Last Updated on Thursday, 8 September, 2022 at 10:42 am by Andre Camilleri
MEA wants COLA to be between €2.50 and €6 per week for five-year period
Most businesses are expecting a drop in demand for their products or services over the coming 12 months as a result of inflation, a survey published by the Malta Employers’ Association (MEA) shows.
The MEA published the results of a survey it conducted on Tuesday. The survey had 330 respondents representing some 400 companies.
The survey showed, among other things, that 64% of businesses are anticipating a fall in demand.
Speaking with The Malta Business Weekly, MEA’s Director General Joe Farrugia was asked whether he foresees, for example, an increase in exportation for those businesses that can export in that market, whether he foresees a move from the domestic market towards exportation mainly for manufacturing companies.
“Yes,” he said. “The survey also split the results according to those companies that cater for the domestic market, those that are export orientated and others that have an element of both. For example, hotels may cater for internal tourism but also for external tourism. The results reveal that those that cater for the domestic market are more concerned than those that are more export orientated. Possibly because, and this needs to be said, it is not only Malta that is facing inflation, but it is a global phenomenon which is also affecting our economy.”
The survey shows that, of those businesses geared towards the domestic economy, 69% are anticipating a fall in demand for their products or services as a result of inflation in the coming 12 months. For those that are export orientated, this percentage stands at 53%, and as for companies that cater for both markets, the percentage stands at 56%. So while across the board businesses are expecting a fall in demand, the percentage is highest in those geared towards the domestic market.
Despite the impact of inflation, 64% of all respondent companies said that they intend to maintain the same level of employees in the coming 12 months, and 28% said they intend to employ more people.
He was asked whether, looking ahead to 2024, he thinks this situation will change and that a downward trend will be seen, with more employees being laid off.
Farrugia responded that currently the major problem faced by many companies is not an excess of labour, but rather a labour shortage. Shortage both in terms of numbers and in terms of skills, which is why our economy is becoming more heavily dependent on imported labour. The message that emerges from the survey is that while many companies are hesitant and worried about the future, on the other hand they do not intend to lay off employees. So probably the employment situation will not change much. There might not be the demand for foreign labour that we are experiencing today – it might subside slightly, but I think Maltese employees are relatively safe, so to speak.”
The survey also asked businesses about the Cost of Living Adjustment (COLA). Inflation in the past months has led to speculation that the COLA to be announced in the budget is to be between €8 and €10.
55% of the survey respondents are saying that they expected a negative impact from the COLA adjustment, while 38% described it as a medium burden.
During the presentation of the survey, Farrugia put forward an MEA proposal, that the Cost of Living Adjustment mechanism be modified in future to a minimum of €2.50 and a maximum of €6 per week for a period of five years. Then, any amounts accrued in favour of employees or employers will be awarded on the sixth year and beyond. Accruals would be paid in amounts of not more than €1.50 per week each year.
Farrugia said he wants to have an agreement in place for a minimum and maximum COLA with all social partners by 2024.
As an example, if over a five-year period the total COLA would have amounted to €28, but €26 was paid out by employers, the COLA in year 6 would be the COLA plus €1.50, and would be the COLA plus €0.50 in year seven.
The MEA is suggesting that the minimum and maximum COLA should be established over a longer term so as to create more stability.
The association also wants the minimum and maximum amounts revised every five years, upon consensus between the social partners.
Farrugia said that the MEA is asking for a stabilising element and not for a change in the mechanism, as despite it being based on inflation rather than productivity, the COLA has always been absorbed by businesses with minimal disruption.
He added that such proposals are “not intended to provoke a tug of war between the social partners to raise or reduce COLA adjustments, but rather to respect the mechanism which has been in operation for thirty years and recommend a way forward to guard against economic shocks to everyone’s mutual benefit”.
The survey also found that 50% of the businesses said they will partially pass the increased costs of operations on to their customers, with 22% of them to pass on the increase on to their clients in full.
Farrugia had said that it is companies which are the most labour intensive which are going to be mostly impacted. Since there is major competition in the market for the sector they cater for, prices cannot be increased as direct demand will decrease, with consumers being absorbed by their competition.
“We cannot assume that everyone is going to be impacted the same way,” he said.
Asked how this COLA increase will affect operating costs, it resulted that those companies catering for the domestic economy believe their competitiveness will be affected.
The majority of the companies that participated in the survey (41%) employ between 10-49 people, whilst only 5% have more than 500 employees. The largest number of participating companies in the survey came from the wholesale and retail sector (24%) followed by the manufacturing (18%), hospitality and tourism (15%) and the professional services (14%).
The majority of participating businesses were also geared towards the domestic economy (63%), 24% cater for both the export and the domestic economy and the rest are export orientated.
In total only 56 companies replied that they are covered by a collective agreement; when asked whether it includes the 2023 COLA there was a balance between the yes and the no. There were also 21% who had said that their collective agreement had expired.
Farrugia said that these results are “not only about the COLA inflation”.
He said that if in the coming years inflation continues to grow, prices might increase for clients, which could result in a ripple effect in coming years as businesses lose their competitiveness.
Mentioning the 28% that are planning to absorb the extra costs, he said that such companies might go down this route because they are not labour intensive, thus production costs are low, “or else they are in a competitive market and cannot increase prices as it will result in less competitiveness and losing customers”.
The majority of those who said that they would absorb the operating costs themselves are coming from the professional services industry.
Farrugia noted that these answers were obtained during a time where energy bills are still being subsidised, meaning that if this is to be revised, such costs will only increase.
In his comments the general director said that when it comes to the tourism and hospitality sector, future tourists might seek ways to cut down their costs by downgrading their type of accommodation.
In total, 72% of businesses are expecting to experience reduced profitability in the coming 12 months.