Malta - The Magnificent

Introduction

Malta includes the islands of Malta, Gozo, Comino, Comminotto and Filfia, which are located just south of Italy between Europe and North Africa. Malta has a population of 400,000 and a land area of 316 square kilometres, making it the smallest and most densely populated member of the European Union (EU).

Political Overview

Malta became an independent State in September 1964, having been under British rule since 1800. The Constitution of 1964 established Malta as a liberal parliamentary democracy, guaranteeing separation between the executive, judicial and legislative powers, with regular elections based on universal suffrage. Legislative power is held by the unicameral House of Representatives (65 members excluding the Speaker). Members are directly elected by universal suffrage for five years (subject to dissolution) on the basis of a single transferable vote system of proportional representation. The Cabinet exercises executive power and is responsible to the Parliament.

In 1974 the Constitution was modified to make Malta a Republic. The Head of State is the President, whose duties are largely ceremonial - the change of Malta's status did not create a presidential style of government. The President is elected for a five-year term by the House and appoints the Prime Minister and, on the latter's recommendation, other Ministers. Malta remains a member of the Commonwealth.

Maltese domestic politics are dominated by the two main parties - the Nationalist Party (PN) and the Malta Labour Party (MLP). The Nationalist Party defeated the opposition Malta Labour Party in a national election held on 12 April 2003. The next election in Malta is due to be held in 2008.

Former Deputy Prime Minister, Dr Lawrence Gonzi, succeeded Dr Edward Fenech Adami as Prime Minister of Malta on 23 March 2004. Dr Fenech Adami was elected by Parliament as President of Malta on 4 April 2004, following the expiration of President Guido de Marco's five-year term in office. Dr Michael Frendo was appointed Minister of Foreign Affairs on 3 July 2004.

Recent political developments

Malta joined the EU on 1 May 2004 fulfilling the ruling Nationalist Party’s (PN) top priority. In preparation for EU membership, the Government liberalised previously closed sectors, privatised entities such as the formerly state-owned Malta International Airport, opened up competition in monopolies such as telecommunications and postal services and removed some import barriers. EU membership has exposed Malta to unprecedented levels of illegal immigration from North Africa. Malta has received some assistance from the EU and the US in re-settling persons processed in Malta as refugees.

In July 2007 EU finance ministers gave the final go-ahead for Malta to adopt the euro on 1 January 2008. The changeover to the euro is shaping up to be a key issue in the forthcoming elections which are due to be held by mid-2008.

Foreign policy

Since EU accession Malta has devoted considerable energy and resources to developing its relations with EU institutions and developing good relations with EU member states. As a small island state in the Mediterranean, Malta's foreign policy also reflects its central geographical position. Malta is expected to maintain an active Mediterranean policy and to continue providing support for the Euro-Mediterranean process, in which it will seek to play a facilitating role where it can, and consolidate relations with North African countries. Malta supports institutions that promote multilateral co-operation, notably the United Nations, the Commonwealth, the Council of Europe and the Organisation for Security and Co-operation in Europe.

Economic overview

Malta’s economy has been growing at more than 3 per cent since 2005 and is forecast to grow 3.2 per cent in 2007. The fiscal consolidation programme aimed at ensuring Malta’s adoption of the euro by 2008 has curtailed government expenditure. The current-account deficit declined to 6.1 per cent of GDP in 2006, but is expected to increase again in 2007. Inflation in 2007 is expected to drop to 0.6 per cent (from 2.6 per cent in 2006). Unemployment is the lowest in 12 years and was at 6.8 per cent for the first quarter of 2007.

The EU countries as a group are Malta's principal trading partners. In 2006, France was the most important destination for Maltese exports followed by Germany. Italy was by far the most important source country of imports followed by the UK and then France.

Malta has no natural resources (except for some limited fish resources) and is totally dependent on oil imports for its energy needs. Malta has a very open economy with an import-plus-export-to-GDP ratio of over 80 per cent. Tourism is the single largest foreign-currency earner and accounts for around 25 per cent of Malta's GDP.

