2015 Q3 Business Outlook (Barbados) Analysis and Comment

Page 1

Business Outlook 2015 Q3 Summary Business confidence is a unique gauge of economic activity. It is the measurement of what business owners and executives think is going to happen in the future. Therefore, business confidence reports are one of the few forward looking data sets available to members of the business community. Business confidence reports therefore represent an important source of information for businesses. Because of the uncertainty involved it is strongly recommended that a variety of information sources be utilized by both the business community and policy makers for more effective decision-making. ABELIAN Consulting Services, in collaboration with the Barbados Chamber of Commerce & Industry (BCCI) has set about trying to understand confidence levels over time and developed this series of surveys. The objective is to assist local businesses in their decision-making by understanding LOCAL data and information. Business therefore do not have to rely on national data or the media, for information on business confidence levels. This is the second instalment of the Business Outlook for Barbados and we wish to sincerely thank the BCCI and other associations within the Barbados Private Sector Association (BPSA) that made this survey possible. We wish to especially thank the many business owners and executives that took the time out of their busy schedules to participate in the survey and answering the questions.

Conducted by ABELIAN Consulting Services in collaboration with Barbados Chamber of Commerce & Industry Barbados


SURVEY METHODOLOGY

performance data when answering the

The Business Outlook survey was designed and

executed

to

capture

business

responses in Barbados.

questions in the surveys whilst also taking into consideration any relevant issues currently affecting their industry and/or sector.

responses are then converted into a net

The survey questions were designed with

balance statistic via the calculation:

input from the BCCI Trade and Economic Policy Committee and ongoing feedback from participants. benchmarking

The

đ?‘›đ?‘’đ?‘Ą đ?‘?đ?‘Žđ?‘™đ?‘Žđ?‘›đ?‘?đ?‘’ (%) = [

This would allow for

confidence

levels

(đ?‘– − đ?‘‘) ] ∗ 100 (đ?‘– + đ?‘‘ + đ?‘&#x;đ?‘Ąđ?‘ )

on

Barbados against other countries over a

Where đ?‘– is

period of time.

responses; đ?‘‘ is the number of “deterioratedâ€?

Opening on Tuesday April 07, 2015 and closing on Monday April 20, 2015, the survey

owners and executives. The questions were short and simple and took on average approximately 8 minutes to complete for most respondents.

number

of

“improved�

responses; and đ?‘&#x;đ?‘Ąđ?‘ is the number of “remain the sameâ€? responses; F IGURE 1: C ONFIDENCE R ANGE

was distributed exclusively online via email to a wider cross section of the business

the

Very low -100 -60

Figure 1

Low

Balanced -20

Moderate +20 +60

High +100

shows the range of the net balance

statistic which has a minimum of -100 (0 improved

and

remained

the

same

The last question asked if the respondent

responses) and a maximum of +100 (0

wished to leave their email address for

deteriorated

purposes on email alerts regarding the

responses).

release of the results.

The privacy of all

respondents will be maintained at all times.

and

remained

the

same

Research shows a strong positive correlation between

business

confidence

and

Although the survey is qualitative in nature,

economic growth. Countries with consistent

the reported statistic for each question is a

metrics

single

confidence spectrum tend to have stronger

net

balance

number

where

on

the

greener

of

economic

respondent is asked to indicate “improved�

underpinned by the robust business activity.

“increased�,

“deteriorated�

which

the

applicable. That is, for each question the or

performance

end

is

or

“decreased�, or “remained the same�. Respondents are expected to extrapolate from their own experience driven by internal

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Business Outlook 2015 Q3


The major respondents to this survey were

Industry Analytics

from

the

finance

sector

(16%)

which

Industry

Responses

Percent

includes banking, insurance and financial

Agribusiness

3

3%

services executives.

Banking

2

2%

level professionals both represent 13% of the

Business services

8

8%

respondents.

