Access to business finance and public sector expenditure are key challenges for the year ahead according to members
A survey of 500 Chartered Accountants in practice, industry and the public sector in Northern Ireland has indicated that the recessionary impact on Northern Ireland’s economy will continue until at least the end of this year and is more likely to last into 2011 or beyond.
The Chartered Accountants Ulster Society Annual Financial Confidence Survey, in association with the Economic Research Institute of Northern Ireland (ERINI) predicts a prolonged period of poor economic performance and provides few signs of optimism in the short term.
Over half of Chartered Accountants surveyed (57%) viewed the short term prospects for the economy in general to be poor or worse. Only 7% felt optimistic about the year ahead while over a third (36%) were uncertain about the outlook for the local economy.
This high level of uncertainty was also evident in the outlook for respondents’ own businesses, with over a third being uncertain as to the prospects for their own business in the coming year. Just a quarter of those surveyed believed that the prospects for their own business in the coming year were good or better.
Pessimism around economic recovery in the short term was most keenly expressed among exporters, small firms and those employed in the manufacturing and construction sectors.
In the area of public expenditure, there was a widespread view amongst Chartered Accountants that efficiency savings in all areas of government including the Civil Service, Local Government and Quangos are the most important priority for Government in terms of prioritising spending cuts.
A review of public sector pay, as well as a general reduction across all Departmental budgets, were considered essential by those surveyed. Chartered Accountants felt that priorities for expenditure cuts around business support programmes should focus on financial assistance (including Selective Financial Assistance) and support for marketing rather than any reduction in budgets for innovation and Research and Development or export promotion.
The survey showed that availability of finance and a lack of capital were a major current concern, with almost all respondents stressing the difficulties in accessing finance as a key issue for their own business, or for their clients’ businesses.
85% of Chartered Accountants felt that finance to business has become less available, and this was felt to be particularly the case for small businesses. Just over 50% of respondents believe that this situation is likely to remain unchanged in the coming year, while a quarter thought that the lending situation would improve. Around 75% also felt that trade credit has become less available.
The survey showed that a general change in the appetite of banks to lend was the key factor impacting on the perceived lack of external finance, while 90% of respondents believed that local companies are putting new investment of expansion plans on hold due to an inability to access finance. Meanwhile, 50% of those surveyed said that they would be more willing to consider external equity finance such as Venture Capital or an Angel investor than they were this time last year.
Other key business concerns include a lack of demand for products and services, downward pressure on prices and rising costs for energy and raw materials. The survey confirmed that political stability remains an important issue impacting on current business performance.
Looking to measures to address the recession, over two-thirds of Chartered Accountants felt that the interest rate reduction by the Bank of England to an historic low of 0.5% was the most important response to date in stimulating the economy, more so than quantitative easing or the VAT reduction. It was generally perceived that local Executive had been unable to have a significant effect in strengthening the economy to date and that potential measures such as fast tracking infrastructure improvements and changes to tax policy should be pursued with urgency.
Kevin Kingston, Chairman of Chartered Accountants Ulster Society which represents over 3,000 Chartered Accountants in Northern Ireland, said: “This survey doesn't pull its punches. It calls it as it is, and shows how there is an up-hill battle ahead over coming years with every sector having to overcome tough economic challenges. In the Private Sector securing sustainable long term funding going forward is the major challenge which the private sector, investors and banks will have to work together to address.
"In the Public Sector the greatest task we face is how we re-shape and re-organise regional and local government. There is a clear view from our members that things cannot go on as they are, and that the Public Sector will have to bear their share of the burden as Northern Ireland grapples with the downturn. Action cannot be delayed, and Ministers in the Executive face the challenge of streamlining what some view as a top-heavy bureaucracy whilst maintaining frontline services. Again this will require a collective approach and our Society and Institute are actively engaged in providing our experience and support to the Local Assembly in addressing these challenges.
"This is the most comprehensive business survey conducted in Northern Ireland and the underlying message from it is simple: the economy faces continuing challenges for the next 12 to 18 months and tough decisions demanding strong leadership all round will be required as we build for recovery".
Maureen O’Reilly, Senior Economist with ERINI who formulated and analysed the survey said: “Without doubt, the banking crisis is continuing to have a major impact on the supply of finance to local business. This is evidenced by widespread agreement among members that finance has become less available, more costly and is impacting on investment plans.
“Quantitative easing does not appear to have adequately stepped up bank lending to viable businesses. Direct measures such as the Enterprise Finance Guarantee Scheme also appear to be having a limited impact. Small firms are particularly exposed as even in expansionary periods finance can be difficult to obtain.
“Government has a key role to play but intervention needs to be immediate and much more effective in assisting the small firm sector which makes up the vast majority of businesses in the Northern Ireland economy.”