Q: What have been the key contributing factors to Malta’s emergence as a leading location for inbound FDI?
A: The country’s human resources are possibly its best asset, as the people of Malta have learned how to adapt to the various situations, developing into a highly-skilled and flexible workforce that is able to learn quickly.
Despite the efficiency and high productivity ratio of the workforce, most of which is also bilingual and English-speaking, the labour cost is still effectively lower of that in other countries. Generally speaking, Malta’s competitors in this regard have significantly higher costs – for example, Maltese wages on average are only around 70 per cent of those in other EU countries to the north.
This means that prospective investors get better value for their money, as it will cost them significantly less to invest in Malta but at the same time they would nevertheless have the assurance of good quality in the products or services being provided.
Investors are also attracted to Malta by its competitive incentive and fiscal regime which includes an attractive tax package for investors.
Additionally, they would also have the benefit of operating from a country that is a full member of the European Union, Eurozone and Schengen Area and which is strategically located between Europe, North Africa and the Middle East, with excellent connections not only by air and sea to the neighbouring countries but also through an exceptional electronic infrastructure.
Q: What sectors currently attract the bulk of FDI entering Malta? How is this changing?
A: Malta has gradually shifted from a low-value-added to a knowledge-based economy with a higher added value. Whilst most of the low-cost production has moved out of the country, Malta managed to remain competitive by diversifying it’s offering and moving up the value chain.
Sectors such as the financial services and the ICT industry, including niche sectors such as call centres and back office support as well as digital gaming, keep going strong and remain very attractive for prospective investors. These sectors can rely on an excellent electronic infrastructure which covers 95 per cent of the territory with a broadband connection and which in terms of quality has been classified as the sixth in the world in a study published by Oxford University in late 2010.
Infrastructure continues to improve, and projects such as SmartCity Malta - a $300 million self-sustained township providing space for the ICT and media sectors based on a similar project in Dubai - shall be providing more space for this growing industry as it gradually comes to life.
The growth in the financial services industry is impressive, registering a yearly increase of about 30 per cent in the past few years despite the international financial crisis. Capital inflows in the financial sector nowadays account for around 60 per cent of the stock of FDI in Malta, evidence of the country’s attractiveness for potential FDI investors.
In the manufacturing industry, we are moving up the value chain and shifting from low-value production to processes which include an element of R&D and innovation or at least an element of high value added in which our skilled workforce can excel.
The aviation industry is also expected to benefit from the launch of a new aviation register, which is seeking to emulate the success of the shipping register – one of the biggest in the world despite Malta’s small size. The island has in these years rediscovered its glory in the maritime industry, with thriving niches such as the cruise liner industry, super-yacht and yachting facilities, ship repair, as well as transhipment and logistics.
Q: How have your efforts to attract Chinese clients expanded since the financial crisis?
A: China was one of the strongest economic performers during the financial crisis, registering good growth despite the worldwide difficulties. This has made it an even more attractive market, and Malta is taking various initiatives in order to expand its client base from the country.
The Government has identified seven key sectors in which Malta is working to become a centre of excellence and a regional hub, namely financial services, ICT, international education services, high-value manufacturing including pharmaceuticals, tourism, health services, and the eco-regional dimension.
If Malta is to achieve its targets, it is important to have a combination of local growth together with foreign direct investment in these sectors. In view of the fact that some of these sectors have also been identified by China for further growth, it is only natural for us to seek increased synergies and areas in which we could complement each other.
We are thus taking a number of initiatives to strengthen the trade and investment relationship between Malta and China. Amongst these, Malta Enterprise has appointed a regional leader for Asia to work from within the market, being permanently based at the Malta Embassy in Beijing. As part of his duties, our regional leader is responsible for coordinating visits by Chinese companies to Malta for fact-finding missions and probable company set-ups, as well as to follow up any concrete interest which is forthcoming from these companies.
Furthermore, following a successful trade mission to Beijing, Shanghai and Ningbo in June last year, we will once again be organising a trade delegation to China, this time to Guangzhou and Hong Kong. A second group of Maltese businessmen will thus have the opportunity to participate in networking sessions and pre-organised one-to-one meetings with a view to expanding their business in China, seek possible partnerships and collaborations, or attract investment to Malta.
We are also assisting the International Investment Association of Shanghai to open up an office in Malta, while we have also facilitated the setting up of the Maltese-Chinese Chamber of Commerce.
Q: Are there any incentives for Chinese investors to invest in Malta?
A: The incentives we offer to Chinese investors are not any different from those we offer to any other investor, irrespective of the location. We have a wide-range of incentives and assistance to encourage investment, such as tax credits on the amounts invested, access to finance including financial support and loan interest subsidies, assistance for training of the workforce, as well as other schemes to encourage R&D, innovation and competitiveness, also through the use of EU funds.
We can also provide premises or factory space at very competitive rates for companies who would like to set up their operations in Malta.
