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Exports Set to Stay Flat as Dollar Rises

Export growth in Orange County could grind to a slow halt this coming year.

The top culprits: A recovering U.S. dollar, economic uncertainty in our export markets and the credit crunch.

For 2009, the county’s exporters could see 3% export growth “at best,” said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange.

Others think that’s a glass-half-full figure and see exports for the county staying flat.

“To expect much growth at all is being optimistic even in Orange County where exports have been particularly strong in past years,” said John L. Graham, a professor of marketing and international business at the University of California, Irvine’s Paul Merage School of Business. “It’s hard for me to imagine any growth at all because it’s a very unusual time and it’s difficult to forecast where things are going.”

The rising value of the dollar makes U.S. goods more expensive to foreign buyers. The dollar is up roughly 40% against the euro since January and is expected to continue a slow ascent into next year.

The bulk of the currency gain came in the second half of the year,with the dollar climbing 72% against the euro since July, creating some sticker shock for foreign buyers.

“Exporters can adjust to the decline in the value of the dollar via their pricing, but that means less profit,” Adibi said. “They have some maneuvering options, but unfortunately, none of them are really good.”

When the U.S. economy began to slow last year, companies increasingly counted on sales from abroad to offset slowing growth here.

But with the economies of the county’s biggest trading partners,Mexico, Canada, Japan and China,expected to continue declining in 2009, there isn’t a lot of growth to be found globally.

“It’s a huge challenge for exporters,” said Bijan Kian, director of the U.S. Export-Import Bank in Washington, D.C. “As the economies in the world go through a period of contraction, it’s not too difficult to forecast a period where selling is not as good.”

The credit crisis brings additional pressure.

Companies may not have the means to borrow in order sell goods abroad next year, according to Adibi.

“Any business, an exporter or not, is facing challenging financial markets,” he said. “Getting credit is much harder and that means the expansion possibilities for businesses will be limited.”

David Josephson, the regional director for the Newport Beach branch of the Export-Import Bank, said he’s seen more interest than ever for help with financing export plans.

The Export-Import Bank, an arm of the federal government, provides insurance and guarantees on loans made by commercial banks to help facilitate exports from small and midsize businesses.

A year ago, Josephson said he had one or two inquiries a week from companies. These days he gets at least that many calls each day.

“In the current market, where there’s lack of confidence in financial institutions and credit, we are getting increased interest,” he said. “We are booking more insurance and loan guarantee business.”

There are a few industry sectors that will be somewhat immune to slowing export growth.

Medical devices and drugs are likely to stay in demand, Adibi said.

“Things that have to do with healthcare and pharmaceuticals will do relatively OK,” he said.

Adibi tempered that statement by pointing out that devices and drugs related to elective and cosmetic procedures, such as Irvine-based Allergan Inc.’s Botox, won’t do as well.

“If the medical need is somewhat a luxury, the demand there will be weak,” he said.

Other sectors that could weather the storm include aerospace, power and alternative energy, agriculture, construction equipment and transportation, said the Export-Import Bank’s Kian.

“We will continue to export more of what we are very good at producing,” he said.


COUNTRY TO WATCH: CUBA

With President-elect Barack Obama head-ing into the White House and Raul Castro in charge in Havana, next year could see the beginnings of an aperture with Cuba.

“I believe Cuba will open up faster than anyone can imagine,” said John L. Graham, a professor of marketing and international business at UC Irvine’s Mer-age School of Business. “2009 will be a very important year for U.S.-Cuba relations.”

Obama made some bold statements about normalizing relations with Cuba on the campaign trail earlier this year.

He has called for easing travel restrictions to Cuba and allowing bigger mon-ey transfers from the U.S., among other re-forms. Obama also said he’s open to talks with Ra & #250;l Castro, who took over as president from brother Fidel Castro in 2006.

An opening in trade with Cuba would be more symbolic than substantive. The country of 11 million people is poor and isn’t likely to give local exporters a big boost. But it could boost trade throughout the region, according to Graham.

“Cuba is a point of conflict for trade in the entire region right now,” he said. “The way to pacify the Caribbean is though trade.”

Other countries, including Canada and Spain, have cashed in on big development, tourism and infrastructure projects in Cuba for years.

“We have gotten left out in some sense,” said Noel Murray, director Walter Schmid Center for International Business at Chapman University. “We would be playing catch-up there.”

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Sarah Tolkoff

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