Tony Petersen, UK Export Finance adviser for the East Midlands, takes a look at the government’s new productivity plan and explores what it might mean from an international trade perspective.
Exporters are a productive lot. Research shows exporters to be, on average, more resilient, faster-growing and more profitable than firms that confine themselves to the domestic market. So when the Business Secretary says that UK productivity is well below its potential, he knows exporting companies are part of the solution, not part of the problem.
The Chancellor’s new productivity plan Fixing the foundations: creating a more prosperous nation, with its focus on transport, planning and education, is broad in scope. But if we delve into the detail of the published plan we find some promising news for companies with an international outlook.
It tells us that “the Government expects to invite banks... to submit applications for working capital support to UK exporters’ suppliers”. This relates to a potential extension for the existing export working capital scheme operated by UK Export Finance (UKEF), the Government’s export credit agency. This can provide a government guarantee to exporters’ banks to support exporters’ working capital facilities, allowing them to take on new or larger export contracts. A UKEF guarantee can support up to 80% of new lending.
The potential inclusion of exporters’ direct suppliers in this scheme is significant. It will open up the possibility of support to a new range of companies and give further confidence to the final exporter. More generally, it shows that the Government is alive to possible market gaps, as it looks to boost exports to generate jobs and prosperity.
The proposed change would see UKEF supporting exports through support for companies in export supply chains for the first time in its near 100-year history. This is possible thanks to a statutory change enacted in the last Parliament that allows UKEF to consider developing generalised support for the export effort, rather than requiring its support to always be linked to a specific export contract.
Further extension of these schemes is also being considered. However, there is one point of caution. While the Government wants to fill gaps in export finance or insurance caused by a genuine lack of capacity it does not seek to displace the work of banks and insurance companies. This is not just a policy position. Like all EU governments, the UK has to align any interventions with State Aid regulations designed to prevent market distortion, and with WTO rules on export credit programmes.
This complex operating context helps explain the second announcement of interest in the productivity plan: that the British Business Bank and UKEF “will review the access-to-finance challenges facing SMEs looking to export”. This will ensure that the financial support provided to SMEs via the British Business Bank and the support that UKEF gives to UK exporters is focused in the right areas where it can have maximum impact. Working together, the two organisations have significant capability to address financial barriers to exporting.
The third item of interest in the plan is the consultation on concessional export credit finance (CECF) to “low-income countries”. CECF would be part-aid, part export finance and it is a long-standing policy of the UK government not to offer aid that is tied to buying goods and services from the UK. This is an admirable stance taken to put the needs of the aid recipient above any UK needs, but as a consequence overseas buyers are not able to source from UK firms, even when they offer the best solutions, when other countries do offer this so-called “tied aid”. To address this the Government is proposing an untied concessional export finance facility to low income countries — financing which can, but does not have to, be used to buy exports from the UK or any other specific country. This will make these countries less reliant on tied-aid funded contracts, and should give all exporters (including those from the UK) a more level playing field. The consultation is hosted on the GOV.UK website.
The final and most ambitious promise about exports in the plan is to “mobilise the whole of government behind exporting”. This commitment will spread the challenge across all government departments, leverage existing expertise within the large departments of state. Overall, this broad-based plan shows that the government has not forgotten the importance to our national productivity of exporting. Now, let’s make it work.
Tony Petersen is a UKEF adviser in the East Midlands. He helps companies access the export finance or insurance they need to grow their business, either from commercial sources or by using UKEF products. He previously worked in banking and corporate treasury roles, including as International Treasury Director, Sara Lee Corporation.
UKEF is the UK’s export credit agency and a government department. It supports exports by issuing payment insurance to exporters or guarantees for export finance provided by banks. It can also guarantee, or make, loans to overseas buyers of UK exports.