A positive outlook on Brexit — A commentary

Is there a faint possibility, that this could actually turn out to be better for all concerned? Lets look past the worry, for the purpose of discussion, and take a view on the hypothetical positives. As always, the numbers tell the story, and I’d like to share them for some discussion.

In a nutshell, one wonders that for a country with such tradewinds as the UK, can they build a value proposition at the table of negotiation that nullifies the gloom of the whole affair.

At a high level, GDP is 2.7 trillion GBP, in the top 10 globally as an exporter and an importer, out of 195/6 countries. Lets step past the the hyperbole from European ministers about the formality of affairs; be under no illusion; the EU needs the UK as much as the UK needs the EU.

Here’s why.

First lets put some structure around this; the 3/4 freedoms of the so-called ‘Norway model’ are as good a place to dissect this as any.

Free movement of goods, persons, services & capital (joined for the purpose of the discussion).

  1. Goods. 22% of GDP.

Important here that we assume Scotland will remain part of the UK, as the only major commodity of scale that the UK produces is Oil & Gas from the North Sea. Scotland achieving independence and securing ownership of those 2.9 Billion barrells in reserve (2015 figure), changes things. However, lets assume Scotland stays, on the hypothetical basis that terms secured by the UK at negotiations are actually not as bad as predicted by media, and the public opinion is another referedum on the same topic within 2 years is not in the best interests of the public. Thus, Nicola Sturgeon waits it out for 12 months. Feasible, and probably a sensible move from a leader of her calibre.

‘Bias for action’ is a much sought-after trait CEOs like to profer as a leadership quality.

Somebody once told me that learning to drive a car is not hard. Any plum can get behind the wheel and drive fast. Learning to drive safely over a life-time is the hard part. And in this mood, I feel the ‘bias for action’ comment is better refined to ‘bias for action: timed correctly’.

Back to goods. What have they got to sell, that others NEED.

Of the 22% of GDP (0.6 Trillion GBP, of a total of 2.849 Tr) that is non-service related in the UK, the core contributers are aerospace, pharma and auto. High value industries, very high levels of specificity, and for the first 2 at least, the UK is in the top 3 for volume globally. So, they have something to offer at the table.

Mass travel will not abate, so planes will still be required. The internet of things will require a raft of new consumer goods to be produced and distributed, and with consumer expectations typically not allowing for the 3–5 week delivery time on the sea from Asia, cargo planes will still carry high demand.

In my brief stint in pharmaceuticals, I learnt a lot. Let me put some context around why I think it is so important that a significant section of non-service GDP is in this space, from the UK’s point of view.

The industry is put under immense pressure to demonstrate that the rulings of the FDA are in the interest of patients, and not the shareholders of the industry. This then gets blended with the unfortunate stories of clinical trials gone awry. The reality is that all manners of science are experimentation led, and absolutley the unethical occurs. However, this is an industry that is vastly occupied with dedicated individuals, many of them ex healthcare professionals, with a job to manufacture the most complex chemical compunds in the world, to bring ease to the suffering of many.

The healthcare industry as a whole is recession proof, as people will always be sick. If you’re going to the negotiation table with a need to lean on some of your lower cards, having one that is as socially important and as consistent a performer, is highly helpful, if not vital.

2. Persons

Firstly, these are PEOPLE, not NUMBERS. On that point lets try discuss this practicly. There are, however, finances to this, of major proportions. Let’s split this topic into 2 aspects;

  • “asylum & immigration applicants” and
  • “non-UK citizens already in the country”.

P.1 — Asylum & immigration

Having done some work around the processing of asylum seekers to Manus & Christmas islands in Australia, I understand some of the challenges of receiving any form of identity documentation from individuals that have just been pulled out of the Indian Ocean.

That sounds a flippant statement. This is fact, and this is the enormity of the challenge where we have more mass displacement than ever.

We might not like that the UK have questioned why they take so many when they can afford it. However, if a body of individuals have a point of view on a topic, and they can go to polls and vote for it, then that’s a success. Whether we agree or not, we are talking about it. It’s when the talking stops, that the issues arise.

Back to the topic.

Some numbers for context:

  • Cost of detention in an offshore facility is 300k pa EUR per detainee
  • Cost of detention in an onshore facility is 150k pa EUR per detainee
  • Australia in 4 years has spent 9.6Bn AUD on processing alone
  • Aim for Gov bodies to process 75% of asylum visas within 12 months
  • Cases can take as long as 7 years
  • Average processing time in Ireland is 4 years
  • About 18% of applications are granted

One can see on the basis of these numbers, the reason people have an issue with no control over how many people they receive.

How can the UK turn this into a positive at negotiation? By mandating their own process for vetting of applicants, there is the opportunity to make it more streamline, given they are not attempting to accede to a myriad of complex legislative requirements; simply their own. Hence cost per applicant could feasibly reduce, along with time to process, meaning they could in fact reduce spend and increase numbers to whom they grant asylum.

Theoretical, absolutley. However, it is possible. HUGE body of work to achieve it, but I’ve seen first hand how poorly it is handled by those collect the 9.6Bn. Nobody who has worked as a social worker or a care giver in these environments (I count many as friends) would disagree that the manner in which this process is executed couldn’t be dramatically improved with simple steps.

This system will NEVER be ‘fixed’, but improvements are realistic.

P.2 — Non UK citizens

A lot has been made of this. I’ve seen countless articles with the headline; “UK will NOT exclude Irish people in plan to get rid of “foreign workers” from Britain”.

