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Growth in the time of COVID, Ukraine and beyond

Published: September 26, 2022

Without any doubt, we are living in a period of unprecedented turmoil in the international economy, turmoil that is the cause of a large pressure on businesses world-wide. As we slowly started recovering from the two-year slump caused by the COVID-19 pandemic, trade received another sever blow with Russia’s invasion of Ukraine, and the still-ongoing war. During the pandemic, the slowdown in economic activities was compounded by freight and transport instability. Prices in that sector mushroomed and the rate of inflation in costs of containers and shipping, especially trans-continentally, was changing from day to day. Somehow, we weathered that, but then the Ukrainian invasion led to scarcities, and resultant exponential price hikes in such basics as fertilisers, wheat and ordinary cooking oil.

Here in Malta, we are not immune to these events, in fact, rather the contrary. A small economy in an island nation such as ours is almost totally dependent on importation of raw materials. In fact, one could say that freight costs are, in their own right, yet another raw material, albeit an invisible one. To the cost of imported products, the price of which has rocketed, we must also add the costs of freight. Suffice it to mention, that a recent importation of a container load of cooking oil was 150% higher than a similar shipment just a couple of months before.

We at Maypole have been hard hit by these upwards spiralling prices. While we provide a relatively high local value-added to the materials we import, the price-hikes have been such that they are eclipsing the element of value added that we put in at The Bakery, where we convert primary products into consumable items, all the way up the chain to the retail outlet. We have had to stand strong by our clients, seeing as what we provide on the market are mainly the basic necessities of life, literally the bread and butter for Maltese families.

We cannot run our business by simply playing the numbers, and passing the increased burdens totally on to consumers. To that effect we have embarked on a project of infrastructural growth, increasing our floor- and storage-, especially cold-storage, space. This investment should help us address such issues as economies of scale and production planning for longer periods, resulting in cost-savings that will help to mitigate, even if only partially, the ever-increasing costs we are having to face. Our IT and online order and delivery systems have been revamped to also contribute to an increased efficiency, while we will be reaching out to more communities with more of our distinctive ‘round-the-corner’ retail outlets, providing our clients with a wider choice of products for a one-stop-shop for the basic necessities in households.

We are doing our part, and we are sure that many other businesses are doing too. However, we cannot do this alone and we surely cannot afford to take much more hits and be expected to try to absorb them, while remaining profitable. The increased cost-of-living for Maltese and Gozitan families will only naturally mean that workers’ salaries will soon be adjusted proportionally. What this means is that there will be another cost piled on top of our already overloaded businesses, threatening to take us closer to floundering.

While a necessary, if maybe simplistic, raising of salaries is one possible solution, other remedies can be sought by the powers that be, remedies that while reducing the burden on consumers, thus maintaining their spending power, at least on the basic necessities, at a decent level, does not add yet another burden on businesses that are providing employment and earnings to these same families. A short-sighted approach now will risk the commencement of a vicious cycle of diminishing viability of businesses. One could explore such possibilities as the removal, or at least the further reduction, of VAT rates on goods and services such as freight for importation of necessary items, electricity, confectionery, items for the exclusive use of the disabled, and domestic care services such as home help and care of the young, elderly, sick or disabled. Income tax rate brackets could also be widened to help families cope.

The outlook is not very bright as yet, but storms, if successfully weathered tend to make us come out of them stronger. In the face of the current scenario, it is time for all the actors in the Maltese economy, both public and private, to pool resources and ideas to face this situation together. Together we can present a much stronger common front, and adopt strategies that will take into consideration all aspects of this multi-faceted problem. Then, we can grow together.

Mario Debono

Director of Maypole

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