Caribbean lessons from Brexit

The Brexit chickens are coming home to roost in a troubled British economy, however much British government ministers and other English nationalistic hopefuls are trying to suggest otherwise.

It was a colossal mistake to hold the referendum.  In the words of former Conservative Party Prime Minister, David Cameron, it “unleashed the demons”.   The decision of the referendum was an even greater mistake by the English voters who favoured leaving the European Union (EU).   

The majority of people in Scotland, Wales and Northern Ireland (the rest of the United Kingdom) preferred to remain with the EU, in part to escape English dominance, but also because it made sense to remain in a single market that accounts for 45 per cent of all British exports.

Staying in the EU also made sense because the UK’s attractiveness for foreign investment was based significantly on the access that it provided to the other 27 EU states with the largest single market of over 450 million people.

Britain’s City of London has long been recognized as the banking centre of the world, despite the efforts of other European cities to lure the banks to their shores.   The UK’s financial services sector contributed $89.8bn (£71.4bn) in taxes in 2015, accounting for 11.5 per cent of the UK’s total tax receipts.  The financial services sector employed 1.1 million people or 3.4 per cent of Britain’s national workforce.

All that is now about to change, as the formal triggering of the negotiations between Britain and the EU looms large.   A study, just released by the British think tank – Centre for Business and Economics Research (CEBR), Japan’s Hitachi Capital, and online pollsters – YouGov, says the UK is likely to lose more than $82bn (£65.5bn) of investment due to the vote to leave the EU.

British businesses are either abandoning or delaying their investment plans.  Foreign investors, such as the Japanese car manufacturer, Mitsubishi, are concerned about being restricted from the EU’s single market which its Chief Executive, Haruki Hayashi, says is a major concern for Japan.  He emphasized that Japanese businesses had come to Britain as a gateway to Europe.  Further, he revealed that EU countries have already begun to woo them to shift their investments directly into Europe.

The financial services sector is also setting up for a hit as leading banks make plans to move some of their operations from London to Paris.  According to a BBC report, Benoit de Juvigny, secretary general of Autorite des Marches Financiers (AMF), has said that “large international banks” based in London have conducted due diligence to move operations to the French capital.

Who can blame them?   Business – and certainly banking – is not based on sentiment.  And, if Britain’s departure from the EU means the loss of rights for Britain-based financial institutions to offer services to companies and governments across the EU without restrictions, it makes good business sense to move to the much larger EU market.

It is well known that at least eight financial centres across Europe – Paris, Frankfurt, Dublin, Luxembourg, Amsterdam, Madrid, Bratislava and Valletta – are actively wooing companies based in London.

When some of the financial institutions shift to the EU, and foreign investors make the business decision to locate where their manufactured products will not be subject to tariffs, the effect on the British economy will be rough and it will be widespread.   Not only will revenues to the British government decline, causing it to have far less to spend on social welfare projects that benefit the lower income groups, unemployment will also soar resulting in mortgage foreclosures; the rental property and housing markets will wane; and the economy will shrink.

All that will make Britain a lesser power in the world.  Its economy has already declined from number 5 to 6 in the world.  Finding markets to offset the loss of duty-free access for goods and services it now enjoys in the EU will not be easy.   Proximity makes a big difference to costs and competitiveness of exports.  So, even if Britain were to open markets in Africa, Asia and Latin America, the cost of its manufactured and agricultural products would face fierce competition from other nearby suppliers.  And, if the US President-elect, Donald Trump, is taken at his word, there will be no trade deals with any country, including Britain, that does not favour the US.

Increasingly, the notion that the other 51 members of the Commonwealth of Nations would be the answer to Britain’s trade problems is being debunked for the false campaigning that it was in the Brexit Referendum.  Some went as far as calling the Commonwealth the potential “saviour” for the UK.  They were clutching at straws.   As I pointed out at two recent public occasions – the first in London and the second in Grenada – the Commonwealth has much merit but trade is definitely not one of them.

Britain’s earnings from exports to the Commonwealth, are not huge now, representing only 9.76 per cent of its total exports in 2014, while its merchandise exports to the EU represented a hefty 45 per cent.  In any event, total Commonwealth trade in goods has declined over the last four decades since Britain joined the EU.

And, even the Commonwealth’s share of world trade is owed to the trading capacity of only six states – Singapore, India, Malaysia, Australia, Britain and Canada. Moreover, that trade is not between themselves.  For instance, China is Australia’s biggest trading partner, and the US and Mexico are Canada’s. In 2014, the six countries accounted for 84 per cent of all Commonwealth exports; 47 countries combined, including South Africa and Nigeria made up only 16 per cent.   

The contribution of the Caribbean and Pacific regions (21 of the 52 member states) to overall Commonwealth exports is small, accounting for a paltry 1.14 per cent of Commonwealth exports in 2013.  In any event, none of the Commonwealth countries in Africa, Asia, the Caribbean, the Mediterranean and the Pacific are compromising their access to the EU market of 450 million for Britain’s smaller 60 million.

The lesson for the Caribbean is that countries benefit more from being inside a single market than outside of it.  A certain English arrogance – a belief in English ‘exceptionalism’ and the superiority of their institutions and, in some cases, even of their tribe – encouraged the ‘leave’ vote in the UK referendum.

No country in the Caribbean should fall prey to the notion of its ‘exceptionalism’; none are exceptional from the others; and those who mistakenly believe otherwise are destined to fall on their swords.

