Brexit survey predicts two years of complex negotiations

by | June 22, 2017 12:45 am

Multinationals as well as domestic businesses and business leaders across the world are still nervous and uncertain about the effects of a post-Brexit era on their business operations.

A recent study by global law firm Hogan Lovells –advisors to major multinationals around the world – in collaboration with Oxford Economics, gives some insight into business sentiments towards the post-Brexit world and its impact on long-term business strategy in investment decisions and competitiveness. The aim of the Hogan Lovells Brexometer survey was not to predict the future but rather try to understand the present views of a post-Brexit world.

Given the uncertainty over the economic implications of Brexit, there is a lack of confidence in the direction of negotiations. 53 percent of UK businesses have shown support for some kind of transitional agreement.

Such agreement could delay the full impact of Brexit and mitigate some of that uncertainty. UK financial and insurance companies showed the greatest enthusiasm for transitional arrangements with 75 percent in support, because if transitional arrangements are not agreed, financial institutions would run the risk of being unable to conduct businesses across a UK/EU border unless they obtain local authorization in the country in which they wish to do business.

This includes businesses outside the UK/EU, thus the implications of Brexit are not limited to the UK/EU. In fact Brexit poses huge economic consequences to the African continent. Africa is one of the largest beneficiaries of UK aid.  In 2015 Africa alone received GBP2.54 billion in UK aid. Of this amount, some of the largest benefactors of aid on the continent were Ethiopia (GBP331.4 million), Nigeria (GBP 253.5 million), Sierra Leone (GBP 213.8 million), South Sudan (GBP205.2 million) and Tanzania (GBP 199.7 million). During the Ebola outbreak in Liberia, the UK’s Department for International Development (DFID) donated 16 percent of its budget to the Ministry of Finance in Liberia through the EU3.

With Brexit, there likely will be a change in UK development assistance over medium term, but analysts have suggested that in the short term, commitments will still be met between the UK and the continent as it will be difficult to completely erase the social interventions. In the medium-long term however, there is strong concern that focus will be more on domestic affairs and the UK may gradually over look Africa.

Also, for a country like Ghana, having attained middle income status: the more it improves economically, the more rapidly aid will decline.

In terms of the outcomes of theBrexit negotiations, the Hogan LovellsBrexometer found that the difference between businesses’ perception of best and worst case outcomes is vast. The worst case implies a collapse in investment and new employment opportunities, as well as a total re-assessment by the UK of the necessity to invest in global businesses.

According to the survey, in the best case for example, 27 percent of German companies will continue to invest in the UK in a post-Brexit world while in the worst case just 3 percent of German companies will continue to invest.

For years, the UK has criticized the current subsidies European countries have in place, which have hindered African farmers’ trade capacities. In his argument in favor of the “leave” option, James Duddridge voiced his concerns over the EU’s Common Agricultural Policy (CAP), which puts in place subsidy systems with harmful effects on African farmers’ competitiveness. With more than 60 percent of Africa’s economically active population working in agriculture, the subsidies take an important toll on the livelihoods of a majority of Africans.

In a situation where the UK was to leave the EU, there would not be a strong voice within the EU advocating for the livelihoods of African farmers. In sum, there are a number of ways through which Brexit could have an impact on African countries, starting with its impact on the global economy, a more introverted British outlook when it comes to global development issues, as well as decreased bilateral development assistance and trade.

From a political standpoint, Brexit is bound to have effects on not just the UK/EU political environment but also on the socio-political and economic environment for African countries, including Nigeria. To a large extent, the conception of regional economic blocs in Africa has been predicated on the success of the European Union.

So what can be done internally to reduce the adverse effects of Brexit? For Nigeria, a reduction of dependence on the UK through real diversification of the economy will be a positive step. As African countries begin to attain middle income country status, like Ghana recently did, foreign aid may begin to dry up.

Government, corporations and individuals must begin to look inward to help bring African solutions to African problems. Leaders across the continent should deliberately work to reduce the continent’s vulnerability to external shocks like the Brexit referendum outcome.

Perhaps one of the most important revelations from the survey is that, while 93 percent of UK companies understand the impact Brexit may have on their business and country, some (albeit a minority) have not yet developed plans to manage those impacts. 25 percent of all respondents have sought external help, and a majority have not considered the possible impact of Brexit beyond their own internal expectations.

Businesses that are proactive, prepared and have already started planning are markedly more upbeat than those who have so far faced Brexit more passively. But now is not the time for businesses simply to hope for the best. With negotiations beginning soon in earnest, now is the time for proactive actions to mitigate the foreseen and anticipate the unforeseen effects of a post-Brexit world.

•The Hogan Lovells Brexometer survey was released in March 2017.


Femi Johnson