Economy Watch: Export strategy can't get past the possible post-Brexit outcomes
Trading relationships between the UK and other countries have loomed large over the Brexit debate since the before the 2016 referendum, and ever more so since the UK government published a new export strategy.
Putting strategies in place to try and grow exports is nothing new but this one is interesting at a time when the terms of trade with the EU are so uncertain and days before a raft of 'no deal' papers were published.
Despite this uncertainty, and the uncertainty generated by President Trump's recent flurry of tariffs, the value of global trade has doubled over the past 20 years and the global growth trend is expected to continue. The UK, rightly, wants to gain more share of trade spoils.
Those who try to put a positive spin on the opportunities from Brexit cite the almost limitless possibilities from striking new trade deals across the world. To this end, the new UK government Export Strategy aims to grow exports from the UK to 35% of GDP, up from the current 30%. The intention is to grow the value of trade by getting more companies engaged in international markets. In tandem, the aim is to expand into more markets. Given the importance of trade for employment and economic growth, seeking new markets is always a wise endeavour, as is trying to convince firms of the merits of trade.
There is nothing new in that, indeed all governments, including our own (when we had one) has grappled with trying to get more firms to export. The latest Northern Ireland draft industrial strategy, following on from previous economic strategies, places 'succeeding in global markets' as one of its core pillars.
Northern Ireland is achieving some success in improving export performance. Invest NI has been actively building a larger footprint across target markets and there are recent successes to cite of companies securing new export deals.
According to HMRC trade statistics in 2017, NI goods exports were valued at £8.55bn. This represented an increase of 9.3% on the previous year when exports were valued £7.83bn. HMRC notes that exports have grown each year since 2014. Including services in the mix, the Department for the Economy suggests that total exports from Northern Ireland are worth over £10bn. To put this in the context of the UK's ambition to see exports account for 35% of GDP, Northern Ireland exports are around 30% of economic output currently and would need to increase by around £2bn to reach 35% of output.
Raising the contribution of exports from 30% to 35% could therefore prove to be a tricky proposition. Northern Ireland's exports have traditionally been concentrated in a small cohort of larger firms and total exports are shared across just 8,500 companies.
The increase in the number of firms exporting between this year and last was 57 businesses. It could be a long road to get enough additional firms exporting to make a big impact, especially when considering that there are close to 62,000 local firms that aren't exporting. Therein lies the significant challenge. Theory suggests that it is easier to export to markets that are closest to the home market. We share an island with an already significant trade partner, yet 62,000 of our local firms are serving only the local market. Why might this be?
The new UK export strategy suggests it could be as straightforward as encouraging firms to export, informing them of the opportunities available and connecting businesses to overseas buyers. And £50bn of export finance and insurance support might go some way to greasing the wheels a little too. Of course, all that depends on one crucial thing - we have to have product and services that people across the world want. In research to explore how to grow Northern Ireland's exports, 65% of respondents, when asked what the barrier to them exporting is, responded that their product is unsuitable for export.
That's two thirds of non-exporters self-selecting themselves out of the export market on the grounds that their products are unsuitable for export. On the plus side, that still leaves reasonably large cohort to convince. Other barriers cited that are preventing companies venturing into new markets include language, culture and accessibility issues. These are surmountable, and support is increasingly available.
Breaking into new markets is not easy, I've done it in the past and it can be a hard slog. Trade with our nearest markets has been relative seamless as part of the EU. The papers published last week on the potential factors that businesses export in to the EU will need to consider in a 'no deal' Brexit scenario could add significant layers of additional paperwork and bureaucracy.
The UK export plan is aiming to spread the UK's goods and services farther and wider across the globe that ever before. Making it harder to trade with those markets nearest to home doesn't strike me as part of the recipe for success.