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How Brexit May Affect the Maltese Economy

07 February 2020

Brexit will affect the Maltese economy both negatively and positively. Based on the significant foreign trade balance Malta has with the United Kingdom, economists predict that the Maltese economy will be one of the most exposed economies to the consequences of Brexit.

 

The value of all imports from the UK, according to the IMF*, is equal to 27.3 % (21.1 % services and 6.2 % goods) of Malta's GDP–the highest for any Member State. The UK's exit from the EU could result in higher tariff-shaped import costs, thereby pushing up prices for Maltese consumers. By contrast, this can be mitigated by the euro's appreciation against the pound.

 

With a cheaper pound, exports to the UK will become more expensive. Price elasticity of demand of the exported good and services will therefore alter Malta’s balance of payments. Hence, this will negatively effect tourism for example, as most tourists are pretty price sensitive. This is quite concerning as more than 500,000 of Malta’s 2.5 million tourists are in fact British. However, Malta uses the fact that English is one of its official languages as a bargaining chip in order to expand niche markets in tourism, teaching and training. This could prove to be Malta’s competitive advantage when it comes to countries such as Greece and Cyprus which are cheaper but do not know as much English.

 

Despite these challenges, there are some positive aspects which are brought about by Brexit. With the newly launched golden visa programme and the citizenship-by-investment programme, Malta can act as a gateway to Europe with visa-free access to the European Schengen Area. This might encourage more high-net-worth individuals to migrate to Malta. Learn more: BDO Malta Citisenship & Residency services.

 

Adding to this, one of Malta’s most important industries, iGaming. This is because the UK’s already highly restricted market might undergo considerable internal changes. For example, if Spain continues with its plan to put stricter controls at the borders due to Brexit, Gibraltar, one of Malta’s biggest competitors in the sector will most certainly take a hit. This is due to the fact that Gibraltar’s Gaming companies are run by employees who cross the border daily. Discover more: BDO iGaming Advisory services.

 

With Brexit, the UK will stop paying into the EU budget which will reduce the budget by around € 12 billion annually. However, this might not entirely effect Malta negatively, because the EU may decide to relocate specific funds to countries which can champion a specific sector. This means that good homework now can provide Malta with a healthy amount of newly available funds and Foreign Direct Investment (FDI). These funds will help Malta to specialise in specific sectors which it has the potential to lead in making it the best in such industries.

 

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