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ACE has published its State of Business report, setting out a number of key economic trends based on information from engineering firms.
Almost half (45%) of firms are still reporting cash flow problems and over a third (37%) report significant problems with late payment for work done. There are some good signs for the industry though. Many firms expect growth in foreign markets. Meanwhile short term expectations for staffing levels are stable.
Nelson Ogunshakin, ACE chief executive, said: “This year’s ACE State of Business report could not take place more challenging time for the industry. The debate as to how fast the public sector should cut spending continues, with potentially half a million public sector jobs being lost in the process.
“There has been a distinct shift in emphasis with the Government stressing the importance of the UK’s international competitiveness. This has seen increased attention paid to the value of infrastructure in generating economic growth through the private sector. We look forward to seeing this carried through in policy in the year ahead.”
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Summary of findings:
Credit and banking
The credit crunch continues to leave its mark on the sector with a significant proportion of companies (45%) reporting that their cash flow situations had not eased in the past 12 months. This is of concern given the continuing low levels of funding available to SMEs. It is only through the provision of such mechanisms that companies are able to smooth consumption and spending to meet the challenges of a dynamic economy. These pressures have meant that 15% of companies feel that they will be actively involved in mergers and acquisitions, with a further 20% indicating that such activity is likely. Internationally the credit crunch continues to leave businesses vulnerable with the most significant issue companies face being that of late payment (37% of companies) further exacerbating cash flow issues.
Rebalancing the economy
Government’s current plans rely on the private sector taking the slack in the economy as the public sector withdraws funds as a result of the spending cuts. However, this year’s State of Business reveals there are serious concerns with the assumption that the private sector is able to undertake such activity in such a short period of time given tighter credit conditions. Private sector activity has remained subdued in the last 12 months, with 39% of companies reporting a decrease in activity and 40% experiencing no change. Whereas, public sector activity is reported to have fallen significantly over the past 12 months when compared to 2009. 53% of companies have seen activity fall compared to 31% in the previous year. This suggests that the cutbacks are impacting on the industry and raises questions about whether the private sector is rebounding as hoped.
Opportunities for growth
In terms of international opportunities for earnings over the next three years, the Middle East (35%), China (32%), Indian sub-continent (26%), South East Asia (25%) and Africa (23%) were all seen as areas of significant growth. Sectorally energy or power production, utilities, transportation, waste and the commercial sectors are seen as potentially providing the greatest level of earnings growth. This does highlight the need for the UK to become more competitive, both in terms of its business environment and infrastructure provision. Given the potential size of the UK’s infrastructure challenge and the emphasis that is being placed on the low carbon sector as a driver of tomorrow’s construction industry there is some concern. 52% of the respondents feel that the low carbon industry will not provide a significant boost to the construction sector.
Investment for growth
Client relationships (50%), business development (36%) and marketing (33%) are the key areas companies are currently investing resources in. This reflects companies reacting to a more competitive environment as a result of the recession and suggests that companies are gearing up to take on the challenges of public sector cuts.
Employment
Short-term expectations are for staffing to remain relatively stable in 2011 with improvements in prospects more likely in 2012. This is more upbeat than expected and expectations may change once the £82bn worth of cuts announced in the Comprehensive Spending Review start to filter down into local capital and maintenance projects.
Procurement
Companies’ experiences of public sector procurement is not positive, with the majority of respondents indicating that at devolved (70%), local (71%) and central (63%) government have poor or very poor procurement processes. Approximately a third of companies believe government procurement processes were very poor in terms of efficiency. It is imperative that if the government wishes to make the level of efficiency savings reported in the CSR that this process is significantly improved across the whole of government.
Notes to editors
Click here to download a copy of this year’s State of Business report.
For press information please contact Gavin Pearson on 020 7202 0255 – gpearson@acenet.co.uk
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