In Business
Small Firms Association Autumn Economic Statement
By Avine McNally, Director, SFA
Aug 3, 2010 - 10:09:40 AM

Small Firms Association Autumn Economic Statement

In its Autumn Economic Statement, the SFA says:

• 3C’s are critical Government deliverables– confidence, cashflow & competitiveness
• Restoring competitiveness & creating jobs must remain central focus

In its Autumn Economic Statement, the Director of the Small Firms Association, Avine McNally, has said that whilst the Irish economic future is still very challenging, sensible policy decisions and strong political leadership to create a better and sustainable enterprise and economic future are required.

“The only way to solve the fiscal and unemployment crisis is through generating economic activity.  It is essential that Government prioritise the restoration of cost competitiveness to the small business sector; generate confidence in the economy and create the enterprise environment where job losses can be stabilised and jobs created.”

ACCESS  TO  CREDIT

“Access to credit remains a serious challenge, with one in five small businesses in Ireland not getting enough credit, we have a very serious problem, with potentially 50,000 small business closures and 160,000 jobs lost as a result,” said McNally

The SFA’s Summer Business Sentiment Survey, shows that one-fifth of companies (20%) have seen the availability of working capital decrease in the last three months, with some 13% indicating that investment finance availability has decreased.  The cost as well as access to finance, is also increasing as a problem for small businesses, with 15% of respondent companies stating that the cost of working capital had increased for them in the last three months and the cost of investment finance having increased for 8% of respondent companies.

“There has to be a greater understanding in the banks of the environment in which small firms are trading, banks normally appraise future credit risk on the last few years of a companies financial performance, given the current situation, this type of system is unlikely to provide a full picture of the overall viability of a business and this has to be taken into account if many viable businesses are to be given the credit they so critically require,” said McNally.

The SFA believes that the Report further demonstrates that there is now clearly a market failure in the provision of SME lending, as the banks risk assessment criteria means that they will not be changing their current pattern of lending decisions and thus it is essential that the government intervenes directly to share this risk with the banks and thus move their risk-assessment decision.  This should allow them back more businesses and/or reduce the collateral and conditions they set with particular clients, to enable them to drawdown the money they desperately need. Such credit guarantee schemes are already widely used in most OECD countries”, commented McNally.

BUSINESS  COSTS

As shown in the June inflation figures (-0.9%), Ireland is not experiencing a broadly based price deflation as the fall in costs are occurring in a narrow range of goods, i.e. clothing, food and beverages, and while these falls are positive for consumers they are not helping struggling small businesses.”

McNally added that any price decreases that Ireland has experienced are largely a response to the Irish and international recession i.e. reduction in interest rates; reduced demand, rather than a specific response to any structural or policy changes made within the Irish economy.  Structural and policy changes are necessary to ensure prices remain low and do not increase when economic growth returns.
 
“The most worrying aspect is that, for the main part, inflation is being driven by increases in public utility costs, such as education, housing, water, electricity, gas (5.2% increase) and transport (2.9% increase), and these costs are daily input costs for businesses.”

“Small Irish businesses have taken harsh steps to regain cost-competitiveness, yet many costs remain outside their control as they are government influenced.  When these costs are passed on to the rest of the economy, competitiveness and jobs are lost.” said McNally.

ON EMPLOYMENT

The labour market situation remains very difficult.  The Live Register provides a good indicator of labour market conditions and the figures in June shows the weakness in our labour market, with many firms’ still placing people on short time working or implementing redundancies.  During the month of June 193 people joined the live register every day.

The high level of redundancies remains a concern, with 1, 302 jobs lost every week in the first 6 months of the year.  “Our ability to create jobs has been severely damaged by a loss to competitiveness and it will continue to be a problem until this issue is addressed.”

LOCAL AUTHORITY

The SFA believes that Local Authority reform must be delivered in advance of any further increases in Local Authority funding from the business community. A new approach to Local Government financing is required. The five principles governing local authority charging should be consistency, transparency, equity, efficiency and accountability.  

The recently produced report by the Local Government Efficiency  Review Group makes recommendations to introduce new more efficient and cost saving ways of providing local services. For many years the business community has been the main source of funding for many local authorities, and the Implementation Body to oversee the changes within local government must ensure that cost savings achieved are passed back to businesses in the form of reduced rates and other charges.

“While we strive to be confident about the economy there are still signs of concern – housing prices are still falling; consumer confidence and spending will continue to be undermined due to pay cuts; an uncertain labour market and further cuts in Government expenditure.  On the positive side, the external economic environment is gradually getting stronger and the challenge is to ensure that the Irish economy and Irish small businesses will be in a position to exploit this recovery,” concluded McNally.

Ends

For further information contact:  Avine McNally, Director, Small Firms Association, Telephone: 087 645 0205.

Avine McNally
Director, SFA
Telephone: +353 1  6051633
Fax: +353 1  6381633
Email: avine.mcnally@sfa.ie
Website: http://www.sfa.ie
Have you considered joining our group on Linkedin -  http://ie.linkedin.com/in/smallfirmsassociation or following us on Twitter - @AMcNallySFA