Construction

6

6%

Consulting

4

4%

Education

0

0%

Energy

2

2%

Engineering

1

1%

Entertainment

0

0%

Financial Services

7

7%

Hospitality

3

3%

Hotel/Accommodation

3

3%

Information Systems

2

2%

Insurance

5

5%

Legal

13

12%

Leisure

1

1%

Manufacturing

21

20%

Marketing

1

1%

Media/Publishing

1

1%

Non-profit association

1

1%

Real Estate

5

5%

Retail

7

7%

Technology

2

2%

Telecommunications

1

1%

Transportation

3

3%

Wholesale

4

4%

TOTAL

211

Skipped

40

100%

Category Micro (<=10) Small (11-50) Medium (51-100) Large (101 or more) Total Skipped

Manufacturing and

Responses 42 38 11 20 111 15

Percent 38% 34% 10% 18%

Responses from small and medium size businesses made the majority (73%) of the survey. NUMBER OF RESPONDENTS There were 126 responses to the Business Outlook 2015 Q3 compared to 251 during 2015 Q2.

Survey Responses 300

251

200 100

126 56

0 2015Q1

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2015Q2

2015Q3

Business Outlook 2015 Q3


General Business Confidence 2015Q3 A1.1: With regard to the Barbados Economy, do you believe that General Business Conditions in 3 months' time will have? Improved

generally felt more positive about general business conditions in 12 months’ time than in the shorter term. Whilst the percentage who believes conditions will deteriorate is

10%

Deteriorated

fairly steady around 40% for all three outlook

40%

Remained the same

periods, a larger number of respondents 28%

51% 0%

For the third straight quarter, respondents

20%

40%

60%

believe business conditions will improve over 80% 100%

the next 12 months when compared to the next 3 months (10%). These shorter terms metrics don’t provide

2015Q3 A1.2: With regard to the Barbados Economy, do you believe that General Business Conditions in 6 months' time will have? Improved

will likely be robust for the remainder of 2015. As a result, business confidence levels range from low with regards over the next 3-6

14%

months to negatively balanced over the

Deteriorated

42%

Remained the same

44% 0%

the business signals that economic growth

20%

40%

60%

next 12 months. We are almost at the point where some 80% 100%

Net balance (%): -28% Confidence: LOW 2015Q3 A1.3: With regard to the Barbados Economy, do you believe that General Business Conditions in 12 months' time will have?

validation of the expectations for general business conditions can be conducted. This type of data validation could assist us with determining how realistic the longer term (12-month) business outlook is vis-Ă -vis the shorter term (3-month). In short, we should be able to decipher whether the forward

Improved

28%

Deteriorated

looking optimism is consistent with actual business performance.

43%

Remained the same

29% 0%

20%

40%

60%

80% 100%

Net balance (%): -15% Confidence: BALANCED

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Business Outlook 2015 Q3


Respondents were not very positive with

Economic Indicators 2015Q3 A3.1: How do you expected the Unemployment Rate to have changed in 12 months' time?

20%

12

months. low

commenced.

40%

60%

80%

(69%)

expect

the

unemployment rate to increase over the

remained

20% 0%

two-thirds

Overall

confidence

amongst respondent for this indicator has

69%

Increased Remained the same

over next

11%

Decreased

their expectations for employment as just

100%

Net balance (%): -58% Confidence: LOW

since

this

There

is

survey clearly

has more

optimism

regarding

general

business

conditions

over

next

months,

the

12

however, if these sentiments hold true then the economy is likely to experience jobless growth.

2015Q3 A3.2: How do you expected Interest Rates on Loans to have changed in 12 months' time?

Decreased

21%

Increased

21%

Despite

40%

60%

80%

100%

indicator is negatively balanced.

Similarly, 52% of respondents felt that interest rates

Remained the same

overdrafts

will

remained

that these rates on overdraft will increase. The overall confidence indicator is therefore

52% 40%

on

unchanged in 12 months’ time. 32% also felt

32%

20%

an expectation that interest rates on loans response level. Overall, the confidence

16%

0%

12 months’ time. Further, some 21% indicate will rise, this is 7% lower than the 2015 Q2

2015Q3 A3.3: How do you expected Interest Rates on Overdrafts to have changed in 12 months' time?

Increased

the

interest rates on loans would not change in

Net balance (%): -1% Confidence: BALANCED

Decreased

of

a majority of respondents (58%) felt that 58%

20%

announcement

liberalization of interest rates on April 7, 2015,

Remained the same 0%

the

60%

80%

100%

characterized as negatively balanced.

