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BP SURVEY Accountants ‘We have seen no material improvement in the availability of credit to the SME sector’ Nobody knows better than accountants about how the economy is performing and the issues facing large and small businesses. NICK MULCAHY canvassed managing partners for their insight into liquidity, credit conditions and prospects for the economy in 2012 Mike McKerr Ernst & Young Our forecasts show economic growth struggling at just 0.5% in 2012, largely as a result of weak domestic conditions and falling demand for exports. However, our forecasts indicate Mike McKerr, Ernst & Young Ireland will perform strongly in 2013, with GDP growth picking up to an average of 4.1% per annum over the period to 2020, as the economy’s core strengths come to the fore once more. Our exports remain remarkably resilient and have grown at a time when countries including France and Germany saw their exports decline. Liquidity and credit conditions for SMEs have changed very little over the past 12 months. Businesses that performed well last year, and continue to perform well this year, are still accessing credit to some extent, particularly from foreign banks. Businesses that are still seen as ‘unbankable’ 12 months on continue to struggle to access credit. Liquidity for SMEs is generally far worse than for multinationals, not just in terms of access to growth capital but also in terms of accessing working capital, which is the lifeblood for any successful business. There has been a real and rapid improvement in the cost competitiveness of Irish businesses, reversing the trend observed in the years since adopting the euro. Many Irish businesses are expanding their horizons by breaking into new markets. We are seeing successful entrepreneurs taking existing generations of products and applying them to emerging markets, while continuing to innovate with nextgenerations in markets closer to home. Last December, Ernst & Young presented its findings to the G20 on the best approach for governments to create an entrepreneurial culture. The five key steps include linking entrepreneurship strategy to job creation, creating policy that helps funding access, establishing pro-entrepreneurial tax policy and creating better links between state agencies to help support entrepreneurs. Paul McCann Grant Thornton I think that the Irish economy is nearing the bottom, but the environment still remains difficult. Only the fittest companies can survive. Liquidity and credit conditions for SMEs have remained in a difficult position over Paul McCann, Grant Thornton the past year; in other words, they are no better or worse off than the previous year. Trading in 2011 was mixed for Grant Thornton, according to different service lines, but we are optimistic going into 2012. Our risk area has increased, particularly in financial services, and regulatory compliance has become increasingly more important to firms in these difficult times. Our recovery and forensic practices are busy, and we are actively moving towards helping businesses get ready for the future. We hope to hire approximately 30 graduates this year, along with a further 20 people in certain niche areas. Jim Mulqueen RSM Farrell Grant Sparks I don’t believe we have necessarily hit the bottom yet. Certainly the property market would appear to have another 10-20% to go this year, based on recent commentary. While some of the banks have been recapitalised Jim Mulqueen, RSM and are looking Farrell Grant Sparks to lend again, there is a very large proportion of companies who simply do not, and probably never will in the short term, fit the profile for refinancing or extension of banking facilities. Despite the government’s efforts, very few SMEs have managed to increase 58 Business Plus March 2012
BP SURVEY Accountants their level of facilities or bank support in the past 12 months. A reduction in overdraft limits and a push for higher interest margins by the banks are together having a very damaging effect on a segment of the economy that is already fragile. The only way in which bank credit will really begin to flow again in the SME sector is if government intervention forces the banks to lend to it in greater volume. Our recovery is dependent on a number of factors, including the preservation of our corporate tax rate, stability within the eurozone, and the performance of the economies in our key export markets, including the UK and USA. Unlike certain other European countries, Ireland has a strong underlying economic base, and recovery is inevitable; it’s just a question of when. The commitment to the current corporation tax rate needs to be maintained at all cost. Foreign direct investment needs a continued focus, as Ireland remains an attractive destination for many multinationals for all of the same fundamental reasons that existed before. Andy Quinn Moore Stephens Nathans We have seen no material improvement in the availability of credit to the SME sector over the last 12 months. Those firms and companies that have survived have done so through continuous and careful management of cashflow. While the economy appears to have stabilised and we do see early signs of growth in some sectors, the ongoing instability in Europe and the wider global economies still leaves us open to the risk of an extended period of recession. The government should foster a culture of cost competitiveness and continued innovation. It also needs to ensure the banking situation is Andy Quinn, Moore Stephens Nathans resolved, as there continues to be too much uncertainty. This has the effect of holding back transactions (purchase and sale of companies, properties, etc) with the consequence that people are at this point almost over-cautious. And the whole area of personal insolvency needs to be addressed and reformed as soon as possible. continued on page 60
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