This is not what has been said. Schools and employers may need to report numbers, but it’s this inflammatory rhetoric that leads to visualisations of families lined up in their flat caps at the ports ready to be put on boats back across the Irish Sea. It’s ludicrous.

Amber Rudd, UK Home Secretary has stated the following;

  • Curbs on students and foreign workers
  • EU nationals who repeatedly commit “minor crimes” will face deportation (fair enough, definition of ‘minor’ dependent)
  • English language tests for people coming to the UK to study (Most countries already have this req — Aus does even from UK immigrants — I had an English housemate fail it as well!)
  • Companies to be required to publish the proportion of ‘international’ staff on their books (If its anonymous to the individual, I don’t see this as major. Reporting requirements are pretty extensive for the US 10-K as it is)

Again, the rhetoric from some career shadow politicians and journalists (devoid of grammar and punctuation) have included inflamatory descriptives such as; “(these points are)….divisive, discriminatory and risk creating real hostility in workplaces and communities”.

The hope being, people don’t take the time to read the actual comments, or statements, and will simply cling to the notion of the headline description.

I think this is the gap in the UKs proposal. They can’t have this, without appearing to restrict ‘freedom of movement’, and thus gives the EU negotiators a position of leverage. To my eye, the above doesn’t neccessarily restrict freedom of movement, hence the word ‘restrict’ will be dissected and re-written 14 times before it’s confirmed.

If the UK win this battle, and convince the EU that the above does not interfere with the definition of ‘unrestricted’; then they have a serious opportunity to continue in the rest of the discussions without a marked card.

Conclusion of Persons:

A more streamlined and controlled approach, without having to please multiple member states could in theory deliver the same outcome for less. It is a big proposition, and not one that will be received well at the table in terms of feasibility, but given the unsustainable position Australia is in (9.6Bn in 4 years in detention alone), it’s clear the debate will be over how realistic the claims of the UK negotiators are. Depends how well they prepare the discussion, and how robust the Transition plans are.

I’ve taken over multi million dollar operations with 30 days notice, and can attest to the strain of it. The work that must go into this discussion point, is collossal.

Services & Capital

This is the area where the UK has strength, expertise, talent and ownership of the financial services hub at the moment.

Being a global financial service provider brings with it the following reporting requirements; FATCA, Dodd-Frank, EMIR, MiFID, HKMA, MAS, AML, ASIC, not to mention KYC. So, most of these guys won’t go away, whether FinServices are in the EU or not. However, let’s assume they do decide to move. What happens.

Companies currently based in London are not being silent about considering propositions from Paris, Frankfurt, Luxembourg and Dublin.

Interesting. Let’s look at what’s out there at least.

Ireland so far has been reserved; no outlandish offers. We have a high number of considerations for you, you’re not coming here in spirit but not in body. Either move your operations lock stock, or we’re not having you.

Safe.

Frankfurt, home of the European Central Bank, has a population of 700,000, and has been described in the same manner as Dublin as, wait for it, a ‘backwater’.

That’s a major financial publication, article published in June 2016. No joke.

So, if this is the prevailing perception, the likelihood is FinServices will be split across Warsaw, Lisbon, Paris, Dublin and Frankfurt. Insurance will go to Asia, as the industry globally is underwritten from London, so if it’s no longer part of the EU it will shift to lower labour centres.

A fallacy is the notion that the weaker the economic integration with the EU, the greater the negative impact. Even if the UK does disseminate its FinServices & Insurance centres, trade won’t effect the number of jobs in a country. That’s not how economics works. Jobs will change, certainly. However we won’t be overcome by a mob 4,000 workers from this bank, and 1,000 from that insurance company, roaming Canary Wharf looking for something to do.

Simply not. So this ‘heavy price’ will cause disruption, for sure. Job losses? Probably. Changes? Plenty.

The Negotiators

Francois Hollande is up for election in Spring, as is Merkel, who lost heavily in her local’s just last month. So now we have an unstable team on the other side of the table, and some cold truths about just how bad these impacts would be (or won’t be, as the case may be), the picture begins to become a little clearer.

Michel Barnier was appointed October 1st as chief negotiator, as solid a career EU politician as one can imagine. What’s positive (from an EU perspective) is his broad range of Ministerial positions, which will equip Mr Barnier to understand the complexities of the situation.

One of the biggest tasks facing Theresa May, will be staying focussed outside the rhetoric of shadow politicians, grasping their opportunity to share in the global spotlight, and running distractions. If May can harmonise the Government for the next 2 years…..big ‘if’…..she may capitalise on a strong value proposition, and greater stability.

Summary:

In writing about this topic and doing the requisite research and reading, one sees definite cause for the debate. It is a shame the campaign which pulled it over the line was so full of hot air and little substance.

It calls really for better validation of claims made during campaigns, akin to the requirements placed on the Pharma industry. Actual contributions to the UK were approx 40% of those advertised on the side of buses. No fact checking, just print it and ask questions later. It’s unethical. However we’re here, so the purpose of this commentary has been to unpack some of the potential scenarios, and try to find light in the pillars of discussion.

However, I can see the outline of a strategy. PR will be critical in the 2 years FROM WHEN ARTICLE 50 IS ACTIVATED. If they get their Transition plans right for the offered course of action on each of the pillars, and realise the value in having such a large portion of the worlds import and export; the position should be strong.

I don’t see this conclusion as anti-European; it’s better for all concerned if the UK manages to achieve what its people voted for; with potential to better servce those in the greatest position of need; asylum seekers.

The capital and services will capture most of the share of voice, but hopefully ‘human rights’ will also remain an important part of the lexicon at the great table of negotiation.