Can UK exporters break into the BRICs?
Published on 05 November 2012 0 comments
By John Hawksworth and Yong Jing Teow
UK exports have not grown as fast as some had hoped in recent years. Much of this can be attributed to the slowdown in the UK’s key European and US markets, and it was common even just a few years ago to hear that we still exported more to Ireland than to all four of the BRIC economies combined.
As it turns out, that hasn’t actually been true for some time – since 2008 to be precise. The share of UK exports going to EU countries is also now less than for non-EU countries, while a decade ago the EU accounted for almost 60% of UK exports. Exports to BRIC economies have also grown at a sprightly 13% per annum between 1999 and 2011 (albeit from a very low base), whilst exports to the US, Germany and France have grown just 3%, 2% and 1% respectively, though in absolute size these kind of advanced economies still dominate the UK export market.
The mix of goods and services we export has also been changing. Services accounted for 38% of total UK exports in 2011 compared to just 32% in 1999. This is due both to the increasingly services-oriented nature of the UK economy and the role of ICT in making it easier to trade services across borders.
We expect these shifts in UK exports towards emerging markets and from goods to services to continue in the future. Our econometric analysis of historic data suggests that two key macroeconomic factors will drive future export growth. The first is GDP growth in overseas markets, which will drive overall demand for UK goods and services; the second (but quantitatively less significant) factor is price competitiveness as measured by the real exchange rate. Using updated projections from our long-term global growth model, we can use these historic relationships to project forward trends in UK export patterns to 2030.
As shown in the chart above, our projections suggest that – as with the proverbial supertanker – it will take time to shift the direction of UK exports towards faster growing parts of the world. Nonetheless, the share going to the Eurozone could fall from over 40% today to only around 30% by 2030, whilst the share of UK exports going to the BRICs could double to around 16% by 2030.
What can we sell to the BRICs? Economic theory and practice suggests that the UK should focus on areas where it has a comparative advantage, which would point towards specialist sub-sectors of manufacturing such as aerospace, high value cars and pharmaceuticals, as well as tourism based on our historical heritage. But the prime drivers of future UK export growth are likely to be services such as design, advertising, legal, financial, business and accounting services, where the UK has particular strengths compared, for example, to manufacturing leaders such as Germany and Japan.
However, achieving this shift in exports will not be easy. Markets like China and India present challenging business environments and our peers such as the US, Germany and (in the case of China) France have so far seen stronger export growth to these key emerging markets than the UK. The key message for UK companies is that there are strongly growing markets out there and, if you do not take advantage of them, your competitors probably will(1).
(1) This blog summarises an article in our latest UK Economic Outlook report.
John Hawksworth | Tel: +44 (0)20 7213 1650
Yong Jing Teow | Tel: +44 (0)20 7804 4257