If you're small and fast, you won't be squashed by elephants

By Ron Immink, co-founder of Smallbusinesscan.com

We risk being squashed by elephants. No, really. I read an article last week about all these 'elephants' stamping around threateningly - Germany, public sector wages, the eurozone crisis, deficits, budget cuts, (and I am sure we can come up with a few more). They're trying to squash us all.

This reminded me of a book I read a long time ago called The Elephant and The Flea, by Charles Handy. The book was way ahead of its time. It talked about the flexible, free agent moving outside the big corporations. A combination of Poke the Box by Seth Godin and Killing Giants by Stephen Denny.

There is also a book called The Ant and the Elephant which is about the intentional (the ant) and unintentional (elephant) mind and how we need to control the elephant to become good managers.

I'm getting sick and tired of 'elephant thinking' (mainly referring to the doom and gloom). So here is the good news. If you are a flea or an ant, it is difficult for the elephant to step on you. You are too small and too fast. Most of us are moving at the scale and speed of ants. Yes, elephants, as described in the article I read, are a nuisance, and you need to watch for the looming shadow, but they should NOT consume all of our thinking (or our media's).

As ants, we should think about which other ants we should and could work with, how we can all work together as ants, where to fly out to for our next nest, etc. You get the point.

Back to where to fly to, which is a bad segway to 'exporting' and our Business Live events. Where would you to fly to as an ant? Why don't you ask some other ants who have done some 'air miles'? Our event in the north west on February 2 will hear from small business owners who have had great success doing business outside Northern Ireland. Find out more at www.smallbusinesscan.com/business-live-events.

Or, if you want to fly to Asia, watch out for the joint Ulster Bank, Invest NI and UK Trade and Investment Doing Business in Asia event at Riddel Hall, Belfast on February 10, at which experts from Invest NI and Ulster Bank's global parent company Royal Bank of Scotland will be on hand. More information is at: www.businessinasia.co.uk/events. Remember Indiana Jones and the Crystal Skull? When the ants pulled a human into their nest? I bet they could do it with an elephant too. Smallbusinesscan is kind of like one of these ant nests (in a good way). Join the army of ants and let's beat the elephants.

Here is the good news. If you are a flea or an ant, it is difficult for the elephant to step on you, you are too small and too fast.

Sustainability should be reflected in property value in Northern Ireland

By Ben Collins, Director, RICS (Royal Institution of Chartered Surveyors) Northern Ireland

RICS recently set up a European Sustainability Task Force to advise property professionals about their role, responsibilities and possibilities in contributing to the transformation towards a sustainable built environment and property markets.

Their work includes: developing guidelines and training; research for assessing the sustainability performance of property and related investment products; and analysing property related developments in policy, legislation, research, education and standardisation.

Sustainability and value has been a big focus of the task force. There is general agreement that property professionals require more transparency and comparability of indicators and metrics in order to better reflect the sustainability performance of the built environment.

Why is all of this relevant?

Well it’s relevant for one because more than a quarter of the UK’s carbon emissions come from homes. And something like 40% come from buildings as a whole. More needs to be done to reduce carbon emissions from property, and to make our built environment more sustainable.

RICS believes that developing a stronger link between energy efficiency and the value of homes has an important part to play in reducing carbon emissions by incentivising householders to take action. If your house is going to be worth more as a result, surely you’ll be more likely to take action to make it more energy efficient?

RICS believes that there are some practical things that can be done by government to achieve this. Better information for consumers and professionals is one aspect. Strengthening the market through improving skills is another.

Indeed, RICS believes that not just energy efficiency, but wider sustainability issues should be reflected in a home’s valuation. A recently published information paper from RICS says that whilst sustainability has traditionally not been considered important in a property’s valuation, this is changing. RICS says that should a home possess sustainability features which are likely to have an impact on value, this should be reflected in a valuer’s assessment of the property.

Sustainability features can include a home’s energy efficiency rating, as well as the materials used in its construction, and other features such as an energy-efficient boiler. Elements such as a building’s proximity to public transport links and its ability to adapt to occupiers’ changing future needs should also be considered.

