Cliff Taylor: Stability needed to keep firms in the ‘sweet spot’

The economy has been in what Ibec has called a “sweet spot” over the past year or more – and the SME sector seems to be finally reaping some gains.

New year surveys from the two old foes – the Small Firms Association (SFA) and the Irish Small and Medium Enterprises association (Isme) – show increasing confidence, with many SMEs planning to invest and hire new staff. The SFA survey shows that 77 per cent of owner/managers believe the business environment is improving, while the indicators for current and future sales in the Isme survey are at their highest level in eight years.

There is no great mystery as to why this is happening. SMEs had to wait for Irish consumer spending to revive as, typically, they rely more on the home market. Of course, there are exceptions – some SMEs play in the same sectors as the big global giants – but the typical owner/manager business sells to the home market.

It has been a slow road back. Most confidence indicators seem to have bottomed out in 2012 , but it has been a shaky and uneven rise since then. Real momentum for domestic businesses only started to show towards the end of 2014 and was building last year as Irish consumer spending finally started to revive.

Positive outlook

Recovery has not been even and across the board. There are still regional variations and the Isme survey suggests that the increased minimum wage may hit employment growth in the retail sector.

However, the general outlook remains positive. With interest rates set to remain low and employment on the rise, consumers should continue to spend more in 2016.Who knows whether the SFA is correct to predict that the sector can create 30,000 new jobs this year? Or if Isme is on the money when it says 60,000 posts can be created? But reasonable employment growth should be in prospect.

Above all what SME owners need is a few years of stable growth and no nasty surprises. They will, no doubt, enjoy being “ feted” and lured by promises in the general election campaign. There are votes now in the small business sector and from adjustments to the tax system to grants and other incentives, the promises are already starting to flow. No doubt the representative bodies will push for what they can get; areas where the tax system discriminates against the self-employed are a particular bugbear.

SMEs really need to stay in the “sweet spot” for as long as possible. They want more of the same. It would be no harm in the election battle if representatives of businesses big and small were to highlight this need and stay above the chase for election goodies.

Recovery is still relatively recent for SMEs. Many remain fragile enough and need a few steady years to rebuild their balance sheets. Another economic shock could create significant damage in a sector where profit margins are tight for many.

There is nothing this Government or the next one can do to influence euro zone interest rates, oil prices or the euro, the trinity of factors which have worked so strongly in our favour. However, what they do will still have a big influence on the business environment. Businesses need the new government to finish the job of correcting the public finances.

International factors

Despite exchequer figures out tomorrow that will show the State’s cash position around balance or in small surplus for 2015, once-off cash receipts, including a late one from

AIB

, are included.

On an underlying basis we are still borrowing to pay our way. We need to eliminate this to have some wriggle room if international factors turn more negative – and remember from stagnation in the euro zone to Brexit, there are still big fears.

Businesses also need to see a solid investment plan from the next government; already infrastructure is starting to creak as the economy grows.

They also need the new administration to have a clear focus on the need to hold down business costs and a commitment to not layer on more bills and more bureaucracy.

Yes, it would be good if the tax system was adjusted to encourage entrepreneurs and remove discrimination. And yes, there isn’t a business in the country that wouldn’t like a new grant or tax break. But in the election campaign, businesses need to decide where their priorities lie.

Above all, with recovery finally taking hold, the country’s SMEs need to have a few quiet years to be allowed to get on with doing the business.