Dr Rebecca Harding, CEO
The numbers speak for themselves – the UK is stuck between a Brexit brick and a Covid hard place. UK trade never grabs the headlines in the way that GDP or unemployment does, but as trade has struggled, so too have UK exporters. For example total exports, including services, fell by 20% between July 2019 and July 2020. Goods exports to the EU 27 fell by 22% in the year to the end of March 2020, and to non-EU G20 countries by nearly one third.
Perhaps as a result, there are fewer exporters in the UK in 2020 than there were in 2019. In the 12 months to the end of July 2020, Coriolis research shows that there were just over 5% fewer large businesses exporting, 7% fewer medium and small businesses, and 10% fewer micro businesses.
While this may not be much of a surprise, it points out just how harsh the last 12 months have been for UK businesses generally and UK exporting SMEs in particular. Small businesses that export have seen their employment fall back by 7% while for micro business epxorters the number is larger at over 9% between July 2019 and July 2020; over the same period revenues dropped by nearly 10% and nearly 30% respectively.
In contrast, while there were fewer large and medium sized exporters, revenues have grown, even if employment has remained roughly the same or fallen back. As was discussed during a working group on trade finance at the recent Future of Strategy event, it is the case that larger exporting businesses have used the current crisis to accelerate the introduction of new technologies and streamline their costs. Again the improvement in efficiency that the data appears to represent for these groups is not surprising.
Differences by sector show clear winners and losers. In the 12 months to the end of July 2020, revenues have stayed positive across all sizes of business in manufacturing, utlities, wholesale and retail, administrative services, ICT, financial services and defence, forexample. These sectors have also done well since March 2017 when Article 50 was triggered.
But large segments of the exporting businesses have been damaged, and many of these are in services rather than goods trade with logistics, travel and transport badly hit over the last 12 months. Agriculture and Fisheries, Construction, transport and logistics, financial services and insurance, professional services, health, and other services exporters are worse off in employment and revenue terms since Article 50 was triggered.
If you find this a little worrying, then you should. Trade finance, which is the means by which businesses can raise the working capital to fund their exports, functions badly in conditions where risks are high. Over the past three years, uncertainty has dominated trade everywhere but in the UK in particular, and the only clarity in the future is arguably that exporters, and indeed importers, will have to deal with more regulations, more restrictions and more complexity around trade than they have done up to this point. The government acknowledges this point.
Arguably the numbers should make you angry as well as worried. The 11th hour nature of discussions between the EU27 and the UK has created an impression that some form of magic bullet deal is possible, when the reality is that everything will change for those businesses who trade. This is not just the case for trade with the EU but with most of our other export partners too. We have “in principle” agreements with Canada and Kenya, and a Free Trade Agreement with Japan, but these and all the other “rollover” agreements from our relations with the EU consistitute less than 10% of our total good trade. It is a little publicised fact that leaving the EU puts us on World Trade Organisation terms with the rest of the world, including the US – not just the EU.
More than this, until the latest endgame, there has been very little discussion of services. Service sector trade has pulled our trade balance into surplus and accounts for around 50% of the value of our total trade. Yet financial services have largely been kept out of the discussions since the referendum vote while issues around data sharing have largely also been swept under the carpet, threatening £1.6bn in revenues to UK based ICT businesses as UK service companies lose their preferential access to European markets and have to renogiate with non-European markets. Small financial services exporters have seen their revenues fall back by over 70% in the last year, while micro ICT business exporters have seen revenues fall by over 17%. Revenues and employment have dropped for nearly all exporters, irrespective of size. In professional, scientific and technical services, yet this was our largest service sector export at some £83.8bn in 2019.
To be fair, the UK government is broadening access for UK exporters to trade finance with its newly announced General Export Facilty that supports export working capital requirements. During the Covid pandemic, the export insurance market has become more risk averse and whilst small businesses have fallen victim to the fact that they are seen as higher risk in the sector, UK Export Finance has, quite rightly, stepped into the breach and provided the support necessary in riskier export markets and for riskier propositions.
There is a responsibility now for the UK government to drop its “it’ll be alright on the night” approach to UK trade and trade negoitations. We are no longer the trade powerhouse that we were 100 years ago: our share of world trade has dropped from over 4% fifteen years ago to under 2.5% now. We do not have strong and comprehensive trade agreements with enough countries to counter-balance the loss of trade power that will be inevitable outside of the the EU. As trading blocks like the recently signed RCEP (Regional Comprehensive Economic Partnership) that covers 30% of world trade, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) gain ground, it will become more evident that the importance of aggregated power through trading blocs is vital in negotiations with the World Trade Organisation as well.
At present, the UK government has a mammoth challenge – how to support businesses through the pandemic while ensuring that the disease itself remains under control. Nevertheless, it is trade generally and exporters particularly who are being damaged at the moment. While this continues, the UK cannot assume that it will grow easily out of the Covid crisis into its newly independent “global Britain” role.