At present, when calculating a property’s worth, the market doesn’t always take the issue of sustainability into account, but this could also have been said for central heating way back in the 1970s when people weren’t convinced it was going to have a market impact.

With the increased emphasis on green living and energy efficiency, it is highly possible that the market will need to adapt. The new information paper offers advice to RICS members, recommending that they are fully aware of sustainability policy and the characteristics of individual buildings when valuing property.

Although market awareness of sustainability is rising, attention is currently focused largely on a home’s energy efficiency, propensity to flood and carbon emissions. Whilst this is very important, a property’s sustainability status can also cover a range of social, environmental and economic matters that can potentially lead to changes in demand and therefore affect value.

This is particularly important in Northern Ireland, where fuel poverty and - with an increasingly car-dependent, dispersed rural population - ‘transport poverty’ are significant features. As the cost of running a car increases, transport costs form a bigger part of the family budget.

RICS’s latest information paper aims to help valuers consider sustainability issues and their implications when undertaking valuations of residential property. It details environmental factors, including energy, waste, water and flooding, along with social factors such as accessibility and health and wellbeing.

NI new car sales continuing to fall

By Richard Ramsey, Chief Economist, Ulster Bank

 

The Society of Motor Manufacturers and Traders (SMMT) new car sales figures for UK, England, Scotland, Northern Ireland and Wales were released on Friday for December 2011.

One of the most reliable indicators of consumer sentiment is new car sales as it is based on fact and not opinion.

It is not surprising that in Northern Ireland new car sales are continuing to fall and in 2011 were some 31% lower than the peak in 2007 or almost 21,500 fewer car sales.

This is a steeper fall than in the UK as a whole (19.2%) but still compares favourably with the Republic of Ireland.

During the 12 months to November 2011, new car sales in the RoI remained over 50% below its 2007/08 peak.

In December 2011, there were just 1,441 new car sales / registrations in Northern Ireland.  This is over 13% lower than December 2010 and 20% below the same month back in 2007.

For Q4 2011 there were 7,101 new car sales in NI.  This was down 7.3% on the corresponding quarter in 2010 and 22% below the same period in 2007. By comparison, UK car sales as a whole were only 1.7% lower y/y in Q4 2011.

During 2011, new car sales fell by 11.7% (6,260 fewer car sales) relative to 2010. This was a steeper fall than the UK experienced (-4.3%).

Economic outlook for 2012

By Richard Ramsey, chief economist, Ulster Bank

Looking in the rear view mirror and at the road in front is far from pretty.  2011 started off badly, deteriorated mid-year and tailed off towards the end. Indeed, my own economic outlook this time last year proved to be overly optimistic for the fourth year in succession. Against this background, expectations for the year ahead are extremely low and on past experience are likely to be overly optimistic once again. Having become weary of and immune to surprises, we should expect the unexpected and more volatility in the year ahead.

Economic growth forecasts for 2012 have been slashed.  The consensus opinion is for the UK economy to expand by just 0.7% in 2012, one third of the growth rate anticipated 12 months ago. This is also one third of the growth rate (2.1%) forecast for the US economy, which is still sluggish by its standards. Meanwhile, the biggest downgrades in economic growth are centred on the eurozone. Last Christmas, financial markets were nervous that Spain might require a financial bailout. The focus, however, shifted to Italy which wasn’t even on the radar this time last year. The eurozone is expected to contract by 0.1% in 2012 which compares with the 1.6% growth rate expected just 6 months ago. Rating downgrades will remain a feature for sovereigns and financial institutions alike. France is expected to lose its prized AAA credit rating for the first time since 1975.

A year ago I highlighted that talk of the demise of the euro was overdone and that the EU authorities would ‘throw the kitchen sink’ at addressing their problems.  Clearly, this did not happen and markets lack confidence that there will be an adequate policy response in 2012. Rather than the demise of the euro, the talk this year will be on how the eurozone changes – in terms of possible eurozone exits and further fiscal integration. Against this backdrop, we have a bias for euro weakness against sterling.  UK holiday-makers in the eurozone next summer should experience their best exchange rate since 2008 with the pound expected to be worth around €1.22 (€=0.82p).

