Discouraging forecasts for local manufacturers

By Matthew Vella

Locally oriented manufacturing companies will have to increase their investment and restructure their operations if they want to reverse a forecast downward trend in their sales.

As revealed in the Federation of Industry’s Industry Trends Survey for the second half of 2002, export oriented manufacturers were experiencing an upward term in sales and profitability. Local oriented manufacturers, however, were in for a dip in sales.

The ITS, a half-yearly survey of participant FOI members, was compiled by the FOI from a sample of 94 participating firms, 81 of which were in the manufacturing sector.

The forecast for export oriented firms looks less negative for those firms who have had a more negative trend in the first half of 2002. It also seems that sales and profitability are on the upturn.

Firms which reported sales below normal levels attributed this dip to "lower demand", the latter being the reason for 88% of respondents. The bulk of firms reporting lower demand were those from the chemicals, plastics, rubber and non-metallic minerals sector, and electronics, electrical and mechanical sector. 24 per cent said this had been due to "being uncompetitive".

Locally oriented firms will be facing a more negative outlook as 2002 sales figures forecast no respite in downward sales figures. The negative turn is reflected in terms of prices, employment and business optimism.

"Lower demand" was again the main reason for the downward turn in sales given by most firms. 17 per cent said this was due to "being uncompetitive".

FOI President Joseph Zammit Tabone said the decrease in sales for locally oriented firms had been anticipated in the light of the removal of levies.

"The removal of levies has obviously affected manufacturing firms which are locally oriented. Now, they are feeling that they are in a do or die situation and will have to compete with other importers. Levies have already fallen by 50% and the remaining 50% will be removed as from 1 January, 2003. These firms are anticipating market prices for their goods to fall.

"One has to see how these firms can become more competitive, which is why for example, we have the Institute for the Promotion of Small Enterprise helping out small companies. It is not easy when you have such a protective market and then finding yourself on your own", Mr Zammit Tabone said.

The FOI President said that despite the discouraging figures, it was evident that many of these firms were meeting the challenge by increasing their capital expenditure both in plant and machinery as well as in land and building.

"Locally oriented companies will have to become more competitive by investing more in capital expenditure. I think the Maltese industrialist has already reached high standards, especially in terms of the European market, and that the next step is to look for more opportunities. The hard decisions have to be taken by those small companies, but some are already looking for other opportunities abroad."

Asked whether indecision over the EU was affecting investment within the Maltese islands, Mr Zammit Tabone said: "The coming referendum and general elections are obviously contributing to a certain retraction in investment. I think that capital expenditure has to be made irrespectively of these factors. Businesses have to face these realities.

"There is another problem – lack of factories. At the moment there’s a list of companies, thirty in all, waiting for a factory. This slows down foreign direct investment. Investors and entrepreneurs shouldn’t be waiting for a factory. On the other hand, we should be attracting these investors to strengthen our business sectors."

FOI President Mr Zammit Tabone also announced that the results of their EU survey amongst their members will be released in December, and that it should reveal very interesting figures.