Memorandum from West Midlands EEF (WM
06)
1. OVERVIEW
1. EEF represents approximately 900 manufacturing
businesses in the region employing in the order of 150,000. These
businesses offer a wide range of products and services and deliver
to a diverse range of markets.
2. Regional manufacturers have been especially
hard hit by the economic downturn and recent EEF national surveys
indicate that the West Midlands has fared particularly badly.
3. This is often attributed to a regional
dependence on the automotive sector, where consumer demand has
collapsed and a major de-stocking process is underway.
4. In reality, problems extend far beyond
businesses engaged in automotive supply and through to practically
every sub-sector of manufacturing. They are particularly acute
amongst small and medium sized enterprises.
5. Contrary to popular belief, the region
has a diverse, innovative and productive manufacturing sector
which has regenerated itself over recent years to operate in competitive
global markets.
6. There are casualties in any recession,
but there is increasing evidence that the downturn is so severe
that competitive, well run, "world class" manufacturing
businesses are now suffering to the extent where their ability
to recover post-recession may be undermined.
2. IMPACT OF
THE ECONOMIC
DOWNTURN ON
THE REGION'S
MANUFACTURING SECTOR
1. EEF survey data indicates that manufacturing
activity has continued to decline in all regions, with output
balances weaker than expected, the West Midlands has posted the
weakest figures.
2. Manufacturing has recently seen the highest
and most rapid rate of job losses compared with other sectors.
Prior to autumn 2008 the majority of businesses remained
relatively optimistic, but a rapid decline in demand has precipitated
the lowest levels of confidence recorded in EEF surveys.
3. Data collected from EEF members shows
output and orders have hit record lows with forward looking balances
the lowest in series history.
4. Whilst there are some niche sectors,
the economic downturn is affecting most manufacturing sub- sectors.
Manufacturers supplying to the construction sector were hit earlier
in 2008 followed by an abrupt downturn in those supplying
to the automotive sector from September 2008. Motor vehicles and
basic metals sub-sectors continue to report the weakest conditions.
5. Aerospace, which operates to longer lead
times, has been more stable, but even here there are signs that
the downturn is beginning to impact upon confidence.
6. The global nature of the downturn is
reflected in the fact that both domestic and export order books
are depressed. Favourable exchange rates appear to be having little
general benefit and margins remain low.
7. Manufacturers are faced with the stark
reality of balancing decline in demand against costs: Faced with
uncertainty as to when an eventual upturn is likely, scaling back
production, shedding jobs and shelving investment intentions are
widespread.
8. Investment intentions within the manufacturing
sector, (which have typically remained stable although arguably
to low), now show signs of a worrying decline: Manufacturing investment
decisions relating to skills, innovation and capital equipment
are typically made to yield benefits in the medium/long term.
Lack of investment now poses potential risks to future competitiveness.
9. Whilst the pace of job cuts has accelerated
in the past three months, there is evidence that manufacturers
and employees are taking proactive measures to maintain employment
and retain skills where practical: Average wage settlements have
fallen to an all time low, with pay freezes and deferrals the
norm. Significant numbers of businesses have introduced short
time working and training as a temporary measure.
10. Looking forward, EEF members in the
West Midlands remain pessimistic and see little sign of recovery.
Focus upon cash flow and cost control remains a priority.
11. Smaller businesses employing less than
50 workers remain the most downbeat and these are of particular
concern: Many feel isolated and vulnerable and if they are allowed
to fail there is a risk of loosing crucial capacity in supply
chains when an upturn comes.
3. ROLE AND
EFFECTIVENESS OF
THE RDA AND
BUSINESS LINKS
1. Given the speed and severity of the economic
downturn, the RDA has responded promptly to assist by marshalling
resources within its sphere of control. Although the current problems
are less contained and of a much higher magnitude, previous experience
of drawing together stakeholders gained through the regional response
to the MG Rover crisis, has been helpful.
2. Advantage West Midlands has been proactive
and creative in the use of the resources and budgets at its disposal,
specifically by early recognition of the funding issues faced
by businesses and establishment of the Advantage Transition Fund.
Finance under this scheme needs to continue until bank lending
stabilises and, in the face of continued demand this initiative
should be supported.
