Commonwealth trade and investment in a post Brexit world Arif Zaman 27 January 2017 agenda a VUCA world Commonwealth through an economic lens Commonwealth in the unfolding global trade landscape Brexit its implications and potential for the Commonwealth Reconnecting with the Commonwealth and the UK s free trade opportunities What this means at LSBM Living in a VUCA world We are one of the most racially diverse countries in Europe, one of the most multicultural members of the European Union, and why whether we are talking about India, Pakistan, Bangladesh, America, Australia, Canada, New Zealand, countries in Africa or those that are closer to home in Europe so many of us have close friends and relatives from across the world. Instinctively, we want to travel to, study in, trade with countries not just in Europe but beyond the borders of our continent. Even now as we prepare to leave the EU, we are planning for the next biennial Commonwealth Heads of Government meeting in 2018 a reminder of our unique and proud global relationships. Commonwealth through an economic lens PM Theresa May s speech on The government's negotiating objectives for exiting the EU 17 January 2017 1
Why the Commonwealth? Includes a billion women across 5 continents with 60% under the age of 30, but with 43% of the world s poorest women Commonality of language, education, professional training and legal and financial institutions a 19% cost advantage over business outside of the Commonwealth* Several Commonwealth members are in most major trading blocs ie EU, NAFTA, CARICOM, SADEC, COMESA, ASEAN, APEC and SAARC and includes 5 of the G20 providing a bridge to the non- Commonwealth 52 Heads of Government meet every two years and also hold a critical dialogue during these Commonwealth Summits (CHOGM) and other meetings with key stakeholders ie the business community; young people; NGOS and with women in business via the Commonwealth Women s Forum alongside the Commonwealth Heads of Government Meeting (CHOGM). $14bn of business in 72 hours (Perth, 2011) Commonwealth Charter (2013) In an era of changing economic circumstances and uncertainty, new trade and economic patterns, unprecedented threats to peace and security, and a surge in popular demands for democracy, human rights and broadened economic opportunities, the potential of and need for the Commonwealth as a compelling force for good and as an effective network for cooperation and for promoting development has never been greater. The special strength of the Commonwealth lies in the combination of our diversity and our shared inheritance in language, culture and the rule of law; and bound together by shared history and tradition; by respect for all states and peoples; by shared values and principles and by concern for the vulnerable. * Commonwealth Trade Review, launched at CHOGM, November 2015 Unfolding global trade landscape Intra-CW trade 1995 2020f 1009 Developing countries as drivers of trade Global value chains Proliferation of Regional Trade Agreements (RTA)s and lack of dynamism in Multilateral Trade Negotiations Climate change 2 nd and 3 rd generation diaspora connected to their countries of origin in transformative ways via 3 Ts TV (ethnic minority channels), telecoms (smartphones) and travel (lower cost budget airlines, Airbnb) US$ BILLIONS 687 592 519 372 201 133 1995 2000 2005 2010 2013 2015F 2020F Intra-CW trade is impressive despite the rise of China Trade with China as a share of total trade in 2013 45% 40% 35% 30% 25% Antigua and Barbuda Sierra Leone Zambia Solomon Islands Australia South Africa 20% Tanzania New Zealand Cameroon Ghana 15% Vanuatu Kenya Malaysia Tonga Pakistan Rwanda Mozambique Singapore Bangladesh Sri Lanka 10% Samoa Nigeria Malta Kiribati Mauritius Fiji Malawi Uganda India Belize St Vin. & Gren. Canada Tuvalu Maldives Papua New Guinea Namibia Bahamas Jamaica Guyana United Kingdom 5% Lesotho Swaziland Barbados Cyprus Brunei Darussalam Botswana Dominica Grenada Trinidad and Tobago Saint Kitts and Nevis Nauru Seychelles 0% Saint Lucia 0% 1% 2% 3% 4% 5% 6% 7% 8% Trade with China as a share of total trade in 2000 Intra-CW FDI flows are on the rise US$ billions 90 80 70 60 50 40 30 20 10 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Intra-Commonwealth FDI stock is estimated to be $716 billion 2
Is there a Commonwealth effect? - Anecdotal evidence of doing business involving Commonwealth countries being convenient - But, are CW members natural trading partners? - wide geographical dispersion - members have their own formal RTAs - Yet, gravity model results suggest - CW members trade 25% more between them - generate 10% more FDI flows Trade costs are 19% lower when both trading partners are from the Commonwealth Trade prospects - By 2030, intra-cw trade has the potential to reach $2.75 trillion under the most plausible scenario Low Scenario Business as Usual Otimistic Scenario $1.03 trillion $3.86 trillion $2.75 trillion $ 1.85 trillion 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Options for enhancing intra-cw trade i. Improved trade logistics ii. Regional/global value chains iii. Mobilising remittances to leverage investment iv. Strengthening existing regional integration v. Building supply-side capacity in developing countries and broad priorities for unleashing trade potential Building productive capacities Managing trade policy and negotiations Addressing implementation gaps Promoting private sector development Establishing a trade-supporting global architecture Top 10 UK FDI outflows to Commonwealth countries as percentage of GDP Brexit: implications and potential for the Commonwealth There are varied implications for Commonwealth countries, which differ by region and by transmission mechanism. The main transmission channels are in trade (with specific risks to particular exporter countries, goods categories and trade in services), remittances, FDI and development assistance. Risks to the sustainability of small states debt could arise if lower global growth materialises. The UK is currently the fourth largest importer of goods from the Commonwealth, behind the USA, China and Japan. Additionally, of the top ten goods the UK imports from Commonwealth countries, eight are among the top ten goods the UK imports globally. To achieve increases in trade above current levels, new and targeted arrangements would have to be created. This can be broached politically if commonalities between the UK and the rest of the Commonwealth, including language and political systems, for example, are agreed to be a sound basis. 3
