Getting down to business in the New Year

Published on Sunday 1 January 2012 00:00

After 12 turbulent months of global economic crises, our writers take a look at what’s in store for 2012

Manufacturing, Scott Reid

REWIND the clock 50 years and Britain was pretty much self-sufficient in what it made. Fast-forward to the present day and you will struggle to buy British-made clothing in any mainstream store while the last UK-made television set left its (Japanese-owned) Plymouth plant in 2009.

Yet the manufacturing sector is far from moribund. It may have shrunk from about a third of the economy in the 1950s to less than 15 per cent and employ two million workers compared with almost seven million way back when, but we still make plenty of goods that are in demand globally.

The success stories of 2011, which include car-makers Jaguar Land Rover and Mini, digger manufacturer JCB and Scotland’s whisky industry, can look forward to continued growth in the New Year, thanks to product innovation and an assault on new markets.

Chancellor George Osborne, below, is banking on a manufacturing-led recovery to help rebalance Britain’s economy amid stinging public sector cuts.

The motor industry, which accounts for about 12 per cent of the nation’s exports, certainly appears in rude health. Honda, Jaguar Land Rover and Toyota have unveiled plans to boost their collective UK headcount by some 3,000. And while the domestic new car market may be stuck in the slow lane, export trade is booming, particularly to emerging markets in Asia.

But there have been significant layoffs, including at train-maker Bombardier after the government selected a German company as preferred bidder on a £1-billion-plus Thameslink contract.

And while companies should benefit from an easing in inflationary pressures and the ongoing weakness in sterling, banks need to show their willingness to support ambitious businesses. On the flip side, further fallout in the Eurozone or a cooling in the Chinese economy could spell disaster, with smaller, specialist manufacturers, employing highly skilled craftsmen, in the frontline.

Oil and gas, Dominc Jeff

WITH the price of crude showing no signs of weakening any time soon, 2012 should be a good year for oil and gas companies and an even better one for those involved in the supply chain.

Analysts have been quietly revising their oil price forecasts upwards since the end of the war in Libya and rumours of a Eurozone meltdown failed to drag Brent below $100 a barrel.

Ian Armstrong, oil analyst at Brewin Dolphin, said Saudi Arabia remains a key player after successfully sidelining Iran within Opec. After committing to a massive spending programme to head off unrest, Saudi has added a good $10 a barrel to the price it needs to get for its oil while at the same time it needs to keep production up.

Armstrong said 2012 should see production pick up in the Gulf of Mexico and BP finally return to full strength. The FTSE 100 firm could put the Deepwater Horizon disaster behind it in February when the Obama administration makes its final decision on possible prosecutions – with the president’s attention by then firmly on November’s elections.

Explorers and the large integrated firms are likely to offer promising returns in a stable, highish oil price environment, but the biggest winners could be the engineering and service companies. “As long as the oil price stays above $100 you are going to see double digit spending growth on capital expenditures,” Armstrong said.

Commercial property, Erikka Askeland

THE market in the UK will be running at two speeds in 2012, with London buoyed by foreign investors chasing prime properties where the lettings market remains strong, and everywhere else.

Slower sales and lettings of property in the UK regions outside London will lead to further falls in rents and values, with increasing voids, adding to fears that jobs will be shed. After a two-year recovery in the average value of all UK commercial property petered out in the last quarter of the year, economists have predicted that values will fall by 4.9 per cent this year. In Scotland, analysts believe values could slump by as much as 10 per cent across the board.

Nor are many expecting a return to speculative development. And government investment initiatives – including the “tax incremental finance” projects that have the backing of local authorities in Glasgow and Edinburgh – are currently being hampered by controversy and red tape.

Many predict that lenders, especially RBS and Lloyds Banking Group, will speed up efforts to “deleverage” the hundreds of billions associated with commercial property lending facilities in order to shore up their balance sheets while the situation in Europe remains volatile.

The worst affected sector is retail property. Agents have suggested half of Scotland’s high streets face terminal decline as a number of shops face going into administration or reducing store portfolios.

Banking, Terry Murden

THE banking sector continues to require government support and until the markets feel the politicians have finally conquered the underlying issues in the Eurozone there will be no appreciation in values. Efforts have been made across Europe to ensure they are properly capitalised and a raft of regulations are being assembled to spot any future weaknesses, but the threat of nationalisation remains as does the possibility of one or two failures.

