Panicked in the face of Brexit uncertainty, UK businesses are looking to win new markets overseas, including the GCC
As UK politicians continue to lock horns over the Brexit crisis, the livelihood of national businesses could be caught in the crossfire.
Britain’s uncertain economic outlook has left its companies scrambling outside the European Union for backup markets to plug the country’s trade hole should the UK leave the market on unfavourable terms.
Six weeks on from the original deadline for the UK’s departure from the EU and over three years since the historic EU referendum vote, the British government is still no clearer on whether the country will invoke a hard or soft Brexit by October 31, 2019 – or even leave the EU at all.
Many of Britain’s businesses depend vitally on Europe to ply their trades.
Because of the potential shortfall, British companies will be trying to get into all sorts of new markets, including the Gulf
According to UK government data, British exports to the EU in 2017 were £274bn ($353.8bn), accounting for 44 percent of all UK exports, while UK imports from the EU were £341bn ($440.3bn) – accounting for 53 percent of all British imports.
“Because of the potential shortfall, British companies will be trying to get into all sorts of new markets, including the Gulf,” predicts Chris Doyle, director of the London-based Council for Arab-British Understanding (Caabu).
Ben Digby, international trade director at Confederation of British Industry (CBI), confirms to Arabian Business that the Gulf is ‘an important trading partner’ for the UK.
“Across the Gulf region, there are opportunities in several sectors, with a particular focus on infrastructure, education and healthcare, areas where the UK is a world leader in quality and excellence,” he says.
A major business sector affected by the uncertainty of Brexit is the UK’s food and beverage industry. Accounting for 19 percent of the manufacturing sector by turnover and employing over 400,000 people in the UK across 7,000 businesses, it represents the largest manufacturing sector in the country.
A spokesperson for the British Food and Drink Federation (FDF) tells Arabian Business that UK suppliers are looking to increase their post-Brexit ties with the Gulf.
“In 2017, we commissioned a Grant Thornton report looking at potential growth opportunities for the UK’s food and drink industry and 16 percent of respondents cited the UAE as a market they did not currently export to but would like to in the future. In 2018, the UAE was the only Middle Eastern market among the top 20 export destinations for UK food and drink, but it was the second largest export market for UK breakfast cereals,” the spokesperson says.
As part of the UK government’s Industrial Strategy, the FDF is in discussions with key departments about securing an ambitious food and drink sector deal that would include market-access assistance.
“The UAE is one of a number of markets identified where this sort of support could help UK food and drink exporters identify new opportunities,” the FDF says.
British companies already export more than $20bn to the GCC annually, with a goal to raise exports to $30bn by 2020, according to government figures.
The UAE is one of a number of markets identified where this sort of support could help UK food and drink exporters identify new opportunities
The UK has made it clear that it wants to strengthen trade relations post-Brexit by regularly shuttling out UK International Trade Secretary Liam Fox to the UAE for talks this year.
A spokesperson for the Department for International Trade (DIT) says: “The UAE is a vital global trading partner for the UK. The Prime Minister has been clear that she is looking for the strongest possible trading relationships between the UK and the Gulf after the UK leaves the EU.”
The DIT also highlighted that the UK-GCC Trade Working Group was announced in December 2016 to examine how the two regions can best seek to deepen the trade relationship once the UK has left the EU. This includes exploring non-tariff measures, such as regulatory barriers to market access, which could help facilitate free-flowing trade.
Conversely, Gulf states could be set to make a $1.1bn profit from the UK leaving without a deal, according to a UN report released in April.
The United Nations Conference on Trade and Development’s (UNCTAD) report looked into the global impact of a hard Brexit from the EU. Although North African states such as Morocco and Egypt would be hit hard by a no-deal Brexit, Gulf states would benefit due to increased volumes of trade with the UK, it said.
The UAE would see the biggest gain, with predicted profits of around $425m due to increased exports to the UK. Saudi Arabia would get a $267m boost from a no-deal Brexit, with Kuwait closely behind at $263m. Bahrain and Oman would see profits of $16.7m and $8.4m respectively, according to the report.
Britain’s trading relationships with other countries, including the Gulf, depends on exactly what kind of Brexit transpires, says Tom Pugh, commodities economist at London-based Capital Economics.
The Prime Minister has been clear that she is looking for the strongest possible trading relationships between the UK and the Gulf after the UK leaves the EU
Pugh tells Arabian Business: “If the UK remains in some sort of customs union with the EU or the single market, then it seems unlikely that there will be a major change in UK trade flows.
“If not, then UK exporters would probably face some tariff barriers when selling into the EU, which could incentivise them to look elsewhere for new export markets.
“Given the already close trading relationship between many economies in the Middle East and the UK, then exports to the region could rise more quickly than elsewhere,” Pugh says.
Rizvan Khalid, managing director of Euro Quality Lambs, for one, is keen to shift his firm’s focus to the Middle East and other regions should a ‘no deal’ Brexit arise.
Khalid’s family-owned firm produces over 13,000 lamb carcasses weekly and exports 80 percent of these to the EU.
“If it’s a no deal [Brexit], it will be a disaster... in that scenario, we will be more focused on looking at our non-EU partners, such as the Middle East, China, US and Canada.
“Depending on how Brexit goes – and that’s the biggest unknown at the moment – we may have to adjust our export strategy,” he says.
“We have done business with the Middle East before; that is an area that we have opened but our main customers are into Europe,” he adds.
Khalid says that there is demand from “high-end retailers and food service sectors” in the UAE and Saudi Arabia.
“Outside of Europe, there is a lot of demand for New Zealand lamb, because it’s more affordable, but we work on the premise that we have high quality British lamb; we are priced at a premium but we also offer British quality and heritage.”
But while UK companies may be keen to ply their wares in the Gulf region, they must be prepared for new business conditions, says Caabu’s Doyle.
“The pro-Brexit argument says that leaving the EU will make British businesses more flexible, adventurous and risk-taking than ever before.
“But are British companies really ready to expand into the Middle East? Are they ready in terms of dealing with Middle East culture and some of the risks of working with a region of the world that is not free from conflict and strife? That remains to be seen,” he warns.