Key Indicator – a snapshot of the current state of commodity prices

minerals among the commodity prices going downOngoing fears of a global economic recession, not to mention the escalating trade war between the USA and China, are having an impact on commodity prices.

August has been a particularly torrid month, according to analysts, with iron ore prices in particular suffering a sharp drop – up to 30% according to a report in the Financial Times, although other sources also back this up.

The ongoing uncertainty has also had its effect on oil prices, with OPEC cutting production while the USA has increased theirs. This has had its impact on the futures price of oil, with Brent Crude for October falling 31 cents, or 0.5%, to $60.18 a barrel.

According to the latest analysis from Marketwatch.com, published on August 30, “Commodities will end August with a second straight monthly loss”.

It says that the S & P GSCI index, which tracks 24 commodities across five sectors was down by more than 4% at the end of August, following a fall of 7% in July.

Gold and Silver prices, on the other hand have been steadily rising, with Silver reaching a 1-year peak last week, breaking $17 per ounce and Gold prices rising by almost 7% in August.

In the grain sector, Marketwatch reports the biggest decline in corn, of more than 0.9% over the year. Corn futures prices for August were also down, by 9%.

Bloomberg publishes a useful summary of commodity prices covering three sectors, energy, precious and industrial metals and Agriculture here.

Stability is not yet in sight with the ongoing uncertainties over global trade, fears that Germany will soon fall into recession, the outcome of Brexit still unknown and the latest set of USA-imposed tariffs on Chinese goods kicking in from September 1. As a consequence, predicting what will happen to commodity prices is going to be increasingly difficult for the foreseeable future.

This is not likely to be something businesses will be happy to hear as it makes planning more risky.

 

SMEs, start-ups and ethical fundraising

ethical fundraising to save the planetFund raising can be a challenge for SMEs and start-ups but there are signs that many are turning to ethical fundraising for their money.

This growing trend is particularly pronounced among younger business founders and entrepreneurs, many of whom are reportedly shunning the venture capital routes that focus primarily on forcing them to grow as fast as possible to generate returns.

With the issues of global warming, climate change and damage to the environment being a major factor among young people it is no surprise that ideas of sustainable growth and ethical sources of finance should be so appealing.

But are they narrowing their options by focusing on ethical fundraising and risking their prospects for growth and possibly their business survival?

It would seem not, according to analysts, as there is also a growing movement among investors, particularly retail investors, to search for investment opportunities specifically with ethical funds.

Lisa Ashford, chief executive of Ethex, says: “Venture capital funding can often be about financial performance and short term returns and exit strategies, sometimes to the detriment of the other impact aspirations of an organisation. That’s not what our investors are about.”

Ethex was started about ten years ago and works to match ethical businesses with investors that shared their values. It only works with businesses that have a clear social mission and those that conform to very high standards of governance and accountability.

The Guardian last year reported on the growing attraction of ethical investing, which its article argued was becoming more attractive to mainstream investment funds.

Nearly 80% of investors across 30 countries told last year’s Schroders’ Global Investor Study that sustainability had become more important to them over the last five years, increasingly seeing sustainability and profits as intertwined.

According to the website hi.co.uk the term ethical “is often used as a catch-all to describe funds managed with social, environmental, or other responsible criteria in mind”.

It says the main approaches of ethical funds are that they usually avoid companies that do harm to society and instead invest in those that have a positive social impact. But it warns investors to do their research diligently to ensure a fund is consistent with their own views.

From the perspective of the SMEs and start-ups ethical funds may actually benefit them through an alignment of culture, environmental awareness, social consciousness and ethics despite pursuing a strategy for slower growth. There is no reason to suppose such businesses cannot be sustainable, not least because of the opportunities for positive marketing messages that speak to their clients’ or customers’ own ethical concerns.

Is gender parity in business a utopian dream?

gender parity in Soviet statusRarely a week goes by when some aspect of gender parity often defined as equality is not in the headlines.

Back in April, just ahead of a Government deadline for firms to report on the gender pay gap within their businesses, the BBC reported that nothing much had changed since the initiative was announced.

Its analysis revealed that fewer than half the UK’s biggest employers had succeeded in narrowing their gender pay gap. In fact, in 45% of firms the discrepancy in pay increased in favour of men and overall in 75% of businesses the gap was in men’s favour.

