Table of Contents LIST OF ACRONYMS i CHAPTER 1 – INTRODUCTION 1 1.1 Preamble 1 1.2 Preparation of the NSRF (Partnership) 3 CHAPTER 2 – SITUATION ANALYSIS OF MALTA’S SOCIO ECONOMY 6 2.1 Territorial context 7 2.2 Economic context 9 2.2.1 General Overview 9 2.2.2 International price competitiveness and labour productivity 12 2.2.3 Economic Reforms 14 2.2.4 Main Economic Sectors 14 2.3 Competitiveness 24 2.3.1 Infrastructure 24 2.3.2 Labour market, human resources development and the social context 34 2.4 Addressing the Lisbon Agenda and Benchmarking Malta with the EU25 41 2.4.1 Economic Performance 42 2.4.2 Employment and Education 42 2.4.3 Research and Development and Innovation 45 2.4.4 Infrastructure 45 2.5 SWOT Analysis 47 2.6 Macro-economic impact of Cohesion Policy 2007-2013 50 2.7 Summary and conclusions of the situation analysis 51 CHAPTER 3 – EVALUATION OF THE STRATEGY 55 3.1 Ex-ante evaluation of the NSRF 55 3.1.1 Appraisal of the strategic objectives and the contribution towards the Community Strategic Guidelines 55 3.1.2 Rationale and consistency of the strategy 56 3.1.3 Expected results and impacts 56 3.1.4 Proposed implementation systems 56 3.2 Progress achieved in the implementation of the 2004-2006 Programme and lessons learned 56 CHAPTER 4 – STRATEGIC DIRECTION FOR MALTA 2007-2013 60 4.1 Introduction and context 60 4.2 NSRF Strategic Objectives 60 4.3 Overall Consistency of the NSRF 62 4.3.1 Community Strategic Guidelines 62 4.3.2 National Reform Programme 64 4.3.3 Earmarking 64 4.3.4 National Strategies 67 4.4 NSRF Strategic Objectives in detail 73 4.4.1 Strategic Objective 1 – Sustaining a growing, knowledge based, competitive economy 73 4.4.2 Strategic Objective 2 – Improving Malta’s attractiveness & the quality of life 78 4.4.3 Strategic Objective 3 – Investing in Human Capital 86 4.4.4 Strategic Objective 4 – Addressing Gozo’s regional distinctiveness 90 4.5 NSRF Core Target and Impact Indicators 94 4.6 Consistency of the Strategy with Other Programmes 95 4.6.1 Territorial Co-operation 95 4.6.2 Other Financial Instruments and Programmes 96 CHAPTER 5 – OPERATIONAL PROGRAMME & FINANCIAL TABLES 98 5.1 Operational Programme I (Cohesion Fund & ERDF) 99 5.2 Operational Programme II (ESF) 100 5.3 Financial Tables 102 CHAPTER 6 – VERIFICATION OF ADDITIONALITY 103 6.1 Executive Summary 103 6.2 The Process of Additionality Verification 104 6.2.1 Ex-ante Verification 104 6.2.2 Mid-Term Verification 105 6.2.3 Ex-post Verification 105 6.3 The Evolution of the Macro-economic Situation and main Macro-economic Indicators 107 6.3.1 Details on the Macro-economic Model used to forecast GDP 109 6.3.2 Assumptions used to forecast Government Recurrent Revenue 109 6.4 Additionality Assessment Table 110 6.4.1 Notes on the Additionality Table 110 6.5 Macro-economic Impact of the NSRF 113 CHAPTER 7 – CONSISTENCY AND CO-ORDINATION MECHANISMS 114 7.1 Consistency with Community Policies 114 7.1.1 Sustainable Development 114 7.1.2 Equal Opportunities 116 7.2 Mechanisms for the Co-ordination and Coherence of the Cohesion Policy Programmes with National Policies 117 7.2.1 Preparation of Programmes 118 7.2.2 Management of Programmes 118 7.2.3 Co-ordination Structures 118 7.3 Mechanisms for the Co-ordination and Coherence of the Cohesion Policy Programmes with the EAFRD and EFF 118 7.4 Mechanisms for the Co-ordination and Coherence of the Cohesion Policy Programmes with other Community Programmes/Initiatives 119 CHAPTER 8 – ADMINISTRATIVE EFFICIENCY 121 8.1 Introduction 121 8.2 Reinforcement of Structural Funds Key Stakeholders Administrative Efficiency 121 8.3 Reinforcement of Public Sector Administrative Efficiency 122 8.4 Partnership and NGOs 123 List of Acronyms ARCHIMED Archipelago Mediterraneo – Interreg IIIB Programme CF Cohesion Fund CIP Competitiveness and Innovation Programme CSG Community Strategic Giudelines EAFRD European Agricultural Fund for Rural Development EEA European Economic Area EFF European Fisheries Fund EIB European Investment Bank e-ID Electronic Identification Card ENPI European Neighbourhood Policy Instrument ERDF European Regional Development Fund ERM II Exchange Rate Mechanism II ESF European Social Fund ETC Employment and Training Corporation EU European Union EU25 European Union 25 Member States FDI Foreign Direct Investment FP Framework Programme (for Research and Development) GDP Gross Domestic Product GHG Greenhouse Gas GVA Gross Value Added GWh Giga Watt Hour HICP Harmonised Index of Consumer Prices ICT Information and Communication Technologies ISPA Instrument for Structural Policies for Pre-Accession JASPERS Joint Assistance to Support Projects in European Regions JEREMIE Joint European Resources for Micro to Medium enterprises JESSICA Joint European Support for Sustainable Investment in