The director of Corporate Affairs at Asia House Charlie Humphreys was recently invited to speak at the 2015 Reform Barclays Export Index and Policy Summit which was held at the Chartered Accountants’ Hall in the City of London, to launch the 2015 Reform Barclays Export Index.
The key issue which resonated with many of the speakers and audiences is the need for a step change in the way that the UK needs to engage global markets, especially the faster growing emerging markets, including many in Asia. This was identified not as a rearrangement of budget lines to support different markets by Western Governments or enterprises, but a complete reorientation of the way that we need to see the world from our point of view in Western Europe, based on the fundamental changes brought about by countries in Asia, most notably China, increasing their global economic and political influence, coupled with the advent of a number of highly developed consumer markets outside of the Organisation for Economic Co-operation and Development (OECD).
The economic dynamics in Asia are changing rapidly. As China’s imports catch up with the country’s exports due to fast growing domestic consumption, intra-Asian trade is thriving. Asian economies are no longer characterised by exports of low value-add goods to developed economies, but increasingly higher technology goods are being manufactured for both export and consumption across Asia.
The growth of the new Asian middle class is the single biggest demographic change since the industrial revolution in Western Europe, resulting in fast economic growth, coupled with increased demand for sophisticated goods and services. As developed economies remain in slow growth or recession, these developments in Asia present enormous opportunities for Western exporters.
According to the International Monetary Fund (IMF), however, only 5.6 per cent of the UK’s goods exports go to ‘emerging and developing Asia’ every year, with more exports in goods to Belgium (US$21.2bn) annually than China’s mainland and India combined (US$17.1bn). Despite having a population of more than 250 million, encompassing 50 million middle class consumers, Indonesia is only the UK’s 47th largest goods export destination, with merely US$812 million in goods exports per year, accounting for 0.17 per cent of the UK’s total.
Of course, advanced economies will always sustain a healthy import demand and be attractive markets for advanced economies to export to, but these figures suggest UK exporters are not yet fully responding to the Asian economic growth phenomenon.
Stable and predictable markets provide a strong attraction for both new and seasoned exporters against less predictable and more risky, albeit faster growing, emerging markets. Issues around corruption and economic stability can significantly affect exporters in emerging markets. Broadly speaking, developing economies are not simply poorer versions of developed ones – their structure and internal dynamics are less familiar and more challenging to UK exporters. This should not, however, deter exporters determined to capture gains from the fast growth of these markets as the risks can be calculated and in many cases mitigated.
The UK’s position in the world is far from clear. With an unpredictable general election looming and questions about EU membership, the UK’s trade partners are understandably cautious. In the frank discussion at the private briefings we regularly hold at Asia House, we often hear how the ongoing debate about UK membership of the EU has impacted Asian stakeholders’ confidence in the UK. The UK forms its trade deals via Brussels. As a member of the world’s biggest trade bloc and most attractive market, the UK can negotiate the highest level of trade access. The need to continue competing with fellow EU members is not diminished by this, but doing so outside of this framework could prove extremely challenging.
Whilst the EU can leverage comprehensive trade deals, Asia has a number of ‘mega trade deals’ under negotiation such as the Association of Southeast Asian Nations (ASEAN) Economic Community, the Regional Economic Cooperative Partnership (RCEP) and the Trans-Pacific Partnership (TPP). Over 20 countries are negotiating across these agreements. EU negotiations with Asian countries have proved slow and only one Free Trade Agreement has been concluded with an Asian country – South Korea in 2011. The removal of import duties in that FTA alone however increased EU exports to South Korea by 35 per cent, whilst UK exports increased by 156 per cent, achieving significant benefits for the UK. In Asia, the EU is currently negotiating FTA’s with the Gulf Cooperation Council (GCC), India, Japan, Malaysia and Singapore; negotiations between the EU and Thailand have been on hold since the installation of an interim military government in Thailand and although negotiations between ASEAN and the EU were initiated, they have, according to the European Commission, been paused “in order to reflect on the appropriate format of future negotiations”.
