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Brexit vs. Chemical Industry

A ‚Bad Signal‘ – What the 'Brexit' Means for the Chemical Industry

| Editor: Dominik Stephan

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An 18.5 Million-Euros market at the crossroads: If Great Britain should vote for leaving the EU, the consequences for the chemical industry would be enormous – especially for the British…

Great Britain is an important trading partner and one of the biggest markets in the EU for the chemical and pharmaceutical industry. Last year, the industry sold goods worth 18.5 billion euros to Britain, the lion’s share of which (namely 12.9 percent) coming from Germany (7.3 percent of all exports). But this could change drastically: Should a majority of British voters decides in the referendum on 23 June for their country leaving the European Union, that would have noticeable negative effects on chemical production in the EU and abroad.

“Especially now, at a time when the economy in Europe is undergoing a timid recovery, a withdrawal from the European Union would be a bad signal for the further economic development”, stated Marijn Dekkers, President of German’s Chemical Industry Association VCI.

Billions are at stake: Each year, Europe ships chemicals and pharmaceuticals in the double billion Euro range to Great Britain. In case of a Brexit, the VCI anticipates in the mid-term a weakening of the chemical-pharmaceutical industry’s exports to Great Britain and a drop in direct investments on both sides of the Channel. VCI President Marijn Dekkers states: “We hope that a clear majority of British voters will want to remain in the EU.”

Specialty Chemicals and Pharmaceuticals Affected

Specialty chemicals and pharmaceuticals accounted for the largest share of chemical shipments to the UK in 2015. Yet, this is by no means a one way street: In the same time, German chemical companies alone imported goods to the value of 5.6 billion euros from the island. These mainly included pharmaceutical inputs and petrochemicals.

Great Britain is also immensely important as a production and distribution location. At present, 63 subsidiaries of German chemical companies are active in Britain. Overall, they employ around 6,000 staff and realise sales of 4.1 billion euros. The stock of direct investments on the island totals roughly 1.6 billion euros. British investors have invested well over 2 billion euros in the German chemical industry.

Don't Cut Yourself: Effects on the UK

From the VCI’s perspective, the most serious negative economic effects of a Brexit would have to be borne by the British themselves. But a withdrawal from the European Union would bring losses in gross domestic product and falling exports also for the remaining EU Member States – and especially for German companies. Cross-border investments would be impaired too, so the VCI.

The likely devaluation of the British pound and the uncertainty that comes with exit negotiations would give reason to German investors to reconsider their commitment to the location Great Britain and to possibly withdrawal capital. The distortions of financial markets triggered by a Brexit would be difficult to quantify.

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