(Sir Ron Sanders  is Antigua and Barbuda’s Ambassador to the United States and the OAS.  The views expressed are entirely his own. Responses and previous commentaries:

9 Responses to Caribbean lessons from Brexit

  1. Santini More
    Santini More December 10, 2016 at 1:23 pm

    Unfortunately it appears that people no longer learn from other peoples mistakes, folks have to experience the pain and hardship for themselves before they understand anything.

  2. Mike December 10, 2016 at 1:52 pm

    Hello Santini, even at the individual level, some people believe that they can do it all by themselves, but as the ancient saying goes “no man is an island”,,,, hey and yes, two heads are better than one !!! Wow, “there is strength in numbers” ,,, I hope Sir Ron preaches those truths to the leaders of Caribbean countries !!!

  3. Jennifer December 10, 2016 at 2:28 pm

    I am certain Britain will bounce back economically or join another union. With the amount of “OLD SLAVE TRADE MONEY” she has she will stay afloat. Maybe she was sick of playing the jersey cow while others milk her. good for her i say.

  4. jrsmith December 10, 2016 at 2:29 pm

    This is how failing educators want to educate us , who all fail to recognized we were heading for economic disaster 8 years ago, these are the people who if our region keep listening to them we will never be prosperous… They failed to predict the out come of (Brexit ) and the Donald trump win , as for the crooked bankers who is still fleecing us people in the Uk plus the untrustworthy financiers, good thing if they go..

    Cameron was a coward he took the tax payers money to save the crooked banks .. As for the (EU) single market ….
    27 countries in the (EU) single market , 450 millions people , of the 27 countries you can count on one hand the ones who might be doing ok. most of them are poor , high unemployment , very low , low paid most of whom if they want a better life the only place they find it is in the (UK)…where they earned 50 to 60 times as much…………

    The single market yes 450 millions , but comparing that 450 to the (US) 340 millions the (US) 340 millions worth 50 times as much as the (EU) 450 …
    All of these so call educators is trying they level best to find anything to revenge the Brexit win…..

    As for Barbados and the region we are having all of the so call educators telling us where the various governments is going wrong , but they cant put together a manifesto for the individual or regional islands…
    Our region and individually governments needs to stop all the corruption , stop depending on parts of the world to help we need the political and financial strength………….

    And finally the (EU) 27 countries which most is broke struggling as near to Greece , very racists in they attitudes toward the commonwealth black countries, and all infested with rightest political parties , give this (EU) 3 to 5 years , our people in the (UK) will thank they lucky stars , for (Brexit) …….

  5. JOHN TITHERIDGE December 10, 2016 at 6:13 pm

    Everyone I know was fed up with faceless officials from Europe telling us what to do, we voted to enter a free trade area many years ago, not some sort of Euro-superstate. How would Bajans feel if about 50% of people you meet come from other countries with alien cultures & don’t speak the official language of your country? People want the UK put first, they want money spent on our schools, housing, health services, police, security etc not shoring up the economies of inept Euro countries or the rest of the world.

  6. Mike December 10, 2016 at 8:53 pm

    jrsmith,,,, stop attacking the messenger, and try to understand the message . Maybe then your eyes will open and you will see what the man is saying . There is something new to learn every day.

  7. John Strutton
    John Strutton December 10, 2016 at 9:49 pm

    What utter ill-informed drivel this article is. Aside from the innacurate economic assessment of the cost of leaving the EU, it makes no comment at all on the cost of STAYING. The UK has long paid in far more than it enjoys back from the EU purely so that under-developed countries like Bulgaria and Romania can benefit – in fact only Germany and France pay in more than the UK, and the rest of the EU soak up more than they pay in. Then there’s uncontrolled freedom of movement and the associated epidemic of crime that has spread across Europe bringing hordes of professional criminals who have the right to enter… This writer has no idea of the dead weight that EU membership and restrictions on trade have become for the UK and should concentrate on kissing up to the new US president. See how that goes….

  8. Michael Potter December 11, 2016 at 10:50 am

    You are entitled to your opinion, you are clearly a Remainer and I am afraid you are quite wrong. It is simply not true to say ‘the Brexit chickens are coming home to roost in a troubled British economy’.
    The UK economy will be the best performing economy in Europe in 2016. Trade figures are already (and surprisingly) swinging in favour of Britain.
    The looming requirement to recapitalise Italian banks is another demonstration of the fact that the euro is fundamentally flawed.
    The UK is the principal export market in Europe for German cars. Only an idiot would seek to impose damaging trade tariffs. Despite that some EU officials will argue for the imposition of tariffs which further shows why the UK should remove itself from their influence.
    Similarly several governments will be seeking to step back from completely open borders in the coming year and that will also
    pull the rug from under the ‘Hard Brexiters’ negotiations.
    Finally watch support for the Euro unravel in the French and Italian elections…

  9. louis walker December 12, 2016 at 3:40 pm

    Two excellent articles from John Strutton and Michael Potter. Reading between the lines it becomes obvious that the UK should never have joined the EU in the first place ;at least not on those terms. It was more a cultural thing rather than a financial imperative.The world is now a different place and threatens the very existence of the European Union;they in turn seek to threaten an independent United Kingdom.
    The success or failure of Brexit is in the hands of the British people and they are at their best when they stand alone ,backs to the wall.


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