Update: Brexit Insights Brexit Referendum: Why Chemicals and Pharma Will Be Hit Hardest
The chemical industry could be the first to feel the immediate impact of Britain’s possible vote on exiting the EU: recent studies show that the branch could be affected by a seven billion pounds loss in exports, making it the hardest hit of all British industries…
London, United Kingdom – If Britain leaves the EU without establishing a follow-up Free-Trade agreement, UK chemicals exports could drop by £7 billion overnight, figures by trade credit insurance company Euler Hermes indicate. Other export-focused branches such as machinery and equipment (£3.5bn loss) and the automotive industry (£3bn loss) would follow.
“The chemicals industry is one of the most important exporting sectors in the UK, with £55bn of goods sent abroad each year,” said Ana Boata, European economist at Euler Hermes. “But British companies are already under immense pressure to become more competitive against high growth markets in the US and Asia, while also battling higher R&D costs and a strong pound in recent years. With over half of the chemical industry’s exports heading to the EU, any decision to break away from continental trading partners would have knock-on effects on the supply chain and put jobs at risk. The figures emphasise the importance of negotiations to secure an FTA in the event of Britain leaving the EU.”
Possible Scenarios: From Minus 2.5 to Minus 7 Billion...
If Britain could negotiate a new Free Trade Agreeement FTA following a possible Brexit, UK chemical companies could still see a drop of up to £2.5bn in exports, while machinery and equipment and automotive industries would each witness a £1.1bn contraction.
Reflecting on these results, Steve Elliott Chief Executive of British Chemical Industries Association CIA said, “Our survey does underline the criticality of the European Union market place for UK chemical and pharmaceutical jobs, investment and growth. Half a million people across the country depend on our sector for employment and we are also UK manufacturing’s largest net export earner – impressive credentials that would be brought into immediate question if we withdrew from the European Union.”
Uncertainty Makes Matters Worse
Senior figures from the sector have endorsed this message. Richard John Carter, Managing Director, BASF UK & Ireland, said “There is a high degree of uncertainty attached to Brexit. We don't and cannot know the terms that will be agreed but the political uncertainty will cause volatility in markets and add costs to trade and investment. It will create insecurity for our EU workers in the UK and UK workers in the EU. It will mean a huge amount of time and energy is taken up that could be better used such as completing the Single Market or improving international trade deals that create jobs and growth in Britain”.
A current survey by the Chemical Industries Association showed that 62% of companies voted to remain, with the remaining 38% declaring that their company had decided not to take a position. No business in the survey of CIA’s 93 member companies – representing approximately 70% of total UK chemical and pharmaceutical sales - said that leaving the EU would be in the best interests of their business.
Dr Tony W Bastock, OBE, Chairman of Contract Chemicals, said "The business success of many smaller chemicals companies in the UK is dependent on maintaining and growing their export penetration of EU markets. My own company, as with many others has over 80% of its business in the EU, facilitated by free access into the single market and by competitive raw materials from that market. Even the threat of Brexit has caused our customers to question placing future business with us; a full exit would certainly destabilise and damage our future growth and the jobs and innovation we support. "
Overall: One Percent Down Overnight
Should the UK leave the EU without negotiating an FTA, the turnover of British companies would contract by -1% per year on average, compared to a current predicted growth rate of +4% on average after 2017 if the UK remained in the EU, Euler Hermes believes.
This could further result in losses of up to £30bn or 8% of UK total goods exports, a gap which, even when offset by trade with Commonwealth countries, would take at least 10 years to fill. Under this scenario, the trade balance deficit, already at a record high level, would widen by £35bn to £180bn within 12 months of the formalisation of a UK exit from the EU.
EU Market Access Fundamental
Melvin Dawes, Managing Director Solvay UK, said "The European market is fundamental to our UK operations, we buy and sell products across Europe on a daily basis. We believe that the best way to secure future employment, investment and growth in our industry is for the UK to remain a member of the European Union”.
A possible Brexit would also have immense effects on other European markets, most notably Germany: Last year, chemical and pharmaceutical companies in the EU 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).
“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.