Small Talk: Entrepreneurs eyegrowth but stay shy of emerging markets
Monday 13 December 2010
The economic outlook might be uncertain, with a number of possible flashpoints – not least Europe's unrelenting sovereign debt woes – keeping policymakers up at night. But while this uncertainty might trigger caution among economic forecasters, it seems to have done little to dampen the mood among entrepreneurs.
This morning will see the release of Deloitte's annual UK Entrepreneurship report, which reveals that the vast majority of this country's scrappy band of new businessmen and women expect to grow their revenues in the next 12 months.
In fact, the survey of nearly 350 entrepreneurs from across the UK shows that only 8 per cent expect zero or negative revenue growth over the coming year. That figure itself is lower than in 2009, when a full 20 per cent foresaw no growth. Over half – 56 per cent – are eyeing a revenue rise of least 10 per cent in the next year, while 36 per cent expect to grow by up to 10 per cent. Further out, nine out of 10 expect their businesses to book double-digit revenue growth over the next three years.
Tony Cohen, the head of entrepreneurial business at Deloitte, explained: "Last year, cost reduction was seen as the quickest and simplest way to bolster the balance sheet. It was a priority for entrepreneurs, meaning the expansion of their business – the driver of revenue growth – took a back seat.
"However, this year the vast majority of entrepreneurs expect positive growth over the next year, suggesting that some of this cash will soon be invested in growth strategies."
That said, the bruises left by the deepest recession in decades are still visible – at least in the form of lessons learnt, with 46 per cent of respondents saying they are actively stockpiling and retaining cash within their businesses.
The survey also shows that, despite the growing crescendo of forecasts anticipating booming growth in emerging markets, entrepreneurs remain cautious about venturing into the economic wild west – or should that be east?
Indeed, the UK, Western Europe and North America remain preferred markets for growth for 84 per cent of entrepreneurs, with only 1.5 per cent considering China as an avenue for growth for their business and less than 1 per cent leaning towards India and Brazil. Larger companies are much more likely to attempt foreign expansion into fast-growing markets, according to the report.
"Foreign expansion into potentially untapped markets, especially for those sectors more naturally suited to global expansion such as telecommunications and technology, remains down the list of short-term priorities," Mr Cohen explained. "Entrepreneurs are maintaining a more cautious stance, avoiding any potentially costly drains on company resources in turbulent markets."
Respondents were also cautious about the impact of the Government's austerity drive, with more than half – 55 per cent – expecting short-term negative effects as a result of the squeeze as consumers once again tighten their purse strings. And despite the headline findings on revenue growth, entrepreneurs are also more bearish about the macroeconomic picture, with more than half of those surveyed believing there is a greater than 50 per cent chance of this being a "double dip" recession, where the economy contracts again. We say "more bearish" because this compares with just 34 per cent of listed company finance directors in Deloitte's CFO survey.
CDC to make its market debut
Investors interested in the resources sector could not have missed the record rise in copper prices last week.
The metal rose above $9,000 a tonne, and held firm even after China's central bank said it was raising reserve requirements – the money that lenders must keep on reserve – on Friday.
The move, aimed at mopping up the excess cash flowing around the Chinese economy, was welcomed, as the markets had been worried about the more onerous prospect of an interest rate hike. The latter, it was feared, could have dampened demand in the world's largest consumer of industrial metals.
It is against this backdrop, then, that Copper Development Corp, the owner of the Hinoba-an copper project in the Philippines, will announce its admission to AIM this morning. The company has raised more than £40m from institutional and industrial investors, with the money earmarked to help fund a study of the feasibility of bringing the mine into production through an accelerated development programme.
In terms of management, CDC is headed by Mitch Alland, its chairman and chief executive who, over more than two decades at the World bank and the International Finance Corporation, has been involved in major copper mining projects in South America and Africa.
"We believe the current upward trend of copper prices signals a growing supply-demand imbalance in the copper market," he said. "The increasing global demand for copper represents a significant opportunity for CDC. In Asia, this growth has been particularly robust, most notably in China, which accounts for 37 per cent of world refined copper consumption."
Noricum set to leave PLUS for AIM
From copper to gold, which, as we have noted before, has also been rising in recent months, striking records as investors seek protection from economic storm clouds. Noricum Gold is holding a shareholder meeting on Wednesday, where investors will get the chance to approve its acquisition of gold assets in Austria and its move from PLUS to the AIM market on Friday.
Why Austria? Noricum points to the pro-mining environment in what historically has been a high grade gold production region. It also highlights factors including the strength of the infrastructure and the stable political environment.
The latter is worth noting, we think, as mining companies often operate in remote regions, making it that much harder for investors to gauge events on the ground. No such issue here. The infrastructure point should also prove attractive, as miners often end up having to invest heavily in making sure their operations are accessible and have a regular supply of power.
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