How did three tiny Mediterranean islands become an EU financial hub, online-gaming powerhouse, and crypto hotspot—with almost no natural resources? Discover Malta’s dramatic journey from British military outpost to economic success story, plus the risks behind the boom.
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Comment below: what did you like most about Malta’s story? #Malta #Economy #History #Europe #Business
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0:00 - Malta's Rise and Early History
6:15 - Colonial Trade and the Port Economy
11:38 - Independence and Industrialization
19:00 - Nationalization and Economic Stagnation
24:42 - Opening Markets and Reforming Finance
31:16 - EU Membership and New Service Industries
38:21 - Tourism and the Service Economy
42:52 - Governance Risks and Lessons of the Miracle
We're now available on Spotify! Listen now https://open.spotify.com/show/033ygZMll1PIfydayeyRct
Subscribe for more stories about how countries transform.
Comment below: what did you like most about Malta’s story? #Malta #Economy #History #Europe #Business
👉 This channel was created in collaboration with https://www.youtube.com/@costua
0:00 - Malta's Rise and Early History
6:15 - Colonial Trade and the Port Economy
11:38 - Independence and Industrialization
19:00 - Nationalization and Economic Stagnation
24:42 - Opening Markets and Reforming Finance
31:16 - EU Membership and New Service Industries
38:21 - Tourism and the Service Economy
42:52 - Governance Risks and Lessons of the Miracle
We're now available on Spotify! Listen now https://open.spotify.com/show/033ygZMll1PIfydayeyRct
Category
🗞
NewsTranscript
00:00Before you is Malta. Over the past 60 years, its GDP per capita has grown 46-fold. A former
00:09British military base with neither oil nor gas nor fertile land has become one of the financial
00:15centers of the European Union, the capital of online gaming, and one of the world's major
00:20crypto hubs. Today we are talking about three islands in the Mediterranean Sea between Sicily
00:24and North Africa. The total area of the archipelago is 316 square kilometers. That's almost three
00:31times smaller than the area of Kiev. On these 316 square kilometers live just over half a million
00:39people. In 1970, Malta was a poor agrarian country. Its GDP per capita was only $828, roughly at the
00:48level of Tunisia or Morocco. In 2025, Malta's GDP per capita reaches nearly $48,000. By this measure,
00:57the island surpasses Italy, Spain, Portugal, and Cyprus. But it's not just about the size of the
01:03GDP, but about the pace of growth. Over the past 10 years, Malta's economy has grown at an average of
01:096.6% per year. For comparison, the eurozone average over the same period is about 1.5%.
01:16So Malta is not just rich. It is steadily and rapidly getting richer, outpacing most EU economies.
01:23Moreover, unlike large nations, Malta's economy is not based on heavy industry or large-scale
01:29agriculture. It relies on services, tourism, finance, online gaming, and maritime shipping.
01:36How did a small island with virtually no resources achieve such results? Today, we're going to
01:42figure it out. History of Malta
01:46Malta has one of the oldest settlement histories in the world. Temples on the island date back to
01:51around 3,500 BC. Due to its location in the heart of the Mediterranean, the island was consecutively
01:58controlled by the Phoenicians, Carthaginians, Romans, Byzantines, and Arabs. Eventually, it passed to the
02:05Order of the Knights of St. John. It was a Catholic military order that ruled Malta for nearly three
02:11centuries as a sovereign entity with its own government, coinage, and diplomatic relations.
02:17The knights hailed from the aristocratic families of Catholic Europe and maintained the island using
02:22revenues from their estates across the continent. But, in June 1798, Malta was captured. Napoleon captures it.
02:31The order capitulates within a few days, offering practically no organized resistance.
02:37The French administration immediately begins large-scale requisitions. Church property is
02:42confiscated, including silver and other valuables. Monasteries are closed. On top of that came new
02:49taxes and attempts to draft people into the French army. All of this provokes an uprising on
02:54September 2, 1798. The Maltese turned to Britain for help, and she brings in allies.
03:01The Portuguese navy establishes a naval blockade of the island. Cut off from supplies, the garrison
03:06holds out for two years and soon capitulates. Now, instead of the French, the British land on the
03:14island. Back then, Malta's population was around 100,000 people, and the island itself had a poor
03:20agrarian economy. To put the poverty level of that time into perspective, agricultural wages in England
03:26back then were three times higher than in Malta, and in the construction industry six times higher.
03:32Because of this, the Maltese left in droves. Between 1818 and the early 1830s, emigration from
03:39Malta was about 1,000 to 2,000 people per year. Then the rate doubled. By 1842, the number of
03:48Maltese
03:48emigrants had reached 20,000. That was roughly 15% of the island's population at the time. At the same
03:56time, most Maltese were reluctant to leave the Mediterranean, wanting to keep open the option of
04:01returning. The primary destinations for labor migration remained North Africa, Algeria, Tunisia,
04:07and Egypt, where distance and travel costs were lower. Since the 15th century, the island's main source
04:14of foreign currency earnings had been cotton production. The island was also a vital logistics
04:20hub. In 1808, two-thirds of all cargo shipped from Malta was bound for the coasts of modern-day Syria,
04:27Lebanon, Palestine, and Egyptian ports. And another significant part to Trieste,
04:34the Austrian Empire's main port on the Adriatic. The cargo consisted mostly of British and colonial
04:40manufactured goods. However, in 1813, the ship San Nicola, arriving from Alexandria, brought the
04:47bubonic plague to the island. Around 4.5 thousand people died. That was approximately 5%. The economic
04:56aftermath turned out to be far longer lasting than the epidemic itself. Some foreign ports kept Maltese
05:03ships quarantined until 1826, which effectively halted trade. During this time, importers found new,
05:12cheaper producers in Syria, Egypt, and India. To try and increase revenues, the Maltese authorities
05:18raised tariffs, but that only further damaged trade. It was this post-plague crisis that became the main
05:26trigger for mass immigration. Friends, we have an ambitious goal to reach 200,000 subscribers on the
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06:15The first reforms. To overcome the economic crisis, Governor Thomas Maitland, who was then in charge of
06:21the island, formulated three principles. Principles of trade policy. To give preference to British
06:28manufactured and colonial goods. To encourage the export of Maltese products. And to turn the island
06:34into an entrepot, a transit trade hub where goods are stored and resold between different markets.
