ROSS BROWN
Much of the debate surrounding the economic ramifications of Brexit has centred around the impact this will have on large companies. The head of Jaguar Land Rover, Ralf Speth, recently remarked how unfettered access to EU markets was “as important to our business, as wheels are to our cars”.
While these concerns reflect deep-seated anxieties at the lack of progress towards an amicable divorce settlement with the EU, big firms often have a “voice” to convey their concerns to government and the capacity to mitigate against uncertainty.
For the UK’s half a million small and medium-sized enterprise (SMEs), comprising 99% of the corporate sector and 60% of the workforce, the chronic uncertainty and policy incoherence arising from Brexit is much more debilitating.
In the first such study of its kind, the Centre for Responsible Banking & Finance at the University of St Andrews investigated the likely impact of Brexit on UK SMEs. Drawing on an official survey of 10,000 UK SMEs by the Department for Business Energy and Industrial Strategy, the research reveals considerable variations in the potential impact of Brexit for SMEs.
The survey found that 16% of UK SMEs viewed Brexit as major obstacle to the success of their business. However, this figure is much more pronounced for medium-sized enterprises (i.e. 29%). The locations of SMEs exhibiting the largest overall levels of concern are Northern Ireland, Scotland and London.
SMEs operating in the business services, high-tech, manufacturing and production industries express the greatest anxieties regarding Brexit. Unsurprisingly, locally oriented SMEs in education, health and social work exhibit are less concerned.
Understandably, the SMEs exhibiting the strongest concerns are externally oriented. In Scotland, a staggering 80% of SMEs who export to the EU view Brexit as a major obstacle to the success of their business. These concerns are similarly evident with importers. Nearly half of Scottish SMEs who import solely from the EU view Brexit as a major obstacle to the success of their business.
We also looked at how Brexit-induced concerns were affecting company activities. Plans to increase exports and move into new markets have been the most negatively impacted. Since the Brexit vote, nearly a third of SMEs (28%) have scaled down plans to export while capital investment plans have been pushed back in 11% of SMEs.
What this demonstrates is that Brexit is having a material and deeply damaging impact on UK SMEs, with those hardest hit being exporters and importers located in peripheral economies such as Scotland.
This begs the question what could Scottish policy makers do to alleviate these problems? Space precludes a proper discussion of the full policy implications, so herein I highlight only trade-related policy matters which need to be addressed.
While recent announcements by the Scottish Government outlining plans for a more ambitious export-driven policy framework are welcome, given the gravity of concerns created by Brexit there is likely to be the need for additional short and longer-term support measures.
SMEs do not have the resources (or time) to obtain expensive assistance from intermediaries like lawyers about new customs arrangements, employment issues or regulatory procedures emerging in the current opaque environment. Therefore, a useful temporary measure would be the development of a temporary national helpline to help assist firms navigate this turbulent period.
Longer-term the Scottish Government may wish to implement a major national enquiry (like the 1990s business birth rate study) to explore the determinants of Scotland’s historic export underperformance compared to the rest of the UK. Indicative of this is the fact just 70 firms account for some 50% of Scotland’s total exports.
Unlike other parts of the UK, Scotland has the emerging institutional infrastructure to implement bold and creative solutions in this policy sphere. Given finance is crucial for exporters, the new Scottish Investment Bank could consider operating an export finance programme for SMEs.
Replacing aggregate volume export targets with a greater focus on widening the numbers of new SMEs exporters would also be a useful policy objective.
Overcoming the monumental challenges arising from Brexit could potentially be the catalyst towards a more ambitious and innovative approach to help facilitate the internationalisation of the Scottish economy.
Dr Ross Brown is a Reader in Entrepreneurship and Small Business Finance at the Centre for Responsible Banking & Finance, University of St Andrews.
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