‘Brexit’ is a colloquial term created by the UK media to refer to the EU referendum on whether Britain should exit the European Union or not. The British government will hold the referendum on June 23. Assuming a vote to leave, an agreement between the EU and the UK on new policies about trade and market access, for the next few decades, will have to be decided upon in a time-constrained and intensive period of just two years.
If the UK does decide to leave the EU, its implications will be far and wide. It will largely depend upon the kind of trade agreement decided between the EU and the UK and the UK’s policy response. Regardless of the trade agreement decided upon, it will leave a long-term impact on the UK and the EU economies for years to come.
The pro-Brexit rhetoric has argued that an exit from the EU would allow the UK to regain autonomy and focus on its own local troubles which could help alleviate many problems associated with immigration and other issues while saving millions of pounds. Opponents of the exit argue that member benefits of the Union and access to the common market outweigh many of the problems that come with membership.
The UK holds the largest financial centre in the European Union. The City of London is famous in the EU and has attracted a wide range of global banks and other financial services. A Brexit, inadvertently, would impact the financial services industry, the extent of which will depend on the arrangements agreed upon during the transition period and the specifics of the trade agreement. Several key regulatory and legal issues will need to be considered for a firm to assess their potential impact – for example, any banking firms that use the passport system, main issue being if the system continues – if the system lapses, entire business models and operational structures may have to be changed.
The ‘Leave’ rhetoric continues to state that an EU membership was now a threat to London’s affluence. The idea that London would flourish post-Brexit goes against the many warnings from US investment banks and the Bank of England. Many financial establishments have warned that Brexit would drain London of its wealth, topple the pound sterling, undermine the world’s fifth-largest economy and push traders to move their businesses to other financial centres in the world.
Membership of the EU provides British business, the much needed access to the single market. Brexit could potentially increase the UK-EU trade costs as well as exclude the UK from any deeper integration (such as the Transatlantic Trade and Investment Partnership with the US).
However, the current fastest-growing sector – the mid-market, the transforming sector that has indulged in new disruptive technologies faster than the billion dollar giants – is exporting more heavily to other European countries, Africa, Latin America and the Middle East.
London has been a popular investment destination for quite a few countries, half of the investments in the UK come from the EU – but a great chunk of investment trickles down from China, US and the Middle East.
Middle East investors have continued to buy real estate in the UK despite fears about the UK’s future in the EU. The majority of the Middle East property investors preferred the UK to remain in the EU. Half of the investors have also expressed that London’s decision to leave the EU will have negative impact on their investment strategies.
As most Middle Eastern currencies are pegged to the US dollar due to the US being the biggest oil importer, the weakening euro and pound has shaped beneficial investment opportunities for investors.
The majority of the Middle East businessmen prefer the UK to remain in the EU, and renegotiate its position. This outcome would have a positive impact or no impact on their plans to invest in the capital’s real estate market. The official consensus on the economic costs of Brexit has crossed the line into groupthink. A numerical illusion is masquerading as a “fact”. And when those in authority distort facts, they also subvert the cause of democracy.
– Sarosh Zaiwalla is senior partner at Zaiwalla & Co Solicitors. Views expressed are his own and do not reflect the newspaper’s policy.