June 23, 2017

Brexit – how hard the landing? What is the view of Brexit from the perspective of future trading partners?

To date it seems that UK based business has had little input to the idea of Brexit. An apparently weakened government representation at the EU negotiation table following the recent UK election however, seems to have emboldened business to: Let our voice be heard!

OK, but: What should business be saying?

There are two very clear trade-offs that EU negotiators will be keen to exploit during their Brexit discussions.
On the one hand, Britain wishes to address many social issues that have been the concern of the UK voter for years. Immigration will be reduced (most desired by voters), non-relevant EU centric laws and ‘red tape’ will be eliminated, fishing waters will once again be restricted and ultimately, British citizens will be back in control of their country.

It is on the other hand, however, where the real problems lie. The issue to be addressed here relates to the question of business or, more broadly, the economy.

The only certainty from Brexit from that perspective is that a locked-in, predictable and highly reliant market that is right on Britain’s door step will immediately become a less accessible, uncertain, unpredictable and unreliable market. Does that matter?

It matters if there is no plan B and assumptions - if any - are that the UK will be welcomed with open arms by other trading nations.

Therein lies the problem. For years the UK has been tied to the European Free Trade association that took the form of the Common Market; now the EU.

That matters because above all else, business is about trust and to date, there has been very little trust building between the UK and other non-EU potential suitors. More importantly trust takes time to build, as does market representation, but Britain won’t have a lot of time to do that, especially as it can’t even commence (free trade) negotiations with other countries until its break from the EU is complete.

One short cut to open market access has been identified from the idea that the UK can reinvigorate the Commonwealth of Nations, a group that consists of past British Empire nation including India, Canada, Australia, Fiji, South Africa, Malaysia, Pakistan and Singapore. As one senior member of the Australian business community now living in London accentuated however: “There will need to be a lot of humility shown if they are to succeed in that approach”.

Apart from the sales and logistics issues described above, there is a lot on offer to Commonwealth countries should they seek to re-enter the UK market. Australia, for example, has a world class wine industry that is currently treated as no more than 'one of the pack' by UK wine, spirits and food retailers. Australia also produces many other food and non-food products that would be very attractive to UK consumers, should their market be opened to non-European competition.

So here is the question. How attractive is the UK to Australia or any other Commonwealth country for that matter? Further, although a free trade agreement could readily be formed, to what extent would individual businesses be interested in actually trading with the UK?

Yes, the UK offers access to a large population of 65 million people but as a mature economy it is also a very crowded market. At the same time, that large population doesn’t compare too favourably with other countries – where relationships already exist. These countries include the US that boasts a population of 324 million, India 1.3 billion and China that tops out at 1.4 billion.

Much work has been done by all of the Commonwealth countries mentioned previously to make inroads into these markets. Little if anything as been done with the UK, its market presence has remained dormant or non-existent for years. Similarly, both China and India are in ‘buy’ mode while at the time of the exit from the EU, the UK economy will more than likely be in reverse.

This issue is worthy of debate and NOW is the time to debate it. What do you think? How attractive is the UK market to other countries?

Also, assuming it is attractive, how long and how difficult will it be to translate government backed agreements into hard core sales? If there is any doubt, we need to know.