Today EEF has released its latest report Invest for Growth - Encouraging more globally focused companies to expand in the UK. The report, which includes the results from a new survey on manufacturing investment, paints a picture of a strategic sector that faces a number of challenges in turning their plans into concrete actions and investment.
Manufacturers are ambitious
The survey clearly shows that manufacturers have strategies and plans in place to expand and grow. Most manufacturers have a strong focus on bringing new products and services to new customers and in new geographical areas. These priorities have been driving firms to increase their capital investment, which in turn is making them more profitable.
- Nine in ten firms are planning to invest to improve productivity, three-quarters to adopt new technology and seven in ten to develop capacity to manufacture new products in the next 12 months.
- Half of companies increased their investment in the last three years and only one in ten reduced it.
- Investment is being made not just in modern machinery but also in skills, R&D, marketing and innovation.
- A balance of half of companies increasing their investment reported increased profitability compared with 7% who decreased their investment.
But there are concerns investment is not high enough
Despite these positive plans and recent trends, manufacturing has suffered from a decade of declining investment, which saw pre-recession investment levels fall below that of our competitors. The recovery in business investment has also been slower than our competitors leaving it, still, 14% below its 2008 peak. The survey results reflect these challenges and shows that the falling investment has damaged competitiveness and investment is not as high as manufacturers would ideally like it to be.
- A fifth of manufacturers feel they are falling behind their international competitors.
- A third said the gap between what they want to invest and what they actually invest is growing.
Closing this gap will not be easy
The challenge of attracting and retaining investment is not unique to the UK. In an environment where more and more manufacturers have production facilities overseas, they must weigh up the pros and cons of different investment locations. Overall there is a shift towards more investment taking place overseas.
- 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.
- 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.
Manufacturers must also overcome a number of hurdles when it comes to investing. Demand uncertainty was the most cited reason for companies choosing not to go ahead with an investment and lack of strategic importance also featured. Finance is also a big challenge as investment decisions often come down to whether there are sufficient funds available; both access to adequate external finance and having sufficient available internal cashflow are holding back investment.
- The biggest barriers to investment were demand uncertainty, lack of cashflow, the desire to pay down debt, and tax and pension fund liabilities
- Smaller firms in particular struggle to access the external finance they need for investment, with 47% saying they have investment plans going unfunded because of availability, cost or the terms and conditions on external finance.
The Government has a clear role in promoting investment
The Government can greatly improve the attractiveness of the UK as a place to invest and grow a business by reducing the uncertainty around key aspects of the business environment. At the heart of a more predictable business environment must be a long-term strategy that focuses on manufacturing.
- 53% of companies said a long term strategy for manufacturing would have the biggest positive impact on investment in the UK.
- This industrial strategy must provide certainty of a spectrum of policies including 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.