Iain McMillan, director of the Confederation of British Industry in Scotland, has been invited to contribute a monthly column to The Caledonian Mercury.The engines of growth in future will have to be different from those that drove the economy forward in the first decade of this century. Our economy has been turbocharged for too long by increased consumer and government spending fuelled by debt. Record levels of borrowing means this is no longer sustainable. The slack will have to be taken up by private sector investment and trade, and manufacturing will be central to this. Manufacturing has not had its problems to seek over recent years, and the recession undoubtedly took its toll. However, a more positive picture is emerging, with the latest Scottish gross domestic product (GDP) data showing the wider production sector grew last year. A more upbeat note was struck in CBI Scotland’s latest industrial trends survey. The survey shows industry sentiment improving across most indicators, providing further evidence that the revival in the fortunes of the manufacturing sector is becoming more entrenched.
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The quarterly Scottish survey covers sectors including textiles, chemicals, food and drink, metals and metals manufacturing, and mechanical, instrument, electrical and vehicle engineering. The April 2011 results reveal improving trends across all main indicators over the past three months, with industrial firms reporting improved domestic and export orders, higher output and increased hiring. Domestic orders outpaced exports for the first time in 12 months, and recorded their strongest performance for five years, since April 2006. Average unit costs rose at their quickest pace for almost three years, perhaps not surprising given that the average price of oil was $119 per barrel during the survey period, compared to $93 previously. Firms tell us they expect improvements in domestic and export order books and output to be sustained over the next three months, despite predicting further rises in average unit costs – albeit at a slower rate than in the previous quarter. Optimism over exports for the year ahead has improved, and more firms expect to authorise greater levels of investment in product and process innovation and training over the next 12 months. This will be important if the sector is to capitalise on emerging opportunities – one just has to think of the favourable exchange rate, returning overseas demand, and the move towards a low-carbon economy. These solid results suggest that the revival in Scottish manufacturing witnessed of late is becoming more entrenched, despite the recent spike in input costs. This will be crucial if Scotland is to strike a more sustainable economic model, becoming less reliant on public spending and with a far greater emphasis on private sector growth, business investment, and trade. Challenges and risks remain, but the success or otherwise of the sector will remain very firmly in its own hands. However, there are things public policy can do to help. Manufacturing is often misunderstood, with public opinion viewing it as a declining sector, owned by foreigners or on the brink of being totally offshored to China. Yet two thirds of Scotland’s £21 billion of exports comes from manufacturing, productivity in the sector is racing ahead, and numerous Scots firms play a leading role on the global stage – firms such as Devro, Weir Group, Edrington, John Wood Group and Tullis Russell. The sector needs to promote itself better and government can help, not least through incentivising the study of STEM subjects (science, technology, engineering and mathematics). Manufacturing exports will be in the vanguard of future economic growth. That said, more must be done to capitalise on the opportunities provided by the fall in sterling – with a more stretching national target for export growth, protection of support for internationalisation, and pump-prime funding for more direct air links with key international business destinations. It is encouraging that many devolved politicians seem to agree, but the time for action is now. On the domestic front, a greater proportion of public spending needs to go on infrastructure rather than consumption. This would improve our long-term economic potential, but also directly assist manufacturers and the wider production sector. Finally, public policy needs to keep a firm lid on those aspects of government which cost manufacturers and businesses more generally – non-domestic rates, regulation, water charges and planning.Want to discuss other issues? Join the debate on our new Scottish Voices forum
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