Posts Tagged ‘Brexit’

No one can have failed to notice the brouhaha over the UK’s EU exit referendum and it has been difficult to develop any real understanding, but in this blog, Prof. Alasdair White of the United International Business Schools in Belgium offers some ‘facts’ and voices his opinion.

The basic situation

The United Kingdom held a referendum which asked whether people thought Britain should be in or out of the EU. This referendum was advisory and legally non-binding and does not have to be acted upon. However, it will be politically difficult to ignore it.

The referendum does not trigger the ‘we’re leaving’ clause (Art.50) which can only be done through the correct constitutional process of the United Kingdom. There is absolutely nothing that the EU can do to ‘force’ the UK to send an Art.50 letter and the UK Prime Minister, David Cameron, has announced that, as he has resigned, he cannot do anything about Art.50, which now falls to his successor to deal with. Under the Conservative Party constitution, there is a due process that has to be gone through before a new leader can be announced and can take office, and the earliest this can happen is mid-September. Thereafter, the new Prime Minister has to activate the due parliamentary process to obtain legal authority to submit the Art.50 letter.

The due process is that a Bill has to be introduced into the UK Parliament calling for the repeal of the European Communities Act of 1972.  This then has to be passed by both Houses of Parliament, and until that happens, the new PM has no authority to instigate the Art.50 communication. It is highly likely, in the circumstances, that the earliest that the Art.50 ‘we’re leaving the EU’ letter can be sent is late September and more probably towards the end of this year.

Once the letter has been sent, the process of ‘divorce’ will start and that will take many years. Art.50 foresees a maximum of two years but also foresees that, with the agreement of the remaining Member States, this could take much longer. When the final agreement is reached, then, and only then, will the UK leave the EU. Until that happens, the earliest being in late 2018, the UK remains a full member of the EU with all the rights, privileges and obligations that entails, just as it was before the referendum.

No need to panic

This means there is no need to panic! Once the temporary shock of the announcement has calmed down and Brexit has been factored into the ‘markets’, things will continue much as before. However, in the short term it’s going to be an uncomfortable and possibly turbulent ride.

For entrepreneurs in the UK, Brexit presents risks and opportunities. If their business is focused on the home market (i.e. the current UK) then it is very probable that they will suffer little major impact.  On the other hand, if they are focused on exports (or are major importers), then their access to the world markets will be determined by what ‘deal’ has been struck in the leaving negotiations and what trade deals the UK has managed to put in place. The most likely scenario is that imports will cost more (and in some cases, a lot more) and exports will face tariffs that will make the goods more expensive in the markets.

A further complexity for UK entrepreneurs is that any EU funds from which they benefit in terms of market access, research, development, growth funds, etc., will cease and may well not be replaced by corresponding UK funds – the ability of the UK to replace those funds will be influenced by the state of the UK economy, which the ‘experts’ predict will be weaker, smaller, with higher taxes and lower government spending.

For entrepreneurs in Europe, their focus should be on where their market is. If they are exporters to the UK, or importers from the UK, then the new tariff regime resulting from what ever ‘deal’ is negotiated will have an influence.

All in all, European entrepreneurs will face significantly less risk as a result of Brexit than will those in the UK. They will also face significantly less risk to their funding and borrowing structures. And, frankly, there is time to plan how to handle the risks both in the EU and in the UK, but this needs to be thought about as soon as the UK sends in its Art.50 ‘we’re leaving the EU’ letter.

As far as opportunities are concerned, well, any major change provides opportunities provided there is flexibility of response. Business as normal will not be an option if Brexit becomes a reality but there is time to develop new products and new markets, as well as putting different funding structures in place providing action is taken as soon as Art.50 is triggered.

So, for entrepreneurs in both the UK and the EU there is no need for panic about Brexit, but there is a need to do a risk analysis and to plan a response to those risks. There is also a need to develop a new approach to the changed market conditions. However, there is time for some serious but unhurried thinking providing that thinking starts soon.

We live in ‘interesting times’, but for the enterprising business person there are opportunities to be taken as well as risks to be minimised.