Malta's next 20 years: Building a future-ready economy

This year marks Malta's 20th anniversary of EU membership, which has driven significant transformation and unparalleled growth. Theo Dix reflects on the nation's journey and plans for a sustainable and prosperous future amidst rising population and economic challenges.

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Today, the country's population has grown by nearly 40%, from approximately 400,000 to over 560,000[1], reflecting its appeal as a place to live and work.

The economy has seen significant diversification, with the development of several new sectors and growth and transformation across some existing ones. Tourism, one of the pillars of Malta's economy, has nearly doubled, with visitor numbers climbing from 1.7 million to over 3 million annually[2]. This influx has invigorated local businesses, bolstered the hospitality sector, and helped showcase Malta's rich cultural heritage to the world.

 The composition of the labour force has also evolved dramatically. The number of foreign workers has grown from 5,500 to 108,000, bringing diversity to work and society. Last year alone, over 42,000 people moved to Malta, including 33,000 third-country nationals, 7,000 EU nationals, and just over 2,000 Maltese citizens who returned to Malta after living abroad.

This was the highest-ever level of immigration on record, but emigration numbers were up, too, with approximately 22,000 leaving the country, including 13,500 third-country nationals, 6,000 EU citizens, and 1,700 Maltese[3].

Meanwhile, the country's GDP increased four-fold, from €4.9bn in 2004 to €19.4bn in 2023[4]. Like everything in life, change often brings about both positives and negatives. On the employment front, wages across most sectors of the economy have risen substantially, and demand for work has long outstripped supply. This has been a plus for many workers, but it has also placed much pressure on businesses' top and bottom lines and constrained their expansion. Property owners have seen the value of their homes skyrocket, but for many of today's youth, home ownership has become a challenge.  A Foundation for Affordable Housing report reveals that in 2023, 63% of those under 35 have a housing cost-to-income ratio exceeding 30%, with the average housing cost-to-income ratio being 44% for those who rent at market rates[5].

Meanwhile, the demand for housing stock has transformed our quaint towns, villages, and distinct architecture into something more akin to the developing world. Housing stock increased by 32.8% in just a decade, from approximately 220,000 units in 2011 to close to 300,000 units in 2021[6].

Reflecting on past and present to plan ahead

Looking back over the past two decades, there are some valuable lessons to learn. Rapid expansion without a plan has strained our infrastructure, housing, transportation, health, education, energy, water, sewage, and food systems. We have talent shortages across our critical social infrastructure—education, health, police, and law courts. Our governance and enforcement systems do not fit the purpose. And much of our green space has been gobbled up by development.

The famous American Benjamin Franklin is credited with saying, "Failing to plan is planning to fail." Looking forward to the next 20 years, it is clear that population and tourism growth will continue. This is not necessarily bad—it will create more work and investment opportunities and can even improve the quality of life. However, planning is needed to ensure it is done right, coupled with significant investment across the country's physical and social infrastructure.

Eurostat estimates that Malta's population will grow to approximately 700,000 within the next twenty years[7]. While there are no official projections for tourism, hoteliers are building enough bed stock to support 4-5 million tourists per year[8]. While there is a lot of talk about changing Malta's economic model, this will take time. It is, therefore, imperative that we start planning and investing today to ensure that the next phase of the country's growth is done differently.

Building the infrastructure to underpin growth

Malta must prioritise the infrastructure development needed for tomorrow and today. This includes expanding and diversifying our energy supply, ensuring that our grid network is capable of reliable distribution to homes and businesses, and reaching renewable energy targets for the country. As we push towards more electrified transportation, we also need substantial investment in charging infrastructure alongside supply. The water and sewage systems must be upgraded to handle increased demand and environmental stewardship.

Transportation infrastructure requires urgent attention. But it's clear that it cannot be more of the same, with Malta now having around 18,000 vehicles for each square kilometre of road[9].

"Eurostat estimates that Malta's population will grow to approximately 700,000 within the next twenty years."

