Exports to Africa

Lord Popat Excerpts

Thursday 28th October 2021 Grand Committee

Asked by

[Lord Popat]

To ask Her Majesty’s Government what steps they are taking (1) to raise awareness among United Kingdom businesses of commercial opportunities in African markets, and (2) to support UK exports to Africa.

[Lord Popat (Con)]

My Lords, I declare my interest as the Prime Minister’s envoy to Uganda, Rwanda and the Democratic Republic of Congo, a role that neatly brings together my main political interests: UK SMEs and Africa. Being African-born, I hope noble Lords will forgive me if I am slightly biased, but I believe that building stronger trade and diplomatic links with Africa post Brexit should be Britain’s first priority to secure our nation’s prosperity and economic future.

Brexit offers us a once-in-a-generation opportunity to reshape our global posture, to shift our focus away from Europe and back to Africa and to rebuild the ties with, and re-establish a strong presence in, the booming economies of Africa. To put the scale of opportunity into context, Africa’s 54 countries cover a land mass of 30 million square kilometres with very fertile soil. That is bigger than China, the US, Europe, Japan and India put together.

Today Africa accounts for 17% of the world’s population but only 3% of global GDP. However, Africa’s population is expected to double by 2050 to 2.5 billion—one-quarter of the world’s population. As Africa’s population goes up, so will demand and consumption in a range of sectors, so there is a real commercial opportunity for the future.

We in the UK look at Africa through a Band Aid lens: a poor continent characterised by poverty, civil war, corruption and dictatorships. However, we are dealing with a new Africa that is embracing free markets, democracy and trade to help drastically increase life expectancy, improve access to education and reduce poverty.

Africa’s young democracies have grown more democratic in the past 30 years. Multiparty elections are common. Opposition parties are gaining ground. Most leaders leave office peacefully rather than in coups. Politics is becoming more competitive. There is a free press and an open society. The job is far from complete and there are still major challenges to doing business in Africa but, as we assess our potential trade partners for the next few decades, it is important that we see Africa as it is now rather than how it was perceived in the 1980s.

Despite many positive sets of economic figures over the past year, our balance of payments remains poor. We have a significant trade deficit for the past four decades that currently stands at over £100 billion a year. In other words, we do not have enough exports to pay for our imports. The UK’s trading relationship with Africa is worth around £27 billion, with £18.5 billion in exports. Not long ago our share of trade was 30%; today it is less than 4%. In comparison, Chinese goods exports to Africa are eight times higher than ours, while we have dropped from being the biggest exporter to the 13th biggest. Most of our large companies left Africa in the early 1980s, including Barclays Bank, which sold its interest last year having been there for more than 100 years.

Perhaps we should see that as a glass half full. By establishing the Department for International Trade in 2016, the Government at least acknowledged a chronic weakness in our economy. The UK is the second largest investor in Africa and our historic ties, particularly with Commonwealth countries, are a major bonus, as is our soft power, with English as a business language.

Africa will continue to develop through this century, with or without our support. We need to be at the forefront of that development, with British firms playing a key role. Through increased trade levels with Africa, we can help to bring about the political and social reforms needed as a by-product, with increased prosperity and stability correlating with increased trade.

What should we be doing now? First, we need a fresh approach to Africa that builds on the deep and historic links we have with the continent and the affection that many Africans have for Britain. Secondly, we need a clear trade plan for each African country, working with our embassies and high commissions to identify the key sectors and opportunities available. Thirdly, the DIT website lists a number of schemes to help businesses, including trade show access, linking businesses with trade advisers and getting local market help. There are a lot of worthwhile ideas involved in the GREAT campaign, but are businesses aware of them? Is it really a comprehensive strategy or just a catchy slogan?

We need to market UK companies, especially SMEs, to showcase the potential Africa has. We need to be advertising regularly, holding trade shows and writing articles on the opportunities available. While the UK-Africa summit was a high-profile beginning to this initiative, there was very little follow-up. We need action on the ground. Global Britain is a fine idea, but it should not be a slogan; it requires re-engagement with emerging markets. Related to that, Ministers are moved too soon and too often. Since 2010, we have had eight Africa Ministers.

