Brexit is happening – and while some firms will be hit if no deal is reached, many are poised to reap rich rewards in global export markets.
Prophecies of gloom and doom are primarily focused on financial services. But manufacturers have plenty of pent-up demand for premium British goods from companies such as Jaguar Land Rover, Dyson, JCB and others.
And with sterling now trading at a more natural level against other currencies, British goods are much cheaper to buy for overseas customers than before the referendum.
The UK also has tremendous ‘soft power’ around the world thanks to factors ranging from its global history and the evolution of the Commonwealth – the Queen is still head of state of many Commonwealth countries – and the perception of quality and prestige, derived from brands such as Rolls-Royce and Burberry.
There are plenty of smaller companies in the FTSE 250, 350 and AIM indices that are doing well overseas, too.
Growing British exports
The proof of the pudding is in the eating – in September, the Office for National Statistics said Britain's goods trade deficit with the rest of the world as a whole narrowed by much more than expected to £0.7bn, primarily due to British exports increasing by £1.3bn.
A survey by the Confederation of British Industry (CBI) survey in November showed the manufacturing sector continuing to perform well, after helping GDP growth to improve in the third quarter of 2017.
The orders balance jumped to the highest level since August 1988, with the export orders rising to their best level since June 1995, supported by a competitive pound and robust global growth.
Back in 2012 – four years before the Brexit referendum – the British Chambers of Commerce published a survey that showed just under half of Chamber exporters saw the large and faster-growing ‘BRIC’ economies of Brazil, Russia, India and China as the best prospective markets for increasing business.
Ironically, it said at the time: “Worryingly, exporters to the fast-growing BRIC markets are the most likely to encounter barriers that hold back sales. To support UK business expansion in these markets, the government must press for greater progress on free trade agreements via the EU.”
Come Brexit in March 2019 the UK will be free to negotiate its own trade deals with countries such as the US, China, Canada, Australia and India.
At the moment only the EU can negotiate on behalf of member states, and, crucially, it only takes one country to veto the deal.
It took the EU seven years to negotiate the recent trade deal with Canada, and it still has no deal with powerful trading nations such as China, the US or India.
It’s dangerous to pay too much heed to the prophets of doom about how much better off we would be within the EU when it comes to negotiating trade deals.
According to UK think-tank Civitas, since 1970 the EU has concluded 37 trade agreements, most of them with small economies, some multi-country. In 2014 the aggregate GDP of the 55 countries with an EU deal in force was $7.7trn.
In contrast, the aggregate GDP of all the countries with which Chile had agreements in force was $58.3trn, while Korea’s totalled $40.8tn, Singapore’s $38.7tn and Switzerland’s $39.8tn.
Their trade deals include agreements with the EU, with a GDP of $16.7tn – but the figures still dwarf the EU’s achievements.
However, 90% of the deals hammered out by these four smaller, independent countries included services, whereas only 68% of the EU’s trade agreements did so.
A number of countries have expressed an interest in signing a trade deal with the UK, including the US, Canada, Australia and China. A deal with Canada would be relatively easy, as the UK could ‘cut and paste’ the deal recently agreed with the EU.
Where trade deals are not in place, tariffs will apply – but the World Trade Organisation (WTO) rules, despite what the naysayers would have you believe, are not onerous. Indeed, the WTO – of which the UK was a founding member – was set up to encourage low-tariff global trade.
Tariffs are in any case part and parcel of everyday life for UK companies engaged in overseas trade simply because the EU has yet to clinch deals with major export markets such as China, India and the US.
And since the pound is down 20% on the euro from June 2016 and 9% on the US dollar (as at November 2017), even a 15% tariff on, say, the UK's vehicle exports to the EU would still leave them cheaper than prior to Brexit.
UK export companies that may benefit
So, which British companies stand to benefit from a Brexit export boom? Here is a small sample – there are hundreds out there.
