EEF report shows growing gap between ambition and reality on investment

Raising investment critical to delivering growth strategies

Ahead of its second annual Manufacturing Conference in London tomorrow, EEF, the manufacturers’ organisation has released its latest report, Invest for Growth - Encouraging more globally focused companies to expand in the UK.

The report which contains a major survey shows that manufacturers have ambitious strategies but raises questions as to whether they are investing enough to deliver them. These strategies focus on bringing new products and services to new overseas markets.

According to the survey of over 250 companies nearly nine in ten firms want to invest to improve productivity, three-quarters to adopt new technology and seven in ten to develop capacity to manufacture new products. Firms have been upping their capital expenditure with half of companies increasing investment in the last three years and only one in ten reducing it. Investment is being made not just in modern machinery but also in skills, R&D, marketing and innovation.

However, whilst these trends are more positive, they are not enough to make up for a decade of declining investment, which saw pre-recession investment levels fall below our competitors. Since then the recovery in business investment has been slower than our competitors, leaving it still 14% below its 2008 peak.

Reflecting this, the report shows that a fifth of manufacturers feel they are falling behind their international competitors. In addition a third said the gap between what they want to invest and what they actually invest is growing.

Closing the gap is not easy, with many manufacturers facing challenges in accessing finance on the right terms and the need to cover pension liabilities. In addition, competition for investment from locations across the globe is increasing and many manufacturers are foreign-owned and therefore face challenges in getting approval from parent companies.

Commenting, EEF Chief Executive Terry Scuoler said,

“Manufacturers are telling us they have ambitious strategies for growth but many are also saying they are not investing enough to deliver them. We need to close this gap between ambition and reality by overcoming the barriers to investment facing manufacturers and by giving them every reason to invest here rather than abroad.

“The global race for business investment is becoming ever more intense and winning it won’t be easy. The starting point for government must be redoubling its efforts to create an environment that gives industry the certainty and stability it needs to make long-term investments.”

At the heart of a more predictable business environment must be a long-term strategy that focuses on manufacturing; this was the call from 53% of companies in EEF’s survey. This should provide certainty across the spectrum of policies that impact on the ability of manufacturers to invest and the attractiveness of doing so in the UK:

· A competitive tax system for all companies investing in the UK;

· Improved access to external finance;

· Increased availability of suitably qualified staff;

· Competitive energy costs; and

· More support to commercialise technology

Other key findings from EEF’s survey included:

· A balance of half of companies increasing their investment reported increased profitability compared with 7% who decreased their investment.

· The biggest barriers to investment were demand uncertainty, cashflow, the desire to pay down debt and tax and pension fund liabilities

· Of the companies seeking a long-term strategy for manufacturing, 60% said that a change to the tax system would help, 42% said increased availability of suitably qualified staff, 33% competitive energy costs, 23% an improvement in credit conditions and 14% citied more support to commercialise technology.

· Smaller firms continue to struggle to access the finance they need for investment, as 47% have investment plans going unfunded because of availability, cost or the terms and conditions on external finance.

· Manufacturers are investing in boosting their capacity overseas. Two-thirds of survey respondents said proximity to customers was one of the most important factors when deciding on investment location, with labour costs (34%), skill availability (23%) and proximity to suppliers (17%) also important.

· Some 80% of companies with current facilities are planning to invest abroad whilst 15% of companies with no current production facilities abroad are planning investment outside the UK in the next three years.

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