06:42In this case, Malta itself produced nothing, but British and colonial goods passed through it,
06:48on their way to the Middle East and back. This mechanism requires neither resources nor factories,
06:54just a convenient location and a port. Thus, Malta became a staging ground for a significant portion of
07:00maritime activity in the Mediterranean. Hundreds of soldiers from British regiments were stationed
07:06on the island, along with thousands of sailors who regularly came ashore whenever their ships docked
07:11there. Over the years, port and ship repair infrastructure began to develop in Malta.
07:16According to the 1842 census, the island's population had grown to 113,364 people. However,
07:26the standard of living for the Maltese remained extremely low. Trade in Malta was linked to the
07:32presence of British troops. So economic activity fluctuated depending on whether the Royal Navy was
07:38in port. Its presence increased whenever signs of conflict arose in the Mediterranean that affected
07:44British interests. The main and virtually only stable source of government revenue for almost the
07:50entire colonial period was customs duties on imports of wheat as well as wine and oil. Interestingly,
07:57Malta itself has never produced enough grain for its own needs. Back in the 15th century, the island
08:04switched from growing grain to cotton and spices. So wheat was always imported. And this was on an island
08:11where wheat bread was the staple diet for all segments of the population. The government taxed these
08:17imports and turned them into a way to fill the treasury. It provided a stable income. But it had
08:24an obvious downside. It increased the cost of bread for the poor while shielding inefficient local
08:30agriculture from competition. Cotton production, which had existed in Malta since the Middle Ages,
08:37also began to decline during the plague. The island couldn't withstand direct competition from
08:42mechanized production in Britain, India, and Egypt. Maltese cotton fabrics, made by hand,
08:48could not compete with factory-made ones. Aside from their technological disadvantage,
08:53Maltese manufacturers also had a problem with raw materials. The island's limited land area made
08:59cotton cultivation more expensive than in Egypt or India, where land costs significantly less. Therefore,
09:05the island increasingly relied on its convenient logistical location. The coal-powered steamships that
09:10dominated at the time had a limited fuel capacity. Therefore, they required regular refueling stops.
09:17Thanks to this, Malta, with its deep water harbor, became a natural coaling and service hub on the
09:23Europe-Asia route. The number of employed people on the island increased by almost 13 percent over the
09:2910-year period, from 1871 to 1881. Most of the new jobs went to dockers, loaders, and coal-heavers in
09:39the port
09:39area. The commercial sector grew during the same period by 27 percent. By 1876, the island's population had
09:48already reached 150,000. During those same years, British investments poured into Malta. The first dry
09:56dock built outside of Great Britain was opened back in 1850 in Bormla, a coastal Maltese city. A dry dock
10:04is
10:04a hydraulic structure where the underwater part of a ship can be repaired, which is inaccessible while
10:10afloat. The British Royal Dockyard in the Grand Harbor became the most important fleet maintenance
10:16center in the Mediterranean. From 1861 to 1909, another five such docks were built. In 1869, the Suez Canal
10:27opened. It connected the Mediterranean with the Red Sea and shortened the sea route from Britain to
10:33India by approximately 40 percent. Instead of circumnavigating Africa via the Cape of Good Hope,
10:39ships now sailed through Egypt. We cover the construction of the canal in detail in the video
10:45Egypt Between Sharia and Economic Crises
10:49At the turn of the 20th century, shipbuilding shifted massively from coal engines to oil ones.
10:56The new engines were far more fuel efficient and allowed ships to cross the Mediterranean Sea
11:02without intermediate refueling stops. Because of this, Malta ceased to be a mandatory stop.
11:08By 1900, the island's population had reached nearly 185,000 people.
11:15Entrepot trade and port services could no longer grow in proportion to this increase.
11:20In November 1903, the British governor, Sir Charles Mansfield Clark,
11:26officially declared to the Legislative Assembly that
11:28Malta had the highest population density in the world, and that without new measures,
11:34overpopulation would become a very serious problem.
11:38World War I solved the unemployment problem, but in an artificial way.
11:4530,000 Maltese were recruited for British military service, shipyard work, and auxiliary operations.
11:52The island served as the main medical and logistical base for the Entente in the Mediterranean,
11:57but as soon as the Treaty of Versailles was signed in 1919, 10,000 people immediately lost their jobs.
12:05The overall unemployment rate reached 10% of the island's total population.
12:11In the period from 1921 to 1938, Malta's GDP barely grew in real terms, and then World War II began.
12:22Malta endured 3,343 air raids, and the port and other infrastructure suffered significant destruction.
12:30After the war, Malta's main source of income began to disappear.
12:34Britain no longer had much need for Malta's naval facilities,
12:37and the mother country itself found itself in dire financial straits.
12:42Between 1947 and 1949, more than two were laid off at the dockyards.
12:48In 1957, Britain began cutting defense spending, and Malta's funding was slashed roughly in half,
12:56from 295 to just over 141 million pounds a year.
13:02For the island, this was a blow to the very foundation of its economy.
13:07The dockyard provided jobs for about 10% of the workforce, while British spending accounted for nearly 80% of
13:15the foreign currency, essential to pay for imports.
13:18There was nothing to quickly replace the British money.
13:20Industry and agriculture were weak, natural resources were almost non-existent, and a significant portion of employment depended directly on
13:28the British military presence.
13:30Back in a 1949 report, the Maltese government admitted,
13:36Industry and agriculture provided jobs to only a third of workers, while the rest depended on the British military, post
13:43-war reconstruction, and related revenue.
13:46That's why the authorities chose the quickest way to reduce pressure on the economy, emigration.
13:51In the 1950s, Malta even funded the relocation of its citizens to Australia, the United Kingdom, Canada, and the United
13:58States.
13:58Between 1948 and 1967, 30% of Malta's population emigrated.
14:06This reduced unemployment and eased the strain on housing and infrastructure.
14:11However, along with the people, the country also lost a portion of its young and skilled workforce.
