Firms expected to increase prices to meet increasing costs

by Ivan Brincat

Positive trends registered in the second half of 2000 have lost momentum in the first months of 2001 and in certain cases these
are expected to turn
negative.
Meanwhile firms in Malta are expected to increase prices due to increased costs being incurred.
These are the findings in the 37th edition of the Malta Federation of Industry’s half yearly Industry Trends Survey. FOI president Joe Zammit Tabona yesterday said export orien-ted firms had mainly passed through a particularly good phase in the second half of 2000 with a considerable increase having been reported at that stage both in terms of volume of production and in export sales.
Reports for the first half of 2001 in respect of these two indicators are less euphoric, however, he said.
Costs are also expected to increase and in a number of cases this will force firms to increase their prices.
However, although the situation appears to have become much tougher than it was six months ago, the level of business optimism has not diminished and an increasing number of firms are planning to increase their capital expenditure in plant and machinery. For most of the locally oriented firms, costs, profitability and the volume of production levels are much more negative than they were six months ago.
A number of firms expect to increase prices to counter these developments but such a move could have repercussions on their business. As prices are increased they will lose their competitive edge as they are faced with similar or substitute products imported at cheaper prices. As of January, these products benefited from a 20 per cent deduction in levies.
Therefore, it is not surprising that business optimism among the local market-oriented firms has registered a significant downswing. The only silver lining in this scenario is provided by a probable increase in investment.
In fact, it seems more firms are realising that the only means for survival in this difficult economic situation is to increase investment in plant and machinery, and this is exactly what a number of them are doing, Mr Zammit Tabona said.
The survey says it is clear that firms are not taking the situation lightly and many are doing their utmost to improve their productivity and competitiveness.
But it is also clear that manufacturing and exporting firms in Malta cannot hope for long-term viability unless unions and government make firm commitments to seek permanent solutions to many of the long-
standing problems bedevilling the Maltese economy, and which are increasingly affecting industry’s competitiveness. A number of these problems were highlighted once again in the non-standard question of this survey edition. Mr Zammit Tabona said the Federation specifically asked survey participants to identify three disincentives that could have a negative influence on costs and performance.
Nineteen per cent of responses concentrated on excessive government bureaucracy and related costs, unnecessary delays and poor quality service at all levels of bureaucracy in most corporations.
The second most common disincentive mentioned was the cost of importing and exporting goods to and from Malta, in particular, port handling charges.
The third concerned the delays in refunds of VAT experienced by law-abiding firms and the perceived lack of control on abusers which brought about a high level of unfair competition. Mr Zammit Tabona said the FOI finds that feedback from members indicates a clear effort to contain costs and increase competitiveness. “It is becoming a challenge for them to increase the volume and value-added of exports.”
He said the Central Bank is
clearly indicating that unless the rate of increase in household consumption is somehow suppressed, it will be constrained to defend the value of the Maltese lira by increasing interest rates.
“If applied indiscriminately this will aggravate the already tight
credit situation prevailing among local suppliers, and it will render local products less competitive and the much-needed investment even more expensive.”