City Areas MCAST Malta Council of Arts, Science and Technology MCESD Malta Council for Economic and Social Development MEDOCC Méditerranée Occidentale – Interreg IIIB Programme MFSA Malta Financial Services Authority MLT Malta MQC Malta Qualifications Council NCPE National Commission for the Promotion of Equality NCSD National Commission for Sustainable Development NGOs Non Governmental Organisations Non-VET Non Vocational Education and Training NRDP National Rural Development Plan NRP National Reform Programme NSP National Strategic Plan NSRF National Strategic Reference Framework NSSD National Strategy for Sustainable Development OP I Operational Programme I OP II Operational Programme II OPM Office of the Prime Minister PHARE Pre-Accession Programme for Central and Eastern Europe PPCD Planning and Priorities Co-ordination Division PPS Purchasing Power Standard PV Photovoltaics R&D Research and Development REER Real Effective Exchange Rate RES Renewable Energy Sources i RPI Retail Price Index RTD Research and Technological Development RTDi Research and Technological Development and Innovation SAPARD Special Accession Programme for Agriculture and Rural Development SD Sustainable Development SMEs Small and Medium Sized Enterprises SPD Single Programming Document STEMM Short-term Economic Forecasting Model SWOT Strengths, Weakness, Opportunities and Threats TEN-T Trans European Network for Transport THP Temporary Humanitarian Protection TINA Transport Infrastructure Needs Assessment TSE Treated Sewage Effluent UNHCR United Nations High Commissioner for Refugees UoM University of Malta VET Vocational and Education Training ii Chapter 1 - Introduction 1.1 Preamble The Maltese archipelago consists of three Islands, Malta (246 sq km), Gozo (67 sq km) and Comino (2.7 sq km). The country is located in the Mediterranean Sea, about 100 kilometres south of Sicily and 300 kilometres east of Tunis. The Maltese archipelago is on the periphery of the European Union. Malta’s population stands at 402,727 (2005) of which approximately 30,000 live on the island of Gozo. Malta’s socio-economic development rests on three main pillars: sustaining economic growth and competitiveness through the generation of a knowledge-based and service-based competitive economy; the safeguarding of the natural and urban environment; and ensuring continuous investment in human capital and education. Government’s vision for Malta is one which aims to sustain and develop a dynamic, high value added economy founded on competence, skills and excellence and one which is capable of sustaining a high standard of living for all citizens. Within this context, the main macroeconomic policy objectives of the Maltese Government remain the achievement of sustainable economic growth and a high and stable level of employment, restoring fiscal balances to sustainable levels and ensuring a reduction in the debt-to-GDP ratio and stability in the external sector. Achieving a sustainable fiscal position remains a priority to ensure a stable macroeconomic framework, capable of fostering economic growth, generating employment opportunities and sustaining social responsibilities. The Budget Speeches for 2006 and 2007 clearly demonstrate Government’s commitment to remain on track to reduce the fiscal deficit to below 3.0 per cent of GDP and to achieve a reduction in the debt-to-GDP ratio in 2006. Furthermore, Government is committed to ensure the long-term sustainability of public finances. A number of reforms, such as the pension reform, are being undertaken towards this end. A stable macroeconomic environment also entails stability in the external sector, as this is essential to maintain price stability. This continues to be a priority, especially in view of Malta’s participation in the European Exchange Rate Mechanism II (ERM II), as from May 2005. The small, open characteristics of the Maltese economy and the continuous resolve for international competitiveness in an increasingly globalized world, implies the need for greater strides towards capability development to sustain and improve the current standard of living. Although it remains important, improved competitiveness cannot be achieved only by focusing on the cost component of competitiveness. The Government believes that competitiveness is enhanced by increasing productivity, sustaining the development of a knowledge-based economy and by facilitating the shift to higher value-added economic activities. Indeed, the most important means through which an adequate standard of living for the Maltese population can be secured in the longer term is by maximizing the country’s productivity and competitiveness in the international sphere through innovation and knowledge. Within this context, structural reforms to instil