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The Department for International Trade (DIT) and UK Export Finance (UKEF) are “not yet doing enough to identify and help the businesses of tomorrow to export” and do not have sufficient understanding of the challenges that arise when smaller exporters apply for finance, finds a new government inquiry.

The inquiry into the work of UKEF, the country’s export credit agency, and DIT was published by the Public Accounts Committee, a select group of cross-party MPs tasked with examining the value for money of government programmes. A separate inquiry into the activities of UKEF was also launched by the International Trade Committee (ITC) in July.

DIT, which was established in 2016 and works to help businesses export, drive inward and outward investment and negotiate trade deals, has not demonstrated measurable progress to tackle the big strategic challenges it faces in supporting economic recovery post-Covid-19 and in advancing the UK’s future trading relationships, finds the probe.

It adds that the department’s contribution to export performance is “unclear” because of a lack of robust metrics. By measuring its annual exports performance through ‘export wins’, there is no requirement for it to focus on longer-term export growth. “The department was unable to provide us with details of other measures that cover the broad scope of its role in supporting exports, such as removing market access barriers,” the report reads. The National Audit Office (NAO) has also raised concerns over the way DIT measures its success.

In 2018, the government announced its new export strategy, with an ambition to raise exports as a proportion of GDP from 30% to 35%. This measure is not effective because it can be affected by fluctuations in GDP, states the inquiry. “It is not possible to hold the department accountable for the effectiveness of its action to deliver government’s ambition to grow exports to 35% of GDP.”

In response to the inquiry, a DIT spokesperson tells GTR: “The conclusions of the report are not supported by the evidence. We have just struck a comprehensive deal with Japan that goes well beyond the EU, and over the past two years have signed or agreed in principle trade agreements with 52 countries, worth £146bn of UK trade in 2019.”

The inquiry also finds that DIT staff may not have the skills to promote export finance. In response to this, UKEF told the committee that while DIT staff are not required to be export finance experts, they should be competent enough to identify opportunities and bring in UKEF expertise where needed. As of March 2020, 503 of DIT’s staff had enrolled in an online training course on export finance created by UKEF, but only 149 staff had completed the training.

Gordon Welsh, business group director at UKEF, speaking at the GTR UK Virtual 2020 event today, said that UKEF can definitely do more “to educate our colleagues at the DIT” to make them more confident to ask the right questions when they’re talking to exporters and borrowers abroad. “We’ve got the programmes in place, we just need to build on those.”

 

Export finance a struggle for SMEs

When it comes to working together to support small businesses, UKEF and DIT are not in alignment and they must “improve what they offer to smaller businesses as a matter of urgency”, the inquiry finds.

It goes on to state that smaller businesses need shorter turnaround times and simpler requirements when they apply for export finance. Businesses that are not customers of the five largest banks in the UK cannot use the online portal that is available to others to speed up the process of applying for UKEF support. UKEF says it will expand the number of banks that can use the streamlined process “shortly”.

“We do have a lot of connectivity to the DIT already,” said Welsh during the session. “They are a department in their own right and they have their own objectives.”

The challenge is with the smaller companies – large companies often are able to look after themselves, he said, adding that UKEF is directly working with smaller companies on working capital and bond support. “We are still dependent very much on the banks, the banks are taking up the strain, we fill in the gaps.”

For its part, the DIT spokesperson says: “Work to improve our offer will continue as part of the government’s ongoing support for exporters, and we are working closely with UK Export Finance as we develop our offer to small and green businesses.”

The inquiry also finds major failures in supporting new – and a wider range of – businesses to export. In 2019-20 UKEF directly supported 199 customers, falling well short of its target to support 500. Meanwhile, DIT focuses its support on around 230,000 businesses that have a turnover above £500,000 and which may already generate high-value exports. “We were concerned that this is a small fraction of a total of 5.9 million businesses in the UK,” states the committee.

It also points out that the DIT concentrates on identifying which overseas markets might provide contacts for existing UK exporters. Longer-term export growth will come from supporting smaller innovative businesses which have the potential to grow, the committee notes.

That said, the DIT has increased its headcount in both Africa and Latin America. It also established a Europe trade hub in April 2019 to support businesses affected by an uncertain trading environment amid Brexit. Over the least two years, UKEF has also recruited 12 country heads to support the department’s teams in overseas regions.

In other positive points, in response to the pandemic, UKEF expanded the scope of its insurance policy to a wider number of markets, protecting UK exporters from the risk of non-payment from their overseas customers. Since expanding its export credit insurance protection, inquiries have increased “four to five-fold”, Adam Harris, head of civil, infrastructure and energy at UKEF, told GTR in a previous interview.

“It also told us that it is being proactive in engaging with the renewable energy sector and has recently financed projects in Taiwan, Ghana and Spain,” reads the inquiry. UKEF has been criticised in the past for its support of fossil fuels – over a five-year period it spent £2.6bn supporting the UK’s global energy exports, of which 96% went to fossil fuel projects, according to an independent report published last year.