By July, the focus had shifted to the representation of women on the boards of FTSE100 and FTSE 350 companies. While representation of women on FTSE100 company boards had improved since 2011, from 12.5% to 32% according to the Hampton-Alexander review, many of the leading broadsheets were accusing businesses of adopting what they called a “one and done” policy and that any such “improvements” were a token gesture.

Furthermore, a study by Cranfield University, supported by the FRC (Financial Reporting Council) found women typically hold executive director positions for half as long as men and are more likely to hold an advisory non-executive position than a top managerial role.

When it came to women entrepreneurs and finance there was not a lot about which to be optimistic.

The Independent reported in August that a mere 13% of senior members of UK investment teams are female and only one in five firms was founded by a woman. Indeed, the Government’s Rose Review found that a lack of start-up funding is the number one barrier preventing women from starting a business, with women starting businesses doing so with 53% less capital on average than men.

The Review of Female Entrepreneurship was carried out by Alison Rose, who is currently CEO of commercial and private banking at NatWest and is in line to become the first female boss of a major UK bank if she secures the role of CEO at RBS.

Is there any chance of realising the utopian dream of gender parity in business?

Firstly, the gender parity issue relates mainly to the number of women in senior roles.  Too many of those opining on the issue only compare the pay data for each gender across businesses often claiming that men earn more than women without acknowledging that women are generally fulfilling the lower paid roles. Commentators all too rarely look at pay levels for the two genders doing the same job.

Indeed, there are plenty of men in business who support the ideal that women and men fulfilling identical roles should be paid the same.  In the same vein most men believe that more women are needed in senior roles.

However, the fact is that culture and work demands on those in senior roles remains deeply biased against women in most businesses.

For example, Andrew Hauser, executive director of markets at the Bank of England, said in a recent speech at an event intended to promote careers in forex to women, that a “bro-culture” encouraged financial crime in the foreign exchange markets in recent years.  He described it as a “toxic male environment” arguing that it made terrible business sense to not have more senior women in finance.

But the problem of encouraging more women to seek senior roles in business goes much deeper than that.

In an article in the Guardian on Sunday, Yvonne Roberts unpicked the assumptions that underpin the discipline of Economics, which she argued would remain “a man’s game” while women’s contribution to the economy continued to be undervalued when compared to men’s.

She quotes Mary-Ann Stephenson, director of WBG (Women’s Budget Group), an international independent think-tank that is now part of a global network of feminist economists: “Classical economics is based on the independent man who works full time and is in control,”. As such, calculations of a country’s GDP (Gross Domestic Product) largely ignores not only women’s direct economic contributions from work and business, but the often-unrecognised social contributions many make that support the smooth running of the economy.

This, the article argues, was recognised by New Zealand’s leader, Jacinda Ardern, whose government in May produced the first ever Wellbeing Budget which allocated millions to child poverty and narrowing the inequality gap.

Clearly utopia will only become a reality if some fundamental and deep-rooted assumptions are changed.

Post Brexit boom sectors – business opportunities

brexit boom for smaller ports?It is often said that there are winners and losers for every significant event, so which are the post Brexit boom sectors likely to be?

Perhaps the most obvious ones are likely to come from the increase in regulation and compliance requirements for businesses, particularly those in the export sectors.

It is in this area, according to IW Capital, there are opportunities for companies that can devise technology to reduce the amount of time businesses will have to spend on complying with the inevitably more complex requirements that will be imposed by other countries within the EU, but also more widely as businesses explore markets they have perhaps not previously considered.

The exchange rate is likely to have the greatest impact on winners and losers.  Therefore, firms that supply essential goods and services with UK supply chains whose costs are not affected by exchange rates and who do not rely on foreign labour ought to be huge beneficiaries, especially when their competitors rely on imports.

But there are other sectors where there will be lots of opportunities.  News.co.uk also identifies tech start-ups where there are potential post Brexit boom opportunities, but it also suggests that there will be greater opportunities for exporters to non-EU countries thanks to the declining value of £Sterling compared to other currencies.

Another sector it highlights is medical technology, where the UK is a leading contributor, particularly among SMEs, which make up 85% of the sector and had a turnover of £70 billion in 2017.

