Belfast Telegraph

Northern Ireland's manufacturing and services sector spark modest recovery

BY MARGARET CANNING

Business confidence is growing in Northern Ireland with the services sector showing particular momentum, according to a bellwether survey of 350 firms.

The Northern Ireland Chamber of Commerce's quarterly economic survey in partnership with business advisers BDO said manufacturing firms were also feeling increasingly confident during the last quarter of 2013.

Confidence among manufacturers on turnover and profitability was up – but low exports and cash flow pressures were straining their optimism, and there was growing pressure to put up prices.

Generally, the recovery was patchy and was much slower than the rest of the UK – and along with Wales, Northern Ireland had the weakest export orders of anywhere in the UK.

BDO partner Francis Martin said Northern Ireland was benefiting from increasing buoyancy in Great Britain and the Republic, as well as enjoying its own nascent recovery. "That is being stimulated by confidence from the wider UK market, even if it doesn't translate directly to us.

"Confidence breeds confidence."

Services employers – which include everything from hotels to accountants and estate agents – were looking to take on staff as recruitment intentions actually translated into hires. Employment in services had also grown though seasonal recruitment in the run-up to Christmas may have influenced the rise. And orders had shown strong growth, with the services sector order book now stronger than the manufacturing sector. Three quarters of firms were expecting to grow this year, albeit modestly. But one in 10 thought their business prospects would get worse this year.

Nearly three-quarters also envisaged that they would target new markets this year, while around 60% intended to invest in their product. Just over half planned to recruit new staff but finding the right people was proving difficult.

Mr Martin said that was reflected in the experience of his own business. "We are recruiting at least 10 people... like us, they want to recruit but are finding availability and a skills gap."

"People were reluctant to go out into the market and away from the safety of their existing jobs," he added.

But more firms were satisfied with their banking relationship than dissatisfied. Around 49% were positive compared to 19%, who were negative.

Where negativity did exist, it was over the bank's responsiveness to business banking needs, with 55% claiming that they didn't know who their banking relationship manager was.

However, Mr Martin said there was a willingness among banks to support their clients. "There is a willingness and a keenness to lend but the conditions have to be right. We are in an absolutely different lending environment than we were several years ago."

Such had been the willingness of banks to lend in the 2000s, they were almost occupying the space of equity providers, he said.

BACKGROUND

The Northern Ireland Chamber of Commerce has found growing confidence among businesses in the province. Firms will be hopeful that the nascent recovery will take off in 2014, when the economy is expected to grow up to 1.4% – the lowest of all UK regions. The Chamber has said growing exports among member companies will be its main aim in 2014. BDO partner Francis Martin said the Northern Ireland economy was around the size of Birmingham's. Indicating that it made sense for firms to focus on exports, he said: "No-one would go into Birmingham with the intention of just serving Birmingham."

To aid growth, we must remember we're all in this together - Francis Martin

The most encouraging finding of the latest quarterly economic survey is the significant improvement in confidence and optimism among respondents.

That has been stimulated by three factors – firstly, the fact that the UK economy is growing at its fastest rate for three years, a buoyant jobs market, lower borrowing forecasts and a confidence that the UK recovery will continue to strengthen further in the short term. It is also encouraged by the confidence that is returning to the market in the Republic of Ireland, most notably the exit from the bailout, the continuing growth in exports and in foreign direct investment.

Finally, it is stimulated by the sense that the economic recovery in Northern Ireland itself is beginning to gather momentum.

We cannot under-estimate the combined positive impact of all these factors on 'embedding' confidence even further in the mindset of business and in creating the resolute determination to bring greater strength to a faltering recovery.

Is this confidence misplaced?

No, but there are still many challenges ahead. The survey points towards Northern Ireland continuing to lag behind the rest of the UK in terms of our recovery path.

Our experience at BDO with our own clients matches many of the concerns highlighted in the survey: ongoing recruitment issues, the potential skills gap, the increasing pressure on businesses to raise prices yet, in many cases with an inability to do so, and fundamental cash flow issues. All of these 'temper' confidence and continue to be potential barriers to growth.

Growth will not be achieved by firms working alone, working in isolation from banks and financial institutions, from Government and from advisers. They all have a key role to play in creating a business environment conducive to growth.

Belfast Telegraph

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