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How Might a Brexit Influence Investment Decisions?

 

With mere hours to go ahead of Britain’s European Union referendum, Britons are considering their options and conducting heated debates on social media on why they are voting to either leave or remain in the European Union. Similarly, discussions and disagreements are also going on – and have been for months now – amongst business leaders, company boards, academics, politicians and entrepreneurs about what they may or may not do when the vote has been decided.

What many of these discussions and debates likely have in common is that they focus on what’s best for the UK and how the country might change on either result. The answers to that question – and we do mean answers multiple, as there is no single answer here – are not clear cut.

Facts and Assumptions

There are lots of figures flying around from both the leave and remain political camps, some are true, some are fabricated or only partly true. What is fact, is that the UK pays into the EU for a number of reasons and services. What is also true is that the UK receives funding from the EU into specific sectors, areas and regions for a number of different reasons.

Now we get to the slightly shadier part. It’s possible to calculate – if you have all the numbers in front of you – exactly how much the EU costs us to be in, and it’s less than a lot of the figures that have been published. However, it’s not possible to accurately quantify the total financial benefit of being part of the EU. Why? Well, that’s because being part of the EU means the UK has access to business agreements, employment protection laws, a much larger trading platform and can draw on expertise from the 27 countries that form the EU.

All of these things are attractive to a greater or lesser extent to a variety of international companies and investors. They are important and generally help make the UK a better investment opportunity for many firms, investors and entrepreneurs who can get a bigger ‘bang for their buck’ when they invest in the UK.

Just How Important Are Opinions?

Another thing that, at this moment, is very unclear, is how that opinion of the UK will change for these business and money men if the UK collectively votes toleave the EU – because it will change. It might take time, but the UK will eventually have some different rules than they do now. Some business tariffs might change and some agreements will also have to be altered.

Brexit via Crowdinvest

Will the EU stop trading with the UK and the UK with the EU? Of course not. The physical fact of being neighbours makes that a bad decision. But, the way in which we trade will likely change, even if it’s by a small amount. But, for business and investors for whom the final return is the most important, even small changes can affect their plans and views which could be the difference in them investing a lot in the UK, a little or not at all.

For Financial Technology (FinTech), a Brexit has the potential to stifle a fast growing sector that has global relevance, reach and impact. Not necessarily by stopping or limiting investment in FinTech, but by weighing up the options and encouraging UK FinTech businesses and start-ups to migrate. The reasons might not always be obvious, but remember, to those business leaders and investors, final returns matter and if they can see a greater benefit from promoting and supporting the sector elsewhere, then they probably will.

There are Many Possibilities

Of course, there is a possibility that the UK becomes a more attractive investment proposition for some – wages might go down as there are fewer workers applying for roles as the UK’s talent pool shrinks. Or, in a few years when the UK untangles itself a little from EU regulations, there may actually be less “red tape” for some businesses to navigate and the costs associated with that may well be lower.

Another possibility is that the UK’s economy, which punches well above its weight at the moment, gets smaller and smaller as investment and business decisions are constantly delayed in the hope that new rules that differ from EU imposed regulations are put in place. If that happens then jobs and earnings growth will likely fall, which will mean less money flowing through the economy.

Brexit Will Inevitably Bring Change

As you can see, how investors will respond to the EU result on Thursday and what will happen to the level of inward investment into the UK is a big unknown. Brexit, Symbol Of The Referendum In The UkHowever, there’s a large chance that a Brexit could slow the economy and delay investment until certain details are cleared up – which could take years.
Without investment – from the UK and overseas – many of the fledgling firms that are coming up through new sectors such as FinTech might struggle to get through those crucial first 12 months. Or, they may find support overseas and leave the UK’s currently booming financial services sector for good, which would be a crippling blow to the UK’s economy.

With so much at stake, it’s easy to see why the referendum has produced so much debate among people from every walk of life. All we can do now, is wait and see what the result is and how long it takes for things to change.