Malta is too small to think small

Malta's economy continues to grow, but beneath the headline figures lie two very different business realities

While Malta celebrates impressive GDP growth, many local businesses are experiencing a very different reality. Simon Azzopardi argues that Malta has become two economies moving in opposite directions.

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If you run a business in Malta and the last few years have felt harder – and by that I mean thinner margins, tougher competition, and more expensive staff – you are not alone. And it is not a phase. It is systemic. The question I have is: why? And what can we do about it?

On paper, Malta's economy looks exceptional. Malta's GDP grew by 4% in 2025, the second-highest real growth rate in the EU. But that headline is an average of two very different realities. And averages in Malta's heavily concentrated economy are misleading.

Malta effectively has two economies sharing the same island. Economy A is the export economy: tourism, iGaming, financial services, and foreign-owned manufacturing. It exports. It attracts international capital. It benefits from a 5% effective corporate tax rate. It drives the GDP headline. According to Eurostat, Malta's aggregate corporate profit share was 56.4% in 2024, the second-highest in the European Union.

Economy B is the domestic economy: over 30,000 micro-enterprises, approximately 75% of them family-owned, employing fewer than ten people. They import at international prices and sell locally at compressed margins. They pay 35% corporate tax. They compete with tens of thousands of other businesses for the same 300,000 employees and 550,000 consumers. Their world is very different.

The Malta Chamber of SMEs' survey found that while 43% of businesses saw turnover increase in 2025, only 26% were more profitable. A full 35% were less profitable than the year before. Most businesses are on a treadmill. And 80% of SME owners say they either will not invest or are uncertain about investing in 2026. You do not get those numbers from an economy that is working and growing holistically.

Around 75% of Maltese businesses remain family-owned, operating in an increasingly competitive domestic market

PwC's Spring 2026 Economic Outlook put numbers to the problem. The most productive sectors in Malta (in terms of value each employee generates) remain ICT, professional services, and finance, generating €162,000, €93,000, and €76,000, respectively. But, alarmingly, these are not the sectors that are growing. The fastest-growing sectors over the past two years, according to the NSO Registered Employment report (Nov 2025), are the public sector, wholesale and retail and construction, generating between €30,000 and €35,000 per worker. Malta's growth is being driven by volume, not value. The IMF confirmed this in their February 2026 consultation. Basically, more bodies are doing less productive work.

And if nothing changes? The IMF has already told us. Malta's growth model of importing more workers to do less productive work has already hit its ceiling. If we do nothing, the 30,000 microenterprises will suffer the most because costs (mostly wages and rent) will eat everything that is left. Not only will the situation be impossible for small businesses, but talent will follow suit very quickly. Air quality, overcrowding, traffic, costs, the schools – considering everything, Lisbon, Madrid and Ljubljana all offer better.

In 2025, Malta was one of only two EU countries to record negative labour productivity growth, at -0.8%, while the EU average rose by 1.4%. We are working more hours and producing less value per hour. The result is a productivity crisis. Malta's Vision 2050 talks about shifting to higher-value business, and this is probably why. 

If any sector should be breaking through from Economy B into Economy A, it is ICT. It has the highest productivity per worker in the country. Its services are inherently exportable. Malta has the language, the EU membership, and the regulatory frameworks. And yet, ICT and professional services have grown by barely 1–2% over the past two years, while low-productivity sectors have surged ahead. This is a symptom of the structural barriers that keep Maltese businesses trapped in the domestic market.

High-productivity sectors such as ICT and professional services remain among Malta's greatest untapped growth opportunities

Let's look outside our shores for inspiration. Other small economies have faced the same constraints and made different choices. Let us look at Estonia: it has 1.4 million people, borders Russia, a language spoken by almost nobody outside its territory, yet its exports account for over 75% of GDP, and it has produced 10 unicorns (companies worth over $1 billion). It charges zero corporate tax on reinvested profits, incentivising businesses to grow before they extract. Malta does the exact opposite: local businesses pay 35% whether they reinvest or not, while foreign-owned companies on the same island pay 5%, at least for now. Why do we accept this as normal?

Fixing this challenge requires coordinated, structural interventions across four fronts.

First, fiscal policy that rewards reinvestment. Estonia's model is instructive: businesses that reinvest profits in growth, product development, or international expansion should face a lower tax burden than those that extract. Malta currently does the opposite. It goes beyond the 5% versus 35% divide. When selling a property, you pay a final withholding tax of 8% on the transaction. Reinvest profits in your business, and you pay 35%. We are literally incentivising Maltese capital to flow into apartments, which drives up the cost of living – pulling investment away from businesses that could employ people and sell abroad.

Second, co-funded market entry. Singapore, which faces an identical domestic ceiling, runs the Market Readiness Assistance programme: the government co-funds up to 70% of internationalisation costs for SMEs entering new markets, up to S$100,000 per market, and provides M&A financing, in which the state shares the default risk with banks. Malta's equivalent is the Internationalisation Strategy grant, with a total budget of €500,000 and a cap of €20,000 per business. That is the entire national budget for helping 30,000 micro-enterprises look beyond the island. A serious co-funded programme that shares the risk of landing the first international client would change the calculus for hundreds of businesses.

Third, M&A infrastructure. Malta has over 30,000 microenterprises, and a handful of small deals take place each year. They are rare, informal, and typically driven by personal connections rather than by any structured market. There is no active micro private equity ecosystem, no dedicated SME acquisition finance, and little advisory infrastructure for business owners who want to merge, acquire, or sell. More fundamentally, there is a cultural barrier: selling a business, or worse still, a family business, is seen as giving up, not as a strategic move. Merging with a competitor feels like failure, not ambition. That mindset has to shift. Two five-person companies can become a ten-person company with proper governance and a managing director who is not also the bookkeeper, creating a business capable of pitching to a client in London or Madrid.

Fourth, opening the boardroom. Approximately 75% of Maltese enterprises are family-owned. The family model built this economy and deserves respect. But when the board members are all family, and nobody in the room has ever sold outside Malta, ambition is contained by experience. Structured programmes that place experienced international operators alongside family business owners to expand what they believe is possible would unlock incredible potential.

Malta does not have a growth problem. The GDP says so. It has a two-economy problem. One economy is thriving, internationally connected, and lightly taxed. The other is squeezed, domestically trapped, and structurally disadvantaged. The 4% headline is the average of those two realities, and averages in an economy this concentrated are meaningless.

The solution is not to work harder in the same market. It is time to stop treating Malta as a single story and start treating it as two separate economies at different stages of maturity.

We have the language, the legal framework, the capital infrastructure, and the geographic position to build businesses that sell to the world. Estonia had fewer of these advantages yet still built an export economy. Singapore faced the same domestic ceiling and built a system to help its SMEs climb over it.

Time is ticking. Malta's SMEs are already paying the costs of internationalisation. They import at global prices, compete with internationally funded sectors for labour, and pay rent inflated by a property market that has become the island's default investment vehicle. The structural support required to change it is a model that has been tried and tested. It is not even expensive. It is simply absent.

Simon runs businesses, sits on boards, and builds tech ecosystems between Malta and the UK. He is a partner at Cleverbit Software and InScope-AML, a non-executive director at Izola Bank, and president of Silicon Valletta.

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