After my recent post setting out the possible channels of impact of Brexit for the Sri Lankan economy, I had some really excellent and insightful comments from readers who wrote back to me. I thought of sharing some of them here.
(If you need a quick ‘get me smart’ guide to the Brexit and what happened, this post from NYT is great)
On the impact through the exports channel, a friend studying in the UK wrote back,
It would be useful to see what percent of the UK’s overall imports are made up by that 10% of Sri Lanka’s to them (industrywise), and what our industries should be focusing on doing to ensure they retain that hold in order to benefit and grow immediately after the 2 year divorce case the UK is supposed begin after invoking Article 50? To me that seems the only thing we can do now, depending on the terms of exit negotiated by the UK-EU?
He also noted the polarisation of views across the country, particularly ‘London versus the rest’,
“…the overall sentiment in this part of the country (South West of England) was pretty interesting over the last few weeks. Particularly an anti-London/anti-expert bent among small business owners, which is the polar opposite of those who have/are working in or with the City. Interesting too were the dynamics among age groups that I noted here. I can’t speak for the rest of the country, but the (admittedly small) sample group I had access to surprisingly did not seem to consider immigration their number one concern (perhaps because those older folks in the immediate area here are generally of the upper income bracket, whilst the small business owners that I spoke to such as plumbing shops, some builders, real estate companies etc. don’t directly employ much EU labour). The farmers will be hit by a potential pull out of EU subsidies, unless a post-Brexit govt continues it, so they almost certainly voted to remain. In some ways, it just seemed those around here voting out wanted to say a big F U to Cameron, to the City bankers telling them what to do, and the perceived oligarchy – although not the ideal way to set about these things. Today, the sentiment seems to be one of disbelief – among the Brexiters just as much as the Remainers.
Another reader (an economist in an international lender) wrote back with a substantial set of new questions that arise from all this,
I agree with the views expressed by you. Given that all countries now need to negotiate trade agreements with Britain where would we stand? How would the priorities assigned by the British government. Would Sri Lankan ministers role publicized role in the Referendum have any adverse impact on the negotiations. Should Sri Lanka given so much publicity to Sri Lanka’s role? ……This might be something the Government needs to look into in their future strategy. Looks like there will be other referendums in the future in other countries such as the Netherlands, France etc. Are all exports to EU (especially to Britain) under GSP plus? In any case the GSP plus is still not in operation, isn’t it? Probably the fish exports will have a more serious impact but given its early stages may need to take immediate action and the GOSL can immediately negotiate with Britain on the concessions. Immediately with the collapse in the Sterling pound the imports will be cheaper in UK and the demand might be more to offset the concessions. That might give the GOSL time to negotiate. However as you pointed out raising funds for the Government in the short term would be a problem. BREXIT might have a ripple effect in EU countries and therefore it might be better for the Government to strat preparing for it if certain countries are major trading partners.
In my original post, I had not highlighted the impact of Brexit (and a sharp fall in the Sterling) on remittances to Sri Lanka, as another reader (an economist at a local think tank) pointed out,
Another way Sri Lanka will be affected by the Brexit is through our expatriates in England. If the pound remains weak the remittances they send will be low. A large number of Sri Lankan expatriates also visit the country yearly as tourists. These flows will also get affected.
Another reader’s comments (an apparel exporter) really captured the continued uncertainty of it all and the need for Sri Lanka to brace itself,
I guess the problem is the great unknown. By most reckoning it will take the full 2 years for the UK to negotiate the exit, and given that they don’t look like invoking the infamous Article 50 until Cameron’s successor is appointed in October, we should be able to continue on the status quo until then? 2 key things to push would be a) to independently negotiate a trade agreement with the UK – this should be “relatively” easy as the current political relationship is good, and b) as you say aggressively pursue new markets. That unfortunately has been a call for some time now, but there doesn’t really seem to be much progress there. Overall 2016 will be extremely challenging from an apparel perspective. Both the EU and the US markets are down and the uncertainty over the process and implications of Brexit together with the upcoming US elections and all that chaos will continue to restrict demand for our product.
Meanwhile, renown economics Professor at ANU, Premachandra Athukorala, wrote back with a different perspective to mine on the potential trade impacts,
I am not sure that trade impact of Brexit (on Britain and her trading partners) is going to be that significant. The bulk of trade (over 70%) between Britain and the EU countries takes place within global production networks. Tariff rate differentials are not a sigficant determinant of locational decisions of firms within production networks (such as Japanese automakers assembling cars in England for the other European countries).
Another relevant point is that Britain’s bilateral trade with some major non-EU countries has been glowing at comparable or at even higher rates in rent year. (The role of tariff (and tariff reductions under FTAs has been vastly exaggerated in the recent trade policy debate in Sri Lanka. Frankly I do not any reason for any hasty response on our part to diversify export market or to get into the costly business of signing FTA with other countries.
He also shared this paper that looks at ‘Global production sharing and the measurement of price elasticity in international trade’
I will keep updating this post as new views come in.