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What’s Nexit for Brexit?

What’s Nexit for Brexit? article image

Economist Tim Harcourt interviewed Australian exporters and diplomats to obtain their views on trade and the economy following Brexit …

Once upon a time, European officials used to complain that Australian exporters had “Europhobia” or “Channel Fever”.

They would base themselves in the UK – usually in London – before dipping their toe in the water of the English Channel and venturing over to “the continent” – as the Brits used to call mainland Europe, which was adopted by many Australians too.

Another term for this was “The Kylie Effect” whereby like Australia’s famous pop princess – once voted “Australia’s most beautiful export”, Australian exporters – particularly small and medium-sized enterprises (SMEs) would crack it in the UK first by flocking to London and expanding across the English Channel to the European continent – and sometimes even the Atlantic.

Kylie was travelling a path well-worn by many other Australian music acts before her such as The Bee Gees, The Easybeats, ACDC, INXS as well as actors, artists and intellectuals – Germaine Greer, Barry Humphries, Clive James, Russell Drysdale, Leo McKern, Dame Joan Sutherland. Australian businesses had the same approach.

The UK: A Top 20 exporter destination

It seems the Kylie effect is still alive and well even though 1980s mullets are not. The most recent Australian Bureau of Statistics (ABS) data reflect this phenomenon.

According to the ABS nearly 6,000 Australian exporters sell goods to the UK (5,975 companies in 2016-17), which is nearly twice the number who sell to Germany (3040 exporters), the Netherlands (1764 exporters), France (1581 exporters) and Italy (552 exporters). The UK has always been in the Top 20 exporter destinations that is dominated by Asia.

This is not surprising, given the strong historical ties between Australia and the UK in terms of language, legal ties and institutions and the fact that the UK was our number one trading partner until it was taken over by Japan in 1966. Ironically, in the same year the celebrated historian Geoffrey Blainey published The Tyranny of Distance.

And what happens when you impose Brexit on this scenario?

During the referendum on Brexit, the ‘Remain’ campaign released “Project fear" with institutions like the Bank of England warning that with a ‘hard’ Brexit (the UK leaving the EU without a divorce deal) that the economy could shrink 8 per cent, while unemployment and inflation could soar. However, the Brexiters argued that without the shackles of Brussels – the UK could once again be a great trading power striking deals in Asia, the Americas, the Middle East, Africa and indeed with Australia on their own merits.

But what do Australian exporters think? 

When I interviewed several Australian exporters at the height of the Brexit drama, they still saw the UK as a substantial market and would continue to stay on no matter what happens with the EU.

For instance, CEO John Fargher of Steriline Racing  –  a South Australian manufacturing of starting gates and “any piece of metal on a racecourse” based in Mount Barker in the Adelaide Hills; spent eight years trying to break into the British market and has successfully done business there for two decades.

“We have 100 per cent of the starting gate market in the UK and find it a very straightforward place to do business, with the same rules of law and business principles as we adhere to in Australia. The UK is the motherland of the racing industry so success in Britain has enhanced our reputation in Asia, the Middle East and at racecourses in emerging markets around the world. I can’t see any of this changing if the UK’s relationship with Brussels changes.”

Adelaide Fashion designer Paul Vasileff from Paolo Sebastian agrees. Starting his own fashion label from his parents' lounge room in Adelaide, Paul is now the star of fashion shows all over the world with an international client base including the likes of Disney.  He sees the UK as an important market for future expansion for his business.

“The UK is so important to us. When I was a design student in Milan, I was lucky enough to win a competition to go to London for London Fashion week and Paolo Sebastian has been a part of it ever since. London is unique because it has that connection with Australia, but it is an international fashion hub because of their tradition of hand craftsmanship. The UK is so important to the future of our business.” 

Even Claymore Wines from the Clare Valley in South Australia secured their future by teaming up with the legendary British football club, Liverpool – six times Champions of Europe, and with a side that dominated British football throughout the 1970s and 1980s – a disclaimer, the airport economist is a lifelong Liverpool supporter.

Carissa Major, Claymores Marketing Director explained to me at Anfield, Liverpool’s famous home ground, that “the UK has been an incredible springboard to continental Europe. Whilst we do have ‘lost in translation’ moments, I have an agent who understands the Aussie vernacular, so we have less of those lost in translation moments.”

