The latest Scottish Chambers of Commerce’s Quarterly Economic Indicator survey shows Scottish firms continuing to display resilience in the face of economic uncertainty.

The survey, produced by the Scottish Chambers of Commerce Network in collaboration with the University of Strathclyde’s Fraser of Allander Institute, found growing optimism within manufacturing and financial & business services firms.  However, concerns around investment levels and recruitment challenges suggest that growth may remain fragile in the months ahead.

In a positive development, the retail sector has displayed some evidence of an encouraging fourth quarter, with key financial indicators such as sales and cash flow reported as improved over Q3 2017.  However, this follows a particularly challenging number of years for the sector, and it should be noted that these improvements are coming from a particularly low base relative to our other surveyed sectors.

Reacting to the results, Neil Amner of Anderson Strathern, Chair of the Scottish Chambers of Commerce Economic Advisory Group, said:

“The results of the fourth quarter Quarterly Economic Indicator are broadly positive, and suggest that Scottish businesses are continuing to display positivity in an uncertain economic environment.   

“Firms remain concerned about a range of issues however, with over 87% of manufacturers anxious around the rising costs of raw materials and its effect on their prices. 

“Further, the fact that over half of Tourism respondents indicating business rates as their primary concern, in addition to 40% of Business Services firms citing taxation, suggests that the debate on Income Tax and the wider tax mix in Scotland will continue to be of interest beyond the Scottish budget’s parliamentary approval process.

“Recruitment difficulties have continued to worsen for a number of sectors, particularly manufacturing, tourism and financial and business services, with the latter two sectors close to the highest levels ever measured in the survey.

“Many sectors are continuing to invest in training in an attempt to retain and upskill their existing staff, but it is clear that businesses are finding it challenging to fill vacancies.  This continues to emphasise the need for Government to continue investing in our talent and skills base through initiatives including Developing the Young Workforce and Foundation Apprenticeships. In addition the need for a practical immigration policy to arise from the Brexit negotiations, which puts business first, is made even more critical by these conditions.”

In his foreword to the report, Professor Graeme Roy of the Fraser of Allander Institute comments on the challenges facing Scottish businesses:

“With heightened levels of uncertainty, it is unsurprising that investment intentions remain modest, whilst the tight labour market means that many firms continue to report difficulties in recruiting staff. Encouragingly training investment is holding up a little better.”

 

KEY FINDINGS:

General / Overall

  • Raw material prices a significant concern
  • Inflation feeding in to price rises / cost pressures
  • Expectations and overall investment slowing in some sectors, suggesting rising uncertainty.
  • Recruitment difficulties persist at record highs for a number of sectors, with training investment maintained at above trend levels.

Construction

  • Optimism eased, however this is common in the 4th Quarter.
  • Orders and sales relatively strong in comparison with Q3 2017.
  • Raw materials an issue for 75% of firms, with evidence of pressure on margins with reduced profits.

Financial and Business Services

  • Optimism, profits, sales and expectations all strong.
  • Signs of easing investment.
  • Highest level of recruitment difficulties ever recorded for this sector (47% of businesses).
  • Taxation highlighted as the main concern by 41% of firms.

Manufacturing

  • Trends in new orders have eased, but remain positive.
  • Firms appear to be adjusting expectations downwards, which is a slight cause for concern.
  • Capital investment negative for the first time in a number of years, although investment intent high for next quarter.
  • 87% of manufacturers are concerned about raw material prices, with a net % balance of 68% indicating that they will raise prices in Q1 2018.

Retail

  • Strong Q4 with more positive results than much of 2017.
  • Cashflow and Profit returned to positive levels for first time this year.
  • Employment increase, but expectation that this is mainly seasonal.
  • Caveat that retail has experienced a sustained period of change / challenging conditions for a number of years, so although Q4 may have surpassed expectations, remains to be seen if this positivity will persist in 2018.

Tourism

  • More negative set of results that outlined in prior Q4s, even taking into account that Q4 is generally negative for tourism.
  • Significant rise in training investment, perhaps driven by recruitment difficulties.
  • Business Rates the main concern for 57% of respondents.