14:18Malta found itself in a trap.
14:19There were too many people for the economy, but without people, it was impossible to rebuild it.
14:25The Maltese economy needed to create new sources of growth, but the domestic market was simply too small.
14:33The 1963-1964 United Nations mission recommended developing export-oriented industry, tourism, and the private sector,
14:44attracting foreign capital and external aid during the transition period.
14:50It was this very model that later became the foundation of Malta's economic breakthrough.
14:59A wave of decolonization took place.
15:02Former empires gradually transferred sovereignty to their former territories.
15:07Maintaining colonies was costing more and more, while the economic benefits from them were shrinking.
15:12In 1957, Ghana gained independence from Great Britain.
15:16In 1960, 17 African nations followed all at once, including Nigeria and Senegal.
15:24In 1962, Jamaica became independent.
15:28In 1963, Kenya.
15:32On September 21, 1964, it was Malta's turn.
15:37At the time of independence, the country lagged behind most countries in Western and Southern Europe in terms of prosperity.
15:43For comparison, World Bank data shows the following picture as of 1970.
15:48France, GDP per capita, $2,832.
15:53The United Kingdom, $2,347.
15:58Italy, $2,111.
16:01Meanwhile, Malta's figure was just $828.
16:06In 1967, only 32% of the Maltese owned their own homes, most rented.
16:13For comparison, Spain, which at that time was much poorer than most Western European countries, in 1970 had a home
16:21ownership rate of 63%.
16:22Australia, in 1966, 71%.
16:28The US, in 1967, 63%.
16:33In the UK at the same time, the home ownership rate was around 51%.
16:39Although the British granted Malta independence, they left the island gradually.
16:43Under the terms of the defense agreement signed concurrently with independence, the troops were to withdraw by 1979.
16:49Britain committed to provide Malta with $143 million over 10 years for further economic development, or $14 million a year.
17:02British annual payments covered approximately 8% of the island's GDP.
17:07And the government didn't have much time to replace this revenue with something new.
17:12Actions of the first independent government.
17:15The first independent government, led by conservative nationalist party leader George Bourge Olivier, began attracting foreign manufacturing companies to the
17:24island.
17:24The only way to develop an industrial base was to offer foreign companies better conditions than in their own countries.
17:31Malta launched a campaign to create industrial zones with ready-built factories and installed utilities.
17:37To attract companies to set up manufacturing operations, the island's government offered a tax holiday period of 10 years free
17:46from income tax.
17:47Meanwhile, the standard rate back then was 35%.
17:51Malta's British colonial heritage also became an important advantage.
17:56English law, familiar to international business, took root on the island.
18:03It was precisely this heritage that allowed Singapore and Hong Kong to transform into world-class financial centers,
18:13and Cyprus to become much more attractive to business than neighboring Greece with its civil law system.
18:20We have separate videos about all these countries.
18:24Furthermore, manufacturing in Malta mainly depended on low wages.
18:29The minimum wage on the island was 10 pounds a week.
18:33That was exactly what most workers received.
18:36Whereas in Britain, the average pay ranged from 14 to 22 pounds.
18:41This made it possible to produce cheaper goods compared to foreign ones.
18:46The policy of the first government paid off.
18:49Over the first 15 years of independence, real GDP grew by an average of 10% a year.
18:56The main driver was manufacturing, mostly textiles and clothing, closed market and nationalization.
19:04In 1971, Dom Mintoff of the left-wing Labour Party won the election, succeeding George Borg Olivier.
19:12The new government renegotiated the financial agreement with London.
19:16In 1972, the country signed a new accord.
19:20British bases were to remain for another seven years, but the annual rent increased to $36 million,
19:27or about 10% of the island's GDP at the time.
19:32U.S. President Nixon personally pressured British Prime Minister Edward Heath
19:36to agree to the extension of the treaty's terms because Malta, in the center of the Mediterranean,
19:42was of strategic importance to NATO.
19:44Having secured the money, the government invested it in expanding social programs.
19:49In 1972, they introduced an annual bonus for all pensioners and welfare recipients.
19:55In 1974, a monthly child allowance for low-income families,
20:01as well as a state pension for persons with disabilities.
20:05They also built public social housing.
20:08At the same time, the government carried out large-scale nationalization.
20:12Banks, the telecommunications network, some of the hotels,
20:16and some industrial enterprises that were previously owned by British owners
20:19were transferred to state ownership.
20:22The most prominent example was the nationalization of the National Bank of Malta in 1973,
20:28the island's leading private bank.
20:30The bank was declared insolvent and handed over to the state without any compensation to the shareholders.
20:36At the same time, in 1973-1975,
20:41MidMed Bank came under state control,
20:44a subsidiary of the British bank, Barclays.
20:47In the same year,
20:48the British company that had been broadcasting on the island since 1935
20:52was also nationalized,
20:54as well as the telecommunications company that provided telephone service.
20:59In addition,
21:00the government introduced a system of barriers to protect local production from foreign competition.
21:05Now, any imports required a license and were subject to customs duties,
21:10while the production of wheat, barley, corn, and petroleum products
21:14became an exclusive state monopoly.
21:16On March 31, 1979,
21:19the last British soldiers left Malta.
21:22Along with them,
21:24the island's main external source of funds also vanished.
21:27Replacing the British was the Libyan leader, Gaddafi.
21:31He gave Malta a $3 million loan
21:33and supplied oil on favorable terms.
21:37Closer ties with Libya
21:38were part of the policy of Dom Mintoff,
21:41the socialist leader and prime minister,
21:43to turn Malta into a neutral state.
21:47Gaddafi wanted to push NATO out of the Mediterranean.
21:50As Time magazine wrote back then,
21:52he agreed to pay only on the condition
21:54that after the British left,
21:56the Soviet fleet wouldn't enter either.
21:58Gaddafi didn't want an ally,
21:59but a buffer.
22:00An island in the center of the Mediterranean
22:02that belongs to none of the major players
22:05and thereby creates a neutral zone.
22:07That is,
22:08a zone between Libya and any of the superpowers.
22:11But,
22:12Libyan aid didn't fix the situation.
