ANNUAL BUSINESS REVIEW 2005

For this year's annual look back at how the business sector in Perthshire and Kinross has performed during the last 12 months, we invited comments from Alastair Dorward, President of Perthshire Chamber of Commerce, Ian Williams, partner with Campbell Dallas Chartered Accountants and Bernadette Malone, Chief Executive of Perth & Kinross Council. Here are their individual views on 2005.

2005 - A mixed year?

by Alastair Dorward President, Perthshire Chamber of Commerce

2005 has been a mixed year for Scottish business, with downturn in several sectors being reported.

The 2.7% fall in manufacturing exports reported by the Scottish Executive would not impact greatly on Perth & Kinross - an area more reliant on rural industries and on the tourism and hospitality, services, and retail sectors. The general fall in the Scottish housing market was reflected in a cooling in local area activities. It is disappointing to note the widening gap between average earnings in Perth & Kinross and the national average. Locally, average earnings, which were already well below the Scottish average, fell by a further 2.7% against that average.

In tourism and hospitality, the G8 Conference in July did have a positive impact, although some local commercial businesses were adversely affected by the arrangements which had to be put in place for the event. Over the year, this sector, although not performing as strongly as the previous year, appears to have bettered the falling nationwide trend. It is hoped that growth can be achieved in the coming year with increased marketing, the projected longer term benefits of G8, and as the tourist reaction to the London bombings in July recovers.

In retail, the challenge remains to sustain the vitality of the retail sector within our community centres. The communities in Blairgowrie and Crieff do face challenges with the provision of major supermarket services on the town periphery drawing potential business from the centre but in Perth, however, retailers are reporting an encouraging year-on-year upturn in customer spend for the period to October. The opening of the Concert Hall and the increased city centre footfall and visitor traffic which that brings should help sustain that growth. Longer term, the interesting City Hall development, and the projected Mill Street Mall development will have a further impact although the Chamber does remain concerned about overprovision of retail units within, and accessibility to, Perth City Centre.

The construction industry is reported as being less buoyant than a year ago, and it is now anticipating a slow down in new housing builds, partly as a consequence of the general housing market trend, but also because of the limited availability of immediately developable land. However, the increase in social housing spend, in commercial property development, and the exciting 5 schools PPP project recently announced should help compensate for lower activity in private housing development.

In employment, although the number of jobs available in the area fell during the period, unemployment remains low running at around 2%. In the labour market there is a shortage of workforce with qualifications at the lower SVQ levels. This combination results in only a limited indigenous labour force being available to meet any increase in business demand. Moreover, it is difficult to determine the extent of the problem because of the large migrant worker population which is meeting some of that demand.

This is a strategic challenge, along with the other issues of availability of affordable housing, of adequate provision of services and infrastructure to enable development, and the risks posed to our community centres by the changing dynamics in the retail sector. However, the Chamber is encouraged by the level of informed recognition of the difficulties affecting the local economy and by the determined and concerted effort being made by stakeholders to address them.

If the predictions for ongoing stability in the national economy hold good, and if the other local projects and anticipated benefits, such as from the G8, come to fruition, then there may be optimism that current activity levels will be sustained with real potential for longer term growth as the core challenges are met.

The Rural Economy in 2005

by Ian Williams FCA TEP Campbell Dallas Chartered Accountants

As 2005 draws to a close, a review of what has happened in our rural economy over the year provides a different canvas from 2004. The Single Farm Payment (SFP), the new style EU Agricultural support mechanism, has come to life and the effect on agriculture, generally, has been "business as usual". It has not seen farmers flocking to land agents seeking to market their farms, that being said, there was approximately twice as much farm land for sale, when compared to 2004, however, bearing in mind hardly anything came onto the market in 2004, agricultural land supply is still very tight. What does come onto the market is attracting a premium of around 30%, with interest coming from outside Scotland, particularly from Northern Ireland.

That is the good news. In general, farm incomes remain at a very low level, with hardly any mainstream farming activities showing a profit. The introduction of SFP provides a "decoupled" system, which encourages farmers to look outside their traditional environment and to explore new opportunities. This is a huge challenge and for those who do grasp the nettle, this promises to be a very interesting ride. We have, within Perthshire and Kinross, a large number of burgeoning new businesses to lead the way and offer encouragement to those yet to dip their toes into the water.

Rural residential property continues to outperform the Scottish average, with Perth and Kinross continuing to demonstrate strong appeal. If you are selling, the prospects are excellent, however, if you are a first time buyer, your chances continue to look bleak. House prices, in the likes of Auchterarder and Pitlochry, are booming and are becoming, sadly, out of the reach of many. Affordable housing in rural Perthshire and Kinross remains a priory for us all which our rural economy needs this to continue to drive its engine.

On the construction front, demand remains high, however, connectivity to water and sewerage is a major headache. Lobbying of our MSP’s, to exert pressure on Scottish Water must continue, in an effort to break this huge log jam. Relaxation of planning rules appears good news for those contemplating rural residential and light industrial developments, however, unless the Scottish Water issues are resolved, we will not have moved this process very far forward.

Tourism, our largest rural business, has had a fair to middling year, neither up nor down. 2005 started slowly, the G8 had a short-term downward effect on numbers, however, things have picked-up towards the end of the year. Pitlochry, in particular, has had an excellent final quarter, as a result of the "Enchanted Forest" spectacle and the new extended winter programme at the Festival Theatre. Hopefully, with Perthshire and Kinross being showcased to the World through the G8, this will have a very positive longer-term impact, not only on Gleneagles, but on our wider tourist economy.

Ever the optimist, I look forward to reporting positive news in 2006.