At some stage, we will reach a tipping point, where the carrying capacity of our roads will be exceeded, resulting in gridlock. There will be trade-offs to be made given that modes of transport today could be very different tomorrow, particularly if (and more likely, when) self-driving cars eventually become mainstream. Yet, this must not stop planning and investment for the coming years. Instead, it calls for a more holistic approach to consider where we travel to, what we travel for, and how frequently we do it to radically alter our travel patterns and purpose rather than just modality. Making walking, cycling and public transport more attractive must be part of the equation.

As Malta's population grows, so will social infrastructure demands. Planning for new schools, hospitals, and public services must begin now to ensure these facilities are available when needed. However, like with transport, we need to think through how these public services will be delivered differently as they undergo significant transformation through the use of technology to deliver better outcomes.

Rethinking what we do and the way we do it

AI is going to radically redefine the work we do and the way we do it. It is an age that requires bold ambition and a mindset that welcomes and thrives on change. This technology will reshape sectors, automate processes, and create new job categories while making others obsolete. And we need to be ready for it. If we consider the personal computer the critical invention that started the last big wave of industrial change, AI is the key to the next one. Google CEO Sundar Pichai has expressed that AI represents a more significant breakthrough than the invention of electricity or the discovery of fire.  It's set to have wide-reaching effects on our economies and societies, going far beyond the shifts we've seen with social media or the internet.

As a starting point, AI can and should be integrated across all areas of public service. Executing such a vision requires substantial planning and investment on a scale that aligns with our ambitions. Necessary investments include creating the right data foundations to make the government's data accessible and interoperable with the proper privacy safeguards. It requires significant investment in AI talent, which, given our talent scarcity, should likely be based in a Centre of Excellence, alongside significant upskilling and training. It requires an appropriate budget for consultancy to ensure that projects are designed and executed well and generate the proper returns. Considerable investment in cloud and compute capacity is also necessary.

"Planning is needed to ensure growth is managed well, requiring significant investment in physical and social infrastructure."

The required investment scale is both sizable and necessary, and it is vital that this does not get scaled back. Research carried out by the TBI for Global Change estimates that UK government AI investment could generate a 20-fold return[10]. In Malta, recurrent government expenditure (excluding borrowing costs) is expected to be €6.6bn in 2024[11]. Imagine if 1 % of this budget (€66m) was carved out annually for AI. Applying the same ROI metrics would lead to potentially €1.3bn in value, equivalent to approximately 6.8% of GDP in 2023.

Research conducted by Harvard Business Review for Google Cloud highlighted how AI companies are 40% more efficient, 44% more profitable, 71% better at customer retention and loyalty, and 74% better at employee satisfaction[12]. Put simply, AI can enable us to do things better, faster, and cheaper and enhance service accessibility to make it available around the clock. This creates happier employees, who can refocus their time away from tasks that can be automated, and happier customers, who get better service.

While much of the current focus is on task automation and augmentation, the impact it will have on other areas will be much more transformative. It will enable us to refocus healthcare from reactive to preventative systems and make it personalised, with medicines sequenced to DNA profiles and healthcare professionals using an individual's genetic profile alongside data to guide prevention, diagnosis, and treatment decisions.

From an educational perspective, AI will make personalised learning scalable and equitable, giving teachers more time to focus on mentorship and less on administrative tasks and students the ability to learn in a way that is more engaging and aligned with their abilities. These are just examples from two sectors. However, AI is also transforming many others.

Unlocking capital for productive investment

As we look forward to the future, the country also needs to consider how it finances and unlocks capital for investment. We are a nation of savers and property owners. However, neither of these activities is a productive use of capital. 

To address this, Malta could consider establishing infrastructure funds that incentivise citizens to invest their savings in projects that yield long-term benefits for the country. These projects could include renewable energy, transportation, water and waste management systems, education, healthcare and technology. Such investments provide potential returns for savers and contribute to the nation's sustainable development. Tax incentives may also assist in catalysing it.

