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What the slumping sterling means for South Carolina’s economy

Molly Hulsey //December 15, 2022//

What the slumping sterling means for South Carolina’s economy

Molly Hulsey //December 15, 2022//

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A scotch distiller and numerous life science firms and distribution companies from the United Kingdom have expressed interest in settling in the Lowcountry. (Photo/Provided)On Dec. 2, the British pound climbed above $1.22 for the first time since June.

The boost may not mark the end of deflationary woes for South Carolina’s fifth largest export market, but experts believe the Palmetto State can milk some benefit from the slumped sterling.

And not just through cheaper holidays across the pond that usher $149 million into the nation each year from South Carolina.

Planes, training and automobiles

“When we’re talking about the pound depreciating, that essentially means that manufactured goods in the United States and in South Carolina in particular become more expensive from the perspective of foreign buyers,” Joey Von Nessen, research economist with the University of South Carolina’s Darla Moore School of Business, told SC Biz News. “And in South Carolina, we export a majority of the goods that are manufactured here. And so, manufacturers are very sensitive to changes in the appreciation or depreciation of the U.S. dollar.”

A deflated pound means an inflated dollar, which spells some challenges for the state’s $1.2 billion automotive, $517 million aerospace and $85 million management and consulting services market to the United Kingdom, according to a 2021 U.K. Department for International Trade analysis.

“It has a very practical consequence for manufacturers in South Carolina,” Von Nessen added. According to the U.K. Department for International Trade, more than 13,030 S.C. jobs are supported by exports to the United Kingdom.

See related: United Kingdom, South Carolina strengthen ties — here’s why

Great Britain competes against China, Germany, South Korea and Canada as one of the top importers of BMW vehicles from Plant Spartanburg, making up 5.4% of all export volume in 2022, according to the company.

Despite a 4% year-over-year increase of Volvo sales in the U.K. in 2021, S60 sales from Ridgeville have dwindled over the past year, prompting the company to take the sedan off the British market, according to industry publication Autocar.

South Carolina tourism to the United Kingdom is valued at $149 million, while goods exported to the nation are valued at $2.1 billion per year. (Photo/Molly H. Klingman)“This continues to be a challenging time for the automotive industry, but these excellent results demonstrate how the strength of our products and the way we are adapting our business are inspiring customer confidence,” Matt Galvin, U.K. commercial operations director for Volvo, said in a sales report last January.

Car Sales Base numbers show a halt of all S60 sales in Europe this February after sales dropped by 2,679 between 2020 and 2021.

But while S60 production waned, Volvo’s S.C. facility ramped up to launch the fully electric EX90 in November, supported by a $50.6 million investment in Upstate suppliers, as well as the Polestar 3 SUV in 2024, according to previous reports.

Too soon to tell

Von Nessen underscored that it’s too early to know whether the plummeted pound could prompt British customers to shift away from U.S. goods to those made in-country: for example, purchases from Airbus, a U.K.-based brand, in lieu of Boeing.

“Especially right now, it’s unlikely that these types of currency fluctuations are going to have a major impact on the long run strategies of investment decisions by businesses,” he said. “And one of these reasons is that the Federal Reserve has been very aggressive in the U.S. throughout 2022, raising interest rates in order to combat inflation.”

When the Federal Reserve raises interest rates, the value of the dollar goes up in contrast to other global currencies.

“So, part of what we’re seeing is a result of the Federal Reserve trying to get inflation down,” he said. “And that’s more of a short-run phenomenon as opposed to something that’s going to happen over the next several years.”

Not all is Scotched

The depreciated pound could make U.K. foreign direct investment in South Carolina less likely, according to Mike Graney, Charleston Regional Development Alliance’s vice president of global business development.

The United Kingdom funds 6% of all foreign direct investment in the Palmetto State. (Photo/Molly H. Klingman)The United Kingdom sources 6% of all FDI in the Palmetto State, according to the U.S. Department of Commerce.

However, other factors are at play.

Given increased power bills and other operating costs, as well as financial instability brought on by Brexit, more British companies are eying opportunities on South Carolina soil, he said — if they can afford to take the initial plunge.

“We’ve been watching this, because as the U.K. becomes a less desirable — and I mean that financially, not politically — trade partner … because you’ve got these tariffs, you’ve got these port hang-ups that you didn’t have before, the U.S. is relatively more attractive,” Graney said.

Graney’s team has fielded continued interest from British companies over the past year, especially in distribution and the life sciences. Close to six U.K.-based companies, including a Scotch whisky distillery, reached out to the Charleston Regional Development Agency over the week of Dec. 2 with queries about locating in the Lowcountry.

“Generally, fluctuations in currency exchange make an impact,” he said. “There’s no doubt about it, but the biggest driver for the U.K., the EU countries and also the rest of the world for the U.K., is the market. For instance, this liquor company today said, ‘the U.S. is the biggest market in the world, sooner or later, we need to be there.’”

Stephanie Yarbrough, a Charleston-based partner with Womble Bond Dickinson, said she hasn’t seen a slowdown in either South Carolina’s exports to Great Britain or international interest in locating within the state.

“I think the U.S. is really benefiting from the challenges in the global supply chain over the last few years,” said Yarbrough. “A lot of companies are saying so many of our goods are sold in the U.S., so we just need to be there, and then we don’t have to rely on difficulties with getting product and inventory and parts from all over the world if we are in the ultimate destination where goods are going to be sold or manufactured in the U.S. That just makes a lot of sense.”

Yarbrough, former economic development director for the city of Charleston, advises and represents companies from around the globe seeking to expand or move to the Carolinas.

Every day, she talks with her British colleagues about the economic challenges they’re facing, as well as U.K. companies hoping to compare notes on how the United States supports its companies and international trade, whether through traditional economic development incentives or foreign trade zones.

“Which I think is exciting because it does give a moment to say, ‘What are the lessons, if any, that we can learn from each other?’” Yarbrough said.