2018 has been one of the most unpredictable years for business and finance that I can recall in my 40 years as a Chartered Accountant.
I am sure that this will continue into 2019 as global economies feel the ‘winds of change’ with over one third of the world’s population involved in leadership elections. It remains to be seen whether the populism of Trump and Brexit takes a greater or lesser hold elsewhere.
The political and economic outlook
In the USA, politics will be overshadowed by the start of campaigning for the 2020 Presidential election. This will no doubt start a fierce and aggressive fight against a backdrop of a faltering economy after a very long period of expansion. The effects of the trade war with China, increasing interest rates, soaring debt and a volatile stock market will all play their part in creating uncertainty not only in the USA but around the globe.
I feel that the years of very low-interest rates are starting to come to an end and with the world more indebted today than at the start of the 2008 financial crisis, we must prepare to shoulder the burden of higher interest rates over the next few years. This will put particular pressure on emerging markets, suffering from higher interest rates and debt repayments denominated in a strengthening US dollar.
In the UK, our clients in all sectors of the economy also face a high degree of uncertainty, largely due to the Brexit debate.
I can’t help thinking that the country has been let down by its national politicians of all parties, who seem to be positioning themselves for their own careers rather than the good of the country. My sense is that the UK now needs certainty more than ever and wants the Brexit negotiations over and done with. We will know a little better how the land lies once Parliament votes on Theresa May’s exit deal in December.
However many of our clients, particularly those who trade with Europe, have already started to action contingency plans to protect their businesses - they can no longer wait as we approach the 29 March 2019 deadline. Business has delayed decision making and investment long enough and this only adds to a general lack of confidence in the economy going forward.
Issues with audit
And speaking of my own profession; it has also been at the forefront of considerable criticism in 2019 in the light of public company audit scandals - notably the collapse of Carillion earlier this year. This has resulted in urgent government led reviews of the audit market and a review of the governance of the Financial Reporting Council, the UK’s audit regulator.
Rachel Reeves MP, the Chair of Business, Energy and Industrial Strategy Select Committee, recently spoke at Chartered Accountants Hall and, without mincing her words, declared the audit market ‘broken’. This debate will continue to a conclusion next year and we wait to see what the recommendations will be.
But I do not agree fully with Rachel’s analysis.
The market for the audit of major FTSE and other public interest companies is completely dominated by the Big Four international firms. This sector of the market clearly needs to be looked at to see what lessons can be learned to improve competition as well as the robustness of public company audit.
However, this is only one part of the wider issues of corporate governance. I also believe the accountability and behaviour of board directors of public quoted companies need to come under the spotlight to a far greater extent than currently appears to be the case.
It needs to be remembered that there are over 5,600 registered audit firms in the UK serving the SME and owner-managed business market very well indeed. They provide that sector not only with audit and assurance but a wide range of advisory services that help the sector survive and thrive. This is the engine room of our UK economy and creates more employment than any other sector. We are working to make sure that the inevitably increased regulation that will be recommended for FTSE companies does not impact on the very good work, relationships and need for quality advice that exists in other sectors of the economy.
We also continue to see the march of other significant trends.
There is now no hiding from technology - it will continue to be everywhere in 2019. Artificial Intelligence, Blockchain, Cyber Security and Big Data - for many, it will be critical to know your ABCDs. Of course help is at hand. 2019 will be the year when millennials will outnumber baby-boomers to become the largest generation in the workforce. Thank god they know what to do with this stuff - and with more than half the world online their contribution will be increasingly vital.
Faced with the exponential rise in digitalisation, many will feel threatened as work changes and adapts. Many roles will be lost, but the good news I hear is that 60% of jobs to be created in the next 15 years have not been invented yet! There is a real need for all businesses to be creative. I believe creativity will be one of the unique selling points we, in the UK, have to offer the rest of the world in a post Brexit environment.
A VUCA world
All of us will remain in a VUCA world in 2019 - Volatile, Uncertain, Complex and Ambiguous. This will continue to challenge leaders of businesses but, while difficult, these challenges are not insurmountable. At times of uncertainty there are always opportunities. Good leaders will identify these and seize the opportunities that will inevitably present themselves. Our role as advisers will be to continue to assist our clients to redefine VUCA as a world of Vision, Understanding, Clarity and Ambition.
Finally as we approach Christmas, I want to share some good news with you.
The Brookings Institute has recently noted that the number of people in the world living below the extreme poverty line of $1.90 income per day has fallen from 36% in 1990 to 10% in 2015, and that over half the world’s population is now middle class or richer.
This means that throughout the world one person every second has been escaping extreme poverty and five people a second are joining the middle classes. While there is a lot more to be done, and it is true to say that over 3.4 billion people still struggle daily to meet their basic needs, we have now reached a tipping point: for the first time in 10,000 years we have more people not vulnerable to slipping into extreme poverty than those who are.
I belong to a profession whose core mission is to help create ‘a world of strong economies’. Whether at home serving our clients or in a wider context throughout the world, this is happening before our very eyes if we can focus on the positives. I remain very optimist that this will continue in the years ahead.
Can I thank all our clients, contacts and friends for your support during the year and I wish you all a very peaceful Christmas and prosperous New Year in 2019 - whatever is thrown at us. There is lots to look forward to.