MAGNIFYING GLASSES AND HUBBLE TELESCOPES AT THE READY…
Tomorrow Chancellor George Osborne, Honorary Life President of the Fingernails Club, gets first sight of critical GDP figures for the first quarter before they go out on general release on Thursday.
For thousands of small firms it won’t matter a jot whether the figure is fractionally on the plus or minus side of growth. The OBR’s March quarterly forecast implied that we will have escaped a triple dip recession with growth of just 0.1 per cent in the opening three months of the year. As a line on a graph it makes a cat’s whisker look gross.
But as we revealed in our splash story here last week, Scotland is bucking the trend, with better performances on employment and economic growth than other regions and nations of the UK.
Our lead story was duly confirmed later last week with official Scottish GDP figures for the final three months of last year showing Scottish GDP grew by 0.5 per cent during the fourth quarter of 2012 and by 0.4 per cent on the fourth quarter of 2011. By contrast, UK GDP fell by 0.3 per cent in the final quarter and grew by just 0.1 per cent on the same quarter a year ago.
Official figures also bore out our consistent coverage of improving employment data for Scotland. Employment in Scotland has seen the largest increase for twelve years with a rise of 39,000 in the three month period to December to February, the largest increase since May-July 2000.
Over the three months December to February 2013 total unemployment fell by 11,000 or 0.5 percentage points to 7.3 per cent – making Scotland’s unemployment rate lower than the UK rate (7.9 per cent). The Scottish youth labour market continued its strong performance of recent months with the youth unemployment rate now down 6.8 percentage points over the year to December to February. The Scottish youth unemployment rate of 16.1 per cent is lower than the UK rate of 20.6 per cent.
There is another theme we have consistently stressed in recent months: the resilience of new business formation.
This has caused us to wonder whether official ONS figures give sufficient weighting to SME data in GDP estimates. We have also called on the Scottish government to provide a StartUp Scotland index tracking new business formation.
Today we draw attention to two further encouraging pointers for the economy here, whatever the miserable UK GDP data may reveal.
The latest Bank of Scotland Labour Market Barometer published this week shows continued improvement in Scottish job market conditions - reflecting the positive trends from this month’s Labour Market statistics. Its composite index for Scotland has increased to 53.0, stronger than that for the UK as a whole which is 52.3.
The strongest rise was for permanent appointments, which more than reversed a reduction in February. Higher placements generally reflected greater demand for staff, but the rates of vacancy growth remained weaker than their respective long-run series averages.
Donald MacRae, Bank of Scotland chief economist said, “This latest Barometer for March shows a welcome rise from the low of last month. The number of people appointed to both permanent and temporary jobs rose while the number of vacancies increased. These results reinforce the view that the Scottish economy is continuing its slow recovery from recession.”
And last week the Scottish government announced an initiative which should deliver a cash flow boost for Scotland’s beleaguered construction industry. It will be trialling project bank accounts for large public sector construction projects. This should result in faster payments to firms.
The Federation of Small Businesses (FSB) welcomed the move, which it recommended to the government earlier this year. Andy Willox, their Scottish Policy Convenor says, “Small sub-contractors working on publicly-funded projects deserve to get paid as quickly as the primary contractor. For too long, big contractors have used small construction companies as a free source of credit.”
None of this is to suggest that we are on a free and clear road to recovery. But there are growing signs that the economy may have passed the worst. Retail sales have held up better than feared. Employment data does not confirm the flat lining of official GDP statistics. Car registrations have been buoyant, and mortgage lending is picking up.
But this is not the stuff of recent headlines. Last Friday ratings agency Fitch became the second to strip the UK of its triple a status, this hard on the heels of news that the IMF had downgraded its growth forecasts for the UK. Its chief economist Olivier Blanchard warned the UK should consider alternatives to its current “austerity” drive. All this as a team from the International Monetary Fund is due to arrive in the UK to begin consultations with the government next month.
Osborne is now set to announce an extension to the Bank of England-run Funding for Lending Scheme (FLS) in the coming weeks.
The key point of the scheme when it was first announced lasts August was that it would boost bank lending to small firms by providing banks with cheap loans on the proviso that they pass them on to customers. But while it may have helped to lower the cost of mortgages, Bank of England figures suggest participating banks were lending less money overall in the second half of 2012 than they were in the previous six months. The scheme is "not a panacea”, says Stephen Pegge of Lloyds.
