A packed meeting at the National Liberal Club heard economist, Andrew Smith, give a wide-ranging economics update. The brief was to provide some ideas about the economic prospects for the UK and EU at the start of a year in which a possible UK EU referendum, the slowdown in China and the plummeting price of oil all pose major uncertainties on top of some serious geopolitical uncertainties. The meeting was sponsored by the Federal Trust and attracted an audience from politics and academia as well as the usual business members of the Industry Forum.

https://player.vimeo.com/video/153713257

On China, Andrew made the points that the equity bubble has burst but this does not necessarily have implications for the real economy. Furthermore, China’s growth slowdown is roughly in line with the Chinese Government’s plan and it is not clear how it will affect other developed economies. On oil Andrew said that normally the reduction of the oil price should be good news for oil consuming economies but is putting producers under severe financial strain.

Andrew reviewed the economic and associated political problems of the EU and looked in some detail at the UK economy. From a complex analysis, two particular conclusions stand out, namely that the UK needs trade with the rest of the EU rather more than they need us and that BREXIT would lead to at least two years of economic uncertainty for the UK.

If you would like to receive a copy of Andrew’s slides please email info@industry-forum.org They will be sent on the condition that they are for personal use and not for quotation or publication. Further briefings are available for Industry Forum members.

By Viara Bojkova, Head of Geo-Economics Programme & Senior Research Fellow at the Global Policy Institute.

The big campaigns for the UK to stay in or leave the EU paint pictures of alternative futures with a large brush. ‘We must have the enormous market and the regulatory protection afforded by a bloc of 500m affluent citizens’. Or else, ‘The virile UK must not be hampered by a hapless band of failing bureaucrats, but should find its fortunes among the thrusting emerging markets’. Our mainstream, Eurosceptic press love such caricatures but overlooks niche areas that have important economic significance for the UK. Three of these are: UK Universities and their R&D activities; the involvement of the UK space industry with the European Space Agency and pan-European companies, and the dynamic emerging market represented by the east European countries of the EU.

High quality university education and the work of the associated university research departments are areas where the UK is truly world class. UK universities fulfil a strategic role in attracting, training and retaining high quality researchers. Furthermore they work with commercial companies on research and the development of such research into commercial products. This involves many pan-European companies and the exchange of knowledge, skills, and innovative ideas under various EU-funded research and development initiatives such as the current EU Framework Programme, Horizon 2020. In addition, EU programmes offer opportunities for UK students to attend other European universities as exchange students. About 20,000 students participate in the Erasmus scheme every year. The University of Lincoln School of Engineering opened the first new engineering school in 2010 with a specific focus of developing local graduates for the industry. The school is co-located with the German company, Siemens, in an Engineering Hub, which further supports their industrial partnership. These European relationships help the UK universities to grow new business partnerships and lead to new jobs in the local communities of England, Wales, Scotland and Northern Ireland. These relationships are assisted by physical proximity that provides adjacent time zones and short travel times. Current close collaboration has taken decades to build and would be in danger of declining if the UK were to leave the EU.

The UK space industry is fast growing and achieved turnover of £11.6bn for 2012/2013. It works in close partnership with European companies such as Airbus Defence and Space, and with the European Space Agency (ESA) in a market in which US competition that has become more formidable since the emergence of new companies such as SpaceX and Blue Origin. Over four decades, ESA has expanded globally and employs world-class technology to link scientists and mission controllers with spacecraft orbiting Earth and voyaging deep into the Solar System. The UK is tightly linked to these activities via investments, work cooperation, knowledge-transfer and trade.

In December 2015, the European Space Agency and Airbus Defence and Space signed a €350 million contract to develop and build ESA’s JUICE (Jupiter ICY Moon’s Explorer) spacecraft. This project will build on the expertise developed in Toulouse (France), Friedrichshafen (Germany), Stevenage (UK) and Madrid (Spain). The selection of subcontractors will be completed by 2017 and the project work will represent a consortium of 60 European companies[1]. If the UK were to leave the EU, it is likely that this European consortium would suffer negative consequences in terms of trade barriers, legal restrictions, work-force transfers and knowledge spillovers. Moreover, this could damage the UK world leadership in the production of small satellites by SSTL, since SSTL is now owned by Airbus[2]. Even with the UK government support provided through Satellite Applications Catapult to the SMEs in Scotland, North East and East Midlands, the British organisations could suffer in terms of funds as they, currently, still rely on a mixture of EU and national funds[3].

One possibility for the UK might be to deepen relationships with the Chinese and Indian space agencies in order to replace the EU-funding, but the strategies of these two large countries seem to focus on self-sufficiency. They intend to develop their own domestic capabilities including building rockets. Thus it may prove difficult for UK small space companies to fit into the Chinese or Indian space industry clusters. It is also unrealistic to expect major space trade benefits from new relationships in the short-term; such benefits tend to accrue over long periods of cooperation and the development of common standards and technical partnerships.

The new EU members of Central and Eastern Europe have increased their economic growth and experienced increased prosperity over the last few years. In 2014, annual industrial production increased by 7.1% in Hungary, by 6.3% in Romania, by 5.0% in the Czech Republic, by 3.7% in Slovakia, by 3.4% in Poland and 1.7% in Bulgaria[4]. This growth, comparable to some fast-growing Asian countries, has increased the size of these markets and provides opportunities for manufacturing companies of the advanced EU economies to locate facilities in relatively low cost areas. Furthermore, significant direct investments in the Czech Republic, Poland and Romania maintained relatively high levels of investment during the global financial crisis. Together with major shifts of industrial production to the Eastern European bloc, these factors have helped the real labour productivity to increase hugely in countries such as Bulgaria, Latvia, Lithuania and Romania.

