From beer to drugs to cars: Global business laments Brexit
Big business -- with a very few exceptions -- has been strongly in favour of remaining in the world’s biggest trading bloc, primarily because of ease of access to 500 million European consumers.Britain EU Referendum Updated: Jun 24, 2016 14:04 IST
Shocked chief executives from Mumbai to Denver woke up on Friday to face tough decisions over how to respond to Britain’s vote to leave the European Union.
In Britain itself, businesses as diverse as engineering group Rolls-Royce, drugs giant AstraZeneca, housebuilders and makers of Scotch whisky were braced for disruption in the short and long term as the pound plunged to its lowest level since 1985.
Big business -- with a very few exceptions -- has been strongly in favour of remaining in the world’s biggest trading bloc, primarily because of ease of access to 500 million European consumers.
“The weeks and months ahead are going to be a nervy time for business leaders,” Simon Walker, director general of British business lobby the Institute of Directors, said on Friday.
Jaguar Land Rover, Britain’s biggest carmaker, has estimated its annual profit could shrink by 1 billion pounds ($1.4 billion) by 2020 if Britain returns to World Trade Organization rules for trade with Europe.
Shares in the company’s owner, India’s Tata Motors, slumped more than 10 percent.
Makers of Scotch whisky, who export about 90% of what they produce, have stressed the importance of the EU, which swallows about a third of those exports, but also the clout EU membership gives in negotiations with fast-growing markets such as India, which has a 150% tariff on imported spirits.
Some investors warned of a coming British or even global recession as sterling collapsed to hit its lowest since 1985, while FTSE futures fell 8 percent.
The president of Japan’s Nippon Steel & Sumitomo Metal, the world’s second-largest steelmaker, said the vote was extremely disappointing. “We are greatly concerned for the negative impact this will have, not only on Britain and the EU but also on the global economy,” said Kosei Shindo.
Martin Sorrell, the boss of the world’s biggest advertising group WPP, said: “This decision will create tremendous uncertainty, which will slow economic activity and decision making.”
Big swings in sterling will be a headache for some international companies, with a fall in the currency hitting profits earned in Britain.
International companies with sizeable sterling exposure include Denver-based Molson Coors, owner of Carling beer, which is heavily reliant on the UK.
Aside from market access, streamlining of regulations within the EU has made life simpler.
Pharmaceutical companies, for example, enjoy a one-stop shop in the form of the European Medicines Agency -- based in London - which approves new drugs for all EU countries, while the EU’s open airspace deals have fostered a surge in air travel and common policies on agriculture and food safety have allowed for smoother supply chains and richer eating.
Companies in those sectors have fretted that Britain outside the bloc would disrupt the regulatory landscape.
“This creates immediate challenges for future investment, research and jobs in our industry in the UK,” said Mike Thompson, CEO of the Association of the British Pharmaceutical Industry.
AstraZeneca said it was concerned for the competitiveness of the British life sciences industry and would work to ensure patient access to medicines, amid worries that leaving the EU could delay drug approvals.
Access to workers is another important factor for companies. Automotive industry executives, who are heavily reliant on exports, ranked tapping a skilled workforce a close second to accessing EU markets in a survey on reasons to remain in March.
Ahead of the vote, some British-based multinationals such as Diageo, Unilever and Rolls-Royce had expressed their support for “Remain” directly to employees, although most stopped short of this.
Government figures show 12.6% of Britain’s economic output is linked to exports to the EU’s 27 other members, for whom only 3.1% of output is linked to exports to Britain. And 80% of British businesses trading overseas do so with the EU.
The Confederation of British Industry has estimated there could be between 550,000 and 950,000 fewer jobs by 2020 in the event of Brexit.
For banks, a huge concern has been the threat that financial institutions based in London could lose their EU “passports”, or the automatic right to sell services across the bloc under single low-cost system. That has made bank shares particularly volatile in the run-up to the referendum.
Brexit uncertainty has also helped push British merger and acquisition activity this year at its lowest as a proportion of global activity since records began in 1980.
First Published: Jun 24, 2016 14:03 IST