BUCKLE-UP! THE IMPACT OF BREXIT ON EXPORTERS FROM DEVELOPING COUNTRIES CAN BE NASTY
The Brexit vote goes back to 2016, but 3 years down the line there is still no final agreement on how the UK will leave the EU. In the meantime, the impact of Brexit is already being felt. Not only in the UK and the rest of Europe but also in developing countries. In this article we are highlighting some of the consequences of the Brexit and what it means to trade with developing countries.
Increasing costs and negative sentiment
Since the infamous Brexit vote it immediately became clear that the economy of the UK, as well as its main trading partners in the EU, would be negatively affected. For one, there is a high cost involved for member countries leaving the EU. Besides, elimination of the free movement of goods increases costs to trading partners at both ends. In addition, the investment climate in the UK tumbled. Headquarters of multinational companies and manufacturing plants producing for mainland Europe started to relocate to mainland Europe. Uncertainties about an agreement led to further negative sentiment leading to a depreciation of the Pound Sterling and decreasing economic growth in the UK.
But what does all this mean to trade with developing countries?
First of all, there are consequences that are immediately felt. The slowdown of the economy in the UK and resulting negative spill over to the mainland of Europe affects trade opportunities of exporters in developing countries: right here and right now. In recent market research that we conducted on behalf of CBI, on the home decoration market in Europe, we came to the following findings:
The GDP (Gross Domestic Product) growth in the UK is relatively low and forecasted to go down from 1.4% in 2018 to 1.3% in 2020. In comparison, for the EU as a whole, the figures stand at 2.1% in 2018, and 1.7% in 2020.
In terms of growth of private consumption expenditure, we see the loss of consumer confidence in the UK: with figures going down from 1.7% in 2018 to 0.8% in 2020.
On the other hand, Germany and France have shown an increase in growth of private consumption expenditure: from 0.9% to 1.3% and 1.5% respectively.
10% decrease in imports of home decoration items
This slowdown in economic growth and loss of consumer confidence has a direct impact on the purchasing of home decoration and home textile items. These are typical products that are widely imported from developing countries. For example, imports of ceramic dinnerware in the EU, which is valued at some €1.9 billion in 2018, originate for more than 65% in developing countries. That means substantial business of more than €1.2 billion. The sales of these items are quite sensitive to economic cycles. As a result, since 2015, one year before the Brexit vote, the import of ceramic dinnerware in the UK has decreased from €265 million to €239 million. That means a 10% decrease, while the rest of the EU showed an increase. Like for the whole of the EU, the share of imports from developing countries is more than 60%. The impact to exporters from developing countries is therefore substantial.