Why is Malta’s manufacturing sector the most concerned about cost of living adjustments? 

The overwhelming majority of manufacturers taking part in a survey commissioned by the Malta Employers Association (MEA) believe that the expected increase in the Cost of Living Adjustment (COLA) by €10 a week will have a significant effect on their operating costs, possibly affecting their competitive standing.

Three in four manufacturers felt that the COLA for 2023 would have this effect, as compared to 62 per cent of businesses involved in hospitality and tourism, 49 per cent engaged in professional services, and 48 per cent in wholesale and retail.

The mandatory adjustment, which is paid by employers and based on cost of living increases recorded during the preceding year, has prompted concern from employers, who argue that the increased cost of operations would have to be passed on to the consumer, driving prices further upwards and raising the spectre of a wage-price inflationary spiral.

Manufacturers, however, are the most likely to fully absorb the cost increase, with one in four stating that their prices would not rise, while another 54 per cent said that only part of the elevated costs would be passed on to their customers.

Speaking to BusinessNow.mt, MEA director general Joseph Farrugia says that the export orientation of most Malta-based manufacturing companies limits their ability to raise prices while remaining competitive.

“These companies compete on a global level, on the world market,” he says. “Keeping in mind that it is a broad sector with many differences between companies and their particular markets, the results indicate that many are bound by relatively fixed prices.”

In fact, export-oriented businesses, the survey shows, are less than half as likely to pass the full cost on to consumers as those operating in the domestic market.

With many manufacturing enterprises often working on framework agreements that set the price of a particular product for months if not years, the situation may be harder to navigate than it is for companies operating in other sectors.

Manufacturers also tend to operate on low margins – again, keeping in mind the global nature of competition – with many companies depending on a high sales volume to generate profits.

An industry source who requested that their name is withheld adds that many manufacturing businesses in Malta have been slow to adapt their processes to modern economic needs and technological capacity, resulting in higher headcounts that amplify the impact of a COLA increase.

The future does not look too rosy for those in the sector, who were the most likely to predict a negative outlook for the next 12 months.

However, manufacturers were also the least likely to express plans to shed staff – seemingly indicating that most are taking a wait-and-see approach as they look forward to better, calmer days.