Nevertheless, the Bank of England’s Monetary Policy Committee said earlier this month that there may be “merit” in an extension. And that view is likely to be strengthened by the arrival of Mark Carney as Bank of England Governor. Separately, another dollop of quantitative easing is widely expected.
Analysis is urgently needed on why the FLS scheme has not performed as well in the first six months as had been hoped. But that is no reason to abandon it after such a short period. It may well not be the panacea the cure-all of some optimistic hopes. But as those GDP numbers will remind us on Thursday, the SME sector still needs all the help it can get.
SCOTTISH EXPORTERS - WHY WE NEED TO DO MORE
One of the least explored issues in the independence referendum campaign was Scotland’s export performance, in particular exports to countries beyond the UK.
This was even more remarkable given the exhortations in the wake of the 2008-09 financial crisis to rebalance the economy towards manufacturing and in particular to exports.
According to the Global Connections Survey, Scottish international exports in 2012 (exc. oil and gas) were reckoned at £26 billion, up £1.4 billion (5.9 per cent) on 2011.
Of this, some £15.4 billion was by manufacturing sector companies and £8.7 billion by the service sector. Manufacturing sector exports increased by £1.1 billion (7.9 per cent) over the year and service sector exports increased by £465 million (5.6 per cent).
Such figures on their own might seem respectable enough. But not all Scot-buzz readers concur.
This from David Scrimgeour, a Scotss lawyer who has lived and worked in Germany for over 20 years. In the 1990’s he was the Scottish Government’s investment representative and in 2000 he founded DS Consulting to advise international companies and governments on strategy and business development:
Hi Bill
The Referendum debate underlined, in my view, the complete dependence of the Scottish economy on the English market and the City. But are there any new moves to internationalise Scottish business?
Scotland was threatened with company departures, mortgage cost increases, pension losses, share sales and runs on Scottish banks in addition to the removal of the currency. And yet, to date, there has been no discussion in Scotland of the obvious need to diversify the economy beyond British shores and to find new sources of finance and export markets in order to reduce these business and political risks.
And this is also despite the additional looming risk of a Brexit in a couple of years’ time. You would think that this would be an ideal policy issue for the SNP party to promote, especially for the Yes Generation.
SCDI has identified internationalisation as a key element for creating “a robust and sustainable economy” and notes the average export rate (i.e. outside of the UK) of Scottish companies is 7 per cent. This contrasts with the average in Bavaria of 50 per cent - and 73 per cent here in Munich.
So, despite the efforts of Scottish Enterprise over the years, international activity by Scottish SMEs in particular is dangerously low. The only consolation is perhaps that UK companies generally are no different but how comforting is that?
Best wishes
David
Export help for SMEs has long been a priority for the Scottish government and its agencies. And this letter well illustrates the need for these efforts to be encouraged and sustained. It would only be fair to point out that the headwinds created by continuing economic problems in the Euro-zone, particularly in the light of the latest IMF forecast downgrades. The 27-member currency zone is our largest export market outside rUK.
Meanwhile, what are the facts? Scotland’s two largest exporting industries in 2012, as in previous years, were manufacture of food & beverages (£4.7 billion) and manufacture of coke, refined petroleum and chemical products (£4.1 billion). These were followed by legal, accounting, management, architecture, engineering, technical testing and analysis (£1.7 billion), wholesale retail, repair of motor vehicles and motor cycles (£1.7 billion) and financial and insurance (£1.4 billion).
The US continues to be Scotland's top international export destination with an estimated £3.6 billion of exports, an increase of £235 million since 2011. Netherlands was the second top export destination with exports of £2.7 billion, although exports are estimated to have decreased by £340 million (11.3%) over the year. France is Scotland's third top export destination, estimated to be worth £2.2 billion, increasing by £455 million (26.4%) in 2012.
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EXPORT DATE FOR THE DIARY
SMEs looking for export opportunities should note the next big event: Explore Export on 10 November. It brings together 65 global commercial officers to Scotland to talk to companies on a 1-to-1 basis about the opportunities for trade and export in their own territories. Venue: Murrayfield Stadium. Admission free and more details at www.scottish-enterprise.com.
