Building confidence in business: Nigel Smyth
CBI Director Nigel Smyth sees positives amid the economic turmoil. The Programme for Government must build confidence and help companies keep and create jobs.
The Northern Ireland economy faces significant headwinds: access to credit will remain a major constraint and may get worse as the impact of the financial turmoil unrolls; we continue to have a depressed housing market (albeit that there has been some pick-up in transactions); and public expenditure constraints are the order of the day.
While these headwinds exist across the UK, they are more pronounced in Northern Ireland. Shrinking consumer expenditure in the Republic of Ireland and the inflationary pressures eating up the spending power of local consumers explain why Northern Ireland is lagging the national recovery which has been underway for over 18 months. At the same time, business and consumer confidence has been further eroded as the uncertainties created by the financial turmoil emerge. The clear concern is that investment plans will be hauled back and inventories reduced, recreating many of the problems experienced back in 2008- 2009.
It’s fair to say that this backdrop does not bode well for a short-medium term economic outlook. The outlook for the construction and property sectors, which support many companies across business services, looks particularly tough while the retail sector is facing subdued demand from cash strapped consumers.
However all is not bleak. There have been many positive developments in the first half of 2011 which cannot be ignored and in many sectors, businesses are recruiting.
Northern Ireland has experienced a sharp pick-up in manufacturing output, largely driven by those companies exporting internationally where markets have remained robust, and in many cases recruitment is underway. Some softening in demand has been experienced since May as European and US financial issues emerged but the outlook remains positive; growth in industrial production output here has outstripped the rest of the UK. The manufacturing sector has also seen significant increases in research and development expenditure in recent years and a major push to support higher levels of innovation. This should start to pay dividends in the future.
There has also been good news in other key sectors: major investments in renewable energy; several high quality FDI projects recruiting; strong growth sustained in health technology companies; a stable agri-food sector (despite higher input costs); the Northern Ireland Science Park continues its successful expansion; and the ICT sector is experiencing employment growth strong enough to show some major skills gaps. We will also benefit from the completion of major public capital investments over several years, particularly in the tourism sector.
While there are clearly many companies facing particularly tough times with weak demand, rising costs and challenging credit conditions, there are a surprising number of businesses who are bucking this trend and continuing to grow. With business investment and export growth critical for our recovery, it is essential that we nurture and support these companies. A NESTA report* showed that around 6 per cent of companies created 50 per cent of jobs over the last decade.
Sustained low interest rates are positive for householders paying off their mortgages, and for businesses, with rates likely to remain very subdued for some time to come. Clearly not so good for savers, but then those (very fortunate) well-off savers may be encouraged to spend, and we do need more of that.
The global financial turbulence of recent weeks has cast a further cloud over the recovery. The implications for the real economy are hard to estimate but increased uncertainty and volatility will damage investor and consumer confidence, and lead to some weakening in global demand while more difficult credit conditions may also develop.
The biggest challenge is building confidence in both the business community and in consumers; no mean task at a time of unprecedented uncertainty and volatility. Retaining and growing employment is essential and must be the core focus of the Executive’s new Programme for Government; the economy must remain number one priority.
We need an Executive which can deliver faster and smarter. There are many factors they can influence to improve the local business environment which can encourage and attract investment. The best way to use their significant resources to leverage investment and secure better economic outcomes is by working closely with the private sector.
