Highlands and Islands businesses challenged by increasing costs, economic uncertainty and supply chain issues

Businesses in the Highlands and Islands continue to be challenged by increasing costs, economic uncertainty and supply chain issues, according to the latest business panel survey undertaken by Ipsos MORI for Highlands and Islands Enterprise (HIE).

Highlands and Islands businesses challenged by increasing costs, economic uncertainty and supply chain issues

Martin Johnson, HIE’s director of strategy and regional economy

More than a thousand businesses in the region were contacted for their views on topics such as financial health, priorities and concerns. Before the emergence of the Omicron COVID-19 variant, the survey highlighted that the region’s economy was showing clear signs of resilience and recovery. However, the emergence of the new variant and subsequent changes in public health guidance is inevitably a setback for some key sectors.

Businesses were questioned at a time when they were continuing to grapple with a range of economic challenges including ongoing recovery from the pandemic, increased inflation, record fuel prices, widespread reports of fuel shortages and a wider supply chain crisis.

Against this backdrop, more than four out of five (82%) said they were optimistic about their prospects over the coming 12 months and 45% said they were striving for growth. Nearly two thirds (64%) said they were confident in Scotland’s economic outlook.

Most businesses (66%) said they were operating at their pre-pandemic level (44%) or above (22%). Companies in the financial and business sector appear more likely to be operating at above pre-pandemic levels, while those in creative industries and tourism are more likely to operate below.

Top priorities identified for the year ahead were keeping pace with new technologies (54%), innovating and evolving (51%) and reaching new markets (40%).

Moving to low carbon ways of working was identified as a priority by 70% of businesses. While most (43%) see this as a longerÔÇÉterm focus, nearly all businesses (93%) are already taking action to reduce emissions.

Around three quarters (76% of those who felt it was relevant to them) were experiencing some form of supply chain challenge. This was dominated by access to goods, materials or services and compounded by export processes and transportation. All of these were contributing to increased costs, identified as a major concern for 82% of businesses.

The survey also showed some signs of import substitution. The proportion of businesses accessing goods and services locally increased from 70% in June to 85% in October and there was also an increase in those sourcing from elsewhere in the UK (from 62% to 73%).

Labour shortages persist for 57% of businesses, rising to 68% for those in the tourism sector. This was resulting in increased workload for other staff, difficulties in delivering services or fulfilling orders and scaling back production or services.

Martin Johnson, HIE’s director of strategy and regional economy, said: “This has been another really useful exercise in gathering data about the bigger picture of our region’s economy and the main issues and opportunities facing companies across different sectors and locations.

“We welcome so many businesses introducing fair work measures for their staff. The focus for many firms understandably seems to be mostly on the here and now, which is an indication of the impact of uncertainty. Where we all want to get to are the circumstances that allow us to return to more longer-term planning and investment.

“We are very aware of the additional concern around those most impacted by the pandemic, such as tourism, food and drink and creative industries. The emergence of the new Omicron variant will also likely lead to increased challenges in some key sectors.”

He added: “As we continue to navigate our way through the ever-changing challenges presented by the COVID-19 pandemic, HIE remains committed to supporting businesses across our region.

“As always, the findings of this report will be used to inform support strategies for HIE and our partners going forward, as well as feeding into the wider rural Scotland business survey, which will be reporting in January.”

HIE’s latest business panel survey was part of a pilot commissioned in collaboration with the Scottish Government (SG) and South of Scotland Enterprise (SOSE) to extend its reach to cover all rural Scotland.

The full HIE business panel survey report is available on the research and reports page of the agency’s website.

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