PROSPER MAGAZINE: ISSUE 01 | BREXIT
BUSINESS, THE BLACK COUNTRY & BREXIT
EXAMINING THE IMPACT BREXIT WILL MAKE ON THE BUSINESS SECTOR AND SOCIETY IN GENERAL.
How Brexit ends up affecting businesses throughout the Black Country will depend on whether a withdrawal agreement can be agreed or a ‘no deal’ scenario emerges.
In the short term, such an outcome is almost certain to lead to an economic shock simply because of the sudden nature of the change in the UK’s trading terms, Prosper was told.
Certain sectors are more exposed than others and different sectors are exposed to different aspects of Brexit.
Naturally, the most obvious and immediate impacts will be felt by those businesses that trade directly with other countries in the EU. In all sectors, we will see an increase in the paperwork associated with customs compliance, but most businesses will also see an increase in delivery times and some transport costs in both directions.
This is also likely to be accompanied by a significant increase in the uncertainty over delivery times – will it take six minutes or six hours to clear customs? Whether this is an issue or not will depend on the sector in which the business operates: for those in just-in-time supply chains it will be significant whereas those delivering final products it might be less so.
Centre for Brexit Studies Researcher David Hearne, suggests that the immediate set of impacts will be on those businesses whose effective tariff rates change. This will include both all those in certain sectors who export to the EU, but also those who export to any countries that do not “rollover” the UK’s existing free trade agreements.
He said: “Businesses in the UK that are currently either behind a tariff wall due to EU-wide tariffs on things like automotive components, might suddenly find that the UK government has decided to eliminate them on imports. Conversely, those who import things from the EU might find that they need to pay an additional tariff on those imports. At the same time as all of this, we are likely to see substantial exchange rate volatility.
“Over time”, he told Prosper, “these effects will ripple through supply chains. Thus, automotive firms experiencing production issues or changes in relative profitability will alter buying decisions from suppliers. Many smaller businesses in the Black Country will find themselves embedded deep in a supply chain that ultimately involves an import-export business. The severity of these effects will depend on how diverse a company’s client base is as well as the actions of the European Commission and the French authorities.”
Although the Black Country has little direct exposure to the agricultural problems that are likely to emerge as a result of a ‘no deal’ Brexit, some 64,000 people work in manufacturing sectors.
The region has a number of companies in highly exposed sectors – notably automotive and aerospace.
More exposed are those companies in the supply chain with several thousand jobs in companies that manufacture vehicle components and many more in the metals industry.
However, a potential boost for the Black Country lies in tourism, which might benefit popular destinations such as the Black Country Living Museum, West Midlands Safari Park and Dudley Zoo. A dramatic fall in Sterling would make the UK a much cheaper destination for holidaymakers. The flip side of this is that it will erode the purchasing power of UK consumers, making us all feel that little bit poorer.
Dr Jacob Salder, Research Fellow in the Centre for Enterprise, Innovation and Growth in the Birmingham City Business School, believes any prediction of the impact on the business of the UK leaving the EU should be taken with a pinch of salt until more specific details of the exact arrangements are known.
He said: “What is known however is our departure creates a set of challenges for businesses on the basis of not only market access but also continued economic stability, levels of consumption, and availability of investment.
“This issue is significant for businesses in the Black Country. With a strong manufacturing heritage, this traditional industry still represents high levels of business stock and employment, alongside relevant direct (services and supply chain) and indirect (consumer) multipliers. Manufacturing trade, however, is similarly strong in exporting beyond Europe, the West Midlands is one of the UK regions with a greater spread of export destinations.”
Challenges, however, do not emerge singularly around manufacturing and related industries. Dr Salder continued: “Part of the issue in terms of restructuring post-Brexit is about entrepreneurial activity and economic resilience. Here, a higher representation of lower-skilled and productivity industries such as wholesale/retail and transport/storage alongside lower concentrations of jobs in higher-skilled sectors such as information and communication or professional-scientific-technical occupations illustrate potential issues around resilience and adaptation.
“Entrepreneurial activity, however, measured as business start-ups, compares favourably with national and regional rates, particularly in the areas of Wolverhampton and Sandwell.”
Whatever one’s views on Brexit, the level of uncertainty over exactly what is ‘coming down the tracks’ should be of concern to businesses across the region and beyond. Appropriate planning and risk management for a no-deal scenario are now crucial.