Britain’s vote to exit from the European Union signals the end of a love story-- Shakespearian love story, you can say-- that did not end, as usually it does, with the pair living happily ever after. The romance, in fact, did not start with a happy note either. Initial British overture to join what was then a six-nation European Economic Community in 1961 was blocked by French President, General Charles De Gaulle. The big General, figuratively speaking, probably had read something mischievous in the British overture. French and Britain, as everyone knows, have had centuries of love-hate relationship. They fought many wars including one famously known as Hundred Years War (1337 to 1453).
It was only after the overpowering General had stepped down in 1969 that the UK could work its way to gain entry into the EEC in 1973. It, however, often tried to maintain as far a distance as possible from their mates on the other side of the English Channel. For instance, on May 01, 1973 it joined the European Monetary Union, a system introduced by the EEC to maintain stability of the EEC currencies (the so-called snake in the tunnel), but made a hasty retreat barely seven weeks after it had joined the Monetary Union. Similarly, Britain did not adopt the much fancied single currency, the Euro, introduced in 2002. Nevertheless, Britain endured its troubled marriage with the EU for long 43 years before signing the divorce notice in June last.
What the UK gained for its membership of the EU was, inter alia, the privilege to export its merchandise to the Union free of import duty. In spite of this privilege it always felt ill at ease with its new alliance. Its discomfort with the EU started to grow with the bombardment of new EU uniform laws, regulations and policies in a wide range of areas including such mundane things as mobile phone charges.
It must have piqued the pride of a nation whose suzerainty once stretched across the oceans and the continents. EU membership also cost billions of pounds every year with little quid pro quo coming in return. The EC charter on freedom of movement of the EU citizens to work or live in any country of the Union saw an avalanche of people from all over the region making a beeline for migration to the island nation clogging its small landscape and exacerbating the unemployment problem. In some ways, Britain's exit from the EU, popularly known as Brexit, underlines its anxiety to take back full control of its life.
Inevitably, Brexit has spawned heated debates and speculations regarding the future of Britain as a lone ranger in search of a new destiny and renewed identity. An overwhelming majority of the experts paints a gloomy picture that, they claim, awaits the British people by way of slump in the economic growth, falling volume of foreign trade, bearish trends in the share market and depreciation of pound sterling. In fact, speculative pressure has already driven down the value of pound sterling and dampened share prices in the bourses across the world.
A rational analysis, however, suggests that nothing spectacular is going to happen to undermine British economy-the fifth largest economy of the world. After all, Britain is arguably the most resilient nation in the world. Time and again they have risen, like the mythical Phoenix, from the ashes to resume their onward journey into the sunshine.
Much will, however, depend on how negotiations with the EU play out especially for continuation of duty-free exports to the EU under the "customs union" agreement between Britain and the EU. It is possible that Britain will continue to enjoy more or less the same level of duty-free privilege enjoined under the Customs Union. In that event it will be 'business as usual'. Even if this hope does not materialise, Britain will have the whole world before it to negotiate trade terms with the non-EU countries for expansion of trade, especially with the Commonwealth countries. And who does not know that the British people are at their best when it comes to negotiation?
The depreciation of pound sterling is the biggest fallout of Brexit. British pound has this uncanny habit of shedding value with almost unerring regularity but somehow manage to recover its ground quite soon. In the seventies, for instance, pound sterling came very close to the US dollar in terms of exchange value but worked its way to higher level within a short time. A depreciated pound is not exactly a bad news for Britain. It will strengthen its competitive power to enlarge the volume of exports. Cheaper pound will encourage tourism. Reports suggest that already booking for travel from the USA and China to the UK has nearly doubled. On the other hand, import cost will rise which will encourage growth of local import substitution industry.
Is this transition going to make a big dent in Bangladesh's trading pattern with the UK? Perhaps not. On the contrary, we can carve a bigger niche for our foreign trade by addressing the key factors impinging on bilateral trade with that country. According to Bangladesh Bank Publication "Export Receipt 2014-15," our export earnings from the UK amounted to $2.39 billion constituting about 9.88 per cent of the total export receipts of $24.20 billion in 2014-15. Textile and textile products ($2210 million), consisting mainly of knit and woven articles, constitute more than 91 per cent of our exports to the UK. Other important items are fish and other aquatic products ($83 million), vegetables ($29 million) and bicycles ($29 million).
Economic downturn in Britain will not have any perceptible impact on export of these items. Even if the chips really get down, the British people, civilised as they are, will perhaps switch to an inexpensive car but, unlike Bollywood girls, will not stop wearing clothes, not at least in chilly British weather. On the contrary, due to possible income level demand may shift to low-end textile products in which Bangladesh enjoy an edge. Besides, the margin between the cost price of the British buyers and their retail price is pretty high. The retail outlets in the UK can adjust their price to suit purse of the buyers without further squeezing the poor garment makers.
The depreciation of pound sterling, however, will immediately see a downward movement of expatriates' remittances from the UK by 5.0 to10 per cent in US dollar terms. In the long term, however, more people from Bangladesh may gain access to Britain when the flow of migrants from the mainland subsides following the UK's withdrawal from the EU. The restaurant business run by Bangladesh owners is also expected to get a boost from accelerated flow of tourists to take advantage of the falling value of sterling. That will have a calming effect on home remittances.
The following are some of the suggestions that will help us not only to neutralise the adverse impacts of Brexit but can turn it to our advantage:
n Bangladesh should immediately start planning for negotiation with the UK to secure the status of a most favoured nation. Given the present cordial relation between the two countries, it may be easier to persuade the British to give the same duty free/GSP facility as is now available for our exports to the EU.
n UK's exit from the EU will make their imports from that region costlier. They will naturally look forward to the cheaper sources of supply. Bangladesh should identify the items that it can produce to satisfy their appetite and improve the quality of the products to meet the British standard.
n Bangladesh currency-the Taka-has currently become heavily overvalued especially in relation to non-dollar currencies. Depreciation is long overdue and should be done without delay. The authorities in Bangladesh may not realise it but the long delay has cast a dark shadow on our economy and export performance.
The writer is a former Executive Director of Bangladesh [email protected]