Britain’s hard Brexit is one of the many popular topics that have been discussed locally this week. Theresa May, the prime minister of the United Kingdom, signed the letter that formally begun the UK’s departure from the European Union. Negotiations with other EU countries are expected to start in May or June this year and within the next two years Britain will slowly dispatch itself from the EU. This topic is not only important from an economist’s point of view, but it should also be in the minds of entrepreneurs.
Businesses that trade heavily within the EU are evidently concerned about what kind of impacts Brexit may have. Even if your business only sells to the UK or buys from the UK Brexit may have implications, even fir businesses that don’t deal directly with the EU, because let’s face it, EU will not grant the UK with the same benefits as the member countries.
The EU is currently the UK’s biggest trading market, this suggests that the potential impact on sales could be sizeable. Germany particularly, is a very important partner for Britain with them importing 56 billion pounds worth of goods from Germany, and exporting over 30 billion. Whatever relationship the UK may form with the EU as a non-member it is unlikely that British businesses will enjoy full, preferential access they’ve previously had to the simple market. The UK may be facing tariffs, which will push the prices up and affect the sales. UK will become more complex to do business with, which may put off customers that can choose to buy from the European nations instead. In addition to this Brexit may impact travel and phone charges between the UK and the EU, which can further increase the cost of doing business with the UK. Immigration will also naturally affect the UK's economy.
Referendums create uncertainty, and competitors of UK businesses in EU countries will most likely try to exploit this uncertainty in the market. On the positive side, Brexit could create opportunities for businesses to enter new markets and increase its sales in the rest of the world. It is possible that the direct effects of Brexit are overestimated, but nevertheless it will change the landscape for opportunities for both EU and UK startups.
Europe boasts several "unicorn" companies, including Spotify, Deliveroo, Farfetch, and MindMaze, which each raised more than $100 million last year. In 2016 the world witnessed the biggest European tech acquisition of all time, when Qualcomm paid $47 billion for NXP, a Netherlands-based semiconductor manufacturer. Other American companies have seen promise in the EU, too. Facebook acquired Masquerade, a Belarus-based selfie app, and Twitter payed $150 million for Magic Pony, the U.K.-based machine-learning platform. More recently, Tesla acquired Grohmann Engineering, a German automated manufacturer, to fuel production of its electric cars.
In 2017, all eyes will be on London, Paris, Berlin, and Munich – the top EU countries for tech startups according to CBRE. Meanwhile, Sweden remains the largest producer of billion-dollar companies after Silicon Valley, with Stockholm accounting for some 22,000 tech companies. The future of European entrepreneurship is uncertain, however, because there are several political time bombs that have yet to detonate. It's unclear whether Greece will renegotiate a debt relief package with the EU, meanwhile, France, Germany, and the Netherlands will hold federal elections in 2017, and some argue that the surprise victory of President-elect Donald Trump in the U.S. could signal a similar win for far-right candidates abroad.
The big issue is the macro-level uncertainty about where the EU is going politically and economically and this uncertainty can possibly slow down startup investment and innovation.