Carissa travelled with Liverpool great Robbie Fowler, who is a Claymore Wines ambassador to their vineyards in the Clare Valley to give him the same ‘pride of place’ that she feels for her region and her wine that he feels for his club and his city. “You’ve got to take your passion with you wherever you go so people know you are authentic, and your passion comes from the heart,” she explains.

Concern about Brexit

However, there was concern about Brexit in Cambridge, the ancient University town and home of several science research ‘clusters’. Tony Jones, of One Nucleus, sees Cambridge as “an exemplary of how a cluster works by bringing scientists, entrepreneurs and customers together in a place where people want to be.”

He sees the Cambridge Bioscience cluster, of which One Nucleus belongs, of being “in the Premier League … and a brand that brings in investors from Japan, the European Union and Australia, particularly from South Australia, as it can attract players across borders like a Premier League club.”

Naturally, a cluster relies on cross-border collaboration amongst researchers so Brexit needs to enable this collaboration to continue so the cluster “can remain in the Premier League” he said.

But there is optimism too. Former Australian Foreign Minister and Australian High Commissioner to the UK, Alexander Downer told me in London that: “Brexit will free Britain up and allow it to do bilateral trade deals with partners around the world instead of having to negotiate as with 28 other countries via the EU.

“The UK is the second largest market for Australian investment, as Australian investors appreciate the same laws, same regulations, and similar but not the same culture they do business under in Australia. 80 per cent of the British economy is in services and that’s where it’s future lies.

And likewise, Australia to UK investors is seen as an open economy, relatively free and with sound growth prospects and good connections to third markets like China.”

Attraction to UK investors

Bill Muirhead, South Australia’s Agent General in London, similarly sees most South Australian companies using London as a base, with South Australia’s innovation and attraction to UK investors.

“We’ve brought innovations to the UK such as Votes for Women, environmental regulation and innovation in renewable energy. That’s why companies like Sundrop Farms have invested in South Australia’s renewable energy sector,” he said.

David McCredie of the Australian British Chamber of Commerce (ABCC) has see no drop on interest between Australia and the UK due to Brexit. 

“The UK is still the 5th largest economy in the world, London is a global financial capital and where international business still goes. The UK is the second largest source of investment in Australia after the US, so the UK-Australia relationship is still very important to how we do business with the world. When the UK returns to its broader remit of doing trade everywhere with the world, ‘returning to the old pink bits on the map’ you could say and not having its trade policy determined with 27 other countries in Brussels – then it will be important that Australia gets amongst it.”

Exporters seeking out the UK as a market

It’s not just existing exporters that are seeking out the UK as a market (as well as the EU). Many exporters looking to new markets think the same way. According to DHL Exporter, 17 per cent of Australian exporters want to expand to the EU, with the UK also in the running at 11 per cent just behind South East Asia on 15 per cent even with Indonesia and Japan also on 11 per cent.

In fact, Australian exporters would also like a trade agreement with the UK as it would with the EU. Especially as Australia may have been “let off the hook” in Asia as UK focused on Brussels – but that’s about to change. From my interviews with Australian exporters during the filming of The Airport Economist UK special episode, it was clear there that even beyond Brexit, Australian companies are happy to remain in the UK as an economy in its own right, regardless of what happened across the English Channel.

Tips following Brexit 

Despite all the noise about Brexit the UK is a significant economy and there are still many Australian companies – both large and small – having continued success here in the Old Dart.

This is a significant economy so get beyond the Brexit headlines and look at the opportunities by industry and region in detail. The UK is not just England as we know from the referenda. Scotland, Wales, Northern Ireland and even the North of England all have their own investment incentives.

  • You may be a long way from home over here, but you’re not alone. You can get help at Australia House and advice from Invest UK and their Australian counterparts. Other states can assist too such as South Australia office.
  • Networking in the UK, especially London, can help you in business. So, try attending social functions at Australia House or join organisations like the Australian British Chamber of Commerce.
  • If cricket talk comes up, do mention The Ashes, but only when Australia wins a Test.

Tim Harcourt is the J.W.Nevile Fellow in Economics at UNSW Sydney and host of The Airport Economist TV show and The Airport Economist Podcast.

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