Malta's economic development as a European Union member

Malta Business Development Report

European Union (EU) is an organization that forms common market to improve the economy development of member countries. At present, the EU members consist of 27 countries. The member countries have partially transferred their sovereignties or law making authorities to the EU. To enhance the free flow of investment among the member countries, the EU launched the European Union's currency on the 1 January, 1999. In 2002, Euro became a legal tender in the 17 EU member countries. These 17 countries have formed the Euro zone and adopted the Euro as their currency and the sole legal tender in their respective countries. "The Eurozone (EA17) consists of Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland." (Find Facts, 2011). Of all the 17 Eurozone member, Malta is the new member. Malta became an EU member on the 1 May 2004, and in 2008, the country entered the Euro zone since it met all the strict entrance requirements. The research formulates the research objective to reveal what the paper attempts to investigate.

1.1: Research objective

The objective of this report is to investigate the Malta business development. Malta is one of the smallest countries in the world, and the significant success of Malta economy is its degree of its openness since the country largely depends on the foreign trade. Jane's (2009). Over the years, Malta has undergone rapid micro and macro economic developments. (Ibelieveindog (2010). To provide greater understanding on the analysis of Malta economic development, the report is structured as follows:

1.2: Structure of the report

First, the introduction reveals the objective of the report. The next section provides the review of the related literatures of Malta business development, and business development of the EU. The review of the literatures also provides the major advantages that Malta is enjoying since the country has become a member of the European Union. The paper also discusses the disadvantages that Malta is encountering since it has joined the EU.

Additionally, the report provides the methodology used to collect data. In the Malta economic analysis, data are collected through secondary research. Moreover, the paper analyzes the data. Data analysis is very important to enhance data integrity, reliability, and the research findings. The findings of the research will enhance the greater understanding of the Small and Medium Enterprises (SMEs), Multinational Enterprises (MNEs) and the independent investors on the investment potentiality in Malta.

2. Literatures Review

This section reviews the literatures that discuss the Malta business development. The review of the literatures also reveals the business development of EU, and the advantages and disadvantages that Maltese economy is experiencing since it has become an EU member.

2.1: Business Development of Malta

Malta is a small country and the economy depends on the foreign trade. Over the years, Malta annual grow rate is between 1% and 2%. With Malta economic freedom, the country is ranked 57th freest country in 2011. Malta economy also scores 25 out of the 43 countries in Europe. Since Malta has joined the EU in 2004, the country has experienced rapid economic development and has scored 17th position in the EU zone. Over the years, Malta has demonstrated strong economic development with the grow rate of 2.6% in 2008. Although, there was an economic decline in 2009, the reason was due to the global financial crisis that has affected the western world. In 2009, Malta recorded negative grow rate. To sustain stable economic growth, the government implemented several economic measures. The government initiated policies to protect properties of foreign investors through the introduction of property rights. In 2010, the country recovered with 3.7% growth rate. (Jane's, 2009, Economic Freedom, 2011). In the first and second quarter of 2011, Malta has already demonstrated economic success with 2.5% GDP grow rate. (The summary of Malta economic data is on Appendix 3). (Bureau of European and Eurasian Affairs, 2011, Economic Freedom, 2011).

To examine the disadvantages and the advantages of Malta economy since it has joined the EU in 2004, the report analyses the EU business development.

2.2: EU Business Development

EU is a single market formed by the 27 member countries. (Table 1 reveals the 27 EU member states). The unification of the EU market makes the EU market to become the largest

Table 1: The 27 EU Member States:

Belgium

(BE)

France

(FR)

Austria

Bulgaria

(BG)

Italy

(IT)

Poland

(PL)

Czech Republic

(CZ)

Cyprus

(CY)

Portugal

(PT)

Denmark

(DK)

Latvia

(LV)

Romania

(RO)

Germany

(DE)

Lithuania

(LT)

Slovenia

(SI)

Estonia

(EE)

Luxembourg

(LU)

Slovakia

(SK)

Ireland

(IE)

Hungary

(HU)

Finland

(FI)

Greece

(EL)

Malta

(MT)

Sweden

(SE)

Spain

(ES)

Netherlands

(NL)

United Kingdom

(UK)

