A once in a generation opportunity for UK trade

Emily Khan:

Welcome to the latest episode of our Business in Focus podcast. I am Emily Khan and I am your host for today. Today, we are revisiting the role of trade in driving growth and innovation home and abroad. I was last joined by Matt Alabaster, a strategy partner here at PwC in January. We started a conversation then about how our recent series of trade reports, UK trade, the new agenda, is looking at areas that UK businesses need to prioritise to drive growth in a post Brexit world. Welcome back today, Matt. I am delighted that today, Matt and I are joined by Her Majesty’s Trade Commissioner for Asia Pacific, Sam Myers, to continue that very conversation. It’s a pleasure to have you here Sam, thank you very much for joining us. Perhaps we can start with you, letting our listeners know a little bit more about yourself.

Sam Myers:

Hi Emily, hi Matt, thanks for having me today. I am Her Majesty's Trade Commissioner for Asia-Pacific, I am based in the business and commercial hub of Singapore. I am here working for the government to support UK companies to access this really exciting and dynamic part of the world and also to attract investment from the Asia-Pacific region into the UK.

Emily:

Brilliant, thanks Sam, and Matt we know each other, you've been on Business in Focus before, but can you introduce yourself to our listeners, please.

Matt Alabaster:

Yes indeed, Emily. Thanks very much for having me back, I work at our strategy practice and I work with companies large and small on their investment and expansion strategies. I also have the great pleasure in leading our work and thinking around trade and investment at this exciting time. It's a pleasure to be back here.

Emily:

Fantastic, well great to have you both here today. Let's get into this exciting topic. Now, I talked about there in my intro, we at PwC have been exploring this topic. We've been gathering opinions of different stakeholders across government and business and society, about what we can all do to promote trade and investment more effectively across the UK. We’ve had a series of reports out this year that have explored that theme. Matt, maybe you can start off by just giving us a flavour for some of the topics that are coming out; some of the areas that we might want to delve into in the discussion today.

Matt:

Sure, it's a pretty big topic, but I'll give it a go in summarising it in a couple of minutes. This is a once in a generation opportunity for the UK to look afresh at how to drive success in international markets. Why do I say it's once in a generation? Well, firstly we are through with the Brexit process. We passed all the here and now noise of the politics, negotiations, and what happens to ham sandwiches on the border. Now it's about making a success of it with our independent trade policy and a renewed focus on what we can do in international markets. Secondly, obviously the pandemic has been an extraordinary dislocation in business as usual, a huge amount of ingenuity and agility shown by business and government throughout that period. How do we keep that going?

Thirdly, there's a lot of other stuff going on, which is totally reshaping markets. You’d think Net Zero as an obvious example and transition towards Net Zero by 2050 here in the UK. It's redefining how all of us need to think about energy across the whole economy. That’s a heavy cocktail of factors, meaning that we have a huge trade opportunity and that's why we kicked off the programme that you referenced, Emily, to look at how we might be better at driving trade and investment in this country than we have been in the past. We've been overwhelmed, actually, by the level of engagement that we've had from clients on the topic, huge appetite for revisiting the trade agenda and trying to improve it.

If I try and super summarise the themes that were coming out of that programme of engagement, there were four of them. Firstly, an appetite to clarify and reinforce what we're calling the UK narrative; how we sell ourselves and talk about ourselves overseas in a trade context. Secondly, looking at the UK strategic priorities through a trade lens, and this was one that really got some imagination going amongst our clients involved in the debate. Thirdly, playing to our strengths, recognising that we probably shouldn't be good at everything, we can't hope to be good at everything, where are we going to be focusing. Fourthly, how do we make trade and investment a team sport, showing some of that togetherness, and collaboration, and partnerships, that we were showing during the pandemic. Let me stop there, that was a whistle stop tour through the debate so far, Emily.