The Spectator in a piece last autumn predicted that there will be opportunities for the UK’s smaller ports as logistics companies seek out and prioritise alternative, less congested routes.

Another example is the growing interest in CBD (cannabidiol). The Adam Smith Institute in July predicted that this medicinal product derived from cannabis has potential for sustained development in the UK after the Medicines & Healthcare Products Regulatory Authority (MHRA) re-classified CBD in the UK as a medicinal ingredient. No doubt the export market beckons.

Like the somewhat frivolous example above, there are opportunities for nimble SMEs to develop a strategy that takes advantage of Brexit.

There has been so much “doom and gloom” about the post-Brexit economy and supply chains in the last three years, and admittedly there will be some immediate disruption until new systems are in place.

In due course and only once the dust settles we will find out if Brexit benefits the country as a whole but in the disruption lie opportunities for SMEs to seize and create a Brexit advantage.

UK productivity – is it time to move to a four-day working week?

productivity working hours and family timeThe UK’s comparatively low productivity and how to improve it has long been a source of debate and analysis.

The ONS (Office for National Statistics) has reported a reduction in UK productivity for three successive quarters and according to the Resolution Foundation productivity is now 28% below the average rate before the 2008 financial crisis.  Yet this is a time when employment levels in the UK are the highest they have ever been.

Business productivity has traditionally been calculated by dividing average output per period by the total costs incurred (capital, energy, material, personnel) consumed in that period and is used as a determinant of efficiency.

Productivity in both national economies and individual businesses is much scrutinised by governments, business commentators and business owners as an indication of performance, efficiency and economic health.

All of this is based on the assumption that perpetual growth and competition are the cornerstones of economic health.

There are good reasons why it may be time to question some productivity assumptions

Two considerations suggest that the element of the productivity calculation based on employee hours worked and improved performance is becoming less central to the assessment.

Firstly, the nature of many workplaces from manufacturing to offices, has been changed by the growth of AI (Artificial Intelligence) and automation. This can have a potentially dramatic impact on overheads, particularly in reducing staffing levels, but it also means that the skills required from employees in the future will change dramatically.

Secondly, there has been a growing awareness that employee health, both mental and physical, is crucial to business productivity and success. There has been mounting evidence that increasing workers’ hours can result in higher staff absence rates due to ill health, not to mention increasing the chances of mistakes being made through tiredness and exhaustion.

UK employees have the longest working week compared to other workers in the European Union. But, despite the long hours, there is growing evidence that reducing hours worked can have a beneficial effect on productivity.

The TUC (Trades Union Congress) has calculated that UK full time employees worked an average of 42 hours a week in the final quarter of 2018 – almost two hours more than the EU average – but that full-time staff in Denmark are 23.5% more productive per hour than UK workers, despite working four hours fewer per week.

TUC general secretary Frances O’Grady explains: “Britain’s long hours culture is nothing to be proud of. It’s robbing workers of a decent home life and time with their loved ones. Overwork, stress and exhaustion have become the new normal.”

Based on this evidence, along with the TUC, the (NEF) New Economics Foundation has been campaigning for a reduction in weekly working time to 32 hours spread over four days without a reduction in pay.

‘Job and finish’ used to be more commonly used by firms although it has been largely replaced by hourly wages for productivity focused workers.  This has led to firms trying to get more out of workers without the incentives and sharing rewards with staff.  The productivity data would suggest this approach has failed.

There are however examples of companies that have shifted to a 4-day week including one Glasgow-based marketing company mentioned in a recent BBC article, that made the switch three years ago and reports that productivity has increased by about 30%, sickness leave is at an all-time low and there have been unexpected cost savings in that the company no longer needs to pay professional recruiters, as so many people want to work for them.

In July, new research by Henley Business School, as reported by the Independent, found that a four-day working week could save UK businesses an estimated £104bn a year and its survey of 250 companies “indicated that adopting a shorter working week could add to businesses’ bottom lines through increased staff productivity, as well as improved physical and mental health”. The Henley paper, Four Better or Four Worse, also found that nearly two thirds (64 per cent) of those who have already adopted the scheme reported improvements in staff productivity.

