WALES AND EXPORTING

No term used to epitomise the British economy more than “trading nation” and so, given the desperate need to increase trade to drag the country out of its current economic doldrums, it was good to see our most senior politicians at Westminster and Cardiff Bay recently zigzagging their way across the Asian continent.

As is usual in these high-level trade missions, much of the press focus is on the links with multinational companies that have invested strongly in this country. Yet, perhaps more important to the future of the Welsh economy is the potential of indigenous businesses and their ability to sell goods and services internationally.

So how is Welsh business performing in this regard?

According to the most up to date statistics from the Welsh Government, Wales accounts for just over five per cent of the international trade of all UK regions, which is higher than its share of businesses across the economy. Indeed, exports worth £13.4 billion were generated in 2011, an increase of 14 per cent on the previous year and a figure higher than the UK average growth of 12 per cent (although lower than the 18 per cent recorded in Scotland).

Whilst this is a highly creditable performance for a small economy, it is no cause for celebration. Wales remains largely dependent on just four industries that account for over 80 per cent of the value of exports, namely energy (30 per cent), engineering (29 per cent), metals (13 per cent) and chemicals (8 per cent). Fortunately, analysts suggest that these sectors will continue to grow over the next few years and announcements such as Tata’s £800m investment into the Welsh economy will ensure that overall exports should continue to grow over the next few years.

However, if Wales is to develop its economy, other industries must also show growth over the next few years and it is disappointing that the key sectors highlighted by the Welsh Government for special support continue to have little impact on exporting performance.

For example, sectors that have experienced an overall decline in exporting activity during the last year include automotive, biotechnology and pharmaceuticals, and the largest drop in performance was experienced by the telecommunications industry with a 30 per cent decrease over the year. It is also worth noting that the destination of our exports has changed considerably during the last twelve years.

Back in 1999, Welsh exported 73 per cent of its goods to the European Union but by 2011, this had fallen to 42 per cent, considerably less than the UK as a whole where 53 per cent of exports cross the Channel. In contrast, 29 per cent of all our exported goods go to North America, far higher than for the UK as a whole and, more importantly, our trade across the Atlantic has grown by 16 per cent during the last year. In terms of emerging markets, whilst Wales’ trade with Latin America has grown by 45 per cent, we have only experienced a growth of 8 per cent in the key markets of Asia and Oceania (as compared to 21 per cent for the rest of the UK).

Therefore, the current exporting scoreboard for the Welsh economy is a mixed bag of results. Whilst overall exporting growth is buoyant, it remains focused in a narrow range of industries dominated by large companies such as Tata, Airbus and Dow Corning.

This suggests that there is still much to do in terms of getting small and medium sized enterprises (SMEs) in Wales to internationalise their activities. The data also fails to provide good news for those policymakers who have focused their efforts on supporting those key sectors that should have the ability to grow in international markets. Given this, it may be pertinent for each of the sector panels appointed by the Welsh Government to examine how the companies within their remit can adopt a more international approach to their business and develop their massive overseas potential.

It is therefore clear that there needs to be a more strategic approach to targeting key markets. This not only applies to regions such as North America which are proportionately more important to Wales than the rest of the UK, but also in emerging countries in Asia where we are underperforming. In this respect, the Welsh Government should examine how it can work more strategically with the UK Government to better target these markets.

If we are to develop a more export oriented economy, then it not only the quantity of exporters that must increase but also the quality. For non-exporting firms, there are various interventions that can get them to start thinking seriously about internationalising their activities. These not only include seminars and workshops, export information provision and sponsorship to trade fairs but also opportunities for greater networking, especially with foreign customers. This is a role that large multinational companies based in Wales could undertake given their operations in other countries. Academic institutions could also draw on their extensive networks to link Welsh firms with alumni overseas.

For those Welsh companies already internationalised, they may need less government support with regard to developing overseas business relationships although policymakers, through supporting sector-based co-operative arrangements, can get key Welsh businesses working in the same industry to mutually support each other in export markets. Again, this is something that the Welsh Government, through its new sector panels, could facilitate and thus increase the reputation of Wales’s products and services overseas.

