Issue link: https://maltatoday.uberflip.com/i/1175418
10.10.19 7 NEWS THE United Kingdom's exit from the European Union will bring about a number of challenges and opportunities for our country. For Malta especially, this will be a tough milestone to cross, since our con- nection with the UK goes way beyond a simple healthy economic relationship. We are on the eve of a historic event, unless we see a repeat of last March when the exit was postponed, the UK will be leaving the European Union in three weeks' time. At this juncture, it is important for the British Parliament to decide whether it wants to continue down the path of a hard Brexit without a deal or a soft transitional one. As things stand, one could say that there is very little to discuss given the fluid situation we are facing on a daily basis. As the days go by, however, a 'no- deal BREXIT' seems to have become the only true option at this stage. e Malta Chamber has stated from the onset of negotiations that this would have been the worst-case scenario, but here we are. e new proposals tabled on the 2nd of October to the European Commission by the British Government. Without entering into the technicalities of how the new deal differs from the backstop proposed last year, the new proposals show a willingness from the British side to make concessions. Now we'll have to wait and see the EU's response to the latest proposal and how the British Parliament will vote. I can only hope that we do not end up with the alternative to a deal which in Prime Minister's Johnson's words "is a hard Brexit on the 31st of October". I refer to the words of the British Chambers of Commerce Director Gen- eral Adam Marshall who said that "busi- nesses across the UK want the Prime Minister to get a BREXIT deal, not just get BREXIT done". A hard BREX- IT would not solve anything but rath- er create the unwanted prospect of a messy and disorderly exit. Our two countries have ties which go back hundreds of years. e British left their mark on the Island, from our par- liamentary system to our financial and company law, educational system and our bi-lingualism. The macro - economic impact of a hard vs soft BREXIT According to an economic study car- ried out by KU Leuven University on BREXIT's impact on all Member States, it is estimated that "the losses that the EU-28 face under a soft brexit are signif- icantly smaller than under a hard brexit. A soft brexit for the EU-27 implies a loss of 0,38% of its GDP and around 280 000 jobs lost, while for the UK 1.2% of GDP and around 140 000 jobs would be lost. A hard brexit for the EU-27 implies a loss of 1,54% of its GDP and 1 200 000 jobs lost, while for the UK 4,4% of its GDP and around 525 000 jobs would be lost". is clearly shows that Malta and the Republic of Ireland will be the hardest hit in terms of loss of employment and value added when compared to their economy size and exposure to the Brit- ish economy. Short- to medium-term impact of no-deal (hard Brexit) scenario A no-deal Brexit would be a blow to the Maltese economy, but the extent of its impact is difficult to determine at this stage. Companies in the tourism sector, fi- nancial services, IT and gaming, and businesses that trade with the UK might feel the greatest impact when Britain leaves the bloc. However, a no-deal Brexit will also have an impact on the local workforce if British expats would need to relocate. Maltese businesses cannot plan effec- tively until a deal is struck. is means that industry is being forced to ensure stocks do not run low and seek alter- native routes of supply, among other things. is uncertainty brings fear amongst investors and consumers which could have an indirect ripple effect on the Maltese economy in terms of goods and services sold to the rest of the single market. In the short to medium we are expect- ing the British economy to contract and the pound to weaken further. is will have an impact on British citizens' purchasing power, and therefore also on tourist numbers and expenditure in Malta. e degree to which a no-deal Brexit will affect the buoyancy of local markets depends on the consequences it would have on the EU economy as a whole. For example, if the German car industry is hit by a slowdown in sales to the British market this would be have repercus- sions on Maltese manufacturing com- ponents plants which supply German producers. Trade (Total Imports and Exports) in the last years amounted to 500 to 600 million euros, which is approximately 16% of total trade. We saw a recent in- crease in trade between the two coun- tries. A number of British registered avia- tion and maritime companies are relo- cating their assets such as sea vessels and aircraft to Malta. We are also in- formed that many 2nd hand car dealers whose main source market was the UK were bringing a higher number of vehi- cles. Companies importing from and ex- porting to the UK would face tariffs overnight and must deal with customs procedures. Administratively a no deal BREXIT is seen as a nightmare. In fact, the overall administrative bur- den for Customs and businesses trading with the UK are expected to increase considerably. ese are just but some examples we are foreseeing, I'm sure Dr Xuereb from the MFSA will be entering into great detail on the effects it will have on the Financial services segment especial- ly in terms of passporting of products and services from Malta to the UK and vice-versa and also in terms of co-loca- tion opportunities for British firms. Opportunities post-BREXIT Since the Maltese economy is cur- rently in a healthy position, it should be able to absorb any negative shocks from Brexit. e Chamber notes the produc- tive work done by the Malta-UK trade promotion task force over the past two years, which has attracted new Brex- it-induced business to our shores. Many companies in the shipping, education, aviation and tech industries are expect- ed to relocate to Malta. Malta's proposals to UK-based finan- cial service operators to help them sus- tain their business in Europe through a co-location arrangement, is also anoth- er step in the right direction to attract certain players to the local market. Long-term economic relationship with the UK Again, it is a very difficult prediction to make. It will depend on the relation- ship the UK will wish to maintain with the European Union after BREXIT. No matter which way we go, there will be a transitional period but I'm confi- dent that the strong ties between Malta and the UK will not be negatively im- pacted in the longer-term. To the contrary, I believe that the UK's exit from the EU could give both coun- tries the scope to strengthen existing ties also by way of Malta being a mem- ber of the Commonwealth alongside the UK. SPEECH BY DAVID XUEREB - PRESIDENT, CHAMBER OF COMMERCE