Malta's manufacturing industry accounted for 17.6 per cent of GDP in 2005 and is characterised by some 400 medium-to-large sized export-oriented firms, mostly foreign-owned and a large number of micro and small enterprises geared to the domestic market. The pharmaceutical sector is growing, with a sizeable number of new firms choosing Malta to develop generic drugs for export to the EU once existing drug patents expire.

The services sector remains the prime driver of economic growth in Malta. Financial, telecommunications and IT services have increased in importance as incentives have been introduced in recent years to attract foreign investment and to encourage offshore business and financial houses to use Malta as a base for operations in Europe and the Mediterranean. According to the Economist Intelligence Unit, in 2006, inward investment flow to Malta was around US$188 million, more than 25 times the level ten years ago, with most of the investment going into financial and computing services. Some recent examples of foreign investment in Malta include: Mediterranean Bank PLC, which opened premises in Malta in September 2006; Lufthansa, which now services its smaller planes at Malta’s airport and is looking to expand services to the wider fleet; Dubai Holding, an investment firm which is spending more than US$300 million to set up a one-stop shop technology park in Malta to act as a bridge to Europe; BMW, which has moved its in-house or “captive” insurance unit from Dublin to Valletta.

An international free port operates successfully as a central Mediterranean transhipment hub making Malta a leading centre for container and freight shipment. Malta’s tax system, accommodation costs, and well-educated English-speaking workforce also are a draw for foreign investors.

Economic Developments

Restoring sustainability to the public finances continues to be a major challenge for the ruling Nationalist Party government. Although there has been some success in increasing revenue collection by cracking down on tax evasion, this still contributes to loss in government revenues. Labour costs remain high compared to the general level of productivity. While the Government recognises the need for Malta to improve labour productivity, it has been reluctant to take politically sensitive restructuring decisions. There remain high levels of consumer expectations and social security expenditure that appear unsustainable in the longer term.

A third of all employment in Malta is tourism-related. The main source countries of arrivals are the United Kingdom, Germany, Italy and France. Following a decline in 2006, tourist numbers and total tourist expenditure increased in the period to July 2007. The Maltese Government credited the 2006 decision to allow Ryanair and other low-cost carriers to fly to Malta, despite resistance from the government-owned Air Malta and established foreign airlines, as one of the factors contributing to tourism growth.

Australia's relationship with Malta

Australia and Malta have a strong relationship. Australia has had an immigration presence in Malta since the 1950s and full diplomatic relations since 1967. Malta has a High Commission in Canberra (established in 1964) and has Consulates-General in Sydney and Melbourne, as well as consulates in Brisbane, Adelaide and Perth. There is also a vice-consulate in the Latrobe Valley in Victoria. At the international level, Australia and Malta have a number of common interests, particularly relating to their membership of the Commonwealth.

Community presence in Australia

The Australian Bureau of Statistics found that in 2006, 153,805 Australians claimed Maltese ancestry and 48,978 Australian residents were born in Malta. The Maltese migrant community in Australia represents the largest Maltese community outside of Malta, which has a population of 400,000. Since first arriving in Australia in the 1800s, the Maltese have contributed to the cultural enrichment and economic development of Australia. During the early part of the twentieth century 1,900 Maltese immigrated to Australia.

In May 1948, Australia and Malta signed an assisted-migrant-passage agreement, which extended the benefit of subsidised travel costs to over 63,000 Maltese. The peak period of migration to Australia occurred in the mid-fifties and sixties and the number of people in Australia who were born in Malta peaked in 1981. Since then the Malta-born population in Australia has been declining. It has also been ageing, such that there are now few Malta-born persons in the 0 to 24 age bracket. Most of the Malta-born population has lived in Australia for more than 15 years and over 70 per cent have taken up Australian citizenship. Victoria and New South Wales have attracted, by far, the largest numbers of Malta-born persons.

Changes to Australian citizenship legislation came into effect on 1 July 2007, and allows for former Australian citizens who had renounced their citizenship to retain their Maltese citizenship to apply to resume their Australian citizenship, as dual nationals.

