The big question we all ask is: what next? Most forecasts of how Brexit will affect the economy are pessimistic. For the large enterprises, it is easier to put in place the necessary resources to find solutions to meet the challenges facing them. Issues such as weak growth, uneven wealth creation, and low productivity and employment upheavals to mention a few. Currently, the Law Firms and the Accounting Firms are extremely busy with helping their clients to address the impending changes. Some like Pinsent Masons have even gone as far as developing AI software to advise clients on Brexit issues. See Pinsent Masons Brexit Microsite.
Initially, soon after 23rd June, the uncertainties caused market rallies and a drop in pound value against a basket of currencies due to the general acceptance to the enormity of the task ahead for small, medium and big businesses. During the next two years, while the public is coming to terms with the unprecedented period of uncertainty, the management is beginning to look to hedge against the rapidly emerging risks. The larger organizations have already started the process to fully assess how they will be affected and how to limit potential impact to the business. Do have a look at Moore Stephens" law firm, that has created a Microsite to address some of the concerns and solutions for it.
We all accept that the EU is indeed the UK’s biggest INVESTMENT AND TRADEpartner and indicative estimates from the government suggest that 8% of the UK’s SMBs export to the EU. This is likely to mean that nearly 10% of SMBs, may be faced with a potential burden on extra taxes, as well as a hugely added bureaucracy to be expected as new trade deals are to be negotiated. The size of the problem is indeed dependent on softness or the hardness of Brexit.
To recap on the terms used, the European Single Market, Internal Market or Common Market is a single market that guarantees the "four freedoms" or the four chapters within the European Union (EU ), and here are the 4 below and Brexit in one shape or another will bring changes to each of the following:
FREE MOVEMENT OF GOODS
FREEDOM OF MOVEMENT FOR WORKERS
RIGHT OF ESTABLISHMENT AND FREEDOM TO PROVIDE SERVICES
FREE MOVEMENT OF CAPITAL
While the majors and the fortune 500 have the resources to hedge against the negative impact to business and identify the opportunities, many SMBs may not have the budget or the time to be vigilant and prepare to embrace the changes as they unfold. In the days after the referendum, the SMBs who are exporting did see an improvement in their business due to better competitiveness. The improvements were a natural result of the initial fall in the pound. However, SMBs do need to spend some of the extra earnings to prepare for the repercussions. It is also important also to note that Brexit has not happened yet and the UK does not have any other examples to build a model and therefore, the uncertainties will continue to prolong trepidation.
The big picture
In the next few years, the global community is going to see the UK making a significant effort to reach out to them for trade deals. Currently, the government believes the two-year divorce period is sufficient to wrap up negotiations and ratify the new agreement. However, both from the UK and the Brussel and the rest of Europe perspective, once the UK triggers Article 50, the clock starts ticking down. In the absence of a comprehensive Brexit deal, by the end of the period, both sides will have things to lose.
The view in Brussels is that the UK has more to lose than the EU from the breakdown of the talks. The view is not shared by the UK government, but the simple maths is rather simple that, almost 45% of British exports go to the continent while only 10% of EU exports are sold in Britain. IMHO Brussels will see less need to rush into a new arrangement with the UK, and in particular not until an agreement is found with regards to the amount that is owed by the UK to the EU after it leaves the bloc. This procedure is disputed by London and, in truth, parallel negotiations on the post-Brexit financial settlement and the future UK/EU relationship are very likely.
Boosting economic growth will depend heavily on addressing long-standing challenges
As we have seen for decades, in Brussels, "nothing is agreed until everything is agreed". Therefore, it is fair to say that the organizations will need proper consideration to limit the potential danger by a comprehensive risk analysis to businesses. It is also important to have a good understanding of the problems, and I have listed a few below that IMHO, should be in focus and are most important to SMBs to consider:
1. Freedom of movement risk is evident for UK staff that works for the organizations in Europe as well as the European staff who work for the organization in the UK. Probably the impact is going to be bigger for those that are heavily reliant on EU staff. These organizations may find it more challenging and costly to recruit sufficiently talented staff, and the cost of hiring may also increase. Finding talent will, therefore, be more difficult as most analysts believe Brexit will bring restrictions on migration from both EU as well as outside EU. This perception is already prompting changes in the attitudes of potential new hires. SMBs will re required to take a good look at their hiring practices and answer recruits’ concerns, including the pound sterling’s depreciation and its impact on wage demand.
2. SMBs productivity is another where they only have two years to improve their workforce productivity to mitigate pressures to increase wage. After Brexit, a reduction in immigration is more likely to make labor more expensive. Therefore to counter this, SMBs could do with more streamlined operations and better deployment of labour.
3. The forthcoming new trade barriers and the potential tariffs and nontariff with EU trading members that will increase costs and transit times. In two years time, there will be full implementation of the new barriers that could potentially protect some domestic companies from foreign competition, which may drive up prices and lower the quality of goods and services available. To counter these changes in regulations, the SMB would need to become more competitive and reduce their costs and increase productivity by pursuing innovations.
4. International trading strategies are the advice from the government to encourage SMBs to look for new global TRADING STRATEGIES
beyond the European Union and to do their best to improve their business relationships outside the EU while managing the increased costs of trading with partners in the European Union. Companies can adjust by shifting their imports (including supply chains) and exports toward emerging and developed markets. The move to the emerging markets will no doubt increase higher risks associated with these markets. These are unknown territories, and therefore a much higher level of due diligence is required for assessing the quality of new partners or customers in the new found markets.
5. Depreciating Pound was the immediate outcome of the referendum, which was a little on the positive side for exporters in particular as well UK's tourism industry. Also, the devaluation created immediate opportunities for global investors interested in companies that sell globally, as well as right now, some bricks and mortar businesses that seem rather good value to buyers outside. These reductions will continue to create opportunities for businesses with balance sheets outside of the UK to invest in the country.