I appreciate that my noble friend the Minister will have a list of schemes designed to increase exports ready for his remarks, and I will pre-empt that slightly by saying that the Government do have some worthwhile schemes to help exporters, including UK Export Finance. However, the African Continental Free Trade Area, which came into being at the beginning of this year, will also help by creating the largest free trade area in the world, with 54 countries participating, a population of 1.3 billion and a combined GDP of $3.4 trillion. It will reduce tariffs among member countries, address regulatory measures to ensure high standards, reduce red tape and simplify customs procedures. We need to work with it and make the most of it.

We need to open up African markets and speed up trade agreements. Currently, only eight trade agreements with African countries are in place. We need to create an appetite for UK businesses to increase trade and investment on the continent.

The trade envoy programme is a welcome initiative that can open doors to building contacts. Trade envoys are de facto “Ministers” for the country they cover and can visit more frequently than actual Ministers, allowing our ambassadors to set up important meetings and to work with British businesses and organise trade delegations. However, the trade programme needs to be more entrepreneurial and dynamic if it is to reach its potential. We need to expand the trade envoy programme to cover more African countries.

Without wishing to be self-indulgent, I have witnessed first-hand the tremendous impact the trade envoy programme has had in the region I represent. Our trade with Uganda has gone up fivefold. In fact, a UK company is building an international airport in Uganda, to the tune of £270 million. Just six weeks ago, we managed to sign a trade deal between the Ugandan Government and the British company McDermott, to the tune of $1.9 billion—the largest deal we have done in Africa. Three years ago, I took a mining delegation to Rwanda to negotiate an export contract worth £30 million that involved Arsenal Football Club—despite being a Tottenham supporter.

When I met President Kagame and President Museveni in Kigali, they complained about British Airways having stopped flying to Entebbe, to which it had flown for 60 years. So, I suggested that they set up their own airlines, which they did, acquiring two Airbuses with the help of UK Export Finance, and now there is a direct flight between Kigali and London. Next month, there will be a direct flight between London and Entebbe. It will not be long before there is a direct flight between London and Kinshasa.

On the subject of Kinshasa, DRC is a country with which we have limited trade. It is the richest country on the continent: it has $30 trillion-worth of minerals. Chinese and French influence is wavering, and it is very keen to do business with our country. Some 70% of the world’s supply of cobalt and lithium, which we need for electric cars and batteries, comes from DRC. There is a new democratically elected president in DRC, President Tshisekedi, who I will receive next week for COP 26. He is coming with the largest delegation—150 people.

In conclusion, global Britain will be decided not in the Indian Ocean or the South China Sea but on the continent of Africa. Africa is on the move and poised to play a bigger role in a world that is moving out of the shadows of the past and being replaced by the light that it offers in an interconnected world.

Economic Environment: Growth and Jobs

Lord Popat Excerpts

Thursday 11th July 2019 Lords Chamber

[Lord Popat (Con)]

My Lords, I must start by drawing attention to my entry in the register of interests, as I provide advisory services to a business, and to my role as the Prime Minister’s trade envoy to Uganda and Rwanda. I also thank my noble friend Lady Neville-Rolfe for introducing this debate. Many years ago, I made my maiden speech in a debate about the economy and the need to be more business-friendly. We have come a long way from where we were, but there is still more that we can and should do.

We should start by putting Britain’s economic performance in context. For three years, Britain has become synonymous with one word and one event: Brexit. Our departure has played out like a soap opera that the whole world has watched with increasing despair. Almost every day, news bulletins have been filled with Brexit updates, to the exclusion of almost every other event. This has resulted in one of the most important national stories flying under the radar: that the British economy continues to outperform all expectation.

At a time of considerable global uncertainty, with a potential US-China trade war, many leading economies slowing and protectionism rearing its ugly head again, Britain has continued to grow above expectation. The UK economy grew by 0.3% in the three months leading up to May. The economy has now grown by more than 17% since 2010.

Nowhere is this underreported miracle more obvious than in the UK labour market. At 3.9%, unemployment is down to the lowest level the UK has seen since the 1970s, with a record high of 32.7 million people in employment—up by nearly half a million in the past year and by 3.67 million since 2010. This has worked across the board, with a record high number of women in employment, 1 million more disabled people in work since 2013 and nearly half a million fewer young people out of work.

This is a great triumph for this Government, who reformed the welfare system and created a friendly environment for businesses when taking office in 2010. What is striking is that 80% of the 3 million or so new jobs are full-time and wages are rising at a higher rate.

