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Economy of Malta

Highly industrialised service-based economy

  • 11 min read
  • 8 chapters

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The strengths of Malta's economy are its advantageous location, being situated in the middle of the Mediterranean Sea at a crossroads between Europe, North Africa and the Middle East, its fully developed open market economy, multilingual population (88% of Maltese people speak English), productive labour force, low corporate tax and well developed finance and ICT clusters. The economy is dependent on foreign trade, manufacturing (especially electronics), tourism and other services in the tertiary sector of the economy. In 2014, over 1.7 million tourists visited the island.

Malta's GDP per capita in 2024, adjusted by purchasing power parity, stood at $67,682 and ranked 15th in the list of EU countries in terms of purchasing power standard. In the 2013 calendar year, Malta recorded a budget deficit of 2.7%, which is within the limits for eurozone countries imposed by the Maastricht criteria, and Government gross debt of 69.8%. At 5.9%, Malta had the sixth-lowest unemployment rate in the EU in 2015.

Malta is the 33rd-most democratic country in the world according to the Economist Intelligence Unit's Democracy Index with an upper-middle score on V-Dem's Democracy Indices.

History

In the mid-thirteenth century, Abate Giliberto indicated that the population of the Maltese islands consisted of 1,119 families. At the time, Maltese agriculture transitioned from subsistence agriculture to a more commerce-based one through the cultivation for export of cotton and cumin, which were introduced during the Arab period. As a result, there was a need to import food from neighbouring Sicily. Eventually, in the late fourteenth century, cotton production became the principal agricultural product in the archipelago, since it was one of the few production hubs in the western Mediterranean. Processing cotton to weave it into the fabric was a labour-intensive activity, so the boost in cotton trade led to the population surging to 33,000. In an exploratory mission in 1524, the Knights of St. John noted how the islands were dependent on grain imports since agriculture was dedicated to the production of cotton, honey and cumin.

During the Napoleonic Wars (1800–1815), Malta's economy prospered and became the focal point of a major trading system. In 1808, two-thirds of the cargo consigned from Malta went to Levant and Egypt. Later, one half of the cargo was usually destined for Trieste. Cargo consisted of largely British and colonial-manufactured goods. Malta's economy became prosperous from this trade and many artisans, such as weavers, found new jobs in the port industry.

In 1820, during the Battle of Navarino, which took place in Greece, the British fleet was based in Malta. In 1839, P&O and East India Company used Malta as a calling port on their Egypt and Levant runs.

In 1869, the opening of the Suez Canal benefited Malta's economy greatly as there was a massive increase in the shipping which entered in the port. The economy had entered a special phase. The Mediterranean Sea became the "world highway of trade" and a number of ships called at Malta for coal and various supplies on their way to the Indian Ocean and the Far East. From 1871 to 1881, about 8,000 workers found jobs in the Malta docks and a number of banks opened in Malta. By 1882, Malta reached the height of its prosperity.

However, the boom did not last long. By the end of the 19th century, the economy began declining and by the 1940s, Malta's economy was in serious crisis. This was primarily due to the invention of large ships which had become oil-fired and therefore had no need to stop in the Grand Harbor of Malta to refuel. The British Government had to extend the dockyard.

At the end of World War II, Malta's strategic importance had reached a low point. Modern air warfare technology and the invention of the atomic bomb had changed the importance of the military base. The British lost control of the Suez Canal and withdrew from the naval dockyard, transforming it for commercial shipbuilding and ship repair purposes.

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