With three weeks to go until the UK General Election, one of the most important issues for Scottish businesses will be the next Government’s approach to taxation. This week, Scottish Chambers of Commerce has called for the new administration’s first Budget to take decisive action to reduce key taxes to ease the burden of business costs and promote investment and growth. Liz Cameron, Chief Executive of Scottish Chambers of Commerce, said:

“With Scottish businesses facing the prospect of rising inflation and weak consumer demand, the threats to our economic growth, which lags behind that of the UK as a whole, are readily apparent. However, Government has the opportunity to develop policies which will help shape a more fruitful business environment where businesses are freed up to invest for new opportunities, future growth, and new jobs.

“One of the current challenges many businesses are facing is that of rising costs through higher prices and through government legislation on pensions, the National Living Wage and the Apprenticeship Levy. By tackling some of businesses’ fixed costs, this could help to free up valuable resources for business investment and job creation.

“That is why we believe that the UK Government must target reductions in business rates, rather than Corporation Tax, in order to produce the biggest boost to the largest number of businesses. Whilst this is a tax that is devolved to Scotland, clear strategic action on business rates in England would assist the Scottish Government in delivering long overdue restructuring of this tax north of the border.

“At a national level, a temporary reduction in the rate of VAT, last implemented in 2008-09, may also be a useful tool to tackle rising costs, whilst at the same time encouraging a boost in consumer demand, which has been the major driver of growth in the Scottish economy. In addition, the permanent reduction in VAT to 5% for tourism and hospitality activities would bring the UK into line with the vast majority of other European nations and deliver a timely boost in competitiveness to one of our most important and iconic sectors.

“A closer and more productive working relationship between the UK and Scottish Governments could also make possible co-ordinated action between reserved and devolved activities, for example to incentivise and reward in-work training through the National Insurance Contribution system. Scotland may have two Governments but they must work together more effectively to deliver the right results for business.”

Today’s release of labour market data has shown some very good news from a Scottish perspective, with unemployment falling by 14,000 and employment growing by 5,000 in the three months to March this year. Scottish Chambers of Commerce have welcomed the figures but have warned against complacency and renewed their call for Scotland’s Governments in Edinburgh and in London to work together to put business at the top of their agendas. Liz Cameron, Chief Executive of Scottish Chambers of Commerce, said:

“These latest figures for employment and unemployment are very positive, with unemployment falling and employment growing. This confirms the positive trends in recruitment that we have been picking up through our own research and demonstrates that Scotland’s businesses are ambitious to succeed. It is a timely reminder that they are the creators of Scotland’s jobs and wealth.

“Scotland’s businesses are working hard against some pretty strong economic headwinds right now and are continuing to seek the talents that they need to succeed, both by recruiting new staff and through upskilling existing workers. They must be supported to do so, with a particular emphasis on ensuring that the supply of skills meets business demand and that we are equipping more people with these talents, including workers of all ages and those who have been unemployed for an extended period.

“This demonstrates why a coherent industrial strategy for the UK is necessary and why this must be fully supported by both the UK and Scottish Governments. Scottish businesses are competing on a global basis and need the co-ordinated support of all levels of Government to give them the edge to enable business to create high quality employment opportunities for all.”

New alliances open up new opportunities for Edinburgh companies

Edinburgh Chamber of Commerce has participated in one of the first network-wide overseas trade missions to China, led by a delegation of the Scottish Chambers of Commerce.

Chief Executive, Liz McAreavey joined senior representatives and business people from Aberdeen, Ayrshire, Dundee & Angus, Glasgow, and West Lothian. The mission explored new trading opportunities and links with business, education and government organisations.

As part of the programme, Scottish Chambers of Commerce (SCC) announced the official opening of a new International Trade Office in the city of Yantai. The formal opening ceremony was hosted by the Vice Mayor of Yantai city, Madame Zhang Bo, together with senior officials from Yantai Municipal Government.

As part of the event, both parties signed a Memorandum of Understanding for trade engagement and partnership, designed to achieve an effective channel for exchange of business between Scotland and Yantai.

During the trade visit, Edinburgh Chamber participated in a series of productive meetings with senior business people, highly influential politicians including Vice Governor Wang Shujian, and local government officials as well as national ‘think tanks’ bodies in Beijing, Yantai and Jinan in the Shandong Province

Chief Executive, Liz McAreavey commented: “The Chinese economy continues to grow at a faster pace than western economies and the rate of growth within new cities such as Yantai and Jinan opens up the potential for Edinburgh businesses to promote and sell its goods and services which Chinese businesses and consumers want and need. That demand, together with a more recent policy of ‘opening up’ to new trading partners and overseas alliances by the Chinese, presents a myriad of opportunities for our local businesses to capitalise on.