22:14Import restrictions kept Maltese production
22:17isolated from the foreign market.
22:19To make matters worse,
22:21the global oil crisis hit.
22:22When,
22:23in 1973,
22:25the Arab members of OPEC
22:27declared an oil embargo
22:28in response to Western support for Israel
22:30in the Yom Kippur War.
22:32This hit Western European countries hard
22:34and crippled their production.
22:35In the late 1970s,
22:38the countries of the European Economic Community
22:41bought about 75% of Malta's exports
22:46and provided about 70% of its imports.
22:50The oil shock sharply reduced external demand for exports.
22:55Shipbuilding and the textile industry
22:56were hit the hardest.
22:57At the same time,
22:59the government tried to protect local producers
23:01with even greater import restrictions.
23:04In 1979,
23:06Malta restricted the import of British textiles
23:08to 25% of the 1978 level.
23:12As a result,
23:14British military spending was gone,
23:16foreign demand was weakening,
23:18and the protection of domestic producers
23:20limited competition
23:21and access to imported resources.
23:23In the early 1980s,
23:25the Maltese economy slowed down sharply,
23:27while in the second half of the 1970s,
23:31real GDP was growing at double-digit rates.
23:34By 1981,
23:37growth had slowed down to 2.3%.
23:40In 1983,
23:44it dropped to 0.6%.
23:48Between 1984 and 1987,
23:52growth remained weak,
23:54ranging from just 0.9% to 4.1%.
24:02The problem was
24:04that the government tried to preserve
24:06the old economic structure
24:07instead of quickly restructuring it
24:09according to the new rules.
24:11It was only in the 1980s
24:14that Malta gradually began to abandon
24:16the system of strict regulation
24:18and import restrictions.
24:19Between 1987 and 1994,
24:23real GDP was already growing
24:25by an average of 5.8% per year,
24:28while exports of goods and services
24:30increased by about 9% annually
24:33in real terms.
24:35Particularly thanks to opening the economy
24:37up to foreign competition
24:39and joining the European Union.
24:42Open market and the EU
24:44In the next elections in 1987,
24:48the Nationalist Party,
24:50led by Eddie Fenwick-Adami, won.
24:52They advocated for moving away
24:54from the socialist model,
24:55so the new government changed course
24:57by 90%.
25:01As early as December 1987,
25:04protocols to the association agreement
25:06with the European community were signed.
25:09By the way,
25:10we have a video on our channel
25:12about the EU customs system
25:14where we broke down
25:15how the European Union was created.
25:17Malta began a gradual dismantling
25:19of tariff protection
25:20and realized
25:21if old revenue sources were disappearing,
25:24new ones had to be found.
25:26The first new avenue
25:27was financial services.
25:30Malta created
25:31the Malta International Business Authority,
25:33MIBA,
25:35which was engaged in registering
25:37foreign companies
25:38that used Malta
25:39as a legal platform
25:40for international operations.
25:43A very favorable tax regime
25:45was created for them.
25:46Trading companies
25:47registered through MIBA
25:49paid only a 5% corporate tax
25:51instead of the standard 35%.
25:53It worked.
25:55On August 4, 1989,
25:58the first offshore company
25:59was registered in Malta.
26:00By the end of 1996,
26:02there were already
26:03about 2,400 of them,
26:07including five offshore banks.
26:09Malta wasn't making money
26:10off them through taxes.
26:12The offshore companies
26:13generated demand
26:14for local lawyers,
26:15auditors,
26:15accountants,
26:16and the banks
26:17that serviced them.
26:18So even a company
26:19that had almost
26:20no physical presence
26:21on the island
26:22still left part of its funds
26:24in the local economy.
26:26But that's where
26:27a problem arose.
26:28The offshore model
26:29was great at attracting business,
26:31but it fit poorly
26:32with the economy
26:33that Malta
26:34was looking to join.
26:37In 1990,
26:39Malta applied
26:39to join
26:40the European community.
26:41And from that moment on,
26:43the logic changed.
26:44It was no longer enough
26:46for the country
26:46to just offer companies
26:48low taxes
26:48and minimal requirements.
26:50It had to build
26:51a financial system
26:52that European partners
26:53could trust.
26:54That is why
26:55the government
26:55gradually started
26:56abandoning
26:57the old offshore model.
26:59In 1994,
27:01it was replaced
27:02by new legislation,
27:03and they began building
27:04the Malta Financial Services Center.
27:07The new rules
27:08tightened capital,
27:09reporting,
27:10and licensing requirements.
27:11And the offshore regime
27:13itself was given
27:14a clear deadline
27:15to be phased out.
27:16New offshore companies
27:17could only be registered
27:18until the end of 1996.
27:21Malta took a step
27:22that was quite unusual
27:23for an offshore hub.
27:25Instead of defending
27:26its successful,
27:27yet gray market model,
27:29to the bitter end,
27:29it used it instead
27:31as a stepping stone
27:32to becoming
27:32a full-fledged
27:33financial center.
27:35However,
27:36financial services
27:37alone weren't enough.
27:38The other part
27:39of the old economy
27:40still rested
27:41on the state's shoulders.
27:42In the late 1990s,
27:45state-owned enterprises
27:46cost the budget
27:47around 45%
27:48of GDP each year,
27:50just in subsidy,
27:51and the budget deficit
27:52in the middle of the decade
27:54exceeded 10% of GDP.
27:56According to the IMF,
27:58state-owned enterprises
27:59had effectively become
28:00a net financial burden
28:01for the government.
28:02Budget revenues
28:03were several times smaller
28:05than the subsidies
28:05and preferential loans
28:07provided by the state.
28:08That is why,
28:08in 1999,
28:10the government
28:11launched privatization.
28:13The state
28:14had to stop
28:14being the owner
28:15of enterprises
28:16that constantly
28:17required budget support
28:18and transfer them
28:20into private hands
28:21where losses
28:22mean losing
28:22one's own money.
28:24The first results
28:25were extensive.
28:26By 2002,
28:28privatization revenues
28:29accounted for about
28:307.5% of GDP.
28:34One of the biggest deals
28:35was the sale of
28:3667.1% of MidMed Bank
28:40to the British HSBC
28:42in 1999
28:43for about
28:46191 million euros.
