Running on the SPOT

Last year, the CIA's Investment Intentions Survey predicted that the industry would splash out £2.3billion on capital projects. The actual figure, as this year's survey shows, was £2.15billion, a shortfall of 6.3 per cent. And if one considers 1990 prices, there was a drop of 0.6 per cent.

Spending was not the only thing on the slide. From the CIA's approximately 200 member companies, the 1996 survey drew 79 responses; this year, only 40 of them took the trouble to fill in the single questionnaire.

The speakers to the less than packed meeting at the Royal Pharmaceutical Society offered various explanations for industry's caution. CIA economist Nick Sturgeon said: `Future plans seem to be subject to greater uncertainty than before. This year's 40 respondents had intended to increase their spending by 58 per cent, but even in spending £750m they still achieved a shortfall of 23 per cent.'

He admitted that something had to be done to encourage more responses, so the survey's validity did not disappear altogether. `It is clear that any breakdown of the results might not be as representative as they have been in previous years. In some areas the figures are only indicative,' he said. The main reasons given for the drop were increasing globalisation of companies and a lack of time.

Only 10 respondents reported higher than intended spending. The main reasons cited for lower than intended outlay were delays in the authorisation of funds and in construction. Lower than expected exports, hampered by the strength of sterling, had contributed to flat capital expenditure. Changes in company ownership had also taken their toll.

`Nineteen ninety-six turned out to be a far more difficult year than we expected,' Sturgeon added. `It was bad also for Europe and Asia. There has been no let up in acquisitions, divestments and mergers.'

When it comes to capital spending intentions, the CIA has learned to mark down some companies' bravado because of what is described in the survey as `persistent optimism'. Thus the 21.8 per cent increase that the 40 respondents pledged for 1997 is revised down to 5.5 per cent. The prediction for 1998 is gloomier with a 3.1 per cent drop on the cards. Paradoxically, the latter figure is probably a lower estimate than what will really be spent because of respondents' unwillingness to commit themselves so far ahead.

Sturgeon proceeded to the European chemicals sector as a whole. `The West European outlook is clouded by Germany's unemployment, general weakness in consumer demand and uncertainties surrounding the EMU,' he said. But every cloud has a silver lining. `The competitive Deutschmark is helping manufacturing output and, despite tight fiscal policy in most states, the EU's GDP will accelerate to 2.4 per cent compared with 1.5 per cent in 1996.'

Talk of Europe prompted the CIA director general Elliot Finer to deliver a surprise presentation on the European single currency.

`As you have seen, investment in the UK chemical industry has remained subdued for the fourth year running,' he said, `and we don't expect a substantial change for 1997. The UK's economy continues to outperform much of Europe, the UK business climate remains excellent, so we must look for other reasons for this subdued investment pattern. One factor is likely to be uncertainties about our future membership of EMU.'

Finer went on to say that joining the single currency would be advantageous to the chemical industries, not least because exchange costs are £200million/a.

Echoing the phrase so often trotted out by the leaders of the two main political parties, Finer said: `It is more important to get the conditions right... than to adhere to the timetable. It would be in Europe's best interests to delay the project until there is the convergence and flexibility that a single currency would require.'