“The aim of our mission was to strengthen relationships and increase engagement with existing and new contacts in sectors where there are direct B2B or knowledge-sharing opportunities for Edinburgh companies. Yantai is a city of 7 million and SCC’s base in Yantai will enable us to plan a comprehensive approach to exploiting the many opportunities in Yantai and further afield for our members and non-members.”

Shandong Province represents the third largest economy in China with a population of over 97 million and a GDP in excess of 6.3 trillion yuan (£0.7 trillion). It is China’s best wine growing region accounting for over 25% of all wine production. Yantai is the biggest trading port in North China and in 2016, the city imported over $19 billion (£14.7 billion) of goods and services.

Chief Executive, Liz McAreavey also visited the city of Jinan, which is home to one of the first national high-tech business incubators and since its foundation in 2002, it has incubated more than 1,000 small and medium sized science and technology enterprises. It focuses on cultivating fast-growing sectors such as biomedicine, ecommerce, energy, environmental protection and new materials.

Key sectors for Edinburgh Chamber based companies to meet key economic needs in the Chinese target cities include: electronic information, robotics and artificial intelligence, bioscience, R &D and smart technologies, food and drink and even football management.

The accelerated growth of consumers in Shandong province also opens opportunities in consumer goods, recreation and tourism services, financial and professional services and education.

Chief Executive, SCC, Liz Cameron said: “We now have a deeper understanding of how we can achieve the best exchange for business, where the opportunities exist for Scottish organisations and how we can best pursue these.

“We have also identified a number of potential opportunities for inward investment into Scotland and will be working with Scottish Government and SDI as well as other trade organisations to explore these and leverage the momentum of change within China.

SCC intends to return to Shandong Province later this year to conclude discussions on further Memorandums of Understanding and explore new ways to foster co-operation between the two countries.

Today’s news that inflation has jumped to 2.7% has confirmed long-held expectations and highlighted growing concerns over the capacity for businesses to contain rising costs and the potential threat to consumer demand, as disposable incomes become squeezed. Liz Cameron, Chief Executive of Scottish Chambers of Commerce, said:

“Whilst part of the reason for this latest increase in inflation might be due to the timing of Easter and the consequent impact on the cost of flying, the fact remains that there are continued upward pressures on prices from a range of sources and the Bank of England last week said that it expected inflation to continue upwards to almost 3% later in the year.

“The impact on Scottish business and the Scottish economy is two-fold. Rising prices impact on businesses’ costs and their ability to invest and create jobs, whilst weakening real incomes could depress consumer spending, which has been the strongest driver of economic growth in Scotland over the past few years.

“These challenges, coupled with ongoing political uncertainty represent a risk for the Scottish economy, which our politicians must respond to. With a General Election campaign in full swing, politicians of all parties must remember that it is Scotland’s businesses that are the creators of jobs, wealth and growth in our economy, and businesses will be examining the various Parties’ plans to address this situation with keen interest.”

New alliances created with key developing cities in China as part of trade visit

Scottish Chambers of Commerce (SCC) has announced the official opening of a new International Trade Office in the city of Yantai, China, as part of a trade mission by a Chambers’ delegation to explore new trading opportunities and links with business, education and government organisations.

The formal opening ceremony was hosted by the Vice Mayor Madame Zhang Bo, together with senior officials from Yantai Municipal Government. Both parties signed a Memorandum of Understanding for trade engagement and partnership, designed to achieve an effective channel for exchange of business between Scotland and Yantai.

The Scottish delegation, led by SCC’s new President, Tim Allan and CEO Liz Cameron, comprised Presidents and CEOs from Chambers throughout Scotland: Aberdeen, Ayrshire, Dundee & Angus, Glasgow, Edinburgh and West Lothian. They were accompanied by senior business executives, including entrepreneur David Valentine of Valentine International, and former SCC Chair Nora Senior, UK Chair of international PR company Weber Shandwick, who have had a presence working in China for over 25 years.

