Blockchain Island: Why size didn't matter for Malta's rise to global status
Maltese Foreign Minister Evarist Bartolo explains a controversial strategy of winning big as a small island
Almost 60 years ago, Malta achieved complete independence from Britain.
Since 1964, the island has navigated shifting geopolitics and pursued a diversified economy.
Unlike resource-rich countries, Malta had no choice but to pursue innovative strategies across sectors, and this has not been without controversy.
Decades later, some say that its achievements are overshadowed by reputational challenges related to its tax haven status.
In the last couple of years, Malta has become a centre for what the future might hold for many wealthy, tech-savvy countries like the UAE: blockchain technology.
By applying digital skills and giving undivided attention to education, Malta is today widely known in the crypto-world as the Blockchain Island thanks to the laws and measures it took to switch to a knowledge-based economy.
This has improved the country’s fortunes, creating job opportunities and improving the per capita income, which now stands at $27,000, for its 500,000 people.
“We have built up a diverse economy based on tourism, blockchain, pharmaceuticals, financial services, construction, the maritime register and the online gaming industry,” Maltese Minister for European and Foreign Affairs Evarist Bartolo told The National.
He was in Abu Dhabi, where he met Sheikh Abdullah bin Zayed, Minister of Foreign Affairs and International Cooperation.
“If you are a hit in one sector like tourism, you are not much of a big hit. It’s very important to have a diverse economy. If we were based only on tourism that would have been a big problem for us,” Mr Bartolo said, speaking of the effect the coronavirus pandemic had on the sector, which contributes 17 per cent of the island’s GDP.
“We are keen on partnering with wealthy nations with strong economies like the UAE,” said Mr Bartolo, commenting on how Abu Dhabi is keen on framing its economic growth around a sustainable, non-oil industrial structure.
The year 2018 was a game-changer for Malta, after making a strong push towards digital transformation. Its parliament adopted regulations that appealed to foreign cryptocurrency and tech companies, offering a competitive tax system and a strategic location in the Mediterranean.
Within a year, Malta had hosted a summit with hundreds of multi-national companies and banks focused on digital assets and currencies, artificial intelligence and tokenisation.
The latter is the process of turning a meaningful piece of data, such as an account number, into a random string of characters called a token that has no meaningful value if breached. As a result of that focus, Malta earned the title of Blockchain Island.
A simple definition of a blockchain is data sets or blocks where each one represents multiple transactions, according to Business and Information Systems Engineering, an international journal that specialises in researching information systems.
The blockchain is extended by each additional block and hence represents a complete ledger of the transaction history, a secure way for restoring digital information and transactions between digital wallets, using cryptocurrencies such as Bitcoin.
In this regard, the island’s tech focus has led to great progress when compared to countries which are often perceived as pioneers in the digital world.
In 2020, Malta ranked 20th among countries in Europe and North America in terms of building a digital economy.
By contrast, the US, Germany and Sweden ranked 23, 25 and 31 respectively out of the 36 countries in this group, according the Digital Riser Report published by the European Centre for Digital Competitiveness.
“The location is more important than the size of the country,” said Mr Bartolo, referring to the smallest country in the European Union and, at 316 square kilometres, one of the world’s smallest.
“It’s actually where you are, not how big or small you are. About 25 to 30 per cent of the global trade in the Mediterranean passes through Malta,” he said, stressing the major role of digital technologies in the post coronavirus world.
“We have invested enormously in having an educated workforce - people who can operate advanced technology. In addition, Malta has a natural, deep harbour, enough to host giant ships. All the powers in the past who wanted to control the Mediterranean wanted to control Malta,” he said.
The Maltese flag is the largest merchant register in Europe and the sixth in the world thanks to the facilities provided by the government to register vessels owned by Maltese people and foreigners.
Mr Bartolo, unlike some diplomats, does not mince his words and staunchly defends Malta’s tax code system and Individual Investor Programme scheme.
The latter enabled Malta to raise millions by selling its passports to rich foreigners amid allegations of corruption, the suspicious sale of public assets and insufficient accountability.
“Just name one country in the world that doesn’t have corruption. We have adopted due diligence in dealing with corruption claims and fight off dirty money because it’s bad for our reputation,” Mr Bartolo said.
But the country is also reeling from the assassination of anti-corruption reporter Daphne Caruana Galizia, who was investigating allegations surrounding a shell company.
She was killed by a car bomb in October 2017. More than three years on and the Maltese still want to know who ordered the murder, although a high-profile arrest was made in 2019.
“The government stance is to leave no stone unturned to bring all those responsible at every level to justice and to answer for their atrocious crime. The investigation is ongoing and the judicial process has started for those who allegedly carried out the assassination and also for the alleged mastermind,” Mr Bartolo said.
He is also keen to push back on claims that the country has selectively issued passports, calling that a sovereign matter.
“We have an overall rejection rate (of passport applications) of 25 per cent. But it’s our right to have an investment scheme and grant our citizenship to high-profile investors. It’s a sovereign right and not the right of the European Commission,” said Mr Bartolo, who also served as the Minister of Education.
Foreign companies investing in Malta pay a very low corporation tax rate of only 5 per cent.
The average rate in the EU is 21.9 per cent.
“We have created this low rate to compensate us because of being an island," he said. "We are cut off, and transportation costs are so high, while shipping costs due to the pandemic have increased enormously.
"To make it possible for foreign companies to invest in a small island, you have to find incentives. What can we offer, just the weather? We have nice weather,” he said with a laugh.
Updated: February 23, 2021 11:11 AM