1 - 7 June 2000

FOI survey shows declining profitability for industry

by Anthony Manduca

The Malta Federation of Industry regularly conducts and publishes its half yearly Industry Trends Survey (ITS), a process started in 1982. The FOI has just published the 35th edition in the series.

The Industry Trends Survey for the first half of this year clearly shows that many firms are experiencing an increase in their average cost per unit of output. Most locally oriented firms do not intend to raise their average selling prices. As a result the number of firms forecasting a drop in their profitability has increased.

Exporters too are suffering from increased average costs. Although quite a number of them will be increasing their average selling prices these are not expected to be enough to surpass their increases in costs. As a result, the number of exporting firms reporting a worsening profitability is increasing too.

A number of firms, especially the larger export oriented ones, are reacting to this situation by increasing their investment. In fact, the survey registers a notable increase in the number of firms planning to increase their capital expenditure on land, building, plant and machinery. Most of this investment is for replacement. However, an increasing number of firms - whilst still in a minority - are planning to invest to expand capacity so as to extend their product range while others intend to introduce new production techniques.

As usual, those firms which are not investing cite uncertainty about demand for their products as the main reason likely to limit their capital expenditure over the next 12 months.

The FOI said Malta can only survive if it can continue to attract sufficient local and foreign private direct investment. This is dependent on Malta's efforts to be a competitive location, offering high efficiency and productivity at reasonable costs and with a minimum of bureaucracy in a stable political and economic environment. It said that industry is still waiting for government and the public sector to take steps aimed at reducing so-called government induced costs which have accumulated over the years. In the meantime, unions are still demanding and obtaining for their members employed in the public sector increases in remuneration and improvements in conditions of employment that are not related to any indices of national productivity.

The FOI said that consequences not only continue to aggravate the public financial situation, (as if no one is bound to foot the bill), but the situation overspills into the private sector which will be pressured into increasing wages and naturally seeing its costs rise, not necessarily at a rate that it can afford - as the FOI survey is showing. "Such a situation can only impede the country from accelerating its pace of economic development. It is imperative that the competitiveness issue is tackled at national level" it said.