Download malta* 1. development disparities and issues

Malta
MALTA*
1.
DEVELOPMENT DISPARITIES AND ISSUES
Malta is situated in the centre of the Mediterranean Sea and comprises three islands: Malta
(246sq km), Gozo (67sq km.) and Comino (2.7 sq km). With a population in 2001 of only 393
thousands people (over 90 percent of whom are concentrated on the main island), Malta is
one of the smallest EU states in Europe. However, population density is the highest in
Europe (1,250 per sq km) and is associated with strong competition for land use and
environmental degradation, compounding the inherent challenges posed by Malta’s
insularity and small size.
Figure 1: Malta
Source: Magellan Geographix.
According to the latest Eurostat statistics, GDP per head (PPS) in Malta stood at 74.3
percent of the EU25 average in 2002 (67.9 percent of the EU15). Over the 1998-2002
period, GDP per head rose by 23.9 percent, compared to 20 percent in the EU25 (19.3
percent in the EU15). As a result, the gap between Malta and the EU25 fell by 2.4 percent
(2.5 percent compared with the EU15). The economic position of Malta has been relatively
stable during the 1990’s. However, being a small and open economy with a high
dependence on tourism, it has been strongly affected by the recent global downturn.
In terms of the labour market, unemployment in Malta is below average EU15 levels,
although the employment rate is significantly lower. This is primarily due to very low
female participation in the workforce, a key weakness in the Maltese labour market. In
September 2003, the female employment rate stood at 33.1 percent, contrasting with a
rate of 74.2 percent for males (53.7 percent average).
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In line with international trends, there is an increasing service sector orientation in the
Maltese economy. In 2002, market services and direct production accounted for 48 and 35
percent of GDP, respectively. One of the government’s key objectives is to consolidate and
develop Malta as a centre for financial services, such as insurance, administrative services,
software development, e-commerce. By contrast, the tourism industry is over-represented
in the Maltese economy, accounting for roughly a quarter of GDP and approaching
saturation levels. The government’s objectives here are centred on fostering diversification
and enhanced product quality.
Although agricultural output is below 2.5 percent of overall GDP, accounting for 2.2
percent of total employment, the current position is considered to be unsustainable, due to
inefficiency, land fragmentation and scarcity of water for irrigation.1 In terms of
manufacturing, recent trends show a shift from low value-added sectors such as textiles to
higher value-added sub-sectors such as communication equipment and apparatus. Pressure
on the country’s shipbuilding industry is strong as the sector continues to restructure. The
core challenge facing the traditional production sectors is to restructure and improve their
competitiveness, particularly in view of the traditionally protectionist policies adopted in
the past. This in turn requires further structural reform, particularly in the network, food
and shipbuilding industries.2
Table 1: Socio-economic indicators in Malta (NUTS II)
Malta
Total
Population
(000)
2001
393
GDP
Per Capita, PPS
2001
Employment by sector
(% of total)
2002
Unemployment
Rate (%)
EU15=100
EU25=100
Agric.
Ind.
Services
2001
2003
69.5
76.2
2.3
31.2
66.5
n.a.
7.6
Source: Eurostat (unemployment rates) and Third Report on Economic and Social Cohesion
(European Commission, Brussels , 2004).
Given Malta’s small size, the core economic challenges facing the country are
predominantly of a national rather than regional nature. On the other hand, one distinctive
territorial feature of the country is the economic situation in Gozo Island. The key
challenges facing the Island can be summarised as double insularity (reflecting its small
island status within an archipelago of islands), environmental fragility, small population
size, high population density and limited resources. In addition, the Island relies
disproportionately on agricultural and industrial employment. These specific features have
merited special attention in the agreement on a "Declaration on the island region of Gozo"
attached to Malta’s Accession Treaty. The latest available data shows that GDP per capita
(in market prices) in Gozo has fallen from 74.7 percent of the average for Malta in 1999 to
71.2 percent in 2001. Other territorial challenges can be identified in the coastal areas,
notably infrastructural gaps and environmental sustainability weaknesses.
1
Planning and Priorities Co -ordination Directorate, Malta Single Programming Document 2004-2006
(2004).
2
European Commission, Commission Recommendation on the 2004 update of the Broad Guidelines of
the Economic Policies of the Member States and the Community (for the 2003-2005 period), (European
Commission Brussels, 2004) p. 49.