Moreover, Malta’s tax system, coupled with the extensive network of double taxation treaties that currently comprises almost 60 countries, offers significant fiscal efficiency to companies. Amongst others, a full imputation tax system is applicable in Malta, whereby shareholders can claim credit for tax paid by the Maltese company upon distribution of dividends, possibly reducing their tax rate from the maximum rate of 35 per cent to as low as 5 per cent – the lowest in the European Union.
Q: How have trade and investment between Malta and China evolved?
A: Through Chinese investment, a number of projects were carried out in Malta that have made a great contribution to the country and its economy, such as the construction of a 300,000-ton dry dock and a breakwater sheltering the Malta Freeport – one of the Mediterranean’s largest transhipment hubs.
Indeed, Chinese merchant ships are amongst those to make use of the Malta Freeport facilities for transhipment, as Malta acts as a gateway to the huge markets neighbouring it.
Trade between the two countries has greatly benefited as a result and kept increasing in the past years, with imports from China having the greater share of the trade. Malta’s trade deficit with China was over €56 million in the past year. Total imports from China reached a total of €117.8 million in 2010, a marginal increase over the previous year, while exports from Malta to China more than doubled from €27 million in 2009 to €61.2 million in 2010.
A breakdown by category shows that the bulk of imports from China consisted of machinery and mechanical appliances, organic chemicals, electrical machinery, clothing, furniture, bedding and lighting fittings, while Malta’s exports to China were almost exclusively electronic components and to a lesser extent clothing items.
From the investment side, a host of Chinese companies - mostly SMEs - have already taken advantage of the benefits that Malta can offer, aided by the fact that the two countries have held excellent relations throughout the past years, with their relationship developing smoothly and steadily ever since the two countries established diplomatic relations almost 40 years ago.
However, one has to clarify that, due to the small size of the country, what is a large-scale investment for Malta would probably be a medium-scale investment for China.
By stepping up its efforts in China through various initiatives, Malta has generated increased interest and enhanced its reputation in the country, enabling it to benefit from the sudden surge of Chinese outward investment.
The benefits of investing in Malta and using it as a regional hub to tap into nearby markets - such as the excellent quality available at a relatively low cost, the political and economic stability, the easy accessibility to other markets, a great lifestyle with almost all year round sunshine, and several others as already outlined in other replies – speak for themselves, and by increasing the awareness about them Malta has managed to attract more trade and investment from China.
The granting of the Approved Destination Status by the Chinese authorities to Malta almost a decade ago has further enhanced the relationship between the two countries, with Malta becoming the ideal stepping stone for increased trade in the European Union.
This status has also made it easier for Chinese people to travel to Malta for tourism and leisure purposes. The island’s unique combination of culture, history, architecture, entertainment and fine weather almost all year round makes it an attractive destination for tourists from all over the world.
Q: Are there any services you are expanding that would be of interest to Chinese investors?
A: Inspired by Government’s Vision 2015+, the country is seeking to become a centre of excellence and a regional hub in a number of sectors, which therefore present various opportunities as part of the growth process they are going through.
Besides creating a business-friendly environment, the authorities are also encouraging further investment in these sectors by coming up with concepts for public-private partnerships, which often are developed into a clustered environment that not only provides the infrastructure to meet current demand, but also to foster and facilitate further growth in the particular sector.
Examples include the Aviation Park, which has not only provided facilities for Lufthansa Technik and SR Technics but also for other companies providing similar or related services; the Life Sciences Park, which is expected to give a further boost to the healthcare, biotechnology and life sciences industry; and the Corporate Village Malta, which shall provide office space to facilitate further growth in the financial services industry.
Q: What are the products for which there has been increased Chinese interest?
A: With most Chinese people opening up their recipe to foreign food and bevarages in recent years, Malta has also witnessed an increased interest in this sector. Further interest was also expressed in products such as electronics and machinery.
Rather than products, however, most Chinese are interested in services that are offered in Malta, such as international education, health, tourism and financial services.
Amongst others, tourist agencies are interested in including Malta as part of a wider European tour, while educational institutions are looking at degree-level or English language courses which are offered in Malta at a fraction of the cost of those in the UK.
Q: What effect will the double taxation treaty have on business coming from China?
A: Avoiding taxation by two or more countries of the same income, asset or transaction is an important tool in attracting investment. For this purpose, Malta has signed a double taxation agreement with almost 60 countries worldwide, including most of the major European trading nations, and is in the process of negotiating others.
The Maltese tax regime governing double taxation relief includes not only treaty relief but also unilateral relief and the flat rate foreign tax credit, and thereby ensures that income arising from overseas is not subject to double taxation, even if there is no double taxation agreement in existence.
Malta’s tax system and its extensive double tax treaty network means that, with proper planning and structuring, investors can achieve considerable fiscal efficiency using Malta as a base.
Q: What does Malta offer to Chinese investors as a staging post for neighbouring markets?
A: Whilst benefiting from the already existing excellent political and commercial links that Malta has managed to establish with the EuroMed partners, Chinese companies based in Malta would also benefit from the free trade agreements that Malta has with other countries, which besides the EU also include the European Free Trade Association (EFTA) countries, namely Norway, Switzerland, Liechtenstein and Iceland.