Sober assessment of Scotland’s economic prospects is hardly surprising

Economists aren’t known for their sense of humour. Economics statisticians less so.

So it was highly ironic – albeit perhaps not very funny – that just two days before the UK’s departure from the EU on 31st January, analysts in the Scottish Government published their latest annual account of Scottish exports.

The figures confirmed, if anyone was in any doubt, about the risks that Brexit presents to Scotland’s long-term economic prospects.

In 2018, Scottish exports to the EU rose to just over £16 billion. To put that in context, nearly £1 in every £2 of international exports in 2018 were destined for the EU.  

Eight of Scotland’s top ten export destinations were in the Single Market.  And we exported more to the EU bloc than we did to North America, the Middle East, Asia, Africa and Australasia combined.

If anything, Scotland has become more integrated with the EU in recent years. EU exports grew by an average 4.8% per year since 2013, compared to growth of 1.8% in non-EU exports.

Exports are an important source of growth in any economy – not just because they a key source of demand, but because there is strong evidence that firms who compete globally become more innovative and productive over time.  

So agree or disagree on the politics of Brexit. But 3 years on from the referendum, there can surely now be no disagreement that putting up barriers that make it more difficult for our exporters to trade can only weaken our long-term growth prospects.

That’s why the recent comments from the Chancellor that the UK is seeking a trade deal with the EU where “there will not be alignment, we will not be a rule-taker”, is so troubling.  In the modern economy, coordination on key issues from technical specifications through to safety standards and tax, are key to keeping supply chains open and facilitating trade and investment.  

Of course, some will argue that this will create an opportunity for new trade deals beyond Europe. This is all well and good. But these latest export figures provide a sobering reality check for such a view.

There’s a simple reason that countries trade more with countries that are close to them. And that’s because they are close to them.

A trade deal with Japan, Australia and New Zealand may all be possible. But double trade to either country and you’ll have made up to around 3% of the current value of Scottish exports to the EU.

Irrespective of Brexit, Scotland can and should be doing better.

A further irony of last month’s statistics is that for all that we like to pride ourselves on being an open and international country, our economy isn’t.

Our international exports are equivalent to around 20% of Scottish GDP. For the UK as a whole, that figure is 30%. For Germany it is 47%.

Part of the explanation for this is how the Scottish economy has evolved over recent decades, and the shift from manufacturing to services. 

One of the consequences of moving to a service-based economy, is that we have become increasingly reliant upon the domestic UK market. But services are hard to export. Indeed, manufactured exports account for over half of the value of all exports to international markets even though it accounts for just over 10% of the Scottish economy.

Growing Scotland’s manufacturing base, and exports more generally, has been a policy priority for successive governments over the years. New initiatives such as the

But against a backdrop where key policy decisions seem to still be driven by the politics of Brexit rather than the economics, the future looks challenging.  

Economics statistics might not be very funny. But now and again they provide an important reality check for us all.

Authors

Director of the Fraser of Allander Institute.

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