The Malta Chamber President, Marisa Xuereb, comments on the findings from the Q2 Vistage CEO Confidence Index 2022 Report.
It is clear that the main present preoccupation of CEOs is inflation. Local businesses are facing spiralling costs on three main fronts: (i) costs of raw materials, inputs and supplies; (ii) transportation costs; and (iii) labour costs.
65% reported higher costs for raw materials and inputs and 78% reported increased prices from vendors. All these cost increases are being fuelled by supply chain shortages and bottlenecks, and the spiralling costs of fuel and energy particularly in Europe. There is no end in sight to this. In fact, 60% of CEOs see their supply chain getting worse going forward. 55% report transportation issues to be a challenge for their business, with increased transportation cost being a cause for concern for 75% of respondents.
In terms of labour cost, 61% reported increased wages and compensation, and this trend is likely to continue as more than 50% of respondents expect their firm’s total number of employees to increase in an extremely tight labour market, which is found to fuel further wage inflation beyond cost of living adjustment. More than 50% of respondents have boosted wages already in response to finding it more difficult to hire employees.
It does not come as a surprise that 80% of businesses expect prices for their product or service to increase during the current year. Yet only 1 in 4 expect their profitability to improve. More than 1 in 3 believe that their profitability will worsen, an indication that businesses realise that they may not be able to pass on cost increases fully and may need to absorb part of the additional costs, which will become a real challenge if costs continue spiralling the way they are.
Against this backdrop, it is particularly pertinent that every possible policy effort is put into mitigating inflationary pressures on businesses. The fact that energy costs have so far been full subsidised has helped mitigate inflationary pressures, and for as long as this can be financed, it is of great help to business. The scale of inflationary pressures that exporting companies, particularly those in manufacturing are being exposed to, is even more pronounced than what is being reflected in local consumer inflation, because exporters are facing inflated transport costs both on importation and when they export. Additionally, they have much less flexibility in terms of using alternative materials that are more readily available, especially when servicing large international industrial partners that have rigorous qualification standards.
Businesses servicing the local market have to constantly balance cost increases with the purchasing power of their customers, while struggling with human resource shortages that are compounded by bureaucratic difficulties with recruitment of third country nationals, Covid-related absenteeism and a leakage of employees from the private sector into the public sector and private contractors of the public sector.
Perhaps a deeper look into your purpose and a refocus on your long term goals is a good way to keep your team motivated as you ride the storm.
Nathan Farrugia - Managing Director, Vistage Malta
Leaders need to focus on their core competencies and continue to deliver value to their customers in efficient and effective ways. Whether tech enabled, outsourced or through internal business process re-engineering, efficiency is key as costs rise. Simply putting your own prices up may feed a vicious cycle.