our resources in Brussels to ensure that competitiveness is put at the centre of EU policy making.”
He notes that this can be done through a further deepening of the single market; the approval of an EU budget which stimulates public and private investment; smart legislation which adds no financial or administrative burdens to SMEs; the opening of more market access globally; and the promotion of economic sectors which bring value-added to the economy such as tourism. “These are all policy practices that continue creating the conditions for businesses to do what they know best – creating value through productivity and jobs. Having these at the forefront of Malta’s priorities within the EU will continue to create new opportunities for our local business community,” he asserts.
However, challenges remain, according to the President, particularly when it comes to political and social issues which may impact the economic outlook and performance of the Union. Migration is one of these, he states, going on to underline that “the lack of a common and comprehensive migration strategy is an EU failure.” This holds especially true “in the face of an ageing population and a skills crisis,” and he states that “the EU should look beyond the shortterm burden-sharing disputes, and, rather, see the benefits that migration brings to EU productivity and the sustainability of social systems in the long term by spreading the weight of social contributions on a larger pool of people.”
Despite this lack of strategy, the EU’s reputation has remained positive here in Malta, Mr De Cesare notes, though he credits the strength of the local economy for this, saying that “as long as the economy keeps growing, while people are employed and social services remain strong, public approval of the EU can be expected to remain intact.” But, he warns, this should not be taken for granted. “As experienced in many other EU member states where the economic crisis hit the hardest, seeds of populism are easily planted, and the EU can quickly turn into an easy target to blame for one’s economic misfortunes.” EU funding is another aspect of membership which has paid its dividends to the island, Mr De Cesare continues. “Since our membership, Malta has been an exemplary member state on how to maximise the use of cohesion funding allocated to the country through targeted investments, good management and timely implementation.” However, he predicts that this will take a hit in the eventuality of Britain’s exit from the European Union. Indeed, “if and when it happens”, Government and the private sector will need “to think seriously on how to bring more EU funding towards Malta, this time from EU programmes that are managed directly in Brussels.”
In this regard, he highlights the EU’s various financial instruments “to stimulate investment in areas that meet its broad objectives, such as climate action, innovation, digitalisation, cybersecurity, education and social inclusion,” and he identifies the “lack of awareness, expertise and capacity” as bottlenecks from accessing these direct EU funds over the past years. “But this should not be an impediment for the future. There have already been various successful Maltese entities participating in international consortia tapping direct EU funding.”
Moving forward, the priority for the next few years, according to the MBB President is to expand on the good work done so far by, firstly, “encouraging current beneficiaries to build on their successes, and, secondly, by bringing these positive experiences to others through best practice sharing, intensive coaching and, where possible, incentives to tap direct EU funding.”
“Having a voice at the table
has been instrumental for the
country’s unprecedented growth
of the last years.”
PERIT DAVID XUEREB
Echoing many of these sentiments, the President of the Malta Chamber of Commerce, Enterprise and Industry, Perit David Xuereb, comments on the pivotal importance of Malta’s membership to the bloc, stating that “Malta’s accession to the European Union is possibly the single most important socio-political event to take place this century so far. Becoming part of the EU has changed the Maltese economic landscape completely, bringing about changes in the way we do business, the way we run the country and to an extent, the way we live,” he says.
He notes that the political vision, on accession, was to position Malta “within a free and democratic Europe,” going on to specify that this was “buttressed by a clear understanding that Malta’s economy had outgrown its own limited market and that further growth was only possible if the country ventured further outside its borders.” Indeed, the local economy’s “free and unfettered access to the world’s largest market” played a key role in the decision to seek EU membership, he recalls, while “the last 15 years have shown that this access has become a major source of economic growth and job creation.”
As a result, membership has fostered the creation of new sectors which “were impossible or even unimaginable before EU membership,” he explains. “These include investment funds and their management in the financial services sector; the remote gaming sector; the wider ICT and software industry; the aviation sector; as well as the production of medical devices and generic pharmaceuticals, to name but a few.” Concurring with Mr De Cesare, the Malta Chamber President also credits EU accession with opening up the island to future economic possibilities in the disruptive technology segments such as blockchain and AI saying that he has “no doubt that EU membership is one of the attractive considerations foreign (EU and non-EU) investors make when coming to Malta.”
