Brexit will look different for every industry. Here’s what to watch in negotiations.
Amid a wave of new technologies, we shouldn’t lose sight of the businesses of tomorrow in the political debates of today, says Alison Kay, EY’s Global Vice Chair for Industry
Last June I was bombarded by questions about what Brexit would mean at the World Economic Forum meeting in Tianjin, China, at the Annual Meeting of the New Champions. Now that article 50 has been triggered, questions still abound. What are the implications for the UK? Who will the winners and losers be? What should the government and businesses be focusing on?
Brexit: no one-size-fits-all impact on industries
In my role as Industry Vice Chair, I work across 16 industries. One thing that has become clear is that Brexit will affect different industries differently. These nuances need to be considered for each in upcoming trade negotiations. For example:
- Financial services plays an important role in the UK economy and forms a key part of UK exports; it also serves as an important asset for the whole of Europe. Financial institutions across the European Union (EU) rely heavily on “passporting” for easy access between London, Europe’s main financial hub, and the rest of the single market. What replaces this, and the level of access agreed upon, will be a key part of the negotiations. In addition, the UK has ensured its regulatory environment supports innovation, which has made London a leading global fintech center. The UK will be keen to maintain and build this position as competition from other markets increases.
- Life sciences was one of five UK sectors singled out for special government support. Currently, the European Medicines Agency, which provides a single submission framework for drug launches across the EU, is in London and will need to be relocated. Key questions for negotiations include how the drug approval processes will operate, the impact of new trade agreements on supply chains and the impact on drug pricing (reference pricing, parallel trade, trade tariffs, etc.) in both the short and longer term.
- Consumer products companies are feeling both positive and negative impacts from Brexit, depending on their exposure to weaker sterling, what currency they report in and whether they are importing to or exporting from the UK. To date, consumer confidence has held firm. Companies see the potential for rising trade barriers as a risk to growth.
- Power and utilities in the UK face a near-term capacity challenge with retiring power stations, rising costs to integrate distributed generation and the rollout of 50m smart meters by 2020. Finding the estimated £100 billion needed to fund these projects has become a bit more difficult. A stable regulatory framework and consistent policies will be key to reassuring investors; at this point, no significant deviations from current climate and energy policy are anticipated.
Wave of change is bigger than Brexit
While Brexit is undoubtedly an issue, it forms part of a much bigger wave of change. There is a technology revolution underway, the likes of which we have not seen before. The rise of artificial intelligence, robotics and blockchain – connected by the Internet of Things (IoT) and industrial IoT – are changing the nature of how we work and live, and transforming industries.
For example, developments in life sciences are shifting the emphasis from selling “products” to achieving health outcomes. Cloud computing, machine learning, wearables and ingestible sensors mean that real-world evidence on treatments can be shared between patient, payer and manufacturer. Implementing the outcomes-as-a-service approach across different health systems in different geographies presents its share of challenges, but the fundamental shifts in reimbursement, consumer empowerment, digital enablement and the competitive landscape suggest these will be overcome.
Looking to the energy sector, we believe the acceleration of renewables, connected devices, competition and other disruptive forces have compelled utilities to act and to prioritize digital grid in their capital programs. In a recent survey we conducted, 92% of utilities said they plan to invest in digital grid to improve the grid's reliability, availability and efficiency and to harness the potential of smart technology and decentralized power.
Blockchain, in roughly five years, has gone from a little-known niche technology to venture capital investment of more than US$1.1 billion. Banks, tech companies, start-ups and companies in areas as diverse as energy and agriculture are racing to harness its potential. If its promise is fulfilled, blockchain could transform work and life the way the compass changed seafaring, internal combustion engines changed transportation or penicillin changed medicine.
This technological disruption is creating uncertainty as our political, economic and social structures are put to the test. How do you govern digital, when it has no borders? How do you prevent people from being left behind by globalization, or regions left behind by megacities with gross domestic products (GDPs) on the scale of a country? How do you train the next generation when the jobs they’ll be doing probably don't even exist yet?
What we are seeing now is a common response to uncertainty and perceived growing inequality: fear. People react by withdrawing. Becoming more protectionist. Blaming the establishment. But with elections this year in France and Germany, more turbulence is likely, not less.
What industries need
The most important thing for businesses across all industries now is to understand the shape of Brexit in the context of disruption. Obviously negotiations are being played out in a public arena, and it will take time for the details to emerge. But clarity sooner rather than later would be ideal.
Any future migration policies need to protect both access to and mobility of highly skilled talent. This has been critical to the UK and Europe’s growth and attraction. We cannot lose sight of the fact that we are living in an interconnected, digital world that technology will continue to enmesh further.
Speaking personally, I hope that the UK, Europe and the rest of the world recognize that we need to focus on achieving both cultural and business integration. There are some big questions that societies need to find the answers to, and soon. How can we highlight the positive contributions that immigration makes? How can we create more inclusive growth that shares the rewards of globalization more equally?
Focusing on the businesses of tomorrow
Disruption is blurring traditional industry lines, creating new opportunities and smashing the old way of doing things. But new businesses and ways of working are emerging.
The intersection of digital with Brexit comes at a critical time. In the coming months, the UK needs to negotiate strategies that are appropriate for each industry. At the heart of our thinking on Brexit must be the businesses of tomorrow: advanced manufacturing (for example, 3D printing and new material technology), biotech, technology start-ups and fintech.
I was pleased to see the importance of digital sectors confirmed by the launch of the UK’s Digital Strategy on 1 March. No country can afford to prioritize the businesses of today at the expense of tomorrow.