Source: Eurostat 2011

market in the world with the GDP of $14.8 trillions. The formation of single market has enhanced the free flow of investment within the member states. One of the EU aims is to strive towards the convergence of living standard. (Posen nd). However, there is still wide disparity in the per capita income of the member countries with the per capita income range between $7, 000 to $78, 000. With the great difference in the GDP of the member countries, Malta GDP per capita in PPS is 83%, which is 17% below EU average. (Appendix 1 and 2 reveal the GDP per capital in PPS of EU member country). Based on the data in the appendix 2, the GDP per capital in PPS of the EU member ranges from 43% to 283%. While Luxembourg ranks the first with 283% in GDP per capital in PPS, Malta scores 83% in GDP per capital in PPS with 17% below the EU27 average. (Finfacts, 2011). The literatures are reviewed to examine the advantages and disadvantages of Maltese economic development since the country has joined the EU zone in 2007.

2.3: Advantages and Disadvantages of Maltese Economy since joined the EU Zone

Malta has undergone rapid economy development since it has joined the EU zone in 2007. In 2008, the GDP was approximately USD8.3 billion. In term of Maltese per capital income, the country is performing better in term of international comparison. In 2008, Malta nominal per capital was USD20, 113. However, Malta encountered major setback in 2009. The impact of financial economic crisis that has affected many Western countries also affected the economy of Malta in 2009. (Global Edge, 2009). The growth rate shrinked by 3.1%, and there was 3.1% in budget deficit in 2009. (Jane's 2011). In 2010, Malta economy recovered. Although, the economy grew at a slower rate, the growth rate in the first quarter of 2010 was 3.4%. Although, Malta has enjoyed rapid development since it has joined the EU zone in 2007. The impact of financial crisis that affected many Western Europe also affected Maltese economy in 2009. Typically, Malta suffered some economic setback between 2009 and 2010. (Bureau of European and Eurasian Affairs, 2011).

2.4: Five Articles Reviewed

There are five articles reviewed in the literature review. Posen (nd) investigates the success of the Euro. The author analyses the economic contribution of Euro to the EU members between 1992 and 2004. The author uses combination of primary and secondary research in his article. The results of the article reveals that Euro has contributed to the economic development of the member countries because Euro has eliminated volatility associated with currency of each member country.

Jane's (2009) investigates the overview of the economy of Malta. The author uses both primary and secondary research in his investigation. The result of the investigation reveals that the Malta maintains a solid economic growth.

Bureau of European and Eurasian Affairs, (2011) investigates overall economic, social and political situation of Malta. The author uses secondary research in its investigation. The findings reveal that there is rapid economic growth in Malta.

The Global Edge, (2009) investigates the Malta economic in 2009. The author uses secondary research to collect data. The findings reveal that Malta suffered low down in the economic performance in 2009.

Economic Freedom, (2011) investigates overall economic, political and social performances of Malta. The author uses both primary and secondary research to collect data. The findings reveal that there is high grow rate in Malta. However, there is still high level of corruption in the country.

Methodology for the Research

The report chooses secondary research as a method of data collection. The justification for choosing secondary research is that data collection through secondary research demonstrates low cost, and there is wide range of available source in the electronic database. Moreover, secondary data could be collected without spending much time. Unlike primary research which takes longer time before collating data, data collection through secondary research is easy and data are readily available in many electronic journals. (Trochim, and Donnelly, 2007).

2.6: Data Analysis

Data analysis is very important for the validity and reliability of the data. Data analysis is the process of cleaning, inspecting, transforming and modeling the data to transform it into the useful information. One of the methods used to analyze the data is by assessing the data if they are relevant to the research. Since the author uses several articles, report and academic journals to prepare this study, the author only handpicks the articles relevant to the study. Further analysis is that the experts in the field write all the articles reviewed. The articles not meeting these criteria are discarded. Analyzing the data helps in arriving at the research findings.

