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By
Sajawal Babar
What is EU & its purpose?
Brexit is the prospective withdrawal of the United Kingdom from the European Union.
A referendum was held on Thursday 23 June, to decide whether the UK should leave or
remain in the European Union. Leave vote: 52% The referendum turnout was 71.8%,
with more than 30 million people voting. It was the highest turnout in a UK-wide vote
since the 1992 general election.
Major Aspects of BREXIT
Sovereignty:
Britain ruled many countries overall the Globe by making those countries as British colonies in
19 & 20 centuries. Even though there are no colonies and colonialism of Britain at present it
thought that the prestige of being sovereign power will be lost if it is under the leadership of all
EU member nations.
Syria and Iran Economic Crisis:
One of the reasons for BREXIT is that the Britain does not handle well the economic crisis of
Syria and Iran.
Indian FDI:
India is the third biggest source of Foreign Direct Investments for Great Britain. But after
Brexit, UK will not be a attractive destination for Indian FDI as before.
Indian Companies with UK Holdings:
BREXIT will have a significant impact on UK holdings. The European operations of the
non- EU companies after BREXIT will depend upon the outcome of UK-EU negotiations.
Before BREXIT, TATA group has offered its assets for sale in Britain and also the share value of
TATA group reduced. There are over 800 Indian companies in EU & 1,10,000 people were
employing in EU.
The talk of the referendum has already created a fair amount of uncertainty amongst the
business community. BREXIT not only created uncertainty but it could also adversely impact
investments & immigration.
For example,
TATA motors have its largest subsidiary in UK i.e., JAGUAR and LANDROVER. JLR contributes
to 90% of TATA motors operating profit. As for JLR more than 1/4th of its sales come from
Europe. Thus because of BREXIT it has to redefine its strategy, they might consider
relocating to other EU countries to keep enjoying tariff benefits because their profits were
hugely impacted due to BREXIT. It is not only the case of TATA motors but also of many
such other companies, because India is the third largest source of FDI.
Companies like TATA Steel (52%), COX & KINGS (47.3%), MARKSANS PHARMA (41.7%),
BHARAT FORGE (41%), earn nearly 50% of revenue from EUROPE & companies like
WOCKHARDT (30.4%), APOLLO TYRES (28.5%), TCS (28%), HCL TECH ( 27.4%), TATA
MOTORS (25.4%) & MINDTREE (25.2%) has Europe’s contribution from 20%- 30%.
As said by Prime Minister Modi,
After BREXIT there will be reduction in migrations. Thus students from India who
migrate to UK for studies will be lowered. It will be also assessed that there will be
long run impact on employment generation
Conclusion
India has lost its gateway to European union with the Britain exiting the EU. India
is now forced to go into alliances with other countries of the EU. This could be
good for India in the long run.
It is understood that India is already trying to build trade negotiations with
Netherlands, France, Germany, and others, though in a small way. Netherlands is
India’s top FDI destination as of now. As far as trade relations are concerned
BREXIT could force India to build trading partnership with other EU nations in
order to access the rest of EU market.
Brexit Impact on Pakistan
The British exit from European Union has profound implications for Pakistan due to the importance of
Great Britain for Pakistan’s economy, trade and commerce as well as for Pakistani expatriates, diaspora
in UK. Britain is the 3rd largest home to Pakistani diaspora in the world after Saudi Arabia & UAE.
Around 1.7 million people of Pakistani descent live in United Kingdom which is more than the
combined population of Pakistani diaspora in rest of the Europe. Pakistani community in UK is relatively
affluent and entrepreneurial having strong economic linkages with Pakistan; they send around $2.7
billion annually in remittances to Pakistan & are important source of FDI inflows into Pakistan.
In European Union, UK is Pakistan’s largest trading partner. Nearly a quarter of Pakistan's exports
to EU (textiles, garments, leather goods, sports goods and food items) land in UK; besides
consumption in UK, a significant portion is further supplied to Continental Europe.
Pakistani exports to the EU are dominated by textiles, clothing, and leather products. Textiles and
clothing account for almost 75% of experts to the EU, and leather accounts for an additional
10%. Therefore, the health of the European economy as well as the monetary value of the euro
and pound sterling are of crucial importance to Pakistani exporters. A depreciated euro and
sterling makes Pakistani exports less attractive, leading to a decline in demand. Moreover, the
decline in consumer confidence in the UK will likely lead to a decline in Pakistan’s exports in the
near future.
Gold price increases 3%, will continue to rise
The price of the precious metal increased 3% overnight in the local market, as Britain decided
to leave the European Union. With the sterling undergoing the biggest one-day drop of over
10% against the dollar, international investors turned to safe-haven assets, thus increasing the
gold price 5.3% to over $1,326 per ounce in one day. As a result, the local price of gold surged
Rs1,500 to Rs50,200 per tola (11.6 grams) in just 24 hours, according to All Sindh Saraf and
Jewelers Association (ASSJA). ASSJA President Haroon Rashid Chand said gold prices are
expected to keep rising in the next few weeks. “The sterling is losing value … people want to
avoid volatility in the currency market. Gold prices will gain strength in the near future,”.
Textile
Publicly traded textile companies will also take a hit as a result of Brexit. Textiles constitute
more than half of Pakistan’s exports, with the EU being one of the major destinations of
Pakistani products. Investors expect export-oriented listed companies in the textile sector to
take a hit going forward, as a cheaper sterling will make Pakistani exports less competitive in
the UK. The textile sector will be affected as a weaker pound sterling and the euro (down 2.3%
in a single day) will render Pakistan’s exports more expensive. Out of total Pakistan’s textile
exports of $11.6 billion during the first 11 months (Jul-May) of current fiscal year 2015-16,
textile exports’ share to the UK was $1.2 billion (10%).
Stocks Fall as textile, auto, oil take beating
The decision of the United Kingdom (UK), which constitutes about one sixth (1/6th) of the
economic output of the EU, to quit the economic bloc will have a direct impact on at least
two sectors of the Pakistan economy: automobile and textiles. The investors would surely
take long time for their future investments in stock exchanges that have already lost $ 2.8
trillion in the first jolt all over the world.