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UK exporters have urged the government to strengthen support measures for businesses hit hard by the Covid-19 crisis, warning that existing efforts have proven well-intentioned but inadequate in practice.

The British Exporters Association (BExA), an influential industry group that represents firms selling into overseas markets, says its members are experiencing difficulties and delays in accessing financial support facilities put in place to mitigate the impact of the outbreak.

“UK government’s response to the impact on businesses due to the crisis has been positive in message but has been lacking in delivery,” it says in response to an inquiry launched by the International Trade Committee, a cross-party group of MPs, at the end of March.

“Access to the support schemes needs to be simplified and accelerated if we want the UK to be ready to bounce back after the pandemic,” adds the response, seen by GTR.

BExA says global efforts to halt the spread of coronavirus have led to logistical problems, with border closures and workforce interruptions leaving supplies stuck in transit or needing to be sourced from elsewhere. That has been exacerbated by a drop in customer demand, initially from Asia but now worldwide.

Access to trade finance and pressure on working capital are also proving challenging. BExA says the decline of air traffic and disruption to cargo shipping has caused demand for freight services to outstrip available supply, meaning costs have “increased substantially” – in some cases, six times higher than usual.

Problems gaining certification from buyers after completion have meant firms cannot draw from letters of credit, it says, while in some cases customers “are asking to extend payment terms on goods that have already been delivered as well as on future orders”, pressuring exporters’ cashflow.

Another concern raised by BExA is that financial institutions “are taking a more cautious approach” to new transactions. It says: “As the cost of financing rises, this will affect exporters’ margins, or if it is passed on, will stifle importers’ abilities to buy.

“Access to short-term working capital is a significant challenge now. Exporters and especially those who need to import components to then export a finished product require significantly more working capital than domestic traders and consequently are at greater hazard as they find accessing bank funding challenging even in good times.”

 

New measures “urgently” needed

Support for embattled UK businesses has been a stated priority of the government throughout its response to Covid-19.

In late March, HM Treasury launched a business interruption loan scheme, known as CBILS, which is overseen by the British Business Bank. Though offered through existing lenders – including high street banks, challenger banks and specialist lenders – up to 80% of any loan value is backed by government guarantee.

Another initiative is the Covid Commercial Finance Facility (CCFF), overseen by the Bank of England, which is aimed at freeing up liquidity at larger firms. At the other end of the scale, the government has this week announced businesses can apply for “bounce back loans” of up to £50,000 with 100% cover.

Specifically for exporters, March’s so-called coronavirus budget saw Chancellor of the Exchequer Rishi Sunak unveil fresh funding for UK Export Finance (UKEF) that amounted to “the highest level of export lending the government has ever made available”. UKEF has since been freed to offer 100% short-term cover for transactions involving major markets, including the EU and US.

However, BExA says exporters have encountered barriers when attempting to take advantage of these initiatives.

With CBILS, for example, it says smaller businesses are “struggling to access” the facility. The scheme requires lenders to apply on behalf of the borrower, but those lenders are reluctant to cover the 20% of any loan that is not protected by government. Many attempts to use the scheme are rejected before they reach the British Business Bank.

The association says government cover “needs to rise to 100% as a matter of urgency to ensure that the maximum number of viable SMEs can survive”.

Larger businesses are also struggling with the CCFF scheme. Some “are waiting an unacceptably long time before receiving responses… leading to delays and uncertainty in putting in place much needed additional liquidity facilities to withstand the current crisis”, the association says.

The measures aimed at expanding export credit cover are welcome, but BExA says it is “concerned that the demand may overwhelm UKEF’s current resources”.

Other suggestions include making more information available to exporters on schemes designed to assist them, the removal of tariffs for transactions with countries trading on WTO terms, and a “realistic outlook” on what can be achieved in relation to Brexit over the next eight months.

It also echoes recent calls for digitisation of trade-related documentation, suggesting regulators and central banks should facilitate the acceptance of electronic customs paperwork “wherever possible and practical”.

 

Trade forecast bleak

Select committee inquiries typically lead to recommendations to government, including on potential changes to legislation. Though consultations have now closed, the committee is holding its next evidence session – conducted virtually – on April 30.

Its chairperson, Scottish National Party MP Angus Brendan MacNeil, says he is “aware of, and welcome[s], some of the steps already being taken”, but that it is “crucial that the government takes decisive action to mitigate the negative impacts of Covid-19 on international trade”.

The stakes for UK businesses are high. Speaking during a GTR webinar on April 28, economist Rebecca Harding said it is too early to assess the impact on trade, but that the “last time world trade collapsed in the way it has this time, the UK fared about 5% worse than the global trade trends”.

Harding, also chief executive of Coriolis Technologies, added that the lingering uncertainty around Brexit adds another layer of complexity for British exporters. Though experts continue to call for an extension to the current transition period – which expires at the end of December 31 this year – the government remains steadfast in insisting a free trade deal with the EU will be finalised in time.

“We still don’t know what is going to happen with Brexit,” she said. “Our outlook in January suggested that trade for the UK was at best case going to flatline. We can expect a drop in trade at least in line with what’s going to happen in the rest of the world, and probably slightly worse.”