Emily:

Thanks Matt and that's a really fantastic introduction to the topic. I am going to come back to a couple of those themes that you mentioned in a moment. Sam, before we do that, I would love to just bring you into the conversation. We have all been observing the focus on the Indo-Pacific region, how that's playing out in the trade strategy? Now we're hearing about new trade deals, lots of examples of investment. I would love for you to bring that to life for us in terms of the activities you are seeing across the region, and why you're so passionate about the opportunity it presents for the UK, if I may?

Sam:

Thanks Emily, it's hard not to be enthusiastic and excited about the Asia Pacific region. I'd draw your listeners attention to a document published by the government in March 2021 called the integrated review. That sounds like quite a dry title, but it brings to life the UK’s ambitions for how global Britain will lead and engage with the world in this really competitive era that we find ourselves in. Part of that is about how the UK will deepen our engagement with the Indo Pacific region.

Just to explain, Indo Pacific includes the Asia Pacific region which I am responsible for as well as India and China, some of the really fast growing and dynamic economies of the world. Indeed, the Indo Pacific is home to half the world's population, and some 40% of global GDP. Now below those really headline statistics, you've got some of the fastest growing economies of the world such as Indonesia, and Vietnam, as well as some of the more established players in Asia that we all know about of Japan, and Korea, and Australia and New Zealand. It really is a diverse and dynamic region. The UK already trades really strongly with this region. We send 17.5% of our global trade goes to the Indo Pacific region. We attract about 10% of our foreign direct investment coming back into the UK. We've got really strong links, but as part of the government's independent trade strategy, which Matt just referenced there, we've really been deepening our trade deals. We've got a range of free trade agreements already in place. We just secured an agreement in principle in June 2021 for the Australia-UK FTA. We will probably come on to something called CPTPP. If you've never heard of that before, you want me to explain more, it needs a bit of unpacking because it's certainly a mouthful, but that's a really exciting mega trade deal with a number of different countries from Asia Pacific and indeed the Americas involved with that particular deal. It's an exciting time. It's a busy time. We are really deepening our engagement through these free trade agreements. Of course, its companies, and many of your listeners that are bringing this world to life by exploring the opportunities of selling, engaging, partnering, and attracting investment from this part of the world.

Emily:

Thanks Sam for that introduction, I can hear your energy and passion for the region coming through as you describe all of that. Clearly quite a lot of activity going on. This is not a single trade deal or it's not a single stream of activities, there is a complex strategy in play there. I am glad you mentioned CPTPP, and I get the benefit of being able to say what that stands for listeners, who maybe aren't familiar with it, the comprehensive and progressive agreement for Trans-Pacific partnership, if I've got that right, Maybe, we would dig into that one in a bit more detail in a future episode. I would like your perspective, Sam, on one of the things that Matt said in his introduction about a UK narrative and what we stand for. Based as you are in the region, how do businesses and governments in that region see the UK as we emerge from Brexit and pandemic at the moment?

Sam:

Thanks Emily, that's a really hard question because as I explained the region is home to such a diversity of economies, cultures, languages, it really is a fascinating and rich melting pot, but it's certainly a region. I've talked for the Asia Pacific, especially now, where there is a real fulcrum or apex of progressive trade policy, and it was the Southeast Asia region on the ASEAN recently signed one mega trade deal called the Regional Comprehensive Economic Partnership (RCEP), with a number of partners in that part of the world. It was through this region, the Asia Pacific is home to 7 out of the 11 countries that are members of that mega trade deal that you just referenced as CPTPP. It really is a region of energy and diversity, and it's a progressive trade region. That's why the UK is a natural partner, and that's where I would say a lot of the perceptions of the UK come from in terms of our really energetic and ambitious trade agenda. We've got some agreements in place now with 67 nations with free trade deals agreed and in place. It's been a really rapid period of time since the UK has been charting these FTAs around the world. There's a lot of appreciation, and perhaps we've exceeded expectations of the amount that's being done in a very short period of time. The COVID situation has to be brought into this particular topic, Emily, it's been difficult globally, it's been a health pandemic, and it's also been an economic pandemic, As a result of that a lot of the perceptions are being formed around respective responses to COVID. A lot of eyes on the government's support package that were put in place to tackle the economic impact of COVID, as well as a lot of appreciation for the UK’s vaccine rollout and also science and tech has really come into focus by the fact that it was Oxford University and AstraZeneca that were pioneering one of the first vaccines for COVID-19. We're seen as we want to be seen through that prism of tech, digital, and part of the future economy.

