Increased costs for raw materials and freight as well as labour shortages are the most pressing concerns facing the manufacturing industry, a new survey has found. 

The study among operators, which was carried out by EY in collaboration with the Malta Chamber of Commerce, focused on the challenges being faced by the local manufacturing industry in the coming months. 

Some 75% of respondents predicted that the rising cost of raw materials and components was set to have a major negative impact on their business, while 68% said this would also apply to freight costs with 51% also attributing a negative impact from the shortage of labour on the Maltese market. 

Some of the findings of the EY study.

Some 64% of respondents listed supply chain concerns as being a challenge for their business in the next 12 to 18 months, with 34% citing difficulties in sourcing materials due to supplier shortages, 19% an increase in material and component costs, 19% labour shortages on the local market and 11% pointing the finger at an increase in freight costs. 

Zeroing in on the top concerns outlined by respondents, the survey found that 34% will experience an increase of 11-25% increase in material costs, while 66% of respondents said they expect a 1-10% increase in labour costs and 53% predicting an 11-25% increase in freight costs. 

Concurrently, only 6% of respondents felt that decreased demand due to COVID-19 will have a negative impact on their business, with 71% saying this was set to have little to no effect on their business at all. 

Exploring other potential impacts on the manufacturing industry, the survey found that most respondents were not majorly concerned about lower demand due to inflation or a need to modernise their business activities, with only 11% saying these are likely to have a major negative impact on their activities on both counts. 

19% say workers leaving to join public sector

When it comes to employee retention, 19% of respondents attributed a large extent of workers leaving their business to people moving into the public sector or to work with the government, while 15% said these largely moved to other manufacturing jobs, 13% to another technical industry and 4% to construction-related work. 

Peering into how manufacturing businesses are handling the transition to more sustainable production methods, 58% said they felt the need to meet these requirements while 53% said they required financial support to make the switch to more sustainable activities. Most had a positive outlook, with 70% saying they were comfortable meeting requirements set out by stakeholders, but only 17% said they were knowledgeable about their reporting requirements. 

When reflecting on the FATF greylisting, manufacturers said they were largely untroubled with it, as 53% said it had no impact on their operations or ease of doing business and 70% said it had no impact on their investment plans. 

“Due to the current crisis, manufacturing companies need to make changes in their processes practically every day which requires a great deal of agility, but we also need to consider to what extent this situation offers some opportunities,” Chamber president Marisa Xuereb said.

“The country also needs to be realistic about what is behind the rising energy costs, which were already rising before the conflict in Ukraine erupted. We need to invest in energy efficiency and renewables here on the island but be prepared for a green transition that will be costly.”