Net balance (%): -16% Confidence: BALANCED

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Business Outlook 2015 Q3


Firm Level Confidence

One-third of respondents expect their firm’s real business activity to increase over the next 12 months whilst nearly 41% expect this

2015Q3 B1: With regard to Your Business, how do you expect Real Business Activity to have changed in 12 months' time? Increased

indicator to remain the same. 1 out of every 4 is

25%

Remained the same 20%

40%

60%

40%

confidence

profits to decrease over the next 12 months. The confidence level for this indicator is negatively balanced. Though it is within the same range as the real business activity indicator, there is a 20 percentage point differential between indicators that may be somewhat counterintuitive.

45% 20%

balanced

respondents (34%) expects their firm’s real

34%

0%

positively

With respect to real profits, 1 out of every 3

21%

Remained the same

a

time period.

100%

2015Q3 B2: With regard to Your Business, how do you expect Real Profits to have changed in 12 months' time?

Decreased

real

business conditions indicator for the same 80%

Net balance (%): +8% Confidence: BALANCED

Increased

expects

indicator. This is consistent with general 41%

0%

however

business activity to decrease. The net effect

33%

Decreased

respondents

60%

Firm level expectations for employment

80% 100%

prospects over the next 12 months are

Ne t bal ance ( %) : - 12% Confi de nce : BALANCED

bearish as some 26% expect their staffing levels to be reduced. Approximately 18% of those expecting to their firm’s employment

2015Q3 B3: With regard to Your Business, how do you expect Employment to have changed in 12 months' time?

levels to decline in the next 12 month were BCCI members. The negatively balanced confidence rating for this indicator is an

Increased

improvement from the previous quarter

12%

Decreased

when the statistic was classified as low with

26%

Remained the same

63% 0%

20%

40%

60%

80% 100%

Net balance (%): -14% Confidence: BALANCED

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an estimated value of -25%. Notably, 63% of

respondents

indicated

their

firm

is

expected to maintain the same level of employment over the next 12 months which is a very good sign since it up 20% from 2015 Q2.

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Business Outlook 2015 Q3


Firm level Confidence

There were 54 responses to the question related to the holding of inventories over the

2015Q3 B10: With regard to Your Business, how do you expect Inventories to have changed in 6 months' time? Increased

next 6 months. The level of confidence in this area was both positively balanced as shown in the chart. When asked about the next 3 months, the over indicator was

37%

negatively balanced (-15%). Decreased

26%

Remained the same

their inventory levels would increase in 6

37% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Net balance (%): +11% Confidence: BALANCED 2015Q3 B11: If your business is involved in Construction, how do you expect your Volume of activity for Residential Building to have changed in 12 months' time? Increased

44%

Decreased

For businesses involved in construction, there were 16 responses. Almost 50% expected residential construction to increase over the next 12 months. In the previous quarter, only 22% felt there would be an increase in this category of activity though on a larger number of responses. The net balance statistic for indicator was moderate which is activity in the country if it materializes.

38% 0%

months’ time relative to in 3 months’ time.

a good sign for the recovery of construction

19%

Remained the same

Of note

however, was that more respondents felt

20% 40% 60% 80% 100%

Net balance (%): +25% Confidence: MODERATE 2015Q3 B13: Will it be easier or harder to get credit in 12 months' time?

In spite the deregulation of monetary policy with respect to interest rates on deposits, only 14% of respondents felt it would be easier to get credit in 12 months’ time. 51% felt it would be harder whilst 35% thought access to credit would be the same. The

Easier

14%

net balance statistic means that the overall

Harder

51%

Remained the same

35%

confidence level for this important indicator is low.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%

Net balance (%): -37% Confidence: LOW

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Business Outlook 2015 Q3


Business Performance (last 6 months)

Business Performance (next 6 months)

2015Q3 C1: How has your business performed over the LAST 6 months relative to the previous 6 months? Much stronger

2015Q3 C2: How do you believe your business will perform in the NEXT 6 months compared with the last 6 months?

