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Productivity and positivity from growth companies – a promising combination for UK investors

Productivity and positivity from growth companies – a promising combination for UK investors

By Oxford Capital | Sep 18th 2018

The ninth ECI Growth Survey looks at the mood among the UK’s high growth businesses and reveals significant optimism. Suzanne Pike, Director, Head of Origination, ECI Partners states that “Despite a turbulent year in politics and the imminent impact of Brexit, these companies are well prepared to navigate any bumps in the road and will continue to be the driving force of UK economic growth.”

These are the companies that UK venture capital investment managers strive to uncover and nurture, to bring them to high multiples of their valuation when they found them and to unleash their transformative effects on the UK economy.

Given that a record 84% of respondents to the survey expect growth of 10% or more in 2018, Suzanne Pike’s is a well-founded comment. And the importance of these high achievers to the UK economy is borne out in productivity (revenue per employee) figures. As a key metric of how quickly an economy can grow, the statistics make sobering reading; the UK has been struggling since the 2008/09 recession, with pre-recession productivity growth averaging 2% per annum and enabling GDP growth to run at 2.5% per annum. Since 2010 productivity has averaged just 0.5% per annum – a record low that is lower than almost every other G7 nation.

Bank of England chief economist, Andy Haldane, has attributed at least partial blame for the UK’s productivity gap to “snails”, defined by ECI as, “the slow-moving and clumsy firms that fail to adopt new technologies, cling to backwards management practices, fail to invest and balk at exporting.”

In contrast, the companies surveyed in the ECI report have raised their productivity by an impressive 13.5% over a year. Their focus on people, skills and technology is a big factor in their success with 71% investing in new tech, and 70% are developing their employee’s training. What’s more, the report finds that, ”innovation is a major theme this year, as fast-growth firms pour resource into launching new products or services, and diversifying their customer offering.”

Innovative entrepreneurs are the life-blood of venture capital and the positivity displayed in the report is an indicator that VC is doing its job. Not only is this good news for the UK economy, but also for VC investors. The reality, however, is that there is more to be done, which is an exciting prospect for those with the expertise and capability to identify, back and cultivate the country’s high-potential talent and ideas.

Philip Shaw, Chief Economist of Investec Bank plc, described the consequences of an ongoing low productivity environment: a significant proportion of UK households currently feel economically excluded. And limited economic growth looking ahead would only feed these feelings of disenfranchisement. On top of this, the UK’s ageing population will mean more resources being directed towards state pensions, healthcare and social care. Put bluntly, if productivity growth fails to strengthen, wages are likely to remain stagnant and living standards will fall. It is therefore imperative that Britain lifts itself out of its current productivity malaise.

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