While China is becoming a significant trading partner of the UK, the Eastern European economies are re-emerging as a strong economic bloc equally providing trading opportunities for UK companies. British Business Centres were opened in Poland (2013), Slovakia and Hungary (2014). Centres in Slovenia, the Czech Republic and Romania are also operational now. The UK Trade and Investment’s target is to double trade with Central and Eastern Europe by £30 billion by 2020. This bloc of countries represents more than 100 million of population with expected EU funding of £124 billion between 2014-2020.

In contrast, the trade deals negotiated between China and the UK in October 2015 are worth less than £20 billion according to a Financial Times estimate. Current deals add up to £11.7 billion with a likely additional £6.5 billion over the course of 20 years from BP’s agreement to sell gas to the China Huadian Corporation. UK exports to India vary between £4 billion and £6 billion per year.

In summary, remaining in the EU would enable the UK to build on existing, high growth opportunities from which we are already benefiting. These are based upon research and advanced manufacturing, and can offer the sort of high value-added jobs that the UK needs to remain competitive with the United States and China. Leaving the EU would require the UK to work intensively to establish new trading partnerships with the non-EU world, and to help UK industries adjust to the new global circumstances. Whatever the long-term success of such a move, the immediate impact would provide a severe jolt to current promising areas of UK economic activity within the EU, without clear, compensating benefits. It might just be worth remembering the old British proverb: ‘A bird in the hand is worth two in the bush’.

[1] More info at: https://airbusdefenceandspace.com

[2] More info at: www.sstl.co.uk

[3] https://sa.catapult.org.uk

[4] Eurostat data, August 2015

By Viara Bojkova, Head of Geo-Economics Programme & Senior Research Fellow at the Global Policy Institute.

When support for the old purple and white Industry Forum website was suddenly withdrawn in July this year, the Forum was faced with a problem often faced by non-technology companies: how to manage an urgent project based on new and unfamiliar technology.

Fortunately, help was at hand from the Forum’s newest member, Acuvate Software, a global information technology services provider founded in 2006, headquartered in Hyderabad, India and with presence in USA, UK & Netherlands.

Acuvate CEO, Sandeep Goel, had previously worked with Industry Forum Chair, Rod Dowler on a software project in the .com boom of 2000. Rod contacted Sandeep for advice and he replied ‘Anil Kakaria (head of sales and operations for Acuvate in Europe) will take care of your new website’.

Jagan Jami (Head of Acuvate presales and delivery, Europe), quickly assimilated the requirements of the Forum and then a small team in Hyderabad took over the interactive design and build process, working with Forum Director, Jo Wyer, to develop the fresh new look of our new website www.industry-forum.org

Although a tiny project, this story highlights how trade with India can be expanded further by a continued focus on software technology at which many Indian companies excel. Acuvate will work with us as we continue to focus the Forum increasingly on technology companies that are the key to expanding the growth and competitiveness of the UK economy. Further information about Acuvate can be found at www.acuvate.com

With a new vote on EU membership now inevitable and with so much hanging on the outcome, the Industry Forum is pushing hard to discuss and understand the issues.

On 8^th September, Alan Johnson MP, the head of Labour’s pro-EU campaign, led a great Industry Forum discussion on ‘Why we should say ‘Yes’ to Europe. A few days later, Rod Dowler was interviewed about EU membership on Share Radio and gave his views based on working in Europe and for a number of parts of the European Commission. https://audioboom.com/boos/3559023-should-businesses-support-eu-membership-roddowler-industryforum-on-the-eureferendum

At the Labour Conference, in Brighton, one of the first fringe meetings was a ‘Rally for yes!’ Alan Johnsons’ natural enthusiasm shone out of the enveloping gloom of the Odeon Brighton as he kicked off a strong line of MPs, MEPs and trade union people supporting EU membership while keen to keep social benefits as well single market benefits.

The atmosphere at the Conservative conference in Manchester was more siege-like given the heavy presence of protestors outside the secure zone. This did not affect a great POLICY FACTOR! meeting on ‘How can Cameron win in Europe?’ Charles Grant of Centre for European Reform kicked off with a moderate and well argued pro-EU introduction. David Lidington, Minister for Europe, and Lord Borwick gave some fascinating insights into the objectives and complexities of the pre-referendum negotiations.

Last week, the ‘Britain Stronger in Europe’ campaign launched under the leadership of Lord Stuart Rose. The moderate and well-honed arguments of this business-backed alliance were hardly novel but did highlight the scale of our present business involvement with Europe and the uncertain nature of the alternatives.

Our conclusions from these initial campaign skirmishes are that four key questions stand out:

How could the shortcomings of the EU be fixed without losing its benefits?
What would be the realistic economic outcome of leaving the EU and what is a likely period of adjustment?
What are the geopolitical risks associated with a less-united Europe and how might they affect economic security?
Assuming a vote to remain, what would be needed to make the EU economically more successful and politically more attractive?

At present, the answers to these questions are not clear. Throughout the period until the referendum, therefore, the Industry Forum will be probing these, and related questions and inviting leading policy makers and commentators to help explore the key issues and help come to the best and most objective conclusion for the UK.

Some implications for the European Union of the 2015 Mary Meeker report on Internet trends - A report by Cameron Thompson at the Global Policy Institute

Download your copy here: Is Europe losing the Internet race

In September 2015 the Industry Forum organised a lively panel discussion, hosted by techUK, on the challenges faced by legacy banks. The speakers were: Keith Saxton, Chair of the techUK Financial Services Council, Josh Ryan-Collins, Associate Director, Economy and Finance, New Economics Foundation and Travers Clarke-Walker, Chief Marketing Officer – International Group, Fiserv.

Download your copy of the presentation here: Legacy Banks Slides