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2.
NATIONAL REGIONAL POLICY OBJECTIVES
The overall approach to economic development in Malta encompasses the whole of the
country, although there are spatially targeted interventions for the Island of Gozo. Malta’s
economic strategy focuses on enhancing competitiveness, the promotion of economic
growth, the generation of employment opportunities, low and stable inflation, sustainable
development and improvements in the standard of living.
The ‘National Development Plan for Economic and Social Cohesion 2003-2006’ provides the
overall strategic framework for economic development in Malta and forms the basis of the
2004-06 SPD.3 The plan’s core objective is for Malta to converge towards the average level
of socio-economic development in the EU. A further three sub-objectives are identified.
•
The sustainable growth of Malta's economy and its international competitiveness.
•
The optimum use of Malta's human resources in a manner that encourages an increase
in the size of its workforce.
•
The growth in social and economic development, spread equitably across the Maltese
islands - both socially and geographica lly.
There are a range of other national and EU-related strategies which overlap and inform the
National Development Plan. These include: Rural Development Plan for the Maltese Islands;
Joint Assessment of Employment Opportunities Policy Priorities of Malta; Gender Equality
Action Plan; Rural Development Plan of Malta; Tourism Development Policies (2000-10);
Solid Waste Management Strategy for the Maltese Islands; the Transport Infrastructure
Needs Assessment (TINA); Structure Plan for the Maltese Islands (1999-2010); and Special
Needs Assessment for the Island of Gozo.
A more recent national initiative is the National RTDI Strategy which has been developed by
the Malta Council for Science and Technology (MCST). At the centre of the plan are two
core objectives. The first is to promote a culture for continuous scientific research and
innovation, as well as to provide the technical support for Malta to meet its requirements
for the implementation of the EU’s Acquis Communautaire. The second objective is to
encourage public-private sector partnerships and cross-sectoral synergies, involving all
parties in the take-up of science and technological research and development. To address
these objectives, three sub-programmes have been designed: covering capacity-building;
scientific research; and SME collaborative research.
In terms of industrial policy, there has been a shift in the late 1980’s from import
substitution towards export-led growth. As a result, industrial policy objectives have
increasingly focussed on competitiveness and assisting in the restructuring of businesses.
This is reflected in the Government’s 1999 White Paper ‘Prosperity in Change - Challenges
and Opportunities for Industry", which set out its strategic vision for industrial
3
Ministry of Economic Services, National Development Plan for Economic and Social Cohesion 20032006 (2002). Available at: http://www.ndp.gov.mt.
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development. The promotion of international competitiveness is one of the core elements
of the strategy. This is largely to be achieved through attracting additional foreign direct
investment, expanding export activity, developing high value-added sectors, generating
new employment opportunities and promoting joint ventures.
3.
INSTITUTIONAL ARRANGEMENTS
3.1
Territorial Administrative Structures
The territorial administrative structure of Malta is summarised in Table 2. Under the NUTS
classification, the entire country has been designated as a single unit at both NUTS level I
and II. At the NUTS III level, Malta is divided into three regions: Malta Majjistral, Malta
Xlokk and Gozo (including the island of Comino). These are purely administrative regions.
However, the Island of Gozo has had its own administrative structure for many years. This
was reinforced with the creation of a separate central government Ministry for Gozo in 1987
to coordinate government functions and to promote socio economic development on the
island.
Six districts (South Eastern, Southern Harbour, Northern Harbour, Western, Northern, and
the Islands of Gozo and Comino) compose the Maltese NUTS level IV, which are also
administrative classifications. At the local level, 68 local councils have been classified as
NUTS V (fifty four in Malta and fourteen in Gozo). The legal framework for local councils is
provided by the Local Councils Act, which outlines their core responsibilities in the delivery
of public services, such as maintenance of public areas, public gardens and leisure centres,
local public roads etc. Local councils are also consulted by the Government in areas such as
transport and land use, amongst others. The Local Councils Association channels local views
into national and regional policies.
Table 2: Territorial Administrative Structures in Malta
Unit Type
Designation
Number of Units
Regions
NUTS III
3
Districts
NUTS IV
6
Local Councils
NUTS V
68
3.2
Institutional Structure for Regional Policy
Given Malta’s small size, the approach to economic development is national. The functions
of the main sectoral ministries in relation to economic development are summarised in
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Table 3.