From a local viewpoint, we will be closely watching the issue of corporation tax from two perspectives.  First, whether the Republic of Ireland manages to hold onto its 12.5% corporation tax rate and second, whether Northern Ireland can secure such a rate if corporation tax powers are devolved. Clarity on both issues should emerge later this year. On this front, let’s hope for Northern Ireland’s sake that the London Olympics don’t provide a good opportunity to bury bad news.

Next summer will also reveal the findings from a Chancellor-commissioned report into regional public sector pay. Both of these fiscal issues will have a significant bearing on rebalancing the local economy. Before then we will get a Spring UK Budget which will provide more detail on the additional spending cuts (2015/16 & 2016/17) announced in the Autumn Budget Statement. Total public spending is now set for its tightest squeeze since the end of World War II. Following the unprecedented 12-year boom in public expenditure growth, the UK now faces an equally unprecedented squeeze on public spending.  Excluding debt interest and welfare payments, public spending is set to fall by 16% over the 7-year period to 2016/17. To date, Northern Ireland / the UK has almost completed just one year of theese seven years of cuts. The severity of this situation still doesn’t appear to have been grasped by most of the population. Unlike our neighbours in the Republic of Ireland, Northern Ireland has experienced relatively mild fiscal pain with few, if any, unpopular policies announced for local households.  Water charges have been ruled out for the next few years.  However, other revenue raising policies are anticipated to be announced in 2012 over and above the expected U-turn on free prescription charges.

Against this context, Northern Ireland faces the unenviable position of being the UK region that has experienced the deepest recession and is also the most exposed to public expenditure. It is also the UK region most exposed to the Republic of Ireland. With both the latter and the UK set to grow by one per cent or less, the local economy is not expected to record positive growth this year.  These two economies are effectively the two tow trucks that will pull the Northern Ireland economy out of recession. Apart from the latest recessionary period, however, these two tow trucks are expected to grow at their weakest rate since 1986 for the Republic of Ireland and 1992 for the UK.

Outside of Europe, 2012 could prove a significant year for China. In the Chinese calendar this is the year of the dragon.  However, it remains to be seen whether China will still be firing on all cylinders. Opinion is divided over whether the booming Chinese economy will experience a soft or hard landing.  I am sitting on the fence and expect it to experience something in between! 2013 is ominously the year of the snake.  So far, China’s economic development has been all ladders and no snakes.  However, the economic board game being played by most other economies is ‘Snakes and No Ladders’. The one positive from a slowdown in China would be an easing in global commodity price inflation.

UK CPI inflation should fall dramatically this year, with the Bank of England more concerned with inflation being too low in two years time than too high. Therefore, in order to hit its 2% target within 2 years, we anticipate more monetary policy action next month in the form of another £50bn injection of quantitative easing (QE) as interest rates remain on hold. However, it’s the level of prices rather than the rate of increase that is the problem. In Northern Ireland, the severe income squeeze set to continue, with the impact increasingly felt on the high street and consumer sensitive sectors. These sectors, alongside construction, are expected to be the worst performing sectors in 2012. There will still be opportunities for competitive businesses within all sectors but 2012 will be a case of survival of the fittest.  Unfortunately for many firms the economic storm has simply lasted too long with competition too severe and profit margins too small.

2012 will be another year of further restructuring for businesses and the start of major reform within the public sector. Northern Ireland’s relative economic prosperity vis-à-vis the UK average is now back at levels last seen in 1992. This underscores the need for game-changing reforms and policies (e.g. lower corporation tax) to aid in the economy’s longstanding restructuring & rebalancing challenges. Whilst I continue to have a bearish outlook, I am by no means a pessimist.  To quote Winston Churchill “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty”.  From this perspective there are numerous opportunities for the local economy. But the key question is will we grasp them?

Don't waste a good crisis...