Reconnecting with the Commonwealth and the UK s free trade opportunities Brexit offers the UK an opportunity to pursue an independent and worldwide trade liberalisation and tariff elimination agenda and usher in a return to its free trading principles. FTAs with Commonwealth nations present a strong mechanism for doing so. The UK s top ten Commonwealth export destinations account for 8% of its goods and services trade. Therefore, it should target the first five India, Australia, Canada, Singapore, and South Africa. The UK is the largest EU goods export destination for numerous Commonwealth countries: such as Australia, Canada, India, New Zealand, South Africa, Pakistan, Sri Lanka, and Jamaica. It is also the second largest for Bangladesh, Kenya, and Papua New Guinea. And the UK is the third largest for Singapore, Malaysia, Malawi, and Zambia. This ensures that the UK will remain an important market post- Brexit and these nations will have a motive for completing a trade deal. FTAs which offer free market access into the UK would be attractive for Asian, African, and Caribbean economies. This access helps Commonwealth exporters without painful EU tariff barriers to the UK as well as British consumers able to purchase cheaper goods in the shops. British Council: As Others See Us Perceptions of the UK from young people across G20 countries (Dec. 2016) British Council: The shape of global Transnational Education (TNE) Opportunities for international collaboration (Sept. 2016) Change in traditional international student mobility Increased intra-regional mobility This has been supported by expanding transnational education/ collaborative provision (For UK) TNE has grown at a much faster pace than student mobility Wider student audiences: wider age range, varied background and non-traditional university goers, varied commitments and wide ranged earnings Increasingly, national education frameworks aim to accommodate international engagement of their HE systems British Council: The shape of global Transnational Education (TNE) Opportunities for international collaboration (Sept. 2016) Changing higher education landscape The operating macroeconomic context can facilitate or hinder international collaboration Growing economy growing demand for HE Growing pressure to upskill High propensity for education mobility 4
What this means at LSBM 1. Commonwealth Research Network on International Business (CRN-IB) Leeds University and LSBM 2. Internationalisation and Enterprise through a Commonwealth lens (Commonwealth Alliance of Young Entrepreneurs, IoD 99 Young Entrepreneurs Network, Association of Commonwealth Universities) 3. Commonwealth Risk Centre Commonwealth Research Network on International Business; LSBM; Institute of Risk Management ; Commonwealth Disaster Management Agency; Commonwealth Enterprise and Investment Council Focal areas: Governance Risk; Corporate Risk Management; and Risk and Disaster Reduction Strengthening relationships and dialogue between academic, businesses and policy-makers working in Commonwealth countries and the development of a key network; sharing of best practices and showcasing of innovative and impactful practice; policy and practioner relevant research While the bank represent a supply-side initiative by providing finance, the demand side is where new opportunities await innovative universities, [in the Commonwealth] either by creating ovenready social enterprises able to receive investment or by fostering a climate of social entrepreneurship in which social enterprise can flourish. Professor Nick Petford (2011) Reconstituting the university as social enterprise. Research Fortnight Key takeaways 1. Brexit and the Commonwealth is not an either/or but a concrete and coherent opportunity for the UK now which will grow (cf. Boris on opportunities through cities, business diaspora and women entrepreneurs a year ago) 2. Higher Education is in a pivotal position to shape this through teaching, research and the cultivation of diverse and inclusive perspectives and behaviours and to reconstitute the university as a social enterprise 3. Commonwealth Games (Gold Coast, April 2018) and CHOGM (Spring 2018, most likely in London) and the UK s role as Chair until CHOGM is hosted in Malaysia in 2020 provides a singular moment in which to drive and deliver a Commonwealth trade and investment strategy and plan Commonwealth Businesswomen s Network An accredited organisation to 52 Governments Strengthening the Commonwealth. Building Businesses. Advancing Women. 52 Countries. One Platform The only organisation accredited to and recognised by 52 Commonwealth Governments working on women s economic empowerment https://youtu.be/8-js14n-yga Arif Zaman Deputy Director of the Centre for Research and Enterprise (CRE) and Lecturer and Module Leader (Risk Management) London School of Business and Management arif.zaman@lsbm.ac.uk 5