HomeArticles»Export trade looks to economic recovery as weak sterling’s impact is limited
Export trade looks to economic recovery as weak sterling’s impact is limited
Posted on Wednesday 4 August 2010 byUlster Business
Exporters in Northern Ireland have managed to benefit from a slide in the value of sterling but the benefits have been dampened by global recession. Symon Ross takes a look at which areas of our local export industry are coping best.
While some of Northern Ireland’s exporters have managed to thrive in the weak sterling environment of the past 18 months, many others have struggled.
Where the pound’s decline made their products and services cheaper abroad, the financial crisis and the recession it left in its wake meant the bottom fell out of many of the markets into which local export-minded firms were selling their goods.
Worse, some found that business customers abroad, well aware of the windfall profit caused by the weak pound, began asking for prices to be cut even when contracts were already signed. Firms supplying the hard hit sectors like construction and property may not have been paid at all.
There have been signs that the UK economies are beginning to level out and grow again, and that opportunities were beginning to present themselves again. Firms such as Wrightbus, which had reduced production amid slow demand, has received a number of new orders from Asia, and from Boris Johnston for London’s new red bus.
And the latest Ulster Bank Purchasing Managers Index survey showed new business in the beleaguered manufacturing sector picking up for the first time in almost three years.
But just as conditions are right for local exporters to make the most of their currency differential, euro weakness looks like eroding that competitive advantage before they get the chance, as fears that the Greek debt crisis could spread across Europe have put the single currency on the back foot.
“It is especially a factor when our companies are competing outside of Europe – for example in the Far East or Middle East. It used to be that the Europeans could slide in under you to win contracts, and I suppose the weaker euro could bring that back,” says Robert Hamilton from the Northern Ireland Exporters Association, or NIEA.
He adds however that the exchange rate is only one of several factors facing export-focused businesses.
“There are sectors that have benefited from the exchange rate – the food industry or people who don’t need to import much, such as the software firms, have been riding out the recession much better than others as they don’t have raw materials to bring in,” he adds, referencing the difficulties faced by manufacturing, engineering and construction.
Even if the exchange rate moves in the favour of European competitors, Hamilton believes many exporters are more optimistic given the improving economy in general.
“There’s always been a level of confidence,” he says. “Even though you get the likes of Hughes Christensen - and you might find some of the other big boys leave too – you have hundreds of SMEs (small and medium enterprises) still exporting from the island. Manufacturers will come out stronger.”
In fact, 15 of those SMEs recently won new business in the Republic following a recent sales exercise run by NIEA in association with Invest NI, and Hamilton believes local firms cannot afford to miss opportunities so close to home.
Ulster Bank economist Richard Ramsey agrees cross-border trade remains a key advantage which local firms hold over competitors in Great Britain who have to transport goods by air or sea to deal with the eurozone.
“There are really only two sectors within manufacturing showing growth – pharmaceuticals and food and drink. Pharma is independent of the trends because it is relatively recession proof. You have the likes of Almac, Randox and Norbrook which are expanding anyway,” he said.
“But it is interesting that food and drink hasn’t grown in the UK but has in Northern Ireland. The proximity of the Republic is key, with 40% of what we export there in the food and drink category,” he adds.
The economist notes that while the April PMI showed the manufacturing sector is slowly picking up, orders are still low in most export categories.
“In engineering demand has collapsed. We are back at levels not seen since 1995. In that situation it doesn’t matter what the exchange rate is because there is no demand,” adds Ramsey.
The latest figures from Belfast Harbour provide a more upbeat snapshot of where things stand for exporters. Trade through the port was down 4% in 2009.
However, the early part of 2010 has seen an increase in both imports and exports. In the first quarter trade was up 7% on the same period a year ago, leaving the harbour’s forecast of a 0.1% increase in tonnage for the year looking very conservative.
“Four months in we are gloriously wrong. But we are a bit loathe to make the jump that its up and therefore it is a leading indicator of the economy because there are a lot of complications,” said chief executive Roy Adair.
“There is undoubtedly a restocking element among manufacturers and that will cease if the order books don’t result into people consuming those stocks.”
Mr Adair concurs that the agri-food sector is “absolutely soaring” – with dry bulk trade such as grains and feeds up almost 30%. With that removed however, a recovery is less certain, with other categories still only “bouncing sideways”, but they are at least not in decline.
Brian Telford, head of markets at Northern Bank, says that while exporters were not able to take advantage of the pound trading at relatively low levels against the euro and dollar in 2008 and 2009, the falling currency has helped certain firms survive.
A slight reversal of the situation is unlikely to prove fatal now.
“Although we have had tough times in the UK, consider the situation in Latvia, where GDP fell at a rate of 18% in 2009 and where unemployment is almost 25% - things could be worse,” says Mr Telford.
“Over the past year, more economists have come to believe that a floating currency is one factor which may help the UK weather the storm better than some of our European neighbours.
“The pound has strengthened since the election and there might be concern now that exporters will start to struggle. These concerns may be overdone. While the pound has risen, compared to the dark days of early 2009, it is still at much more competitive levels than it was two years ago. As economic activity starts to revive, UK exporters are as well-placed as anyone to take advantage of it.”