Brexit: Which countries will be affected the most?

Brexit- Countries affected-Dos Aguas Blog

A few weeks ago the team of Dos Aguas Consulting wrote a blog about the current situation of Brexit. In that article it was analyzed the possible scenarios after Brexit, as well as the resulting consequences. In this new post, it will be discussed the countries that are going to be affected the most by this new situation.

The countries that will be affected the most by potential imposition of tariffs, rates and/or other trade barriers in the United Kingdom are those that export on a large scale to the country. Thus, according to exports data from the period between 2013-2017, these will be EU countries that have been benefited by the existence of a Common Market and the absence of trade barriers. In the next table it can be seen that the countries that will suffer a greater impact are the following:

Top 10 countries with the largest shares of imports to the UK (in thousands of euros)

Exporters UK-Europe- Dos Aguas

According to the Brexit Sensitivity Index (BSI) elaborated in 2016 by the rating agency Standard & Poor’s (S&P), the most affected country will be Ireland, followed by Malta, Luxembourg, and Cyprus. The aforementioned agency has established a ranking of the 20 countries that are most affected by migratory flows, exports to the UK foreign direct investment in the UK, and the demands of the financial sector on the institutions of the UK. In the following graph, Spain is placed in eighth position in a ranking that shows the impact on the financial sector. In this same graph it can be seen that the damage on exports is not as big.

Brexit-IndexAccording to the BSI, the Spanish exposure to the exit of the United Kingdom from the EU is notable. This index stresses the idea that the financial sector and the investments of Spanish companies in the UK will be weaker in this new scenario. It is also noticeable that, according to the BSI, the exposure of the Spanish economy is higher than that of countries such as France, Germany, and Italy due to the great interest that some of the main Spanish corporations have in UK.

The Spanish case

The exposure is particularly relevant in the British financial sector through the Santander and Sabadell banks (owners of TSB), as well as to the telecommunications companies. In this way, according to data from International Financial Analysts (Analistas Financieros Internacionales in Spanish), Santander UK would be depositary of 10% to 20 % of current British accounts, a percentage that in the case of TSB is estimated at around 5%. In 2015, Grupo Santander obtained 30% and Sabadell 17.2% of their net profit in the UK.[1]

Another sector highly affected will be telecommunications. According to IMF estimations and some economists, the possible deterioration of the economy in the United Kingdom could lead to a loss of value of the British subsidiary of Telefonica, O2.[2]

It is paradoxical that, despite Spain’s large market share in UK services, especially in tourism, exports of Spanish goods and services to the country is only 2.7% of its GDP, which represents 0.1% below Germany, and slightly above the average.[3]

Conclusion

In short, there is still no damage in the Spanish exports to the United Kingdom. However, it is true that Brexit is still not fully resolved and few dare to venture its long-term consequences.

The strategy of Dos Aguas Consulting is to provide information, security, and confidence in each step for business in both countries to tackle this new situation. Do not hesitate to contact us, we will be happy to answer your questions!

Sources:

[1] Luis Meyer (April 26th, 2017) Las empresas españolas que hubieran votado “NO” al “Brexit”, Ethic website (Link) Last accessed: 15.11.2018

[2] Luis Meyer (April 26th, 2017) Las empresas españolas que hubieran votado “NO” al “Brexit”, Ethic website (Link) Last accessed: 15.11.2018

[3] Funds Society (2016) S&P lanza un índice de sensibilidad al Brexit y sitúa a España como el octavo país más afectado, Funds Society (Link) Last accessed: 15.11.2018

Other consulted sources:

S&P Global (2016) Who Has The Most To Lose From Brexit? Introducing The Brexit Sensitivity Index, S&P Global Ratings (Link) Last accessed: 15.11.2018

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