But crucially, the third, perhaps currently most important, reason why we should rethink our attitudes to productivity, is the effect on the environment.  The Henley research indicated that the four-day week would have a positive impact on the environment with employees estimating that they would drive 557.8 million fewer miles per week on average.

Work experience – between a rock and a hard place

work experience should be reintroducedEarlier this year the Federation of Small Businesses (FSB) called for compulsory work experience to be reintroduced for all children aged 14 to 16.

The Government ended schools’ obligation to provide compulsory work experience in 2012.

Since then, although many schools do still try to arrange some work experience, the responsibility for finding placements has rested largely on parents and pupils themselves.  In fact, according to the organisation Changing Education “Ofsted has identified that 75% of schools are failing to provide adequate work experience programmes”.

In 2015 the British Chambers of Commerce (BCC) questioned the wisdom of the 2012 decision, following a study of members that found that “most firms and education leaders believe secondary schools should offer work experience for under 16-year-olds”.

John Longworth, who was then the director general of the BCC, said: “Business and school leaders are clear – we won’t bridge the gap between the world of education and the world of work unless young people spend time in workplaces while still at school.

He may have been correct but the same BCC survey of 3,500 respondents found that just over a third did not offer any work experience.

In March 2017 the Government published its own research into the current state of work experience and among its findings were that “schools took a largely student-led approach, which placed responsibility on young people and their parents/ carers on finding a placement” with many relying on individual staff systems and contacts.

We are wearyingly familiar with the complaints from businesses about the lack of readiness for work among new recruits in their first jobs. They regularly cite specific concerns relating to the punctuality and attitude of such individuals.

In other research carried out in 2016 by the Confederation of British Industry (CBI) a quarter (27%) of employer respondents viewed involvement with schools and colleges as too onerous.

This may be why has not been easy for schools to find enough local employers willing to offer pupils work experience despite various initiatives tried over the years such as the now-defunct local county Exchanges which as NGOs sought to act as an interface between the two by taking care of the perceived bureaucracy involved.

Indeed, the Government’s Apprenticeship scheme launched in 2017 has hardly been a resounding success.

This is the background to the present situation we find ourselves in with employment levels higher than they have ever been and fewer Europeans willing to come to the UK for work as a result of the uncertainty over their status post Brexit, businesses are finding it even harder to recruit suitable employees let alone fill low-skilled jobs.

It seems young people are between a rock and a hard place when it comes to gaining work experience with schools overburdened by cash shortages, the demands of the National Curriculum and the demise of careers guidance while at the same time employers bemoan the lack of preparedness of new recruits while also seemingly unwilling to offer much practical help to improve the situation.

What is the answer?

The current state of the commercial property sector

commercial property siteWith economic uncertainty prevailing both globally and in the UK it would be no surprise if the commercial property sector was facing some difficulties.

The commercial property sector covers Community, Education, Hotel, Healthcare, Office, Retail and Industrial and it is clear from some of the statistics that the woes of retail have been acting as a drag on the sector as a whole.

Jones Lang LaSalle (JLL) provides information on property and investment opportunities and in its most recent analysis on new construction starts it revealed that they fell in the first quarter of 2019 for the first time since Q2 2017.

It reports that the ongoing uncertainty “dampened UK commercial real estate transactional activity in Q2, with investment volumes slowing to £8.9bn. This represented a 22% decline on the first half of and was the slowest first half of the year since 2013.

However, it reports, Alistair Meadows, Head of UK Capital Markets, believes that “Market fundamentals remain strong, with high levels of leasing, low vacancy rates and rental growth offering encouragement to investors. “

The Royal Institution of Chartered Surveyors (RICS) reports that in London demand for commercial property in London stayed in negative territory for the 12th quarter in a row and Capital Economics expects a weakness in investment activity is likely to extend into the rest of the year.

Aside from the obvious continuing uncertainty about the UK’s economic future outside the EU, the retail woes are likely to be a significant drag on commercial property. It is estimated that some 20% of retail landlords’ tenants are in significant financial difficulty, Many are insolvent and have embarked on restructuring via CVAs where insolvency is a prerequisite for doing a CVA. Furthermore there are indications that a lot of town centre retail space is no longer viable with landlords seeking planning permission for a change of use so property can be converted into residential units.