Emily:

It's fascinating to hear you talk through there, the impact that those, maybe, areas that we've treated this discrete topic on this series, COVID-19 on one hand, digital innovation, all tie back to trade. I know that was something that, Matt, you mentioned in your introduction as an area for us to focus on how trade can help accelerate some of those other strategic priorities. It would be good to dig into some of those together a little bit now. I am struck by your point just then, Sam, about the economic pandemic that we've just been through, and that's very much front of mind for a lot of listeners. Matt, perhaps I could ask for your perspective on that first. We've talked before about levelling up and trade, and clearly that plays into that economic recovery. Perhaps you could give us a feel for how you see the ties between getting activity right on the trade agenda as being so important to achieving the goals we have as a country around levelling up.

Matt:

Thanks Emily, that's exactly right. It was one of the things that came across really strongly from the client engagement that we will have. One of our clients have coined this phrase, which we've shamelessly copied from him about looking through a trade lens at our strategic priorities. Let's bring that to life, as you suggest, with levelling up. It's a great example, because levelling is a domestic agenda, how do we share economic prosperity across all parts of the UK, but it's an agenda that can be accelerated through better engagement with international markets and that's the whole point here. We shouldn't be looking at trade as a discrete objective in its own right, and should be thinking of it as an enabler of some of those things that are very important to our long-term equality and prosperity. Levelling up is actually bang on aligned to trade and investment, because exporting companies are more productive and job creating than non-exporting companies, and foreign owned businesses export more than domestic ones. We've got to make this link more strongly and drive that virtuous circle better to encourage trade and investment in every region of the UK.

Some specific examples, great to see the government's free port initiative, which is one way of doing that. Also, CDITs investment in regional export hubs across Edinburgh, Cardiff, Belfast and Darlington, Sam will correct me if that's wrong. I also would like to plug the fact that PwC ourselves, we've opened a spanking new office in Belfast, that’s for about 3000 people. We have to be saying to inbound investors, from Asia Pac, obviously from other parts of the world as well, but the UK is not just about London. There are plenty of opportunities with different economic capability and cost base strengths across the rest of the UK. We have to be saying to companies outside of the Southeast that exporting is absolutely for them as well. We have to make sure that no part of the UK is left behind in this renewed focus on trade and export, hopefully, that brings it to life a little bit.

Emily:

Brilliant, thank you Matt, Sam does that resonate with you.

Sam:

Yeah Emily. Matt has captured that really quite well and this plays to the fact that it’s both the government, and a business, and a society agenda. We miss huge opportunities if we fail to understand and appreciate the really rich life sciences ecosystem in Scotland or the Marina Maritime Hub that’s down in Southampton. As business and government increases our engagement and we place people around the length and breadth of the country, as Matt is explaining, it will help us better serve the businesses and the people to be able to access as you’ve shared my enthusiasm for the Asia Pacific region, is something that the whole of the UK can, is and should be benefiting from. The levelling up agenda is really about making sure that we are servicing the whole of the country and all of the sectors get the benefit from the hugely exciting trade and investment opportunities globally.

Emily:

One of the things we’ve talked about on this series before, is the link between the levelling up agenda and fairness of the spread of upskilling opportunities, particularly in relation to digital and digital innovation. Sam, I heard you referenced that when you were talking about one of the reasons you’re so excited about the Asia Pacific region, and their focus on digital innovation in that region. Share a little bit with us about how you see trade supporting that agenda as a national priority, if you will.