The deliberate de-risking and moderating of bank behaviour has to be balanced against the need to rebuild banks as cornerstones of national economies. The UK government is adopting the measures outlined in the Vickers report which will see some firewalls created between various functions.

Eyes will be firmly focused on Antonio Horta-Osorio on 9 January when he resumes his duties as chief executive of Lloyds Banking Group after a period of self-enforced absence through fatigue.

Bank watchers will also be keen to see if HSBC fulfils regular threats to quit Britain for a base in Hong Kong and whether the banks will show some restraint in the forthcoming bonus season following another year of losses.

New entrants have been limited because of the scale required to finance competitive products. Of those that have emerged, Aldermore, Metro and so on, are operating in small or niche markets. But there will be some notable changes. The Co-operative group has close on two years to complete its acquisition of Lloyds assets and should begin to unveil its plans. Northern Rock will evolve into Virgin Money and the Clydesdale may yet get a new owner. After a stuttering start, Tesco Bank has to prove that it can make the breakthrough that it has promised.

The City, Martin Flanagan

THE migration to a new City and financial regulatory structure will pick up pace in 2012. The aim is for the largely discredited Financial Services Authority to be disbanded by the spring of 2013. The FSA’s roles will be carved up between a new Financial Policy Committee to monitor systemic risks such as pre-2007 credit bubbles, and a new Prudential Regulatory Authority to regulate banks and insurers. Both will be under the aegis of the Bank of England.

A third regulatory authority, the Financial Conduct Authority, independent of the BoE, is also in the gestation period, charged with looking after financial markets and protecting investors. This year’s changes will be less of a 1986-like Big Bang in City regulation and practice, than a gradually enabling transition. The FSA has unofficially separated its prudential and market regulation under a “twin peaks” model to ease the path for the creation of the new PRA and FCA. The changes prompted by the financial sector’s near-collapse in 2008 will be facilitated by a Financial Services Bill, which is due to have its first reading in the House of Commons by about February. It is expected to be introduced into the Lords by early summer. Following that comes the Royal Assent. The regulatory “faces” will largely remain the same this year and into 2013, but reshuffled.

Bank of England governor Sir Mervyn King will chair the new FPC, which is already in “interim” non-statutory existence. Hector Sants, the ex-investment banker who chairs the FSA, will take up the same position with the PRA.Martin Wheatley will increasingly adopt a higher profile this year as the chief executive designate of the FCA. He has held senior positions with the London Stock Exchange and Hong Kong’s Securities and Futures Commission.

Small business, Perry Gourley

HARD cash will again have been at the top of the Christmas wish-list for many small businesses.

While 2011 saw evidence that lending to larger businesses was slowly recovering – albeit often on less favourable terms than in pre-credit crunch times – small business leaders have continued to bemoan the lack of finance available to small and medium-sized enterprises.

Government-led initiatives to stimulate lending to the sector will be expected to start making their financial firepower felt in 2012 and stimulating much needed growth in the engine room of the economy.

The head of the £2.5 billion UK-wide Business Growth Fund’s Scottish office, ex-Lime Rock and Simmons financier Simon Munro, has ambitions to do eight deals in Scotland in 2012 and believes he could complete two in the first quarter. The fund, established last year with support from five leading banks including Royal Bank of Scotland and Lloyds Banking Group in response to claims that they were starving businesses of vital funding, has signed a strategic partnership agreement with the Scottish Investment Bank’s Scottish Venture Fund to provide equity funding of up to £10m.

The Scottish Loan Fund, established under the SIB, began to make its first investments at the end of last year and will be expected to start to deliver regular deal flow during 2012. The fund, managed by Maven Capital Partners, offers finance of between £250,000 and £5m to businesses. It has more than £94m of resources – £39m of private sector and £55m of public sector investment.

Other less conventional routes will open up in a bid to fill the funding gap with the Strathclyde Pension Fund signalling it is willing to invest £100m in SMEs across the west of Scotland this year.

Renewables, Peter Ranscombe

CHANGES to the subsidies available to renewable energy developers could mean that in 2012 the focus shifts from offshore wind turbines to wave and tidal devices.

