Luxembourg and Malta, two of Europe’s smallest nations, present a fascinating contrast in economic outcomes. While both nations share similar demographics and are known for their financial sectors, Luxembourg’s economic performance stands leagues ahead, with a GDP per capita over three times that of Malta. This prompts the question: what accounts for this significant disparity, and can Malta’s ambitious new framework, ‘Malta Vision 2050’, help achieve a similarly prosperous future?
At the heart of this question lie different economic landscapes, policies and resource allocations that shape each nation’s path. The economic landscape in Luxembourg has been shaped by policies that establish it as a premier financial centre, offering extensive tax incentives to attract foreign investment and high-net-worth individuals.
Luxembourg’s focus on banking, financial services and green finance has fostered an innovation-driven economy. Moreover, Luxembourg’s robust infrastructure, favourable tax environment and regulatory stability have attracted multinational corporations, strengthening its global reputation.
Strategically located in Europe and home to key EU institutions, Luxembourg benefits from stable governance and international prestige, reinforcing its reputation as a reliable business location. Strong public investment in education and social services has produced a highly skilled, multilingual workforce, reinforcing Luxembourg’s economic growth.
Additionally, Luxembourg’s industrial roots remain significant; a well-established steel sector supports industries from construction to transportation, adding resilience to its economy, contributing to its GDP per capita of nearly $130,000, among the highest worldwide.
In contrast, Malta has carved a niche in digital services, tourism and online gaming, while lacking the industrial assets and natural resources that could create substantial international dependency. Although Malta has attracted foreign direct investment, challenges persist in regulatory capacity and the ‘brain drain’ of skilled workers pursuing opportunities abroad.
Still, Malta’s economy has demonstrated resilience, weathering crises like the 2008 financial downturn and the COVID-19 pandemic. In 2023, Malta recorded a 5.6% GDP growth rate, a promising contrast to Luxembourg’s slight contraction of -1.1% in the same period.
Despite these differences, both nations share commonalities, such as promoting investment through funds and tax-efficient vehicles like SICAVs. However, high-profile scandals such as LuxLeaks and the Panama Papers have tested the reputations of both.
The newly launched ‘Malta Vision 2050’, introduced by Prime Minister Robert Abela, outlines a road map for Malta’s sustainable and equitable growth. This strategy aims to stimulate economic progress, align Malta with EU climate goals and improve its performance on the United Nations Sustainable Development Goals (SDGs) of Agenda 2030.
The plan emphasises building green infrastructure, advancing education and enhancing healthcare as Malta pursues climate neutrality by 2050. Guided by specific benchmarks for 2035 and 2050, ‘Malta Vision 2050’ aims to steer the country’s development along sustainable lines, improve quality of life and reduce environmental impacts.
The UN Sustainable Development Report, formerly the SDG Index & Dashboards, sheds light on Malta’s relative strengths in sustainable development. Ranking 36th out of 166 countries, Malta slightly edges out Luxembourg, which ranks 38th. Leading the index globally are Finland, Sweden and Denmark, with Germany and France following in fourth and fifth places.
Malta’s SDG Index Score stands at 76.95, just above Luxembourg’s 76.81, though both countries face distinct sustainability challenges. Notably, Malta’s high Spillover Score of 63.36 – compared to Luxembourg’s 42.53 – indicates Malta’s positive influence on other nations’ SDG achievements, particularly through environmental and social impacts in trade, economy, finance and security.
For Malta, SDG 7 (Affordable and Clean Energy) poses a significant hurdle, especially in increasing the share of renewable energy in total final energy consumption. To advance on SDG 9 (Industry, Innovation, and Infrastructure), increased spending on research and development is essential.
Luxembourg’s public sector, renowned for its transparency and efficiency, offers a model for Malta’s ambitions- Lina Klesper
Malta’s reliance on imports via sea way complicates its progress on SDG 12 (Responsible Consumption and Production) and SDG 13 (Climate Action), as imported goods contribute to severe air pollution and high greenhouse gas emissions, requiring substantial mitigation efforts.
Both Malta and Luxembourg struggle with SDG 17, particularly concerning tax practices. Each country has a low corporate tax haven score, while Luxembourg also ranks among the worst for multinational profit shifting.
Luxembourg’s SDG performance reflects major challenges in balancing prosperity with environmental sustainability, particularly in its industrial sector. Excessive CO₂ emissions from fuel combustion and significant challenges with SDG 12 highlight Luxembourg’s struggle with pollution from production, nitrogen emissions and plastic waste exports.
Climate action also remains a pressing issue as greenhouse gas emissions from imports and fossil fuel combustion persist.
Both countries confront distinct SDG challenges shaped by their unique geographic, social, political and economic contexts. However, common issues in emissions reduction and financial policy signal shared paths for improvement.
In pursuing ‘Malta Vision 2050’, effective governance will be key. Luxembourg’s public sector, renowned for its transparency and efficiency, offers a model for Malta’s ambitions. The Maltese government plans to establish Key Performance Indicators (KPIs) and conduct regular progress reviews to strengthen accountability and public trust. Transparent governance will be essential in sustaining momentum and public confidence to achieve the vision’s long-term goals.
While it may be unrealistic for Malta to match Luxembourg’s GDP in the near term, ‘Malta Vision 2050’ provides a promising framework for long-term improvement. By channelling investments into green infrastructure, digital transformation, education and healthcare, Malta can create a resilient, innovative economy capable of adapting to global shifts and challenges. Aligning with the SDGs provides Malta with a blueprint for steady progress, even if it does not mirror Luxembourg’s wealth structure.
Luxembourg’s success is the product of decades of consistent policy, reputation-building and innovation, much of which Malta can draw inspiration from as it pursues its own transformative journey. Strategic investments and a commitment to sustainability can position Malta to achieve its potential and secure a stable, prosperous future.
In conclusion, ‘Malta Vision 2050’ signals Malta’s determination to pursue its aspirations with foresight and resilience. With strong governance, sustained investment and a clear focus on sustainability, Malta stands poised to realise meaningful progress, bringing it closer to achieving global sustainable development goals by 2030 and positioning itself as a thriving economy by 2050.
While the economic powerhouse of Luxembourg provides an aspirational benchmark, Malta’s unique strengths and clear vision set it on a path toward its own brand of success.
Lina Klesper is an international legal assistant at PKF Malta.