Chief Exec’s report Jun 2020
The contents of this quarter’s review should come with a health warning, as reading it will not be a pleasant experience, and those of a nervous disposition should perhaps look away now. It is widely anticipated that we are now in the second UK wide recession of this century, and its perhaps helpful to compare the corresponding Scottish Engineering quarterly report from the financial crash, a measure to gauge how concerned we should be. On those simple terms, our anxiety would be justified, as both the magnitude and the rate of change of key measures is shocking, perhaps reflected most acutely in optimism. In Q3 2008, technically the second consecutive quarter of recession, optimism fell from +3% to -10%, and went on to register a low point of -47% in Q1 2009. In this report, with recession not even technically confirmed yet, we record an 80% fall in optimism from +17% to -63% in the space of only three months.
This pace of change reflects the depth of impact we have all felt both as companies and individuals since Covid-19 became central to our lives, and that speed is key to thinking about how we will recover. The 2008 recession came from an unsustainable financial system, but what we currently face is clearly very different, an economic shock wave built wholly on a global health crisis. Whatever the cause, the potential impacts to industry are all too familiar, and begs the question of what should our collective response be to minimise impact and maximise the speed of recovery? Where should we spend the precious resources we choose to make available to get the maximum return?
I feel confident that I speak for most of our members when I state that the first action on that list is for government guidance to manufacturers across the UK to re-align and stay aligned. I also understand and agree with the Scottish Government’s focus on public health and have only praise for the leadership which has been consistent and clear in ways that others have not. However, the potential for damage to the manufacturing sector is too great if Scotland earns a tag that it is closed for business whilst the rest of the UK is not, and I would argue that both the public health priority and guidance alignment can be jointly achieved without detriment to each other. Since the start of this crisis, we estimate that 70% of manufacturers have remained open in Scotland, and in this survey, we now see over 90% operating at some level. That these operations have been achieved whilst Scotland has seen a decline in Covid-19 cases, and especially the all-important R-number, underlines our belief that few industries are better placed to safely operate in these times due to high average area per person workplaces, and a risk assessment led approach to operating having been embedded for many years. Our expectation is that Covid-19 will ebb and flow before vaccine or treatment options emerge, and so a supportive, coordinated, and matched message to manufacturers from both Scottish and UK Governments is essential to minimise damage.
Our second ask comes from a view that outlines that recovery will likely come from the collective actions of excellence in organisations, those with a strong mutual will for survival, guided and included every step of the way by exceptional leadership. Those businesses will take tough decisions, whilst seeking the digitally advantaged silver linings in the cloud that has been coronavirus. The role of government in that playbook is to provide stimulus, and ensure that when recovery comes, as it surely will, we have incentivised actions that protect our future. The job retention, grant and loan schemes have been lifelines for companies, and more will be needed to ensure that critical companies in the hardest hit sectors have the support they need to survive. Beyond that, our industry cannot afford to lose the momentum building in apprenticeships that is essential to rebalancing the age distribution of skills in our sector. Survival is everything, and those tough decisions will mean postponing, reducing, or cancelling engineering apprenticeships across Scotland, an outcome that would jeopardise our future. For that reason, when we consider the options to reduce the impact of unemployment for young people, we must incentivise employers to maintain and where possible extend apprenticeships in the Engineering, Care and other sector workplaces.
In a time of economic turmoil, we are grateful to welcome back Gary Gillespie, Chief Economist for the Scottish Government to share his thoughts for our current predicament and our potential routes to recovery, and we appreciate that he has taken the time to support Scottish Engineering members with this insight.
Finally, to all our members, and your families, the team at Scottish Engineering wish you well in these exceptionally difficult times and stand ready to help you in any way we can.