The only territorial dimension of the institutional structure in Malta is the
existence of a national Ministry for Gozo, which promotes socio economic development on
the island.
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Table 3: Sectoral Ministries and ‘National/Regional Policy’
Ministry
Regional Policy Competence
Ministry of
Finance
Responsible for strategic planning and policy co-ordination across the Ministries,
and for the national economic strategy.
Office of the
Prime Minister
Responsible for the Planning and Priorities Co-ordination Directorate which acts
as the Managing Authority for the SPD.
Ministry of
Education, Youth
and Employment
Responsible for Employment and Training (e.g. the Employment Training
Corporation provides training in all employment sectors and acts as a recruitment
agency) as well as Science and Technology Policy. For example, within its
portfolio lies the Malta Counc il for Science and Technology, which is responsible
for advising Government on the strategic direction of national research and
innovation policies, the development of related investments and programmes,
and the coordination of science technology and innovation policy.
Ministry for
Tourism and
Culture
Develops and implements tourism development plans. Responsible for the Malta
Tourism Authority (MTA).
Ministry for
Urban
Development and
Roads
Responsible for the coordination of urban development projects.
Ministry for Rural
Affairs and the
Environment
Promotes rural development (e.g. agriculture, fisheries) and the environment
(e.g. waste management strategy m
i plementation). Responsible for the Malta
Environment and Planning Authority, which is in charge of environment and land
use planning and formulation of sustainable development plans.
Ministry for
Investment,
Industry and
Information
Technology
Responsible for investment promotion, FDI attraction. Within its portfolio lies
Malta Enterprise, which is responsible for promoting a business-friendly
environment (e.g. support for restructuring and sectoral targeting; administering
incentive schemes; attracting foreign direct investment).
Ministry for
Resources and
Infrastructure
Development and implementation of EU infrastructure projects.
Ministry for Gozo
Coordinates Government functions on the Island of Gozo and promotes socio
economic development on the island.
4.
NATIONAL REGIONAL POLICY INSTRUMENTS
Business incentive schemes and tax breaks have existed in Malta since the late 1950’s. The
Industrial Development Act has provided the regulatory framework for these incentives and
has been subject to a number of reforms over the years. In 2001, the latest reform merged
the Industrial Development Act with the Malta Freeport Act to create the ‘Business
Development Act’. Other changes included in the reform provided the incentive schemes
with a greater degree of scope and flexibility and also expanded the range of activities and
sectors eligible for incentives.
The Business Development Act is not spatially targeted, although the Island of Gozo is
provided with added benefits to address its transport problems. It operates as a framework
incentive scheme with a number of sub-schemes. The incentives are primarily fiscal in
nature and are targeted at businesses engaged in manufacture (including software
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development), repair, improvement and maintenance activities. The key objectives are to
promote growth and employment in ‘promising sectors’ and to encourage start-ups, with
priority given to innovation related activities.
Table 4: Incentive Schemes in Malta
Incentive
Description
Tax Related
Reduced rates of
taxation
This incentive only applies to companies engaged in target sectors and allows
reduced rates of tax on their profits – for 7 years at 5%, for the following 6 years
at 10% and for the following 5 years at 15%.
Investment tax
credits
Companies qualifying for reduced rates of taxation are also eligible for
investment tax credits calculated as either a) a percentage of a company’s
expenditure on capital equipment or acquisition/development of technology, or
b) a percentage of the first two years of wage costs of new jobs created.
Value added
incentive scheme
This incentive scheme is for companies that are not engaged in target
sectors/activities, but are carrying out manufacturing activities or associated
services. The scheme provides for the same reduced rates of tax as under the
reduced rates of taxation scheme applied to part of the increased profit when
compared to the base period.
Reduced rate of
tax for
reinvestment
profits
A reduced rate of tax (15.75% from 35%) on profits reinvested in projects
approved by Malta Enterprise
Investment
allowances
Tax allowances in addition to normal tax depreciation for buildings and
structures (20%) and plant and machinery (50%).
Tax free
dividends
Dividends distributed from profits for qualifying businesses are exempt from
shareholder taxes or further taxes.
Non-Tax Related
Provision of
factories
Malta Enterprise can provide target companies with industrial buildings or custom
or subsidized rent.