Sam:

Sure, thanks Emily and if you are looking to choose a topic where I’ll be slightly less excitable, I am afraid you’ve failed in that, because I really think the exciting future of trade is in the digital space. We are doing quite a lot of work to support British tech scale up companies to access the Asia Pacific region. We’ve set up something called the digital trade network, which is now a year into being, and is there to support British companies to understand access and benefit from the huge investment into tech and digital in the Asia Pacific. It’s a region that’s well known for its early tech adoption. They’re also looking to attract investment from the Asia Pacific region into the UK. We’ve got our work cut out for us, because Silicon Valley dominates a lot of the thinking of overseas investors. Actually, the UK is home to some of the most exciting, innovative, fast growing tech companies anywhere in the world. The fact that we attract a third of venture capital investment into our tech sector is a great example of our strength, but sometimes I don’t think getting the recognition, appreciation, that is deserved of the amazing sector that we’ve got in the UK.

To try and help that, Emily, we are currently in negotiations for something called a digital economy agreement between the UK and Singapore. We’ve chosen Singapore, because it’s a tech savvy market where they’ve entered into agreements with a couple of other countries, but the UK would be the first country ahead of Europe to build such an agreement, that will, in essence, set the rules of the road, for how companies exchange data between our two nations, how they support new growing sectors, whilst also protecting data privacy and setting the standards by which we will make sure that the customers retain their trust and confidence in their data being held securely. We are entering into a negotiations phase and it’s a really exciting time as we start to, with our newly independent trading nation status, enter into new areas of the economy. There is a statistic of some 70% of UK services exports have a digital component to them in terms of our UK-Singapore trade. That’s 70% of 5 billion pounds a year of services that the UK exports to Singapore. It’s a big and it’s a growing area of the UK’s exports. It’s really exciting that we’re setting the rules of the road with Singapore and hopefully expand out beyond that in due course.

Emily:

I can totally relate to you finding that exciting, Sam. When you think of so many of the trade conversations we’ve had over recent years, of being about goods and tariffs, and those kind of traditional areas of trade, to hear you talking about where we’re taking some of these agreements for the future is very exciting.

I am conscious that time is ticking by, there is one more area that I wouldn’t mind us taking through together, which is top of a lot of people’s minds at the moment, which is around the climate change agenda. Conscious that with COP26 this year, it means all our eyes are on the UK. It's very much at the top of the business agenda, top of the consumer agenda, very much like you just said, there with digital map. Perhaps you could start us off with some thoughts on how trade can support our development on the ESG or the climate change front?

Matt:

Yeah absolutely. As you say, Net Zero is a climate imperative, of course, but it is also a great big stonking trade opportunity. It’s hard to overstate the size and the prize from an industrial point of view. We published a report recently that I was involved in, that said that the UK needed around 40 billion pounds per year of capital investment into the infrastructure, and technologies and capabilities that we need to decarbonise our economy, which is a huge amount of money and at least double the raise that we’ve seen over the last couple of years. Just bringing this to life, we’re talking about renewables. We’re talking about electric vehicles, all of the charging infrastructure that goes with them, batteries that are required. Hydrogen is likely to be a part of the solution. It’s a huge infrastructure and economy that needs to be built around hydrogen. We are talking about efficient heating for our homes and offices, a huge amount of stuff that needs to be done.

We are in a very strong position in the UK from a trade point of view, because we have embraced successful decarbonising already. In fact, we’ve decarbonised over the last decade at the fastest rate than any other country in the G7. That’s not to say that we are the cleanest, but we are getting cleaner at the fastest rate, which is something that we should be proud of. But when we think about the trade and investment agenda, it’s not enough, even though it’s very good to be setting overall targets for our decarbonisation ambition and setting targets, all sorts of things, like you can’t buy petrol or diesel car after 2030, that’s great.

These are all demand signals in the market that the government has been very strong about, but for a trade point of view, there is a trade opportunity here, and we need to be thinking about the supply side as well. We need to be thinking about the industrial capabilities that we have in the UK to achieve those decarbonisation targets and make sure that we are not reliant on importing the products and services that will get us there. I will just give you one example, which is, offshore wind, a huge success story in terms of decarbonising our power grid. Last year, 2020, we produced more electricity from renewable sources than from fossil fuel sources, great success, and the fact that we are the world’s largest market now for offshore wind, but we don’t have any of the world’s 15 top wind turbine manufacturers, none of those are British companies. That’s a bit of an industrial opportunity missed, that’s enormous high growth, long term, high tech industry that was ripe for us as a country, but we somehow didn’t quite grasp that industrial opportunity. The point here is, there’s a whole bunch of new stuff coming down the line, I mentioned hydrogen, just the amount of infrastructure and technology is going to be required there is enormous. Let’s not miss the opportunity to be a world leader in hydrogen or in next generation batteries or sustainable aviation fuels, you name it, there’s plenty of stuff to go for, and it's a real trade and investment opportunity.

