NI Chamber & BDO Quarterly Economic Survey: Skills deficit damaging growth and productivity.
8 in 10 businesses currently trying to recruit new staff here are facing major challenges in doing so according to the latest Quarterly Economic Survey published today (24 October 2018) by Northern Ireland Chamber of Commerce (NI Chamber) and business advisers BDO.
In the survey, which covers Quarter 3 2018, the share of manufacturers having difficulties recruiting skilled workers is the highest on record since 2011.
Furthermore half of firms report that difficulties around recruitment was having the greatest negative impact on business productivity, an issue of concern given that low productivity has been a persistent drag on the Northern Ireland economy.
Overall, the survey shows that there are still signs of growth in the Northern Ireland economy in Q3 2018 although growth remains fragile, with manufacturing performing better than services across most key indicators.
Key findings in the Q3 2018 survey:
Manufacturing sector:
- All key balances in manufacturing are positive in Q3 for the first time since Q2 17.
- Expectations to take on staff remain high with 71% of manufacturers trying to recruit.
- Export balances are good with a balance of +27 expecting export orders to increase in the next 3 months.
- Manufacturing confidence around turnover has been improving after a poor start to the year, particularly around turnover.
- Local manufacturers are one of the most positive regions around investment intentions in training.
- The sector’s cashflow balance turned positive for the first time in a year.
- However performance is down over the year and domestic sales and orders balances remain weakest across 12 regions alongside the North East.
- High raw materials cost pressures persist with 84% citing this as key driver of cost increases.
Services sector:
- 5 of the 14 key services balances rose in Q3 18 with growth in the sector remaining subdued.
- Domestic sales and orders are weak and NI ranks lowest across UK regions for the domestic orders balance.
- Export balances are also among the weakest across the UK regions.
- The service sector cashflow balance remains negative having turned negative in Q2 2018 for first time since 2012.
- Confidence around profitability in the services sector remains very weak (+4) and has been weakening since 2016. The balance is now at its lowest since 2011.
- Expectations to take on staff over the next 3 months are higher in NI than the UK average and investment intentions in training improved over the quarter.
- Service sector confidence improved around turnover with a balance of +30 of businesses expecting turnover to increase over the next 12 months (+21 Q2 18).
Recruitment challenges:
- Recruitment intentions are relatively strong with 71% of manufacturers (UK 67%) and 58% of services trying to recruit (UK 47%).
- Difficulties recruiting staff is a major issue for both sectors. Around 80% of those trying to recruit are finding it difficult to attract the right staff, largely professional/managerial in services and skilled trades in manufacturing.
- The share of manufacturers having difficulties recruiting skilled workers is highest on record. This is leading to growing pressure on manufacturers around pay settlements.
Productivity:
- Around 3 in 5 businesses (61%) rate their productivity as good or very good, 30% rate it as OK, with just one in twenty (5%) saying it is poor.
- Skills concerns dominate challenges in raising productivity performance with half of members reporting that difficulties in recruiting the appropriate skilled staff has had the greatest negative impact on their productivity.
- The attitude of employees was also significant for 26% of businesses.
- A lack of skills among their current workforce (25%) and a lack of management skills (21%) also have a considerable negative impact on productivity.
- Firms believe that the burden of government regulation (27%) has the second largest negative impact on their productivity after skills.
Members provided a diverse range of views on what government could do to help – the return of the Assembly being key. Businesses also felt that support from the government in upskilling workers, reducing business costs and driving growth would be beneficial to increasing productivity. Brexit certainty was also considered important.
Brexit Watch:
This quarter the NI Chamber’s regular Brexit Watch focuses on the extent to which businesses have sought support and are preparing for Brexit. The Ninth Brexit Watch suggests that:
- Almost 1 in 3 members have sought advice on Brexit (30%).
- This was more prevalent amongst Northern Ireland’s largest firms – 40% of medium/large firms seeking advice compared to 27% small and 21% micro.
- The most common source of advice was from an accountant, solicitor or other private business adviser (13%), followed by a Government Department or agency (12%).
- Of those who haven’t sought advice, this is largely because of the uncertainty around Brexit and waiting to see what the final shape of the Brexit deal look like. Some are not sure who to talk to. Others did not feel that Brexit was relevant because they only traded in the UK.
- Almost 1 in 4 (23%) have assigned a person in their business to deal with Brexit while 17% currently considering it.
Responding to the survey, Ann McGregor, Chief Executive of NI Chamber, said:“These findings reinforce what we are hearing from businesses regularly – the uncertainty over Brexit, and the inability to address regional issues as a result of no Executive, are starting to bite. We have a vibrant and innovative business community that wants to invest and grow, but we are stuck in limbo while Brexit negotiations continue to dominate.
“Those businesses that are hiring are finding it increasingly challenging to fill vacancies. There are some serious skills gaps opening up for firms and we urgently need to find a way to resolve this. Many firms are deeply invested in developing home-grown skills and talent within their company, however this alone is not enough to fill the skills gaps, at all levels that businesses face right now.
“This is also set to get worse post-March 2019. Government must work with business to develop an immigration policy that supports a growing economy. We should not be closing the door on any of the skills we need for our companies to succeed.
“The survey also revealed that support from government in upskilling workers, reducing business costs and driving growth would be beneficial to increasing productivity. With a lack of government here, the upcoming Budget must deliver immediate localised actions to boost growth and productivity, such as City Deals, at a time when the economy here needs it most.”
Brian Murphy, Managing Partner at BDO, said:“The majority of our businesses have proved to be resilient in the face of many challenges but if these results show anything it is that, they need support to enable them to continue to invest and grow.
“It is positive to see that many of our businesses, 71% of manufacturers and 58% of the services industry are aiming to recruit in the next twelve months. Despite this, the desire to recruit requires a pool of candidates to recruit from, which we are not seeing at present. Attracting the right talent for a specific role will have a knock on effect to other parts of your business, improving productivity, increasing your profit margin, aiding business growth. We need to be in a position where we are both attracting and retaining skilled workforce across the region.
“The results have shown there are signs of growth and generally, a reserved and hopeful confidence in the economy with an increase in businesses reporting a rise in domestic sales, exports and employment, particularly within manufacturing. Confidence around turnover also shows 44% of businesses expecting their turnover to rise in the next 12 months.
“Our businesses are ambitious and want to invest. To do so, they need clarity around a range of matters including Brexit and how to address key regional issues in Northern Ireland. Clarity on these points will allow them to develop and implement meaningful long term growth plans.”
