Well would you believe it? In December 2012 we didn’t export more to Ireland than we did to all of the BRICs countries put together. So what? You might say; it is just that it is one of those gripes we hear from time to time. In this regard, George Osborne is one the biggest gripers of the lot. But, it appears things are changing, and they seem to be changing for the better for once. Yes, that’s right, reason for cheer. And reasons for investors to take note too.
It was back in April last year, and George was unveiling his budget. He just couldn’t resist it. “The UK exports more to Ireland than the BRICS, put together,” he said.
It is just that it wasn’t true. In fact, it hasn’t been true since the first few months of 2010. As for December 2012, all we can really say is that the UK exported more to Ireland than it did to the BRIS – yes BRIS – it’s not a typo. That’s my made up word, and its stands for Brazil, India, Russia and South Africa. If you throw China into the equation, exports to the BRICS were actually a lot more than to Ireland.
Okay let’s put some numbers into this. In December 2012 exports to the BRICs were worth £2,160 billion. In the same month we exported more to the US (£3.3 billion) and more to Germany (£2.6 billion) but the BRICS were third, beating the Netherlands (£1.9 billion), France (£1.85 billion) and Ireland (£1.4 billion).
Look at China on its own, and at the end of last year it was the UK’s seventh biggest export market, with exports worth £927 million. As for the rest of the BRICs, the exports to these countries were worth £1.2 billion. (If you are interested, the smallest export market of the BRICS was Brazil, with exports worth £219 million, the exports to the other three – including South Africa – were all in the mid £300 million range).
It is the growth, however, that is truly staggering. UK exports to China have increased eightfold since the start of 2000; to Brazil they are up 3.7 times, 3.4 times to India, 6.4 times to Russia, and threefold to South Africa
I know what you are thinking. Sure exports are up, but what about imports; what about the balance of trade?
And you are right to think that. Imports from these five countries have also risen sharply too, and the UK ran a very substantial trade deficit to the BRICS in 2012.
But look a little closer. Since January 2000 imports from China have increased 6.9 times, from Brazil they are up twofold, to India 4.6 times, 8.7 times to Russia and 1.8 times to South Africa.
You may be interested in this chart I knocked up looking at ONS data. It shows how the monthly trade deficit with the BRICS has changed over the last 12 years.
So what lessons can we draw?
It is obviously true that trade between the UK and the BRICS has increased enormously.
Unfortunately, so has the deficit.
But I take comfort from the recent falls in sterling and other data out recently showing that the UK exports 80 per cent of the cars it manufactures. In 2007, just 1.5 per cent of UK cars manufactured were exported to China. By 2012 that figure had risen to 11.5 per cent. For the first time in a very long while, the UK’s car exports are almost worth as much as imports. I suspect that within a few years we will see a trade surplus in this sector.
But the real point I want to make is that if – and it’s a big if – for the rest of this decade growth in exports can rise at a pace almost as fast as we have seen over the last 12 years, by 2020 exports to BRICS will be a very important part of the UK economy.
For me, the UK’s biggest failure has been exports to India. We clearly have strong cultural links, and a reasonable number of British citizens have family ties to India. Yet growth in exports to India has not been so impressive.
I reckon that is the one to watch, and companies well placed to sell their wares to India are those investors may want to look out for.