Bravado at least

Turmoil

When the UK voted for a Brexit last June, they caused confusion in the world and ignited a turmoil on the international financial market, with the value of the British Pound and stock prices falling rapidly.  The pound sterling crashed to its lowest level in 31 years against the US Dollar. This exchange difference was the largest since the Second World War and the worst in the G20 group of countries, according to the Financial Times. Now that the dust has settled, no one can really predict the consequences of Brexit.   

Stunning collapse

“The UK is now extremely vulnerable to capital flight, and the crash with the stunning collapse of the pound sterling is a direct result of Brexit,” says Léon Cornelissen, Chief Economist of asset management firm Robeco. “Investments will remain low and British consumer confidence has dropped sharply in the aftermath of Brexit. Therefore, a recession appears to be unavoidable and European market sentiments will possibly turn negative. And because Scotland and Northern Ireland voted against Brexit, the outcome of the referendum will have huge consequences for Britain’s future. Some political commentators think Scotland will likely seek independence for the second time this decade.” 

Not a disaster

There are also positive sounds. The Financial Times states that the world is not going to experience a sell-off or repeat of the 2008 financial crisis. Statistics of the International Trade Centre and the CIA’s World Factbook reveal that the total UK export value ($465 billion – €412 billion) is just around 2.8% of the total world export value ($16.3 trillion – €14,4 trillion). The total UK import value ($629 billion – €557 billion) represents around 3.8% of the total world export value ($16.5 trillion – €14,6 trillion). So you could say Brexit is a drop in the ocean regarding global trade statistics. And even without the UK, the European Union will still be a major player in the international global economy. 

No change for pet industry

Luckily, pets have proven to be investors’ best friend. “The pet industry is one of the steadiest in the world, and shows consistent growth every year. This stability makes it a particularly interesting industry for investors,” states the American financial news website TheStreet.

PETS International has asked several companies in the pet industry their opinion on Brexit. Most companies could not give a prediction about the possible consequences of Brexit. The overall picture is that Brexit was totally unexpected, but will not fundamentally change the business. Most likely for the global pet industry Brexit will not have a major impact and could even open doors to new business opportunities. But how about the UK pet industry?
 
Pints and gallons

According to the website Pet Product News, UK pet store owners sent a strong message in the Brexit referendum – voting to leave the EU by 54.7% to 45.3%. The Pet Product News reporter has said: “For a retail business on the High Street in most British towns, the benefits were much less obvious and the downsides all too apparent. Europe’s strong suit was regulation (. . . .) This begun when the UK had to put in place the European-style Value Added Tax (. . . .) Customers don’t see that the government – not the retailer – is responsible for the much higher price. Then Europe decided that British retailers would no longer be allowed to sell products in pounds and ounces, or pints and gallons.”
You could assume that Brexit will affect research funding for the agricultural industry. This has consequences for the pet industry, because both industries work closely together. According to the Guardian,” the UK is the largest recipient of funding from the EU. (….) Between 2014 and 2020 farmers in the UK are due to receive $36 billion (€24,6 billion) in subsidies from the EU’s common agricultural policy.” 

No knee jerk reaction

But for UK-based manufacturers, it is a different story altogether. “Our imports, mainly raw materials, are bought in several currencies namely Norwegian Kroner, Euro and US Dollar,” says Graham Smith, CEO of the UK-based company Fish4Dogs. “This has given us a raw material increase of between 10% and 15% with the weakening of the British Pound.”  The weaker pound has provided Fish4Dogs overseas distributors with a short term discount, as all their invoices are in British Pounds, and the pound has weakened against most global currencies. “In theory, we could consider a price increase to redress the balance, but in reality our trading relationships are notfluid, but planned and fixed for circa 12 months. Of course at this stage there will be no knee jerk reaction. Now is the time for careful planning and not for quick decisions. The post-Brexit effects will stabilise after which serious and long-term planning can be undertaken.” Welfare regulation and travelling with pets is not a significant factor for Fish4Dogs. “But of course if the UK leaves the European Free Trade Zone then export administration and costs to supply the EU could greatly increase (e.g., import tariffs and inter-governmental health certificates). However, we are several years away from understanding the commercial dynamics of such a worst case scenario and sincerely believe it can be avoided.”

Triggering Article 50

There still is a lot of uncertainty about the UK’s trade agreement with the EU after it leaves the European internal market. The referendum in which British voters opted to leave the European Union does not automatically signal the country’s exit. “Britain’s complex negotiations to exit the EU can only begin when Article 50 of the Treaty of Lisbon is formally triggered by the UK,” says political correspondent Michael Wilkinson of newspaper The Telegraph. 

“The process is supposed to take two years, but many people believe that it could take longer. Triggering Article 50, formally notifying the intention to withdraw, starts the clock running. After that, the Treaties that govern membership no longer apply to Britain.  The terms of exit will be negotiated between Britain’s 27 EU counterparts, and each will have a veto over the conditions.” 
According to Wilkinson, untying Britain from the old membership is the easy bit. “Harder would be agreeing a new trading relationship, establishing what tariffs and other barriers to entry are permitted, and agreeing on obligations such as free movement. Such a process, EU leaders claim, could take another five years.”
After triggering Article 50, all foreign companies that use their UK-based headquarters as a springboard to the European market will need to find other ways to reach the 27 remaining EU countries.
Britain could remain in the EU until late 2019, almost a year later than predicted, the Sunday Times reported on Sunday 14 August. According to the newspaper British government ministers have warned senior figures in the City of London, London’s financial district, that Article 50 was unlikely to be triggered early in 2017 because the situation in government was “chaotic”. “Ministers are now thinking the Article 50 trigger could be delayed until autumn 2017,” one source told the newspaper.

Substantial risks

“Anyone who says they know what will be in either five months or five years is lying,” says Danielle Pletka, Senior Vice President for foreign and defence policy studies at the American Enterprise Institute on the political news website Politico. “There are substantial risks. The United Kingdom could break up. Other EU countries could follow the Brexit lead and bail out. Our none could happen, and the EU could return to being a common market-plus that many of its member envisioned.”

Overall, global growth seems strong enough to minimize the economic risks of the Brexit vote. Brexit will mainly be felt in the UK and in its direct trading relationships. Only political or financial instability will make this a serious global event.