Finally, according to CBRE, the world’s largest commercial property services and investment company, most commercial property rents have been reducing in the first half of the year, declining by -0.2%, although it said the industrial sector was the best performing prime market, recording a capital value growth of 1.6% Quarter-on-Quarter, and a Year-on-Year of +6.8%.

One trend that may be significant in the future is the growing popularity of flexible tenancies and shorter leases rather than businesses owning and occupying large corporate buildings. This is already popular for renting for office space with Regus and WeWork growing rapidly but is likely to be used as a more flexible approach to renting light industrial and retail space.

Dream Big – Summer is time for considering a start-up

Summer holiday start-up dreamAs many as half of all workers seriously consider setting up their own business during the summer holiday according to research.

Emma Jones, founder of small business support network Enterprise Nation, said: “The combination of sun, sand, sea and downtime means we’re more relaxed and have time to contemplate what we want.”

Relaxing on a beach with time for reflection can make us aware of any dissatisfactions with our current status or job.  It is also an opportunity to think what else you might do if stuck in a rut and you want to “take back control” of your life.

But what is involved when starting up a new business?

The key is to identify a clear purpose and define the product/market mix for your business, essentially to be able to answer “why” questions. This may require research but you cannot start planning until you have a clear purpose. Turning dreams into reality is more than simply having a good idea!

To help you find your purpose, here is the link to a TED Talk, ‘Finding your Why’ by Simon Sinek.

Find your Why before you go any further with your start-up

The core of Sinek’s argument is that all successful businesses have a belief in the core proposition which in turn inspires others.

In essence, he says, people buy into a product or service out of self-interest, and this is why the self-belief of the business’ founder is crucial to its success. This explains why sometimes even the best capitalised business with the most innovative products can fail, because they fail to convey a fundamental belief, or enthusiasm, for what they are doing.

This is not about money or fame and the most successful companies, such as Apple succeeded because their founders not only believed in what they were doing but were able to persuade others that buying into that belief would in some way enhance their own lives.

So, when you are thinking of starting up a new business this is central to whether it will succeed or fail.

When is the right time to launch?

It does not really matter when but you shouldn’t do so until you have identified your “Why”.

Of course, in preparing to launch you should do research such as trialling the idea most likely with test marketing slightly different products/services with slightly different markets/customers before settling on your core proposition. Once you know what will sell you can develop a plan that might be used to raise finance or simply be used as a discipline for following so you don’t get hijacked by others who come along with other ideas such as where to spend money on promotion initiatives.

Another key decision is what type of business, you should trade as, whether as a self-employed sole trader, as a limited liability company or as a partnership with others. Each has advantages and disadvantages which will inform your decision.

Other factors might be the state of the economy, industry or annual cycles, availability of finance, people and other resources or opportunity.

It might be counter intuitive but during a recession can be a good time to set up a business since established businesses often take their eye of their customers when they switch their focus to one of survival. This is particularly true for larger businesses since they are also less agile and often unable to cope with a changing market.

In summary there is no right or wrong time to turn your start-up dream into reality providing you are prepared.

The unpredictable relationship between currency values and stock markets – August Key Indicator

Too often the assumption is made that when a country’s currency value drops its stock markets will rise as its exports become more competitive.

The current economic situation in the UK and elsewhere is an illustration of why this may be an over-simplistic assumption.

Last week ended with £Sterling at its lowest value against the US dollar for two years at $1.2162 and against the Euro at €1.0948 while at the same time the FTSE100 closed down minus 2.34% at 7407.06.

This suggests that the previous so-called assumptions are no longer valid.

In commenting on this it should be noted that the European, US, Japanese and Hong Kong stock markets also plunged.

What is causing currency values and stock market  turbulence?

The signs that both the global and UK economies are volatile and have been for some time. Evidence for this can be deduced from the monetary stimulus by Central Banks.

In May the OECD (Organisation for Economic Co-operation and Development) revised its growth forecast for the UK to 1.2% this year and 1% next year in the light of ongoing uncertainty about the future of the economy.

In June the WTO (World Trade Organisation warned that 20 new trade barriers imposed by G20 economies between mid-October and mid-May, threaten to increase uncertainty, lower investment and weaken trade growth.

