Amid the backdrop of Brexit, the economic balance between imports and exports is a continuous juggling act for economies across the world. In the three months to September, the UK trade deficit grew by £3 billion to £9.5 billion. Figures became the latest rallying cry for businesses to ramp-up export volumes, while sterling’s devaluation seemingly remained in their favour.
Public and private sector organisations frequently talk of the benefit to small and medium sized enterprises of exporting. While the Government abandoned its 2020 export target earlier this year, it is still considered somewhat of a panacea for businesses looking to take the next step in their journey towards growth. And perhaps for good reason.
There is strong evidence to suggest that exporting is a practical means of expansion for many of the UK’s 5.7 million SMEs. According to Exporting is Great, 85 per cent of businesses say that selling goods and services overseas has led to a level of growth not otherwise possible.
While exporting undoubtedly presents growth opportunities, there is an equally important form of trade, which is often overlooked. Walk along the isles of any supermarket and you will find thousands of them. Take a trip to a local shopping centre and you will be surrounded by them. Even the cars we drive are either one, or most certainly made of them. I am, of course, referring to the wealth of goods and services imported each day.
Importing is a vital means of efficiency and growth for millions of businesses and supply chains throughout the world. It enables economies to expand customer choice, increase competition and reduce manufacturing costs. However, importing is frequently overshadowed by a national desire to focus on boosting the ‘Made in Britain’ brand. Among public and private sector organisations alike it is the poor relation of international trade. Exporting even has its own Government backed campaign.
"We are in danger that import businesses like ours become overshadowed by exporters who garner more attention from policy makers. It’s important to realise that many small firms like us play a vital role in the supply chain by sourcing materials from the international markets to be used in industrial processes here in the UK." Darren Hill, Brookfield Stainless
According to BFS’s Trading Places report, the average UK importer has ten overseas suppliers and purchases goods from five countries. Perhaps unsurprisingly, China is the top import market among UK SMEs, followed closely by Germany and the U.S.. More than half of the top 20 import markets are within the EU, highlighting the importance of Brexit negotiations surrounding customs, duty and tax.
While importers and exporters are often considered as unique groups, these two forms of trade are not mutually exclusive. Our research shows that more than a quarter (29%) of those that import, onward sell goods or component parts overseas. While a weaker pound, therefore, benefits those that manufacture domestically and sell overseas, the situation is more complex for many businesses across the country.
More than two-fifths (41%) of importers believe that Brexit has been bad for their business, compared with over a quarter of exporters (29%). Yet, it does not necessarily follow that exporters see Brexit as a positive outcome. Those selling goods overseas are only marginally more likely to believe the effects of Brexit have been positive for their businesses to date.
What is clear, is that the EU referendum and subsequent negotiations have had a profound impact on importers and exporters. More than two-thirds (67%) of businesses transacting in foreign currencies have been negatively impacted by fluctuations. SMEs estimate a financial loss to their businesses due to currency fluctuation over the past 12 months of £70,000. Despite this, almost a quarter have never reviewed their foreign exchange facilities.
Though managing currency risk is a challenge facing all those trading overseas, importers face a unique set of hurdles. Logistics and managing duty, VAT and freight payments are among the key challenges faced, and must be front-of-mind throughout the UK’s negotiations with Brussels.
Undoubtedly, there will be much focus on positioning UK goods with new and existing trading partners as part of the EU divorce process. However, as the UK enters a new world outside of the second largest economy in the world, it is time that the voices of UK importers are lifted out of the shadows and treated in equal measure to their exporting counterparts.
Read the full Trading Places report here and connect with Phil Tobin on LinkedIn here.