Furthermore, with the expectation that voluntary pension schemes will grow over the next two decades, Malta can lay the groundwork for pension funds to be a source of investment in the nation's infrastructure. By creating a regulatory framework now that encourages future pension funds to allocate a portion of their portfolio to domestic infrastructure projects, Malta can ensure a steady flow of capital into sectors that will enhance the country's economic foundation. Malta must also look to improve its approach to public-private partnerships (PPPs) as a means to attract private investment into public infrastructure projects. When done well, such ventures can facilitate value for citizens and businesses, ensuring that public infrastructure is developed without increasing government borrowings.

Engraining sustainability across everything

As we stand at the crossroads of an environmental imperative, it is crucial for businesses, citizens, and the government to fundamentally rethink their approach to the environment and climate change, placing sustainability at the core of their actions. For businesses, this means embracing eco-friendly practices not as a secondary consideration but as a primary driver of innovation and competitiveness.

Companies must integrate sustainable materials, energy efficiency, and waste reduction into their operations and view environmental stewardship as an investment in their future. Citizens, too, have a pivotal role to play by making conscious choices that favour sustainability, from reducing energy consumption and supporting green businesses to advocating for policies that protect our natural world. The government must lead by example, enacting robust policies that incentivise sustainable practices and investing in infrastructure that supports a green economy. Together, we must shift our mindset to one where sustainable living and business practices are not just an option but the foundation upon which we build a resilient and thriving society for generations to come.

To conclude with another quote, let's reflect on Alan Lakein's words: "Planning is bringing the future into the present so that you can do something about it now." The next twenty years will radically transform the country. Let's make sure we plan with foresight to get it right.

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[1] NSO. (2024). World Population Day Report: 11 July 2024. Retrieved from https://nso.gov.mt/world-population-day-11-july-2024

[2] NSO. (2024). Inbound Tourism 2023. Retrieved from https://nso.gov.mt/inbound-tourism-december-2023/

[3] NSO. (2024). Population and Migration: 2012 – 2022. Retrieved from https://nso.gov.mt/intercensal-population-revisions-2012-2021/

[4] NSO. (2024). Gross Domestic Product: Q4/2024. Retrieved from https://nso.gov.mt/gross-domestic-product-2023/

[5] Foundation for Affordable Housing. (2023). Housing Affordability in Post-Boom Malta – The case for the third sector. Retrieved from https://affordablehousing.mt/wp-content/uploads/2023/11/Housing-Affordability-in-Post-Boom-Malta.pdf

[6] NSO. (2023). Census of Population and Housing 2021: Final Report: Dwelling Characteristics (Volume 2). Retrieved from https://nso.gov.mt/themes_publications/census-of-population-and-housing-2021-final-report-dwelling-characteristics/

[7] Eurostat. (2024). Population Projections [database]. Retrieved from https://ec.europa.eu/eurostat/databrowser/view/tps00002/default/table?lang=en&category=t_proj

[8] Malta Hotels and Restaurants Association. (2022). Carrying Capacity Study for Tourism in the Maltese Islands. Retrieved from https://cm04ad.n3cdn1.secureserver.net/wp-content/uploads/2022/09/TCC-Final-Report.pdf

[9] NSO. (2024). Transport Statistics 2023 (reference year 2022). Retrieved from https://nso.gov.mt/themes_publications/transport-statistics-2022-2/

[10] Tony Blair Institute for Global Change. (2024). Governing in the Age of AI: A new model to transform the state. Retrieved from https://www.institute.global/insights/politics-and-governance/governing-in-the-age-of-ai-a-new-model-to-transform-the-state

[11] Ministry of Finance and Employment. (2024). Budget 2024 – Financial Estimates. Retrieved from https://finance.gov.mt/budget24_fe/

[12] Harvard Business Review. (2023). Big on data: Study shows why data-driven companies are more profitable than their peers [Blog]. Retrieved from https://cloud.google.com/blog/transform/data-leaders-more-profitable-innovative-hbr-data

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