Note – These are examples, not stock recommendations; it’s vital that you do your own research. One or two of the companies here are not publicly listed, are but are worth watching in case they decide to go to the stockmarket and have an initial public offering (IPO).
As Lord Bamford, founder of privately-owned excavator firm JCB, said in a speech to the House of Lords in October 2016: “We now export around 75% of everything we make in the UK. We export to customers in North America, South America, the Middle East, Africa, Asia, and, of course, to mainland Europe.
“For companies that export, tariffs and import duties are not alien concepts. They are simply part of how we do business each day.
“In my own industry, under WTO rules tariffs of 4% could apply to certain types of UK-built machinery. Of course, similar tariffs would be levied on equivalent products imported into the UK from EU countries. But British businesspeople are very adaptable. They adjust very quickly to changes in the trading environment.
“If tariffs [with the EU] are the price that we have to pay to secure free trade agreements with the rest of the world, I think it is a price worth paying.”
GlaxoSmithKline (GSK) has a broad portfolio of medicines in the areas of respiratory and HIV infections, and is a global leader.
GSK had global sales of £27.9bn in 2016-17, up 17%; new pharmaceutical and vaccine product sales more than doubled to £4.5bn, while consumer healthcare sales were £7.2bn, up 19%. Approximately £3.6bn was spent on R&D.
GSK’s annual report points out that by 2030 it is expected that 60% of the world’s population will be middle class; the number of people aged 60-plus will be 1.4 billion; and 66% of the global middle class will be in the Asia-Pacific region.
The report adds: “In emerging markets, long-term economic growth, increasing expectations of healthcare provision, and changing diets and lifestyles are increasing demand for healthcare products, especially to treat chronic conditions, including respiratory and cardiovascular disease.
“This demand is expected to grow significantly faster in these markets over the coming years than in more mature economies.”
Associated British Foods
ABF owns many of the best-known food brands in the UK, including Twinings tea, Patak's sauces, Dorset cereals and British Sugar, makers of Silver Spoon. In the US Mazola corn oil is the market leader, while in Mexico Capullo is the premium canola oil. In Australia it owns Tip Top Bakeries, and owns the Don and KRC brands of ham and bacon.
The company also owns burgeoning high street retailer Primark.
It sells into more than 100 countries worldwide, with operations in 50 countries across Europe, southern Africa, the Americas, Asia and Australia.
British Sugar is poised for growth, with the UK's sugar beet industry looking to ramp up production as European Union quotas came to an end in 2017 after nearly 50 years.
For the first time since 1968 the UK can produce and sell as much sugar around the world as it would like. Two years ago, British Sugar had a bumper harvest of 1.4 million tonnes of sugar beet. Good news, you might think – but under the EU’s quota system the company was only allowed to sell 1.0 million tonnes.
“Customers wanted to buy from me, but I wasn't allowed by European Union rules to sell it,” Mr Paul Kenward told BBC News. “We had to store it for two years – that was very expensive.”
British Sugar now plans to step up production and is looking to produce 1.4 million tonnes again in 2018 – and export sugar to the world market for the first time in at least a decade.
“The UK is one of the most efficient producers worldwide,” Jane Clark, who farms sugar beet in Lincolnshire, told the BBC. “It should put us in a good place to be competitive.”
ABF’s pre-tax profits were up 22% at £1.3bn in 2016-17 on global revenue of £15.4bn, with dividends set at 41p per share.
Perhaps Britain’s most famous company, Rolls-Royce is a giant of the aerospace world. It had revenue of £13.8bn in 2016-17, with profits of £915m and an order book of nearly £80bn. It employs 16,500 engineers; and has nearly 50,000 employees.
It had a wobble in 2014-15, when profits fell 8% to £1.62bn, partly due to the strength of the pound against the dollar at the time.
However, it has made a strong recovery thanks to the success of its Trent engines, which power Airbus and Boeing aircraft, including the new 787 Dreamliner.