Brexit winners and losers

The deadline set by British Prime Minister Boris Johnson for negotiations with the European Union (EU) on a post-Brexit trade deal expires in a week. If the talks fail, a large list of companies will feel the pain of a hard Brexit. But there are also companies that – regardless of the outcome – are benefiting considerably from Brexit.

Many parties live with fear and trembling at the moment when Great Britain will soon turn its back on the EU. The British population is one of the biggest victims economically. Law firm Baker McKenzie calculated this week that Brexit will cost the country around €2030 billion a year until 150. That is an annual setback of more than € 1.000 for every resident.

That cost item comes on top of the economic damage of the corona crisis and will increase even further in the event of a No Deal Brexit. Toyota and Nissan, among others, have already announced that they will recover any damage from the British government. If no agreement is reached, car manufacturers will have to pay a 1% import tax on passenger cars that they ship to the EU from 10 January.

Fishermen and flower growers feel the pain
Brexit may also mean a big draw for many Dutch companies. This applies, for example, to the fishing industry. Our country's cutter fleet already saw its turnover fall from €305 to €234 million last year. The corona outbreak will make 2020 an even worse year, with demand from restaurants falling sharply. If British fishing waters are closed soon, the sector will face a completely dark future.

Prime Minister Boris Johnson is committed to a transitional arrangement for fishing until 2024. But if no agreement is reached, one of the main fishing areas will be closed within 100 days. The floriculture sector will also be severely affected in this scenario. Great Britain accounts for almost 15% of the total Dutch flower export. The prospect of potentially lengthy border delays makes it a lot less attractive to do business with UK customers.

Consultancy firms come in
On the other hand, there are of course also companies that benefit from Brexit. For now, the large consultancy firms are at the top of this list. Last Tuesday it was announced that the British government has spent £450 million on the services of these companies over the past three years. That is an increase of no less than 45% compared to the previous period. Deloitte was the big earner with £147 million, followed by PwC with £106 million.

There are also major differences within the British government. For example, UK Home Office consultancy spending has increased eightfold. And at the Ministry of Transport, that amount increased by 156% to £88 million. You can also wonder whether the information thirst that consultancy firms provide has come at the expense of the speed of action. A few weeks ago, port authorities in Dover said they had still not received money to make Brexit adjustments at border controls.

And the pound?
For now, the pound is a clear loser from the UK's exit from the EU. Since the referendum in 2016, the currency has fallen by almost 20% against the euro. The futures markets are pricing in that an additional 5% could be added if no agreement is reached. On the other hand, the pound can bounce back by 6% if good agreements are made. So anyone who has anything to do with the British currency can get ready for a wild ride on the pound.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

© DCA Market Intelligence. This market information is subject to copyright. It is not permitted to reproduce, distribute, disseminate or make the content available to third parties for compensation, in any form, without the express written permission of DCA Market Intelligence.