28:48They also sold
28:4940%
28:50of the state-owned
28:51telecom Multicom
28:53for
28:5370 million euros
28:55and
28:5635%
28:57of the National Postal Service
28:59Malta Post.
29:01However,
29:01privatization
29:02was not just a way
29:03to raise money
29:03for the budget.
29:04It was meant
29:05to change
29:05the very incentives
29:06in the economy.
29:07If a state-owned enterprise
29:08is unprofitable,
29:10the government
29:10can cover its losses
29:11for years
29:12through subsidies.
29:13A private owner
29:14does not have
29:15such a luxury.
29:16Either the enterprise
29:17becomes more efficient
29:18or the owner
29:19loses the invested capital.
29:20This was most evident
29:22in shipbuilding
29:22with state-owned
29:23Malta dry docks
29:24and Malta shipbuilding,
29:26which were once
29:27one of the hubs
29:28of Maltese industry.
29:29By the early 2000s,
29:31they had accumulated
29:32644 million euros
29:34in debt.
29:35At the time
29:36of restructuring
29:37in 2003,
29:38they had about
29:392,600 employees.
29:41But after merging
29:42into Malta shipyards,
29:44only 1,700 remained.
29:46Another
29:47900 or so workers
29:49were supposed
29:50to transition
29:50to other forms
29:51of employment
29:52or take
29:53early retirement.
29:55And that's where
29:55the real cost
29:56of transitioning
29:57to the new model
29:57showed itself.
29:58Open competition
29:59doesn't mean
30:00that all businesses
30:01will suddenly
30:01become efficient.
30:02On the contrary,
30:03it first reveals
30:04who was surviving
30:05through productivity
30:06and who
30:06through state protection.
30:08Malta faced
30:09exactly that.
30:10The European Commission
30:12noted significant job losses
30:13as a result
30:14of structural adjustment.
30:15And in September 2003,
30:18unemployment rose
30:19to 8.2 percent
30:21compared to
30:226.3 percent
30:24in 2001.
30:27The state even secured
30:28EU funds
30:29to retrain
30:30laid-off workers.
30:31681,000 euros
30:33were allocated
30:34for the program.
30:35But out of the
30:36558 workers
30:37who took part in it,
30:39only 19.5 percent
30:41found a new job
30:42before the program ended.
30:43It was this restructuring
30:45that ultimately
30:45provided the economy
30:46with new sources
30:47of growth.
30:48Between 2001
30:50and 2005,
30:52the economy
30:53was still weak.
30:54Average GDP growth
30:56was only around
30:570.4 percent
30:59per year.
31:00Malta's economy
31:00didn't take off
31:01overnight.
31:02First,
31:03the country had to
31:04break the old system,
31:05even if that meant
31:06closing inefficient
31:07enterprises,
31:08cutting jobs,
31:09and unpopular reforms.
31:11And only after that
31:12did the new model
31:13have the room
31:14to scale.
31:16A financial paradise
31:18in the middle
31:19of the Mediterranean.
31:20Joining the European Union
31:22in 2004
31:23brought Malta's economy
31:24far more
31:25than the transition
31:26to European rules
31:27cost.
31:29The country gained
31:30access to a vast
31:31European market
31:32with over
31:33450 million consumers.
31:35This is especially evident
31:37in the financial
31:37services sector.
31:38Following EU accession,
31:40Maltese financial
31:41companies gained
31:42the ability
31:42to operate
31:43across the single
31:44European market
31:45through the mechanism
31:46of the so-called
31:47single passport.
31:48In other words,
31:49a company licensed
31:50to operate in Malta,
31:52subject to the
31:52sector-specific
31:53regulations,
31:54could provide services
31:55to clients
31:56in other EU countries
31:57without going
31:58through the full procedure
31:59of obtaining
32:00new licenses
32:01in each of them.
32:02The Maltese regulator
32:03itself refers
32:04to the introduction
32:04of the single passport
32:05as the final stage
32:07of the country's
32:08transition
32:08to full participation
32:09in the European market.
32:11Prior to this,
32:12Malta introduced
32:13a tax model
32:14that incentivized
32:15using the country
32:16as a corporate jurisdiction.
32:18Formally,
32:19the corporate tax rate
32:20in Malta
32:20is 35%.
32:23However,
32:24after profits
32:25are distributed,
32:26shareholders may receive
32:27a refund
32:27of part of the tax paid.
32:29It is this mechanism
32:31that allows
32:32certain structures
32:33to achieve
32:33a significantly lower
32:35effective tax burden.
32:36In addition,
32:38Malta has created
32:39an extensive network
32:40of double taxation
32:41avoidance treaties.
32:43Today,
32:44it covers dozens
32:45of jurisdictions,
32:46including all the major
32:47European economies.
32:48As a result,
32:49the country was no longer
32:51just selling low taxes
32:52to businesses.
32:53It offered a package deal,
32:55a license,
32:56access to the single market,
32:58tax infrastructure,
32:59and the ability
33:00to serve clients
33:01from different countries
33:02while remaining
33:02physically located
33:03on a small island.
33:04And this gradually
33:06transformed the very structure
33:07of the Maltese economy.
33:09The financial sector
33:10grew significantly faster
33:11than the economy
33:12as a whole.
33:13Since 2010,
33:15financial services
33:16have been growing
33:16at an average pace
33:18of around
33:188.3% per year.
33:21In 2021,
33:22financial services
33:24accounted for about
33:259%
33:26of Malta's
33:27gross value added,
33:28nearly double
33:29the EU average
33:30of 7%.
33:31But finance
33:33was just the beginning.
33:34Malta began carving out
33:36new niches
33:37and doing so
33:37ahead of the rest.
33:39That same year,
33:402004,
33:41the country placed
33:42its bets
33:43on another industry
33:44that was just emerging,
33:45online gambling
33:47for online casinos
33:48and bookmakers.
33:49Malta became
33:50the first European Union
33:51member state
33:52to introduce
33:52comprehensive regulation
33:54for online gaming,
33:55while in most European countries,
33:57the sector remained
33:57in a legal gray area.
