After emotions die down, business will prevail

The Brexit referendum has become one of the most significant geopolitical moves in recent times, already creating deep-felt reverberations around the globe, the Middle East included.

The out vote is just the beginning of what will be a lengthy process bringing considerable economic uncertainty, at least in the short term, on a global level. Economic forecasting and the magnitude and volatility of the British pound’s fall is likely to dictate even further responses from investors in the GCC fleeing towards safer havens.

From a more general business perspective, the anticipated impact on the economies of the GCC should only be felt short term. The winners globally will be those economies and businesses that demonstrate the necessary dynamism and resilience to weather the storm. A lot will depend on psychology and leadership skills across nations.

Due to the weak Pound in the short term, UK property will become attractive for GCC buyers and, conversely, UAE property may become expensive for UK buyers. However, this is likely to settle down in a few months.

According to recent research conducted by London Business School economists, the leave vote could lead to a drop of up to 4 per cent in the UK’s GDP combined with years of economic uncertainty, with a fall in output and employment and major financial disturbances likely. Uncertainty will remain across Europe and further afield as the UK enters a lengthy period of negotiation with its trade partners.

Brexit will rightly be taken as a signal that the political support for global integration is at best waning and at worst collapsing. Dramatic exchange rate fluctuations could lead to upswings in protectionist measures being taken on the part of governments.

And problems in the European banks could, as the world witnessed in 2009, lead to a drying up of available trade finance.

Already we have seen global trade growth slowing in recent years, exacerbated by the recent slide in oil prices. A clear sense of commitment to avoid backsliding towards protection from the G20 will be essential going forward. Specific efforts with respect to trade finance may be appropriate.

Although the landmark referendum has set in motion an unprecedented and unpredictable process that bodes turbulence and potential crisis globally, some economists argue that bilateral trading landscape between the Gulf and the UK can only improve in the aftermath of Brexit. This could be favourable for the UAE, which is more than hopeful of finally striking a trade agreement with Britain in the absence of a long, elusive EU free trade pact.

The MENA region will without doubt remain important for trade, as it accounted for $18 billion of UK exports in 2014. The UK is likely to seek to enhance its existing trade deals with customers in the region — especially Saudi Arabia — and renegotiate trade deals with MENA countries already covered by EU association agreements.

Some global businesses will be pleased with the result, and others resigned to it. Certainly in Europe, all companies will expect swift, decisive, and coordinated action from governments and central banks to help stabilise markets if trading conditions or the availability of capital change dramatically.

No matter their location in the world, businesses need action to maintain economic stability and answers to their questions about doing business during this historic transition. Experience has taught us that successful, lasting businesses are adaptable and innovative when confronted with new challenges and opportunities.

It is critical that senior management teams around the world show leadership skills that help drive their respective businesses through any period of sociopolitical uncertainty, whilst also demonstrating the confidence to embrace the opportunities that can come with change.

This is the approach many companies across MENA will be doing the same. As a business based in the GCC but with ties internationally with partners and suppliers, we will continue to seek mutually beneficial partnerships in global markets that help us best meet the ever-changing needs of our regional and international customers.

The writer is Group CEO at Al-Yaqout Group.