Caroline Stockmann was one of the guest speakers at the recent GTR webinar which looked at the key trade trends in the UK due to the COVID-19 pandemic. The key take home – we are going to have to reconsider everything.
The World Trade Organisation (WTO) have estimated that global GDP will be reduced by 1% over the next year and that there will be a drop in world trade of between 13-32%. It is estimated that UK GDP will drop by 35%. We still do not know the impact of Brexit (or the timeline - despite the UK government saying this won’t change) and an increase in nationalism has hindered the way we trade with other nations.
Nationalism
Let’s take one of these issues, nationalism, and look at the impact it is having on UK trade. Countries are restricting exports while allowing imports, especially on goods that are in high demand, such as PPE. Put simply, countries are hoarding as much stock as they can. From a UK perspective there has been a 3% increase in exports, these are at the high end of the PPE market (ventilators etc) and affect approximately 1500 UK companies which are seeing considerable growth.
Digitalisation
Another trend is that the labour market is becoming more digitalised. Digitalisation initiatives have been brought forward or sped up. Businesses and the government are looking at what can easily be moved to a digital format. For example, should cheques now become obsolete? Other initiatives will take more time and rules and laws will need to be changed before they can be accepted – for example, around digitalising bills of exchange, but there is a real feeling that this is a seminal moment for digitalisation.
How the UK government is helping businesses
The government has implemented a number of strategies to support businesses, but there is a need for greater co-ordination amongst countries. A recent meeting with G20 investment ministers led to agreement that emergency measures should be proportionate and fair, that the measures should be consistent with WTO rules and that the measures shouldn’t unnecessarily hamper trade. All of the minsters were looking to limit bankruptcies and disruptions to supply chains. However, despite this meeting (and other less prominent discussions) there is a concern that trade policies are becoming more isolationist.
The ACT are concerned that there are a large number of companies that sit in the ‘stranded middle’ – they are not SMEs and therefore cannot access the government initiatives for SMEs but they are not large enough to have robust systems in place to deal with crisis situations. We are finding that some large organisations are helping the ‘stranded middle’, recognising the valuable role they play in the economy and, for example, in the supply chain. We’ve found that initiatives such as paying these suppliers early to help with their cash flow has had a positive impact.
Doing business in China
As China is likely to be the first country to recover from the pandemic, and given that it contributes 10% to the global economy, what happens in China will have an impact on everyone else. There is a feeling that there will be more focus on a resilient-based business model versus a just-in-time model and as such that many companies will look at increasing stock levels. Due to the huge amount of produce/manufacturing from China, companies are likely to continue to trade with them simply because there is no alternative. However, doing business in China does go against the protectionism trend discussed above.
Key issues for businesses – continuity planning and cash forecasting
The ACT have found that many companies have excellent business continuity plans with robust risk processes already in place and therefore they have been able to transition to the current environment with minimal disruption. Inevitably, smaller companies have found this more difficult, in part because they do not have the same resources.
Cash flow forecasting remains a key priority and there are a large range of approaches to this. For everyone though, cash forecasting has become a more frequent process. Prior to the COVID-19 pandemic a surprising number of companies did not do cash flows – it was considered unnecessary because the companies were liquid. These companies are now doing cash forecasting for the first time - changing their focus substantially due to the crisis.
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Caroline Stockmann, Chief Executive, ACT was one of the speakers at the GTR UK 2020 Summary Webinar: Assessing UK trade in the new normal. The next summary webinar will be the East Africa webinar – click here for further information.
