How is the Ukraine crisis disrupting British trade?
The war in Ukraine has had a tumultuous effect on the European population and beyond in many ways. Having endured the bleak realities for over a month now, its knock-on impact on British businesses is becoming clearer.
In our most recent Policy Voice survey, we asked members how they expect the Ukraine crisis to impact on their business. Unsurprisingly the top response was the rise in energy prices (71%). But our members are also concerned about the general impact on the UK economy, and increases in the cost of other global commodities.
12% of our members said they were affected directly by the crisis, through disruption of their own trading activities with Ukraine, Russia and Belarus. Many businesses find themselves in a very tricky situation. The majority of IoD members do not feel it is right to do business with Russia or Belarus for ethical reasons. But some firms are being harmed as a result. Some members responded to our survey question that they believe it is unfair to expect businesses to simply drop a market, even if it is the right thing to do, without some form of support or compensation from the government.
Though it may be a minority, albeit significant one, that is experiencing disruption to trade, the impact to those firms is being felt hugely. Aside from the direct effects, one of the most common themes members have raised is the general climate of uncertainty, and the strain on directors’ confidence stemming from the fact that this general climate of uncertainty seems to be unceasing. First Brexit, then coronavirus, skill shortages, inflationary pressures, and now war in Europe. One member is concerned that “we are heading for a torrid 12/24 months ahead with many unknowns and much uncertainty”.
But more specific to trade, businesses are contending with price increases caused by supply chain disruption, transportation costs, sanctions, as well as ethical concerns leading to business with Russia and Belarus being blocked whether temporarily or permanently. For example as a result of sanctions imposed on Russia, one member told us, “We have customers in Russia and Belarus for whom we are currently not able to receive payments that they have made to us to settle accounts as their funds have been stopped by USA banks”. Another said in relation to price increases, “The most significant commercial effect on us… is not the loss of sales which could be recovered, but the devastating effects of raw material supply shortages and cost increases which have all the signs of being more long term and much more damaging”.
Our data shows that the sectors most concerned about the trading relationship are manufacturing. One manufacturer of refractories commented, “Both Russia and Ukraine are sources of valuable raw materials for our processes and we are taking measures to find alternate sources of supply – this of course is an industry wide problem”. A second, a manufacturer of electrical and mechanical products responded, “Some parts that rely on components made in Ukraine are now on extended lead times [of] 4-6 months”.
This crisis has brought to light the fact that global supply chains are reliant on countries such as Russia that don’t necessarily support the same democratic values that are important to the UK. On the one hand open and free trade is vital for growth and opportunity. On the other, at times like these, it is beneficial to be able to be self-sufficient. As ever, strong guidance and leadership from the government would be welcomed by business leaders to help give them a framework in which to plan as this uncertain situation progresses.
Ask the export support team a question – GOV.UK (www.gov.uk) – The export Support Service is a DIT helpline which now has a specific line for advice on the Ukraine crisis.