Both Scottish and UK government consultations on changes to the subsidy system – or Renewable Obligation Certificates – end this month, with the rates coming into force in 2013. When the proposals were unveiled in October, both governments said they would cut the subsidies for wind turbines but increase those for machines that generate power from the tide or waves.

Scotland accounts for about 25 per cent of Europe’s wind power resources and about 10 per cent of its wave energy. Any subsidy changes could make technology being developed by Scottish firms more attractive, such as devices made by Aquamarine Power, led by chief executive Martin McAdam, and Pelamis Wave Power, where new boss Per Hornung Pedersen is looking for a partner to develop its “sea snake” system.

Focus will also be on Dundee – where Scottish & Southern Energy, Forth Ports, Scottish Enterprise and the local council want to develop sites for wind turbine manufacturers – and on the former oil rig yard at Nigg, in the Highlands, where Roy MacGregor’s Global Energy Group wants to build massive turbines.

In Aberdeen, Steve Remp’s Aim-quoted SeaEnergy is preparing to take turbines, equipment and engineers out to sea. Having sold its own renewables business to Spanish oil giant Repsol, the firm is now pushing on with its strategy to supply services to the industry, such as boats for transport.

Look for developments at Strathclyde University too, where former Scottish Manufacturing Advisory Service director Steve Graham has his feet under his desk at the Technology & Innovation Centre for Renewable Energy & Enabling Technologies.

Social media, Kristy Dorsey

MANY anticipate an intriguing if not downright acrimonious 12 months among the giants of the social media realm as Google continues beefing up its “plus” offering in a bid to knock Facebook off its perch.

While Google+ has not lived up to the hype of “the next big thing”, Facebook’s response to last year’s launch hints at what could be. If Google manages to successfully integrate its search engine within the new network – a process that is still in the works – the battle for the mass market will become a far more balanced fight.

Meanwhile, businesses promoting themselves via social media will need to keep a keen eye on how the masses are using these online platforms. Social networks are increasingly bringing news through direct feeds to the consumer, meaning fewer users are willing to search for information. Gone are the days of building a website that lures in online hordes – those who want to get their message out will have to actively push it.

While talk of “social media fatigue” has been overdone, simply launching a new network in 2012 will not guarantee a flood of new members. Social networking will continue to grow, but users need ample persuasion to switch or even add an allegiance.

Niche players with a unique offering will have plenty of room for manoeuvre among the big boys, but “me-too” networks will find that even the most avid social media consumers have only so many hours in the day.

Eurozone, Nathalie Thomas

THOUGHT the Eurozone crisis had been tamed in 2011? Think again. Despite the political back-slapping that went on following the last European summit in early December, the markets are braced for another ugly year of sovereign debt woes. 2011 saw more than 20 meetings between European policymakers but investors remain unconvinced that the 17-country bloc is close to agreeing a long-term solution to the crippling sovereign debt problem. Economists are certain that the economic region is heading into recession with Standard Chartered expecting a 1.5 per cent contraction this year.

As Luca Mezzomo, analyst at Italian bank Banca IMI, says: “The disastrous management of the crisis by Eurozone leaders is increasing recessionary risks in Europe, and indirectly obscuring the global macroeconomic outlook.”

Hopes were dashed before Christmas that the European Central Bank would ride to the rescue with a large-scale programme of quantitative easing, leaving some to direct their pleas to Christine Lagarde, left, at the helm of the International Monetary Fund (IMF) to pour billions of euros into the system.

Economists at Investec argue that the solution “will need to come from an international (likely IMF) backed ‘bazooka’ backstop of around ¤2 trillion”.

The tone of the crisis is growing more desperate every day – Italy has to refinance ¤300 billion this year, casting serious doubt over its “too big to bail” economy. There are a string of meetings in the diary for the end of this month followed by the February meeting of the G20 finance ministers. Although talk of a Eurozone break-up has been hushed for now, Jeremy Leach, managing director of fund manager Managing Partners, says: “A partial break up of the Euro is inevitable, with Greece the most likely to default and leave the single currency in 2012.”

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nabodican

Monday, January 2, 2012 at 12:33 PM

Hopefully we will see the demise of the wind industry.

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