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May I start by dispelling a myth? Contrary to common belief, the whole of north-east England is not staring down the barrel of impending spending cuts and expecting to see our economy decimated.
That is the general assumption I hear when speaking to those who are looking at this region from the opposite end of the A1. It is also a story that some in the north-east who aim to protect their taxpayer-funded budgets – or, failing that, to ensure the government takes the blame – are quick to propagate. But it is far from the whole story.
North East Chamber of Commerce member businesses do not tell tales of woe. Trading conditions are not easy, but most companies are getting on with the task of turning a profit. The chamber’s North East Business Barometer surveys back this up, with a clear majority of members showing growth in sales and orders.
That success is being driven by engineering and manufacturing companies, in particular those that are exporting. International trade is a long-term strength of the north-east economy, and the region’s businesses are now doing at least as well as, if not better than, the UK as a whole.
Nissan, the Japanese carmaker, is, of course, a key contributor, and development of its low-carbon Leaf vehicle at Sunderland will add to this. It is a story of successful inward investment by a global manufacturing giant, but beneath the surface lies a highly effective regional supply chain that makes this success possible. The “Nissan effect” is regularly cited as the potential prize from a recent decision by Hitachi, the Japanese industrial group, to locate a plant in south Durham to build a new fleet of trains.
The automotive sector has widened in the region, with growing expertise in low-carbon technology exemplified by companies such as Northumberland-based Comesys Europe, which manufactures components for electric vehicles and is tapping into a rapidly expanding market in China.
Other areas of expertise echo historic features of the north-east’s economy. But while in the past these were dominated by large corporations, now a much more diverse set of small and medium-sized enterprises is maintaining our region’s reputation in its traditional strengths.
For instance, chemicals were once the preserve of ICI, but dynamic smaller companies are now thriving. Newcastle-based Aesica Pharmaceuticals is one such company that is enjoying rapid expansion. It has acquired three manufacturing sites in Europe and opened offices in the US.
Similarly, while the region’s shipyards may be quieter, excellence in marine engineering is growing. This is demonstrated by the success of SMD, a Tyneside company that makes equipment for laying seabed pipes and cables. It has set up offices on three continents and increased revenues by nearly 50 per cent in 2010, and it has just been named company of the year by Subsea UK, the industry body.
Exporters have benefited from the fall in sterling, but it is unrealistic to expect this competitive advantage to remain. The government needs to help build other advantages for industry in the north-east. This includes support through a state-backed export credit scheme, but also ensuring the coming review of UK Trade & Investment leaves us with an organisation capable of strategically directing businesses with genuine potential towards the markets in which they can thrive. A scattergun approach that merely points companies to China and India in the hope they can make a few sales will not be good enough when every western economy is targeting export-led recovery.
Connectivity – both in transport and digitally – is also critical, particularly in the north-east, which is distant from the capital. But government policies can work against this. Trade with Australia has trebled since Emirates, the Gulf airline, began intercontinental flights from Newcastle, but efforts to attract similar connections will be undermined without a reform of air passenger duty, which has a greater impact on regional connections because they are more marginal.
Another traditional area of north-east business that continues to thrive is the energy sector. Businesses such as Banks Group – a Durham company that has diversified from opencast coal mining to wind power and photovoltaics – show how this industry has changed in the region. But investment is stalling due to uncertainty created by tinkering with government incentive schemes such as the feed-in tariff, which encourages the installation of solar panels.
The news is not all good, though. Some sectors are struggling, with construction badly hit. Planning reforms in the Localism Bill that appear to make development more difficult do not help, but a real difficulty for growing north-east companies in this sector is public procurement. Although the public sector remains a big market for construction in the region, large frameworks established in the name of efficiency see contracts repeatedly go to national companies.
A successful north-east construction company such as Durham-based Esh Group can find itself squeezed from both sides – deemed too small to compete for national frameworks, but too big to act as a sub-contractor. With public capital investment dwindling, it is dangerous not to ensure businesses like these with growth potential can compete for every remaining opportunity.
Spending cuts therefore do present challenges, my opening comment notwithstanding – but this will not deter the dynamic set of companies emerging in the north-east. If the government wants that growth to offset public sector job losses, it needs to ensure policy works for, not against, the rising enterprises in the regions.
The writer is the chief executive of the North East Chamber of Commerce
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