Investment in the UK is also booming. Recent OECD figures revealed that Britain was the most popular country in Europe for foreign direct investment, with almost double the amount invested in Germany. Ernst & Young recently revealed that Britain was now the world’s most attractive economy for mergers and acquisitions, with £305 billion-worth of transactions in 2018.

The Government can also be proud of their decisions on tax and spending matters. Government borrowing is now down to its lowest level in 17 years and is currently at about £24.7 billion. That is a long way down from the £150 billion it reached in 2010. In part, borrowing is coming down because tax receipts are going up. Last year saw a record amount paid by individuals to the Exchequer, with nearly £623 billion paid in personal taxes—up £29 billion on the year before. This proves that good, old-fashioned Conservative policies work: being business-friendly and keeping taxes low has helped to power our economy.

Yet major areas still cry out for reform. Our planning system remains a significant barrier to businesses looking to invest and grow. Britain also has a considerable problem with productivity. An often-stated statistic is that it takes French and German workers four days to produce what Brits do in five. We need more investment in new machinery to improve productivity; too often, firms are totally reliant on cheap labour to do the work, rather than investing in technology, which is expensive in the beginning but more than pays for itself in the long run.

My noble friend Lady Neville-Rolfe mentioned infrastructure, which includes road, rail and, perhaps most important of all, our aviation capacity. I can think of no other leading country in the world that would take so long to build one extra runway in its capital city; we are decades behind where we need to be when it comes to our airports. When I compare us to Asian and African economies, I am embarrassed by how slowly Heathrow’s additional runway is going. Flights are our bridge to other countries. If we are to be an outward-looking nation post Brexit, speeding that up would help.

Of course, our economy faces many other challenges, including the time it takes to do CRB checks or open a bank account, which can be as long as six weeks. Then, there is the problem of VAT registration, despite the fact that the UK is ranked about ninth for ease of doing business. We need to improve in all these areas to encourage inward investment.

I want to focus on the tax system for a moment. We should be looking to make our tax system as appealing and competitive as possible, particularly for small businesses. Britain is one of the only countries in the world where companies have to pay a tax to employ people. I understand the logic behind employees paying tax, but an employer having to pay national insurance contributions to employ them is too much. There is also a strong argument for scrapping corporation tax and replacing it with a 1% tax on turnover, with the first £250,000 exempt. This would be a massive boost to small businesses and would make Britain one of the most competitive places in the world to do business. It would also help to solve the conundrum that the Treasury faces of how to capture large organisations such as Amazon and Google that have a high turnover in the UK but pay very little tax. What those companies do is not illegal, but it is unfair to many of their competitors; this would help to level the playing field.

Small Business Commissioner

Lord Popat Excerpts

Monday 22nd January 2018 Lords Chamber

[Lord Popat (Con)]

My Lords, I, too, thank the noble Lord, Lord Mendelsohn, for initiating this important and timely debate. Small businesses have always been the backbone of our economy. As we prepare for life after Brexit, they will be key to our economic success. More than 99% of businesses are small to medium-sized. That is much more than just a statistic; it is the future.

Having spent 30 years in SMEs, I want to talk generally about what support the Government can give to help SMEs in the UK. Since 2010, progress has been made in making life easier for them, including the appointment of a Small Business Commissioner. It was somehow three years late, but better now than never. In the past seven years, a large number of reforms have taken place, including initiatives such as the new enterprise allowance, which will help unemployed people start their own business. There has been a reduction in the rate of corporation tax and a number of other good initiatives taken by the Government. My noble friend Lady Rock described them so well, so I shall not repeat them.

For my part, in 2012 I initiated the House of Lords Select Committee on Small and Medium Sized Enterprises, chaired by my noble friend Lord Cope, to see what the Government could do to help SMEs export more. The committee published an extensive report. Since then, there have been two debates in the House, but the Government have not updated us on their progress since 2014. I ask the Minister whether the committee’s recommendations are still being monitored.

As I said, there has been progress. The number of SMEs has doubled to 5.7 million and we are recognising more and more that if we want businesses to thrive we need to cultivate a climate that is favourable for them to succeed. However, I am going to be frank: we have not gone far enough; we have not been creative enough; and we have not been outward-looking enough. Businesses continue to face a number of obstacles with which we are all familiar. They suffer from late payment and banking support is limited, especially when it comes to opening a bank account, which can take as long as two months. Essentially, underwriting a loan application is also time consuming. Our planning system is simply appalling. We are too heavily regulated. The previous Chancellor, George Osborne, had a one-in, two-out policy on regulations. Is this still in place?