By Ron Immink, co-founder of Small Business Can

On behalf of Small Business Can, I’ve just had the pleasure of spending 10 days in Boston and San Diego courtesy of the US State Department and Boston College.  It was a fascinating trip, studying the best breed in entrepreneurship, networking, technology-transfer and business education.

I learned a lot. Not difficult when you meet smart people from Harvard and MIT. But the really smart people were the people from San Diego. San Diego was a sleepy town, completely dependent on the military. In the 80s they were hit by a 70% lay-off that should have left San Diego decimated.

What happened instead? They did not waste a good crisis and transformed the city into what is now a hub of innovation and entrepreneurship and a vibrant economy of mainly small businesses.

What were the ingredients of this success? ‘Can do’, leadership, networking and collaboration. Literally a handful of people decided to get together to make a difference. And then they ‘joined the dots’. Universities got involved, business got involved, agencies got involved.

All those parts are available in Northern Ireland; we have the universities, we have businesses already collaborating on Small Business Can and other networks (we particularly claim the “can do” attitude), we have the agencies and we are better at networking, including a Diaspora that is second to none. We can do what San Diego has done and transform our economy.

That is the big stuff out of the way (it is after all Christmas and the time for reflection and vision). What can you do as a small business?

You can ‘step up to the plate’. Show leadership. Get involved. Join Small Business Can. Visit our next Business Live events in Derry and Cookstown with Ulster Bank (details are on www.smallbusinesscan.com).

But the best thing you can do is to remain focussed on your business and make it a success. If you are thinking of starting, start now (you might not believe it, but this is the best time to do so) and if you need support, let Small Business Can and over 10,000 other business people help you. We will. And through success, we will breed success. And eventually transform Northern Ireland.

Happy Christmas and let’s make 2012 a good one. Let’s not waste the crisis.

What will 2012 hold in store for NI property market

By David McNellis MRICS, Director, Lisney

2011 has certainly proved to be a challenging year for the commercial property market, and with the continuing effects of the eurozone crisis, we are unlikely to see significant change in 2012.

High business rates, little capital from traditional banks and competition from the Republic of Ireland are amongst the many issues facing the local market. There have been a high number of receiverships and administrations in 2011, and NAMA continues to be a dominant factor in the market. This is likely to be the case in 2012 as well.

Northern Ireland needs some kind of significant stimulus, or the economy will remain in the doldrums. A reduction in corporation tax seems the obvious solution, as this would enable Northern Ireland to compete much better for investment with the Republic of Ireland, which currently enjoys a much lower rate of corporation tax. This of course has to be balanced against the reduction in the block grant from Westminster.

In the retail sector, abundant supply and low demand are driving down retail rents. Prime rents have dropped substantially from the height of the market, typically 30–50% on average. Retailers are holding all of the cards in lease negotiations, leading to low rents, flexible terms and, more often than not, turnover deals.

High Street retailers are facing ever-increasing pressure on sales, with consumer confidence remaining low and online retail sales continuing to grow at pace.

These factors have combined to reduce spending on the high street and in retail parks. Retailers are having to be more innovative and must work on improving the overall retail experience in order to prevent further leakage from the high street to the internet.

As always the Christmas trading period is fundamental to the success of many retailers but inevitably there will be casualties. Retail is a dynamic industry and the gaps left will be filled by new entrants eventually.

In the medium term, rents and vacancy rates within the prime retail pitches in the major towns and cities should start to stabilize, but we would predict further erosion of rents and more voids in secondary retailing locations. This trend is starting to roll out throughout many of the major cities in GB, where prime rents have stabilized and indeed started to improve over recent months.

However towns where there remains a high level of available space will see further downward pressure on rents.

In terms of the office market in central Belfast, although activity is subdued, the reality is that there is not a lot of Grade A stock available. When demand strengthens, for example as a result of a potential cut in corporation tax in Northern Ireland, the existing stock could quickly be taken up in the event of there being no new construction.

Will we catch cold from the eurozone?

