Over the past year Gilson Gray has been fortunate to act as a co-sponsor of the North-east Quarterly Economic Survey, issued by Aberdeen & Grampian Chamber of Commerce.
Our role has given us a privileged opportunity to review the economic data coming out from this long-running nation-wide survey and to compare the UK and comparable regional data on a quarterly basis.
And this Q2 report continues to provide useful and insightful information on how North-east businesses are experiencing and perceiving market and economic conditions.
In this report, we see some concerning signs from North-east business views of the domestic markets. Domestic sales in the North-east have not fared as well as elsewhere in the UK with 21% of local companies seeing domestic sales decline in the last quarter – the biggest fall in two years. Forward sales orders are also lagging locally (27%) versus their nationwide counterparts (33%).
These metrics are compounded by the fact that 18% of local businesses expect domestic sales to decline in the next 12 months, versus 13% UK-wide.
There will be various factors driving these localised concerns, not least the different approach to business rates and taxation by governments north and south of the border – issues that the Chamber of Commerce has consistently been championing on behalf of North-east businesses. Industry and sector issues are also likely driving impacts with significant concerns locally about the impact of political rhetoric and policy proposals on the O&G sector weighing heavily on businesses whilst planning and grid connection delays are impacting scheduling around energy transition projects.
It doesn’t help that 70% of local businesses are still struggling to recruit suitable personnel, albeit this figure is now slightly lower than the 74% metric seen nationally.
However, there was also cause for some real cheer in the North-east figures. Notwithstanding the above domestic figures, 58% of local companies still expect turnover to increase in the next 12 months. And we continue to see that North-east businesses are outperforming their national counterparts on export performance with 39% seeing improvement during the last quarter versus 28% elsewhere – a significant difference. Only 12% of North-east businesses reported a decline in export and overseas sales against 21% across the UK.
This accords with our experience with our own clients. We are seeing increased instructions from local service companies for support on international projects and operations in areas as diverse as the Middle East, Asia, Africa and Latin America. Work varying from energy transition projects to O&G and decommissioning scopes.
Across the energy supply chain over the past few years, companies have been diversifying their accessible markets and portfolios in order to drive growth and we see that this is paying off with increased business activity now. Investment capital is also looking for opportunities to drive growth after a number of lean years and opportunities for M&A activity in the space are increasing.
This contrasts with the domestic energy scene where political positioning around O&G in the run up to the election and uncertainty following it continue to impact confidence and lead to projects being postponed or even at risk of cancellation. It is great to see the positive stories of export growth, but it is increasingly concerning to see the impacts of the political direction on local market and workforce confidence. In the medium to long term, a robust and varied export market arguably needs a healthy domestic market and supply chain as a base for the export activity. If not improved, not only could political policies and economic conditions have a profound impact on our domestic energy security – they could also threaten our export growth.
For now, it is encouraging to see North-east companies continuing to do so well internationally and exporting skills and technology globally. However, in a tight labour market it will become increasingly difficult to feed both international and domestic growth when it comes. It is critical that our industries are given the confidence to invest in domestic growth rather than constantly worrying whether there will be a market.
Beyond the energy sector, we continue to hear much spoken across sectors about business rates impacts and planning delays. No one would argue that the rates system does not need overhauled. Whether that will happen any time soon is another question. Separately, someone said this week that the very word “planning” suggests an intent towards forward progress. Our current system is failing to deliver on that front and needs changed and modernised in order to enable our industry and marketplace to achieve their potential.
The North-east industries are showing what can be done when industry is enabled to perform and deliver. We continue to hope that some greater certainty and clarity on government policies insome of the mentioned areas will engender the sufficient confidence to see improvement on the home front as well.