Malta. Can It Become The Belt & Road’s Stepping Stone Between Africa And Europe?

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Op/Ed by Chris Devonshire-Ellis

Smaller countries can face challenges when facing up to the bigger picture

While it was Italy’s recent signing of a Belt & Road MoU with China that attracted media attention, the first EU member state to have done so was in fact Malta. One of the EU’s smallest members in terms of population (430,000) the island lies just 80 km south-east off the coast of Sicily and just another 1000 km from Libya in North Africa.

While much of what had been a robust trade route between Malta and Tripoli has been destroyed in the ousting of Colonel Gaddafi and the ongoing civil war, many wealthy Libyans invested in Malta in the late 2000’s to establish a safe haven for their families and look at rebuilding ties with Europe. Consequently, Malta possesses an influential and wealthy Libyan trade diaspora with connections throughout North Africa and beyond. Malta itself, with Sicily just to the north, has long had significant trade ties with Italy. As all three countries are members of China’s Belt & Road Initiative, the opportunities for Malta to develop trade ties with China and Africa are profound. Malta is repositioning itself as an EU trade gateway to North Africa and further south. It is also a quasi offshore financial centre, meaning that Chinese funds could be channeled through Malta and into Libya, a huge help in reconstruction efforts now being carried out in the country.

However, much still needs to be done by the Maltese government and its trade representatives, who have tended to be reactive rather than proactive. For example, Malta has a Double Tax Treaty with China although this dates back 26 years to 1993 and is in dire need of updating, not least to include greater provisions on financial services and IT, both areas that Malta has been developing.

Malta’s trade with China is also relatively low. Malta sells to China about US$50 million worth of goods, importing about US$250 million (last available trade figures, 2016). That is in contrast to other small European nations, such as Iceland, who manage to sell just under US$100 million of goods to China but with a population 100,000 lower, Luxembourg (US225 million) and only just beats out nearby Gibraltar, who despite having a population of just 76,000 still manage to sell US$40 million worth of products to the Chinese. Clearly, Malta needs a new export agency approach.

This is also in contrast to Italy, where China’s Suning Group announced earlier this year that they would spend US$2.9 billion on sponsoring a “Made in Italy” program back in China with the Italian Trade Agency.  and look at boosting Italian exports to China to the 100 million euros mark. Granted, Italy is a far larger economy than Malta, but the Maltese trade initiatives have not been that dynamic either, and especially in examining the Belt & Road potential or agreeing deals with Chinese investors to support Malta. It is a missed opportunity, and one that needs a change of attitude, attention to trade detail, and investment.

While the Libyan conflict has still to be properly resolved, that hasn’t stopped China from developing trade ties. The country is a major oil and gas nation, with the 10th largest oil reserves globally. Libya is also a member of the Asian Infrastructure Investment Bank (AIIB ), a Beijing backed financial institution that as its name suggests, assists with infrastructure development, primarily in Eurasia, and is also a member of the China-Arab States Cooperation Forum. Malta is also a member of the AIIB. In Libya however, China is treading warily, concerned about investing money into the country yet to have violence return and destroy their efforts. Consequently it is also very much engaged in peace talks between the different Libyan factions, which are divided along tribal lines yet supported by different interests, including those of the United States. As and when a peace deal can be brokered, Chinese investment into Libya is likely to take off.