By Richard Ramsey, chief economist, Northern Ireland, Ulster Bank

An old saying is that when the United States sneezes the world catches a cold.  This used to hold true but the emergence of the new economic superpower that is China has reduced the importance of the US economy as a driver of global economic growth, and a key concern will be whether China sneezes and the rest of the world catches cold, or indeed something more serious. But for now, the spotlight is firmly fixed on the Eurozone. The latest consensus forecasts anticipate growth for the eurozone of just 0.4% in 2012 with some of its economies: Greece, Portugal and worryingly Italy expected to experience outright contraction. Indeed, some analysts are forecasting the recession in Greece to last until 2015.  It began in 2008!

The situation in the eurozone is certainly more serious than a cold, with the sovereign debt crisis spreading its flu-like symptoms throughout global financial markets. To date, European policy-makers have struggled to stabilise the patient and the best case scenario is a long, slow and painful recovery. The key question is will Northern Ireland catch a cold from the eurozone too?

Northern Ireland (NI) is unique in that it is the only part of the UK to share a land-border with the Eurozone – the Republic of Ireland (RoI). Throughout most of the last decade, NI enjoyed the positive economic spillovers, or ‘Southern Comfort’ from its proximity to the fastest growing economy in eurozone. Prior to the downturn exports to the RoI were as large as all other sales to Asia and the rest of the EU combined. As for tourism, the RoI is our second most important market and visitors from the South contributed to a record year for the industry in 2007.

Since then, however, the trade, tourism and investment linkages have turned into negatives.  Proximity, and the financial and economic inter-linkages with one of the eurozone’s so-called ‘PIGS’ (Portugal, Ireland, Greece & Spain), led to NI contracting a ‘swine-flu’. As a result, NI is now experiencing the economic chill from its closest neighbour and a lengthy period of ‘Southern Discomfort’.  It is important to note, however, that the local economy was already shivering as it had already contracted its own property-induced flu. Since then, the local economy has stabilised but it has been unable to shake off a heavy economic cold.

With the Eurozone likely to enter recession and the ongoing sovereign debt woes, these factors will simply delay NI’s recovery. The local economy will be pulling a ‘sickie’ for some time yet. Over the last year, the only part of the NI showing any meaningful recovery has been manufacturing. This has been due to the fact that export markets, outside of the RoI, have been relatively buoyant.  However, the rapid economic slowdown is going to close, but not shut, that door. This will limit the economic uplift from an export-led recovery.  Meanwhile, the domestic economy within NI remains pretty much flat on its back. NI will also not be immune to the rising funding costs within the wholesale money markets.  This makes the cost of financing the recovery more costly than it otherwise would have been.

The two most important factors behind a NI economic recovery are the strength of the recoveries in the UK and the RoI.  In recent weeks, the economic outlook for both these economies has deteriorated markedly with growth forecasts being scaled back. These two economies are essentially the two tow trucks for NI’s economic recovery. But with economic growth slowing to a pedestrian rate, if not a standstill, these trucks have temporarily run out of fuel largely due to the economic and financial market deterioration within the Eurozone. Therefore the biggest impact of the Eurozone downturn on the local economy stems from the indirect impact on the economic growth and public finances prospects of the UK and RoI tow trucks.

Last week the Chancellor provided us with a sobering assessment of the health of the UK economy and its public finances. Put simply, the prognosis is far from good with more tax rises and deeper public expenditure cuts for longer than was previously thought. For a public expenditure driven economy such as NI the next two parliaments of fiscal pain will hurt. Meanwhile, this week our nearest neighbour – the RoI – will receive yet another austerity budget. As we saw recently with the ‘Enda the road for the A5’ the economic and financial impact of this will be felt here too.

Whilst we will not be leaping out of the sick bed anytime soon it is important to remember that like all colds or flus, we will recover from this one. The question is when and with what prescription? Locally, NI must take its own medicine, but much will depend on what is administered at a eurozone level. In the meantime, while we are laid up it is perhaps worthwhile bringing forward, rather than pushing back, some of that surgery (public sector reform) we have talked about.