33:59Malta offered them
34:00a license
34:01from an official regulator
34:02within a European jurisdiction.
34:03The model was much like
34:05the one used
34:05for financial services.
34:06A few years later,
34:08this experiment
34:08had already become
34:10a large-scale business.
34:11In 2008,
34:13Maltese online operators
34:14already employed
34:15more than
34:162,500 people
34:17and brought
34:1815.6 million euros
34:21in taxes
34:22to the budget,
34:23which was
34:2335%
34:25more than
34:26the year before.
34:27By the first half
34:28of 2016,
34:29the industry
34:29accounted for
34:3012%
34:31of the country's GDP
34:32and the number
34:34of issued
34:34remote gambling licenses
34:35reached 490.
34:38Employment in the sector
34:39surged by
34:4031%
34:41in just one year,
34:44reaching
34:446,150 jobs.
34:47For Malta,
34:48this was a fundamentally
34:49new type of export.
34:50The island
34:51wasn't producing
34:52more goods
34:52or building
34:53new factories.
34:54It was selling
34:55a service.
34:57And the business
34:58itself could serve
34:59clients all over
35:00the world.
35:02Citizenship
35:02was the next
35:03area Malta
35:04turned to.
35:04After financial
35:05services and
35:06gambling,
35:07the government
35:07went even further
35:08and began utilizing
35:09another advantage
35:10of EU membership.
35:12Maltese citizenship
35:13also conferred
35:14European Union
35:15citizenship.
35:16In 2014,
35:18the Individual
35:19Investor Program
35:20was launched,
35:21under which
35:22a wealthy foreigner
35:23could apply for
35:24citizenship
35:24through a combination
35:25of a government
35:26contribution,
35:27investments,
35:28and real estate
35:28requirements.
35:29Under the initial
35:30scheme,
35:31it included,
35:31among other things,
35:32a contribution
35:33of 650,000 euros,
35:36an investment
35:37of 150,000 euros,
35:39and the purchase
35:40or lease
35:41of real estate.
35:42Effectively,
35:43Malta began to
35:44monetize yet another
35:45advantage of its
35:46European status.
35:47According to the
35:48Maltese government,
35:49since its launch
35:50in 2015,
35:51the scheme
35:52has brought the
35:52state over
35:531.4 billion euros
35:55in revenue.
35:57In 2018,
35:59Malta attempted
36:00to replicate
36:00the same model
36:01in the cryptocurrency
36:02market.
36:03Parliament passed
36:04the Virtual Financial
36:06Assets Act,
36:07which established
36:07a separate legal
36:08framework for
36:09virtual financial
36:10assets,
36:11exchanges,
36:12and related
36:12service providers.
36:13The act came
36:15into force on
36:15November 1, 2018.
36:18The Maltese
36:19financial regulator
36:20positioned this system
36:21as the world's
36:22first comprehensive
36:23framework that
36:24simultaneously covered
36:25both the
36:26technological and
36:27financial aspects,
36:28DLT,
36:29distributed ledger
36:30technology,
36:31used in blockchain,
36:33and crypto assets.
36:35The mechanism
36:36was the same again.
36:38The new industry
36:39did not yet have
36:40established rules,
36:41and Malta tried
36:42to be the first
36:43to create them
36:44in order to attract
36:45companies looking
36:45for a clear
36:46legal environment.
36:47As a result,
36:49the very source
36:50of economic
36:50growth changed.
36:52Over several
36:53decades, Malta
36:54went through
36:54several very
36:55different stages.
36:56At first,
36:57it relied on
36:58the British
36:58military presence.
36:59Then it created
37:00an offshore
37:01financial sector.
37:02After that,
37:03it transformed
37:04it into a
37:05regulated
37:05financial center
37:06and used
37:07EU membership
37:08as a platform
37:09to access
37:09the entire
37:10European market.
37:12Fintech
37:13and other
37:13cross-border services
37:14then joined
37:15finance.
37:15In 2025,
37:18the average
37:19GDP per capita
37:20of EU countries
37:21was about
37:2141,600 euros
37:23adjusted for
37:24purchasing power
37:25parity,
37:26that is,
37:26how many goods
37:27and services
37:28can be bought
37:28in the country,
37:29and only 10
37:30out of the 27
37:31member states
37:32exceeded this
37:33level.
37:33Among them
37:34was Malta
37:35as well,
37:36with a level
37:37of $47,906
37:39per capita.
37:41Alongside
37:41the Netherlands,
37:42Denmark,
37:43Austria,
37:44Germany,
37:44Belgium,
37:45Sweden,
37:46Finland,
37:47and France.
37:48And Malta's
37:49real GDP
37:50in 2025
37:51grew by
37:524% per year,
37:54giving it
37:55the second
37:55highest growth
37:56rate in the
37:56European Union
37:57after Ireland.
37:59The average
37:59monthly income
38:00after taxes
38:01in Malta
38:01today reaches
38:02$1,812,
38:05placing it
38:0517th in Europe,
38:07ahead of Poland
38:08and the Czech
38:09Republic.
38:11In other words,
38:12Malta no longer
38:13relied on the
38:14island's land area,
38:15but on its
38:16potential as a
38:17platform for
38:17reaching a much
38:18larger market
38:19abroad.
38:21The tourism
38:22engine of the
38:23economy.
38:24While Malta was
38:25looking for new
38:26sources of revenue
38:27and finance,
38:28yet another sector
38:29had begun to take
38:30shape much
38:31earlier.
38:32Tourism became
38:33one of the first
38:34ways to replace
38:35the money that the
38:35British military
38:36presence had
38:36previously brought
38:37in.
38:38The government
38:38was practically
38:39building its
38:40infrastructure from
38:41scratch.
38:41To achieve this,
38:43the state
38:43introduced a grant
38:45program for hotels,
38:46which was meant
38:47to stimulate
38:47private investment
38:48into large
38:49tourist facilities.
38:50They provided
38:51financial assistance
38:52and tax incentives,
38:53including a
38:5410-year income
38:55tax exemption
38:56and exemptions
38:57from customs
38:57duties on
38:58construction
38:58materials.