Defence Links

The Maltese were involved in the Gallipoli campaign as part of the British armed forces. Some Australian servicemen wounded at Gallipoli were hospitalised in Malta (the "nurse of the Mediterranean"). Australian servicemen were heavily involved in the defence of Malta during World War II, for the most part as members of the British armed forces, although there was also direct participation by Australian units in transit in Malta. There are Australian war graves in Malta, and ANZAC Day is a well-recognised occasion.

Recent Ministerial visits

Reflecting the relatively large Maltese community in Australia, there have been regular high level visits to Australia by Maltese leaders. Prime Minister Dr Lawrence Gonzi visited Australia from 31 July to 12 August 2007. Other recent visitors to Australia include the Deputy Prime Minister of Malta and Minister for Justice and Home Affairs, Dr Tonio Borg (19-25 March 2007) and the Maltese Foreign Minister Dr Michael Frendo who attended the 2006 Commonwealth Games in Melbourne.

An Australian Parliamentary Delegation led by the Former President of the Senate, Senator Calvert, visited Malta from 14-18 April 2007. Former Prime Minister John Howard attended the Commonwealth Heads of Government Meeting (CHOGM) in Malta in November 2005.

Major bilateral agreements

Bilateral agreements between Australia and Malta are in place covering immigration (1970), double taxation (1985), health services (1988), social security (1991 and revised in 2004), working holiday maker scheme (1996) and air services (1996).

Bilateral economic and trade relationship

Trade with Malta is small, largely due to a combination of distance, the small size of the Maltese market, as well as Malta’s accession to the EU in 2004. Exports have been on a downward trend since 2001. In 2006-07, two-way merchandise trade was $A21 million, though the imbalance was significant with exports to Malta accounting for only $5m of two-way trade. Australian exports comprise cheese and curd, margarine and medicaments. Australian wine exports to Malta are increasing and have potential for further growth.

In contrast imports from Malta have been steadily increasing and in 2006-07 were $A16 million increasing by 26.7 per cent on previous year totals. Major Australian imports were electrical machinery, medicaments and medical instruments.

Market opportunities for Australian exporters include areas such as EU-funded infrastructure projects; telecommunications equipment; electronic parking meters; solar powered boats and other solar energy equipment. Other potential opportunities are in waste management including Australian environmental and water resources expertise and related equipment for water and energy supply, energy reticulation and waste management.

In recent years there has been a rapid expansion in Malta’s financial services sector. In October 2005, the Commonwealth Bank of Australia set up “Commbank Europe Limited” in Malta to facilitate investment, lending and business development into Europe. The bank is regulated by the Malta Financial Services Authority and has the right to operate in EU member states and make loans to EU residents. The Bank’s operation has reportedly become one of the biggest financial institutions in Malta with assets totaling AUD$4.74 billion for 2006.

There are also opportunities for Australian companies to collaborate with Maltese based companies in joint ventures to access third country markets in Europe and North Africa. In October 2006, World Aviation Systems (WAS), a joint venture between Air Malta and Cassar Aviation Services of Sydney, set up Centrecom, a €1 million international call centre at Malta’s airport terminal to cover Air Malta’s markets in Europe. The centre employs about fifty staff. In 2006 the Australian company Solco, in partnership with the Maltese company Motherwell Bridge Malta Limited, opened a factory in Malta which produces a range of sustainable water and energy products including polymer-based solar hot water systems. A Perth-based oil exploration company Pancontinental Oil and Gas NL has negotiated a number of offshore oil exploration leases with the Maltese Government. The Western Australian company Austal Ships Ltd built a fast ferry for Virtu Ferries in Malta for the Malta-Sicily route and delivered it to the company in March 2006.

Business Links

The Maltese-Australian Chamber of Commerce and Culture in Malta (MACCC) and its Sydney-based counterpart, the Australian-Maltese Chamber of Commerce (AMCC), in collaboration with the Australian High Commission in Malta and the Maltese High Commission in Canberra, help to facilitate and promote greater trade and business partnerships between Australia and Malta. In October 2005, the two chambers collaborated to send a trade delegation to Malta.