Opportunity for growth markets in a Post Brexit World
Four and a half years after the referendum, the UK finally left the EU in December 2020. For some, it brought new opportunities, while for others it created costs and barriers that may have been a particularly unwelcome burden on top of the severe disruption of the Covid-19 pandemic.
During the transition period, economists and political analysts have tried to foretell what the long-run economic effect will be for the UK, the EU and even other countries. Before Brexit, the UK was automatically part of any trade deal the EU had negotiated with other countries. The EU had about 40 trade deals covering more than 70 countries at the time the UK left. The UK has gone on to negotiate similar direct deals with 63 of these countries.
Trade and Investment between the UK and EU had been in high volume. In 2019, 38.9% of the UK’s total service exports (£123.7bn) were destined for the EU. This fell slightly to 36.6% (£51.5bn) in the first half of 2020 ( due to COVID-19). Additionally, Six of the top ten countries to which the UK exports services are based in the EU (France, Germany, Ireland, the Netherlands and Spain and Sweden)
However, beyond the UK -EU trade dynamics , specific consideration is needed for developing countries, as Brexit could significantly impact their economic development through its impact on their trade & investment relations.
Global Outlook
In the twenty-first century, large regions of the globe have benefitted from sustained economic growth. China has risen to wrestle the United States for the title of the world’s largest economic power. The other so-called BRIC economies (Brazil, Russia and India) have stepped up a few gears too. Economists believe these nations will become dominant suppliers of manufactured goods, services, and raw material by 2050 due to low labour and production costs.
Furthermore, parts of Africa that were impoverished and often not considered as serious export markets have recently been among the world’s fastest-growing economies, fuelling demand for a range of goods and services.
2020 was an interesting one for nations the world over, as the effects of the pandemic and the severe measures taken to control it inevitably put the brakes on economic growth. Only a handful of countries escaped economic decline over the year. But with the distribution of vaccines, business confidence is returning, and the prospects for strong recovery look encouraging.
UK’s Positioning Post Brexit
It’s been almost 5 months into Brexit, and so far the UK’s trade position seems to have been strengthened thus far. The value of UK exports to the European Union plummeted by £5.6bn between December 2020 and January 2021, this is the sharpest fall ever recorded since records began in 1997. The Value of imports of goods also fell by £8.9bn in January 2021, driven by a £6.6bn, or 28.8 per cent, decline in EU imports to the UK.
It is a new beginning and a new order for the UK, and it’s position in the global stage is further strengthened by the fact that the UK has been deemed a more attractive investment proposition than it was before Brexit according to a survey of 5,000 business leaders across the globe. The annual survey of global chief executives further shows 11 per cent of global CEOs selected the UK as one of their top three targets, up from nine per cent last time the survey was conducted in 2019.
The UK is now the fourth most attractive growth target to CEOs, behind the US, China and Germany, after overtaking India. In particular, the UK has grown in appeal to CEOs in China, India, Canada and New Zealand. From all indications, the outlook and positioning for the UK is a bright one.
Opportunities in Growth Markets
Countries in emerging markets trade predominately with each other and the US. In addition, emerging countries are supported by generally strong domestic demand. With the UK now at liberty to set its own trade policy and negotiate deals with other countries, there is an opportunity to establish its foothold in emerging markets.
Already, talks are being held with the US, Australia and New Zealand – countries that currently do not have free trade deals with the EU – while in October 2020, it officially signed an economic partnership agreement with Japan, marking an historic moment, as the UK’s first major trade deal as an independent trading nation.
Now the master of their own trade fate, the UK must now begin to look at what is happening elsewhere. The UK could offer preferential market access to developing countries, including duty-free, quota-free access and simplified rules of origin, as it leaves the European single market. This is a marathon and not a sprint, as there would need to be compliance with the WTO rules; but it could at least duplicate the market access currently available the Everything But Arms and European Partnership Agreements, and perhaps more (either to a broader range of countries or more open market access).
The Role of the Commonwealth
When the UK decided to leave the EU in 2016, many hopes and fears were expressed about the potential effects on other countries. The Commonwealth was at the centre of these debates and is likely to be heavily affected by the outcome.
In 2019, Commonwealth countries’ exports to the UK totalled US$116 billion (49 per cent goods) accounting for around 13 percent of intra-Commonwealth merchandise exports and 25 percent of services exports
Post-Brexit, there is an opportunity for trade growth between Commonwealth countries. The UK Government has said that increasing economic, political and other ties with Commonwealth member countries is an important priority. As part of the Commonwealth’s prosperity agenda, member countries are charged to deepen trade integration.
The reality is that the UK has pulled out of the EU, regardless of what side of the divide you might be on, there is a clear opportunity to develop unique bilateral relationships with growth markets.
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