2.4 billion capital trapped in UK manufacturing industry
Jun 25, 2010 Comments (0)
David Martin, Head of Sales, Siemens Financial Services Ltd in the UK, comments: The importance of freeing up frozen capital is becoming increasingly urgent. Due to the effects of the economic crisis, the manufacturing industry in the UK is coming under massive pressure to become more efficient. Leasing and rental are important financing tools which help industry afford the most up to date equipment and technology, as well as rapidly improving efficiency.
Access to flexible capital is critical to the acquisition of industrial technology and equipment, especially given that the sector in Western Europe is subject to over-supply. Any limitation on the ability to invest in the latest technology and equipment has a disproportionately large influence over the ability of industry to compete in increasingly globalised markets. Equipment replacement periods in the UK have not been extended during the recent economic downturn, and industrial organisations are less and less able to have a significant proportion of their annual capital budgets tied up in plant, equipment and technology. Therefore industrial management is now keenly looking for ways of making the budgets work harder. For mature Western economies, such as the UK, that have been affected by recent recession, tapping into liquidity currently tied up in outright equipment purchases helps make the acquisition of capital equipment more efficient and effective.
The total annual capital expenditure that is currently frozen in UK manufacturing industry is 2.4bn (2.7bn) reveals the latest SFS research in a reporting series which began in 2006 and tracks relative trends in six key countries (UK, Germany, France, China, Poland, and Turkey).
Frozen capital in the UK has dropped by 14% from 2.8bn (3.2bn) in 2008, which shows that manufacturing industry is becoming more efficient, but there is much further potential for improvement. Frozen capital in the UK is lower than other mature Western economies, such as Germany (10.2bn) and France (5.8bn), mainly because its manufacturing sector is smaller in size. Across all six countries studied, over 110bn of capital is currently frozen in the manufacturing industry, compared to 113bn in 2008 a drop of only 3%. A significant proportion of this capital could be freed up if asset-financing techniques such as leasing and rental were more widely employed.