By July, Moody’s, the credit rating agency, and Mark Carney, BoE (Bank of England) Governor were both warning that a new cold war in trade would have a deep effect on the world economy.

Moody’s was also predicting a recession in the UK if it crashed out of the EU without a deal in October. It followed up later in the month that this was now more likely following the outcome of the Conservative leadership contest, which resulted in a new Prime Minister, Boris Johnson.

So, what actually influences currency values? The BBC has a helpful guide to the factors that can play a part:

* Economy: Strong economies have strong currencies because other countries want to invest there;

* Savings: When UK banks raise interest rates, holding savings or investments in pounds becomes more attractive;

* Prices: If UK goods are cheaper than those abroad, they will be attractive to foreign customers who buy Sterling to purchase them. This in turn increases the exchange rate;

* Public finances: The state of a government’s bank balance, or how much debt it has, can also affect the exchange rate;

* Speculation: The exchange rate is highly vulnerable to currency speculators, who buy and sell Sterling or who bet on currency movements based on their view of future events.

And how does currency value influence stock markets? A 2017 article in City AM argued that the strength of a country’s currency can have a surprisingly large bearing.

It argued that after President Trump was elected in the US, the S&P 500, the benchmark US share index, rose 10% to new all-time highs in the month following and cited the US dollar, which gained 3% during the same period as a key driver.

By comparison, after the 2016 Brexit referendum in the UK Sterling tumbled while the FTSE 100 rose sharply. In the three months following Brexit, the index rose 10.4%, largely, it argued, because the majority of FTSE 100 companies receive their revenues in foreign currency.

So what is different now to have caused both Sterling and the FTSE 100 to drop simultaneously? Arguably against a backdrop of slowing global trade and Brexit uncertainty a significant impact has been the ongoing trade war between the US and China.

The latest move has been a decision by Donald Trump to impose new tariffs on a further $300bn of Chinese imports in addition to those already in place.

Clearly, in such a volatile situation all the old “assumptions” about currency values and market behaviour are called into question and businesses and investors may need to review the basis on which they make decisions!

Q2 insolvencies offer no sign of economic storms easing

rising insolvencies indicate continued stormy ecoomic weatherThere are no signs of the pressures on businesses easing off as insolvencies in the second quarter of 2019 (April to June) continued to climb, according to the latest figures released by the Insolvency Service.

While the number of compulsory insolvencies fell, there was a significant increase in the number of CVLs (Company Voluntary Liquidations), which showed a 6.9% increase, an increase of 2.6% in the total numbers of insolvencies compared to the first quarter of the year.

Compared to the same quarter in 2018 the numbers of insolvencies have risen by 11.9%, the highest underlying rate of insolvencies since 2014 according to the Insolvency Service.

It reports that those businesses that have fared worst in the second quarter have been “the accommodation and food service industry with 74 extra cases compared to the 12 months ending Q1 2019 (an increase of 3.4%) and the construction industry with 37 additional insolvencies (a 1.2% increase)”.

The latest Red Flag Alert for the second quarter of 2019 from Begbies Traynor also emphasises an increase in businesses in “significant distress”, to 14% of all UK businesses while the average debt of insolvent companies has more than doubled – from £29,873 in 2016 to £66,226, it says.

Set this against a backdrop of a weakening global economy, as reported by the World Bank in June, in part thanks to business uncertainty because of international trade tensions.

In the UK context, the future for the economy remains completely unknown given the new Prime Minister’s Brexit strategy. This is evident from the factory output figures for July that reported the lowest levels for six years, slowing consumer borrowing, and this week the value of the £Sterling dropping to its lowest level for two years.

While low exchange rates may be a positive for UK businesses involved in exporting, making exported goods and services cheaper, they will also add to business costs on any supplies and materials imported from outside the country where the net result is that we are worse off given the UK trade deficit which was £30.8 billion in the 12 months to April 2018.  Another factor is consumers who are continuing to spend but may prefer to stay at home instead of having more expensive holidays abroad.

Given also the ominous noises about continued UK-based car manufacture, most recently from Ellesmere Port, depending on the post Brexit conditions here, not to mention the continued carnage in High Street retail, more people will also be worrying about their future job security.

It would be great to be able to say that the end is in sight but sadly, with so many “known unknowns” the economic weather outlook has to remain stormy.