Dr Lawrence Gonzi, prime minister of Malta

Malta might be tiny but it is determined to make itself heard on the world stage. Dr Lawrence Gonzi, prime minister of Malta, explains how. Writer Michael Imeson

Malta may be the EU's smallest state, but its prime minister thinks big. Dr Lawrence Gonzi is adamant that Malta has an important role to play in the G-20's plan to reform the world's economic and financial system. He believes that there is much more to gain from Malta's membership in the EU and the eurozone, and he is working hard to promote the island as a regional finance centre.

Mr Gonzi speaks enthusiastically about his ambitions for Malta. It has a population of only 406,000 and a land mass of 316 square kilometres, but the fact that it is a minnow in a big European pond belies some of its strengths. Mr Gonzi believes these attributes will become evident as the G-20 rolls out its programme of recovery and reform.

"Malta can contribute," he says emphatically. "Malta has a role to play when dealing with global economic growth, when dealing with job creation, when dealing with the new challenges faced because of the financial crisis. Malta is already quite a significant player in a number of sectors. For example, we have the fifth largest shipping registry in the world." He also alludes to the growing number of overseas financial firms that are establishing their businesses on the island.

"The voice of a small island like Malta around the table, which has a long number of years of experience in many areas, will be a contributory factor in the EU and beyond as to how to move forward. We are against protectionism, which will undermine job creation. We are in favour of open markets and free trade," he says.

Joining the EU in May 2004 and adopting the euro in January last year has brought Malta many advantages. It was Mr Gonzi's Nationalist Party that applied for the country to join the EU. Furthermore, Mr Gonzi, who has been prime minister since March 2004, was a keen advocate of early euro adoption. His re-election for a second term in March last year demonstrates that the electorate was behind him on both counts.

Since then, however, the euro has brought with it steadily rising prices. This has caused some dissent among the populace and is one reason why, in the European Parliament elections in June, Malta's opposition Labour Party polled 55% of the vote against the Nationalist Party's 40%.

Mr Gonzi does not admit to any significant drawbacks of EU or euro membership. He does accept, however, that Malta, especially its small businesses, had to adjust rapidly from "an island economy that was internally focused" to being in an internal market of 500 million people with no trade barriers.

Seven-point plan

Mr Gonzi's government has identified seven sectors of Malta's economy that can develop significant competitive advantage by 2015: financial services, information and communications technology, tourism, manufacturing, health, education and specifically enhancing the island of Gozo as a tourism destination. The 'Vision 2015' objective for the financial sector is to increase the contribution it makes to gross domestic product from 12% to 25%.

Malta avoided the worst of the financial crisis, mainly because its banks stuck to conventional banking rather than relying on wholesale funding or investing in toxic assets. The island ceased to be an offshore tax haven before joining the EU. It now positions itself as a regional financial centre, offering significant tax efficiencies and other advantages to foreign firms locating there, within an EU-compliant regulatory regime.

"Commissioner [for internal market and services, Charlie] McCreevy has recently congratulated Malta for topping the list of member states for the timely implementation of internal market rules," says Mr Gonzi.

"In addition, during the first five years [of EU membership] notwithstanding the challenges encountered, Malta has been exceptionally successful in attracting international financial services companies. Throughout these first five years we have seen 28 new investment companies set up in Malta, rising from 65 to 93," he adds.

Over the same period, the number of collective investment schemes has grown from about 70 to 418 and the number of banks from 16 to 23 (with assets more than doubling over the same period to more than €45bn). Malta's insurance sector has trebled in size over the past three years, mainly through increased international and captive insurance business.

Taking a hit

Finance may have become one of the mainstays of the economy but trade, manufacturing and tourism are still important contributors and all of them, including finance, are being affected by the global economic malaise.

"We can hardly expect this period of turbulence to simply pass us by," says Mr Gonzi. "Malta has a small, open economy, highly dependent on foreign trade, and as the downturn grips our major trading partners, our exports will be negatively affected which, in turn, is bound to hit the level of domestic demand.

"The recession in most European economies, particularly in the UK, is already being reflected in our tourist figures. Tourism has always been, since independence [from the UK] in 1964, one of our major economic pillars, with the UK market being a major player in the total tourism package," he says.

Tourism in Malta began to suffer a few years ago when there was a trend away from people using tour operators for package holidays towards people arranging their own holidays and using low-cost airlines. However, the country adapted by encouraging low-cost airlines to fly there and by promoting itself as a place of culture as well as of sun and sea. As a result, 2007 was a record year for the industry and 2008 was even better, although 2009 figures will be down to 2007 levels or lower.

Mr Gonzi talks enthusiastically about the regeneration of the capital, Valletta, and how this will attract more visitors.

"It was built 500 years ago and still retains its original character despite being bombed [in World War Two]. We are restoring Valletta, giving it back the glory it had when it was built by the Knights of Malta," he says. "We are in the final phase of agreeing a plan with one of the world's top architects, Renzo Piano, to rebuild the City Gate of Valletta, the old opera house and Freedom Square."

One type of visitor that Mr Gonzi certainly does not welcome is illegal immigrants. "In foreign policy, probably the biggest challenge we face today, and will continue to face in the future, is that of illegal immigration," he says. His government has been lobbying the European Commission and the Office of the UN High Commissioner for Refugees (UNHCR) for years to stem the human tide from north Africa.

The island's proximity to Libya, 180 miles south, has made it the first port of call for many of the thousands of political refugees and economic immigrants who try to reach Europe every year, often in unsafe boats. Many of them also arrive in Italy, Greece and Spain but because Malta is so small, it finds this problem harder to control.

The European Commission last month announced additional measures to help southern EU states deal with the problem. These include more financial help, the creation of a burden-sharing mechanism where other member states will voluntary resettle a quota of immigrants, and the opening of EU/UNHCR reception centres in north Africa to assess asylum applications.

Although Mr Gonzi is pleased with these developments - he says they are "definitely a very important step forward" - he is not entirely satisfied. For example, he would like the burden sharing to include mandatory quotas. His pleas for tougher action were reported in the Financial Times last month.

Staff shortages

In one respect, Malta might be becoming a victim of its own success. FinanceMalta, which promotes the island as a financial centre, held its annual conference in May, at which Mr Gonzi was the keynote speaker. One delegate said that because the island's financial sector has expanded so rapidly it is becoming increasingly difficult to find qualified staff.

One solution to this shortage might be to provide more training. Another might be to import more workers - but in this instance only professionals - from other parts of the EU.




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