Trade and investment whitepaper offers risk and reward

Has the government pulled off a rare coup - a whitepaper that actually has support? The largely positive reaction to the Department for Business, Innovation and Skills’ (BIS) January whitepaper on trade and investment for growth suggests the answer to that question could be yes.

The paper’s big idea, which signals that ministers may be serious about helping more small to medium-sized enterprises (SMEs) trade internationally, is to re-tool UK Trade and Investment (UKTI) and the Export Credits Guarantee Department (ECDG) by providing them with cash to throw at SMEs. Policies include setting up a Bond Support Scheme to help exporters raise tender and contract bonds by sharing risks with banks that issue bonds, and extending its short-term credit insurance over a range of products, both of which will be available at the end of March. Another idea on the cards is the launch of a Working Export Capital Scheme to help SMEs access working capital finance on loans above £1m, and a Foreign Exchange Credit Support Scheme to help manage exposure to exchange rate movements.

As every 10-percentage point increase in trade openness translates to a four percent increase in per capita income, the benefit of promoting exports is plain to see - but will it genuinely make a difference to SMEs, and their finance directors, seeking to exploit overseas markets?

Advice needed

In theory, working capital will be freed up for SME exporters by the Bond Support Scheme, as banks should now not hold advanced payments supported by bonds as security. “Opening up credit insurance to small and medium-sized export firms should, in theory, make them far more attractive to lenders,” says Andy Meadwell, director of international trade finance at Bibby Financial Services. “This will provide more liquidity to the export finance market and give businesses more choice of funding options available to them.”

But Chris Allner, managing director of venture capital outfit Octopus Ventures, which helps UK businesses break into new markets, is sceptical.

“The truth is that banks are still not helping SMEs as they should,” he says. “There is still a minefield out there for them to tackle, and it requires FDs to spend time and money talking to unresponsive banks.”

Allner argues that it is not trade and funding support deals that SMEs need, but advice about what they mean and how SMEs can use them.

This is a view echoed by Simon Ratcliffe, FD at Applied Languages, a provider of translation services and software which does about 30 percent of its business in the US, Singapore, India and across Europe.

“Our experience is that exporting has never been difficult for us. I have to find out whether we are even able to benefit from the new changes, but, from reading the paper, it is not clear,” says Ratcliffe. “What I really need is a simple explanation without having to jump through hoops.”