There are other problems too. For the past four decades, we have run a trade deficit because, quite simply, we do not have enough exports to pay for our imports. As I have said in this Chamber many times, our export base is too weak, particularly within SMEs. Our economy’s reliance on services is too strong, and our manufacturing sector is weak and leaves a lot to be desired. While the Government have spoken of rectifying the imbalance, the statistics do not make happy reading. Only 5% of our companies manufacture, compared to the service industry which accounts for 74% of businesses. Only 10% of our SMEs export, compared to a country such as Germany which exports in excess of 30%. Productivity is poor—it takes us five days to produce what Germany can do in just four. Against this backdrop, it is no surprise that exports account for 28% of the UK GDP compared to 46% for Germany. This is not good enough. If we do not produce, we cannot export. If we cannot export, how can we expect to place Britain at the heart of the global economy, as we have repeatedly professed to want to do? Ambitious words are not enough; we need bold actions.

In about one year, we are leaving the European Union. We will be entering uncharted territory. In order to foster the global exporting culture that will be so vital for our future economic stability and strength, businesses must be able to forge new partnerships, make new links and gain access to new and diverse markets in untapped parts of the world, not least in Africa. This is where the UK falls desperately short, not because we lack the connections or the abilities but because our world views are not keeping up with the pace of change. I admit that, like many of my colleagues and friends, I was trapped in a Eurocentric bubble for the longest time, but since Brexit and since I started my work as the Prime Minister’s trade envoy to Uganda and Rwanda, that bubble has burst. My eyes have opened to the tremendous opportunities that are out there.

Of course, being Ugandan-born, Africa holds a special place in my heart, but I am also a businessman. I know a good opportunity when I see it. I recently took an oil and gas delegation to Uganda to explore $15 billion-worth of opportunities. Two of those British companies, Fluor and CB&I, have been shortlisted to build an oil refinery to the value of $2 billion. Another British company, Colas UK Ltd, has secured a deal to build a new international airport in Uganda with the largest UK Export Finance loan to Africa. Africa is a continent brimming with potential. In fact, I believe Africa is the emerging continent. Six out of 10 of the world’s fastest growing economies are African. The continent is rich in natural resources, innovative cities and, importantly, a fast-growing, young, educated population. It is more democratic, more self-sufficient and more prosperous than ever before.

However, instead of refocusing our energies in Africa, the UK is sitting idly by, allowing countries such as China to have the upper hand. Worse still, not only has trade deteriorated from 25% only a few decades ago to less than 4% today, but we have seen an exodus of British brands, such as British Airways and Barclays, from some parts of Africa. What kind of message are we sending out? The irony is that we should be first in line. We have an historic advantage, given our deeply rooted bonds with the continent. Furthermore, we have fantastic soft power in Africa, but what good is that soft power if we have no hard cash coming in?

First, we need to change the story we tell about Africa to our SMEs and large corporations. Historically, we have focused too much on aid and not on trade. Until we see it as a continent of promise rather than poverty, we will not stimulate the interest and investment that is needed.

Secondly, trade and export needs to be at the heart of the Government’s strategy. This will require a joined-up approach across many policy areas, from trade to transport. It is essential to have the right infrastructure in place. We could start by overhauling our aviation policy, which is decades behind where we need to be. Everywhere I look, countries around the world are building airports; we cannot even build an extra runway at Heathrow or Gatwick—ideally, we should do both. In an age of global connectivity we are projecting insularity and inefficiency. There used to be a bridge between the UK and Africa; now we can barely catch a direct flight to a capital city. How are SMEs supposed to pursue links in Africa if they cannot travel with ease? Although I have helped secure one direct route to Kigali, one swallow does not make a summer. We need more routes, more landing slots and greater aviation capacity to allow our SMEs to take off.

The challenges facing the SME sector are very different from those in the larger corporations, but the rewards are potentially much greater. As my right honourable friend Dr Liam Fox has pointed out, businesses that start exporting will grow on average by a third in two years.

As we shift our gaze from Europe to our Commonwealth family and indeed the rest of the world, our strategies must shift too. I hope the upcoming CHOGM will help us kick-start the overdue process of re-engaging the business community—and in particular the SMEs—with our Commonwealth partners. With vision, audacity and openness, we can do it. There is no time to waste.