UK industry leader weighs up the perils of Brexit

This pre-referendum article by Dr Stan Higgins, chief executive of influential English regional industry body NEPIC (the North East of England Process Industry Cluster) identifies many of the concerns now arising following the UK's narrow vote in favour of Brexit:

Wilton, UK - Make no mistake, the European Union referendum is impacting business and there does appear to be an air of apprehension slowing down investment.

In my experience, within our sector and the wider North East region, the vast majority of business people also wish to remain in. This was also confirmed at the North East Business Awards where a completely uncontrolled vote from the successful local businesses voted by more than 70 percent  to remain part of the European Union.

However, we have been more aware that many foreign-owned businesses have instructed their managers not to express an official opinion to their workers. To me this is a dangerous move as the hidden message seems to be that should the British public choose to leave, these investors –  here because the UK is in the EU – would take their future investment elsewhere.

Furthermore, all businesses, large and small, see how European Union regulation impacts them but only exporters see the upside. The fact is 80 per cent of businesses do not export, so they do not personally experience the benefit.

In my opinion, however, these businesses need to be reminded that they sell locally into supply chains that are funded by exporting – with the European Union being significant contributor to the value they see in their local sales.

What foreign investors and non-EU trade partners think about “Brexit”

On behalf of NEPIC’s members I have tried to keep abreast of what some of our non-EU trading partners are saying about the “Brexit” situation.

A Financial Times poll of more than 100 economists taken in early 2016, showed that more than three-quarters of them thought “Brexit” would adversely affect the UK’s medium-term economic prospects - 9 times more than the 8 per cent who thought Britain’s economy would benefit. One of the ways that the UK economy would be affected is thought to be that investors, particularly those from abroad would be discouraged. The FT refers to a recent survey of 127 American owned companies published by British American Business supports this view. The surveyed US companies already employ 327,000 people here in Britain.

This article states that with $558bn invested in Britain US companies are the UK's biggest inward investors. More than 7,500 companies employ 1.2m people, making the US also one of Britain’s biggest employers. According to “British American Business” several investments are being lost due to the uncertainty caused by the “Brexit” debate.

Business leaders in India have also declared their hand, the Federation of Indian Chambers of Commerce and Industry (FICCI), India’s overall industry body, rarely comments on the affairs of foreign nations but has come out and warned that  “Brexit” could harm investment by Indian businesses in the UK. This comes at a time when growing UK-India trade has been, in recent years, a priority for the governments of both countries.

India is now the third-largest source of foreign direct investment into the UK, after France and the US, creating thousands of jobs and safeguarding many more. With more than 800 Indian owned businesses based here and have invested here because they regard the UK as their gateway to Europe.

These views from abroad have in the past week been reinforced by the Japanese prime minister who said that Japanese investment into Britain could fall if the country leaves the EU and ceases to be “a gateway” to Europe for Japanese companies.

The impact on the UK’s chemistry-based industries

When it comes to the chemical industry specifically, the UK chemical industry faces a “Brexit” threat to its European exports. The Chemical Industries Association’s CEO Steven Elliot stated last month that UK chemical companies' £50 billion in annual exports may be threatened if Britain votes to leave the EU because long standing  trade agreements will have to be redrawn.

Germany is the UK industry’s most important market, he said. About 62  percent  of the Chemical Industries Association’s 93 member companies support remaining in the EU. The remaining 38  percent indicated they haven’t taken a position on the matter.

“It will be interesting to see where that 38 per cent figure will be the day before polling,” Elliott said. “I can’t think of a member company that’s not export dependent. It’s not small beer. Europe matters in a very pragmatic way for us.”

An independent study by Euler Hermes, a provider of trade insurance suggests “Brexit” would hit British chemical firms hardest , than those in the machinery and automotive sectors. The Institution of Chemical Engineers reported on this study in the “The Chemical Engineer” e-zine.

It concluded that the loss of free trade agreements would result in a decline in exports of the order of £7 billion for the UKs chemical industry; this is 14 percent  decline in the current exports from the chemical sector.

A personal conclusion

Within NEPIC, which is a chemistry based process industry cluster, and the biggest industrial sector in NE England which represents some 50 percent  of the UK chemical industry and 30 percent  of UK Pharmaceutical manufacturing; our Industry Leadership Team decided that that NEPIC as an organisation should not survey members, but where we can, pass on information related to outcomes for our sector.

I have undertaken the task of keeping abreast of the debate and have passed on several reports. My personal perspective from this (ongoing) work the evidence and strength of opinion points towards a better economic future for the chemistry-based industries by remaining in the EU.