What the Brexit vote means for foreign company in the UK and what to expect next
The recent referendum in which the British voted to withdraw from the European Union (EU) came as a shock not only to the whole bloc and Britain itself, but also to each country and company that does business in Britain – as it did to us, Knowledgeprice.com, an IT company based in Latvia.
The Brexit victory sent economic shockwaves through the global markets, UK stocks dropped more dramatically than they had since the financial crisis and the pound fell to its lowest level since 1985. There are tremendous levels of uncertainty and experts worry that foreign companies will be less likely to invest in the UK and could reorient their business elsewhere.
Even if the situation is unstable, Gatis Kaleinis, board member of Knowledgeprice.com, emphasizes that there has generally been no change to business: “As most of our services are exported directly to the UK, the company’s revenue decreased by 10% overnight because of the changes to the sterling exchange rate, but broadly speaking, everything remains the same and the post-Brexit vote consequences have only been temporary,” says Kaleinis.
“A new rankings and analysis project presented in January 2016 at the World Economic Forum in Davos, Switzerland, named the United Kingdom as the third best country in the world with which to do business. That the UK also took sixth place in the ‘Best countries for business-friendly regulations 2015’ ranking is noteworthy too, so in my opinion the role of our business in the UK hasn’t changed, even after the decision to leave the EU. I am more than confident about the future and the idea of leaving the UK market has never even crossed our minds,” Kaleinis says.
For the diversity of opinion on the post-Brexit subject and the potential future for foreign companies, we turned to one of the world’s largest accountancy networks, BDO UK, for their point of view.
Company representative Stuart Lisle, Senior Tax Partner at BDO LLP and a member of the firm’s National Tax Executive Board, notes: “It is more likely to be three years before Britain leaves the EU given that there are three general elections scheduled for next year in Holland, France and Germany. There would be little point in May, or rather Foreign Secretary Boris Johnson, negotiating new trade terms with the incumbent leaders in those EU countries if they might not hold power by the end of 2017. Three years is a long time in business. There are a lot of ifs, buts and maybes, and few clear messages coming out of government,” Lisle says.
That said, BDO is working with clients to scenario plan around the five possible trade models that Britain could adopt post-exit. BDO has also just set up a Brexit-dedicated microsite for clients. And in terms of opportunities for the firm, BDO has been approached by international organizations overseas wishing to get a first-hand view of “what is happening on the ground in the UK”.
“The main message is ‘don’t panic, there’s lots of time’, but you need to have it on the agenda and have someone responsible for keeping the board abreast of changes and developments,” Lisle says.
Potentially Britain risks losing some of that negotiating power by leaving the EU, but it would be free to establish its own trade agreements. The UK can build a competitive economy outside of the EU – trade deals with other countries may be easier to win because the UK will no longer need a consensus among 28 countries. And who knows, this freedom may have many advantages for us.
Even if the referendum created uncertainty, the truth is that sterling has never suffered the existential crisis that the euro has, and surely will again, so we would like to believe that the post-Brexit turmoil in the markets and sterling exchange rate problems will be temporary – leading to a bright economic future for our business in Britain in the long run.