Malta's commercial climate warms up to foreign investment

Malta's new Nationalist Government is courting foreign investors with a package of incentives that will enhance the attractive investment features already in place. The country, a six-island archipelago that includes the larger islands of Malta, Gozo, and Comino, already boasts of 134 foreign manufacturing plants operating there. Among these are a number of American firms, including Baxter World Trade Corporation (Baxter-Travenol), Blue Bell Wrangler, and Starship Yachts-a recently formed U.S.-Malta joint venture. The door is wide open for other U.S. firms that may be considering a new or additional European manufacturing location.

Malta's new Prime Minister, Dr. Edward Fenech Adami, issued an invitation to foreign investors while visiting the United States last summer. "We do not consider the word profit' to be a dirty word ... it is absolutely necessary that investment made in Malta should be profitable," he said. "We invite foreign investors for their own-as well as ourgain. "

Malta's Ambassador to the United States, Salv Stellini, continued the theme: "We are confident that U.S. companies, after carrying out their own careful study, will conclude-as some 130 foreign subsidiaries in Malta already have-that Malta offers an attractive profitable proposition. Our position in all this is straightforward: since it's also in our interest that foreign investors should succeed, we shall do our best to help them succeed. "

Malta, located in the center of the Mediterranean midway between Gibraltar and the Suez and just off the coast of Sicily, gained independence from the United Kingdom in 1964 and became a democracy within the Commonwealth. An English-speaking country, Malta has a system of government and laws based on the British models.

After gaining its independence, one of Malta's principal economic objectives was to develop a strong, export-oriented industrial sector and strengthen the service industries that include tourism, shipping, offshore trading, and financial activities. Over the past 24 years, the economy has become trade-dependent and sensitive to outside influences. In recent years, reduced foreign demand for Malta's exports and an inflated exchange rate for the Maltese lira contributed to a slowdown in the country's economic performance and made it difficult to expand the export base. Concurrently, Malta's imports continued to rise, largely as a result of increased purchases of semifinished industrial goods and equipment ieeded to complete infrastructure projects.

o offset the resulting trade imbalance and the 8 percent unemployment, the government has worked to improve the country's export competitiveness and create new jobs by intensifying efforts to attract new foreign investment. To make the country more attractive to the international business community, the government has committed itself to creating the right climate for foreign investors, formulating a package of new investment incentives to expand the base of foreign investment already in the country.

Most industrial sectors and service activities are open to export-oriented investors, but the government carefully screens foreign investment proposals oriented to the domestic market. Certain economic activities, such as domestic banking, energy, and public services, are effectively closed to private investment. The government seeks investments that have higher capital input, offer new technology, feature a value-added component, and that are export-oriented.

Priority investment areas identified by the government include high-quality apparel, sportswear and footwear, optical goods, computer software and data processing, high-value plastic products, automotive parts, small electric and electronic products, bio-medical disposables and other health care products, and printing and publishing.

Legislation also has been enacted to encourage the development of various service industries including offshore financial and trading services. Banking (non-domestic), insurance, shipping, trusts, and commercial services are areas now open to foreign investors that want to serve the European and Mediterranean regions.

The package of investment incentives promulgated by the government was designed both to attract new foreign investment and help established industries improve their performance. Prominent among the new incentives are the following:

a ten-year tax holiday for new export-oriented companies;

accelerated depreciation and an investment allowance for new plant and machinery, industrial buildings, and structures;

subsidies for costs of training, export promotion, and R&D expenses;

ready-built factories available at subsidized rates; and

duty-free treatment for all plant, machinery, equipment, components, and accessories used in export-oriented industries.

Foreign investors are free to make equity arrangements ranging from full ownership to joint ventures. No formal requirements for local management exist; the government, however, encourages companies to train and gradually replace foreign managers with Maltese. Proposals for investment are considered on a case-by-case basis. The Central Bank of Malta must approve applications for investment and repatriation of profits and capital.

Complementing the investment incentives is Malta's most important resource-the labor force. Foreign companies invested in Malta have a high regard for the ability, productivity, and learning potential of Maltese workers, most of whom speak English. Although personnel with high-technology or research backgrounds are in short supply, the new administration has committed itself to upgrade the standard of education at state technical schools. Malta enjoys one of the lowest strike rates in Western Europe and wage levels have remained moderate for the last several years. The national minimum wage is about $94 per week and the average skilled labor wage rate, $126 a week.

Accompanying the new attitude toward foreign investment are major infrastructure programs. The government will commit close to $400 million to upgrade the electrical power generating capacity, expand the water distribution and purification systems, install a stateof-the-art telecommunications system, and construct a new airport terminal.

In addition, the Malta Freeport Corporation has been set up to operate Malta's second port as a free port. The free trade zone will include facilities to handle cargo transport and transshipment. Companies will be able to use the free port for offshore storage, assembly, and processing, and packaging and repackaging of goods ultimately destined for European or North African markets.

Malta has an association agreement with the European Community (EC). This agreement provides for duty-free treatment of goods produced in Malta that enter any one of the 12 member countries of the EC. No quotas or other quantitative restrictions apply to these articles. As the EC moves toward the completion of its single market initiative that will eliminate all internal trade and investment barriers by 1992, the EC will offer even greater market opportunities for companies producing in Malta.

Malta qualifies for Overseas Private Investment Corporation (OPIC) investment guarantee programs. OPIC is a self-sustaining U.S. Government agency that encourages investment in developing nations. This agency assists U.S. investors by insuring their investments against certain political risks and by financing these investments through direct loans and loan guarantees. Certain commodities manufactured in Malta are also eligible for General System of Preference (GSP) status that allows them to enter the U.S. market duty-free.

Both the U.S. Department of Commerce and the U.S. Embassy in Malta encourage prospective American investors to consider Malta as an investment site. The Embassy regularly reports on the investment climate and economic conditions in Malta in the form of an Investment Climate Statement and a Foreign Economic Trends report. For copies of these reports and for further information on investing in Malta, interested firms should contact the U.S. Department of Commerce, Malta Desk, tel. (202) 377-3748.

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