6. Hedging for the foreign exchange risks is another area of focus for SMBs. They do need to assess the financial impact of currency devaluation on current and future years budget and cash flow projections. The depreciation of Sterling will also be an ongoing issue for some sectors where the cost of goods, materials, and parts imported from overseas increase significantly. SMBs are required to watch the impact of lower pounds on the raw material they need to import from the outside UK. The potential extra costs incurred, may be absorbed by increases in productivity rather than an increase in selling prices.
7. Freedom of movement risk – where staff work for your business in Europe (no matter how long they have been there) and for European staff who work for you in the UK. SMBs will need to evaluate, what is the likely impact of forecasted changes the ‘four freedoms’? Businesses, which are heavily reliant on EU staff, may find it more challenging and costly to recruit sufficient and talented staff, and the cost of hiring may also increase. There is a rather short window of opportunity to educate the local staff to replace those that may have to leave.
Brexit is a work in progress; changes are needed now
The problem is also significant for a None EU national that have been settled in the UK using it as a base and built a business to sell into EU. These SMBs cannot easily relocate to EU because the owners are not EU nationals or a UK citizens. However, for these businesses owners, there are some solutions like moving to friendly Cyprus or Malta and using the more relaxed legal frameworks there to establish an EU entity and associated EU passport to create a hybrid mix of EU and UK entity.
Profile of EU nationals are there in Britain?
The Office for National Statistics says 2.1 million EU citizens were employed in the UK in the first quarter of 2016 – 224,000 more than in the same period in 2015. Poles make up the biggest group - there are about 800,000 living here since the EU’s big eastward expansion in 2004. The next largest cohort is the Irish, with 385,000 citizens, followed by 300,000 Germans. EU citizens living and working in Britain legally were unable to vote in the referendum on Britain’s EU membership. Below is also a snapshot of British expats living in the European community.
It is fair to say that a significant proportion of them is SMBs that have products to sell to EU are not a lot different to the bigger enterprises like BMW, Nissan and Peugeot-Citroen buying Vauxhall-Opel car makers that are currently in the media focus. One solution that is the hardest to achieve is for them to relocate to European Community member countries. However, the simpler approach is to move HQs and part of the operation into Europe while keeping the core business in the UK until the dust settles.
The problem is much bigger for a None EU national that have been settled in the UK using it as a base and built a business to sell into EU. These SMBs cannot easily relocate to EU because the owners are not EU nationals or a UK citizens. However, for these businesses owners, there are some solutions, like moving to friendly Cyprus or Malta and using the more relaxed legal frameworks there to establish an EU entity and associated EU passport to create a hybrid mix of EU and UK entity.
What does leaving the EU mean for expats?
One of the most popular topics for queries has been, how expats and people who own property in EU countries might be affected. In the immediate aftermath of triggering of Article 50 edges? Here are a few things we know;
Just over 4.5 million Britons live abroad, with approximately 1.3 million of them in Europe, according to the United Nations with the top destinations for British expats in the European Union are Spain (host to around 319,000), Ireland (249,000) and France (171,000).
It is extremely unlikely for the expats that just live, work for employers or have retired to be deported by EU members. However, those that run businesses may find it a little harder to continue. In summary, SMBs do need sufficient funding at their disposal to acquire an EU residency. Therefore, they do need to look at all solutions available to them very carefully. The funding requirement for some of these solutions seems high at around 2-4 million GBP. However, careful planning can reduce these costs to a fraction but still is too high for a majority of SMBs.
About me and how I can help;
Please do check out my profile at Linkedin and here are some of the operations I manage and how I can assist you with some solutions;
Salaro.com >> Salar is my Web Development business, and we can help organizations that could do with building a new multilanguage web presence to improve your reach to your customers in European Community. The solutions we provide helps to market your products in the local languages, and this can sometimes bring more sales. We can do this either with one microsite per language or re-engineering your existing site to reach out to some of the major European customers. Below are some of the benefits;
Improving communication; The primary goal of a multilingual site is to enhance communication organization behind the site and its visitors. This is especially relevant when the target groups of a website do not know English very well.
Reaching a wider audience; Improving the benefits of organization's products and services, that are normally rather difficult to find by the non-English speaking audience.
Finity Asset Ltd >> Can help if you are in the Natural Resources business that requires presence in Europe and may need help with financing or finding a Joint Venture partner. In particular, if you have Mining, Oil and Gas projects that are required to operate within the European Community. In the post-Brexit era, and the need to shift focus to the emerging markets will no doubt increase. Naturally, there will be higher risks associated with operating in these markets. These are unknown territories, and therefore a much higher level of due diligence will be required for assessing the quality of new partners or customers in the new found markets.
Legends Development >>Is the consultancy and marketing side of my business that with the help of my partners can provide you with EU residency in Cyprus, Portugal or Malta using our Fast Track EU Passport Solution. The Cyprus solution allows you to live, work, study anywhere in EU with a €2 Million Property Investment. We will help to obtain approval for you within 3 Months before the funds are used to complete the property purchase. A similar solution is also available in Portugal that provides Residency to Non-EU investors to obtains residency status in Portugal. This is achieved by investing a minimum of €500,000 in one or more properties in Portugal. It is called "The Golden Residency Permit" that lasts for five years and will permit the investor and the family regrouping (spouse and children under 18). The Investor may also gain access to a permanent residency permit, as well as a Portuguese citizenship by the current legal provisions.
Please do contact me directly here in Linkedin to hear more about some of the above solutions, or reach me on +44 7955 904000 includes; WhatsApp, Skype: "Salaro" and email me at Salar (at) Salaro . com