New trade horizons: what’s holding you back?

Date: 11-09-2015

Tagged as: ArticleGameplanExportingTradeGlobal

 

When it comes to exports the UK must do better, says David Godfrey, Chief Executive of UK Export Finance (UKEF). In this article he picks out the current trade hotspots and argues that where there is risk, there is also opportunity – for those who manage it properly.

David Godfrey

David Godfrey was appointed Chief Executive of UKEF in 2013. He has been instrumental in creating a new strategic direction for the agency, growing its support to SMEs and mid-market businesses to boost their export ambitions.

David Godfrey

UKEF at a glance

UKEF graphic text

"There is much debate over exactly what it is that holds UK companies back from exporting, particularly into newer and emerging markets," says David Godfrey, UKEF. "The fact remains that British companies sometimes do not appear to be as ambitious when it comes to exporting as their French, Italian or German counterparts. Although they may export to familiar territories such as the US or Ireland, taking the leap into China, India or Brazil is still challenging."

But with the UK government fielding ambitious targets for exports1 and continued unrest in the Eurozone, that is a leap that needs to be attempted, he adds.

"Government targets are only achievable if companies start to feel confident about exporting to Africa, South East Asia, India and Latin America. That's where UKEF comes into its own, because in my view what many businesses really need to make the leap into developing and emerging markets is risk protection."

Broader horizons

With its origins as the government's Export Credits Guarantee Department, working with a handful of major companies back in the 1990s, UKEF emerged with fresh purpose in the aftermath of the financial crisis to help relocate UK companies' global trade horizons beyond their traditional partners. As the UK's export credit agency, UKEF provides insurance to exporters and guarantees to banks to share risk.

"We're not in the business of insuring export receivables within trade comfort zones," says David. "We're about exploring boundaries and, for the markets outside the EU and North America, we can be very important in mitigating risk and developing an exporter's confidence."

Partnership role

David is keen to stress the collaborative aspect of UKEF's role, working alongside UK Trade & Investment and receiving referrals from banks, brokers and business advisers. But repeat business is also emerging as a product of the agency's success, he says.

"We're now in an exciting position where companies we've previously helped have won contracts, and the reason they did, and can still sleep at night, is because we provided an insurance policy. So now when they consider making a bold move such as exporting to Kazakhstan, for example, they come back and ask us to help de-risk their move into a new market. Tackling risk head-on delivers a real boost to confidence, and it gathers momentum."

De-risking opportunity

Tackling risk is a constant battle, of course. Heightened global tension, geopolitical uncertainty and changes to the economic outlook present real challenges for UKEF in encouraging British companies to look beyond their traditional trading partners, David acknowledges.

"Geopolitical risk is incredibly fluid and that uncertainty undermines confidence. In the Middle East, for example, we were one of the first export credit agencies to provide cover for Libya. For a time that appeared to be an improving situation, but in fact it has since descended into a very difficult one. And in Russia, a lot of projects, particularly energy-related projects, have slowed down because of fears over sanctions and the evolving situation in Ukraine.

"Closer to home, we're monitoring the potential increase in interest rates signalled by the Bank of England. Generally when interest rates rise, funds tend to take their money out of emerging markets and put it back into emerged markets. Why? Because they're looking for yield and, as yields start to be more available in developed markets, money gets sucked out of the emerging markets. Appetite for investing in the developing world decreases, but the need to expand our export base remains. The UK's outlook must be international – or we get left behind in a global economy."

Seeking out a hotspot

It's often said that where there is risk there is opportunity, and this is no less true in the arena of global trade. So for those businesses keen to boost their export credentials, where does David see as the real hotspots right now?

"There's a lot of interest in the Middle East, particularly around civil engineering, infrastructure, power and water," he notes. "In Latin America, there's a very strong oil and gas related market in Brazil. Last year's Petrobras scandal2 slowed down activity in that market for a while, but we're fairly confident that it will pick up pace again once necessary reforms have been made. Those involved in oil and gas supply chains should also keep a close eye on opportunities in Mexico.

"Another area of particular interest, given the British government's export ambitions, is bolstering our trade relationship with Africa, particularly East Africa. Much of that opportunity is energy related, but there are significant infrastructure needs in those regions and huge potential for all sorts of UK businesses, from manufacturers to consultancy firms."

Future potential

"British companies sometimes do not appear to be as ambitious when it comes to exporting as their French, Italian or German counterparts."

Looking further ahead, David continues to see opportunities in Africa. "I recently met with the Ministry of Industry and Trade in Malawi and they have a long list of projects, including energy, infrastructure, and tourism," he says.

He also points to growth opportunities in areas just opening up to international trade: "India has been a difficult market for UK companies, but I think that's changing as it becomes more receptive to foreign investment. And then you've got markets like Burma, Vietnam, Laos, Cambodia – large populations that are becoming wealthier, and therefore increasingly demanding typical middle class consumer products. That has implications across a number of sectors here in the UK and businesses should have an eye to how they could service that growth market."

Delivering innovation

"Tackling risk head-on delivers a real boost to confidence, and it gathers momentum."

Creating the foundations for trade to flourish outside of the UK's usual markets is central to UKEF's strategy. In recent months the agency has extended its product range beyond insurance into direct lending, has supported its first ever Sharia-compliant sukuk bond for Emirates at almost $1bn3 and offered an offshore Renminbi (RMB) denominated guarantee to China Southern4.

"We want to ensure the UK is a hub of innovation around export finance," David remarks. "It gives companies opportunities to raise finance from different investor bases and spread their wings – but we need businesses to take a fresh look at the world to seek out ways to leverage the finance available to them."

With support available and increased interest in the opportunities that global growth offers, does David believe the government's targets are achievable and that British companies will step up to rival their European exporting peers? "We're making great progress. Once you build confidence in a region and get comfortable with the relationships and the regulatory, legal and banking environments, British companies do very, very well."

David Godfrey's top tips for exporters:

Want to move beyond your trade comfort zone?

  1. Be persistent: there will be challenges, don't give up at the first one.
  2. Do your homework: make sure you understand the legal and regulatory environment.
  3. Sweat the detail: when it comes to paperwork and contracts take nothing for granted. Get a professional translator if you need one.
  4. Don't make assumptions: just because you're good at the logistics of sending items to Newcastle doesn't mean you're an export expert.
  5. Take advice: the government offers trade missions, advice and support, including UKEF's export finance advisers, a great starting point for tackling the financial challenges.

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