It has been one month since the historic EU referendum in the UK. Today, several companies still face uncertainties about the implications of a post-Brexit decision.
The economic concerns about Brexit is not of course unfounded. Soon after the triggering of article 50 of the EU´s Lisbon treaty by the new government headed by Theresa May, a two-year period of negotiations for the UK to negotiate terms of its exit sets off. This period of transition out of the EU undoubtedly gives a destabilizing effect.
Many economists claim that this Brexit will result in less trade between the EU and the UK. This is a problem considering statistics tells us that almost half of all UK exports went to the EU in 2014. In the same way, many of its imports came from the EU.
Following the decision, the EU has hardened its stance against the Brexit negotiations with the EU Council president saying “There will be no single market a la carte”. In addition, German chancellor Angela Merkel said “access to the single market requires acceptance of all four freedoms”. These statements alone give the impression that the EU does not want to make the process easy for the UK to deter other countries from breaking off of the EU in the same way shaking up the entire EU project.
Regardless of the EU grant of UK tariff free trade, there will be new non-tariff barriers such as regulatory asymmetry or no financial “passporting” that can ultimately lead to reduced commercial flows. On the other hand, soon as a new trade agreement is reached between the EU and the UK, there will be costs in accessing the single market. There is very little logic in assuming the costs will be lower than what the UK currently pays.
What Brexit means for Businesses
As mentioned earlier, Brexit is a dive into an ocean of uncertainties. There is no way of knowing what jobs will be lost, what the fate of the EU workers will be or what the new trade barriers will be for many companies pending the negotiations.
It is reasonable of course to anticipate that some businesses such as car manufacturers or financial services might pull out their business out of the UK than have to deal with many trade barriers or uncertainties.
There is also that risk of investors pulling out their money in order to keep it in a safer place – which have by the way begun. There has been a dive out of the British pound towards Japanese yen, Swiss Franc, and the US dollar.
What is clear today is that the Brexit victory has sent shockwaves through global markets. It is then more important than ever for all companies especially those headquartered or those with sites or significant business in the UK to plan better.
It is now more important than ever to outline the company´s direction and expectations in the next 5 years. There has to be clarity on how the organization´s overall plan will be executed specifying staffing and expenditures as well as be able to use accumulated historical data to predict financial outcomes in the next few months or years.
This does not only apply to companies in the EU or the UK because Brexit affects the rest of the world too. The UK´s trading partners – India and China are also now concerned because the negotiations might create regulatory and political volatility that could negatively impact economies. Many international corporations in the US and China invests in the UK so they can access the free trade corridors enjoyed by the UK. Following the Brexit victory, profits of these international companies will be significantly reduced depending on how well the UK negotiates.
This forced need to reset global investment channels in a wave of uncertainty with the UK negotiations can have a freezing effect. As many economists know, a period of prolonged uncertainty dwindles the confidence and investment in the market.
At the end of the day, the will of the British people must be followed. The only way for companies to weather through this storm of uncertainty is to make sure they forecast, budget, and plan better. Vital information must be within arm´s reach to ensure quick and well informed decisions can be made.
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