Rebalancing the Economy: Trade and Investment

Written evidence from the British Exporters Association

1. BExA is pleased to have this opportunity to comment on The BIS Select Committee Inquiry into Rebalancing the Economy [1] . BExA membership is drawn predominantly from larger capital goods exporters – although we do have some SMEs members - and their advisors, financiers, insurers and other service providers.

2 EXECUTIVE SUMMARY

Other countries see support for export as a necessity rather than a nice-to-have. BExA’s own research demonstrates the gulf between what is available to UK exporters in comparison with those of other OECD countries. Support for export should be seen as investment - to generate productivitiy, employment, and more tax receipts and improve the balance of payments – rather than a service which, especially in these necessarily austere times, is vulnerable to indiscriminate cuts.

A chain being only as strong as its weakest link, our UK export agencies must all step up to the mark to provide good service. This does not mean that they must necessarily take on more work, rather they can work smarter, principally by understanding their role within the commercial framework, working together, and recommending external commercial agencies where available. The role of government should be to provide services which are long-term beneficial to the country but uneconomic for commercial entities to provide without some form of government assistance.

BExA DETAILED RESPONSE

3. BExA concurs that a rebalancing of the economy is necessary. BExA has written a detailed commentary [2] on the trade finance aspects of the Select Committee’s consultation "Government Assistance to Industry" in September 2010.

4. UKTI research [3] demonstrates that companies that export tend to invest in developing their products, and this has benefits in terms of productivity and employment.

5. There should be a concentration of encouragement of exports to those key growth markets where the UK has realistic opportunities of establishing and growing commercial ties, and where export credit insurance and trade finance facilities are available or where ECGD is prepared to provide accessible, cost-effective, and flexible covers.

6. UKTI’s role in assisting companies to find new markets is particularly useful for SMEs. UKTI this year won "Best Trade Promotion Body" in the developed world [4] , recognising its key role. Arguably, the greatest area of potential in terms of exports is from our 4.7m SMEs. These smaller exporters have been disappointed that grants to encourage attendance on delegations at trade shows have been diminished in recent years.

7. The Minister for Trade should lead delegations and encourage other high level trade delegations.

8. Overseas embassy staff should be consistently knowledgeable about what commercial support is available, and be keen to provide practical assistance to exporters. Embassy buildings should be utilized to showcase British goods and services. Export support should be seen as a stepping stone for diplomacy.

9. On the ground in the UK, the team that supports business should have regular out-placements within the commercial sector, and be able to offer commercial solutions where these are available. Website information should be regularly reviewed and be accessible, concentrated, up-to-date and co-ordinated.

10. Trade promotion is only part of the sales process. To be competitive, our exporters will also need to agree competitive commercial terms with prospective overseas customers. Letters of credit, while secure, are expensive and not suitable for all trade, so will make some export offerings uncompetitive. For the majority of SME exports, short term open account terms will be suitable – they are cost effective and flexible for the customer. It will therefore be necessary for the exporter to buy export credit insurance.

11. Other EU export credit agencies are very active in supporting their exporters, with specific services for SMEs, as demonstrated in the BExA research [5] . Some EU agencies applied to the Commission to be allowed to supply credit insurance for cash contracts / short term transactions where, as a result of the recession, the commercial export credit insurers had limited appetites on OECD, the "temporarily non-marketable risks" [6] . The UK did not apply to extend ECGD’s business in this way or provide other export assistance to SMEs. In fact, in 2009-10, ECGD’s non-aerospace business declined by nearly 90%.

12. At the other end of the scale, larger businesses are also finding that ECGD is deficient. In many international tender competitions for capital projects with medium repayment terms, it is necessary to provide a fixed interest rate option supported by the exporter’s government. In such competitions, bids without a fixed interest rate option can be thrown out, even if they are the most technically suitable. Often the fixed-rate offer enables the bid to be considered, but a floating rate may eventually be chosen. ECGD has announced it will be phasing out its Fixed Rate Export Finance facility in March 2011, claiming that Treasury’s requirement to buy maximum hedging made it expensive, and also because of low usage. This attitude to risk is inconsistent with ECGD’s portfolio – because of its lack of diversification, 90% of ECGD’s portfolio is exposed to the commercial airline industry – which is not balanced.

13. More recognition should be made that ECGD has been a net contributor to Treasury since 2001 and it should be empowered to be more active in support of UK exports. ECGD should aim to provide at minimum a range of covers that are comparable with those offered by other OECD nations’ Export Credit Agencies. BExA’s research [7] highlights the current deficiencies. A particular shortcoming is that of bond issue support.

14. The Government should create an insurer of last resort, to be run on commercial lines yet backed by the government rather than commercial reinsurers, to be activated, if necessary at short notice, at times of market distress, to cover export bonding risks plus domestic trade credit risks, flood risk and terrorism.

15. In order to re-balance the economy, the Government must have a co-ordinated strategy for support for trade. It should aim to provide seamless support for all sizes of business in all sectors, from the bottom to the top, from first enquiries on the website through to economic advice, marketing support, local contacts, trade delegations, working capital/bond support, export credit insurances and advise where commercial services can be accessed.

BExA

10 January 2011