Risk & Economy » Brexit » Political disruption does not signal end to global growth

Political disruption does not signal end to global growth

Businesses are facing uncertainty, with recent events contributing to unstable political environments that present obstacles to growth. Yet, where there's disruption, there's opportunity

Businesses are operating in an uncertain climate, with Brexit, the Trump presidency and the recent UK General Election contributing to unstable political environments that present obstacles to business growth. Yet, where there’s disruption, there’s opportunity, as Daniel Ball, director at Wax Digital, explores below.

Since the EU referendum result, the UK has been heading into uncertain times as the government sets out its plans to leave the EU. And, like it or not, UK businesses are bracing themselves to find out just what the impact of Brexit will be. In a recent survey by Wax Digital of 200 executives from UK businesses with turnover between £50m-£250m, 65% of senior managers voted to remain in the EU and said that they would cast the same vote if the referendum took place today. An unstable political environment was cited in the research as one of the biggest obstacles to business growth, so, following the recent general election, and with future plans on Brexit uncertain for both main political parties, devising a clear growth strategy isn’t set to get any easier.

The impact of Brexit

Wax Digital’s research found that 80% of business leaders fear that Brexit will hinder company growth. The pound hitting a 30-year low following the EU referendum result back in June was only the first wave of uncertainty for businesses with growth ambitions. Discussions about Brexit in recent months have included what it will mean for recruitment, as sectors such as tech, which are reliant on overseas candidates, see a drop in job applications. But, overseas trading appears to be the biggest concern. The research found that over a third of business leaders will be restricted in their ability to do business in Europe thanks to Brexit, while 35% said that it will make EU business more costly. Moreover, until the UK forges a clear trade deal with the EU, many businesses trading overseas are having to hold back from furthering their trade with EU countries.

Growth concerns beyond Europe

Concerns about trading overseas go beyond Europe. One of the top three risks standing in the way of overseas growth for companies was “global political disruption”, according to the research. The UK is yet to see how Trump’s appointment will impact UK/US trade, however, the outlook among business leaders with regard to the president’s intentions isn’t all negative. 82% say that a “business mogul” type figure in the White House is a positive thing, trusting that Trump will understand what is right for the US economy and will continue to want good trading conditions with the UK. But 40% say that they would prefer to see a different entrepreneur in the White House with some business leaders evidently wary of what Trump’s changes could mean for US trade, and what the so-called “Buy American, Hire American” executive order could mean for them.

Earlier in the year, we learnt that a US-UK trade deal could take place within the next two years, and be implemented within 90 days of Britain’s official leave from the EU. The US continues to be the UK’s biggest export partner, and HMRC found that last year that the UK exported more than £10bn worth of goods to the US than other countries. But with possible trading restrictions being introduced, businesses and CFOs can’t accurately predict how trade agreements will change over the next couple of years. For many, a hazy future could mean that trading with the US is delayed until all becomes clear.

Whether they trade with the US or anywhere else in the world, businesses with limited global growth tended to cite their suppliers as the biggest culprit. 79% of business claimed that their global growth is being hindered due to suppliers being uncertain over Brexit. As a result, businesses are feeling the chain effect of an uncertain business landscape. It’s vital that CFOs work with the procurement department to establish how prepared current and potential suppliers are.

Where there’s disruption, there’s opportunity

Businesses should know that even while there is political unrest there is still opportunity. Even despite the majority of those surveyed saying that they voted to remain in the EU and would do so today, most business leaders say that they’ve benefitted financially from the referendum result. 77% said that post-referendum, the pound’s weakness created a favourable export climate for them. But, it’s important not to see this as a long-term strategy, especially given that the pound reached a six-month high after June’s snap election was announced. The majority of businesses (57%) claimed that the pound’s weakness was only a short-term benefit for their trading. A weak pound might mean positive global trading conditions, but its fluctuations give businesses a reason for not relying on it as a longstanding solution.

It’s positive that despite the setbacks, UK businesses see every reason to continue with their growth aspirations. 92% of executives surveyed said that they are looking beyond organic growth. Even with uncertain political environments and trade deals, a growth strategy is high on the agenda for many businesses, and 71% were positive about meeting their growth ambitions, whether that’s by continuing to grow in the UK or upping the ante overseas.

But, businesses looking to increase or start trading abroad shouldn’t develop a growth strategy without taking into account the political environment of where they intend to grow. The research found that the world is dichotomised between the countries in which UK businesses see growth opportunities and those in which they don’t.

Fewer business leaders see future opportunities existing in the UK, EU, South America and Africa, with more companies expecting to do business in the US, non-EU, Canada, Asia and the Middle East.

2017 and beyond

Few years can top 2016 as one that shook up our political landscape so radically. Major political events such as the EU referendum result and Trump’s presidency naturally threw businesses and their future trading prospects into uncertainty. But, as Wax Digital’s research shows, despite their fears, businesses aren’t letting political disruption get in the way of a further quest for growth, and so they shouldn’t. Success lies in keeping informed about ongoing legislation and agreements, and taking this into account when developing a future-proof growth strategy.

Daniel Ball is director at Wax Digital.

Was this article helpful?

Leave a Reply

Subscribe to get your daily business insights