With non-EU imports and exports on the rise as the possibility of Brexit looms, the future for construction imports and exports is at a crossroads.
The construction industry is anxiously awaiting the result of next month’s EU referendum for its expected impact on two critical areas: economic stability and skills shortages.
Uncertainty caused by the referendum, with developers perceived to be stalling projects, has been cited by some contractors as a reason for the industry’s slowdown at the start of the year.
Imports vs exports EU vs non-EU 2015 YoY_BIS
For example, in the Construction News Barometer for Q1, 46 per cent of respondents said they had seen developers put projects on hold until after June.
And skills shortages, a perennial problem at the forefront of contractors’ minds, remain a sticking point for those still undecided on which way to vote. Will the UK be able to bring in enough skilled workers if we leave the EU?
But away from these issues, the changing face of our trade in and supply of materials to and from the EU is one area to which contractors should pay close attention.
Data from the Department for Business, Innovation and Skills shows imports of construction materials from the EU added up to a total of £8.37bn in 2015 – 13 per cent up from the £7.41bn recorded in 2010 in the midst of the economic downturn.
Although last year’s imports were down 1.9 per cent on 2014, the trends point to relatively steady growth in imports from the EU as construction output grows – with activity in the UK set to improve significantly faster than some of the UK’s European counterparts, according to Euroconstruct forecasts.
”The demand for high-quality, high value-added products has risen”
Noble Francis, CPA
Overall growth in imports, however, is not coming primarily from the EU: non-EU imports grew by 30 per cent between 2010 and 2015, with their value hitting £5.48bn last year.
Exports to non-EU countries are also significantly higher over the same five-year period, having grown by 17 per cent – this is in stark contrast to exports to EU countries, which fell by 4 per cent over the same period.
So is this an indicator that the UK is much less reliant on the EU for trade in construction materials?
Construction Products Association economics director Noble Francis says: “Overall, in the last few years, exports of construction products have been growing to non-EU countries because emerging economies are growing relatively fast despite the slowdown, and so the demand for high-quality, high value-added products has risen,” he says.
“However, the slowdown in some emerging economies in the last couple of years means there is an excess supply of many energy-intensive heavy-side construction products such as metals, which has led to an increase in imports at the expense of UK domestic production.”
This has been particularly noticeable in the embattled steel market, with concerns over Chinese steel being dumped on the market and higher tariffs placed on high-quality UK steel.
But Prof Francis adds that “it is no surprise” trade with the EU has slowed, due to “considerable concerns” about growth in the eurozone.
There are also concerns that some imports from outside the EU are not being properly counted, under what is known as ‘the Rotterdam effect’. It is argued that trade with the Netherlands is artificially inflated by materials arriving in Rotterdam from outside the EU and then being re-exported to the UK.
This means that goods from non-EU countries that pass through Rotterdam to the UK may be being counted as EU imports, and likewise goods that pass the other way for export may be counted as EU rather than non-EU exports.
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If non-EU imports and exports are being artificially undercounted through the Rotterdam effect, it is possible that non-EU imports make up even more of the total imports than the official statistics show.
As of 2015, non-EU imports made up 39.6 per cent of total construction materials imports, up from 36.2 per cent in 2010.
Exports have followed a similar trend, and non-EU exports now make up 41.9 per cent of the total – up from 37 per cent in 2010.
The trend in EU trade is a general downwards curve – although it is important to note that, over a five-year period, imports from the EU have risen, just not at the same rate as non-EU imports.
“No one has a clue what trade deals the UK could negotiate”
Noble Francis, CPA
But at least part of this decline in the EU’s share of the UK’s imports can be chalked up to the recovery in construction and a slowdown in production of key construction products, including bricks.
Data from BIS suggests brick production is at a five-year record high, and Brick Development Association chairman Michael Ankers says that “imports are falling significantly”.
“The industry is confident that it can meet the growing demand for its products from housing and other construction projects,” he adds.
Domestic production of materials is up, trade with non-EU countries is improving, and EU trade has shown signs of falling.
Does this mean that, for materials supply, a vote for the UK to leave the EU would have little impact for UK companies?
Vote Leave, the official Out campaign, claims that the UK would be able to negotiate a new UK-EU deal “based on free trade and friendly co-operation”, and claims that by creating its own trade deal, the UK would be able to create 300,000 British jobs.
However, Prof Francis says any trade deal in terms of construction materials would be “incredibly speculative” at this stage.
“No one has a clue what trade deals the UK could negotiate, on what terms or how long it would take, as we haven’t negotiated trade deals in decades, so there’s no recent precedent to go on,” he argues.
The chancellor George Osborne this week alleged that Britain’s trade would be £200bn worse off within 15 years if the vote to leave the EU wins next month.
On the flip side, Vote Leave blames the UK’s lack of trade deals with the likes of the US and Japan on “EU protectionism”.
But would leaving the EU mean more imports and a greater ability to regulate imports such as steel, or would renegotiated trade deals put greater pressure on UK industries?
As voters prepare to go to the polls, the ramifications of the UK’s changing place in Europe and the impact on trade deals and material prices could be the most important consequence for contractors.