2.7: Results after analyzing the Data

Analyzing the data helps in arriving at the conclusion that Malta is the 57th freest economy in the world. Malta economy also ranks 25th out of 43 countries in the Europe region. In the EU zone, Malta scores 17th position with 83% GDP in PPP. With the Malta economic assessment, Malta is 17% below EU average. Overall economic assessment reveals that the Malta economic condition is conducive for investment. Although, the financial institution may be small, however, it is relatively strong because of its openness to competition. The country has joined the EU in 2004, and adopted the Euro on 1 January 2008. Since Malta has joined the EU, the country has recorded between 1% and 3.7% annual GDP grow rate. In 2008, the GDP growth rate of Malta was 2.6%. Although, Malta experienced negative grow rate in 2009, this was due to the global financial crisis that affected many European countries. Despite the financial crisis that affected Malta in 2009, the country recovered in 2010 with the 3.7% growth. In the first and second quarter of 2011, Malta has already scored 2.5% in the GDP grow rate. (Theodora, 2011). (The summary of Malta economic data is on Appendix 3).

There are investors that may be interested in the Malta business development, the next section presents the outline that will be used to report about Malta business development.

3: Outline of the Report

This section provides the outline that will be used to report to the investors about the Malta business development.

3.1:Introduction

Malta is small country that joined the EU in 2004. To improve the economic development, the country is largely depending on foreign trade. Since the country has joined the EU zone, it has demonstrated the healthy economic growth. Although, there was a decline in the economic development in 2009. However, the country recovered in 2010 with a positive grow rate.

3.1: Business Environment of Malta

Malta has demonstrated rapid increase in the GDP in the first and second quarter of 2011. Moreover, there is low inflation rate in the country. Inflation rate was 2% in 2010 and 3% in 2011 and there is low rate of employment in the country.

3.2: Recent Investment in Malta

In Malta, many companies have invested in the country. The service sector account for the 60.69% of the GDP, and other sector account 17.31% of the GDP. Many companies that have invested in Malta produce products such as food products, minerals, chemicals, machinery and other miscellaneous manufactured articles. In addition, several companies have produced semi-manufactured goods. Several banks and other financial institutions have also invested in the Malta. To encourage investment, the government has initiated several policies.

3.2: Malta Government Business Policies

To encourage investment in the country, government has formulated favorable economic and fiscal policies. The supervision and regulation of financial sector have become more transparent and are within the international norms. The Malta's judiciary is also relatively independent and the government has made laws to protect investors' properties by formulating the property rights. Malta is also implementing the EU rules on property rights. These policies are to improve the investment environment in Malta. (Bureau of European and Eurasian Affairs, (2011).

3.3: Import and Export Situation in the Country

Malta is large depend on foreign trade. To encourage foreign trade, the government allows importation and exportation of service and goods. Tourism accounts for the 30% of the GDP, and the country exports manufactured goods mainly semi-conductors, which account for the 78% of the total exports. Typically, government derives foreign exchange from tourism with arrival of 1.2 million tourists yearly. (Bureau of European and Eurasian Affairs, (2011).

Since the report is intended to address the investors, the report emphasis on Malta business development.

3.4: Importance of Malta Business Development to Investors

Malta business development is an area that could interest the investors. By emphasizing on Malta business development, an investor will be able to understand that Malta is a vibrant economy. Since the country has joined the EU in 2004, it has recorded growth rate in the GDP and purchasing power parity. Although, the Malta recorded negative economic growth in 2009, the reason was the global financial crisis that affected many advanced countries. However, the country recovered in 2010, and in the first and second quarter of 2011, the Mata economy is recording high grow rate. The analysis of the Malta business development will be beneficial to the independent investors because the investors will understand that Malta is a potential country to invest. Malta has demonstrated the economic indices that investors look before investing in any country. The major economic indices that an investor is searching for before investing in a country are economic growth, and stable government. Analysis of the report has revealed that Malta has demonstrated the increase in the economic growth since it has joined the EU zone. Thus, Malta will be a favorable country to invest based on the following reason.

With the low inflation rate, Malta will be one of the best countries to invest. In addition, the government policy is also favorable for the investors. Malta is an open economy, and the government welcomes foreign investors.

Despite the favorable investment climate recorded in the country, Malta is still perceived as the 45th of the 180 corrupt countries globally. Malta still lacks that a comprehensive anti-corruption strategy. The appropriate institution to combat corruption still lacks in the country. Despite the shortcoming identified in the Malta economy, Malta can still be classified as the favorable country for an investor to consider. (Economic Freedom, 2011).