Therefore, if government, industry and academic institutions can work together to develop a new approach to support the internationalisation of business, there could yet be a Welsh renaissance in trading overseas.

DID CARWYN GET IT WRONG? HOW IMPORTANT IS THE EU FOR WELSH EXPORTS?

Given the recent spats between the devolved nations and the UK Government over the decision by David Cameron to exercise the UK veto over the EU treaty in December, there have been numerous statements on how this will have an effect on Welsh trade with the European Union.

According to a recent statement from the First Minister of Wales, "some 50% of exports from Wales are to the EU". Yet recent data from the Welsh Government's own statistics suggest that it is considerably less than that, as figure 1 below shows. In fact, only Scotland had a lower proportion of exports with the EU in the third quarter of 2011.

Will this mean that any downturn in the eurozone will affect Wales less than the majority of other UK regions?

Certainly, as figure 2 demonstrates, there has been a gradual long term decline in the proportion of Welsh exports that go to EU countries since 1999.  The export profile of Wales has changed considerably since devolution and whilst Europe is still a key partner, the fact that we have moved away from a dependency of 75 per cent on the EU back in 2002 to 40 per cent in 2011 shows that, thankfully, we now have a far more balanced exporting economy.

A further piece of good news is that the relative importance of exporting has grown in Wales, and now accounts for 4.6 per cent of all UK exports as compared to 3.7 per cent in 1999.  Europe has played a minor part in this growth - the total value of EU exports has only increased by 16.6 per cent during 1999-2011 whilst overall Welsh exports have gone up in value by 107.3 per cent over the same period.

Yes, the EU remains a major trading partner but thankfully, exports to other parts of the World are also becoming important to the future of the Welsh economy. Perhaps that, and the growth in overall exports, is what the Welsh Government should have been celebrating last month rather than trying to score political points against David Cameron.

More on this in today's Western Mail.




Figure 1: Exports to the EU as a percentage of total exports, by UK region, quarter 3 2011.

Table 2: EU exports as a proportion of total Welsh exports, 1999-2011

Figure 4. Welsh exports, by region, quarter 3, 1999

Figure 4. Welsh exports, by region, quarter 3, 2011

THE SINGAPORE ECONOMY - WILL IT CONTINUE TO GROW?

Arrived in Singapore yesterday afternoon for a four day jetlagged visit.

Given the fact that the island economy is still seen as one of the growth regions of the World, it is always revealing to examine what has been going on in recent months.

Certainly, growth has been outstripping that of the UK, with the Straits Times reporting that Singapore's economy is expected to grow by around 5 per cent in 2011.

Despite this good news, the expansion of the economy is not expected to last and is expected to slow down next year - growth is estimated at  anywhere between 1 and 3 per cent. The last time Singapore experienced such weak growth was in 2008 when the economy expanded by just 1.5 per cent (although it contracted by 0.8 per cent in 2009).

However, in calculating the state of the economy in 2012, the Ministry for Trade and Industry has not factored in downside risks to growth, such as that of a worsening debt situation leading to a full-blown financial crisis in the advanced economies. In fact, the outlook for Singapore's export-dependent economy seems volatile, with some economists even warning of a contraction if global demand continues to falter, especially following a 16 per cent drop in non-oil exports in October, double what the market had expected.

With non-oil domestic exports to the US falling by 51 percent and to the European Union by 31 percent, it demonstrates that the Asian economy is still affected by what goes on in the old economies of the World.

However, Singapore remains a growth centre with which other nations are keen to do business, which is not surprising given that it was ranked first in the World for employment in knowledge-intensive industries, innovation linkages and export performance by the Global Innovation Index (and third overall in the World).

Take, for example, the France-Singapore Innovation Days programme, put together to facilitate greater linkages between the two nations, which included showcasing five French companies and four Singaporean companies at different stages of development. Certainly, I would like to see the Welsh Government trying to do more to support linkages, especially in linking up our university sector with both higher education and industry in Singapore.