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Tiny island, big niches

One morning in Kalkara, a fake Colosseum towers over the harbour. Extras in armour line up for battle scenes. That little corner of Hollywood isn’t there just because Malta is sunny. It exists because the state chose to throw serious incentives at foreign productions, including a cash rebate that can refund up to 40% of eligible local spending, and to market Malta as a prime filming location. Those rebates are what turn warehouses into studios and dockyards into film sets.


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Zoom out and you will note the same pattern. For roughly twenty years, Malta has been bolting small, export-oriented sectors onto a tiny domestic economy using tax breaks, targeted regulation and aggressive promotion. The question is no longer whether this “niche strategy” works in GDP terms. It clearly does. The harder question is how we can make it translate into a better quality of life for the rest of us.


The tax chassis under the niches

The current economic model is built on a foundation established in the 1990s and early 2000s, when Malta redesigned its company tax system. We kept a 35% headline rate but paired it with a full-imputation and refund system plus a growing network of double-tax treaties, so that many foreign investors could legally end up with single-digit effective tax rates while staying within EU and OECD rules.


You can argue about loopholes and aggressive planning, but for a country of less than half a million this was a deliberate choice: be aggressively competitive on tax without walking out of the European mainstream. That “chassis” of company law, tax and regulationsregulators is what later made film rebates, aircraft registration and fintech licences usable. Each new niche was bolted onto it, rather than invented from scratch.


Niches that actually move the numbers

On that base, successive governments have built one micro-industry after another: remote gaming, aircraft registration and leasing under the 9H flag, upgraded film rebates, licences for payment and e-money institutions, pharma and biotech firms.


By now, these industries are no longer side-notes. The Malta Gaming Authority estimates that in 2022 the gaming industry generated €1.495 billion in gross value added. That’s almost 9.6% of the economy’s GVA on its own, and just over 12% once indirect effects are included. IATA’s latest work puts aviation’s direct contribution at around 4% of Malta’s GDP and thousands of jobs in airlines, airports and related services. A 2022 impact study for Screen Malta suggests that film productions injected roughly €73 million in local spending and generated about €93.8 million in GVA, supporting around 1,770 full-time equivalent jobs.


Online gaming was the first big proof of concept. Early reforms in the early 2000s made Malta a first-mover in EU online gambling: operators could obtain a Maltese licence, plug into our tax system and run platforms here while serving players across Europe. Within a decade, the sector was employing thousands.


For film and aviation, the logic is similar. Raise the film rebate to 40%, pitch the sun and sand, and productions arrive in short, intense bursts. Make Malta an easy jurisdiction for registering and leasing aircraft, and you attract fleets that barely touch our runways but pay local lawyers, administrators and maintenance crews. Fintech is quieter, but the story is similar: flexible rules within EU directives, plus the existing gaming ecosystem, helped build a cluster of payment and e-money firms serving clients far beyond our shores.


For many Maltese lawyers, accountants, software developers, and policy people, these are the worlds we work in. Which is why you often hear the same objection: this is all well and good, but what about people who aren’t lawyers or accountants?


“How is this relevant for everyone else?”

It’s a fair question, but these niches don’t run only on degrees. Film needs drivers, carpenters, set builders and caterers. Aviation relies on technicians and ground crew, often coming through MCAST rather than University. Gaming and fintech depend on operations teams, customer support and payments staff where languages and basic digital skills can matter more than a framed diploma.


If we want these niches to remain politically sustainable, that has to be part of the design, not an afterthought. With proper training routes, apprenticeships and clear internal progression, someone who starts in support or on a set can move into a more specialised, better-paid role over time. Without that, the juiciest rewards cluster around professionals, while everyone else mostly feels the side-effects: higher rents, more competition for everyday jobs, more pressure on buses and clinics.


Population pressure and a way out

All this is happening in a Malta that has quietly changed who actually lives here. Last year, Malta’s population had reached 574,250, of which 168,938 were foreign nationals. The Central Bank has noted that almost all net population growth since 2000 has come from foreign residents, who are overwhelmingly of working age. In simple terms: almost one in three people on the island is now foreign, and most of the recent growth in our workforce has come from migration.