39:00Soon,
39:01international
39:01chains like
39:02Hilton and
39:02Sheraton arrived
39:03on the island.
39:04Along with them
39:05came travel
39:06agencies,
39:07insurance
39:07companies,
39:08and retail
39:08businesses.
39:10Thanks to this,
39:11the number of
39:12visitors grew
39:12from 12,000
39:14in 1959
39:16to 183,000
39:19in 1969.
39:22The first
39:23decades of
39:24Maltese tourism
39:24were quite
39:25concentrated.
39:27To ensure the
39:28growth of the
39:28industry,
39:29the island moved
39:30from selling
39:30sun and sea
39:31to a wider
39:32range of tourism
39:33products,
39:34cultural heritage,
39:35diving,
39:36learning English,
39:37business travel,
39:38and other
39:38niche types
39:39of tourism.
39:40In 1999,
39:43the government
39:44created the
39:44Malta Tourism
39:45Authority,
39:46which combined
39:47the functions
39:48of regulator
39:48and promoter
39:49of the industry.
39:50But tourists
39:52still had to be
39:53physically brought
39:53to the island,
39:54so it was crucial
39:55to improve
39:56air connections.
39:57In 2006,
39:59Malta International
40:00Airport introduced
40:01discounts on
40:02airport fees
40:03for new routes,
40:04especially for
40:05low-cost carriers.
40:06Unlike traditional
40:08airlines,
40:09low-cost carriers
40:09offer lower prices
40:10and make money
40:11on volume,
40:13cheap tickets,
40:14full planes,
40:15quick turnaround.
40:17Airport fees
40:18are one of their
40:19biggest expenses.
40:20That's why they
40:21choose airports
40:22that are willing
40:22to charge less.
40:24This encouraged
40:26airlines to launch
40:27new flights to
40:27Malta,
40:28and the country
40:29gained a much
40:29wider network
40:30connecting it
40:31to Europe.
40:32A year and a half
40:33after launching
40:34operations in Malta,
40:35Ryanair was
40:36already carrying
40:37around 350,000
40:40passengers a year.
40:41The measures
40:42to attract tourists
40:43paid off.
40:45In 2017,
40:46the island welcomed
40:472.3 million
40:49visitors.
40:50The British share,
40:51which had
40:51previously dominated,
40:53dropped to about
40:5425%,
40:55and over 42%
40:57cited culture
40:58and heritage
40:59as their main
41:00reason for visiting,
41:01which shows how
41:03far the country
41:04has moved away
41:04from purely
41:05beach vacations.
41:08In 2025,
41:10Malta surpassed
41:11a record 4 million
41:12tourists who spent
41:1325.4 million
41:16nights on the islands
41:17and spent nearly
41:194 billion euros.
41:21Malta remains
41:23one of the top
41:24tourist destinations
41:25in the world
41:25relative to its
41:26population,
41:27ranking third
41:28globally in
41:29international tourist
41:30arrivals per resident.
41:32The country
41:33welcomes about
41:346.3 tourists
41:35per resident.
41:37Only Andorra,
41:3851,
41:39and Monaco
41:40receive more.
41:42According to
41:43estimates from
41:43the Organization
41:44for Economic
41:45Cooperation and
41:46Development,
41:46in 2024,
41:48tourism directly
41:49accounted for
41:50about 11%
41:51of Malta's GDP,
41:53with around
41:5461.1 thousand
41:56people directly
41:57employed in the
41:58tourism sector,
41:59or over
42:0019%
42:01of all
42:02employed persons.
42:03Overall,
42:04in 2024,
42:05more than
42:0687%
42:07of Malta's
42:08total gross
42:09value added
42:09was generated
42:10by the
42:11service sector,
42:12while the
42:12EU average
42:13stands at
42:14over
42:1473.5%.
42:17Online gambling
42:18accounts for
42:196.3%
42:20of the GDP.
42:22The financial
42:22sector makes up
42:23approximately
42:248% of the GDP.
42:25The IT sector
42:26serving the
42:27gaming industry
42:28accounts for
42:28another roughly
42:297%.
42:30Industry and
42:32agriculture combined
42:33make up only
42:34about 12.6%.
42:36In other words,
42:37in just a few
42:38decades,
42:39Malta has
42:39virtually replaced
42:40the British
42:41military model
42:41with an economy
42:42oriented towards
42:43the export of
42:44services.
42:45It is precisely
42:46this rapid
42:47concentration on
42:48services that
42:49has created new
42:49risks which are
42:50worth considering
42:51separately.
42:52The dark side
42:53of the Maltese
42:54miracle.
42:55The economy
42:56opened up to
42:57global business
42:58faster than the
42:59state learned how
42:59to control it.
43:00And this became
43:02Malta's main
43:02weakness.
43:04The case of
43:05investigative
43:06journalist Daphne
43:07Caruana Galizia,
43:08who was blown up
43:09in her car in
43:10October 2017,
43:12not far from her
43:13own home,
43:14became an
43:14unprecedented
43:15scandal.
43:16She investigated
43:17corruption,
43:18government officials'
43:19connections,
43:20and the possible
43:21use of the
43:21Maltese financial
43:22system for
43:23dubious
43:23operations.
43:24The Panama
43:25Papers,
43:25a massive data
43:26leak from a
43:27Panamanian law
43:28firm that
43:28exposed the
43:29offshore structures
43:29of thousands of
43:30wealthy individuals
43:31and officials
43:32worldwide.
43:33We discuss
43:34their revelations
43:34in detail in
43:35our video on
43:36the Tzina
43:36Derjavi channel.
43:38Panama,
43:39an offshore
43:39haven for the
43:40world's criminals
43:41and oligarchs.
43:42The investigation
43:43identified the
43:44perpetrators and
43:45intermediaries.
43:45The alleged
43:46mastermind is
43:48believed to be
43:48businessman Jorgen
43:49Fennec,
43:50the owner of
43:51businesses whose
43:52activities the
43:52journalist was
43:53investigating.
43:54In 2021,
43:55an independent
43:56public inquiry
43:57concluded that
43:58the state of
43:58Malta bore
43:59responsibility for
44:00the murder as
44:01the government
44:01had created a
44:02climate of
44:03impunity.
