Malta's constitutional neutrality prohibits it from manufacturing defence products under licence because the Constitution requires the country to remain non‑aligned and outside military alliances, which creates legal and political limits on participating in foreign military production chains.

Because Malta's neutrality requires it to avoid taking sides in military blocs, entering these arrangements risks compromising the perception and practice of neutrality. Although the Constitution does not explicitly ban arms-manufacturing, neutrality in Malta is often interpreted in public discourse as prohibiting any activity that ties Malta to foreign military operations.

Malta participates in the EU's security structures, but it still insists on its special neutral status. Producing weapons under license for EU or NATO partners could blur the line. Yet, Malta's neutrality does not explicitly ban manufacturing, but it effectively prohibits manufacturing defence products under foreign licence because such arrangements risk aligning Malta with military blocs - something the Constitution forbids through its commitment to non‑alignment and refusal to participate in military alliances.

Malta's neutrality doesn't stop it from having any defence‑related industry - it only limits activities that would tie the country to foreign military alliances or make it appear aligned to one side in a conflict. Malta's neutrality doesn't prevent it from having a defence‑related industrial base. It simply requires that Malta avoids becoming part of another country's military machine.

That means Malta can legally produce certain categories of defence‑adjacent or dual‑use products, as long as they don't cross the line into alliance‑linked weapons manufacturing. In this scenario, Malta must retain control over export decisions. This avoids the constitutional issue of being integrated into another state's military supply chain.

Creating these categories helps avoid constitutional issues related to alignment, foreign licencing, or involvement in military alliances.

Dual‑use technologies being products with both civilian and military applications. Malta can produce them because they don't inherently tie the country to a military alliance. There are many examples such as:

• Communications systems
• Navigation and avionics components
• Cybersecurity tools
• Sensors and radar components
• Software for logistics, simulation, or training

Malta can also manufacture equipment that supports defence forces but is not itself a weapon. These include:

• Protective gear (helmets, body armour, ballistic plates)
• Military uniforms and textiles
• Field medical equipment
• Transport containers, shelters, and support vehicles
• Surveillance or reconnaissance drones without weaponisation as these do not imply participation in a military alliance.

Another category includes maritime and aviation products for civilian or coast‑guard use such as:

• Patrol boats
• Search‑and‑rescue equipment
• Maritime surveillance systems
• Civil aviation maintenance and components

As Malta has an active State agency called MDIA it can help accelerate R&D and innovation in defence‑adjacent fields such as:

• AI for situational awareness
• Materials science
• Energy systems
• Robotics
• Space technologies

All the above-mentioned fields are strategically important but do not violate neutrality. Malta can build a competitive defence‑adjacent industry by focusing on non‑lethal, dual‑use, and EU‑aligned but non‑military capabilities - areas that strengthen national resilience without breaching its constitutional neutrality.

This approach fits with Malta's policy of being militarily neutral but not politically neutral, allowing it to participate in EU security initiatives that are non‑combat in nature, but it must avoid licenced weapons production or anything that ties it to a foreign military alliance.

So, what are the options for Malta to work under licence and still observe its neutrality? A success story, which is prominent in the papers, is the meteoric growth of CSG, an arms-maker, which in the past has kept a low profile and remained focused on Michal Strnad running it as a family-owned company. Strnad took over the family business young (around age 21) after his father, Jaroslav, founded it in the 1990s, initially focused on refurbishing and trading surplus Cold War-era military equipment. Yet since Strnad made CSG public at a valuation of around €25bn ($29bn), as the Czech Republic's richest man, he has begun to draw more attention. So has this company, it now employs 14,000 people and operates more than 30 production sites around the world. Last year CSG brought in €6.7bn in revenue - up 12-fold from 2021. Four-fifths of that is defence-related, meaning the company is now among Europe's 10 biggest arms-makers. Even that understates its rise. It is now the continent's second-largest maker of ammunition, behind only Germany's Rheinmetall. Naturally, everyone knows that CSG's rise has been propelled by the Ukraine war. It has benefited both from sales directly to Ukraine, which accounted for 27% of its total last year, and the replenishment of European ammunition stocks. In a recent acquisition spree by CSG, it has added extra firepower.

In 2022, it bought a majority stake in Fiocchi, an Italian producer of small-calibre ammunition. Two years later, it acquired Kinetic Group, an American peer. Last month it announced it would buy 49% of Hirtenberger Defence Systems, an Austrian maker of mortar shells. Strnad plans to continue shopping. In recent years, it reported multi-billion-euro revenues, with a massive order backlog (€15 billion confirmed + €27 billion in negotiations as of early 2026).

Indeed, CSG's boss has big ambitions with three-quarters of CSG's sales are made in Europe, coincidentally Strnad is also eager for CSG to continue growing in America, which accounts for much of the rest. The company has certain advantages: wages in the Czech Republic and Slovakia, (like those of Malta) are much cheaper than elsewhere in the West. There will be challenges to further growth, however, as competition heats up, there are newcomers such as Helsing, a German drone-maker, growing quickly and may start to gobble up more of Europe's defence budgets. Its main competitor, Rheinmetall in Germany is operating on an entirely different industrial, political, and technological scale.

In conclusion, Malta needs to decide whether it teams up with either CSG or its bigger rival, Rheinmetall. This opens up a new, untested business sector - much like in 2004, when Malta introduced legislation that successfully attracted medium-sized gaming companies. Malta can now build a competitive defence‑adjacent industry by focusing on non‑lethal, dual‑use, and EU‑aligned but non‑military capabilities - areas that strengthen national resilience without breaching its constitutional neutrality. As always, those who act early gain the advantage.

George M Mangion is a Senior Partner at PKF Malta