A big chunk of that influx is tied, directly or indirectly, to the sectors we celebrate: gaming, hospitality, construction, logistics, care work, parts of tech and aviation. Our niche economy doesn’t just attract capital; it attracts workers too. For many Maltese who feel squeezed on housing and space, it’s not unreasonable to watch a street flip in ten years from Maltese terraced houses to tall apartment blocks full of foreign residents and quietly wonder if anyone had a plan at all.


The important point is that this is not the only way to grow. The alternative to “more people every year” isn’t stagnation; it’s productivity. Instead of relying mainly on more bodies in the same square kilometres, we can push harder on skills so local workers can move into higher-value roles; on technology and automation to strip out low-value drudge work; on participation, so parents and older workers can stay in the labour market if they want to; and on being more selective about which sectors we expand. We do this by favouring sectors that can pay decent wages without needing endless inflows of low-paid staff.


Budget 2026: nudging the model in the right direction

Budget 2026 is the latest chapter in this story. The government has announced a €100 million programme to support digitalisation, explicitly aimed at “increasing productivity and reducing dependence on foreign workers”, focused on technologies like AI, the Internet of Things, cybersecurity, AR/VR, blockchain and robotics, mainly channelled through Malta Enterprise and related agencies. It is also introducing a 175% tax deduction for eligible research and innovation spending, plus accelerated write-offs over two years for investments in AI, digitalisation, modernisation, automation and cybersecurity.


The flagship measure, though, is “AI for Everyone”: free AI courses, national certification and practical sessions for students, workers, parents and older people, with a government-funded subscription to an AI service such as ChatGPT or Gemini for those who complete the programme. On paper at least, it’s an attempt to lower the barrier to entry so that AI doesn’t become “just another thing for people in offices”, and to push firms towards higher-productivity models that rely less on endless labour inflows.


On the biotech and life-sciences side, the Budget also points to a new innovation complex in Ħal Far aimed at SMEs in health, pharmaceuticals, biotechnology and marine biotech, explicitly pitched as a way to strengthen Malta’s innovation ecosystem alongside the existing Malta Life Sciences Park near Mater Dei and the University.


AI and biotech: harder than rebates

All this plugs into a broader AI push that was already taking shape. Malta’s 2019 national AI strategy set out a vision to make the country a testbed for AI by 2030, built on three pillars: investment and start-ups, public-sector adoption, and enabling infrastructure and skills. Assessments prepared for the European Commission underline the predictable weak points for a tiny state: human capital, research capacity and strong, trustworthy regulation.


In other words, AI and biotech are a tougher test of the niche playbook. You can’t build them on tax and branding alone. They depend on deep pools of knowledge, long-term research and dense networks between universities, hospitals and firms. They need regulators who can say “no” when needed, not just process applications quickly.


From fast wins to slow work

Once you’ve pulled off a couple of niche successes, it’s tempting to keep adding sectors to the list: gaming, aviation, film, fintech, AI, biotech, green tech, space. It sounds impressive in a Budget speech. But a small island can’t specialise in everything. Chasing every shiny industry risks spreading our talent, regulators and infrastructure too thin. It may be wiser to have fewer, deeper niches, i.e. the ones that genuinely upgrade skills and wages, rather than a long portfolio of fragile fads.


Over the past decades, we’ve become good at attracting mobile industries quickly. Malta’s niche economy can feel like a film set: visually impressive and often genuinely valuable, but always at risk of packing up and moving elsewhere. Governments of different colours have been proactive, not passive; on that front, they probably deserve more credit than they usually get.


The next frontier, though, won’t be won through tax tweaks and launch events alone. It will depend on the slow work: strengthening institutions, backing education and research, giving regulators real clout, and building training and progression paths that still make sense if you never studied law or coding, so that we can grow with fewer imported workers and more value created by the people already here.


If we’re going to chase the next big niche, whether it’s AI, biotech, or something we haven’t named yet, the real question isn’t just which sector we pick. It’s what we’re willing to build, slowly and properly, underneath it.



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