Businesses need to reduce dependency on manual labour or else cut headcount – Chamber of Commerce

Businesses need to invest wisely in technology that will reduce their dependency on manual labour and improve value added per employee or reduce headcount for same output, the Malta Chamber of Commerce has told The Malta

Independent.

The Malta Chamber was replying to questions sent by this newspaper, where it was asked what the effects of the ongoing inflation on the country’s general financial well-being are.

It said that the economy is being fuelled by recurrent government spending, which is resulting in a high public debt to GDP ratio.

“The European Commission has already indicated that fiscal discipline will be reintroduced very soon. So we must be very careful that we don’t fall out of the deficit and debt to GDP targets when they start being enforced again.”

The Malta Chamber noted howthe government is borrowing heavily from the local market through the issue of government bonds which has the effect of crowding out private investment.

“Every private company that contemplates a bond issue must compete with the government bonds which are always perceived to be safer. So private companies must pay a significant premium in terms of interest on the bonds they issue.”

Apart from the financial aspect, the Malta Chamber said that inflation has a negative social impact as well.

In the explanation given, the Malta Chamber said that in inflationary times, the poor tend to become poorer and those who hold non-cash assets, become richer. So even though the economy may be growing, many will be worse off.

Apart from the Malta Chamber of Commerce, The Malta Independent also got in contact with other constituted bodies and organisation about inflation, however only the General Workers Union answered by the time of going to print.

On its part, the GWUsaid that high inflation can impact various aspects of an economy.

“One of the most direct effects of inflation is a decrease in the purchasing power of the Maltese citizens. As prices rise, the same amount of money buys fewer goods and services.”

It said that this can lead to a decrease in the standard of living for individuals and families, especially those on fixed incomes like employees.

Additionally, high inflation can also significantly increase the cost of living in Malta, as basic necessities like food, housing and healthcare become more expensive.

In turn this can put pressure on households, particularly those with lower incomes, as they struggle to make ends meet.

“This is precisely the reason why the General Workers’ Union cannot accept that COLA is not paid in full to all employees and pensioners.”

The GWU noted how in order to combat high inflation, central banks often raise interest rates.

However, higher interest rates can make borrowing more expensive for businesses and individuals.

“While this can help control inflation, it can also slow down economic growth and investment.”

It will also affect individuals and couples who are in the process of buying a home. However, as a suggestion the union said that this can be mitigated with fiscal policies by the government, by lowering rates and grants to couples and individuals, while noting that another cohort of people that are hit hard are those with substantial loans as interest rates rise.

Both the GWU and the Malta Chamber of Commerce were also asked how businesses should prepare for the future, keeping the present inflation in mind.

On its part, the Malta Chamber said that businesses must contend with higher import costs, higher labour costs and higher financing costs.

“Businesses will inevitably try to pass on as much as they can of these costs to remain viable. But to survive long-term, they need to constantly work at improving efficiency and productivity.

Additionally, investments in alternative energy sources and energy efficiency measures can provide some reassurance for businesses that they will be better placed to deal with increases in energy costs should subsidies be curtailed,” the Malta Chamber said.

On the other hand, the GWU said that the rising raw material costs can lead to higher production expenses, potentially resulting in lower profit margins or increase in prices.

“If prices go up, then employees will ask for a financial adjustment to protect their take home pay and quality of life,” adding that at their end companies may also be uncertain about price stability, making it difficult to set prices for their goods and services.

In addition certain businesses may take the opportunity to increase prices to augment further their profits abusively. High inflation can make it more challenging for investors to make informed decisions and the real return on investments may be lower than expected.

“Businesses should invest in innovation, digitalisation and sustainability,” it said.

As a suggestion to businesses, the GWU said that they can review and analyse their cost structure and identify areas where cost-saving measures can be implemented without compromising quality of product/services and working conditions.

“Inflation is a complex economic phenomenon and its effects can vary depending on the industry and market conditions.”

It said that in general businesses in Malta should maintain flexibility and adaptability in their strategies while staying well-informed about economic trends and policy changes that may affect their operations. Moreover, it said that collaboration with industry associations and financial experts can also provide valuable insights and guidance.