Whilst these facts and figures demonstrate the benefits of deals via the EU, they also demonstrate the danger of remaining outside of the increasingly complex ‘noodle bowl’ of trade agreements with and among the fast developing Asian countries. An FTA between ASEAN and the EU would increase access to a 600 million population market for the EU, and the long-term economic benefits are evident given ASEAN’s centrality in the RCEP – which is a mega trade deal between Australia, Brunei, Cambodia, China, India, Indonesia, Japan, Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. China’s active participation in the RCEP makes it even more attractive as there are currently no plans for FTA negotiations to start between China and the EU.
Interestingly, it is the UK that has led major EU states to sign up as a founding member of the soon-to-be-established Asian Infrastructure Investment Bank (AIIB), a Chinese initiative to become a major player financing infrastructure in Asia alongside existing organisations like the World Bank and the Asian Development Bank. The UK’s decision to join, which followed intensive internal debate, came as a surprise to many, but may indicate the direction of travel in the way the UK will engage Asian countries and China in particular, given major changes in global political and economic dynamics.
The Rt Hon Hugo Swire MP, Minister in the Foreign and Commonwealth Office, gave the keynote speech, in which he spoke about plans to strengthen and build the UK economy, exports and prosperity. He said the strong fundamentals in the UK’s domestic economy were a crucial foundation for export growth, but he admitted exporters might be put off by stagnation in the Eurozone, fluctuations and weaknesses in the global economy and security issues. However he spoke about the importance of diversifying and taking advantage of new opportunities increasing exports to Asia and what the UK Government was doing to help British businesses do that. Exports of goods and services in the UK increased by around £7 billion between 2012 and 2014. Total annual exports outside of the EU were up to £285bn by 2013, up by over a third since 2009, he said.
Assuming the UK is able to find its place and access global markets, the challenge remains of how UK exporters can effectively compete in the fast growing markets of Asia and beyond and navigate the problems they may face around ease of doing business in general and corruption in particular, given the stringent rules for UK companies arising from the UK Bribery Act. Yet despite the challenges faced when entering emerging markets, such as those in Asia, many Western companies have found solutions, including forming partnerships with well-researched local partners, developing excellent understanding of business culture and etiquette, acquiring a firm grasp of regulatory differences and maintaining good local and national government relations, among others.
That is where Asia House in London can help. We aim to bring both Asian and Western interest groups, governments, enterprises and corporations into dialogue and engagement that will benefit all parties through our high-profile breakfast briefings and conferences.
Humphreys spoke alongside Graham Cole, Chairman of AgustaWestland and Chair of the Cole Commission, an independent review into how government can better support British businesses to export – an initiative by the Labour Party which aims, in June this year, to advise the UK Government (regardless of the outcome of the general election) on how the UK can increase exports to help deal with the UK’s trade deficit and specifically how the Government can best support businesses in this endeavour.
The panel he was on ‘Building on Success’ was chaired by Andrew Haldenby, Director, Reform, an independent and non-partisan think tank whose declared mission is to set out a better way to deliver public services and economic prosperity. As well as Cole, speakers on Humphrey’s panel included Jeremy Browne MP, former Minister of State, Foreign and Commonwealth Office and Member, Reform Advisory Board; Rabin Yaghoubi, Chief Commercial Officer, Babylon Partners; Nigel Hastilow, Director of Enterprise, ICAEW; and a senior representative from Barclays.
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Would you be interesting in meeting the top business leaders and political figures in Asia and the UK? Then you should not miss the annual Asia House Asian Business Leaders Award Dinner, which takes place this year on 13 October at The Banqueting House in Whitehall. Nazir Razak, Chairman of CIMB Group, will receive the prestigious Asia House Asian Business Leaders Award 2015. For more information about the event click here. For more information about the Award click here.