Perit Xuereb also refers to the spate of EU funds Malta has benefitted from – “to the tune of well over €2 billion between 2004 and 2021” – which has enabled the country “to invest in areas that are fundamental to the development of the country’s economy.” Investments made at the University of Malta and MCAST; the improvement of the energy network and the co- financing of the inter-connector between Malta and Sicily; as well as the upgrade of the road network since 2004 would all “have not been possible without the co-financing part coming from the Union,” he says.
He also notes more “intangible benefits” to membership within the bloc, such as the increased competition, which has pushed “many local investors to improve their product or service” and the ability for businesses to tap into
opportunities offered by the single market, thus “expanding their operations within the Union.” Moreover, the adoption of the single currency has led to the reduction of “transaction costs and exchange rate risks,” as well as further investment and certainty when it came to business planning.
Furthermore, membership, according to Perit Xuereb, has resulted in “more employment and educational opportunities, a cleaner and healthier environment, a more favourable business climate,” as well as encouraging
“an enhanced identity.” It has also accorded the jurisdiction “greater clout on the international scene” and enabled decision-making power within the EU.
However, there have been drawbacks, Perit Xuereb says, warning against the EU’s tendency to adopt a “one-size-fits-all approach” which “often becomes a problem for small, peripheral countries like Malta, whose reality is vastly different to that of any other member state.” He says the issue is particularly pertinent when viewed from the context of tax harmonisation and state aid. “While tax harmonisation might be a good idea for other members, it would have a devastating effect on Malta’s economy. The same can be said about state aid. As a Chamber we have insisted in the past that, in terms of regional aid, islands should be treated by the EU in the same manner, irrespective of
whether they are regions or states.”
Yet, Perit Xuereb still sees further potential arising out of Malta’s membership in the bloc, though he emphasises that the smallest member must continue to make its voice heard, through every channel and forum available. “Having a voice at the table has been instrumental for the country’s unprecedented growth of the last years. This voice needs to continue be backed by strong, well-researched and expert arguments in order to convince the rest of our European partners of Malta’s realities.”
“So, is it all positive? The answer is no. It never
is, but there are many more opportunities
afforded to the island as a result.”
In contrast, the President of the Malta Hotels and Restaurants Association, Tony Zahra, cautions that although Malta is a full member of the EU, and has a seat at the table, “we must remain with our feet on the ground and realise that we are the smallest member country of the bloc. Our voice is what it is.” Indeed, he warns that the current mood in the EU “is blowing towards more integration, especially where tax harmonisation is concerned,” and emphasises
the need to “be able to steer this particular initiative in a way that will do the least damage to our financial model.”
Despite this, he sees positives to Malta’s membership. “The EU is built on four basic freedoms – the freedom of movement of goods, capital, services and people. It now comprises a market of over 400 million people and boasts some 700 trade agreements with countries all around the world. As an EU member, Malta benefits from all of these agreements, and has even benefitted from the single currency.”
As a result, the greatest opportunity – as well as the greatest challenge – in his view, has been for Maltese companies to expand beyond the island’s shores and venture into other European jurisdictions. “It’s an opportunity insofar as we can do business in any of the EU countries as if we were nationals of that country, but the greatest challenge is our ability to finance such expansion and to manage this expansion. Given our small size we do have severe limitations on capital as well as personnel.”
Notwithstanding, he believes such growth can materialise. “We have seen a number of Maltese companies doing it very successfully. So where is the challenge? The challenge is that there are no guarantees, as we have also seen some Maltese companies that have spent the money, but which have not succeeded. But fortune favours the brave, and those brave enough to venture, after having done their homework, probably will stand to yield dividends much bigger than by just staying in Malta.”
Malta’s membership within the has also provided the island the “benefit of having shared security interests and shared security,” he says, since “no EU country on its own can provide security in the way that the EU can provide collective security, and this especially for a tiny country like Malta where we have a tiny number of people forming part of Malta’s security network.” Thus, the EU can act as “our guardian”, he asserts, though Malta will always have to manage its own internal security.
In terms of the wider economy, he stresses the need to remain competitive, particularly within the tourism industry since the island’s sector is competing with resorts outside the bloc, whose costs may be less. He also sees an opportunity for Malta to market itself as “as the ideal place to have a manufacturing plant,” stating that the island needs “to increase the numbers of people working in the manufacturing sector from the present circa 20,000 to about 30,000.”
Thus, in conclusion, Malta’s membership of the Union gave, and continues to give, the island greater scope, though there are demands which still need to be met. “So is it all positive? The answer is no. It never is, but there are many more opportunities afforded to the island as a result,” Mr Zahra concludes.