An export-led recovery needs an export-led FCO
Joe Wright, 29 October 2014
Before the industrial revolution, the gap between richest and poorest economies was tiny compared to today – the richest being two or three times larger than the poorest. The industrial revolution and the rise of the developed economies changed the balance. Today the US economy is 50 times that of the poorer economies. The gap is, however, finally narrowing with the expansion of middle classes in the emerging BRIC and MINT economies.
Tapping into this growth, exporting to the fastest growing economies, will be the making or breaking of developed economies. Germany, the world’s largest exporter after China, raises 10 per cent of its GDP through trade with developing economies. That is double the UK or USA’s.
The UK government launched a five year plan to boost trade and investment back in 2011, with the ambitious aim of doubling British exports to £1 trillion. UK Trade and Investment (UKTI), the body responsible for supporting businesses entering foreign markets – providing support with languages, and understanding foreign tax systems and exchange rates (especially for smaller companies) – was to lead this charge by encouraging high-growth companies to consider foreign markets. UKTI claims to have a Head of Trade and Investment operating in over 100 markets, with a third of those having their own investment team.
The success of UKTI three years on remains questionable. The help offered to UK companies remains timid compared with other major trading countries. Germany, for example, has had an export centre in Beijing for the past 20 years, memberships of the German chambers of commerce are compulsory, and it claims a business council in all major export markets. UKTI runs roughly 15 trade missions a year, and has a budget half of the French Investment Agency.
Bizarrely, despite the department’s limited resources and the daunting responsibility of changing the British economy, UKTI’s budget has come under threat. There are warranted criticisms of UKTI: too much of what UKTI does is geared toward inward investment – easing foreign company’s entrance into the UK market. The National Audit Office reported last year that commerce was still not a priority for diplomatic posts and that UKTI officials were poorly placed within diplomatic teams.
The failure to carve out a meaningful role for UKTI in embassies speaks to a wider problem within the FCO. Too much of how the Foreign Office thinks is reactive, not enough of its energy is directed at finding opportunities for British industry. The role of UKTI seems to have confused FCO priorities. UK exports should be at the centre of the departments thinking, not left to a peripheral associated department stuck between foreign affairs and BIS.
William Hague claimed a renaissance for the FCO upon entering office, believing it had been ‘too often ignored by prime ministers and weakened as an institution.’ Institutions earn attention by proving their worth. UKTI is not going to single-handedly alter the UK’s balance of trade, but it could do far better if it was taken seriously by the FCO.