2%

Somewhat stronger

Much stronger 17%

Somewhat stronger

About the same

44%

Somewhat weaker

24%

About the same

28%

Much weaker

3%

52%

Somewhat weaker Much weaker

9%

17% 5% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%

Net balance (%): +6% Confidence: BALANCED

Net balance (%): -18% Confidence: BALANCED Over the last 6 months, 37% reported that

Over the next 6 months, more business

their businesses performed weaker than the

owners and executives expect their firms to

previous 6 months which has not changed

perform stronger than the last 6 months by a

from the previous quarter. In 2015 Q2,

margin of 6% compared to those that

business performance estimates were better

believe their businesses will perform weaker.

than

more

In 2015 Q2 the same margin was 17%.

executives indicated experiencing stronger

Compared to 36% in 2015 Q2, 27% of

business performances, 26% versus only 19%

respondents now anticipate an improved

currently.

business performance over the next 6

in

the

current

quarter

as

The confidence level for the current period

months.

is negatively balanced as more firms (37%)

This net balance statistic for this quarter is still

indicated registering a weaker performance

a positively balanced level of confidence

in the last 6 months than those that had a

and perhaps represents some green shoots

better outturn (19%) when compared to the

of growth looking ahead. Small and micro

previous 6 months.

businesses being more optimistic in the short term is a good signal. Some caution must be taken as both business

performance

metrics

have

declined since the last quarter.

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Page 8 of 13

Business Outlook 2015 Q3


Major Constraints on Business In your opinion, what are the major constraints on the growth of your business? Respondents could select more than one answer to this question. Answer choices

Responses

Percentage

Rank

National economic performance

85

67%

1

Rising overheads and utility costs

49

39%

2

Price pressure from customers

48

38%

3

Price pressure from competitors Problems with government planning regulations

41

33%

4

38

30%

5

Declining customer base

33

26%

6

Licensing and regulations

30

24%

7

Regional economic performance

29

23%

8

Global economic performance

25

20%

9

Rising production costs

24

19%

10

Increased competition from low cost imports

22

17%

11

Difficulties in obtaining finance / extending credit facilities

21

17%

12

Price pressure from suppliers

20

16%

13

Availability of skilled workers

17

13%

14

Rising transport costs

16

13%

15

Declining visitor numbers

12

10%

16

Broadband and information technology access

7

6%

17

Transport infrastructure Environmental catastrophes (hurricanes, flooding, earthquakes etc.)

6

5%

18

4

3%

19

Reduced demand for exports

4

3%

19

Access to training Limited supply of production materials and/or product

3

2%

21

2

2%

22

Shortage of commercial land Declining demand from customers

2

2%

22

0

0%

24

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Business Outlook 2015 Q3


Feedback The following is a selection of comments provided by respondents on general issues affecting businesses in Barbados.

Increase Port Taxes, Length of time documents are processed through Customs, Length of time Goods are cleared from the Port.

Length of

time payment is made by Debtors.

Unchallenged accusations of serious corruption within

cabinet

are

harming

Barbados'

reputation. It is also making many Barbadians lose faith in the system and this is harming longer term investment.

The economy need stimulating, small, medium

The

and large, Government seems to be interested

affecting our business negatively. We depend

current

industrial

in only large projects.

on imports and any negative movement in that area affects us.

relations

climate

is

This has resulted in the

company missing vital opportunities to sell Lack of confidence in Government policies. Regulation,

taxes

implemented stakeholders

and

without i.e.

solid

policies

that

discussion waste

tipping

product as we can’t sell what is still in the Port.

are with fee,

renewable energy regulations, changes in VAT etc.

Government contracts are the largest accounts receivable

which

banks

do

not

consider

collectible. These accounts receivables are taken out of the bottom line when applying for

There needs to be greater linkages between businesses in the agriculture and retail and tourism businesses.

finance.

owed to a small agro business- and no one in the BRA even has the decency to reply to correspondence. Inputs for hi tech agriculture are subject to VAT and in many cases tax because of their specialty nature which fall Classical

companies

with

cash tied. The whole system is grinding to a halt.

collect VAT as we are zero rated over 300k

the

private

slower at paying their debts as they become

No VAT returns since 2011 while we cannot

outside

Thus

Government contracts are getting slower and

agricultural

box.

I’m

The BCCI needs to keep pressing the point to Gov't

that

with

business

development

&

expansion generates the tax revenue that they so desperately need. Continual increasing of taxes on an already overburdened society with increasing

unemployment

is

myopic

and

unsustainable.

seriously viewing options to close the company at the end of 2015.

