The Industry Trends Survey of the Malta Federation of Industry has now become like part of the furniture. One has started to take it for granted and tends to refer to it only if needed. In effect, it represents one of the very few surveys that seeks to assess business confidence, albeit among the members of the Malta Federation of Industry with the predominance of the manufacturing sector among this membership.

However, within this context we do get a very good picture of how this sector is feeling about the performance of its business activities.

As the latest edition of the survey rightly points out, this is an initiative that started 20 years ago and has continued uninterrupted since then, twice a year. This highlights the foresight of those who had set the ball into motion.

This contribution shall focus on the findings on the manufacturing sector. Within the manufacturing sector a distinction is made between export market orientated firms and local market orientated firms.

This distinction is very critical as the survey for the second half of this year shows that the trends within the exporting sector are generally positive, with business optimism, employment and capital expenditure on plant and machinery being more positive than the previous six months, while order books, profitability and capital expenditure on land and building being less negative than the previous six months.

On the other hand, local market orientated firms are reporting trends that are more negative than the previous six months with regard to order books, prices, employment and business optimism.

This situation is certainly the result of trade liberalisation and the removal of the protective barriers against imports, namely the levies. These firms are expecting competition to increase and prices to be pushed further downwards as a result of the removal of the last tranche of the levies and they are reacting to this by increasing their capital expenditure.

In other words, they are investing more to become more efficient and/or to produce a better quality product in order to be able to withstand the increased competitive pressures.

These results probably have come as no surprise to several people. However, they serve to continue to highlight the dependence of our economy on the export of our manufactured goods and services.

The exporting sector is what drives our manufacturing sector by providing direct employment to several thousands of persons and indirect employment to other thousands of persons through services and products that such firms purchase from local suppliers.

This does not mean that those firms producing for the local market no longer have a role to play in our economy, but their role is strictly tied to their ability to give value for money when compared to their competitors.

There was a time when the government of the day encouraged the setting up of manufacturing firms producing for the local market as they were seen as a source of employment. In reality the Maltese consumer was subsidising the employment of those engaged in such activity (not through taxation like in the case of the Malta Drydocks or Malta Shipbuilding) but through higher prices for the products bought.

The opening up of the economy and the subsequent removal of protective barriers has meant that such companies had to face the challenge of competition just like all other firms that could not rely on such protection.

This has meant that the exporting sector, that was already very significant in our economy has now become even more important. The prospect of EU membership together with the absence of a local market that is worthy of note has made our reliance on the exporting sector even greater.

Therefore, in assessing trends in the manufacturing sector we have to primarily look at the performance of the exporting sector, and secondarily on the performance of the local market orientated sector.

This reliance on the exporting sector has also meant that we need to take all necessary steps to ensure free access to export markets. Restriction of access means that this sector would become less competitive, with the consequence that we become less attractive for foreign investors.

This is why Malta's membership of the European Union is essential for the survival, growth and development of the manufacturing sector. In essence the greater the reliance of our economy on exports, the greater the need to join the EU to safeguard jobs in Malta.

Therefore the positive trends reported in the Industry Trends Survey of the FOI are a very good sign indeed. They reflect the buoyancy of the manufacturing sector and point to the need to join the European Union, the earlier, the better.