Sectors: sources of future growth
Construction services: 10.8% projected average annual growth to 2020 and currently account for 0.4% of UK exports in value terms
The construction sector in the UK faces many challenges in the domestic market. A planning system that provides certainty, appropriate and timely access to finance and an adequately skilled workforce are necessary for the sector to operate efficiently, competitively and contribute to national economic growth. In spite of these domestic barriers, the sector saw average annual growth between 2000 and 2008 of 35% – even managing to maintain a positive trend during the recession. UK firms through the construction supply chain have seized on opportunities – in particular, on the government’s low carbon policy agenda – to specialise and diversify their portfolio of services to reach a much wider market and decrease their dependence on domestic demand.
The global opportunities are certainly there for the taking. Global construction is projected to grow by almost 70% from $7.5 trillion today to $12.7 trillion in 2020, and will account for 13.4% of global output.11 UK construction firms that have the ability to work overseas benefit from diversifying their risk profile from their home markets whilst at the same time enjoying a rich pipeline of new-build projects in high-growth areas, where population and tourism growth are fuelling development from housing to public works and transport infrastructure. Furthermore, internationally recognised standards in the UK mean that UK firms can hit the ground running in many new foreign markets. Markets such as Nigeria, India, China, Russia, Vietnam and Indonesia look set to post the highest growth opportunities, demonstrating the importance of UK firms consolidating their presence in the BRICs but also looking beyond to the second tier of high-growth markets.
Electrical and optical & high-tech goods: 10.6% and 9.3% projected average annual growth to 2020 respectively and together currently account for 15% of UK manufacturing exports
As emerging markets have developed their manufacturing capacity, lower value chain activities have tended to shift towards markets where the cost of production is cheaper. In areas of manufacturing requiring cutting edge technology however, BIS data indicates that the UK continues to offer considerable advantages over the BRICs due to the UK’s strong science and R&D base.
Export growth in high-tech manufacturing sectors including optical and electrical goods over the next decade is likely to be around 10% per year. Driven by rising incomes in emerging markets combined with demographic changes, technologies in this grouping such as nanotechnology and nano-electronics, life sciences technology, precisions instruments and photonics will become increasingly in demand in advanced and new markets alike.
This offers a real opportunity for the UK. The Ernst & Young ITEM Club analysis indicates that in both manufacturing of electrical apparatus as well as precision and optical goods, the UK holds a comparative advantage, comparing favourably in cost-terms over production elsewhere. Furthermore, the 2009 Innovation Survey indicates that these sectors continue to invest in new innovation in the UK.
Financial services: 9.4% projected average annual growth to 2020 and currently account for 11.3% of UK exports in value terms
The UK’s financial services industry contributed £126bn to the UK economy in 2009, accounting for 10% of total economic output, and provided over one million people with jobs.12 UK companies raised funding of more than £360 billion from financial markets in the past five years, allowing them to create jobs and invest in training and developing their staff. The UK is the world’s leading exporter of financial services, earning more than 10 times US exports of financial services in 2008. Our financial services sector generated a trade surplus of £36bn in 2010, thus helping offset the £98bn deficit in trade in goods.
The UK’s long history of financial services stands it in good stead for the coming decade: the wealth of knowledge we hold in our financial services cluster, foundations of a strong regulatory system, and the skills unmatched overseas point towards a bright future. But the wider environment is also crucial – the UK’s political stability, world-class education system, and our position as the bridge between East and West can all allow our financial services sector to continue to grow.
The nature of the services being offered means that financial services exports will follow global growth and trade flows as they develop. On current evidence, the BRIC countries offer exciting new opportunities. Yet other markets are developing quickly, such as the Gulf States, which are fertile grounds for exploration.
Communication services: 8.7% projected average annual growth to 2020 and currently account for 1.2% of UK exports in value terms
The UK’s communications sector forms a significant component of the domestic economy, contributing over £50bn to UK output and employing 530,000 people.13 The sector accounted for 7% of total R&D invested by UK businesses in 2009 and is intrinsically linked to a wide range of other sectors, driving the speed and quality of information flows, business efficiency, access to markets, managing people and diffusion of innovation. Within the communications sector, the creative industries – a particular jewel in the UK’s crown – has been forecast to grow by 4% per annum between 2008 and 2013. In terms of digital exports, the UK is a global leader, and second only to the US in terms of international content sales.
In the UK, the sector’s success stems from its self-reliance, with innovation at the core. It is market-driven and predominantly reliant upon private sector investment and innovation rather than government support. The sector is ripe for both exports and attracting inward investment. The Ernst & Young UK attractiveness survey 2011 demonstrated that companies consider technology infrastructure their number one priority when considering where to invest – highlighting the opportunities for communication services to break into other markets, all trying to attract foreign capital.
Due to shared language, the US will continue to be a vital market for digital exports; however, the wider communications sector will look towards the BRIC economies for exciting new opportunities in telecommunications and digital content exports.