Emily:

Thanks Matt that really brings to life how the two intersect. Sam, I am interested in your reflections on what Matt has just shared on that particular dimension.

Sam:

Yeah sure, Emily, thanks. I hope you’ll be happy that I agree with 90% of what you said, but I’d like to just challenge one area of that. We strongly agree that there’s proof in the British economy that economic growth can go hand in hand with lowering carbon emissions and that’s been a real success story. You also flagged that we’ve got a long way to go and this really is a massive challenge in terms of decarbonising the economy. As you said, there are signals that can be sent from the demand side by governments, that need to go hand in hand by capacity, capability, and appetite from the corporate and business sector. We’re making really good progress in terms of the partnership effort that is needed between government, business, and society. Of course, sitting where I do in the Asia pacific, there’s a big global dimension to this, which requires energy transition to take place across huge growing economies around the world, that have quite a different starting point from the UK.

On various green energy sectors you touched on there, I do just want to shine a spotlight on the fact that your example around offshore wind and the turbine challenge that you referenced there, we do have a lot of capability and expertise in the UK in offshore wind; there are huge supply chains, and the UK has strengths in developing installation vehicles, the cabling that’s required, and the protection systems, the energy grids, and into the future some of the storage solutions that are required. I do just want to add that extra dimension and perhaps push back against the fact that we agree on the point that the UK needs to grow our sector, and the UK has the plan for growth to support the green energy transition, and harness the economic benefits as well as the environmental benefits that we will get from that.

Emily:

Thanks Sam, the one area that I can hear that you’re both very strongly in agreement on, is that the trade and investment is a huge opportunity for the UK and it’s really important to delivering a whole range of other things that we want for the country and for the broader world that we play an active role in, we all share that view. We are almost out of time here today and we’ve covered an awful lot of ground. I am going to ask you for one last piece of advice, people who’ve listened to this, and thought this is something I need to find out more about, I want to know more about the Indo Pacific Region, I need to think more about trade and investment, what one piece of advice would you give to listeners, Sam. I’m going to come to you first, if I may.

Sam:

Sure Emily, thank you I would like to just leave your listeners with a call to action. I work for the Department for International Trade. We are here to help businesses, and entrepreneurs, and investors to export into the Asia Pacific and to attract investment from the Asia Pacific, into the UK. If you want a place to go to, then there’s a website called thegreat.gov.uk website and, if you want to look at that, you’ll be able to connect with me, connect with my team, who are based across these exciting and dynamic markets of the Asia Pacific. We are here to help British companies to succeed in this really exciting part of the world. I’d encourage you to find out more on that.

Emily:

Thanks, what would you add Matt?

Matt:

I would add challenge your preconceptions. This is the right time to be thinking again about your export strategies, your export ambitions, which markets you think are accessible and which ones aren’t, and how difficult you think it is to get access to some of those markets, and ultimately how big your export sales could be. If you’re not going to do it now, when are you going to do it given everything we’ve been talking about and everything that’s going on.

Emily:

Fantastic, some great calls to action there, think big and ask the DiT for help. That’s us out of time. Thank you both, that was such an engaging and fascinating discussion, and thanks of course to everyone for listening. More information on the findings of our series of reports on the UK’s future trading relationships. Please visit trade, the new agenda at pwc.co.uk/trade. Of course there is the great.gov.uk website that Sam has shared with us today. Don’t forget to subscribe to keep up to date with future episodes. See you next time.

Participants

• Emily Khan
• Sam Myers
• Matt Alabaster