Tue 16th Aug 2016
Quarterly Economic Survey: Brexit taking a toll on businesses
An overwhelming majority of businesses have or expect to revise their growth plans in light of the EU Referendum vote.
That is one of the findings in the latest Quarterly Economic Survey published today (16 August 2016) by Northern Ireland Chamber of Commerce and Industry (NI Chamber) and business advisors BDO.
The survey reveals that one in 4 businesses have already revised their business plan/growth strategy due to the decision by the UK electorate to leave the EU and a further 45% have plans to do so. Just over half of businesses have or expect to revise investment plans (53%). A further 42% have or expect to revise recruitment plans in the post referendum period.
The survey also reveals that businesses are most unclear about the implications for EU trading rules (77%) and European regional funding (76%) following the referendum. They are also uncertain as to whether compliance of EU directives and regulations in the UK legal system will be enforced (75%) while 3 in 5 businesses (61%) lack clarity on the future immigration status of EU employees.
The future value of the pound (69%) has also been highlighted as a key area of concern.
Of those businesses who do expect to make changes to growth, investment and recruitment plans, they are most likely to pause/freeze plans rather than scale back (or expand). For example, 50% of those intending to make changes to investment decisions expect to put these decisions on hold.
However, expectations to scale back recruitment and investment are still relatively high impacting on a significant 1 in 4 of those intending to make changes.
Commenting on the post EU Referendum findings, Ann McGregor, Chief Executive of Northern Ireland Chamber of Commerce and Industry, said: “The lack of information available post Brexit is a concern for our members with a significant majority having already or expecting to revise their growth plans. There are particular concerns regarding trade agreements, labour movement and regional funding in particular.
“NI Chamber, in a recent policy document, has called for ‘stability, clarity and action’ around these issues and the findings of the survey underline the need for this to happen. Businesses are clear that they require stability for markets and business confidence; clarity on the timeframe for key decisions and action to proactively support the economy at a sensitive time of transition.”
Brian Murphy, Partner at BDO, said: “Northern Ireland businesses are no strangers to change and over the years they have shown just how adaptable they can be. The EU Referendum and its largely unexpected outcome has the potential to significantly change our market in a fundamental way. In the short term this change is unfortunately manifesting in a period of uncertainty.
“However, rather than stagnating, I am confident that businesses in NI will in fact make the most of the positives, positives such as the advantages our exporters and our hospitality sector are benefiting from as a result of the weaker Pound. Furthermore, they will not sit back and wait for markets to stabilise, they will instead adapt as they always have done and make the most of the opportunity.”
Almost 300 businesses responded to the latest survey, which also focused on business activity in the run-up to the EU Referendum in Q2 2016.
The Brexit concerns come as figures show the outlook for manufacturers weakened during Q2. The survey reveals that manufacturing domestic orders balance contracted considerably (from +21% to +3%) while the export orders balance showed only marginal improvement. Fewer manufacturers tried to recruit in Q2 and for those that did the jobs were less likely to be full-time. Investment intentions by the sector have also fallen. While services employment balances improved markedly, many of the jobs were more temporary in nature. Confidence in both sectors remained relatively flat during Q2 but again particularly for manufacturing. Overall, there was a more positive performance by both manufacturing and services during Q2 2016 but clear signs of challenges ahead largely for Northern Ireland’s manufacturers.
Meanwhile, with regard to the broader economy, the results suggest that the Northern Ireland economy was growing in the second quarter of this year. In overall terms, the region performed solidly particularly against the wider UK economy where performance was lacklustre. However, there was a sense of uncertainty around growth prospects beginning to creep in (mainly amongst manufacturers) during this period which was just before the EU referendum result was announced.
Brian Murphy, Partner at BDO, commented: “It is encouraging to see that despite the EU Referendum campaigns during Quarter 2 the Northern Ireland region still performed well. This is a reflection of the determination and drive of business leaders in Northern Ireland; they continue to strive to improve and expand their businesses and to avoid the distraction that so many other UK businesses were being subjected to. It is critical that we do not allow ourselves to become distracted by the uncertainty and that our business leaders continue to focus on their plans for growth.”
Skills remain a serious concern for businesses particularly regarding the adequacy of the current education and skills systems in Northern Ireland to promote economic growth. They attribute this to a lack of applicants with the required skills, not enough applicants with the required attitude, and also a lack of experience amongst those candidates who have recently graduated from university. Key findings include:
- Almost two-thirds (63%) of businesses are experiencing recruitment difficulties (67% in manufacturing, 61% in services)
- More than half of businesses (55%) believe that skills mismatch/shortage is hampering economic and business growth in Northern Ireland
- Almost half (49%) believe that there is a serious mismatch between the skills people have and job requirements
- Only 29% believe that the core skills (literacy and numeracy) of Northern Ireland’s workforce are sufficient to drive economic growth
- Just 1 in 4 believe that there is a good match between graduate qualifications and business skills needs in Northern Ireland
- Only 22% believe that there are sufficient supports available for young people to help them get the right skills/qualifications to find and secure the right job.
Commenting on the skills issue, Christopher Morrow, Head of Policy at NI Chamber, said: “Skills shortages is consistently raised as one of the biggest issues facing our members. Preparing young people for the world of work, investing in the skills of those already at work, and ensuring that we have the skills required to grow the economy, are essential in driving Northern Ireland’s competitiveness.
“We must therefore ensure that investment in skills is prioritised and that there is sufficient budget allocated to support the development of STEM programmes, international business expertise and the expansion of the Assured Skills programme. It is also important that the results of the NI Skills Barometer are closely monitored, setting targets and investing in a Northern Ireland wide reskilling programme.
“Finally, post-Brexit, businesses are already asking questions about the future of EU nationals in their workforce, and the risk involved in hiring others. Swift reassurance on the future status of EU employees is crucial to the recruitment and retention of these skills.”
Brian Murphy, Partner at BDO, said: “The strength and depth of our workforce in Northern Ireland has always been an asset for the Region, so it is obviously concerning to hear that business leaders believe that a skills shortage is evolving here. Whilst this issue is no doubt concerning, our clients at BDO believe it should be considered in conjunction with the Government’s restructuring of the public sector in Northern Ireland.
“This structuring presents its own challenges, but there is no doubt that our extensive Public Sector base here in Northern Ireland already includes many highly skilled and trained individuals who will be able to transition into the opportunities that are arising within the Private Sector. This transition, accompanied with further investment in our education system, will go a long way to addressing any skills shortfall.”