While comparisons are rife between the dismal fiscal situation in Cyprus and its neighbors, one tiny Mediterranean island stands out from the crowd for its steady economic development.
Malta - the small, sunny member of the European Union - is charming investors for this very reason.
The island is selling itself as a regional financial center, an IT hub, and a magnet for foreign direct investment.
Although these are relatively new developments for the island, which gained independence in 1964 and only became a member of the European bloc in 2004, it indicates the broad ambitions of the tiny state.
“Malta could be the future Dubai of the EU,” Klaus Pedersen, the Internationalization Manager at Malta’s Chamber of Commerce told Al Arabiya English on Wednesday.
At the start of 2013, the Chamber launched a Middle East Business Council to tap into business links between the island and Arab states, with a particular focus on the Gulf countries.
Highlighting the Gulf business hotspot Dubai, Pedersen pointed at the emirate’s financial services model, which has sprung to life over the past two decades through its freezone expansions, which have attracted hundreds of global businesses.
With financial services making up about 12 percent of Malta’s GDP of $8.89 billion, as well as double-taxation treaties put in place with 58 countries worldwide, the island is demonstrating growing economic resilience in the sector, says Joe Schembri, an official at economic development agency Malta Enterprise.
‘Smart’ like Dubai?
On the tiny island, lucrative Dubai-like business attractions are already in the pipeline such as SmartCity Malta, an upcoming business park set to host global ICT, communications and media companies.
In fact, SmartCity is modelled on the business parks of Dubai Internet City, Dubai Media City and Dubai Knowledge Village, and is funded by Dubai Holding member, Tecom Investments, which initially invested $300 million in the project back in 2009.
SmartCity, which is based in the Maltese town of Kalkara, will even mirror the architecture seen in Dubai’s business parks - with plazas, fountains, plate glass offices, lakes and greenery all said to feature.
“Our experience with SmartCity has shown that IT is an area that attracts investment from the Gulf,” says Schembri, adding that Malta’s strategic location at the center of the Mediterranean – a gateway to both Europe and North Africa – has been an incentive for global investments.
Becoming “a Dubai in Europe” is perhaps a realistic ambition for Malta, says Anamaria Pantea, a business development manager at SmartCity, which has sealed deals with U.S. tech giants Hewlett-Packard and Cisco to set up shop in the business park.
“New developing areas in Malta such as communications, ICT, media and financial services are similar to what Dubai has to offer now.
“Also, Dubai has a strategic location just like Malta has good positioning in the Mediterranean, close to upcoming markets in North Africa. Operations in both countries can complement each other in this way,” Pantea adds.
But comparisons to Dubai could just be upbeat “global markets talk” that sound “nice,” says Malta’s Minister of Economy and Trade Christian Cardona, speaking to Al Arabiya English on Thursday.
“Comparing yourself to success stories sounds nice; it’s good music. Geographically, we have our unique location and national resources, education and workforce which can make Malta excel as Malta.
“The fact that we would like to emanate Dubai’s successes is positive, but we have to keep our national identity. Yes, let’s aim to make Malta an international hub, a center of excellence, but of course we carry our own luggage – which is different to the luggage Dubai carried,” Cardona adds.
Part of Malta’s “luggage” includes high levels of bureaucracy, which has previously led to companies and investors pulling out of the country due to prolonged government processes within business dealings, says Cardona.
But this could be a part of the Maltese government’s more conservative and safe fiscal model, possibly being a factor which has cushioned Malta from the harsh knock-on effects of the global financial crisis and the banking downturn in Europe.
“Throughout this crisis, none of our banks have required any sort of government intervention, showing that this is a resilient jurisdiction where investment policies adopted by our institutions are sound and conservative – no haphazard investment,” Malta’s Prime Minister Joseph Muscat told Al Arabiya English last week.
Malta’s “smallness” in GDP has also allowed the island to keep its head above the water, says SmartCity’s Pantea. The island’s domestic banking system is approximately two and a half times the GDP, well below the EU average, a spokesman from HSBC Bank Malta, the second largest bank in the country, recently said in light of the Cyprus banking crisis.
But aside from comparisons with Dubai, Malta is increasingly emerging as a safe European jurisdiction when weighed up against Cyprus, as it has been recently by international observers.
“I think that it’s a great mistake from whoever tries to put us in the same situation as Cyprus. Cyprus is another Island in the Mediterranean with a financial sector. It’s fish and fowl... The figures show that we have a healthy situation,” Muscat said.
The prime minister was speaking in the wake of a bailout deal for Cyprus, which forced the closure of the country’s second-largest bank and a downsizing of the country’s banking sector that was flooded by Russian funds, which some claim are, in part, of dubious provenance.
“We are a resilient and strong economy, we will continue heading in that direction. We are facing challenges, like any other country, due to the global financial crisis," he said.
Credit ratings agency Standard & Poor’s classifies Malta as BBB+, while the short-term sovereign credit rating at A-2, with a stable long-term outlook.
Concerns over Malta’s public debt (77 percent of GDP) have weakened the ranking, but have not affected the A+ rating given to Malta by credit agency Fitch, also with a stable long-term forecast as the debt is mostly held domestically.
“Right now we are stepping up our anti-money laundering provisions; we are conscious of capital wanting to move into our country,” prime minister Muscat said.
“This is not a tax haven, this is not a fiscal paradise, this is a reputable jurisdiction within the EU and we want to keep it so. We’re not in for a ‘quick buck,’ we’re ready to refuse business if necessary to keep our reputation intact.
“But we don’t only think we have our head above the water, we believe we are a cut above the rest,” added Muscat.SHOW MORE