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What of SME export performance? Very problematic as David suggests, but all the more reason, perhaps, to remind ourselves of where success has been achieved and to learn lessons accordingly. Here are three worth highlighting:
•The isle of Arran Brewery has opened a company in the USA to boost exports into America. The company will not just be importing its own beers but will be importing other Scottish and other European Craft Beers into the US market, which grew by 18% in the last six months alone. Managing Director Gerald Michaluk Said “ We have had great support from Scottish Enterprise and STI as well as UKDTI in entering the US market and this major drive will see Arran Beers being available to beer wholesalers throughout the USA in 2015.” Independent Scots brewer BrewDog received support from SDI in finding new routes to market in different countries, introducing leads and presence at trade shows.
•Translation services agency Lingo24 received support through the Scottish Enterprise GlobalScots network. The company achieved £7 million in sales last year.
•Probe Test Solutions, supplying test hardware to semiconductor companies, received support to develop exports, finding local contacts in target markets in Russia and Eastern Europe, trade show support and funding support to employ an export manager.
Meanwhile, activity this year has included:
•A delegation of Scottish craft brewers has just completed a five day visit to the US and Canada led by Scottish Development International (SDI). The aim was to provide access to brewers, industry experts, buyers and importers.
•SDI has opened its first office in Africa, enabling the agency to double the number of companies it supports into the market to around 300 by 2014/15 and increase international sales to Africa beyond the current £2 billion mark.
•In May, three Scottish oil and gas supply chain companies expanded into the US market and opened new operations in Houston, Texas. A record number of Scottish oil and gas companies attended the Offshore Technology Conference (OTC) in Houston, almost half attending for the first time.
•In April a delegation of Scotland’s food and drink sector visited Singapore to explore export opportunities. Eighteen organisations took part, including leading brands such as Highland Spring, Paterson Arran, Highland Smoked Salmon and Mackie’s at Taypack as well as newer entrants such as Loch Ness Brewery, Garvies Soft Drinks and Burgon’s of Eyemouth.
Says Neil Francis, SDI’s International Operations Director, “If we want our companies and our economy to grow, we must increase the number of companies exporting for the first time, and help existing exporters increase the value of their exports.
“We need to raise the awareness and ambitions of companies to the benefits of international trade, help them to build their capability and capacity and support them to exploit the opportunities.
“We support companies with preparing to export workshops, online learning tools and case studies to develop robust international strategies. And we provide companies with access to the know-how and expertise including our specialists in our 29 international offices to explore key markets.”
Economy Forecast
21 Oct
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SHOPPERS SHUN BIG CHAINS FOR INDEPENDENTS
Encouraging news for high street entrepreneurs: independent shops, bars and cafés are opening at their fastest rate in years in a boost to the high street as customers shun the big retail chains.
According to the Local Data Company (LDC) and the British Independent Retailers Association (Bira), more independent stores opened in the last year than closed. While giants such as Marks & Spencer, Tesco and Sainsbury are still in the doldrums, Britain’s high streets are not suffering as badly as analysts have claimed.
Shoppers turned to local outlets in record numbers, with net openings of 432 in the last six months. That was the result of 8,662 new independent retailers opening and 8,268 shutting their doors.
Last week PwC and the LDC revealed that town centres had 964 net closures of all types of stores between January and September, but this was mainly due to the collapse of high-street chains, including Phones 4U and La Senza.
Said Matthew Hopkinson, director at the LDC, “The growth in independents, the ‘silent majority’, is a significant factor in preventing vacancy rates [the number of empty shops] rising in our town centres and also reflects the consumer response to a more personal and unique offer that many independents bring.”
E-cigarette shops, barbers and independent cafés and restaurants were among the largest type of store to open in towns, while independent clothes and shoe stores closed.
A rise in the number of shoppers heading to high-street independents was also highlighted by online sales growing at their slowest rate in more than a year, according to the British Retail Consortium and KPMG.
Online shopping rose 8.2% last month, compared with a three-month average of 13.8%. Clothing and footwear sales also fell online for the first time on record, as the warmest and driest September ever recorded meant that shoppers shunned autumn and winter collections.
David McCorquodale, the head of retail at KPMG, said: “The warm weather melted sales of clothing and footwear online, as shoppers chose to dig out their summer wardrobe rather than investing in new winter woollies. As the weather cools and people start planning for Christmas this trend should quickly reverse.”
In Scotland, you bet.