4: Conclusion

The report critically analyzes the Malta economy. Malta is one of the new countries that have joined the EU zone. In 2004, Malta became an EU member and in 2008, Malta accepted to adopt Euro as the country's legal tender. Since Malta has joined the EU, the country has recorded growth both in the GDP and in PPS. However, in 2009, Malta recorded a decline in the economy growth. The reason was due to the global economic crisis that affected several advanced countries. In 2010, the Malta economy recovered from the economic shock. In the literatures review, the report examines five articles. The methodology and findings of the articles were presented. The report uses secondary research as the method of data collection, and there is a data analysis to enhance data validity and reliability. The findings of the report reveal that Malta is a favorable country to invest. The report recommends that SMEs, MNEs and independent investors should consider investing in Malta because of the country's favorable economic condition.

List of References

Bureau of European and Eurasian Affairs, (2011). Background Note: Malta, U.S. Department

of State.

DJS Research (2011). What is Secondary Research? DJS Research Ltd.

Economic Freedom, (2011). Ten Economic Freedom of Malta, 2011 Index of Economic

Freedom.

Europa (2011). 2000 -- Today A decade of further expansion. Retrieved 17 July 2011 From

http://europa.eu/about-eu/eu-history/2000_today/index_en.htm

Eurostat (2011). Glossary:European Union (EU). European Commission Eurostat.

Findfacts, (2011). News: EU Economy, Findfacts Ireland, 22, June, 2011-8:02

Global Edge, (2009). Malta: Economy, CIA World Factbook.

Global Finance, (2011). Data on GDP and Economic Information, Global Finance Digital

Library.

Ibelieveindog (2010). Fall of the Soviet Union, The Cold War Museum, Virginia.

Jane's (2009). Economy (Malta), Economy, Jane's Information Group

McQuarrie (2005). Secondary Research Chapter 3.

Posen, A.S. The Euro Success Within Limits. The Institute of International Economics.

Theodora, (2011). Malta Economy 2011. CIA World Fact Book.

Trochim, W and Donnelly, J.P. (2007). The Research Methods Knowledge Base (3rd

Edition), USA. Atomic Dog Publishing.

Appendices

Appendix 1: Volume indices of GDP per inhabitant of EU members 2010

Source: Eurostat 2011

Appendix 2: GDP per Capital in PPS of EU Member States in 2010

Source: Findfacts, (2011).

Appendix 3: Data on GDP and Economic Information of Malta

International Reserves

US $867 million (Source: IMF; Data updated: November 2010)

Gross Domestic Product - GDP

US $8.985 billion (2009 estimate)

GDP (Purchasing Power Parity)

10.793 billion of International dollars (2009 estimate)

Real GDP growth

2000

2001

2002

2003

2004

2005

2006

2007

N/A

-1.6%

2.6%

-0.3%

0.9%

4%

3.6%

3.7%

2008

2009

2010

2011*

2.6%

-3.4%

3.7%

2.5%

*Estimate

GDP per capita - current prices

US $21,240 (2008 estimate)

GDP per capita - PPP

$25,514 International Dollars (2008 estimate)

GDP (PPP) - share of world total

1980

1990

2000

2010

2015**

N/A

N/A

0.02%

0.01%

0.01%

**Forecast

GDP - composition by sector agriculture: 1.7%

industry: 17.4%

services: 80.9% (2007 estimate)

(Data released on November 2010)

Gross domestic expenditure on R&D (% of GDP)

N/A

(Data released on November 2010)

Inflation

2008

2009

2010

2011*

4.7%

1.8%

2%

3%

*Estimate

Unemployment rate

2008

2009

2010

2011*

6%

7%

6.5%

6.5%

*Estimate

Household saving rates

N/A

(Data released on November 2010)

Public debt (General government gross debt as a % of GDP)

2007

2008

2009

2010

2011*

61.7%

63.1%

67.5%

67%

66.7%

*Estimate

Public deficit (General government net lending/borrowing as a % of GDP)

2007

2008

2009

2010*

2011**

-2.1%

-4.4%

-3.8%

-3.8%

-3.6%

*Estimate **Forecast

Government bond ratings

Standard & Poor's: A/Stable/A-1

Moody's rating: A1

Moody's outlook: STA

(Foreign Currency Government Bond Ratings; Data last updated Nov 2010)

Market value of publicly traded shares

2007

2008

2009

US $5.633 billion

US $3.572 billion

US $1.982 billion

Largest companies in Malta

N/A

Source: Global Finance, 2011.