Gloves off in battle for prosperity as global market shifts from co-operation – Alan Edington

Scotland must now seize the chance to develop and grow, writes Alan Edington

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Thinking back recently to the alliance between the US and the UK under Clinton and Blair to the European Union in the 1990s to China joining the WTO in 2001, I was struck that it all seemed quite smooth sailing. These things seemed to signal closer co-operation between nation states with a goal of increasing prosperity.

Now, thinking about America First, Brexit and the US and Chinese disputes, that co-operation seems to be breaking down and has been for a while. The debate on the reasons could take days but let’s assume that some of what was put in place has had unintended consequences and what we are seeing is the result. Covid-19 has not only accelerated the lack of co-operation between nation states but spread it farther and wider. Examples? I am not sure I have heard of any material collaboration between states on the response to Covid-19. Stark examples? Remdesivir is a drug shown to aid in the recovery of Covid patients. The US bought all of the drug produced in July.

In thrall to the virus, each country is understandably in self-preservation mode – protect our lives, our jobs, our prospects. The lockdown has helped to protect our lives. The UK government has attempted to protect our jobs or at least aimed to provide an income for those in need. It is important then to turn to our prospects. And to remember the context – less co-operation requires a focus on ensuring a good share of global GDP growth and prosperity comes to the UK. One of the basic tenets of investing for the future is aligning yourself with enduring growth.

The volume of cardboard boxes I see being delivered to my neighbourhood tells me that ecommerce is alive and well. In 2018, the value of goods sold in the ecommerce channel was worth £688 billion to the UK economy (ONS); an 18 per cent increase versus 2017. Total online spending in the US rose 77 per cent year-on-year in May (Adobe) and 168 per cent in the UK and cross-border ecommerce is growing at 25 per cent per annum according to internetretailing.com. Covid-19, has acted as an enormous accelerant in the move to online retail. Ecommerce has become a matter of survival for retailers.

Various Asian countries have seized the initiative and aligned themselves with this area of growth and opportunity. They bring a technology focus: contactless/digital payments, automated logistics hubs and detailed customer analytics which lubricate the selling pipes. This, alongside physical infrastructure focused on greater access to export markets, local finishing of imports and creating basins of activity around warehousing hubs and ports has a positive impact on SMEs and their market access. India and China have realised that Ecommerce can and does attract foreign direct investment (FDI) and brings jobs in both technology and logistics and in any associated manufacturing or other functions that spring up around these hubs. In exchange, they offer tax and business incentives to attract foreign investment and technology. China calls their hubs “special economic zones”. The World Bank estimates that in recent years, special economic zones in China have contributed over 20 per cent of Chinese GDP, 45 per cent of national FDI and 60 per cent of exports while creating 30 million jobs. These zones have been associated with emerging markets striving to create jobs, get up the disruptors. We are a market that should be growing and developing. Recently, the Chancellor proposed that the UK set up ten “deregulated freeports”. Although some report this as simply an attempt to alleviate the impact of Brexit, these should be more – they could be a launchpad for FDI and job creation with ecommerce at the core.

Scotland will need to battle for its own prosperity as the market shifts away from co-operation. The UK is the third largest ecommerce market in the world but Scotland has taken less than its share, statistics suggesting up to a 96 per cent lower share of ecommerce sales than if those sales were equally distributed per head of population. If Scotland does not take the opportunity, someone else will.

Alan Edington, co-head of research at Walter Scott & Partners and director of the Asia Scotland Institute