Clicky

Shipping News and Reviews

A remedy for the Brexit Commerce Blues

On New Year's Eve, Britain will finally leave the European Union after more than four years of negotiations – talks that will still be ongoing when the time runs out.

It is unclear how these negotiations will be finalized, but one thing is certain: the UK will need new alliances beyond its current relationship.

The options are not attractive. The European Union is likely to resent Britain's hostility towards the bloc and its aggressive negotiating stance for years to come. US President-elect Joe Biden was virtually hostile to Brexit and publicly voiced concerns about its impact on peace in Northern Ireland. And London is also on a collision course with Beijing after offering asylum to millions of Hong Kong residents and banning Chinese-owned Huawei from providing the infrastructure to build a 5G network.

However, there is an underrated alternative: the Commonwealth.

The Commonwealth is a voluntary association of 54 independent and equal countries, home to 2.4 billion people – almost a third of the world's population – and over 10 percent of global GDP. The Commonwealth has its roots in the British Empire, but any nation can apply to become a part of it. Rwanda, which was never colonized by the British, became the newest member of the association in 2009. The group is based on shared values ​​such as parliamentary democracy and diplomatic, state and commercial relations. In short, it's all a power bloc needs.

Within the UK, the Commonwealth is often dismissed as a colonial hangover for no 21st century purpose. But it could be remade as a trading bloc of countries with historical ties, longstanding economic ties, similar administrative and legal systems, and institutions with a common language.

A focus on the Commonwealth as a whole would be far more effective than the step-by-step approach to bilateral trade deals that the UK has taken so far. For example, a trade agreement signed in September with non-Commonwealth member Japan means that almost all British exports to Japan are duty-free. In return, UK tariffs on Japanese cars will be raised through 2026. Although the trade deal is expected to boost trade between Japan and the UK by $ 20 billion, UK GDP is only expected to grow 0.07 percent.

There will need to be dozens of such trade deals to curb the loss of EU trade caused by Brexit. More significant one-off trade deals (with the United States, for example) could achieve the growth needed, but they seem increasingly difficult, especially given the strain the coronavirus pandemic and recession have placed on negotiating countries. Though a US-UK free trade deal was at the core of UK Prime Minister Boris Johnson's post-Brexit vision, the Irish-American congressional lobby and the future Biden administration are cooler for the idea itself. Biden has already warned Johnson that a trade deal with the United States is inconsistent with his current Brexit strategy. There are blockages similar to those of a deal with Brussels. Europhiles see the United Kingdom as undermining the Union. Why should it be rewarded now?

However, a large free trade agreement with the Commonwealth could be easier. Of course, there will be some skepticism about the idea. Economists like Walter Isard believe that Commonwealth members are not natural trading and trading partners because of what is known as the "gravity model" – geographical distance has a negative impact on economic cooperation. That may have been the case a year ago, but in a post-pandemic tech-assisted world where work is done from everywhere, geography is less important.

Another argument is that the Commonwealth is just too small to matter. In a statement for the Express, Johnson pointed out that "The Commonwealth today has a combined GDP of $ 10.5 trillion, which is nearly 14 percent of the world's economy." That is roughly half of the EU's GDP. But what the Commonwealth lacks in size it more than makes up for in growth. Over the past four decades, Commonwealth economies have grown by an average of more than four percent, compared with 2 percent in the EU.

There is also the type of growth to consider. The EU has a chronic inability to produce technical “unicorns”: startups valued at over $ 1 billion. Given the easy access to venture capital and private equity in the main EU financial centers, as well as the ubiquity of accelerator programs, the lack of large start-ups suggests a structural flaw in the continent's business and innovation culture as well as in the smaller home market.

The next generation of unicorns, however, could be from Commonwealth countries, especially if Britain backs them up to maintain and improve their global standing. If cross-border barriers are removed enough so that the Commonwealth effectively becomes a large single market, the market will be far larger than the US or China.

The quality of the market is also great from a growth and innovation point of view. Countries like Bangladesh, India, Malaysia, Nigeria and Pakistan have young, skilled populations. All you need is investment and support. In many of these countries, the COVID-19 pandemic has already been a catalyst for a subtle shift towards digital commerce, precisely from the venture capitalists of the sector.

In Nigeria, a Commonwealth member and Africa's largest economy, Klasha, a company that allows users to buy and sell items across Africa, has seen exponential growth since the pandemic and becomes the African Stripe, or PayPal. Across the Commonwealth, there are dozens of tech startups with annual sales ranging from $ 100 million to $ 200 million and growing year over year. The investment potential is far from exhausted. Their business models could easily be replicated on a large scale worldwide.

London would be wise to improve access of this entrepreneurial talent to the UK by granting business visas – a form of migration that has inexplicably and self-destructively reduced or eliminated by the government in recent years. It should also invest venture capital in these countries. There is currently no viable visa that would give potential founders of these innovative startups access to the UK and there is no targeted British Sovereign Wealth Fund to benefit from their projects. There should be.

In 2018, Ipsos Mori found that the Brexit referendum had a net positive effect on the perceived attractiveness of the UK in the Commonwealth of India, South Africa and other countries. Even the most inward and parochial Britons should welcome entrepreneurs from these countries to their shores – and strengthen economic partnership in general.

At the end of the final chapter of Brexit, the Commonwealth, founded in 1931, could finally grow up almost a century later. It could also begin to deliver its name to billions of citizens – with the right investment.

Comments are closed.