The Brexit chickens are coming home to roost in a troubled British economy, however much British government ministers and other English nationalistic hopefuls are trying to suggest otherwise. It was a colossal mistake to hold the referendum. In the words of former Conservative Party Prime Minister, David Cameron, it “unleashed the demons”.
The decision of the referendum was an even greater mistake by the English voters who favoured leaving the European Union (EU). The majority of people in Scotland, Wales and Northern Ireland (the rest of the United Kingdom) preferred to remain with the EU, in part to escape English dominance, but also because it made sense to remain in a single market that accounts for 45% of all British exports.
Staying in the EU also made sense because the UK’s attractiveness for foreign investment was based significantly on the access that it provided to the other 27 EU states with the largest single market of over 450 million people.
Britain’s City of London has long been recognised as the banking centre of the world, despite the efforts of other European cities to lure the banks to their shores. The UK’s financial services sector contributed $89.8bn (£71.4bn) in taxes in 2015, accounting for 11.5% of the UK’s total tax receipts. The financial services sector employed 1.1 million people or 3.4% of Britain’s national workforce.
All that is now about to change, as the formal triggering of the negotiations between Britain and the EU looms large. A study, just released by the British think tank – Centre for Business and Economics Research (CEBR), Japan’s Hitachi Capital, and online pollsters – YouGov, says the UK is likely to lose more than $82bn (£65.5bn) of investment due to the vote to leave the EU.
British businesses are either abandoning or delaying their investment plans. Foreign investors, such as the Japanese car manufacturer, Mitsubishi, are concerned about being restricted from the EU’s single market which its Chief Executive, Haruki Hayashi, says is a major concern for Japan.
He emphasised that Japanese businesses had come to Britain as a gateway to Europe. Further, he revealed that EU countries have already begun to woo them to shift their investments directly into Europe.
The financial services sector is also setting up for a hit as leading banks make plans to move some of their operations from London to Paris. According to a BBC report, Benoit de Juvigny, Secretary General of Autorite des Marches Financiers (AMF), has said that “large international banks” based in London have conducted due diligence to move operations to the French capital. Who can blame them?
Business – and certainly banking – is not based on sentiment. And, if Britain’s departure from the EU means the loss of rights for Britain-based financial institutions to offer services to companies and governments across the EU without restrictions, it makes good business sense to move to the much larger EU market.
It is well known that at least eight financial centres across Europe – Paris, Frankfurt, Dublin, Luxembourg, Amsterdam, Madrid, Bratislava and Valletta – are actively wooing companies based in London.
When some of the financial institutions shift to the EU, and foreign investors make the business decision to locate where their manufactured products will not be subject to tariffs, the effect on the British economy will be rough and it will be widespread.
Not only will revenues to the British government decline, causing it to have far less to spend on social welfare projects that benefit the lower income groups, unemployment will soar resulting in mortgage foreclosures; the rental property and housing markets will wane; and the economy will shrink.
All that will make Britain a lesser power in the world. Its economy has already declined from number 5 to 6 in the world. Finding markets to offset the loss of duty-free access for goods and services it now enjoys in the EU will not be easy. Proximity makes a big difference to costs and competitiveness of exports. So, even if Britain were to open markets in Africa, Asia and Latin America, the cost of its manufactured and agricultural products would face fierce competition from other nearby suppliers. And, if the US President-elect, Donald Trump, is taken at his word, there will be no trade deals with any country, including Britain, that does not favour the US.
Increasingly, the notion that the other 51 members of the Commonwealth of Nations would be the answer to Britain’s trade problems is being debunked for the false campaigning that it was in the Brexit Referendum. Some went as far as calling the Commonwealth the potential “saviour” for the UK. They were clutching at straws. As I pointed out at two recent public occasions – the first in London and the second in Grenada – the Commonwealth has much merit but trade is 1definitely not one of them.
Britain’s earnings from exports to the Commonwealth, are not huge now, representing only 9.76 % of its total exports in 2014, while its merchandise exports to the EU represented a hefty 45%. In any event, total Commonwealth trade in goods has declined over the last four decades since Britain joined the EU. And, even the Commonwealth’s share of world trade is owed to the trading capacity of only six states – Singapore, India, Malaysia, Australia, Britain and Canada.
Moreover, that trade is not between themselves. For instance, China is Australia’s biggest trading partner, and the US and Mexico are Canada’s. In 2014, the six countries accounted for 84% of all Commonwealth exports; 47 countries combined, including South Africa and Nigeria made up only 16%.
The contribution of the Caribbean and Pacific regions (21 of the 52 member states) to overall Commonwealth exports is small, accounting for a paltry 1.14% of Commonwealth exports in 2013. In any event, none of the Commonwealth countries in Africa, Asia, the Caribbean, Mediterranean and the Pacific are compromising their access to the EU market of 450 million for Britain’s smaller 60 million.
The lesson for the Caribbean is that countries benefit more from being inside a single market than outside of it. A certain English arrogance – a belief in English ‘exceptionalism’ and the superiority of their institutions and, in some cases, even of their tribe – encouraged the ‘leave’ vote in the UK referendum. No country in the Caribbean should fall prey to the notion of its ‘exceptionalism’; none are exceptional from the others; and those who mistakenly believe otherwise are destined to fall on their swords.
(Sir Ronald Sanders is Antigua and Barbuda’s Ambassador to the United States and the OAS. He is also a Senior Fellow at the Institute of Commonwealth Studies at the University of London and Massey College in the University of Toronto. The views expressed are entirely his own)