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Page 10 of 13

Business Outlook 2015 Q3


Economic Analysis The latest results of the Business Outlook 2015 Q3 show that businesses are still experiencing tough times.

As a result, overall economic activity continues to struggle in the face of

multiple challenges currently facing businesses.

Firms are bearish about their own

employment prospects and a significant proportion view access to credit as getting harder over the next 12 months. Though the low response in 2015Q1 makes it difficult to deliver meaningful comparisons for individual confidence indicators, we can still review the overall business climate with some

Business Confidence 0%

-5% -7% -10%

-10%

-15% -16% -20%

-25% 2015 Q1

degree of confidence.

2015 Q2

2015 Q3

The overall business confidence for 2015 Q3 is still negatively

balanced and estimated at -7%, compared to -16% and -10% during 2015 Q1 and 2015 Q2 respectively. Of the 21 indicators which the net balance statistic is calculated, 9 registered positive measures of confidence which are as follows: 

Real business activity in 12 months’ time (+8%)

Price of good/service in 3 months’ time (+12%)

Investment in buildings, plant and equipment in 12 months’ time (+2%)

Real exports in 12 months’ time (+26%)

Capacity Utilization in 3 months’ time (+4%)

Inventories in 6 months’ time (+11%)

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Page 11 of 13

Business Outlook 2015 Q3


Volume of activity in residential construction in 12 months’ time (+25%)

Volume of activity in non-residential construction in 12 months’ time (+12%)

Business Performance over the next 6 months (+6%)

These 4 indicators fall in the balanced category and is not sufficient to offset the negative confidence levels of the other 17 indicators to reach positive territory overall. Interestingly, the monetary policy announcement by the Central Bank of Barbados at the beginning of the survey period did not appear to have any significant influence the responses as it relates to interest rates on loans and overdrafts and the relative ease of accessing credit in general.

Only 10% expected lower interest rates on overdrafts in 12

months’ time, whilst 21% expect rates of loans to decrease. Some 86% also expected that it’ll be harder to access credit in 12 months’ time (44%) whilst 42% expected access to remain the same. On the bright side, firms are much more positive and upbeat about the future, with 36% of business owners and executives expecting stronger trading levels over the next 6 months. Only 20% expect a weaker performance over the next 6 months. For there to be significant growth in in the economy this year, this optimism must be translated into improvement in real business activity which should be accompanied by the higher employment levels. Following the presentation of the Budgetary Proposals and Financial Statement in June 2015, there will likely be a negative impact on the cash flow of some business segments as there will need to be an outlay of cash in order to remain tax compliant. Despite having a better outlook over the next 12 months, shorter term challenges may well prove difficult in finding available cash to settle new tax bills and will likely dampen new investment require to maintain or expand business activity.

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Business Outlook 2015 Q3


Acknowledgements With the support of the following organizations this survey would not have been possible. We would like to sincerely thank the following: 

Barbados Agricultural Society – http://www.basonevoice.org/

Barbados Association of Retired Persons – http://www.barpbb.com/

Barbados Bankers’ Association

Barbados Chamber of Commerce & Industry – http://barbadoschamberofcommerce.com/

Barbados Coalition of Service Industries - http://bcsi.org.bb/

Barbados Employers’ Confederation– http://www.barbadosemployers.com

Barbados Hotel and Tourism Association – http://www.bhta.org/

Barbados Industrial Development Corporation – http://www.bidc.org/

Barbados International Business Association – http://www.biba.bb/

Barbados Manufacturers’ Association – http://www.bma.bb/

Barbados Small Business Association – http://www.sba.org.bb

Hoyos Publishing

Institute of Chartered Accountants of Barbados (Associate Member) – http://www.icab.bb

Miller Publishing

Legal Disclaimer This report provides information designed to help users cope with their own business, financial, legal and other needs. This information is not the same as retaining experts in those fields for advice. Although we go to great lengths to ensure the information is accurate, we strongly recommend you consult an expert, including but not limited to an economist, accountant, financial services consultant, lawyer or other professional as appropriate. Nothing contained in this report is to be considered as the rendering of financial, professional, legal or other advice for specific cases, and users are responsible for obtaining such advice from their own financial, legal or other counsel. The information contained in this report is intended for educational, background and informational purposes only.

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Business Outlook 2015 Q3


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