Can Britain buck its slow export trend?
In his 2012 Budget speech, Chancellor George Osborne set British companies the lofty target of doubling national exports to £1 trillion by 2020. Such political announcements aren’t unusual – the Turkish government issued an almost identical edict last year – but are rarely realistic.
Figures from the Association of British Insurers show that between 2007 and 2012 the share of total credit insurance premiums issued for UK exports fell from 33 per cent to 29 per cent. Export growth has been anaemic, despite the green shoots trumpeted at the turn of the year.
Britain last reported a trade surplus at the end of 1997, when a weak pound allowed overseas buyers to purchase British goods for a knockdown price. With the pound losing 20 per cent of its value during the financial crisis, you would expect similar results. Yet Office for National Statistics figures show that exports were down year-on-year by 1.2 per cent in August 2013. The recent return to economic growth has been powered by growing domestic demand rather than exports.
“Normally the fall in value of the pound would be associated with a growth in exports,” says Rob Dobson senior economist at Markit. “But it doesn’t matter how competitively priced you are if demand in your key markets is so weak. What the UK gained in exchange-rate advantage, it lost in being targeted towards the eurozone.”
Britain has failed to take advantage of high growth in emerging markets. A report released by the Foreign and Commonwealth Office last year found that, while British exports to China have quadrupled in ten years, its share of that particular market has fallen to 1 per cent.
It’s no coincidence that nations with the strongest export support mechanisms continue to deliver
Part of the problem is the content of Britain’s exports basket. As China embarked on its colossal infrastructure boom, Germany, which accounts for 46 per cent of Europe’s exports to China, was in pole position because of its renowned capital equipment industry. Britain’s service-led exports were left standing as the likes of China – and India – import few business services.
But there are signs that Britain’s fortunes may improve, at least in the long term. The government has been courting faster-growing markets, with Deputy Prime Minister Nick Clegg visiting Colombia and Mexico earlier this month, and Prime Minister David Cameron visiting India in November and China in December. This is bearing some fruit as non-EU exports overtook EU exports for the first time in February 2013.
And as China embarks on a rebalancing act of its own – replacing its investment-led growth with consumption-led expansion – Britain’s high-value exporters have been growing their presence. Vehicles provided 40 per cent of Britain’s total Chinese exports in 2013, with Jaguar Land Rover leading the way. “There’s been a shift to the manufacture of high-value goods in the UK, which should assist as countries like China need more of that kind of product,” says Mr Dobson at Markit.
There are some positive signs in the smaller business (SME) market too. According to the Federation of Small Business, 25.5 per cent of SMEs expect export sales to grow in the first three months of 2014. The same report finds that banks rejected 39.8 per cent of credit applications from SMEs in the third quarter of 2013, the lowest level since 2011. This figure, though, is still too high. If exports are to drive recovery, financial support needs to be strengthened and consolidated.
“The UK needs better export credit tools,” says Mark Runiewicz, chief executive of UK Exim, a trade and export finance lender. He admits that his service is more expensive than bank lending, but says his fund offers more flexibility, without the “slow no”. Non-bank lenders, such as UK Exim, could become more common in the UK as banks, in a move to meet capital-holding requirements, continue to deleverage.
The market lacks awareness of export tools too. Just 49 per cent of respondents to last year’s International Trade Survey by Trade & Export Finance Limited and AIG had even heard of UK Export Finance (UKEF), the government’s export credit agency, with only 13 per cent having received any form of support.
Export credit agencies in Germany and the United States made direct loans and guarantees worth more than $30 billion in 2012, while the British government allocated just £1.5 billion to UKEF’s direct lending scheme.
Jon Coleman, chairman of the British Exporters Association, is calling for UK Trade & Investment, together with UKEF and the Business Bank, to be brought under a single umbrella, driven to advise, insure and lend to exporters, particularly smaller ones.
It’s no coincidence that nations with the strongest export support mechanisms continue to deliver. US exports hit their highest level in November 2013, Germany continues to leave the rest of Europe in its wake and South Korea, underpinned by the highly active government lending and guarantor agencies Kexim and K-sure, saw export growth of 4.3 per cent last year.
Until Britain has a more coherent export strategy, we will continue to lag behind, despite the best efforts of British exporters.