Lorries and Brexit

A study carried out by senior economists at the Central Bank of Malta found that the local manufacturing sector is the most exposed to the UK, and therefore the impacts of Brexit.

The study, entitled: The Impact on Brexit on Maltese Firms – Insights from a Survey with Local non-Financial Corporations, was carried out by Warren Deguara, Erica Maria Brincat and Aleandra Muscat.

Warren Deguara and Erica Maria Brincat are both senior economists in the Economic Projections and Conjectural Analysis Office of the Central Bank of Malta, while Aleandra Muscat is an economist within the same office. The views expressed in the survey are those of the authors and do not necessarily reflect those of the Central Bank.

Among the firms surveyed, which cover four sectors of economic activity – construction and real estate, manufacturing, wholesale and retail trade, and services – there were more that import from the UK than they export.

A sectorial breakdown shows that respondents in the manufacturing sector are the most exposed to the UK while the construction and real estate sector is the least exposed. Overall, slightly more than half of the respondents were not impacted by Brexit, while the remaining companies noted that the impact of Brexit on their company was either ‘negative’ or ‘very negative’.

Negative replies were more prevalent among small and medium sized firms, and among firms in the manufacturing and wholesale and retail sectors. The most common effects reported by those impacted by Brexit were increases in costs and regulations, longer lead times and lower availability of inputs and demand. Sectoral analysis shows that increasing regulations and costs are common across sectors, while prolonged lead times are more widespread among manufacturing and wholesale and retail firms.

Brexit appears to have triggered changes in imports more often than exports. As a response to the impact of Brexit, over half of the companies across all sectors decreased imports from the UK, while only a small share of companies reduced exports. Around 10 per cent of the companies noted that they were forced to close parts of their business due to Brexit, while around 40 per cent of firms contacted reported increasing selling prices. Lastly, most companies kept marketing efforts, investment plans and employment levels unchanged.

Companies’ assessment of the effects of Brexit are overall in-line with what they had expected. Most companies consider these changes to be permanent rather than transitory. Despite this, some companies noted that business opportunities have risen or may arise due to Brexit. Finally, the impacted companies expressed concern with increased administrative burden in terms of required paperwork and more complex border control procedures.

The survey was designed specifically to collect information regarding the impact of the UK’s exit from the EU on firms’ operations, costs and trade patterns. It also seeks to investigate whether new challenges related to Brexit might have compelled firms to alter their business strategies. Responses were received from 96 firms that were selected using quota sampling covering four sectors of economic activity (construction and real estate, manufacturing, wholesale and retail trade, and services) and three firm sizes (small, medium, and large firms). The design of the questionnaire was tailor-made for this study based on the regular meetings conducted by the Bank’s economists with top-level representatives of corporations and institutions as part of its Business Dialogue exercise.

To read the full report, click here.

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