Soft loans
Low interest loans covering up to 75% of eligible expenditure.
Loan interest
subsidies
If a company is not eligible for a soft loan it may qualify for a subsidy on the
interest rate payable on a loan for the acquisition of fixed assets for the purpose
of water or energy or water conservation.
Loan guarantees
Malta Enterprise can guarantee loans (up to 75%) for qualifying companies.
Training grants
Training grants for full-time employees under an approved training programme.
Assistance for
SMEs
Grants of up to 50% of eligible costs for non-routine expert services or
participation in fairs and exhibitions
5.
EU PROGRAMMES
5.1
Objectives
For the 2004-06 period, Malta will receive €63.2bn in EU co-financing and an additional
€22bn through the Cohesion Funds.4 The country’s Single Programming Document (SPD) has
four priorities:
4
RAPID Press Release, Commission agrees on the strategy to implement structural funds in Malta for
2004-2006, IP/03/1778 of 18 December 2003, Brussels.
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•
Strategic investments and the strengthening of competitiveness in Malta, such as:
improvements in the environment sector, with a strong focus on water quality and
waste
disposal;
and
support
to
small
and
medium-sized
enterprises
in the
manufacturing and tourism sectors;
•
Human resources development, such as: supporting the inclusion in the labour market
of people with disability; and developing life long learning;
•
Rural development and fisheries: improvement of the processing and marketing of
products; renewal and modernisation of the fleet; supporting aquaculture and fishing
port facilities; and
•
Special support to the island of Gozo, such as: the upgrading of transport
infrastructure; supporting the tourism sector; and the upgrading of education centres.
In addition an amount of € 1.4 million will be made available for technical assistance.
Table 5: Structural Funds Programme
Programmes
Community contribution
Single Programming Document (Obj.1)
€59.1m
Priority 1 - Strategic investments and strengthening
competitiveness
€39.5m
Priority 2 - Developing people
€8.8m
Priority 3 - Rural Development and fisheries
€7m
Priority 4 - Regional distinctiveness (Gozo special needs)
€6.5m
Priority 5 - Technical assistance
€1.4m
5.2
Implementation
The Planning and Priorities Co-ordination Directorate is the Managing Authority for the SPD.
The directorate was created in 2001 and is directly attached to the Office of the Prime
Minister. The International Relations Directorate within the Ministry of Finance and
Economic Affairs is the Paying Authority for the SPD.
The Intermediary Bodies are the Rural Development Unit within the Ministry for Rural
Affairs and the Environment (EAGGF), Office of Review within the Ministry of Social Policy
(ESF), Fishery Conservation and Control Division within the Ministry for Rural Affairs an the
Environment (FIFG) and Ministry for Transport and Communica tions and the Ministry of
Resources and Infrastructure (Cohesion Fund). In addition, a Regional Project Committee
for the Island of Gozo, for the specific Measures under Priority 4, has been set up to address
its particular needs. As well as providing input at the programme development phase, the
Committee is responsible for selecting and implementing projects.
The Inter-Ministerial Coordination Committee for Regional Policy is responsible for
coordinating the activities of sectoral ministries where regional policy is concerned, as well
as providing recommendations to the Cabinet regarding regional policy priorities in Malta.
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The input of social and economic partners is ensured through the Committee’s Deputy
Chairman Membership of the Malta Council for Economic and Social Development.
5.3
Geographic Focus
The SPD’s Priority 4 is targeted exclusively at the Island of Gozo. The Island is also eligible
for support across the other Priorities.
6.
REFERENCES
Ministry of Economic Services, National Development Plan for Economic and Social Cohesion
2003-2006 (2002). Available at: http://www.ndp.gov.mt.
Planning and Priorities Co-ordination Directorate, Malta Single Programming Document
2004-2006 (2004). Available at: http://ppcd.gov.mt/english/main.htm.
RAPID Press Release, Commission agrees on the strategy to implement structural funds in
Malta for 2004-2006, IP/03/1778 of 18 December 2003, Brussels .
European Commission, Commission Recommendation on the 2004 update of the Broad
Guidelines of the Economic Policies of the Member States and the Community (for the 20032005 period), (European Commission, Brussels, 2004).
*
This paper has been prepared by Carlos Méndez with Chiara Polverari, based on EPRC
research.
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