Britain had made the historic decision on 23 June 2016 to leave the European Union (EU) with 51.9% in favour of Brexit. While the mainstream media will be focusing on its implication on the existence of the
EU, this article will turn its attention to its impact for Singapore businesses.
Source: Telegraph UK
There is a sense of historic irony when we look at Brexit from Singapore’s perspective. Singapore left
Britain in 1959 for internal self government and later in 1963 for merger with Malaysia after British prestige was eroded with its World War II defeat.
Britain’s status as the premier global power went down the drain when countries decided that more
would be lost than gained with its continued association with Britain. Today, Britain had made the same decision with regards to its EU overlords. The British are collectively sick of the never ending crisis in the EU from Greece to mass immigration.
3 Brexit Implications For Singapore Businesses
Despite pleas from the establishment to stay within the EU, the will of the people was to leave the EU. As it turns out, the differences between the UK and EU turned out to be too great for leading politicians
such as US President Barack Obama and UK Prime Minister David Cameron to bridge and mollify with
compromises and warnings of danger.
After this brief historic perspective, it is time to look at the possible implications for Singapore
businesses.
1. Lower Interest Rate Environment Amid Global Markets Meltdown
Fed Chair Janet Yellen had pointed out the catastrophic impact of Brexit prior to the actual vote. The Fed did not raise interest rates this month on Brexit concern despite its bullish outlook for the US economy.
The catastrophe had already occurred as $120 billion pounds had been wiped out in the FTSE stock
market which forced the Bank of England to provide $250 billion of liquidity to calm the market.
Source: The Guardian
The stock market meltdown is expected to follow in global markets when they open. This will force the Federal Reserve to delay its expected interest rate hikes at the minimum. Other leading central banks will be expected to follow in the Bank of England’s footstep to ease monetary conditions.
Implications for Singapore businesses: They can expect lower financing cost for their loans especially for mortgages for a longer period of time.
2. Fall Of London & Rise of Singapore As Global Financial Centre
The latest survey of the Global Financial Centre Index (GFCI) was done in April 2016 before this month’s critical vote.
Source: Pressreader
London had narrowly retained its pole position as Brexit concerns were pressing against it. Now that
Brexit is a reality, London will lose its prominence globally. Leading global banks who want to service the EU markets will be compelled to relocate from London to other EU centres such as Frankfurt, Berlin or
Dublin.
HSBC had made the decision to stay in London over calls for it to move its headquarters to Hong Kong
recently in February 2016. This was made under the assumption that the UK will remain in the EU as the political environment in Hong Kong turns unfavourable.
In the same polls, financial professionals expect Singapore to grow in prominence in the coming years. Now that Brexit had occurred, Singapore is likely to benefit from the inflows of funds from London.
Singapore’s reputation as a stable economic and political location would be highly beneficial to international funds in this period of uncertainty.
In the immediate aftermath of Brexit, gold had soared 8% in USD and 13% in Euros as investors seek thesafe haven of gold. Besides the flow of funds, Singapore might benefit as Asia focused international
banks such as HSBC and Standard Chartered Bank might choose to relocate their services to Singapore.
Implication for Singapore businesses: For those in the financial sector, this will mean greater business opportunities than before. As finance is the biggest driver of Singapore’s economy, the spillover effect on the economy would be positive.
3. Decline of the EU and UK As Singapore’s Trading Partner Due to Existential Crisis
The defining moment of Brexit would trigger the question of the validity of existence of the EU. The domino impact of Brexit had already occurred just hours after its announcement. France, Austria and
Netherlands are all facing pressure for their subsequent exit from the EU.
European businesses and political leaderships are in disarray now to deal with the aftermath of the UK’s exit. Singapore has the European Union-Singapore Free Trade Agreement (EUSFTA) which was signed recently on November 2015. The EU is Singapore’s third largest trading partner behind China and Malaysia.
Source: Europa
As you can see on the table above, EU Singapore trade suffered greatly in 2013 when Greek debt
created existential crisis for the EU. Brexit had brought about similar existential threat for the EU.
As a result, we can expect sharp decline in trade between Singapore and the EU.
We have to consider that the UK is the fifth largest economy in the world and the second largest
economy in the EU. As the UK anchor disappears, we can expect steeper decline in trade in 2016 and
perhaps into 2017.
Implication For Singapore businesses: If you have any EU businesses, you might have to consider tapping into alternative markets. We have the ASEAN Economic Community (AEC) which would allow your businesses to tap into the wider 600 million market which is larger than the EU according to the
Conclusion
While it is true that there will be large financial market volatility in the coming weeks ahead, the picture for local businesses remain bright overall. London’s loss is Singapore’s gain. Local business just have to sit tight and explore new opportunities in ASEAN. No one can tell the future with certainty but these are the three most likely outcome from Brexit.
Singapore eventually gained its independence in 1965 after its exit from Malaysia. We defied the conventional wisdom then and achieved unprecedented economic success. The jury is still out on the eventual destiny of the UK with its historic exit from the EU.
Singapore businesses have to look past the current gloom and doom to see the bigger and longer term picture with confidence just like how we did it in 1965. We have more resources at our disposal today. If the short term conditions are dire enough, I have every confidence that the Singapore Government will
step up to assist local businesses like what they did during the 2008 Global Financial Crisis and previous crisis.