Malta should be poised for this, being able to offer low tax rates, financial services and logistics support. These can be added to Italy’s own longer term strategic interests in Libya, which are also significant. Meanwhile, Malta itself is going through changes. The population is, despite the somewhat hard line approach of its Government towards its critics, growing more wealthy, and it is now not uncommon to see black Africans now engaged in the services industry – waiters, bus drivers and so on. Malta is engaged in increasing amount of trade with Ghana, also a Belt & Road member, in addition to perennial trade ties with its North African and Eastern Mediterranean neighbors of Algeria, Tunisia, Egypt, Israel, Greece, Cyprus, Jordan, Lebanon, Syria and Turkey – all of which are in the same Belt & Road club. The African members of the Belt & Road have also just agreed a pan-African Free Trade deal – AfCFTA – which eliminates cross-border tariffs on 90% on African goods from the 1st June – two days from now. In some cases, trade with China, which already has significant business interests on the ground in countries such as Egypt, is expected to rise 50% over the next 12 months. Malta (and the EU) should also be taking advantage of this, yet they appear ill-equipped and unprepared in terms of African trade. Yet this isn’t Malta’s first foray into China’s Belt & Road. Before the term was coined, the Maltese Government, under the current Prime Minister, sold 33% of the national energy supplier to Shanghai Electric Power for €330 million, and a further €150 million to acquire a majority stake in Malta’s BWSC power station, and another €70 million required to convert the BWSC plant to run on gas. That deal, which tied Malta’s energy supplies to Azerbaijan gas at apparently above market rates for a 10 year period, has attracted plenty of attention with accusations of corruption still yet to be properly addressed. But what is does do is illustrate that when deals are available, Maltese politicians are able to travel to get them agreed. What is an apparent conflict however is personal incentivization versus the national interest.

Read About China’s Belt & Road Involvement In Africa And The AfCFTA Deal here

Malta’s positioning then, and especially if the Libyan conflict can be resolved, could put it in a prime position in terms of the services industry acting as an intermediary between Southern Europe and North Africa. There are issues however that can derail this. Recent attempts at investigating links between various Maltese government officials and corrupt financial dealings have exposed a system that is in dire need of rather more transparency and accountability than is currently provided for. Vested political, legal and enforcement ties in corrupt dealings have hindered attempts to move towards a more legally based and open government banking and financial services platform, and this acts to Malta’s disadvantage. It also runs current to China’s wishes, at least in the region, where it needs to be seen to be squeaky clean to obtain the larger prize of EU acceptance as a trusted partner. Being seen to be involved in non-transparent finances when it comes to the EU is not something the Chinese will tolerate, meaning Malta needs to get its act together in this regard. That will probably necessitate a change of Government, the removal or retirement of a number of Maltese officials currently in office, and a Prime Minister and President committed to EU and global transactional standards. If this can be achieved, then Malta’s place in the Belt & Road’s Mediterranean sun can be assured. If not, it will be a mere bystander as EU-North African trade develops around it.

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These are difficult issues for relatively small countries to weed out as the embedded slant towards a lack of transparency is rather more deeply ingrained into society. In Malta’s case, collusion appears to extend between members of the elected Government, the judiciary, and financial services businesses themselves. There has also been the recent murder of an investigative journalist, with leads going nowhere. Malta isn’t the only country to have such problems. But it is the only one to be a member of the European Union and to be in such a primary position to take advantage of the China instigated trade developments and infrastructure needs in North Africa and the Eastern Mediterranean. To be fit for purpose, countries such as Malta require leaders able to step up to the challenge – or maintain the country in relative obscurity, reliant on low end British and Sicilian tourists for much of its annual income while charging its own citizens some of the highest utilities rates in the EU. It is a stark choice, and one that China will be watching with interest – it needs Malta to be both more China trade dynamic and to be more EU standard compliant.

Being seen to sign up to China’s Belt & Road Initiative is one thing. Actually acting upon such moves and preparing the national trade and institutional dynamics to properly take advantage of the opportunities are quite another. China knows not all of its Belt & Road Partners will deliver. Whether Malta can, remains to be seen.

 

About Us

Silk Road Briefing is written by Dezan Shira & Associates. The practice Chairman is Chris Devonshire-Ellis, who spends part of the year in Malta. The firm advises foreign investors into the China and Asian markets, has done since 1992, and has 13 offices throughout mainland China. Please contact us at china@dezshira.com or visit us at www.dezshira.com

 

 

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China Set to Cash in on New African Free Trade Agreement


Italy Joins the Belt and Road. Now Brussels Can Scrutinize Chinese Business Practices to its Heart’s Content


Italy’s Palermo Set to be a Belt and Road Port

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