Will Brexit nourish the Land of Tulips?
The historic public referendum on 23rd June 2016 witnessed the British people voting for moving out of the European Union after years of tolerance towards the frenzy migration from the other EU countries. Although it was a close call for the Pro-Brexiters (51.9% pro and 48.1% against), there began the unprecedented precipitation of nightmares for the British Politicians.
London has been the most featured financial Centre in Europe, having attracted around 43% of the total investments with headquarters operations of the leading multinational firms in Europe. The competitive tax regime, availability of highly skilled workers, excellent ICT infrastructure and easy accessibility and mobility to other EU countries have made London the most favourable destination for setting up Europe based headquarters for the companies. Moreover, as part of the EU single market, they enjoyed (or perhaps abhorred) the free mobility of goods and labour force all over EU. The decision to move out of the European Union now being finalized, the stakeholders are in a dilemma whether to remain in London or to move their head operations to other major European cities.
With the most likely event of the British market opening up, there awaits plenty of opportunities for them to enter into bilateral and multilateral trade agreements with the emerging economies like India and China, which would certainly foster their trade relations. The employment opportunities for non-EU citizens in Britain will also increase in this case. Britain will not be obliged to contribute anymore to the EU membership fee which was once around three million pounds each week, forming a major chunk of the EU common budget. This money could then be utilized to convalesce the shattered business environment in the post Brexit period by patching up the confidence of investors thereby coaxing the firms to remain in Britain.
Britain was a founding member of the European Free Trade Association (EFTA) formed in 1960. Experts are of the opinion that it is most likely that Britain cannot resume its membership in EFTA in the event of Brexit. In this case, the businesses in UK will take a major hit as they will lose access to the EU single market. The British exports will also suffer as the major portion of their exports was with the rest of the EU member countries. If Britain exits without a proper trade agreement with the EU, the firms in Britain will end up paying higher costs for exports due to the high tariff structure of EU which in turn will make the British business less competitive to the EU market and globally as well.
So far there are diverse responses from the firms operating in UK. According to the survey report by the Institute of Directors (IOD) which represents around 30,000 firms, one in every three UK firms have active plans for relocation. Many companies like Vodafone, Visa, JCB etc have given warnings that they would move their head of operations from London to other major European cities. Some other companies like Siemens, Nissan, Capita PLC and Virgin group have delayed their investments in Britain anticipating post Brexit instability. Sony and Panasonic have already relocated their headquarters to Amsterdam. A recent report by Netherlands Foreign Investment Agency (NFIA) states that more than 250 companies are in talks with the Dutch government discussing about the prospects of a possible relocation of their head of operations from London. Amsterdam, the capital city and Rotterdam, a major port city in the Southern Dutch Province are the most favourite destinations to these companies. This is certainly bad for the business in Britain and an unanticipated super lotto for the land of Tulips and Windmills. The most worrying update for Britain is that the smaller enterprises are also following the suit. The survey report further states 13% of the small enterprises are also ‘actively considering’ the plans for relocation.
On a positive note, Deloitte, Barclays, HSBC have shown an optimistic response. Deloitte took the position that bringing workers with more diverse skill is more important to them. The Barclays left the crisis mode even after their share prices fell and HSBC decided to continue their head operations in Britain.
Many experts believe that Britain will survive the immediate post Brexit instabilities and regain their glory in the business arena. Nevertheless, this highly depends on the terms of negotiations between the EU and Britain. Till date, Britain has not been able to come out with a promising exit plan which would restore confidence in the business world. The British plan to exit the EU was obvious from 2013-14 itself. But they never knew how it could be done. As Nick Cohen rightly quoted, “Brexiters never had a real exit plan. No wonder they avoided the issue”. Spectators hope for a soft Brexit in which Britain remains in the single market and customs area would inflict only a minimal impact on the country’s business environment.
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