During the trade visit, which was six months in the planning, SCC held a series of productive meetings with senior business people, highly influential politicians and local government officials including Vice Governor Wang Shujian, as well as national ‘think tanks’ bodies in Beijing, Yantai and Jinan in the Shandong Province

President Tim Allan commented: “The Chinese economy continues to grow at a faster pace than western economies and the rate of growth within new cities such as Yantai and Jinan opens up the potential for Scottish businesses to promote and sell goods and services which Chinese businesses Chinese businesses and consumers want and need. That demand, together with a more recent policy of ‘opening up’ to new trading partners and overseas alliances by the Chinese, presents a myriad of opportunities for Scottish businesses to capitalise on.

“The aim of our mission was to strengthen relationships and increase engagement with existing and new contacts in sectors where there are direct B2B or knowledge-share opportunities for Scottish companies. Yantai is a city of 7 million and SCC’s base in Yantai will enable us to plan a comprehensive approach to exploiting the many opportunities in Yantai and further afield.”

Shandong Province represents the third largest economy in China with a population of over 97 million and a GDP in excess of 6.3 trillion yuan (£0.7 trillion). It is China’s best wine growing region accounting for over 25% of all wine production. Yantai is the biggest trading port in North China and in 2016, the city imported over $19 billion (£14.7 billion) of goods and services.

The city of Jinan is home to one of the first national high-tech business incubators and since its foundation in 2002, it has incubated more than 1,000 small and medium sized science and technology enterprises. It focuses on cultivating fast-growing sectors such as biomedicine, ecommerce, energy, environmental protection and new materials.

Key sectors for Scottish interest to meet key economic needs in the Chinese target cities include: electronic information, robotics and artificial intelligence, pharmaceutical, bioscience, R &D, manufacturing, engineering and smart technologies, energy including upstream and downstream products and services, logistics, agriculture, food and drink, and indeed football management.

The accelerated growth of consumers in Shandong province also opens opportunities in consumer goods, recreation and tourism services, financial and professional services and education.

Chief Executive, SCC, Liz Cameron OBE said: “This exploratory visit is part of the new partnership which was formed between Scottish business, through our extensive Chamber network, and the Scottish Government to utilise the world-wide connectivity of the business community. We now have a deeper understanding of how we can achieve the best exchange for business, where the opportunities exist for Scottish organisations and how we can best pursue these.

“We have also identified several potential opportunities for inward investment into Scotland and will be working with Scottish Government and SDI as well as other trade organisations to explore these and leverage the momentum of change within China.

“Our next steps will be to undertake a deep dive of companies based in Scotland who have products, skills and expertise which have the potential to be exported to the Shandong Province area. Our aim is to add impetus to the Scottish economy by assisting companies who have not previously thought about exporting to grasp the potential that international trade offers.

“The new more open trading environment in fast growing cities such as Yantai, Jinan and the wider Shandong Province, together with the practical advice and direct B2B links Chambers now have within this market, will facilitate more effective trading partnership opportunities for Scottish businesses and educational institutions.”

SCC intends to return to Shandong Province later this year to conclude discussions on further Memorandums of Understanding and explore new ways to foster co-operation between the two countries.

Chambers in Scotland have already led trade missions to Italy, Iceland, Iran, Germany and the US, with further country visits planned this year to a number of key destinations.

The Bank of England is expecting three further years of above-target inflation in the UK, whilst GDP growth projections this year are down marginally this year to 1.9% but up slightly to 1.7% and 1.8% in each of the next two years.

Commenting, Liz Cameron, Chief Executive of Scottish Chambers of Commerce, said:

“There are twin challenges facing our economy at the moment in the shape of rising prices resulting from the fall in the value of sterling and weak consumer demand due to low real income growth, putting upward pressure on inflation and downward pressure on economic growth respectively. In addition, many businesses are experiencing a rise in their costs, putting upward pressure on prices and threatening their capacity to boost investment.

“We will be looking for next month’s General Election, whatever its outcome, to deliver greater clarity and stability. The next UK Government must act quickly to set out its agenda for Brexit, enhancing market confidence, and taking early action to tackle core business costs. Targeted tax reductions could play a key role here and help provide the boost that would stimulate improved levels of investment and new employment opportunities.”