In search of balanced growth
The rebalancing of the UK economy from one based on consumer and public spending to one led by business investment and exports is a core objective of the UK’ s coalition Government. Notwithstanding improvements in the trade data over recent periods, progress towards achieving this objective has been very slow although the government has identified the Eurozone crisis as a major factor delaying the rate of change.
In truth, the objective was a very ambitious one: the UK’s share of world trade has declined fairly consistently since World War II and exports did not pick up particularly fast following the significant fall in the value of the pound after the 2008 financial crisis. Improving export performance requires a long term strategy, significant investment in innovation and design, skills and facilities and extensive work to build customer relationships and develop sales channels. Purely identifying faster export growth as an objective does not guarantee success.
The 2013 Budget signalled a change in strategy as the EYITEM Club noted, the Chancellor moved to stimulate the housing market and consumer spending. This has so far been successful with improvements in business and consumer confidence and positive economic indicators in recent weeks. Despite the lack of progress to date, the EY Export Goods Monitor launched today, identifies that there is a real opportunity for the Uk to move now to improve its export performance significantly.
Opportunity out of Adversity
The UK’s improving economic situation provides a platform for the UK to exploit an increasingly favourable international economic environment:
– the rebalancing of China’s economy, the fall out from the Japanese earthquake and the emergence of new fast growing economies beyond the BRICs is leading to a major reshaping of global supply chains and location decisions. – restoring to the USA is one example;
– as China changes and income levels increase in other developing markets so demand shifts away from industrial goods to services and consumer goods, potentially improving the UK’ s relative position; and
– our major competitors in Europe remain challenged economically and lack of confidence limits their ability to invest to exploit the new opportunities.
The EY UK Export Goods Monitor launched today confirms these trends: a slowing in the UK’ s traditional markets but opportunities in new areas.
Laser like focus is required
The world economy is changing and becoming more competitive as countries try and export their way out of economic difficulties in their domestic markets. The UK cannot compete on all fronts but must identify the sweet spots where strong demand is aligned with a competitive offering. On current trends, the EY Export Goods Monitor forecasts annual growth of 0.3% in UK goods exports to 2017 but with much stronger performance in a number of areas:
– Automotive exports to China and South East Asia especially Malaysia and Indonesia;
– Engineering in the Middle East with areas such as aerospace being prominent;
– Oil and Gas to Latin America meeting the growing demand in countries such as Chile and Columbia; and
– Biopharma to markets as far apart as China and Argentina.
In all cases, the growth will be at the high end, specialist part of these changing supply chains. The UK is going to be competing primarily on quality not price. Success will come from early identification of the niches to target.
More to play for
The forecasts above should be the base case and the UK should aspire to do much better. The forecast performance of the West Midlands shows what is possible: faster growth than Germany to 2017. This is based upon the coming together of investment, much of it from outside the UK, and a latent local skill base and infrastructure. Success requires joined up policy to create a sustainable competitive advantage.
The UK finds itself with a real opportunity to exploit export opportunities and while this is more through circumstance than design, we must seize the moment. Success will require Government and business working together to identify opportunities and to build the capability to exploit them. This is a long term project encompassing investment in R&D, education, training, facilities and infrastructure supported by trade missions and UKTI around the globe.
The policy of “picking winners” is often scorned but several of the sectors cited above were identified in the 70s as having long term potential. . As the CBI notes, picking sectors certainly seems a sensible way forward if we are to ensure the UK uses its limited resources in the most effective way possible.
Ideological concerns over the role of government in the economy should not blind us to the fact that most UK businesses are competing against companies that do receive forms of support from their national governments, and many markets UK companies wish to enter will be heavily influenced by domestic authorities. UK business and government need to work together if we are to reverse decades of declining export performance.