New export strategy could boost economy by £20 billion by 2020, claims CBI

Posted on 21 Nov 2011

CBI’s John Cridland says it’s “now or never” for a credible new exports strategy that focuses on the right products and services, and dismantles domestic barriers, which could add £20 billion to the UK economy by 2020.

A major report published today (Nov 21) by the CBI and accountancy firm Ernst & Young urges the Government to set out an exports strategy with clear and ‘achievable’ performance targets to rebalance the trade deficit.

The report, ‘Winning overseas: boosting business export performance’, says that the Government should aim to increase net exports from -2.4% in 2010 to 2.5% by 2016, with exports rising from 29% of GDP in 2010 to 36% by 2016.

As small and medium-sized companies (SMEs) have some of the greatest growth potential, the UK should aim to match the EU average of one in four SMEs exporting by 2020, compared with only one in five currently.

The report also highlights the success of UK service sector exports that have grown 4.6% average per year since 2000.

“Exports success will be one of the key drivers of growth, but for too long we have been over-dependent on advanced economies for our trade,” said the CBI’s director-general, John Cridland.

“The Eurozone crisis underlines just how important it is for the UK to diversify its export efforts to high-growth countries. Given that we’re already playing catch-up with many of our competitors, we must act now or never to target high-growth economies, leapfrog the competition and deliver our growth potential.

“We need to capitalise on the booming success of the BRIC countries, and look beyond the curve to future high-growth markets such as Indonesia, Mexico and Turkey. The new middle classes in emerging economies will have needs that our niche, high-end producers are more than able to fulfil.”

The UK’s largest export market is the United States (17%) followed by countries in Western Europe, whereas only 4% of UK exports currently go to the BRIC countries (Brazil, Russia, India and China).

The report calls for national exports to the BRICs to exceed 11% average growth in value terms by 2020. It also identifies the need to get ahead of the curve and focus now on the ‘next eleven’ countries: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey and Vietnam.

Earlier this month, a business delegation organised by ADS, the aerospace trade body, visited Mexico to arrange trade agreements and potential joint ventures. Andrew Churchill of precision engineers JJ Churchill, said the trip was “very successful” for his firm and other members of the group. Despite this, the export focus on countries including Mexico is not big enough, according to the CBI and Ernst & Young.

Among the areas with high export growth potential in the next decade identified are: construction services, communication services, electrical goods, optical and high-tech goods, and financial services. If these sectors successfully tap into demand from high-growth economies then GDP could be boosted by 1.5%, or £20 billion, by 2020. In addition, the UK’s world class creative industries sector has huge potential for export growth.

‘Marmite effect’

“Too often businesses are finding that the Government’s public rhetoric does not match with the reality of their experience on the ground, so we’re calling on the Government to set out a credible exports strategy with achievable performance targets,” added Mr Cridland.

“UKTI appears to have a ‘marmite effect’ among businesses and it must become more commercially focused in its activity. In addition, access to export finance must be made easier, especially for medium and smaller-sized firms. Some of the UK’s mid-sized companies, ‘the gazelles’, have the most potential to export and grow.

“Businesses must play their part too. We need to hard-wire exporting into our DNA like many of our competitors, and firms need to share expertise more effectively and shout about their successes.”

The share of the UK’s global exports has declined sharply over the last decade, from 5.3% in 2000 to 4.1% in 2010, while at the same time Germany’s share increased from 8.9% to 9.3%. This decline is principally because of our weak global goods exports, which have dropped from 4.4% to 3.1% in the last decade.

Services on the up

The report shows annual growth of 4.6% in service exports since 2000, which is expected to rise in the future as living standards in developing economies rise. In the coming decade, consumer spending growth in the BRICs is expected to average 13.5% per year.

“Our inability to break into and succeed in high-growth markets is due to a historic mismatch between the goods and services we currently sell and those demanded by high-growth economies,” said Steve Varley, Ernst & Young UK & Ireland managing partner.

“Demand in the last decade from the BRICs has been for manufacturing goods, including machinery, tools and equipment, but in many cases UK companies haven’t been strongly positioned enough to compete globally to win this business.

“With the changing demographics in high growth markets, including the rise in the middle classes and consumer spending levels, now is the time for the UK to seize the opportunity to build on its comparative advantage in sectors such as construction services, communication services, electrical goods, optical and high-tech goods, and financial services.

Analysis from the Ernst & Young ITEM Club shows that if the chemical sector had targeted itself better geographically and had a bigger focus on industrial chemicals, it could have boosted exports by 15% between 2000 and 2010, worth £3.5 billion to the economy.

Click here to see highlights of the CBI / Ernst & Young report on exports and recommendations to Government.

Will Stirling