A survey of 500 Chartered Accountants in practice, industry and the public sector in Northern Ireland has indicated that overall there remains considerable pessimism about Northern Ireland’s short-term economic prospects, but the survey also identified tentative grounds for optimism in certain sectors.
Two-thirds of those surveyed viewed prospects as poor or worse over the coming year and only 4% were optimistic about the year ahead with 29% uncertain as to how the economy will perform - however greater numbers of manufacturers and exporters reported that they felt their prospects were “good or better” this year compared to last.
Availability of finance continues to be a key issue, with strong views that lack of finance was suppressing growth.
NI Economy
The majority of Members believe that Northern Ireland is still firmly in recession (80%) and performing worse that the UK as a whole (83%).
Reasons given by respondents for Northern Ireland’s poorer performance compared to the wider UK economy include its vulnerability due to public sector dominance and greater exposure to the property collapse. Chartered Accountants also believed that Northern Ireland’s exposure to the Republic of Ireland recession has been an important driver.
Just 8% of local Chartered Accountants believe there will be any recovery this year. Almost all only see recovery from Spring/Summer 2012 onwards (92%) with some 30% believing that it will be some time after 2012 before Northern Ireland returns to positive economic growth.
There are some tentative signs of optimism however, particularly among manufacturers and to lesser extent exporters. Around 50% of Members in the Manufacturing sector view prospects as good or better in the coming year, more than twice as high as last year. Just over a third of Exporters view their own prospects as good or better, up from 28% in the last survey.
Compared to last year’s survey, where problems around the availability of finance dominated, a whole host of issues are now having a more significant impact on business, including rising costs, lack of demand, and cashflow.
Availability of finance
The availability of finance however remains one of the most important concerns for the business community. Almost two in every three (64%) believe that the availability of finance has continued to deteriorate. However, this view is not as strong as in the 2009/10 survey (85%).
Around 30% believe that there has been no change in the availability of finance (up from 11% during 2009/10). A significant majority of Members (71%) think that this will remain the case in the coming year. It is also noteworthy that, compared to 2009/10, fewer Members believe that the position will improve (down from 24% during 2009/10 to 15% currently).
83% of Members believe that a lack of alternative funding options (excluding banks) is affecting the availability of finance. This is up from 75% in the 2009/10 survey. Around 85% of Members believe that local companies are continuing to put new investment or expansion plans on hold due to an inability to access finance.
There is a greater sense among Chartered Accountants that equity finance (venture capital and private angel investment) has an increased role to play in meeting the financing needs of businesses in Northern Ireland. Just over half of Members would be more willing to consider external equity finance, which is an increase over the previous year.
The survey showed that equity finance availability in Northern Ireland is not considered to be strong and was considered particularly weak at the seed and start-up/early stage phases. Two-thirds of Members believe that greater interest/presence by private equity firms would be an added benefit from a reduced Corporation Tax rate.
Corporation Tax
While almost 70% of respondents believe that tax varying powers in Northern Ireland should be devolved, and would stimulate the economy, the key concerns for those expressing doubt over the proposed measure were reductions in the Block Grant and question marks over the Assembly’s ability to effectively implement change.
Despite these concerns, the survey found that a reduction in Corporation Tax was the most widely supported fiscal measure in terms of maximising economic impact.
There is a relative sense of urgency among respondents around the speed at which any reduction in Corporation Tax is introduced. Almost half believe it should be introduced immediately and a further 36% over a three year period.
Most Members believe that it will take up to 5 years for the benefits of a reduction in Corporation Tax to take effect.
Conclusions
Michael Black, Chairman of Chartered Accountants Ulster Society which represents over 3,300 Chartered Accountants in Northern Ireland, said: “This survey highlights a concern that Northern Ireland’s economic recovery has still some considerable way to go. It is encouraging though to see some signs of positive developments among manufacturers and exporters, and we see pockets of positive developments.
The availability of finance is a key concern and we would call for urgent action in respect of a government sponsored small business loan fund which is critically needed now to support the small business sector.
Our members’ survey identifies strong support for the proposals in respect of lower Corporation Tax, and I would encourage all segments of the business community to make their views known as part of the consultation process.”
Maureen O’Reilly, Senior Economist with ERINI who formulated and analysed the survey said: “This recession has meant that Northern Ireland has become even more disconnected from the wider UK economy.
“A number of factors are driving this poorer performance including our vulnerability due to public sector dominance, a much more severe property collapse here and greater exposure to the Republic of Ireland’s recession. Ironically our large public sector has been viewed as a “cushion” for Northern Ireland’s economy during past recessions but unfortunately the severity of looming cuts means that it is likely to have exactly the opposite effect going forward.
“Members are also very concerned about the ability of the private sector to recover at the same pace as the UK. Rebalancing the economy is a very serious challenge to Government and one where a cut in corporation tax alone may not suffice.”