44:04Fennec was
44:05accused by the
44:06prosecution of
44:06orchestrating and
44:07financing the
44:08crimes.
44:09But in
44:09September 2026,
44:11the jury acquitted
44:12him on both
44:14counts of the
44:14indictment.
44:15Another telling
44:16case involves
44:17Pilatus Bank.
44:20Its owner,
44:21Ali Sadr
44:21Hasheminajad,
44:22obtained a
44:23Maltese banking
44:24license in 2013,
44:25despite being very
44:27young and having
44:28limited banking
44:28experience.
44:30The
44:30Parliamentary
44:31Assembly of the
44:32Council of
44:32Europe later
44:33drew attention to
44:34serious questions
44:35regarding the
44:36licensing procedure
44:37and the fact that
44:38the bank served a
44:38significant number of
44:40politically exposed
44:41clients connected to
44:42Maltese government
44:43officials and
44:44Azerbaijani
44:44oligarchs.
44:45American prosecutors
44:46also established that
44:48Sadr used multiple
44:49passports and
44:50different variations of
44:51his name.
44:52In 2018, he was
44:54arrested in the
44:55U.S. on
44:55charges related to
44:57sanctions evasion
44:59and bank fraud.
45:00Such precedents
45:01predictably led to
45:02an external reaction.
45:04In June 2021, the
45:06FATF, Financial
45:07Action Task Force,
45:09an international
45:10body established at
45:11the initiative of
45:12the G7, which set
45:13standards for
45:14combating money
45:15laundering and
45:15terrorist financing,
45:17placed Malta on
45:18the Gray List, a
45:19list of countries
45:21that have deficiencies
45:22in financial
45:22supervision, but
45:23which agreed to
45:25eliminate them.
45:26Malta became the
45:26first EU country on
45:28this list, so the
45:29island has a major
45:30systemic problem.
45:32The country built
45:33its economy on
45:34finance, corporate
45:35services, and
45:36international capital.
45:37However, weak
45:38control, the very
45:40same rules that
45:41attract legitimate
45:42business, also
45:43created a convenient
45:44infrastructure for
45:45questionable money.
45:46After the blow to
45:47Malta's reputation as
45:48a financial center, the
45:50state sharply tightened
45:51financial controls.
45:52major banks tightened
45:53their scrutiny of
45:54transactions with
45:55Maltese partners.
45:56The government nearly
45:57tripled the staff at
45:58the Financial Intelligence
45:59Unit and updated the
46:00register of ultimate
46:01beneficial owners of
46:02company.
46:03In 2022, the number of
46:05suspicious transaction
46:06reports increased by
46:0844%.
46:09In June 2022, FATF
46:13recognized Malta's
46:14significant progress and
46:15removed it from
46:16increased monitoring.
46:17A similar conflict also
46:19arose around another
46:20product of the Maltese
46:21economic model, selling
46:23citizenship to investors.
46:25April 29th, 2025.
46:28The Court of Justice of
46:30the European Union ruled
46:31that the Maltese scheme
46:32violated EU law because
46:34it effectively turned the
46:35acquisition of
46:36citizenship, and with it
46:37EU citizenship, into a
46:39commercial commodity.
46:40In July 2025, Malta amended
46:43its legislation and shut
46:45down the program.
46:46For a tourism-oriented
46:47country, poor oversight
46:49means losing trust in the
46:50entire jurisdiction.
46:52That is precisely why the
46:53FATF, the EU, and
46:55international regulators
46:56became not an external
46:57annoyance for Malta, but
46:59rather an enforcement
47:00mechanism driving
47:01institutional strengthening.
47:02And this is probably the
47:03most important lesson from
47:05the Maltese story.
47:06Economic liberalization can
47:08create business quickly, but
47:10it doesn't automatically
47:11create institutions capable of
47:13regulating that business.
47:14Corruption scandals and
47:16pressure on the media have
47:17led to the country ranking
47:1867th in the world on the
47:21Press Freedom Index, falling
47:23behind most European nations,
47:25including Ukraine, which
47:26ranks 55th.
47:28According to Transparency
47:29International's Corruption
47:31Perceptions Index, Malta ranks
47:3360th in the world, falling
47:35behind Greece, Cyprus, Poland,
47:38Georgia, and Malaysia.
47:40So the Maltese economic miracle
47:42comes with an important caveat.
47:45Opening a country up to capital
47:46is much easier than building a
47:48system that ensures that this
47:50capital plays by the rules.
47:56Malta spent 20 years trying to
47:59shield its economy from the
48:00outside world.
48:01That was a mistake.
48:03Tariff barriers and
48:04nationalization in the 1970s
48:07cemented inefficiency instead of
48:09eliminating it.
48:11The right solution came later.
48:13Malta realized that it couldn't
48:15compete where it lacked
48:17resources, scale, and an
48:19industrial base.
48:20That's why it didn't try to.
48:23Instead, it found niches where
48:24a country's size is not an
48:26obstacle.
48:26And jurisdiction and the
48:28regulatory framework turned out
48:30to be more important than natural
48:31resources.
48:32And it worked.
48:34Is Malta successful?
48:36By the numbers?
48:37Yes.
48:38Its GDP per capita is higher than
48:40Japan's, Italy's, and Spain's.
48:42Growth consistently outpaces the EU
48:44average.
48:45But along with this, openness
48:47without sufficient control led to
48:50gray lists and reputational issues
48:52that had to be addressed after the
48:53fact.
48:54An island without a resource base
48:56turned into one of the wealthiest
48:58countries in the EU within 60 years.
49:01And this became possible thanks to an
49:03understanding of what Malta actually
49:05has and the ability to sell it
49:07effectively.
49:08The next question is whether its
49:11institutions can withstand the scale
49:13and complexity of the economy it is
49:15built.
49:16What do you think?
49:17Share your thoughts in the comments
49:19below the video.
49:21This video was produced with the
49:23support of the National Endowment
49:25for Democracy, NED.
49:27NED may not necessarily share the
49:29views and opinions expressed in the
49:31video.
49:32The National Endowment