3. AWM has demonstrated understanding of
the issues within regional automotive sector supply chains: Current
proposals to target in-depth support to ensure the sustainability
of these businesses is well targeted and flexible.
4. For the longer term, it is essential
that a balance is maintained between the need to put in place
shorter term emergency measures, whilst maintaining a perspective
on growth and sustainability of the regional manufacturing sector
through the skills and innovation agendas.
5. Business, process, product and market
innovation are crucial to the sustainability of the manufacturing
sector, and the services funded through AWM, and provided by MASWM,
are highly valued. AWM has been responsive by allowing MAS some
flexibility to tailor services to be more appropriate to the changing
needs of businesses as a result of the recession.
6. Business Link services within the region
have undergone a period of significant upheaval and restructure
which is being tested by the economic downturn. The task of providing
a single point of access to business support is challenging, but
progress has been made and the level and quality of signposting
has improved.
7. A major issue for BL continues to be
visibility and image: Anecdotal evidence suggests that whilst
new users have a more positive experience of the service; the
brand still suffers from a tarnished image amongst those who used
it in the past.
8. In the current climate, expectations
from businesses are high and there is a measure of criticism of
the RDA and Business Link, borne sometimes of unrealism and lack
of understanding of funding streams within RDAs and Government:
In these circumstances it is particularly important that frustrations
relating to ease of access, signposting and speed of response
are dealt with promptly, and that positive communications are
maintained with business users.
4. RESPONSE OF
THE BANKS
AND OTHER
FINANCIAL INSTITUTIONS
1. Manufacturers continue to express concerns
regarding treatment by banks and financial institutions and frustration
that finance is still not flowing adequately. The view is widely
held that the levels of security currently demanded are punitive.
2. Evidence of problems with access to finance
is difficult to quantify and tends to be anecdotal, depending
upon individual business circumstances and whilst still difficult,
there does seem to have been some easing. In some instances lowered
investment intentions have reduced the need for borrowing.
3. The perception amongst many businesses
is that high profile measures were announced too early without
putting the infrastructure in place to enable them to be accessed.
Criticism over the length of time for measures to feed through
is valid and manufacturers now continue to express concerns over
assessment of risk, levels of security and arrangement fees.
4. Although not directly banking related,
a further concern on the horizon adding more financing pressures
are increasing reports of changing credit requirement and demands
for increased security associated with energy supply contracts.
5. ROLE OF
THE WEST
MIDLANDS TASKFORCE
1. EEF is actively engaged in the Council
of Regional Economic Advisers and supportive of the regional structures
which have been promptly put in place to address the economic
situation. The Council provides a key opportunity for direct engagement
with the Minister for the West Midlands and the Taskforce is a
key mechanism to identify impacts and develop cross-agency support.
2. Based upon EEF experience of engagement
in some work streams feeding into the Taskforce, these are addressing
key issues of relevance to our sector and it is reassuring to
see the level of collaboration between agencies.
3. Going forward, it is important that momentum
is maintained and there are visible outcomes for the business
community: Inevitably at the work stream level, similar stakeholders
and individuals will be called upon to participate and it is important
that the Taskforce keeps tight control on the levels of activity
generated to ensure that resource is not diluted.
6. ROLE OF
OTHER GOVERNMENT
AGENCIES
1. As covered in 3.7. in the current difficult
economic position, businesses have expectations of a range of
support measures, but are unclear which agency or partnership
has the ability to deliver. This can reflect negatively on perceptions
of the RDA in particular and specific areas where manufacturing
sector confidence has been undermined include: a lack of action
to address problems in credit insurance, indecision over support
for the automotive sector and lack of support towards some form
of short time working, all of which need direct Government action.
2. At the sub-regional level, amongst Councils
and Local Authorities the picture of support and co-ordination
is mixed and many of the initiatives appear to be focussed upon
social issues rather than specific support for manufacturing.
3. Jobcentre Plus has responded to put additional
resource in place to cope with a particularly difficult period,
caused by the step change in number of jobseekers. It is reassuring
that there was early recognition of the change in profile to incoming
clients and the differing needs of professional and "white
collar" applicants.
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