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BREXIT: Making the transition

Written by Graham Buck, CIR Magazine

A transition deal offers companies breathing space, but risk managers must still work without fully knowing what business environment they face in the post-Brexit era. 

When Unilever recently selected Rotterdam over London as its future head office, the consumer products giant denied the choice was linked to the UK’s forthcoming exit from the European Union. The Anglo-Dutch group has had two parent companies since the late 1920s and, after fending off a takeover bid from Kraft Heinz, says it wants to simplify its structure via a single legal entity incorporated in the Netherlands.

However, London’s deputy mayor for business, Rajesh Agrawal, is sceptical that the explanation represents the whole story. Unilever’s decision, he suggests “brings into sharp focus the need for the government to secure a Brexit deal that secures London as Europe’s leading business centre. The best way to do this is for London and the UK to remain part of the single market and customs union”.

Will this happen? While the recent agreement between the UK and the EU for a 21-month Brexit transitional deal eases fears that businesses could face a cliff edge when the divorce goes through next March, the nature of the country’s future relationship with its European neighbours remains worryingly imprecise.

Among other major corporate names considering its future, Rolls-Royce has a contingency plan should upcoming negotiations run into trouble. The aerospace group is alarmed by the disruption threatened by a hard Brexit and ready to shift the signing off of its airline engines from Derby to Germany, as the EU aviation authority would then hold the right to certify their safety.

More concerning is that any agreement signed and ratified before the extension period expires in December 2020 won’t necessarily complete the missing details. “Many believe that it will be extremely fluid, meaning it could be several more years before we finally achieve clarity,” says Nawaz Ali, senior UK/EMEA currency strategist at Western Union Business Solutions. “So there is much focus on scenario analysis and continuity planning. There’s a lot to contend with and for SMEs, the challenge is simply finding the time to manage all these risks.”

The good news, he says, is that sterling’s depreciation since the referendum forced companies to focus on pricing and exchange rate volatility. “That situation has more recently stabilised, so companies have reviewed other aspects of their supply chain, such as whether their supplies will continue to come from Europe and if they will be subject to tariffs. The focus is now divided between price, supplies and supplier.”

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